received up to $10 billion in monopoly profits. Microsoft supporters argue that Microsoft has
kept prices low because of the threat of potential competition.
The government alleges that Microsoft's decision to integrate Internet Explorer into the operating
system was designed to eliminate the competitive threat posed by Netscape and Sun
Microsystem's Java programming language. Microsoft argues that this action is a natural
extension of the Windows environment and that it should not be faulted for providing a free
program to all users. The recent purchase of Netscape by AOL is used as evidence by both sides
of the dispute. Microsoft argues that this reflects the the dynamic and competitive nature of the
software market. Critics of Microsoft argue that this was required only because of the reduction
in Netscape's market share as a result of Microsoft's unfair trade practices.
The third part of the government's case is that Microsoft has used its dominance in the operating
system market to force other firms to agree to policies that limit competition from products
produced by firms that compete with Microsoft.
Ultimately, the question that must be answered is whether Microsoft has maintained its market
dominance partly by the use of illegal anticompetitive practices. In a somewhat unusual move
that may have been designed to spur negotiations, on November 5, 1999, Judge Thomas Penfield
Jackson issued findings of fact that were based on the evidence that had been presented on the
antitrust allegations. The Court's Findings of Fact held that:
Microsoft harmed consumers through its use of its monopoly powers, and
On June 7, 2000 a decision was reached that would split Microsoft into two firms, one that
would provide operating systems and a second that would provide software applications. The
decision has been stayed pending the completion of appeals. On June 28, 2001, the Washington
DC Court of Appeals ruled on Microsoft's appeal. It upheld the decision that Microsoft was a
monopoly, but vacated the decision to split Microsoft into two firms. The case has been sent back
to the District Court for a new decision on remedies. Judge Thomas Penfield Jackson, the
original trial judge, has been removed from the case. Microsoft submitted an appeal to the U.S.
Supreme Court. (This appeal was rejected on October 10, 2001.)
On September 6, 2001, the U.S. Justice Department announced that it would no longer argue that
Microsoft should be broken up into separate companies. A settlement with the Federal
government was reached on November 2, 2001 that required Microsoft to release portions of its
source code to competitors to allow other programs to effectively function under Windows. A
substantial amount of this source code was released in AUgust 2002. This settlement also allows
computer makers to select which Microsoft products would be loaded onto computers that they
sell. While most U.S. states have accepted this settlement, 16 U.S. states and the District of
Columbia (as of 4/10/03) are still pursuing antitrust action against Microsoft.
Microsoft had attempted to settle several private antitrust cases with a settlement in which they
would have provided free software to schools. This settlement was rejected by Federal District
Judge J. Frederick Motz on January 11, 2002 on the grounds that this settlement would have
enhanced Microsoft's monopoly power by encouraging schools to replace computer systems that
used alternative operating systems. A variation of this agreement, however, that provides for
direct compensation of owners of Microsoft products was used to attain a settlement of a class
action suit against Microsoft in California on January 10, 2003. Some of the unclaimed funds
from this settlement would be used to fund computer purchases by the poorest school districts in
the state.
Even with the settlement of the federal antitrust case, there are still several aprivate ntitrust
actions pending against Microsoft. AOL and the Be Corporation have each brought antitrust
charges against Microsoft, claiming that Microsoft has undertaken actions that harmed the
producers of Netscape and BeOs. The European Commission is also currently discussing
possible antitrust action against Microsoft.
This page, provided by the Cornell University Law School, contains the complete text of
current U.S. antitrust law.
Antitrust Policy
http://www.antitrust.org/
This site, originally created by Luke Froeb at Vanderbilt University, provides a wealth of
information on U.S. antitrust policy. Economic analysis, case studies, and news items are
provided that deal with mergers, price fixing, vertical restraints, and other antitrust issues.
United States Court of Appeals for the District of Columbia Circuit, "U.S. v.
Microsoft"
http://ecfp.cadc.uscourts.gov/MS-Docs/1720/0.pdf
This is the text of the Washington DC Court of Appeals ruling that upheld the finding of
fact but vacated the remedy in the Microsoft case. (To view this document, the Adobe
acrobat viewer plugin is required. You may download this viewer by clicking here.)
Linux Online
http://www.linux.org/
Linux is the most widely used unix alternative to Windows in the personal computer
market. While the Linux operating system is still free, several commercial vendors
provide Linux installation CDs and support services. The availability of this support has
lead to an increase in the popularity of the Linux operating system. It still remains,
however, a small share of the operating system market.
FreeBSD
http://www.freebsd.org/
FreeBSD is another free unix PC operating system that was an outgrowth of the BSD
unix package that was one of the first major operating systems for unix mainframe
computers, minicomputers, and workstations. FreeBSD currently appears to be somewhat
less popular than the Linux version of unix.
BeOS
http://www.beincorporated.com/
BeOS is another, relatively recent, operating system that operates on Intel and PowerPC
hardware platforms. The Be corporation, however, has recently been dissolved. The rights
to the operating system have been sold to a subsidiary of Palm. A separate antitrust case
has been brought against Microsoft by the Be corporation.
Microsoft - PressPass
http://www.microsoft.com/presspass/legal/default.asp
PressPass is Microsoft's web page devoted to presenting its side of the antitrust case. This
site contains a variety of online articles stating Microsoft's positions and links to
speeches, testimony, and online articles that support Microsoft's position.
Ralph Nader and James Love, "June 15, 1998 letter to Assistant Attorney General Joel
Klein"
http://plug.skylab.org/199807/msg00731.html
In this June 15, 1998 letter, Ralph Nader and James Love provide a series of arguments
suggesting that Microsoft has taken a variety of actions that have reduced competition in
computer software markets. They note that it is impossible to buy a nationally branded
PC-compatible personal computer without also buying the Windows operating system.
Nader and Love argue that this substantially raises the cost to consumers who prefer the
use of an alternative computer operating system. They suggest that the Justice
Department should take into account the importance of encouraging the free software
movement in pursuing its case against Microsoft.
According to their argument, Microsoft would have been faced with many active
competitors if it had attempted to restrict output in order to receive monopoly profits.
McKenzie and Shugart note that Microsoft charges computer vendors approximately $45
for a Windows license and CD. They argue that "[f]orty-five dollars for an operating
system that incorporates millions of lines of code and is fairly powerful and easy to use
does not seem like the price a monopolist would choose."
Franklin M. Fisher, "May 12, 1998 Declaration in the Case of U.S. v Microsoft"
http://www.usdoj.gov/atr/cases/f1700/1766.htm
In this statement, Franklin M. Fisher argues that Microsoft has engaged in policies
designed to limit competition in the market for internet browser software.
Stan Liebowitz and Stephen E. Margolis, "Dismal Science Fictions: Network Effects,
Microsoft, and Antitrust Speculation"
http://www.cato.org/pubs/pas/pa324b.pdf
In this October 27, 1998 Cato Policy Analysis article, Stan Liebowitz and Stephen E.
Margolis note that it is often argued that Microsoft's large market share is the result of an
historical accident. This argument suggests that an inferior product (Microsoft DOS and
later Microsoft Windows) became the "standard" as a result of Microsoft's role as the
provider of the initial operating system for IBM compatible computers. Liebowitz and
Margolis provide several theoretical and empirical reasons to dispute this "lock-in"
argument. They also argue that Microsoft's success is the result of successful innovation,
rather than anticompetitive practices. (To view this document, the Adobe acrobat viewer
plugin is required. You may download this viewer by clicking here.)
Stan Liebowitz, "A Defective Product: Consumer Groups' Study of Microsoft In Need
of Recall"
http://www.cei.org/gencon/004,01559.cfm
In this February 9, 1999 Competitive Enterprise Institute article, Stan Liebowitz argues
that several consumer groups have provided flawed evidence against Microsoft.
Liebowitz argues that consumers have benefited from Microsoft's software products and
pricing decisions.
other software companies. It is suggested that Microsoft has not provided many
significant innovations.
Robert Litan, Roger Noll, William Nordhaus, and F.M. Scherer, "U.S. v Microsoft amicus curiae brief of April 27, 2000"
http://www.econ.yale.edu/~nordhaus/homepage/final%20microsoft%20brief%20with
%20appendix.htm
In this amicus curiae brief, Litan, Noll, Nordhaus, and Scherer recommends that
Microsoft be divided up into three competing firms that would sell the Windows
operating systems and a fourth firm that would sell applications software. It is argued that
this remedy would eliminate the monopoly power that has been the source of the
problems in this market. They note that Microsoft has displayed conduct that suggests
that less severe remedies would not be effective.
Timothy J. Brennan, "Do Easy Cases Make Bad Law? Antitrust Innovations or Missed
Opportunities in United States v. Microsoft"
http://www.aei.brookings.org/admin/pdffiles/related_02_08.pdf
Timothy J. Brennan critically analyzes the economic arguments used in the case against
Microsoft in this May 2002 online article. He suggests that the theory, evidence, and
remedies were independent and inconsistent with each other. Brennan suggests some
other approaches to the case that would have been internally consistent. (To view this
document, the Adobe acrobat viewer plugin is required. You may download this viewer
by clicking here.)