Microsoft Antitrust Case

The government's case against Microsoft for trying to monopolize the personal computer market

What was the Microsoft Antitrust Case?

The Microsoft antitrust case came to be one of the high-profile cases a few decades ago. In the 1990s. U.S. federal regulators sued Microsoft, which was at that time the world’s leading software company. The Federal Trade Commission launched an investigation as a response to the rising market share of the company in the personal computer market.

The investigation aimed to determine whether Microsoft was trying to monopolize the personal computer market. The federal agency soon ended its investigation, only to be brought up again by the U.S. Department of Justice in 1998.

 

Microsoft Antitrust Case

 

The Justice Department filed antitrust charges against the software company. The charges came about in response to Microsoft bundling additional programs into its operating system. It meant that for customers who wanted to access a particular Microsoft application, buying the Microsoft Windows operating system was a prerequisite.

Moreover, Microsoft distributed its browser software, Internet Explorer, among consumers for free. It led to a concentration of the market share and the eventual downfall of Netscape, the company’s top competitor at the time. The DoJ’s case alleged that Microsoft was intentionally making it extremely difficult for consumers to install software by other companies on personal computers that ran on Microsoft’s operating system.

 

Summary 

  • In the 1990s, the US government sued Microsoft for trying to monopolize the personal computer market.
  • The charges brought against the company involved sections of the Sherman Antitrust Act, which included laws designed by governments in order to ensure fair competition in the market.
  • District Court Judge Thomas Penfield Jackson ruled that the company violated multiple sections of the Sherman Antitrust Act.

 

What are Antitrust Laws?

Antitrust laws are designed by governments in order to ensure fair competition in the market. The laws prohibit practices that result in a negative impact on free markets and create entry barriers. Common examples of such practices include industry-wide price-fixing, corporate mergers that are anti-competitive, predatory pricing done to maintain monopoly power, etc.

The bottom line of antitrust laws is to protect consumers from the harms of market monopolies. The harms usually accrue in the form of higher prices of goods and services for consumers. Many companies try to circumvent legal liabilities by establishing themselves as industry leaders and creating monopolies by buying out or knocking out the competition.

In the U.S., antitrust laws were enshrined by the Sherman Antitrust Act of 1890. It was unprecedented legislation that outlawed trusts, cartels, etc.

 

The Verdict

Microsoft lost the case against the government, and the presiding judge, Thomas Penfield Jackson, ruled that the company violated multiple sections of the Sherman Antitrust Act. However, the trial was not a smooth one. The case was riddled with false and misleading statements, tampering of evidence, such as executive emails, and a plethora of courtroom distractions.

Microsoft was considered one of the biggest innovators of that era, and CEO Bill Gates was widely considered a genius. Moreover, a large group of economists alleged that antitrust laws not only stifle innovation, but they also hurt consumers.

The biggest argument made by Microsoft’s defenders was that antitrust laws stifle the success of domestic firms on a global level, hence making them less competitive. It was because most other countries, barring the ones in the European Union, lack a high standard of national antitrust laws.

 

The Legal Case

Microsoft was formally charged with constituting a market monopoly by making it difficult for users to install competing software, and simultaneously making it difficult to uninstall the company’s browser, Internet Explorer.

The company argued that these practices were non-coercive and that consumers enjoyed the freedom of choice due to the presence of products such as Macintosh, Unix, etc. The government also found that the company, by stifling competition, threatened innovation in the software industry. The company was also forced to share its data with other third parties.

Microsoft was highly critical of the ruling and alleged bias in favor of the prosecution.

 

Breaking Up Big Tech

The government also ruled that the company should be divided into two, thus creating two separate entities. One would be solely for the Windows operating system, while the other entity would be responsible for all other software products offered by Microsoft.

The ruling was challenged by Microsoft, and an appeals court overturned the ruling. However, it did successfully set a precedent that is echoed in calls for breaking up big tech among progressive American politicians. For example, many lawmakers suggest that Amazon should be divided into two separate entities, one for e-commerce and the other for the Amazon Web System.

 

Impact of the Ruling

Despite the apparent deterioration in the enforcement of antitrust laws in the U.S. in recent years, the Microsoft case was instrumental in creating a market environment favorable for the emergence of the biggest companies today, such as Google and Apple.

 

  • Related Readings

  • CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
  • Clayton Antitrust Act
  • Barriers to Entry
  • Hart-Scott-Rodino Act
  • Deregulation

CFI's Corporate & Business Strategy Course

Learn to perform Strategic Analysis in CFI’s online Business Strategy Course! The comprehensive course covers all the most important topics in corporate strategy!