United States v. Microsoft Corp.
1999 WL 1456114, 1999 U.S. Dist. LEXIS 21782, 84 F. Supp. 2d 9 (1999)
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Rule of Law:
A firm possessing monopoly power in a relevant market may violate antitrust laws by engaging in exclusionary conduct aimed at preserving that monopoly by suppressing nascent threats, rather than by competing on the merits of its products.
Facts:
- In 1981, Microsoft released its MS-DOS operating system, which became the predominant choice for Intel-compatible PCs, and by 1995, Microsoft introduced Windows 95, solidifying its dominant market share (over 90%) in PC operating systems.
- In December 1994, Netscape Communications Corporation launched Navigator, a popular graphical Web browser, which Microsoft viewed as a potential platform for applications that could reduce reliance on Windows.
- In May 1995, Sun Microsystems announced the Java programming language, designed to enable applications to run on various platforms without significant modification, posing another potential threat to Windows' dominance.
- Microsoft identified Navigator and Java as 'middleware threats' that could erode the 'applications barrier to entry' (where software developers prioritize writing for the dominant operating system, attracting more users, which in turn attracts more developers).
- From mid-1995 to 1998, Microsoft engaged in a series of actions aimed at stifling these middleware threats, including attempting to persuade Netscape to abandon its platform ambitions and withholding crucial technical information from Netscape.
- Microsoft bound its Internet Explorer browser to Windows, making it difficult to remove and ensuring its prominent presence, and coerced Original Equipment Manufacturers (OEMs) and Internet Access Providers (IAPs) with financial incentives and threats to exclusively promote Internet Explorer and suppress Navigator.
- Microsoft pressured other firms like Intel, Apple, and IBM to abandon software development that offered alternatives to Microsoft's platforms or competed directly with its products, threatening consequences like withholding Windows support or canceling crucial software.
- Microsoft developed its own Java Virtual Machine (JVM) that was incompatible with Sun's cross-platform standards and encouraged developers to use Microsoft-specific Java extensions, thereby hindering Java's portability and weakening its 'write once, run anywhere' promise.
Procedural Posture:
- Several consolidated civil antitrust actions were filed against Microsoft Corporation in the U.S. District Court for the District of Columbia.
- These actions alleged violations of Sections 1 and 2 of the Sherman Act and various state statutes.
- The case was tried to the Court, sitting without a jury, between October 19, 1998, and June 24, 1999.
- On July 28, 1999, the Court issued its 'Findings of Fact,' outlining the evidence proved by a preponderance of the evidence, and indicated that conclusions of law would be filed separately.
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Issue:
Did Microsoft Corporation engage in unlawful exclusionary conduct to maintain its monopoly in the market for Intel-compatible PC operating systems, thereby stifling competition from middleware technologies like Web browsers and Java?
Opinions:
Majority - jackson, District Judge
Yes, Microsoft Corporation engaged in unlawful exclusionary conduct to maintain its monopoly in the market for Intel-compatible PC operating systems. The Court found that Microsoft held monopoly power in the relevant market, protected by a substantial 'applications barrier to entry.' Middleware technologies, specifically Netscape's Web browser (Navigator) and Sun's Java implementation, posed a credible threat to erode this barrier by enabling cross-platform applications, making the underlying operating system less crucial. To counter this threat, Microsoft embarked on a deliberate, multifaceted campaign of anticompetitive actions. Microsoft undertook efforts to thwart Netscape by proposing a division of the browser market, withholding critical technical information needed for Navigator to function optimally on Windows, and integrating Internet Explorer into Windows in a manner that made it difficult or impossible for OEMs or end-users to remove. These actions were not justified by any pro-competitive technical reasons but were designed to maximize Internet Explorer's usage share at Navigator's expense. Furthermore, Microsoft used its leverage over OEMs, IAPs (like AOL), and Independent Software Vendors (ISVs) through a mix of contractual restrictions, financial incentives, and threats to ensure the exclusive or preferential distribution and promotion of Internet Explorer, effectively exiling Navigator from crucial distribution channels. Against Java, Microsoft deliberately created incompatibility in its Windows Java Virtual Machine and developer tools, encouraging developers to write Windows-specific Java applications that would not be portable. It also pressured partners like Intel to refrain from supporting Sun's Java development. These efforts directly undermined Java's potential to become a cross-platform development environment that could diminish the applications barrier. The Court concluded that these actions were intended to preserve Microsoft's monopoly by stifling nascent competition, rather than through competition on the merits, and caused direct and indirect harm to consumers by limiting choice and innovation.
Analysis:
This case significantly clarified the boundaries of lawful competitive conduct for monopolists under Section 2 of the Sherman Act, particularly in dynamic, high-technology markets. It established that a monopolist cannot lawfully leverage its power in one market (operating systems) to suppress competition in a related, nascent market (middleware like browsers and Java) by anticompetitive means. The ruling highlighted the importance of protecting innovative, potentially disruptive technologies from being stifled by dominant incumbents, even if those technologies are not yet fully competitive. The case's findings against Microsoft's bundling, exclusive dealing, and coercive tactics provided a framework for future antitrust scrutiny of dominant technology platforms and their interactions with developers and distributors.
