United States v. Microsoft Corp.

Based on Wikipedia: United States v. Microsoft Corp.

The Trial That Almost Broke Microsoft

In a Washington courtroom in the late 1990s, the world's richest man was making a fool of himself on videotape. Bill Gates, founder of Microsoft and architect of the personal computer revolution, sat through hours of deposition arguing about the meaning of words like "we" and "ask." He said "I don't recall" so many times that even the judge couldn't help but laugh. The prosecutors had emails—sent and received by Gates himself—that directly contradicted his sworn testimony.

This wasn't some minor regulatory spat. The United States government was trying to break Microsoft in half.

How One Company Came to Own Computing

To understand why the government went after Microsoft with everything it had, you need to understand just how thoroughly the company dominated the computer industry by the 1990s.

It started with an operating system. An operating system is the foundational software that runs on a computer—it's the layer between you and the machine, the thing that lets you click icons and run programs. Without it, a computer is just an expensive paperweight. In 1983, Microsoft had already built a $55 million business selling its operating system, called MS-DOS, or Microsoft Disk Operating System. Industry observers were already worried. That year, InfoWorld described Microsoft as attempting "to be the IBM of the software industry."

By 1986, Microsoft controlled 8 percent of the entire microcomputer software market—more than a quarter billion dollars. But the operating system numbers were staggering: of the 15 million Americans who used a personal computer at work, more than 90 percent used MS-DOS.

Think about that for a moment. Nine out of ten working Americans who touched a computer did so through Microsoft's software.

One industry analyst put it this way: Microsoft owned all the bats and the field. They made the operating system that everyone needed, and that gave them an enormous advantage when selling other software too. If you control the foundation, you can build whatever you want on top of it.

The Browser Wars Begin

In the mid-1990s, something genuinely new appeared: the World Wide Web. And with it came a new kind of software called a web browser—a program that let you view websites, click links, and explore this strange new digital frontier.

The early leader in browsers was a company called Netscape, founded by Marc Andreessen, one of the original creators of the web browser itself. Netscape Navigator was the product everyone wanted. It was fast, it was innovative, and for a brief moment, it looked like it might challenge Microsoft's dominance.

Here's why that mattered: a web browser could potentially become a platform in itself. If people did everything through their browser—email, documents, applications—they might stop caring which operating system they were running underneath. The browser could make Windows irrelevant.

Microsoft saw this threat clearly. One senior Microsoft executive, Paul Maritz, allegedly stated the company's intention to "extinguish" and "smother" Netscape. The colorful phrase that made it into court records? Microsoft wanted to "cut off Netscape's air supply."

How do you cut off a competitor's air supply? You give away their product for free.

The Bundle That Launched a Thousand Lawsuits

Microsoft created its own web browser, Internet Explorer, and did something audacious: they bundled it directly into Windows. Every single person who bought a computer with Windows installed automatically got Internet Explorer too. No extra purchase. No extra download. It was just there.

If you wanted Netscape Navigator instead, you had to go out of your way to find it, download it (over dial-up internet, which could take forever), and install it yourself. Most people simply used what was already there.

This is the heart of what economists call "tying"—bundling two products together so that buying one means you automatically get the other. It's not always illegal. Nobody sues car manufacturers for including a steering wheel. But when a company with monopoly power uses tying to crush competitors, antitrust law has something to say about it.

The Sherman Antitrust Act, passed way back in 1890, was designed to prevent exactly this kind of behavior. The law doesn't prohibit being a monopoly—you can grow to dominate a market through superior products and smart business decisions. What the law prohibits is using that monopoly power to unfairly destroy competition.

The Government Makes Its Move

The Federal Trade Commission, or FTC, had been sniffing around Microsoft since 1990. But the investigation stalled in 1993 when the commissioners deadlocked 2-2 on whether to take action. The Department of Justice, led by Attorney General Janet Reno, picked up where the FTC left off.

In 1994, Microsoft agreed to a settlement: they promised not to tie other Microsoft products to Windows sales. But there was a loophole big enough to drive a truck through. Microsoft could still "integrate additional features" into the operating system. Microsoft claimed Internet Explorer wasn't a separate product at all—it was a feature of Windows, like the calculator or the file manager.

The government didn't buy this argument. How could Internet Explorer be an inseparable feature of Windows when Microsoft made a completely separate version of Internet Explorer for Apple's Macintosh computers? You don't make separate versions of an "integrated feature."

On May 18, 1998, the Department of Justice and the attorneys general of twenty states plus the District of Columbia filed suit against Microsoft. The case landed before Judge Thomas Penfield Jackson.

The Courtroom Theater

What happened next was unlike any antitrust trial in American history. It became a spectacle.

There were the Gates depositions, where the world's most famous technology executive appeared to have sudden amnesia about basic facts of his own company's operations. Prosecutors would read an email Gates had written, and Gates would dispute what the words meant. It was, observers said, "evasive and nonresponsive."

Then there were the videotapes.

Microsoft submitted video evidence supposedly showing that removing Internet Explorer from Windows caused the operating system to malfunction. The government's lawyers watched carefully. They noticed something odd: icons on the computer desktop disappeared and reappeared during what was supposed to be a continuous recording. Someone had been editing the tape—and not very skillfully.

Jim Allchin, a Microsoft vice president, initially blamed his staff for "grabbing the wrong screen shot." Microsoft produced a new video. But in making the new one, they quietly dropped the original claim that Windows slowed down without Internet Explorer.

It got worse. Microsoft submitted another video showing how easy it was to download and install Netscape Navigator as an alternative browser. Look, they seemed to be saying, users have choices. But when the government made its own video of the exact same process, it revealed that Microsoft had edited out the long, complicated parts. Microsoft's tape also showed the Netscape icon appearing conveniently on the desktop—but in reality, users had to search through menus to find it.

A Microsoft vice president, Brad Chase, had to verify the government's tape and admit that Microsoft's own video was, in fact, falsified.

At one point, Judge Jackson suggested that Microsoft simply offer a version of Windows without Internet Explorer. Microsoft's response was remarkable: they said they could either give manufacturers an obsolete version or one that didn't work properly.

"It seemed absolutely clear to you that I entered an order that required that you distribute a product that would not work?" the judge asked.

"In plain English, yes," replied David Cole, a Microsoft vice president. "We followed that order. It wasn't my place to consider the consequences of that."

The Think Tank Ad Campaign

While the trial proceeded, Microsoft fought a public relations war. The company portrayed itself as an innovative American success story under attack by jealous competitors who had turned the government into their weapon.

On June 2, 1999, a full-page advertisement appeared in The Washington Post and The New York Times. It was styled as "An Open Letter to President Clinton from 240 Economists on Antitrust Protectionism," published by something called The Independent Institute.

The ad argued that consumers were getting falling prices, expanding choices, and "a breathtaking array of new products and innovations." The antitrust case, it claimed, was really about rival companies trying to use the government to handicap their more successful competitor.

What the ad didn't emphasize was the Independent Institute's own funding sources. This kind of campaign—using academic-looking credentials to advance a corporate position—would become increasingly common in subsequent decades.

The Verdict and the Breakup Order

On November 5, 1999, Judge Jackson issued his findings of fact. The ruling was devastating for Microsoft.

Jackson found that Microsoft's dominance of the personal computer operating system market constituted a monopoly. More than that, he found Microsoft had taken deliberate actions to crush threats to that monopoly. The list of victims was long: Apple, Java, Netscape, Lotus Software, RealNetworks, Linux, and others. Each had threatened Microsoft's grip in some way. Each had been targeted.

On April 3, 2000, Jackson went further, issuing his conclusions of law. Microsoft had violated Sections 1 and 2 of the Sherman Antitrust Act through monopolization, attempted monopolization, and illegal tying.

Then came the remedy. On June 7, 2000, Judge Jackson ordered Microsoft broken into two separate companies—one for the Windows operating system, one for everything else.

This was the nuclear option. The last time the government had broken up a major technology company was the AT&T telephone monopoly in 1984, which created the "Baby Bells" regional phone companies. Now Microsoft, at the peak of its power, faced the same fate.

Bill Gates and Steve Ballmer, who had become CEO, were terrified. They discussed leaving Microsoft entirely if the company were "split up in a totally irrational way."

The Appeals Court Reversal

Microsoft appealed, and in June 2001, the story took a dramatic turn.

The D.C. Circuit Court of Appeals overturned Judge Jackson's breakup order. But it wasn't because the appeals court thought Microsoft was innocent. The problem was Judge Jackson himself.

While the trial was ongoing, Jackson had been talking to reporters about the case. This violated the code of conduct for federal judges, who are supposed to maintain the appearance of impartiality. The appeals court accused Jackson of unethical behavior and said he should have removed himself from the case. Because of his conduct, the court adopted what it called a "drastically altered scope of liability"—meaning Microsoft got off easier than it otherwise would have.

Jackson didn't take this quietly. He fired back that Microsoft executives had "proved, time and time again, to be inaccurate, misleading, evasive, and transparently false." He called Microsoft "a company with an institutional disdain for both the truth and for rules of law that lesser entities must respect."

The findings of fact—the determination of what actually happened—were not overturned. Microsoft had done what the government said it did. But the punishment was dramatically reduced.

The Settlement

The case returned to the district court under a new judge, Colleen Kollar-Kotelly. By this point, something else had changed too: the political landscape. The George W. Bush administration had taken office, and in September 2001, the Department of Justice announced it was no longer seeking to break up Microsoft.

On November 1, 2001, the DOJ reached a settlement. Microsoft would share some of its programming interfaces with other companies—the technical specifications that let other software work with Windows. A panel of investigators would have access to Microsoft's systems, records, and source code for five years to ensure compliance.

What Microsoft didn't have to do was equally significant. It didn't have to change any of its code. It wasn't prohibited from bundling new software with Windows in the future. The behavior that had triggered the lawsuit in the first place remained essentially legal.

Nine states and the District of Columbia objected, arguing the settlement didn't go far enough. In June 2004, the D.C. Circuit Court rejected their objections and approved the deal.

What Actually Happened to the Browser Market

Here's an irony worth savoring: the market eventually solved the browser problem in ways the government settlement never did.

Internet Explorer won the browser wars of the 1990s. By 2003, it had roughly 95 percent of the browser market. Microsoft had successfully cut off Netscape's air supply.

But victory bred complacency. Microsoft stopped innovating on Internet Explorer. The company released Internet Explorer 6 in 2001 and then essentially abandoned development for years. The browser became bloated, slow, and riddled with security vulnerabilities.

Into this vacuum came Firefox, an open-source browser that launched in 2004. Firefox was faster, safer, and more customizable. It was built partly from the ashes of Netscape—the company had released its browser code as open source before dying.

Then in 2008, Google launched Chrome. Within a few years, Chrome dominated the browser market more thoroughly than Internet Explorer ever had. By the 2020s, Internet Explorer was such an afterthought that Microsoft discontinued it entirely.

The competitive pressure that antitrust law tried to preserve eventually arrived—just not through legal action.

The Lessons That Linger

The Microsoft case established precedents that continue to shape technology antitrust law today. Courts recognized that traditional antitrust analysis wasn't equipped to handle software-specific practices like browser bundling. The case forced lawyers and judges to grapple with questions about what competition even means when a product can be copied infinitely at zero cost.

Some argue the settlement was far too weak—that Microsoft got away with clearly anticompetitive behavior because a judge made the mistake of talking to journalists, and because a new administration had different enforcement priorities. Others argue that markets moved so fast the case was nearly irrelevant by the time it concluded.

Bill Gates himself maintained that "Microsoft follows the rules. Microsoft is subject to the rules." He compared the Microsoft case to earlier fears about IBM's dominance: "People who feared IBM were wrong. Technology is ever-changing."

He had a point about IBM—that company's dominance eventually faded without government intervention. And Microsoft's own dominance has evolved. The company remains enormously powerful and profitable, but the Windows monopoly no longer defines the computing landscape the way it did in the 1990s. Smartphones, cloud computing, and new platforms shifted where power resides in the technology industry.

Whether that shift happened because of the antitrust case, despite it, or completely independent of it remains debated.

The Modern Echo

Today, different giants dominate technology: Google, Apple, Amazon, Meta. Each faces its own antitrust scrutiny. The questions sound remarkably similar to those asked about Microsoft a quarter century ago.

Does Google unfairly favor its own services in search results? Does Apple's control of the App Store constitute illegal tying? Does Amazon use its marketplace dominance to crush competing sellers? These cases wind through courts now, with lawyers citing the Microsoft precedent on both sides.

The Microsoft case taught us that monopolies in technology are both more powerful and more fragile than they appear. A company can seem utterly dominant one decade and find itself struggling for relevance the next. At the same time, the behaviors that entrenched Microsoft's power—bundling, exclusionary contracts, using platform control to disadvantage competitors—remain tempting strategies for any company in a dominant position.

Judge Jackson called Microsoft a company with "institutional disdain for rules of law that lesser entities must respect." Whether that attitude disappeared with the consent decree, or whether it simply moved to new addresses in Silicon Valley, is a question we're still answering.