Microsoft Found Guilty of Antitrust Violations
April 3, 2000
Update: Microsoft Ordered Broken Up
June 7, 2000
Update: Appeals Court Overturns Break Up Ruling
June 28, 2001

LevelOMeter 11 of 16
Relevant Review and Information:
   Industry Policy
Antitrust Law
   Current Events Archive
Microsoft Bundling Browser
   US District Court for the District of Columbia
[Outside Econweb] Complete Text Of the Microsoft Verdict
[Outside Econweb] Complete Text Of the Microsoft Final Judgement
   Federal Appeals Court for the District of Columbia
[Outside Econweb] Complete Text of the Court of Appeals Ruling

   In an April 3, 2000 verdict that surprised no one, Judge Thomas Penfield Jackson found Microsoft guilty of violation of Sections 1 and 2 of the Sherman Antitrust Act. His finding of fact in the case, given on November 5, 1999, had all but guaranteed that he would find Microsoft guilty if the software manufacturer could not reach a settlement with the Justice Department and the 19 States who were plaintiffs in the Antitrust case.

Violations of Section 2 of the Sherman Antitrust Act

   Section 2 of the Sherman act forbids "Monopolization or attempts to monopolize." For a firm to be guilty of violation of Section 2 it must be found to be a monopoly, and to have acquired or maintain its monopoly position in an anti-competitive manner.

   According to the verdict, Microsoft is a monopoly because it "...possesses a dominant, persistent, and increasing share of the relevant market. Microsoft's share of the worldwide market for Intel-compatible PC operating systems currently exceeds ninety-five percent, and the firm's share would stand well above eighty percent even if the Mac OS were included in the market." Because so many programs run only on Windows the Judge ruled that this "applications barrier to entry protects Microsoft's dominant market share." He ruled that "Microsoft's dominant, persistent market share protected by a substantial barrier to entry ... have compelled the Court to find as fact that Microsoft enjoys monopoly power in the relevant market."

   In ruling that Microsoft used anti-competitive practices to maintain its monopoly position Judge Jackson wrote that, "First, Microsoft bound Internet Explorer to Windows with contractual and, later, technological shackles in order to ensure the prominent (and ultimately permanent) presence of Internet Explorer on every Windows user's PC system, and to increase the costs attendant to installing and using Navigator on any PCs running Windows. Second, Microsoft imposed stringent limits on the freedom of OEMs (our note: Original Equipment Manufacturers in this case are companies such as IBM, Compaq, Dell, Gateway, and others who make and sell Personal Computers) to reconfigure or modify Windows 95 and Windows 98 in ways that might enable OEMs to generate usage for Navigator in spite of the contractual and technological devices that Microsoft had employed to bind Internet Explorer to Windows. Finally, Microsoft used incentives and threats to induce especially important OEMs to design their distributional, promotional and technical efforts to favor Internet Explorer to the exclusion of Navigator."

   Judge Jackson ruled that Exclusive Dealing Contracts and arrangements between Microsoft and computer manufacturers, websites, internet service providers and software vendors "...severely restricted Netscape's access to those distribution channels leading most efficiently to the acquisition of browser usage share. They thus rendered Netscape harmless as a platform threat and preserved Microsoft's operating system monopoly, in violation of Section 2. (our note: Because Netscape was not completely shut out from all distribution channels, the Judge ruled these contracts were not in violation of Section 1.)

Violations of Section 1 of the Sherman Antitrust Act

   Section 1 of the Sherman act outlaws "Contracts or Combinations in restraint of trade." The verdict states that unlawful Tying Contracts were established because, "Microsoft's decision to offer only the bundled - "integrated" - version of Windows and Internet Explorer derived not from technical necessity or business efficiencies; rather, it was the result of a deliberate and purposeful choice to quell incipient competition..."

UPDATE: Judge Orders Microsoft Split into Two Companies

   On June 7, 2000 Judge Thomas Penfield Jackson ordered that Microsoft be broken up into two separate companies. One of these would develop and market only the operating systems while the other would develop and market applications software.

   The Operating systems company would own and develop Windows 2000, Windows Millennium and all prior versions and other operating systems Microsoft owns or is developing for hand held computers, TV set top boxes and other products, as well as the successor products to these.

   The Applications software company would own and develop most other Microsoft products such as Internet Explorer, Outlook Express, Microsoft Office software etc.

   The breakup and other remedies are suspended until all appeals are heard.

Further Update: Breakup Order Vacated

   June 28, 2001. The US Court of Appeals for the District of Columbia upheld Jackson's rule that Microsoft had illegally used its monopoly power (Section 2 of the Sherman Act) but overturned the ruling that it illegally attempted to monopolize the browser market (Section 1 of the Sherman Act).

   The Appeals Court overturned Jackson on the issue of the illegality of tying Internet Explorer with Windows. They ruled that this issue must be considered again by the lower court applying the rule of reason, not a per se ruling

   The Appeals Court vacated the order to break Microsoft up into two companies, stating that such remedies are usually reserved for companies that grew out of mergers and acquisitions.

   The case is now to be sent back to the lower court, but the Appeals Court also ruled that Judge Jackson be removed from the case because of his violations of the judicial code of conduct in granting interviews with reporters on the case while his rulings were still pending.

Copyright © 1995-2003, Inc. - All Rights Reserved