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United States of America v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001), was a landmark American antitrust law case at the United States Court of Appeals for the District of Columbia Circuit. The U.S. government accused Microsoft of illegally monopolizing the web browser market for Windows, primarily through the legal and technical restrictions it put on the abilities of PC manufacturers (OEMs) and users to uninstall Internet Explorer and use other programs such as Netscape and Java.[1]
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At the initial trial, the United States District Court for the District of Columbia ruled that Microsoft's actions constituted unlawful monopolization under Section 2 of the Sherman Antitrust Act of 1890,[2] but the U.S. Court of Appeals for the D.C. Circuit partially overturned that judgment.[1] The two parties later reached a settlement in which Microsoft agreed to modify some of its business practices.[3]
[Microsoft] is widely recognized as the most influential company in the microcomputer-software industry. Claiming more than a million installed MS-DOS machines, founder and chairman Bill Gates has decided to certify Microsoft's jump on the rest of the industry by dominating applications, operating systems, peripherals and, most recently, book publishing. Some insiders say Microsoft is attempting to be the IBM of the software industry.
Although Gates says that he isn't trying to dominate the industry with sheer numbers, his strategy for dominance involves Microsoft's new Windows operating system ... "Our strategies and energies as a company are totally committed to Windows, in the same way that we're committed to operating-system kernels like MS-DOS and Xenix," says Gates. "We're also saying that only applications that take advantage of Windows will be competitive in the long run."
The government alleged that Microsoft had abused monopoly power on Intel-based personal computers in its handling of operating system and web browser integration. The central issue was whether Microsoft was allowed to bundle its IE web browser software with its Windows operating system. Bundling the two products was allegedly a key factor in Microsoft's victory in the browser wars of the late 1990s, as every Windows user had a copy of IE. It was further alleged that this restricted the market for competing web browsers (such as Netscape Navigator or Opera), since it typically took extra time to buy and install the competing browsers. Underlying these disputes were questions of whether Microsoft had manipulated its application programming interfaces to favor IE over third-party browsers. The government also questioned Microsoft's conduct in enforcing restrictive licensing agreements with original equipment manufacturers who were required to include that arrangement.[7]
Microsoft argued that the merging of Windows and IE was the result of innovation and competition, that the two were now the same product and inextricably linked, and that consumers were receiving the benefits of IE for free. Opponents countered that IE was still a separate product that did not need to be tied to Windows, since a separate version of IE was available for Mac OS. They also asserted that IE was not really free because its development and marketing costs may have inflated the price of Windows.[7]
Bill Gates himself denied that Microsoft was a monopoly, stating "Microsoft follows the rules. Microsoft is subject to the rules." He further compared the situation with IBM thirty years prior: "People who feared IBM were wrong. Technology is ever-changing."[8]
The case was initially tried before Judge Thomas Penfield Jackson at the United States District Court for the District of Columbia. The suit began on May 18, 1998, with the Department of Justice joined by the Attorneys General of twenty U.S. states and the District of Columbia. The case organized by the Department of Justice was focused less on interoperability, and more on predatory strategies and market barriers to entry; the DOJ built upon the allegation that Microsoft forced computer makers to include its Internet browser as a part of the installation of Windows software.[7]
Bill Gates was called "evasive and nonresponsive" by a source present at his videotaped deposition.[9] He argued over the definitions of words such as "compete", "concerned", "ask", and "we"; certain portions of the proceeding would later provoke laughter from the judge when an excerpted version was shown in court.[10] Businessweek reported that "early rounds of his deposition show him offering obfuscatory answers and saying 'I don't recall' so many times that even the presiding judge had to chuckle. Many of Gates's denials and pleas of ignorance were directly refuted by prosecutors with snippets of e-mails Gates both sent and received."[11] Intel Vice-president Steven McGeady, called as a witness, quoted Paul Maritz, a senior Microsoft vice president, as having stated an intention to "extinguish" and "smother" rival Netscape Communications Corporation and to "cut off Netscape's air supply" by giving away a clone of Netscape's flagship product for free.[12]
Microsoft later submitted a second inaccurate videotape into evidence. The issue was how easy or difficult it was for America Online users to download and install Netscape Navigator onto a Windows PC. Microsoft's videotape showed the process as being quick and easy, resulting in the Netscape icon appearing on the user's desktop. The government produced its own videotape of the same process, revealing that Microsoft's videotape had conveniently removed a long and complex part of the procedure and that the Netscape icon was not placed on the desktop, requiring a user to search for it. Brad Chase, a Microsoft vice president, verified the government's tape and conceded that Microsoft's own tape was falsified.[15]
When the judge suggested that Microsoft offer a version of Windows that did not include Internet Explorer, Microsoft responded that the company would offer manufacturers a choice: one version of Windows that was obsolete, or another that did not work properly. The judge asked, "It seemed absolutely clear to you that I entered an order that required that you distribute a product that would not work?" David Cole, a Microsoft vice president, replied, "In plain English, yes. We followed that order. It wasn't my place to consider the consequences of that."[16]
Judge Jackson issued his findings of fact on November 5, 1999, holding that Microsoft's dominance of the x86-based personal computer operating systems market constituted a monopoly, and that Microsoft had taken actions to crush threats to that monopoly, including applications from Apple, Java, Netscape, Lotus Software, RealNetworks, Linux, and others.[19] On April 3, 2000, Jackson issued his conclusions of law, holding that Microsoft had engaged in monopolization, attempted monopolization, and tying in violation of Sections 1 and 2 of the Sherman Antitrust Act.[2]
On June 7, 2000, the District Court ordered a breakup of Microsoft as its remedy.[20] According to that judgment, Microsoft would have to be split into two separate units, one to produce the operating system and one to produce other software components.[21][22] Microsoft immediately appealed the judgment to the D.C. Circuit Court of Appeals.[21]
After Microsoft filed its appeal, the U.S. government and the states in the suit requested a process that would skip the intermediate Circuit Court and send the case directly to the U.S. Supreme Court. Such an action is permitted by a section of the United States Code[23] that gives the Supreme Court jurisdiction to hear direct appeals from the District Court level in certain antitrust cases initiated by the federal government, if "the district judge who adjudicated the case enters an order stating that immediate consideration of the appeal by the Supreme Court is of general public importance in the administration of justice."[24] The states also filed a petition for certiorari before judgment at the Supreme Court, requesting the same direct appeal process without going through the Circuit Court.[23][25] The Supreme Court rejected these requests and sent the appeal to the D.C. Circuit Court.[23]
On June 28, 2001, the Circuit Court overturned Judge Jackson's rulings against Microsoft. This was partly because Jackson had improperly discussed the case with the news media while it was still in progress, violating the code of conduct for American judges.[26] The Circuit Court judges accused Jackson of unethical conduct and determined that he should have recused himself from the case. Thus the Circuit Court adopted a "drastically altered scope of liability" due to Jackson's conduct, which was favorable for Microsoft.[27]
Jackson's response was that Microsoft's conduct itself was the cause of any "perceived bias"; Microsoft executives had, according to him, "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."[28]
Ultimately, the Circuit Court overturned Jackson's holding that Microsoft should be broken up as an illegal monopoly. However, the Circuit Court did not overturn Jackson's findings of fact, and held that traditional antitrust analysis was not equipped to consider software-related practices like browser tie-ins.[29] The case was remanded back to the D.C. District Court for further proceedings on this matter, with Judge Colleen Kollar-Kotelly presiding.[30]
The Department of Justice announced on September 6, 2001 that it was no longer seeking to break up Microsoft and would instead seek a lesser antitrust penalty. Microsoft decided to draft a settlement proposal allowing PC manufacturers to adopt non-Microsoft software.[3]
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