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Friday, December 08, 2006

U.S. vs. Microsoft

U.S. vs. Microsoft
Term Paper
Due: November 11, 2006
U.S. vs. Microsoft

“Suppose only one company made compact disc players. Suppose that same company also produced CDs. What if that company said, "If you want to buy our CD player, you have to buy our CDs as well" (Hayes 1).” This quote given by Hayes is what the United States said that Microsoft was doing in the computer business. On May 18, 1998, the United States Department of Justice (DOJ) and twenty U.S. states filed suit against the Microsoft Corporation.

The suit charged Microsoft with violating the Sherman Anti-Trust Act. Enacted in 1890, the Sherman Anti-Trust Act “enshrines competition as a cornerstone of the capitalist economic system. The idea is that if companies have to compete with each other, they will be forced to offer the best products at the lowest possible prices to attract customers (Hayes 1).” The courts declared that Microsoft abused monopoly power in handling operating systems and web browser sales. A monopoly is defined as “a persistent market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods (Wikipedia 1).” Ninety percent of all of the personal computers (PCs) in the world use Microsoft’s Windows operating system. “The government claims that Microsoft is using Windows' dominance to gain unfair advantage in another business--providing access to the Internet, the giant network that links the world's computers (Hayes 1).” The main issue in the case was whether or not Microsoft was allowed to combine its Internet Explorer with its Microsoft Windows operating system.

“In 1995, Microsoft began giving Windows users, at no extra cost, its Internet browser--the software you need to connect to and navigate the Internet (Hayes 1).” The court alleged that Microsoft restricted competing web browsers such as Netscape Navigator that were slower to download or had to be purchased. Microsoft stated that the “merging of Microsoft Windows and Internet Explorer was the result of innovation and competition, and that the two were now the same product and were inextricably linked together and that consumers were now getting all the benefits of IE for free (Wikipedia 1).” The opposing side stated that Internet Explorer should not be linked with Windows operating system since Internet Explorer kept the price of Windows higher than it would without the web browser and there was a different version of Internet Explorer offered for Mac.

“The trial started in May 1998 with the US Justice Department and the Attorneys General of twenty US states suing Microsoft for illegally thwarting competition in order to protect and extend its software monopoly. Later, in October the US Justice Department also sued Microsoft for violating a 1994 consent decree by forcing computer makers to include its Internet browser as a part of the installation of Windows software (Wikipedia 1).” According to the trial, Microsoft told computer manufacturers who wanted to install Windows on their machines that they could only do so if they agreed to install Microsoft's browser as well. The government stated that this strategy allowed Microsoft to acquire an additional thirty-nine percent of Internet users, taking away customers from other browsers such as Netscape. Bill Gates, CEO of Microsoft, stuck to his convictions as he stated that his company did not have a monopoly and that including Microsoft’s browser with Windows at no charge was a great deal for customers. According to Microsoft, “The software industry changes so rapidly that even a 90 percent share of the market can disappear overnight. All it takes is a smart competitor with a better idea (Hayes 1).”

Throughout the trial, Bill Gates was characterized as ‘non-responsive’ and ‘evasive’. Microsoft used the recent merger of AOL and Netscape as a defense to the monopoly claim. “As proof that competition is thriving, Microsoft points to the recent merger of Netscape with America Online (AOL), a popular Internet service provider. Microsoft says the fact that AOL was willing to pay $4.2 billion for Netscape proves the company wasn't damaged by Microsoft--and even that the new alliance poses a formidable threat to Microsoft's dominance (Hayes 1).” The case became more than an issue of unfair business practices. Since the Internet is the way to fast communication and research at the click of a button, the government feels as though no one should have dominance over the future of the Internet.

The Department of Justice ultimately said that Microsoft should have to remove their browser from the operating system or include a rival browser. Microsoft responded hastily, “Forcing Microsoft to include competing software [such as a rival browser] in our operating system is like requiring Coca-Cola to include three cans of Pepsi in every six-pack it sells,” he says. “And saying that we must remove Internet technology from Windows is like telling Coca-Cola that it must take something out of its formula.” (Hayes 1).” The government however stated that they do not wish for Coke to sell Pepsi, they only want for the public to have a choice in flavor. On November 5, 1999, the judge stated that Microsoft’s dominance in the market for operating systems in personal computers was a monopoly and Microsoft made strategies to crush its competitors. On April 3, 2000, the judge “issued a two-part ruling: his conclusions of law were that Microsoft had committed monopolization, attempted monopolization, and tying in violation of Sections 1 and 2 of the Sherman Act, 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 (Wikipedia 1).”

On September 26, 2000, in the appeal, the D.C. Circuit Court of Appeals overturned the judges ruling against Microsoft saying that the judge had improper opinions about the defendant due to a leak of interviews to the media during the case. The appeals court did however affirm the judge’s ruling on monopolization. The Department of Justice announced on September 6, 2001 that it would no longer try to break up Microsoft and would seek a lesser antitrust penalty instead. The Department of Justice reached an agreement with Microsoft to settle the case on November 2, 2001. “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 in order to ensure compliance (Wikipedia 1).” The DOJ, however, did not require Microsoft to change any of its code nor did they prevent Microsoft from tying other software with Windows in the future. Microsoft’s obligations as required by the settlement expire on November 12, 2007.

There is criticism over the antitrust case against Microsoft. Some critics say that the proceedings were an “unjustified assault on a business that held a large market share merely by outcompeting its rivals (Wikipedia 1).” Some critics believe that the U.S. vs. Microsoft case set a dangerous precedent that shows future government involvement in an industry that was relatively free, which will ultimately lead to the halt of technological progress. Consumers want a web browser that is easy to come by and use. A web browser that is packaged with the operating system is the most convenient. Microsoft did not profit by packaging Internet Explorer with Windows, therefore, critics feel as though Microsoft should not have been sued.

My feelings towards the case is that Microsoft is clearly the top competitor in operating systems and if what they say is true about consumers wanting the easiest and most convenient web browsor rather than those that you must download of subscribe to, then there should be no worries on Microsoft's end if they were to include a competitor's product in their operating system. In the long run, competition is of the consumer's benefit because it allows for a buffer to keep costs low. If a new cola product came out on the market that cost 20% more than coca cola and had less taste, coca cola drinkers will still continue to drink the cheaper, more flavorful coca cola. The same goes for Microsoft's web browser. There is no need for Microsoft to crush their competition and eliminate them if the competition present is not a strong threat. Competetion not only keeps prices down but it also helps promote technological increases in the field, which can only be a positive for the community and for Bill Gates and Microsoft.


Hayes, Susan. "The U.S. Versus Microsoft (antitrust lawsuit)." 02/08/1999. Scholasti
c Update. 8 Dec 2006

"United States V. Microsoft." Wikipedia. 12/01/2006. 8 Dec 2006

I pledge that I have neither given nor received any unauthorized aid on this paper.

Jennifer D. Guyer *This typed name serves as my signature.


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