Microsoft Litigation - Governmental - Anti-trust

Anti-trust

In the 1990s, Microsoft adopted exclusionary licensing under which PC manufacturers were required to pay for an MS-DOS license even when the system shipped with an alternative operating system. Critics attest that it also used predatory tactics to price its competitors out of the market and that Microsoft erected technical barriers to make it appear that competing products did not work on its operating system. In a consent decree filed on July 15, 1994, Microsoft agreed to a deal under which, among other things, the company would not make the sale of its operating systems conditional on the purchase of any other Microsoft product. On February 14, 1995 Judge Stanley Sporkin issued a 45-page opinion that the consent decree was not in the public interest. Later that spring, a three-judge federal appeals panel removed Sporkin and reassigned the consent decree. Judge Thomas Penfield Jackson entered the decree on August 21, 1995, three days before the launch of Windows 95.

A Microsoft purchase of Intuit was scuttled in 1994 due to antitrust concerns that Microsoft would be purchasing a major competitor.

After bundling the Internet Explorer web browser into its Windows operating system in the late 1990s (without requiring a separate purchase) and acquiring a dominant share in the web browser market, the antitrust case United States v. Microsoft was brought against the company. In a series of rulings by judge Thomas Penfield Jackson, the company was found to have violated its earlier consent decree and abused its monopoly in the desktop operating systems market. The "findings of fact" during the antitrust case established that Microsoft has a monopoly in the PC desktop operating systems market:

Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows. (III.34)

The findings of fact go on to explain the nature of the "barrier to entry":

The fact that there is a multitude of people using Windows makes the product more attractive to consumers. The large installed base... impels ISVs (independent software vendors) to write applications first and foremost to Windows, thereby ensuring a large body of applications from which consumers can choose. The large body of applications thus reinforces demand for Windows, augmenting Microsoft's dominant position and thereby perpetuating ISV incentives to write applications principally for Windows... The small or non-existent market share of an aspiring competitor makes it prohibitively expensive for the aspirant to develop its PC operating system into an acceptable substitute for Windows. (III.39–40)

The proposed remedy (dividing Microsoft into two companies) was overturned on appeal. While new penalties were under consideration, the Clinton administration ended and the Bush administration took office. The new administration announced that in the interest of ending the case as quickly as possible, it would no longer seek to break the company up, and that it would stop investigating claims of illegal tying of products. Eighteen days later, Judge Kollar-Kotelly ordered the justice department and Microsoft to "engage in discussions seven days a week, 24 hours a day." The judge cited the events of September 11, 2001 in her direction to begin settlement talks but did not explain the linkage between the two. Attorney General Ashcroft, however, denied that the events of September 11 had any effect on the outcome. Microsoft subsequently reached a settlement with the Department of Justice and some of the states which brought suit against it. Several class-action lawsuits filed after the conviction are still pending.

In early 2002, Microsoft proposed to settle the private lawsuits by donating $1 billion USD in money, software, services, and training, including Windows licenses and refurbished PCs, to about 12,500 underprivileged public schools. This was seen by the judge as a potential windfall for Microsoft, not only in educating schoolchildren on Microsoft solutions but also in flooding the market with Microsoft products. Among the protesters were Apple Inc. which feared further loss of its educational market share. The federal judge rejected the proposed settlement.

In 2003–2004, the European Commission investigated the bundling of Windows Media Player into Windows, a practice which rivals complained was destroying the market for their own products. Negotiations between Microsoft and the Commission broke down in March 2004, and the company was subsequently handed down a record fine of €497 million ($666 million) for its breaches of EU competition law. Separate investigations into alleged abuses of the server market were also ongoing at the same time. On December 22, 2004, the European Court decided that the measures imposed on Microsoft by the European Commission would not be delayed, as was requested by Microsoft while waiting for the appeal. Microsoft has since paid a €497 million fine, shipped versions of Windows without Windows Media Player, and licensed many of the protocols used in its products to developers in countries within the European Economic Area. However, the European Commission has charactized the much delayed protocol licensing as unreasonable, called Microsoft "non-compliant" and still violating antitrust law in 2007, and said that its RAND terms were above market prices; in addition, they said software patents covering the code "lack significant innovation", which Microsoft and the EC had agreed would determine licensing fees. Microsoft responded by saying, that other government agencies had found "considerable innovation". Microsoft appealed the facts and ruling to the European Court of First Instance with hearings in September 2006.

On September 17, 2007, the EU Court of First Instance rejected Microsoft's appeal.

The court affirmed the original contested finding:

21 In the contested decision, the Commission finds that Microsoft infringed Article 82 EC and Article 54 of the Agreement on the European Economic Area (EEA) by twice abusing a dominant position. 22 The Commission first identifies three separate worldwide product markets and considers that Microsoft had a dominant position on two of them. It then finds that Microsoft had engaged in two kinds of abusive conduct. As a result it imposes a fine and a number of remedies on Microsoft.

All elements of Microsoft's appeal were dismissed.

Microsoft accepted the judgment of the Court of First Instance and proceeded to make available interoperability information as originally required by the European Commission.

Microsoft also faced competition law in South Korea and was fined $32 million in December 2005 and ordered to unbundle instant messaging, Windows Media Player and Windows Media Service, or let competitors' products take their place. Microsoft noted in their October 2005 SEC filing that they may have to pull out of South Korea, although they later denied fulfilling such a plan. Microsoft's 2006 appeal was struck down; they have another appeal pending.

European antitrust regulators on February 27, 2008 fined Microsoft $1.3 billion for failing to comply with a 2004 judgment, that the company had abused its market dominance. The new fine by the European Commission was the largest it has ever imposed on an individual company, and brings the total in fines imposed on Microsoft to about $US 2.5 billion, at current exchange rates.

Microsoft had previously been fined after the commission determined in 2004 that the company had abused the dominance of its Windows operating system to gain unfair market advantage. The commission imposing the new fine said, that it was because the company had not met the prescribed remedies after the earlier judgment.