Microsoft Antitrust Case Essay, Research Paper

Microsoft Antitrust Case

Since 1998, the Microsoft Corporation has been struggling with an antitrust case against the United States Justice Department. They are being charged with violating aspects of the Sherman Act. This act prohibits companies from using their size and power as a monopoly to expand their positions and take hold of new markets. It is not illegal for a company to be a monopoly, but it is illegal for the company to use their size as an advantage over other companies (Lohr article 1). I believe that the Microsoft Corporation is in violation of the Sherman Act and the United States government should take actions against the company to monitor their business transactions and prevent this from happening again. There are many examples of how the Microsoft Corporation used their size as an advantage over other companies to gain advantages in the software and computer market.

Compaq is one of the largest computer producers in the country. They are the largest customers of the Microsoft Corporation. They buy most of their software from them to load on their computers for sale. Compaq considered loading the Netscape Navigator program as default instead of the Microsoft Internet Explorer. Netscape is Microsoft’s main competition in the internet browser market. When Microsoft found out about this decision, they threatened to stop selling the Windows program to Compaq (Lohr and Markoff). Windows is the most popular program on the market, and it controls at least eighty-five percent of the computers. If Compaq were not able to sell their computers with the Windows program, their sales would plummet. Their product would not be as attractive to consumers without the program because of its popularity. This is an example of Microsoft using their power as a monopoly to control other companies. According to the Sherman Act, a company cannot use their size as an advantage over other companies when it comes to promoting their product in a new market. Compaq new that if they sold their computers without the Windows program, their company would suffer, so they decided to use Microsoft’s Internet Explorer instead (Lohr and Markoff).

Microsoft supplies many computer companies with the programs that are needed to run their products. They also design programs for the Apple computer company, because their computers need a type of software different from other computer companies. Microsoft designs a word processing program specifically for Apple (Brinkley article 1). They threatened to stop making this program for Apple if they did not use their Internet Explorer program as the default on their products. Microsoft also threatened to stop selling the Office programs to them if they did not use their internet browser on their computers. Microsoft Office is equivalent to the Windows program in the business software market. This program has about ninety percent of the sales for office software (Brinkley article 1). If the Apple corporation could not offer the Microsoft Office program on their computers, their sales would suffer. This situation is similar to the Compaq situation because Microsoft is using their power as a monopoly to control the internet browser market. Companies are not allowed to use their size and power to promote their products in new markets. This is exactly what the Microsoft Corporation is doing in each of these situations. They are in violation of the Sherman Act, and there should be actions taken against them to prevent this from happening again (Brinkley article 1). Apple was forced to make Microsoft’s internet browser the default on their machines out of fear of losing the programs that they obviously needed to sell their products. Companies should be able to make decisions about their products without having to worry about other companies intimidating them with threats.

A controversy has arisen over Microsoft’s Windows 98 program. Its release was delayed because the Microsoft Corporation wanted to include the Internet Explorer program as a feature. This delay has been a topic of discussion in the court case. The U.S. Justice Department says that Internet Explorer and Windows 98 are two separate programs and that Microsoft bundled them together to gain an advantage over their main competitor, Netscape. Microsoft says that the Internet Explorer program is only a feature of Windows 98, and that the two are not separate programs (Lohr article 2). By the two programs being put together, consumers are now not required to buy a separate internet browser. In January of 1997, an email exchange between two Microsoft executives suggests that the browser and the operating system were two separate programs, and the company did not consider them one product. The email talked about how they should use Windows to promote their product because it was the only thing that Netscape did not have (Lohr article 2). It is illegal for a company to force a second product on a customer by tying it in with another market leading product (Lohr article 3). Microsoft is using their stronghold on the software market to impose their internet browser on its customers. By doing this, they are eliminating any competition in the internet browser market. About eighty-five percent of computers are run by Windows, and by bulking it with an internet browser, they are eliminating any need for another internet browser (Lohr article 2). If they eliminate any competition in the software market, they may also prohibit any advances in new technology. There are always new advances in software and computer technology, and Microsoft may be eliminating that possibility if they continue with their current practices.

Microsoft is accused of making an illegal offer to their main competition in the internet browser market, Netscape. Their offer was an attempt to divide the internet browser market. Microsoft offered Netscape information that would help them design a program that would run as smoothly as possible with the Windows program. In return for the information, Microsoft would invest in Netscape and take fifteen to twenty percent (Lohr and Markoff). Microsoft would also receive a spot on Netscape’s board of directors and licensing privileges to licensing their new technology. All hardware and software must run smoothly with Windows because of its popularity in the market. The information that Microsoft supposedly offered Netscape would have been very useful to their software design. Netscape declined the offer from Microsoft. Microsoft denies claims that their objective was to stop Netscape from competing with them in the internet browser market (Lohr and Markoff). The justice department has a sworn testimony from Chris Jones, a Microsoft manager, admitting that Microsoft’s intentions were to persuade Netscape from competing. Microsoft claims that Jones’s testimony explains how they wanted to become partners with Netscape. They say that they wanted to divide the applications and design of the programs between the two companies, so the two could work together in the industry (Lohr and Markoff). If it is concluded that Microsoft’s offer was illegal, they are in violation of the Sherman Act. These are each examples of how Microsoft used their power as a monopoly to expand their position. A neutral forty-eight page paper was written to describe some of the allegations against Microsoft as well as some information in their defense (Lohr article 3).

Chris Hall, an independent software developer, wrote the paper. He explains how there are holes in the allegations against Microsoft. He says that the government witnesses who say Windows and Internet Explorer are two separate programs have little merit (Lohr article 4). Hall also talks about the low price of the Windows program. He says that the low price does not reflect that of a monopoly abusing its power. The cost of the program only accounts for about five percent of the total cost of the computer. Microsoft says the low price of Windows is due to competitive threats of competition (Lohr article 4). They say that any other computer software company could come out with a program that competes with Windows. An executive from Compaq is testifying in Microsoft’s defense to state the possibility of another program to arise to compete with Windows (Lohr article 4). Although these examples of defense are valid, the examples against Microsoft far outweigh them.

The trial is still pending. If Microsoft is found guilty of violating the Sherman Act, it will be very difficult to decide what actions to take against the company. The justice department is soliciting ideas from outside sources for suggestions on a remedy to the situation. They have been asking antitrust experts on their opinions of the case. Timothy F. Bresnahan, an economics professor from Stanford University, has taken a leave from his job to help the Justice Department devise a proposal for a remedy (Brinkley article 2). Government witness, William H. Harris’s remedy proposal suggests breaking the Microsoft Corporation into separate companies. His proposal also calls for government regulation on the industry (Brinkley article 3). There are many possible remedies that can be taken to handle the case, and it may take a long time for the judicial system to come to an agreement.

Microsoft has made many poor business decisions and abused their status as a monopoly. They clearly used unfair business practices that prohibited other companies from expanding and competing. There are far more valid examples of Microsoft’s unjust business practices exemplifying their abuse of power. The judicial system should take actions against Microsoft by monitoring their business practices closely to prevent them from abusing their power.

Brinkley, Joel. “Microsoft Defends Tactics In 1997 Talks With Apple.” New York

Times 5 Nov. 1998: C2.

Brinkley, Joel. “U.S. and State Officials Weigh Microsoft Remedies.” New York Times

16 Nov. 1999: C1.

Brinkley, Joel. “Intuit’s Chief Urges Division of Microsoft.” New York Times 5 Jan.

1999: C2.

Lohr, Steve. “Gates. On Capitol Hill, Presents Case for an Unfettered Microsoft.” New

York Times 4 March 1998: A1.

Lohr, Steve. “Browser Memos Pose Challenge To Microsoft.” New York Times 5 Nov.

1998: C1.

Lohr, Steve. “Filing Offers a Way to find Microsoft Violated the Law.” New York

Times 2 Feb 2000: C8.

Lohr, Steve. “Business; Playing ‘The Price is Right’ With Windows.” New York Times

3 Jan. 1999: Sec. 3 pg. 4.

Lohr, Steve and Markoff, John. “Microsoft’s World: A Special Report.” New York

Times 8 Oct. 1998: A1.