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Microsoft antitrust case

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Microsoft v. Reno was a historic antitrust trial in which the US Department of Justice (DOJ), joined by twenty U.S. states, alleged that Microsoft abused monopoly power in its handling of operating system sales and web browser sales. (The name of the case changed to Microsoft v. Ashcroft when a new United States Attorney General was appointed.) The DOJ and states filed this antitrust case against Microsoft on May 18, 1998. The case was tried by US District Court Judge Thomas Penfield Jackson. The DOJ was initially represented by David Boies.

The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer web browser software with its Microsoft Windows operating system. Bundling them together assured Microsoft a victory in the browser wars by making sure that every Windows user had a copy of Internet Explorer, severely hurting the market for competing web browsers (such as Netscape Communicator) which were slow to download over a modem or had to be purchased at a store. This also meant that the bookmarks, search engine, and other links and software provided by default with Internet Explorer were guaranteed to have very high visibility to users. Companies paid Microsoft large amounts of money for the large audiences this would bring them.

Microsoft claimed that the merging of Microsoft Windows and Internet Explorer was the result of innovation and competition, that the two were now the same product and inextricably linked (despite the fact that a separate version of Internet Explorer was available for Macintosh), and that consumers were now getting all the benefits of IE for free (a questionable assertion, since its development and marketing cost still had to come from somewhere and may have kept the price of Windows higher than it would otherwise have been). Competitors complained that Microsoft was illegally tying two separate products together and attempting to use the dominance of Windows to kill off the web browser market, and that funding the development and marketing of its web browser with profits from other unrelated areas of the company constituted an unfair trade practice and an abuse of its operating system monopoly.

The antitrust case was launched by an accusation, made by the Department of Justice, that Microsoft had violated a consent decree to which it had agreed a few years earlier. 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 FTC commissioners deadlocked with a 2-2 vote in 1993 and closed the investigation, but the DOJ 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; the government opposed that definition.

During the antitrust case it was revealed that Microsoft had threatened PC manufacturers with revoking their license to distribute Windows if they continued to ship their PC's with Netscape software preinstalled.

Several of Microsoft's actions during the case made headlines.

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 is funded by Microsoft) 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' races by turning to government for protection. ... Many 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." [1]

Judge Jackson issued a preliminary ruling on November 5, 1999 that Microsoft's dominance of the personal computer operating systems market constituted a monopoly. Then on April 3, 2000, he issued a two-part ruling: his findings of fact were that Microsoft had used its monopoly power against competitors in ways that stifled innovation and harmed consumers, 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.

Microsoft appealed against the verdict, and Judge Jackson's remedy was overturned on the grounds that interviews he gave to the news media during the case gave an appearance of bias against Microsoft. Judge Jackson's response to this was that Microsoft's conduct itself was the cause of any "perceived bias;" he said that 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." [1] Only the remedy was rejected; Jackson's findings of fact remained substantially unchanged. The case was reassigned (by random selection) to Judge Colleen Kollar-Kotelly.

The DOJ, now under the administration of U.S. President George W. Bush, announced on September 6, 2001 that it was no longer seeking to break up Microsoft and would instead seek a lesser antitrust penalty.

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 to ensure compliance, but 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 essentially accepting the proposed DOJ settlement. Nine States and the District of Columbia (which had been pursuing the case together with the DOJ) have not agreed with the settlement, arguing that it does not go far enough to curb Microsoft's anti-competitive business practices. The dissenting States regard the settlement as merely a slap on the wrist. That sentiment is shared by many people in the computer industry, especially those who advocate open source and alternatives to Microsoft. Many believe that free market competition can only be restored by government intervention to break up the Microsoft monopoly. Industry pundit Robert X. Cringely believes not even this is possible, and that "now the only way Microsoft can die is by suicide" [1].

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