Micropoly: Truth or Imagination?

“Oh my gosh, Microsoft? We’re not going to sue Microsoft are we?"(i) Thomas Miller, the chairman of the antitrust committee of the attorney general, sentiment’s spread throughout United States as the investigation into monopoly like behavior in Microsoft’s corporate hierarchy quickly heated in 1997. The lawsuit filed would turn into what some called the trial of the century. The Microsoft trial, effecting technophile and technophobe alike, will challenge the Sherman Act, which for 110 years has kept corporate structures of US companies from becoming too aggressive. However, this law is outdated and does not apply to the software industry which Microsoft is prominent. A second problem with this trial deals with Judge Penfield Jackson and his seemingly biased ruling. He said repeatedly during and after the trial his decision to breakup Microsoft came through newspaper reports and interviews with Microsoft executives who did not admit any wrong doing. However this is extremely biased and not based on the information presented in the trial. The Microsoft Antitrust trial proves the Sherman Act of 1890 is out of date, and Judge Jackson made a biased decision, which could destroy stability in the computer industry as a result.

            Investigations into Microsoft’s business practices started in the early 1990s, but the United States could not find enough information to cause the small, but rising empire to even feel threatened. With very little evidence and an extremely wary conscience the United States agreed to a consent agreement in August of 1995. The six page agreement, which required Microsoft to make minor changes in its licensing agreement with computer manufacturers for the Windows operating system, but did not in anyway affect Microsoft’s business practices. The agreement seemed like a major victory for Microsoft. William Neukom, Microsoft’s general council said, “At the end of five years, we were willing to accommodate the government on some licensing matters, and the rest of our practices apparently passed muster.” (ii) Microsoft certainly had reason to celebrate, but for the wrong reasons. Microsoft’s business practices had not passed muster, in fact far from, and this small victory would prove to be its last for an extremely long time.

            In early 1995, Microsoft Chairman Bill Gates and his executives set their eyes on the Navigator web browser created by Netscape Communications Corporation. Gates, worried that Netscape would use its web browsing power to eventually form its own OS platform tried to convince Netscape owners to allow Microsoft to make major investments with them, promising Microsoft programming support for Navigator, if they agreed to split the browser market with Microsoft’s Internet Explorer browser. James Karsdale, President of the company, did not like this idea and felt threatened by this tactic of Microsoft. He told them that he was not interested. A few months later, Compaq was given an ultimatum by Microsoft: Compaq could keep its Windows license or package Netscape with their computers. Since Compaq could not afford to lose its license for the industry standard Windows OS, they went with Windows and discontinued the packaging of Netscape. Karsdale, furious with Microsoft’s ultimatum, sent the DOJ a 222 page white paper accusing Microsoft of using its monopoly in operating systems to force PC makers to use the Microsoft browser over others.

          Although the Sherman act forbids practicing conspiracy, it is an extremely important method to make sure the software and hardware companies do not put each other out of business. “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.” Although Microsoft’s actions may look like conspiracy, the whole software/hardware industry has worked in this way since its beginning in the late 70’s. This Sherman Act (1890) gives general business practices which are over 110 years old, and therefore does not have relevance within this relatively new industry. Microsoft’s offense seems minor within this law, but the Department of Justice used the Netscape’s White Paper to start an investigation deep into Microsoft’s business practices.

            The Sherman Act made the government’s case easy to formulate. Simply proving that Microsoft used monopolistic power in its business practices would be enough to win. However the DOJ did not just want to win this case, they wanted to see Microsoft broken up for its offences and it set out on a major investigation. During the three years between the start of the investigation and the start of the trial, the DOJ received thousands of documents from Microsoft, including extremely incriminating documents written by executives. One such document contained information about Microsoft’s plan to integrate Internet Explorer 4.0 into its next version of Windows. On October 20, 1997, Joel Klein, one of the United States’ lawyers, filed a lawsuit against Microsoft for violating the consent agreement. According the United States, Microsoft’s integration of Internet Explorer violated the clause, which prevented Microsoft from forcing computer manufacturers to use Internet Explorer as part of licensing Windows. The case ended up in Judge Penfield Jackson’s court room and in December he ordered Microsoft to offer OEM’s (Original Equipment Manufacturers) a special version of Windows which did not contain Internet Explorer. Microsoft found the ruling humorous, even saying to the Judge that a version of Windows without Internet Explorer would not work right. Jackson and the DOJ were not amused. After reviewing the ruling, the appeals court reversed Judge Jackson’s decision. “The ruling said Microsoft had every right to integrate new products into Windows, if the company could make a ‘plausible claim’ of business efficiency or consumer benefit from doing so."(iii)

            On May 15, 1998, the United States and Microsoft sat down for the “last rights” talks. The United States thought they could convince Microsoft that both sides would benefit with an out of court settlement, however neither side could come up with a reasonable agreement and talks broke down by the next day. At the time, the United States stressed that it did not want to see a breakup, but a change in Microsoft’s business practices. Microsoft however felt confident in its own case and decided to go to trial.

            The related-cases rule sent the Microsoft Anti-Trust case right back to Judge Jackson’s court room. Judge Jackson wanted a fast moving case which ended up taking over four months. In the end, Jackson felt the evidence proved that Microsoft was indeed a monopoly and had indeed violated the Sherman Act. On June 2, 2000, Jackson ordered Microsoft to break up. With the trial over, Microsoft quickly requested the Appeals Court to stay the verdict, which they immediately did.

            This trial’s final decision brings up many questions about the Sherman Act. The most important question asks why a law so general could still be in effect today. The act makes it simple for the United States to sue any company and win the lawsuit on grounds of Anti-Trust violations. This seems to allow the United States to have too much power regulating businesses. This power may be abused and used to scare other companies from innovative thought.

            A second question centered on the Sherman Act deals with the software and hardware industries relationships with each other. Each side must deal with each other extremely closely including making alliances with each other just to stay alive. Under the Sherman Act, many alliances would be found illegal even if they are for the good of the entire industry. A good example of this is the widely applauded decision by Microsoft to invest in Apple Computer, Inc. in 1999 so the suffering Apple could stay in business. Microsoft also started developing software packages for the MacOS and Apple has started its climb up the ladder again.

            A third problem with Sherman Act is the selective enforcement that the DOJ seems to support. Many monopolies exist today that the DOJ would never dream of touching. In many states, the power and water companies are owned by the state governments, leaving no competition, and ultimately keeping prices high for the consumer. Microsoft’s “monopoly” not only helps consumers but the software variety on the market only has diversified. Companies have found that competing in the software industry comes from making unique programs, and not repeats of the same old software. Microsoft’s industry standard Windows Operating System also helps independent companies make software because they only need to write for one operating system, and not many. Not only has Microsoft helped the consumer, but it helps competitors. The Sherman Act’s elastic ability makes the United States too powerful. A solution must be looked into for this open-ended law before any other anti-trust cases go to trial.

            The Sherman Act may have been an unfair and unneeded obstacle for Microsoft, but no one could have predicted Judge Jackson’s bias being a problem for Microsoft. In the past, Jackson has been known for ruling against the United States in anti-trust proceedings. Jackson has a reputation as an extremely fair judge, but this case seriously hurts his credibility. On many occasions, newspaper interviews with Judge Jackson produced extremely biased views towards the software giant. In some cases Jackson let in questionable evidence for the US’s even after many objections by Microsoft Attorneys. “The day after the hearing, Judge Jackson explained his change o heart [regarding remedies for Microsoft]. After all, in February he had said he was unwilling to impose a structural remedy. Now he said Microsoft’s behavior had changed his mind. ‘I’ve been astounded by some of the statements of Gates and Ballmer,’ he said. Since Jackson’s strong verdict against Microsoft on April 3, William H. Gates, the company’s Chairman, and Steven Ballmer, the President, had repeatedly stated that Microsoft did absolutely nothing wrong. They had also proclaimed they would not change any of the company’s business practices. ‘I’m in the midst off a growing realization that, with what looks like Microsoft intransigence, a break-up is inevitable,’ Judge Jackson said."(IV) This clearly shows bias in the final ruling by Judge Jackson. The information he used to change his mind was not presented to him in the courtroom, but through the media. In a murder trial, a jury deciding based on newspaper articles would cause a mistrial, but Jackson had supreme command over his decision making. Jackson’s statement to the media shows a clear disdain towards Microsoft, and he cannot hold a grudge against one of the parties in the suit. This proves the final decision in the case was not found properly.

 As Microsoft and the rest of the country patiently waits for the decision of the US Circuit Court, we realize this trial may have many repercussions on the way our country’s businesses live and work together. Judge Jackson’s bias will most likely be ignored by The American Bar Association (ABA) and the higher level courts alike allowing him to have the chances to do the same again in the future to other companies. In the coming years we should see the end of the Sherman Act as the high law of Anti-Trust and hopefully see it replaced with a law which will not give the United States the power to pick and choose which cases to pursue. But as long as such an open ended and dangerous law exists, industry has reason to fear the United States and its ability to pick and choose a corporation to treat as a nemesis.

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