Microsoft And The Anit-Trust Law Essay, Research Paper

Microsoft and the Anti-Trust Law

Now a day’s when one hears the words “Anti-trust Law”, everyone automatically thinks about the Anti-trust Lawsuit against the Microsoft Corporation. But many people wonder what exactly has Microsoft done to bring up these charges, and how does this law apply to Microsoft?

To start with, the economy found with in the United States, is one that is dependent on competitive competition, and on the operation of a multiple market force. In other words, it is the condition of which there is economic rivalry among firms of both production and services. In order for this competition to remain, Congress felt it nessisscary to pass a law in order to keep this competition equal among all parities.

This first act, which still remains the most important, is the Sherman Act. The most important parts of this lawsuit can be found in Sections One and Two of the Sherman Act.

Section One of the Sherman act prohibits “contracts, combinations, and conspiracies in restraint of trade.” Section Two prohibits “monopolization, attempts to monopolize, and conspiracies to monopolize.” Restated, Section One’s focus is on the collisions among firms which are to be acting on an independent basis while making, basic decisions within the business realm. Section Two, on the other hand, focuses on the single-firm domination of a market, and the prohibition of such a firm.

On July 15, 1994, the United States commenced an action against the Microsoft Corporation under Section Two of the Sherman Act, for unlawfully maintaining its monopoly in the market for the personal computer (PC) operating system. The complaint alleged, among other things, that Microsoft had engaged in anti-competitive agreements and marketing practices directed at OEM’s (or Original Equipment Manufacturers). These agreements included contracts that required OEM’s to pay Microsoft for each non-Microsoft operating systems that they distributed and long-term agreements that required, unreasonable large “minimum commitments” from OEM’s. In turn the effect of Microsoft’s practices and agreements were unlawfully used to maintain their monopoly in the PC operating systems market. The United States has presented this prior face along with many more. The natures of some of these findings are as follows:

1. Microsoft posses (and for several years has possessed) a monopolistic power in the market for personal computer operating systems.

2. There are high barriers to entry in the market for PC operating systems. One of the most important barriers to entry is the barrier created by the number of software applications that must run on an operating system in order to make the OS to end users. Because end users want a large number of applications available, because most applications today are written to run on Windows, and because it would be prohibitively difficult, time consuming, and expensive system that would run the programs that run on Windows, a potential new operating system entrant faces a high barrier to successful entry.

3. Microsoft’s Christian WildFeuer wrote in February 1997, that Microsoft had concluded that it would “be very hard to increase browser share on the merits of Internet Explorer 4.0 alone. It would be more important to leverage to OS assets to make people use Internet Explorer 4.0 instead of Netscape’s Navigator. ” Thus, Microsoft began, and continues today, a pattern of anti-competitive practices designed to thwart browsers competition on the merits, to deprive customers of a choice between alternative browsers, and to exclude Microsoft’s Internet browser competitors.

In other words, with its resources and programming technology, Microsoft was well positioned to develop and market a browser in competition with Netscape. Indeed, ongoing competition on the merits between Netscape Navigator and Microsoft Internet Explorer could have been expected to result in greater innovation and the development of better products at lower prices.

The competitors had offsetting advantages — Microsoft with its size and dominant position in desktop software, and Netscape with its position as the browser innovator and leading browser supplier — and the benefit to consumers of product differentiation could have been expected to sustain continued competition on the merits between these companies into the future.

Microsoft, however, has been unwilling to compete purely on the merits. Instead, Microsoft began, and continues today, a pattern of anti-competitive practices designed (1) to stifle the potential competitive threat to its operating system monopoly, and (2) to extend its monopoly to the Internet browser market.

In May 1995 Microsoft tried to convince Netscape to enter into an agreement not to compete and to divide the browser market. Microsoft proposed in part that Netscape provide the sole browser for non-Windows 95 operating systems and that Microsoft provides the sole browser for Windows 95 operating systems. When Netscape refused, Microsoft reacted — it began a pattern of exclusive dealing arrangements, agreements not to distribute or promote competitive Browsers, tie-ins, and other exclusionary and predatory conduct that excludes competition on the merits, and one that robs OEMs and consumers of the opportunity to make their own choices, and deters innovation.

Browsers often are installed as part of the software provided when purchasing a new computer from an OEM. PC users also frequently obtain browsers through their Internet Service Provider (or “ISP”). Microsoft recognizes that the ISP channel and the OEM channel are the most important channels for distribution. Since May 1995, Microsoft has substantially foreclosed non-Microsoft browsers from the ISP channel by entering into agreements with Online Service Providers (including America Online and CompuServe) and other leading ISPs that require those providers to distribute and promote Internet Explorer and not to distribute and promote competitive browsers. These agreements require ISPs to: distribute and promote Internet Explorer to their subscribers exclusively or nearly exclusively; refrain from expressing or implying to their subscribers that a competing browser is available; and, limit the percentage of competing browsers they distribute, even in response to specific requests from customers.

Microsoft entered into similarly restrictive agreements with Internet Content Providers (”ICPs”). Even though it had cost Microsoft hundreds of millions of dollars to develop, test and promote Internet Explorer, Microsoft began to distribute Internet Explorer without charge even though Netscape, the leading browser supplier at that time, was charging OEMs for its browser.

As Paul Maritz, Microsoft Group Vice President in charge of the Platforms Group, was quoted in the New York Times telling industry executives: “We are going to cut off their air supply. Everything they’re selling, we’re going to give away for free.” (Exhibit 4, New York Times 1/12/98). As reported in the Financial Times, Microsoft CEO Bill Gates likewise warned Netscape (and other potential Microsoft challengers) in June 1996: “Our business model works even if all Internet software is free. . . . We are still selling operating systems. What does Netscape’s business model look like if that happens? Not very good” (Financial Times, 1/23/98)

December 11, 1997, the Federal Court entered its preliminary injunction ordering Microsoft to stop requiring purchasers of its operating system software to install its browser software. Stating that “no consumer should be denied the browser of their choice because Microsoft made their computer vendor an offer that they couldn’t refuse” (Department of Justice Public Press Release, December 1997).

On December 17, 1997, the Department of Justice filed a motion in Federal Court to hold Microsoft in civil contempt for not obeying the Court’s earlier injunction barring the company from tying Windows 95 to Internet Explorer. That orders prohibited Microsoft from licensing any operating system software on the condition that the licensee also licenses and preinstall any Microsoft browser.

Microsoft announced this week that it would give computer vendors who did not want Internet Explorer tied to Windows 95 just two options: (1) the vendor may license a version of Windows 95 that Microsoft believes will not work; or (2) the vendor may license a version of Windows 95 that is two and a half years out of date and not commercially viable.

“Microsoft has gone from tying its products to tying the hands of its vendors,” said Joel I. Klein, Assistant Attorney General for Antitrust. “The more Microsoft continues this practice, the more consumers are harmed” (U.S. Department of Justice Public Press Release, December 1997).

The Department of Justice, went before Judge Thomas Penfield Jackson, and asked that the court give vendors a meaningful option of licensing Windows 95 without the browser. Specifically, the Department of Justice, asked the judge to order Microsoft to offer vendors the option of obtaining the most current version of Windows 95 less only the software that enables web browsing functionality with no other function degraded.

By January 22, 1998, the United States Department of Justice announced that Microsoft had agreed to immediately make available the most up-to-date, fully functional version of Windows 95 ( or any version there after) without forcing the computer manufactures to take its brower as well. Thus this will increase the consumers choice to a browser.

Finally, the U.S. Department of Justice asked the court to “adjudge” and decree some of their following concerns:

1. That Microsoft’s conduct in requiring OEM’s to license and distribute the Internet Explorer web browser or any other software product as a condition of licensing any Microsoft operating system product violates Sections 1 and 2 of the Sherman Act.

2. That Microsoft’s conduct in requiring or inducing persons to agree not to license, distribute, or promote any non-Microsoft Internet browser, or to license, distribute, or promote such browser only on terms or under conditions that materially disadvantage it, violate Sections 1 and 2 of the Sherman Act.

3. That Microsoft has attempted to monopolize the market for Internet browsers in violation of Section 2 of the Sherman Act.

4. That Microsoft has willfully maintained its monopoly in the market for PC operation systems in violation of Section 2 of the Sherman Act.

Many more injunctions have been made by the DOJ against Microsoft, but it appears no matter how hard they [Microsoft] fights these charges, they seem to be having to back down from the U.S. Department of Justice. Only time will tell if Microsoft can survive the charges that were brought against them, also if they can survive the “blow” to their image.