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The Microsoft Anti-Trust Case

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When is a company too big?
(April 13, 2000)

Almost everyone has heard of Microsoft-- not surprising since Microsoft was the world's largest and most valuable company at the beginning of this millennium.

But is Microsoft too big? Is it unfairly using its size to squash competitors? Federal judge Thomas Penfield Jackson thinks so. He ruled that Microsoft has broken the law by using its position to take over the market for certain software products. And now he's ordered the company to be split up as punishment

He's been hearing the case brought by the government against the huge company.

A Decade of Debate

It all started ten years ago.

The Federal Trade Commission (FTC) began an investigation of Microsoft. They were concerned that Microsoft's policy of linking its software with its operating systems might be unfair to Microsoft's competitors.

The FTC enforces laws designed to prevent companies from having exclusive control--called a "monopoly"--over a product or service.

They also keep companies from developing large combinations of businesses and resources--sometimes called a "trust"-- that would have an unfair advantage over competitors and ultimately hurt consumers.

These are called anti-trust laws.

After three years, the FTC turned the investigation over to the Department of Justice (DoJ).

The Browser Market

As the investigation proceeded, the computer industry continued to grow at a rapid pace.

As more and more people gained access to the Internet the need for programs which help translate the HTML Web language into the pictures and words you see on the screen-- called "browsers"--was skyrocketing.

Netscape Communication launched the Navigator browser in 1994. It soon became the market leader.

The next year, Microsoft launched Windows 95, which features the free Web browser, Internet Explorer.

Besides providing Internet Explorer for free, Microsoft began an aggressive campaign to take over the browser market.

What Microsoft Does

Microsoft was founded by Bill Gates, often considered the wealthiest man in the world. Click here for more about Bill Gates and the history of Microsoft.

The company's main product is the basic program that makes a computer work--called an operating system.

Microsoft's operating system is called "Windows".

In order for software, such as games or word processing to work, it must be compatible with the operating system.

What Microsoft Has Done Wrong

The government claims that because Microsoft has cornered the operating system market it has an unfair advantage over it's competitors.

In fact, Microsoft exploits this dominance of the market, according to the DoJ.

For example, if a company agrees to install "Windows" as the operating system in all of their computers, Microsoft lowers the fee for the software.

In addition, Microsoft has refused to share details of its operating system in a timely way. This makes it difficult for Microsoft's competitors to make programs that run on most computers.

Part of the ruling also has to do with Microsoft's pursuit of the browser market.

Besides offering Internet Explorer for free, Microsoft also includes it as part of the operating system -- a technique dubbed "bundling". This means the operating system and the browser are integrated-- running one without the other causes problems.

Microsoft's Defense

It's a tough world out there, says Microsoft, and it has had to fight hard to get where it is today.

Microsoft also claims that the consumer has actually gained from its actions. Computer users receive free Internet browsers and a cheaper computer.

Microsoft says they don't have a monopoly. As evidence they point to the growth of the Internet, and the popularity of rivals such as AOL and Netscape.

The Legal Process

After a long, drawn out trial, the judge ruled that Microsoft behaved in a monopolistic way.

The court issued a "Finding of Fact" on November 5, 1999. The 207-page document said consumers had been harmed and that Microsoft had used its power to punish competing firms. It stopped short of saying that Microsoft had broken the law.

Meanwhile, the judge appointed a mediator to help both sides come together. The mediator worked with Microsoft, the federal government and 19 states for four months trying to reach a settlement outside of court.

The mediator gave up, saying the two sides were just too far apart to reach a decision and so the judge ruled.

A second round of hearings to determine what punishment to impose on Microsoft came next. This was called the "remedy phase".

Microsoft is expected to appeal the court's order to split up the company.

Breaking Up is Hard to Do

There's still a chance Microsoft and the government will negotiate an out of court settlement. But without a deal, it's likely the legal process, complicated by appeals to higher courts, could last for years to come.

What do you think? Should Microsoft be split up?