Microsoft browser antitrust case

We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. Twenty years ago, Microsoft tried to eliminate its competition in the race for the future of the internet.

The government had other ideas. Nineteen-ninety-eight changed the course of technology, which is to say that it changed the course of history.

An innovative search engine originally known as BackRub became a company with an even stranger name. A fast-growing online bookstore hatched a plan to start selling, well, everything. In hindsight, these were tectonic shifts, but they hardly registered as tremors compared to the earthquake emanating from Washington, D. On May 18, , the U. Justice Department and 20 state attorneys general filed an antitrust suit against the most powerful tech company in America: Microsoft.

The thenyear-old giant, which ruled the personal computer market with a despotic zeal, stood accused of using monopoly power to bully collaborators and squelch competitors. Giants always fall, eventually. Microsoft may have simply been too bloated by the turn of the century to outflank more nimble competitors like Google and Apple.

Microsoft never would have thought of these ideas first, but absent government intervention, it might have devised ways to eliminate the companies that did.

Amazon and Facebook have also been accused of monopolistic tendencies. A representative from Microsoft did not respond to requests to participate in this project. All titles refer to roles interviewees held at the time during which the story takes place. The Redmond, Washington—based company cast a pall over innovation in Silicon Valley, until a well-funded startup called Netscape invented a way to bring the internet to the masses. Gary Reback antitrust lawyer representing Netscape : The tech industry in the United States had always been monopolized by a company.

Jon Mittelhauser founding engineer, Netscape : Software was this large process that big companies did that they sold on the shelves at brick-and-mortar stores. They had pretty much swallowed everybody else. There was this long history of the first word processor that got traction was WordPerfect, and it got killed by Microsoft Word. And the first spreadsheet was Lotus and it pretty much got killed by Microsoft Excel. They were the pound gorilla. Mittelhauser was one of several University of Illinois students who helped code Mosaic, the first popular web browser, while working at the National Center for Supercomputing Applications.

The project was led by Marc Andreessen, who would go on to become the cofounder of Netscape and the prominent venture capital firm Andreessen Horowitz. Andreessen and the Mosaic team recognized early on that what they were building could one day usurp Windows.

Mittelhauser: When the first version of Mosaic came out, it was one of those things that, for lack of a better term, kinda went viral. Mosaic exploded across all of what the internet was at that point, [at] universities and research institutes. Levy: Andreessen, his confidence was unparalleled. He teamed up with Jim Clark, who was an experienced entrepreneur from Silicon Graphics. The first time I talked to him, he was talking about how the web would be the next operating system.

It was a template for the future of unlimited ambition by internet entrepreneurs, like [Jeff] Bezos and the Google people and even [Mark] Zuckerberg later on. Mittelhauser: Marc and Jim flew out, met the rest of the team, and hired us on the spot. At some point later in May I graduated, as far as I know.

I was heads-down building Netscape. Marc Andreessen famously said what they wanted to do was reduce Windows to a buggy set of device drivers underneath the browser, which would be the new top player that people would see and interact with.

Levy: Out of nowhere, it was the hot company. Andreessen posed barefoot on the cover of Time. This was something that was alien to people back then. Even Bill Gates wore shoes. Mittelhauser: The IPO [in August ] is the single moment when we were feeling the most on top of the world. It really was the beginning of the internet boom.

The day that Netscape went public, a company that had no revenue all of a sudden [had] billions of dollars in valuation. The rise of Netscape posed an existential threat to Microsoft, which feared that the web browser would supplant the desktop operating system as the primary way people interfaced with computers.

Microsoft soon began developing a competing browser, dubbed Internet Explorer, and strategized about how to steal market share from Netscape. Reback: Gates had missed the whole internet.

The reason they got into so much trouble is because once Gates understood what was there, by this time Netscape [was] pretty far ahead. Gates apparently from time to time would kind of retreat and reflect about the world. He was obviously an enormously visionary businessman. And then he would come back and share his thinking with the company.

I have gone through several stages of increasing my views of its importance. Now I assign the Internet the highest level of importance.

In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. Andrew Gavil antitrust professor, Howard University School of Law : In the famous email memo that Bill Gates wrote, which became a big part of the case, he warned about the commoditization of the operating system.

That was anathema to Microsoft. If Windows became just another commodity, they would lose all the value they had created. Department of Justice, various states, the European Commission, and many private litigants pursued antitrust actions against the tech giant Microsoft. In investigating and prosecuting Microsoft, federal and state prosecutors were playing their traditional role of reining in a corporate power intent on eliminating competition. Seen from another perspective, however, the government's prosecution of Microsoft—in which it deployed the century-old Sherman Antitrust Act in the volatile and evolving global business environment of the digital era—was unprecedented.

In this book, two experts on competition policy offer a comprehensive account of the multiple antitrust actions against Microsoft—from beginning to end—and an assessment of the effectiveness of antitrust law in the twenty-first century. Gavil and First describe in detail the cases that the Department of Justice and the states initiated in , accusing Microsoft of obstructing browser competition and perpetuating its Windows monopoly.

They cover the private litigation that followed, and the European Commission cases decided in and They also consider broader issues of competition policy in the age of globalization, addressing the adequacy of today's antitrust laws, their enforcement by multiple parties around the world, and the difficulty of obtaining effective remedies—all lessons learned from the Microsoft cases.

This insightful analysis is both an excellent introduction to the complexities of antitrust law and a thoughtful discussion of the ideological disagreements involving competition policy. The concluding chapter, addressing lessons from the Microsoft cases, is especially compelling.

The authors have it right when they claim that the actions of Microsoft brought to the public's eye some of the most advanced doctrinal, economic, and institutional facets of modern antitrust enforcement.

The book is uniquely successful in bringing all of those issues to our attention. This smartly written book is a tour de force in the comparative study of competition law. It does what no prior book has done for the large family of antitrust cases we call 'Microsoft,' developing both the technological history and the possibilities and limits of the law.

Google are scheduled to begin on September 12th, Amid labor shortage, Army offers largest enlistment bonus ever. Load Error. Microsoft and partners may be compensated if you purchase something through recommended links in this article. Found the story interesting? Upon the record before the Court as of July 28, , at the close of the admission of evidence, pursuant to Fed. The Court shall state the conclusions of law to be drawn therefrom in a separate Memorandum and Order to be filed in due course.

A "personal computer" "PC" is a digital information processing device designed for use by one person at a time. A typical PC consists of central processing components e. PC systems, which include desktop and laptop models, can be distinguished from more powerful, more expensive computer systems known as "servers," which are designed to provide data, services, and functionality through a digital network to multiple users.

The operating system also supports the functions of software programs, called "applications," that perform specific user-oriented tasks. The operating system supports the functions of applications by exposing interfaces, called "application programming interfaces," or "APIs.

These blocks of code in turn perform crucial tasks, such as displaying text on the computer screen. Because it supports applications while interacting more closely with the PC system's hardware, the operating system is said to serve as a "platform.

An operating system designed to run on an Intel-compatible PC will not function on a non-Intel-compatible PC, nor will an operating system designed for a non-Intel-compatible PC function on an Intel-compatible one.

Similarly, an application that relies on APIs specific to one operating system will not, generally speaking, function on another operating system unless it is first adapted, or "ported," to the APIs of the other operating system. Defendant Microsoft Corporation is organized under the laws of the State of Washington, and its headquarters are situated in Redmond, Washington. Since its inception, Microsoft has focused primarily on developing software and licensing it to various purchasers.

In , Microsoft began shipping a software package called Windows. The product included a graphical user interface, which enabled users to perform tasks by selecting icons and words on the screen using a mouse.

Although originally just a user-interface, or "shell," sitting on top of MS-DOS, Windows took on more operating-system functionality over time.

In , Microsoft introduced a software package called Windows 95, which announced itself as the first operating system for Intel-compatible PCs that exhibited the same sort of integrated features as the Mac OS running PCs manufactured by Apple Computer, Inc. Windows 95 enjoyed unprecedented popularity with consumers, and in June , Microsoft released its successor, Windows Microsoft is the leading supplier of operating systems for PCs.

The company transacts business in all fifty of the United States and in most countries around the world. Microsoft licenses copies of its software programs directly to consumers. An OEM typically installs a copy of Windows onto one of its PCs before selling the package to a consumer under a single price. The Internet is a global electronic network, consisting of smaller, interconnected networks, which allows millions of computers to exchange information over telephone wires, dedicated data cables, and wireless links.

The Internet links PCs by means of servers, which run specialized operating systems and applications designed for servicing a network environment. The World Wide Web "the Web" is a massive collection of digital information resources stored on servers throughout the Internet. These resources are typically provided in the form of hypertext documents, commonly referred to as "Web pages," that may incorporate any combination of text, graphics, audio and video content, software programs, and other data.

A user of a computer connected to the Internet can publish a page on the Web simply by copying it into a specially designated, publicly accessible directory on a Web server. Some Web resources are in the form of applications that provide functionality through a user's PC system but actually execute on a server. Internet content providers "ICPs" are the individuals and organizations that have established a presence, or "site," on the Web by publishing a collection of Web pages.

Most Web pages are in the form of "hypertext"; that is, they contain annotated references, or "hyperlinks," to other Web pages. Hyperlinks can be used as cross-references within a single document, between documents on the same site, or between documents on different sites. Typically, one page on each Web site is the "home page," or the first access point to the site. The home page is usually a hypertext document that presents an overview of the site and hyperlinks to the other pages comprising the site.

PCs typically connect to the Internet through the services of Internet access providers "IAPs" , which generally charge subscription fees to their customers in the United States. There are two types of IAPs. Internet service providers "ISPs" such as MindSpring and Netcom, on the other hand, offer few services apart from Internet access and relatively little of their own content.

A "Web client" is software that, when running on a computer connected to the Internet, sends information to and receives information from Web servers throughout the Internet. A "Web browser" is a type of Web client that enables a user to select, retrieve, and perceive resources on the Web. In particular, Web browsers provide a way for a user to view hypertext documents and follow the hyperlinks that connect them, typically by moving the cursor over a link and depressing the mouse button.

Although certain Web browsers provided graphical user interfaces as far back as , the first widely-popular graphical browser distributed for profit, called Navigator, was brought to market by the Netscape Communications Corporation in December Microsoft introduced its browser, called Internet Explorer, in July Currently there are no products, nor are there likely to be any in the near future, that a significant percentage of consumers world-wide could substitute for Intel-compatible PC operating systems without incurring substantial costs.

Furthermore, no firm that does not currently market Intel-compatible PC operating systems could start doing so in a way that would, within a reasonably short period of time, present a significant percentage of consumers with a viable alternative to existing Intel-compatible PC operating systems.

It follows that, if one firm controlled the licensing of all Intel-compatible PC operating systems world-wide, it could set the price of a license substantially above that which would be charged in a competitive market and leave the price there for a significant period of time without losing so many customers as to make the action unprofitable.

Therefore, in determining the level of Microsoft's market power, the relevant market is the licensing of all Intel-compatible PC operating systems world-wide. Consumers could not turn from Intel-compatible PC operating systems to Intel- compatible server operating systems without incurring substantial costs, since the latter type of system is sold at a significantly higher price than the former.

A consumer intent on acquiring a server operating system would also have to buy a computer of substantially greater power and price than an Intel-compatible PC, because server operating systems generally cannot function properly on PC hardware. The price of an Intel-compatible PC operating system accounts for only a very small percentage of the price of an Intel-compatible PC system. Thus, even a substantial increase in the price of an Intel-compatible PC operating system above the competitive level would result in only a trivial increase in the price of an Intel-compatible PC system.

Very few consumers would purchase expensive servers in response to a trivial increase in the price of an Intel-compatible PC system. Furthermore, a consumer would not obtain a satisfactory substitute for an Intel-compatible PC operating system even if he purchased a server, since server operating systems lack the features — and support for the breadth of applications — that induce users to purchase Intel-compatible PC operating systems.

Thus, for consumers who already own an Intel-compatible PC system, the cost of switching to a non-Intel compatible PC operating system includes the price of not only a new operating system, but also a new PC and new peripheral devices.

It also includes the effort of learning to use the new system, the cost of acquiring a new set of compatible applications, and the work of replacing files and documents that were associated with the old applications. Very few consumers would incur these costs in response to the trivial increase in the price of an Intel-compatible PC system that would result from even a substantial increase in the price of an Intel-compatible PC operating system.

For example, users of Intel- compatible PC operating systems would not switch in large numbers to the Mac OS in response to even a substantial, sustained increase in the price of an Intel-compatible PC operating system. The response to a price increase would be somewhat greater among consumers buying their first PC system, because they would not have already invested time and money in an Intel-compatible PC system and a set of compatible applications.

Apple does not license the Mac OS separately from its PC hardware, however, and the package of hardware and software comprising an Apple PC system is priced substantially higher than the average price of an Intel- compatible PC system.

Furthermore, consumer demand for Apple PC systems suffers on account of the relative dearth of applications written to run on the Mac OS. It is unlikely, then, that a firm controlling the licensing of all Intel-compatible PC operating systems would lose so many new PC users to Apple as the result of a substantial, enduring price increase as to make the action unprofitable.

It is therefore proper to define a relevant market that excludes the Mac OS. In any event, as Section III of these findings demonstrates, including the Mac OS in the relevant market would not alter the Court's conclusion as to the level of Microsoft's market power. No operating system designed for a hand-held computer, a "smart" wireless telephone, a television set-top box, or a game console is capable of performing as an adequate operating system for an Intel-compatible PC.

Therefore, in order to adopt a substitute for the Intel-compatible PC operating system from the realm of "information appliances," a consumer must acquire one or more of these devices in lieu of an Intel-compatible PC system.

It is possible that, within the next few years, those consumers who otherwise would use an Intel-compatible PC system solely for storing addresses and schedules, for sending and receiving E-mail, for browsing the Web, and for playing video games might be able to choose a complementary set of information appliances over an Intel-compatible PC system without incurring substantial costs.

To the extent this substitution occurs, though, it will be the result of innovation by the producers of information appliances, and it will occur even if Intel- compatible PC operating systems are priced at the same level that they would be in a competitive market. More importantly, while some consumers may decide to make do with one or more information appliances in place of an Intel-compatible PC system, the number of these consumers will, for the foreseeable future, remain small in comparison to the number of consumers deciding that they still need an Intel-compatible PC system.

One reason for this is the fact that no single type of information appliance, nor even all types in the aggregate, provides all of the features that most consumers have come to rely on in their PC systems and in the applications that run on them.

Thus, most of those who buy information appliances will do so in addition to, rather than instead of, buying an Intel-compatible PC system. Not surprisingly, then, sales of PC systems are not expected to suffer on account of the growing consumer interest in information appliances.

It follows that, for the foreseeable future, a firm controlling the licensing of all Intel-compatible PC operating systems could set prices substantially above competitive levels without losing an unacceptable amount of business to information appliances. A network computer system sometimes called a "thin client" typically contains central processing components with basic capabilities, certain key peripheral devices such as a monitor, a keyboard, and a mouse , an operating system, and a browser.

The system contains no mass storage, however, and it processes little if any data locally. Instead, the system receives processed data and software as needed from a server across a network. A network computer system lacks the hardware resources to support an Intel-compatible PC operating system. It follows that software applications written to run on a specific Intel-compatible PC operating system will not run on a network computer.

Network computers can run applications residing on a designated server, however. Moreover, a network computer system typically can run applications residing on other servers, so long as those applications are accessible through Web sites. The ability to run server-based applications is not exclusive to network computer systems, however. Generally speaking, any PC system equipped with a browser and an Internet connection is capable of accessing applications hosted through Web sites.

Since the network computing model relies heavily on the processing power and memory of servers, the requirements for the user's hardware and thus the price of that hardware are low relative to those of an Intel-compatible PC system. Still, a user who already owns a relatively expensive Intel-compatible PC system is not likely to abandon the investment and acquire less powerful hardware just because one of the least expensive components of his PC system — the operating system — is substantially more expensive than it would be under competitive conditions.

Just as does the Mac OS, the network computing model presents a somewhat more attractive alternative to the first-time computer buyer. But as in the case where a prospective purchaser is considering acquiring the Apple alternative, a new buyer considering the network computing model must choose between types of computer systems. If the consumer opts for the less expensive hardware of the network computer, that hardware will not support an Intel-compatible PC operating system; and if the new buyer opts for the more expensive hardware of an Intel-compatible PC, an Intel-compatible PC operating system will almost certainly come pre-installed and in any event represent very little additional cost relative to the price of the hardware.

Only a few firms currently market network computer systems, and the systems have yet to attract substantial consumer demand. In part, this is because PC systems, which can store and process data locally as well as communicate with a server, have decreased so much in price as to call into question the value proposition of buying a network computer system. This fact would not change if the price of an Intel-compatible PC operating system rose significantly, because the resulting change in the price of an Intel-compatible PC system would be very minor.

Another reason for the limited demand for network computer systems is the fact that few consumers are in a position to turn from PC systems to network computer systems without making substantial sacrifices; for the network computing option exhibits significant shortcomings for current PC owners and first-time buyers alike. The problems of latency, congestion, asynchrony, and insecurity across a communications network, and contention for limited processing and memory resources at the remote server, can all result in a substantial derogation of computing performance.

Moreover, the owner of a network computer is required to enter into long-term dependency upon the owner of a remote server in order to obtain functionality that would reside within his control if he owned a PC system. If network computing becomes a viable alternative to PC-based computing, it will be because innovation by the proponents of the network computing model overcomes these problems, and it will happen even if Intel-compatible PC operating systems are priced at competitive levels.

In any case, that day has not arrived, nor does it appear imminent. As the bandwidth available to the average user increases, "portal" Web sites, which aggregate Web content and provide services such as search engines, E-mail, and travel reservation systems, could begin to host full lines of the server-based, personal-productivity applications that have begun to appear in small numbers on the Web.

If so, increasing numbers of computer users equipped with Web browsers and IAP connections could begin to conduct a significant portion of their computing through these portals. To the extent they might do so, users probably would not regard the Mac OS's limited stock of compatible applications as the major drawback to using an Apple PC system that it is today, and they might be increasingly drawn to network computer systems and information appliances.

The variety and ease of use of server-based applications accessible through browsers would have to increase a great deal from today's levels, however, before the total costs of dispensing with an Intel-compatible PC operating system would decline sufficiently to impose a significant constraint on the pricing of those systems.

Again, that day is not imminent; for at least the next few years, the overwhelming majority of consumers accessing server-based applications will do so using an Intel-compatible PC system and a browser. Operating systems are not the only software programs that expose APIs to application developers. Such software is often called "middleware" because it relies on the interfaces provided by the underlying operating system while simultaneously exposing its own APIs to developers.

Currently no middleware product exposes enough APIs to allow independent software vendors "ISVs" profitably to write full-featured personal productivity applications that rely solely on those APIs. Even if middleware deployed enough APIs to support full-featured applications, it would not function on a computer without an operating system to perform tasks such as managing hardware resources and controlling peripheral devices.

But to the extent the array of applications relying solely on middleware comes to satisfy all of a user's needs, the user will not care whether there exists a large number of other applications that are directly compatible with the underlying operating system.

Thus, the growth of middleware-based applications could lower the costs to users of choosing a non-Intel-compatible PC operating system like the Mac OS. It remains to be seen, though, whether there will ever be a sustained stream of full-featured applications written solely to middleware APIs. In any event, it would take several years for middlware and the applications it supports to evolve from the status quo to a point at which the cost to the average consumer of choosing a non-Intel compatible PC operating system over an Intel-compatible one falls so low as to constrain the pricing of the latter systems.

Firms that do not currently produce Intel-compatible PC operating systems could do so. What is more, once a firm had written the necessary software code, it could produce millions of copies of its operating system at relatively low cost. The ability to meet a large demand is useless, however, if the demand for the product is small, and signs do not indicate large demand for a new Intel-compatible PC operating system.

To the contrary, they indicate that the demand for a new Intel-compatible PC operating system would be severely constrained by an intractable "chicken-and-egg" problem: The overwhelming majority of consumers will only use a PC operating system for which there already exists a large and varied set of high- quality, full-featured applications, and for which it seems relatively certain that new types of applications and new versions of existing applications will continue to be marketed at pace with those written for other operating systems.

Unfortunately for firms whose products do not fit that bill, the porting of applications from one operating system to another is a costly process. Consequently, software developers generally write applications first, and often exclusively, for the operating system that is already used by a dominant share of all PC users.

Users do not want to invest in an operating system until it is clear that the system will support generations of applications that will meet their needs, and developers do not want to invest in writing or quickly porting applications for an operating system until it is clear that there will be a sizeable and stable market for it. What is more, consumers who already use one Intel-compatible PC operating system are even less likely than first-time buyers to choose a newcomer to the field, for switching to a new system would require these users to scrap the investment they have made in applications, training, and certain hardware.

The chicken-and-egg problem notwithstanding, a firm might reasonably expect to make a profit by introducing an Intel-compatible PC operating system designed to support a type of application that satisfies the special interests of a particular subset of users.

For example, Be, Inc. Still, while a niche operating system might turn a profit, the chicken-and-egg problem hereinafter referred to as the "applications barrier to entry" would make it prohibitively expensive for a new Intel-compatible operating system to attract enough developers and consumers to become a viable alternative to a dominant incumbent in less than a few years.

To the extent that developers begin writing attractive applications that rely solely on servers or middleware instead of PC operating systems, the applications barrier to entry could erode. As the Court finds above, however, it remains to be seen whether server- or middleware- based development will flourish at all.

Even if such development were already flourishing, it would be several years before the applications barrier eroded enough to clear the way for the relatively rapid emergence of a viable alternative to incumbent Intel-compatible PC operating systems.

It is highly unlikely, then, that a firm not already marketing an Intel-compatible PC operating system could begin marketing one that would, in less than a few years, present a significant percentage of consumers with a viable alternative to incumbents. Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market.

Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors.

In other words, Microsoft enjoys monopoly power in the relevant 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. Microsoft possesses a dominant, persistent, and increasing share of the world- wide market for Intel-compatible PC operating systems.

Every year for the last decade, Microsoft's share of the market for Intel-compatible PC operating systems has stood above ninety percent. For the last couple of years the figure has been at least ninety-five percent, and analysts project that the share will climb even higher over the next few years.

Even if Apple's Mac OS were included in the relevant market, Microsoft's share would still stand well above eighty percent. Microsoft's dominant market share is protected by the same barrier that helps define the market for Intel-compatible PC operating systems.

As explained above, the applications barrier would prevent an aspiring entrant into the relevant market from drawing a significant number of customers away from a dominant incumbent even if the incumbent priced its products substantially above competitive levels for a significant period of time. Because Microsoft's market share is so dominant, the barrier has a similar effect within the market: It prevents Intel-compatible PC operating systems other than Windows from attracting significant consumer demand, and it would continue to do so even if Microsoft held its prices substantially above the competitive level.

Consumer interest in a PC operating system derives primarily from the ability of that system to run applications. The consumer wants an operating system that runs not only types of applications that he knows he will want to use, but also those types in which he might develop an interest later. Also, the consumer knows that if he chooses an operating system with enough demand to support multiple applications in each product category, he will be less likely to find himself straitened later by having to use an application whose features disappoint him.