Case Study: The Microsoft Antitrust Case

In fall 1998, the U.S. Justice Department sued Microsoft, the world’s largest software company, accusing it of illegally using its Windows operating system near monopoly to overwhelm rivals and hurt consumers. Specifically, the government accused Microsoft of merging its Web browser into its Windows operating system in order to crush Netscape Communication Corporation, its chief competitor in the browser business. By bundling the browser with Windows and using exclusionary contracts to prevent personal computer makers form hiding or removing the Microsoft browser, Microsoft prevented consumers from using rival browsers (particularly Netscape’s) and also discouraged systems other than Windows. Furthermore, the government accused Microsoft of conducting a campaign to curtail other potential threats form Intel, Sun Micro Systems, Apple Computer, and IBM that enabled Microsoft to extend its power to other areas, such as computer servers and Internet protocols, thus causing substantial and far-reaching harm to consumers by stifling competition and innovation in the software industry. The accusation were backed in court by oral testimonies of 26 witnesses, as well as thousands of exhibits, including numerous e-mail messages and other internal corporate records form the previous five years.

Microsoft’s response was that the government’s case was based on fiction and fantasy. Microsoft said that no company could have a monopoly in the fast moving, intensely competitive PC and Internet business and that it faces many competitive threats from the market place. According to Microsoft, bundling its Web browser in Windows improved the operating system and lowered prices to consumers and, in any event, consumers had ample choices, not least of all from Netscape, which distributed millions of copies of its browser Navigator during 1998. According to Microsoft, America Online‘s purchase of Netscape in early 1999 could restore Netscape to a leading position in the browser business. The government responds that Microsoft’s illegal actions shattered Netscape’s browser business and that AOL had acquired Netscape mostly for its Internet “portal” site and its server and e-business products.

On April 4, 2000, the federal district judge trying the case ruled that Microsoft had violated antitrust laws with predatory behavior and would impose penalties and remedial action. There are three possible courses of remedial action if the judges find Microsoft guilty. The weakest punishment would be simply to forbid Microsoft from engaging in the future in exclusive dealings with providers of services on the Internet, and nothing more. This is possible in view of the fact that Professor Stanley Fisher, the government’s leading economic expert form MIT, stated in court that consumers “had not suffered any harm form Microsoft’s actions to date.” The second option would be to force Microsoft to license Windows to other companies, which could develop it and sell it in competition with Microsoft. The most drastic remedy would be to break up Microsoft into two companies (along the lines of the AT&T decision of 1982), with a company controlling Windows and another selling its applications products, including the popular Microsoft Office suite of business software. The Windows Company could develop its own applications business, and the applications company could join a rival operating software company and pose a much stronger challenge to Windows than existing competitors can.

Credit: Business Ethics-CU

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