United States Microsoft antitrust case

"United States v. Microsoft" There were many civil actions taking place in May 18, 1998. Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this unfairly restricted the market for competing web browsers (such as Netscape Navigator or Opera) that were slow to download over a modem or had to be purchased at a store. Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interfaces (APIs) to favor Internet Explorer over third party web browsers, Microsoft's conduct in forming restrictive licensing agreements with OEM computer manufacturers, and Microsoft's intent in its course of conduct.

Those who opposed Microsoft's position countered that the browser was still a distinct and separate product which did not need to be tied to the operating system, since a separate version of Internet Explorer was available for Mac OS. They also asserted that IE was not really free because its development and marketing costs may have kept the price of Windows higher than it might otherwise have been. The case was tried before U.S. District Court Judge Thomas Penfield Jackson. The DOJ was initially represented by David Boies.

History

Government interest in Microsoft's affairs had begun in 1991 with an inquiry by the Federal Trade Commission over whether Microsoft was abusing its monopoly on the PC operating system market. The commissioners deadlocked with a 2-2 vote in 1993 and closed the investigation, but the Department of Justice opened its own investigation on August 21 of that year, resulting in a settlement on July 15, 1994 in which Microsoft consented not to tie other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In the years that followed, Microsoft insisted that Internet Explorer (which first appeared in the Plus! Pack sold separately from Windows 95) was not a "product" but a "feature" which it was allowed to add to Windows, although the DOJ did not agree with this definition.

In its 2008 Annual Report Microsoft stated: [http://news.cnet.com/8301-13505_3-10005379-16.html]

Trial

The trial started on May 18, 1998 with the U.S. Justice Department and the Attorneys General of twenty U.S. states suing Microsoft for illegally thwarting competition in order to protect and extend its software monopoly. Later, in October the US Justice Department also sued Microsoft for violating a 1994 consent decree by forcing computer makers to include its Internet browser as a part of the installation of Windows software. During the antitrust case it was revealed that Microsoft had threatened PC manufacturers with revoking their license to distribute Windows if they removed the Internet Explorer icon from the initial desktop, Fact|date=July 2007 something that Netscape had requested of its licensees. Fact|date=July 2007

Microsoft Chairman Bill Gates was called "evasive and nonresponsive" by a source present at a session in which Gates was questioned on his deposition. [ [http://news.com.com/2100-1023-214993.html Gates deposition called evasive - CNET News.com ] ] He argued over the definitions of words such as "compete", "concerned", "ask", and "we". [ [http://www.cnn.com/TECH/computing/9811/17/judgelaugh.ms.idg/index.html CNN - Gates deposition makes judge laugh in court - November 17, 1998 ] ] BusinessWeek reported, "Early rounds of his deposition show him offering obfuscatory answers and saying 'I don't recall' so many times that even the presiding judge had to chuckle. Worse, many of the technology chief's denials and pleas of ignorance have been directly refuted by prosecutors with snippets of E-mail Gates both sent and received." [ [http://www.businessweek.com/1998/48/b3606125.htm 11/30/98 MICROSOFT'S TEFLON BILL ] ] Intel Vice-President Steven McGeady, called as a witness, quoted Paul Maritz, a senior Microsoft vice president as having stated an intention to "extinguish" and "smother" rival Netscape Communications Corporation and to "cut off Netscape's air supply" by giving away a clone of Netscape's flagship product for free. The Microsoft executive denied the allegations. [ [http://www.washingtonpost.com/wp-srv/business/longterm/microsoft/stories/1998/microsoft111398.htm Washingtonpost.com: WashTech - U.S. v. Microsoft Special Report ] ]

A number of videotapes were submitted as evidence by Microsoft during the trial, including one that demonstrated that removing Internet Explorer from Microsoft Windows caused slowdowns and malfunctions in Windows. In the videotaped demonstration of what Microsoft vice president James Allchin's stated to be a seamless segment filmed on one PC, the plaintiff noticed that some icons mysteriously disappear and reappear on the PC's desktop, suggesting that the effects might have been falsified. [http://www.chguy.net/news/feb99/demoMS.html] Allchin admitted that the blame for the tape problems lay with some of his staff "They ended up filming it -- grabbing the wrong screen shot," he said of the incident. Later, Allchin re-ran the demonstration and provided a new videotape, but in so doing Microsoft dropped the claim that Windows is slowed down when Internet Explorer is removed. Mark Murray, a Microsoft spokesperson, berated the government attorneys for "nitpicking on issues like video production." [ [http://www.wired.com/news/politics/0,1283,17689,00.html Feds Accuse MS of Falsification ] ] Microsoft submitted a second inaccurate videotape into evidence later the same month as the first. The issue in question was how easy or hard it was for America Online users to download and install Netscape Navigator onto a Windows PC. Microsoft's videotape showed the process as being quick and easy, resulting in the Netscape icon appearing on the user's desktop. The government produced its own videotape of the same process, revealing that Microsoft's videotape had edited out a long and complex part of the procedure and that the Netscape icon was not placed on the desktop, requiring a user to search for it. Brad Chase, a Microsoft vice president, verified the government's tape and conceded that Microsoft's own tape was inaccurate. [ [http://www.wired.com/news/politics/0,1283,17938,00.html Compaq: It Was All a Big Mix-Up ] ]

When the judge ordered Microsoft to offer a version of Windows which did not include Internet Explorer, Microsoft responded that the company would offer manufacturers a choice: one version of Windows that was obsolete, or another that did not work properly. The judge asked, "It seemed absolutely clear to you that I entered an order that required that you distribute a product that would not work?" David D. Cole, a Microsoft vice president, replied, "In plain English, yes. We followed that order. It wasn't my place to consider the consequences of that." [ [http://www.richardnoble.com/microsoft-trial.htm Microsoft Antitrust Trial C ] ] Princeton University professor Edward Felten presented a modified version of Windows from which he claimed the Internet Explorer function had been removed. On cross-examination, he was guided through a sequence of steps that produced a fully functional Internet Explorer window.

Microsoft vigorously defended itself in the public arena, claiming that its attempts to innovate were under attack by rival companies jealous at its success, and that government litigation was merely their pawn. A full-page ad run in The Washington Post and The New York Times on June 2 1999 by The Independent Institute (which received donations from Microsoft as well as other companies [ [http://independent.org/newsroom/article.asp?id=1069 Winners, Losers & Microsoft Strikes a Sensitive Nerve: Newsroom: The Independent Institute ] ] ) delivered "An Open Letter to President Clinton From 240 Economists On Antitrust Protectionism." It said, in part, "Consumers did not ask for these antitrust actions - rival business firms did. Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new products and innovations. ... Increasingly, however, some firms have sought to handicap their rivals by turning to government for protection of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad." [ [http://www.independent.org/issues/article.asp?id=483 Open Letter on Antitrust Protectionism: The Independent Institute ] ]

Judge Jackson issued his findings of fact [http://www.usdoj.gov/atr/cases/f3800/msjudgex.htm U.S. v. Microsoft: Court's Findings of Fact ] ] on November 5 1999, which stated that Microsoft's dominance of the personal computer operating systems market constituted a monopoly, and that Microsoft had taken actions to crush threats to the monopoly, including Apple, Java, Netscape, Lotus Notes, Real Networks, Linux, and others. Then on April 3, 2000, he issued a two-part ruling: his "conclusions of law" were that Microsoft had committed monopolization, attempted monopolization, and tying in violation of Sections 1 and 2 of the Sherman Act, and his "remedy" was that Microsoft must be broken into two separate units, one to produce the operating system, and one to produce other software components.

The trial was also notable for the use by both the prosecution and the defense of professors of MIT to serve as expert witnesses to bolster their cases. Richard L. Schmalensee, a noted economist and the dean of the MIT Sloan School of Management, testified as an expert witness in favor of Microsoft. Frank Fisher, another MIT economist who was Schmalensee's former doctoral thesis adviser, testified in favor of the Department of Justice.

Appeal

On September 26 2000, after Judge Jackson issued his findings of fact, the plaintiffs (to save time) attempted to send Microsoft's appeal directly to the U.S. Supreme Court. However, the Supreme Court declined to hear the appeal and sent the case to a federal appeals court.

The D.C. Circuit Court of Appeals overturned Judge Jackson's rulings against Microsoft. This was in part because the Appellate court had adopted a "drastically altered scope of liability" under which the Remedies could be taken, but also due to the embargoed interviews Judge Jackson had given to the news media while he was still hearing the case, in violation of the Code of Conduct for US Judges. [ [http://www.uscourts.gov/guide/vol2/ch1.html#3 Judiciary Policies And Procedures: Codes Of Conduct ] ] Judge Jackson did not attend the D.C. Circuit Court of Appeals hearing, in which the appeals court judges accused him of unethical conduct and determined he should have recused himself from the case. [ [http://www.wired.com/politics/law/news/2001/02/42071 Microsoft Judge Ripped in Court ] ]

Judge Jackson's response to this was that Microsoft's conduct itself was the cause of any "perceived bias"; Microsoft executives had "proved, time and time again, to be inaccurate, misleading, evasive, and transparently false. ... Microsoft is a company with an institutional disdain for both the truth and for rules of law that lesser entities must respect. It is also a company whose senior management is not averse to offering specious testimony to support spurious defenses to claims of its wrongdoing." [ [http://www.windowsitpro.com/Article/ArticleID/20269/20269.html Judge Jackson Exits Microsoft Discrimination Case ] ]

However, the appeals court did not overturn the findings of fact. The D.C. Circuit remanded the case for consideration of a proper remedy under a more limited scope of liability. Judge Colleen Kollar-Kotelly was chosen to hear the case.

The DOJ announced on September 6, 2001 that it was no longer seeking to break up Microsoft and would instead seek a lesser antitrust penalty.

ettlement

On November 2, 2001, the DOJ reached an agreement with Microsoft to settle the case. The proposed settlement required Microsoft to share its application programming interfaces with third-party companies and appoint a panel of three people who will have full access to Microsoft's systems, records, and source code for five years in order to ensure compliance. However, the DOJ did not require Microsoft to change any of its code nor prevent Microsoft from tying other software with Windows in the future. On August 5, 2002, Microsoft announced that it would make some concessions towards the proposed final settlement ahead of the judge's verdict. On November 1, 2002, Judge Kollar-Kotelly released a judgment accepting most of the proposed DOJ settlement. Nine states (California, Connecticut, Iowa, Florida, Kansas, Minnesota, Utah, Virginia and Massachusetts) and the District of Columbia (which had been pursuing the case together with the DOJ) did not agree with the settlement, arguing that it did not go far enough to curb Microsoft's anti-competitive business practices. On June 30 2004, the U.S. appeals court unanimously approved the settlement with the Justice Department, rejecting objections from Massachusetts that the sanctions were inadequate.

The dissenting states regarded the settlement as merely a slap on the wrist. Industry pundit Robert X. Cringely believes a breakup is not possible, and that "now the only way Microsoft can die is by suicide." [ [http://www.pbs.org/cringely/pulpit/pulpit20040408.html I, Cringely . The Pulpit . The Once and Future King | PBS ] ] Andrew Chin, an antitrust law professor at the University of North Carolina at Chapel Hill who assisted Judge Jackson in drafting the findings of fact, wrote that the settlement gave Microsoft "a special antitrust immunity to license Windows and other 'platform software' under contractual terms that destroy freedom of competition." [ [http://www.unclaw.com/chin/scholarship/microsoft.htm The Microsoft Case ] ]

Microsoft's obligations under the settlement, as originally drafted, expired on November 12 2007. [ [http://www.usdoj.gov/atr/cases/f201200/201205a.htm Microsoft Consent Decree Compliance Advisory - August 1, 2003 : U.S. v. Microsoft ] ] However, Microsoft later "agreed to consent to a two-year extension of part of the Final Judgments" dealing with communications protocol licensing, and that if the plaintiffs later wished to extend those aspects of the settlement even as far as 2012, it would not object. The plaintiffs made clear that the extension was intended to serve only to give the relevant part of the settlement "the opportunity to succeed for the period of time it was intended to cover", rather than being due to any "pattern of willful and systematic violations". The court has yet to approve the change in terms as of May 2006. [ [http://blog.seattlepi.nwsource.com/microsoft/library/jsr20060512.pdf ATR-SV-DIV401;MDE;15906;7 ] ]

Criticisms of the case

The late Nobel economist Milton Friedman believed that the antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result. [ [http://www.cato.org/pubs/policy_report/v21n2/friedman.html Policy Forum: The Business Community's Suicidal Impulse ] ]

Jean-Louis Gassée, CEO of Be Inc., which at the time made a competing operating system which eventually folded in the face of Microsoft's dominance, criticized the emphasis on the "packaging problem."Fact|date=March 2008 He claimed Microsoft was not really making any money from Internet Explorer, and its incorporation with the operating system was due to consumer expectation to have a browser packaged with the operating system. BeOS came packaged with its web browser, NetPositive.

Instead, he argued, Microsoft's true anticompetitive clout was in the rebates it offered to OEMs preventing other operating systems from getting a foothold in the market. [ [http://lists.essential.org/info-policy-notes/msg00005.html Jean-Louis Gassée on why PC manufacturers don't sell non MS products ] ]

ee also

*European Union Microsoft competition case
*Criticism of Microsoft
*Microsoft litigation

References

Bibliography

* [http://www.unclaw.com/chin/scholarship/microsoft.htm Andrew Chin, Decoding Microsoft: A First Principles Approach, 40 Wake Forest Law Review 1 (2005)]
* Kenneth Elzinga, David Evans, and Albert Nichols, United States v. Microsoft: Remedy or Malady? 9 Geo. Mason L. Rev. 633 (2001)
* John Lopatka and William Page, Antitrust on Internet Time: Microsoft and the Law and Economics of Exclusion, 7 Supreme Court Economic Review 157-231 (1999)
* John Lopatka and William Page, The Dubious Search For Integration in the Microsoft Trial, 31 Conn. L. Rev. 1251 (1999)
* John Lopatka and William Page, Who Suffered Antitrust Injury in the Microsoft Case?, 69 George Washington Law Review 829-59 (2001)
* Alan Meese, Monopoly Bundling In Cyberspacec: How Many Products Does Microsoft Sell ? 44 Antitrust Bulletin 65 (1999)
* Alan Meese, Don't Disintegrate Microsoft (Yet), 9 Geo. Mason L. Rev. 761 (2001)
* Alan Reynolds, "The Microsoft Antitrust Appeal", Hudson Institute (2001)
* Steven Salop and R. Craig Romaine, Preserving Monopoly: Economic Analysis, Legal Standards, and the Microsoft Case, 7 Geo. Mas. L. Rev. 617 (1999)
* Howard A. Shelanski and J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 University of Chicago Law Review 1 (2001)

External links

* [http://www.usdoj.gov/atr/cases/f200400/200457.htm Final Judgment in U.S. v. Microsoft] (injunction including final settlement terms approved by the court) (note that the copy posted on the district court's web site is actually an earlier version that the court declined to approve).
* [http://www.usdoj.gov/atr/cases/ms_index.htm The United States DOJ's website on U.S. v. Microsoft]
* [http://www.wired.com/news/antitrust/0,1551,35212,00.html Wired news timeline of the Microsoft antitrust case]
* [http://zdnet.com.com/2100-1104-917931.html ZDnet story on 4th anniversary of Microsoft antitrust case]
* [http://zdnet.com.com/2100-1104-948381.html ZDnet story on proposed concessions]
* [http://www.netlitigation.com/netlitigation/antitrust.htm Antitrust & the Internet: Microsoft case archive]
* [http://www.unclaw.com/chin/scholarship/microsoft.htm "A Case of Insecure Browsing" by Andrew Chin. Raleigh News & Observer, September 30 2004]
* [http://www.groklaw.net/staticpages/index.php?page=GatesDepo Bill Gates deposition video at Microsoft on August 27, 1998] (Windows Media, ogg Theora and ogg Vorbis formats)