In their attempt to maximize profits) keep the price

In 1998, it was alleged that Microsoft, being the lead provider of
computer software and hardware and thus commanding a large share of the market
for operating systems, constituted being a monopoly. A monopoly is defined as a
“market situation where one producer (or a group of producers acting in
concert) controls supply of a good or service, and where the entry of new
producers is prevented or highly restricted. Monopolist firms (in their attempt
to maximize profits) keep the price high and restrict the output, and show
little or no responsiveness to the needs of their customers” (What is a
monopoly?, n.d.). Specifically, the government argued that by integrating its
web browser, Internet explorer, into its Windows operating system, Microsoft
was essentially forcing consumers to use Internet Explorer. Thus, Microsoft had
an unfair advantage in the market for web browsers and was engaging in
anti-competitive practices which violated the 1890 Sherman Antitrust Act. I
will use disciplinary analysis of this case to examine and explain how the
goods Microsoft provides to the marketplace has changed, as well as its
relationship with the US government.

II.   History of Microsoft Corporation

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Microsoft entered
the market in 1975, programming computer languages for the MIPS Altair 7500 (The
Rise of Monopolies, n.d.). In 1981, Microsoft bought and redesigned an
operating system, called MS DOS 1.0, for the Intel based 8086 chips, from Seattle
Computer Products, and licensed it to IBM for its new personal computer (The
Rise of Monopolies, n.d.). At this time IBM held a monopoly over the sale and
production of computer hardware, however, by allowing Microsoft to develop its
computer operating system, and Intel to develop its chips, this opened up the
market to these new companies (The Rise of Monopolies, n.d.). Because Microsoft
maintained the licensing rights of its operating system, it was able to license
it to other manufacturers which helped to spur the influx of the “IBM clone business”,
computers made by other manufacturers that replicated those produced by IBM (The
Rise of Monopolies, n.d.).

In the 1980s Microsoft and Intel dominated
the computer industry. Microsoft’s operating system ran on over 80% of personal
computers (The Rise of Monopolies, n.d.). Although Apple had more
technologically advanced computers than those made by Microsoft, Apple’s
products were more expensive and thus were unable to generate a large
popularity within the market (The Rise of Monopolies, n.d.). Despite Microsoft’s
domination of the operating system market, it did not control any applications
markets (The Rise of Monopolies, n.d.). At
that time Lotus had the
top spreadsheet application called 1-2-3, and WordPerfect had the top word processor application
(The Rise of Monopolies, n.d.). In 1990 Microsoft introduced Windows 3.0, and
subsequently released Excel and Word (The Rise of Monopolies, n.d.). These applications
soon exceeded the popularity of those applications produced by Lotus and Word
Perfect (The Rise of Monopolies, n.d.). Microsoft’s update of Windows 3.0,
Windows 3.1 soon dominated the market, being present on 70% of personal
computers (The Rise of Monopolies, n.d.). This coupled with Microsoft’s success
within the application market, cemented Microsoft’s position as a monopoly
within the market (The Rise of Monopolies, n.d.).

Microsoft
continued to create innovative products, expanding its reach into other markets
including multimedia, business operating systems, computer games, and on-line
services (The Rise of Monopolies, n.d.).

III.   Key, specific highlights of US
Antitrust Laws & Microsoft’s violation of them

(a)  
Summary
of the 1890 Sherman Antitrust Act

A federal anti-monopoly and anti-trust statute, passed in
1890 as 15 U.S.C. §§ 1-7 and amended by the Clayton Act in 1914 (15 U.S.C. §
12-27), which prohibits activities that restrict interstate commerce and
competition in the marketplace.

Broad and sweeping in scope, § 1 of the Act states that
“every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal.” § 2 of the Act further prohibits
monopolization or attempts at monopolizing any aspect of interstate trade or
commerce and makes the act a felony. Federal district courts have the
jurisdiction to enjoin violations of the Sherman Act, and these proceedings are
instituted by United States Attorneys in their respective districts. The
injured party (whether it is the federal government, an individual state, or a
private party) is entitled to three times the amount of injury that it has
suffered; this award is known as treble damages. The Act does not apply to
trade or commerce with foreign nations unless there was conduct that has a
“direct, substantial, and reasonably foreseeable effect” and that effect gives
rise to a claim under the Act (LIT, 2010). 

(b)  
Practices
That Microsoft Was Accused of Being in Violation Of

In 1998, the Justice Department and 20 states
filed a suit against Microsoft alleging that the company was violating
antitrust laws (Weinstein, 2002). More specifically, at issue was whether Microsoft
was engaging in antitrust practices by using its monopoly over the computer
market to force computer manufacturers to exclude a browser made by Netscape on
their personal computers by bundling its web browser, Internet Explorer, with
its Windows operating system (Weinstein, 2002). As such, it was alleged that
the bundling of Microsoft’s products restricted the market for competitors (Weinstein,
2002).

            (c)   Discussion of the
trial and its outcome, including disciplinary actions

In 2000, federal Judge Thomas Penfield Jackson
ruled that Microsoft had violated antitrust laws by unlawfully maintaining its
monopoly with its Windows operating system and unlawfully bundling its Internet
Explorer browser within the Windows operating system. Federal Judge Thomas
Penfield Jackson later ruled that the company needed to be split up in order to
dismantle its monopoly power. However, federal Judge Thomas Penfield Jackson was
subsequently removed from the case before giving his final decision, because he
had spoken with reporters in an off-the-record discussion about the case. U.S.
District Judge Colleen Kollar-Kotelly was then later instated as the new judge
on the case. In 2001, both parties in the case agreed to a settlement that did
not involve breaking up the company, and Judge Colleen Kollar-Kotelly approved
the settlement in 2002.

As a part of the settlement, Microsoft agreed
to a consent decree, “a settlement of a lawsuit or criminal case in which a
person or company agrees to take specific actions without admitting fault or
guilt for the situation that led to the lawsuit”, to be overseen by Judge
Colleen Kollar-Kotelly for a period of five years. The consent decree was later
extended twice, with an ultimate end date of May 12th, 2011. The
consent decree prohibited Microsoft from creating Windows agreements that barred
competitors from being able to have access to newly manufactured computers.
Additionally, as a part of the consent decree Microsoft had to make its Windows
operating system operable with software produced by other manufacturers. Additionally,
as a part of the settlement, an independent technical committee was enlisted to
handle any complaints from competitors that may have arisen throughout the
period of the consent decree.

IV.  Impact of the decision made in United States
v. Microsoft Corp.

(a)   
Changes
in Microsoft’s production of services/goods

The consent decree that was
settled upon prohibited Microsoft from creating an operating system that made
it impossible for other software developers to integrate their products with (Gohring
& Gross, 2011). As such, Microsoft was required to disclose the middleware
interfaces it uses to competing software developers and computer manufacturers,
and Microsoft was also required to license its operating system communications
protocols to other competitors as well (Gohring & Gross, 2011).

Analysts of the computer market
and of this specific antitrust case have agreed that the outcome of this case
did not have huge repercussions for Microsoft, but instead it helped other
companies to have the boost needed to effectively compete within the market (Gohring
& Gross, 2011). However, one analyst
believed that the outcome of the case had some “psychological” effects upon
Microsoft, stating “When you put a company under scrutiny and you handcuff them
a bit in terms of what they can do, it changes their attitude and outlook and
cramps their style…but fundamentally all the remedies that came out of it were
pretty minor” (Gohring & Gross, 2011). For instance, the outcome of the
case did change the way in which Microsoft approached the debut of its new
products. According to Al Gillen, an analyst at IDC the case “had a profound
impact on Microsoft in terms of product packaging plans” (Gohring & Gross,
2011). Throughout the time since
the case’s settlement Microsoft initially wanted to bundle together its
products but refrained from doing so because of fears of treading over
antitrust laws (Gohring & Gross, 2011). This was exemplified by Microsoft’s
bundling of its Hyper-V hypervisor with its other products which occurred “only
after VMware drove the market cost down to zero for a hypervisor” (Gohring
& Gross, 2011).

Despite Microsoft’s reluctance
to make particular decisions due to the fear of breaking antitrust laws, it did
not hamper the company’s ability to continue to be a leader within the computer
and software market, branching off once again into other markets including that
of mobile devices and flourishing within the gaming systems market (Gohring
& Gross, 2011).

(b)   
Microsoft’s
relationship since then with the US government

Since its settlement Microsoft has
successfully abided by the consent decree and has not engaged within the
antitrust behaviors for which it was initially penalized for within the United
States.

(c)  
Impact on the market as a whole

The Department of Justice believed that the
settlement of this case reached in this case “leveled the playing field” within
the computer market, stating “As a result of the Department of Justice
Antitrust Division’s efforts in the Microsoft case and final judgment, the
competitive landscape changed allowing the marketplace to operate in a fair and
open manner bringing about increased innovation and more choices for consumers”
(Chan, 2011). The antitrust judgment “…
prevented Microsoft from continuing the type of exclusionary behavior that led
to the original lawsuit…Microsoft no longer dominates the computer industry as
it did when the complaint was filed in 1998. Nearly every desktop middleware
market, from Web browsers to media players to instant messaging software, is
more competitive today than it was when the final judgment was entered” (Gohring
& Gross, 2011). The outcome of the case allowed innovative ideas to
flourish since competitors have now been able to freely compete within the
market without being stifled by Microsoft’s previously harmful monopolistic
practices. Competitors have been able to develop new products that are on par
with that of Microsoft’s products, which has allowed consumers to have a
multitude of options and forces companies to continue to innovate new products (Gohring
& Gross, 2011).

V.   Conclusion

The United States’ antitrust laws
help to promote fair competition amongst firms. In the case of United States v.
Microsoft Corp., the attempt to secure that fair competition was seen. Since
the decision made in that case there have been many changes that have occurred
but there is still some disagreement as to whether or not that decision has
truly made a difference or not for the company.