United States v. Microsoft Corp.
87 F. Supp. 2d 30, 2000 Daily Journal DAR 3575, 54 U.S.P.Q. 2d (BNA) 1365 (2000)
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Rule of Law:
A firm with monopoly power violates Section 2 of the Sherman Act if it uses exclusionary or predatory conduct to maintain that monopoly. A firm also violates Section 1 by using its market power over one product (the tying product) to force consumers to take a separate product (the tied product).
Facts:
- Microsoft Corporation held a monopoly in the market for Intel-compatible PC operating systems with its Windows software, which was protected by a high 'applications barrier to entry.'
- Microsoft identified 'middleware' technologies, particularly Netscape's Navigator web browser and Sun Microsystems' Java platform, as a potential threat that could erode its operating system monopoly by allowing applications to run on different operating systems.
- In June 1995, Microsoft proposed a market-division agreement to Netscape, suggesting Netscape refrain from creating a version of its browser for Windows 95; Netscape rejected this offer.
- In response to Netscape's refusal, Microsoft began integrating its own browser, Internet Explorer (IE), into its Windows operating system, making it difficult or impossible for computer manufacturers (OEMs) and end-users to uninstall.
- Microsoft imposed restrictive license agreements on OEMs that prohibited them from modifying the Windows start-up sequence or desktop in ways that might feature Navigator or other non-Microsoft software.
- Microsoft entered into exclusive agreements with Internet access providers (IAPs), software vendors (ISVs), and content providers (ICPs), offering financial incentives and prominent placement in Windows in exchange for them promoting IE and suppressing Navigator.
- Microsoft pressured other major technology companies, including Apple and Intel, to limit their support for and distribution of Navigator and cross-platform Java technologies, in one instance threatening to cancel Mac Office to secure Apple's compliance.
- Microsoft developed and distributed its own version of Java that was intentionally incompatible with Sun's cross-platform standard, thereby deceiving developers into writing Windows-only applications.
Procedural Posture:
- The United States Department of Justice, nineteen individual states, and the District of Columbia filed consolidated civil antitrust actions against Microsoft Corporation.
- The cases were filed and heard in the United States District Court for the District of Columbia.
- The court conducted a lengthy bench trial, without a jury.
- Prior to issuing these Conclusions of Law, the court had issued detailed Findings of Fact based on the trial record.
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Issue:
Does a software company with monopoly power in the PC operating system market violate Sections 1 and 2 of the Sherman Act by technologically and contractually bundling its web browser with the operating system and using restrictive agreements to disadvantage competing middleware technologies?
Opinions:
Majority - Jackson, District Judge
Yes, Microsoft's actions violated both Section 2 and Section 1 of the Sherman Act. The court found that Microsoft illegally maintained its operating system monopoly through anticompetitive and predatory conduct. Microsoft possessed monopoly power in the Intel-compatible PC operating system market, protected by the 'applications barrier to entry.' It used a wide array of exclusionary tactics—including technological bundling, restrictive OEM licenses, and exclusive dealing agreements—to thwart the threat posed by Netscape's Navigator and Sun's Java. These actions were not procompetitive but were instead designed to 'place an oppressive thumb on the scale of competitive fortune' and preserve its monopoly. The court also found Microsoft liable for attempted monopolization of the browser market under Section 2, as its conduct demonstrated a specific intent to monopolize and a dangerous probability of success. Furthermore, Microsoft's bundling of Internet Explorer with Windows constituted an illegal tie under Section 1 because operating systems and web browsers represent separate products in the eyes of consumers, and Microsoft used its OS market power to force consumers to take IE. However, the court did not find Microsoft liable for exclusive dealing under Section 1, concluding that while the agreements were restrictive, they did not foreclose Netscape from a substantial enough share of the browser distribution market to meet the high threshold for a Section 1 violation.
Analysis:
This landmark decision affirmed that traditional antitrust principles apply to the modern software industry, even when products are technologically 'integrated.' The ruling established that a dominant technology firm cannot use its market power, including product design choices, to crush nascent competitive threats that could challenge its monopoly. It set a major precedent for scrutinizing the conduct of platform monopolists and influenced subsequent antitrust enforcement actions against other large technology companies. The court's distinction between the high standard for an exclusive dealing claim under Section 1 and the broader analysis of exclusionary conduct under Section 2 also provided important doctrinal clarification, showing that the same conduct might be legal under one part of the Sherman Act but illegal as part of a larger monopolistic scheme.
