LAST Word United States v. Microsoft The Microsoft Antitrust Case Is the Most Significant the Sherman Act occurred because Microsoft used anticompetitive Monopoly Case since the Breakup of AT&T in the means to maintain its monopoly power. Early 1980s. According to the court, Microsoft feared that the success of Netscape's Navigator, which allowed people to browse the Internet, might allow Netscape to expand its software to include a competi- The Charges In May 1998 the U.S. Justice Department (under tive PC operating system-software that would threaten the Win- President Clinton), 19 individual states, and the District of dows monopoly. It also feared that Sun's Internet applications of its Columbia (hereafter, "the government") filed antitrust charges Java programming language might eventually threaten Microsoft's against Microsoft under the Sherman Antitrust Act. The Windows monopoly. government charged that Microsoft had violated Section 2 of the To counter these and similar threats, Microsoft illegally signed act through a series of unlawful actions designed to maintain its contracts with PC makers that required them to feature Internet "Windows" monopoly. It also charged that some of that conduct Explorer on the PC desktop and penalized companies that pro- violated Section 1 of the Sherman Act. moted software products that competed with Microsoft products. Microsoft denied the charges, arguing it had achieved its suc- Moreover, it gave friendly companies coding that linked Windows cess through product innovation and lawful business practices. Mi- to software applications and withheld such coding from companies crosoft contended it should not be penalized for its superior featuring Netscape. Finally, under license from Sun, Microsoft de- foresight, business acumen, and technological prowess. It also veloped Windows-related Java software that made Sun's own soft- pointed out that its monopoly was highly transitory because of rapid ware incompatible with Windows. technological advance. The District Court Remedy The district court ordered The District Court Findings In June 2000 the district court Microsoft to split into two competing companies, one initially ruled that the relevant market was software used to operate Intel- selling the Windows operating system and the other initially selling compatible personal computers (PCs). Microsoft's 95 percent share Microsoft applications (such as Word, Hotmail, MSN, PowerPoint, of that market clearly gave it monopoly power. The court pointed and Internet Explorer). Both companies would be free to develop out, however, that being a monopoly is not illegal. The violation of new products that compete with each other, and both could derivethose products from the intellectual property embodied in the Microsoft Windows or Internet Explorer or is shipping a common products existing at the time of divestiture. personal computer that includes both Windows and a non- Microsoft operating system; (2) requires Microsoft to establish The Appeals Court Ruling In late 2000 Microsoft appealed the uniform royalty and licensing terms for computer manufacturers district court decision to a U.S. court of appeals. In 2001 the wanting to include Windows on their PCs; (3) requires that higher court affirmed that Microsoft illegally maintained its manufacturers be allowed to remove Microsoft icons and replace monopoly but tossed out the district court's decision to break up them with other icons on the Windows desktop; and (4) calls for Microsoft. It agreed with Microsoft that the company was denied Microsoft to provide technical information to other companies due process during the penalty so that they can develop programs phase of the trial and concluded that work as well with Windows that the district court judge had displayed an appearance of bias by holding extensive interviews Micros it as Microsoft's own products. The Microsoft actions and conviction have indirectly resulted with the press. The appeals in billions of dollars of fines and court sent the remedial phase of payouts by Microsoft. Main exam- the case to a new district court ples: To AOL Time Warner judge to determine appropriate (Netscape), $750 million; to the remedies. The appeals court European Commission, $1.9 bil- also raised issues relating to the lion; to Sun Microsystems, wisdom of a structural remedy. $1.6 billion; to Novell, $536 mil- lion; to Burst.com, $60 million; The Final Settlement At the to Gateway, $150 million; to In- urging of the new district court judge, the Federal government ter Trust, $440 million; to RealNetworks, $761 million; and to (then under President George W. Bush) and Microsoft IBM, $850 million. negotiated a proposed settlement. With minor modification, the settlement became the final court order in 2002. The breakup was rescinded and replaced with a behavioral remedy. It Source: United States v. Microsoft (District Court Conclusions of Law), April 2000; United States v. Microsoft (Court of Appeals), June 2001; (1) prevents Microsoft from retaliating against any firm that is U.S. v. Microsoft (Final Judgment), November 2002; and Reuters and developing, selling, or using software that competes with Associated Press News Services