The Microsoft anti-trust case
Presented by: Rahul Soni,
Overview of the Micro-soft case
Markets with network effects.
Finding of fact and conclusion of law.
Effects on consumers.
Microsoft is a large diversified computer software
manufacturer and also produces the windows family of
operating systems for personal computers and servers.
During the last few years (From 1990), the Federal
Trade Commission (FTC) and the Department of
Justice (DOJ) of the United States have investigated
Microsoft on various antitrust allegations, for possible
violation of anti trust laws through its license for
computer operating system.
Division of facts:
1990-1993: investigations by FTC.
1994-1995: filing of complaint and consent decree.
1997: contempt action against micro-soft.
Early 1998: Appeal field by Microsoft.
May18, 1998: Government field its Anti-trust case
◦ December 1999: Mediation: Judge Richard posnor:
◦ April 1, 2000: Settlement broke down.
◦ April 3, 2000 : Judge Jackson issued his “ conclusion
of law” and found microsoft as monopolization and
anti-competitive tying of IE with windows.
◦ June 7, 2000 : remedies issued by Judge Jackson,
spiltting microsoft in two companies and imposed
severe business conduct restrictions.
◦ Appeal to Supreme Court : On September 26, 2000,
the Supreme Court indicated that it will not hear the
case before the Court of Appeals.
◦ DOJ argued that review by the Supreme Court was
appropriate to expedite the final judgment because of
the importance of the case for the national economy.
However, it is worth noting that the plaintiffs had a
Markets with network effects
Following are the number of crucial features of markets
with network effects that distinguish them from other
◦ “winner-take-most” markets.
◦ Extreme inequality in market.
◦ Natural equilibrium.
◦ Free entry.
◦ Application of anti-trust in network industries
◦ Entry and reward.
◦ Consumer favour.
On May 18, 1998, the United States Department of
Justice, and the Attorneys General of 20 States27 and
the District of Columbia sued microsoft. The main
1. Microsoft illegally monopolized the market for operating
systems (“OSs”) for personal computers (“PCs”) under
sec. 2 of the Sherman Antitrust Act;
arrangements with various vendors of related goods,
such as with computer manufacturers (“OEMs”) and
Internet Service Providers (“ISPs”), and had taken other
actions to preserve and enhance its monopoly; that
these contractual arrangements and other actions were
illegal under Sec. 2 of the Sherman Antitrust Act;
3. Microsoft illegally attempted to monopolize the market
for Internet browsers (but failed to succeed), an act that
is illegal under Sec. 2 of the Sherman Antitrust Act;
4. Microsoft bundled anti-competitively its Internet
Microsoft’s defense was as follows:
First, Microsoft argued that the law was on its side since
the Court of Appeals had ruled on June 23, 1998 that
Microsoft can legally add new features and functions to
Windows. Therefore Microsoft argued that it was legal
to add IE’s functionality to Windows, and it had done
nothing wrong by integrating IE in Windows.
Second, Microsoft argued that it was just competing
hard against Netscape, that such competition was
welfare-enhancing, and that it did not commit any anticompetitive acts.
Third, Microsoft argued that it did not have monopoly
power in the operating systems market.
Fourth, Microsoft argued that competition in the
software sector was intense and that its leadership
position could be replaced at any time by a new
its economics expert witness failed to convincingly
articulate this Schumpeterian view in the context of an
Fifth, Microsoft argued that it is a leader in software
innovation and that it has enhanced rather than hobbled
the innovation process.
Sixth, Microsoft argued that consumers have benefited
from its actions rather than been harmed by them.
Microsoft claimed direct consumer benefits from its low
pricing of the operating system, the zero pricing of its
Internet browser, and from its enhancement and
acceleration of the innovation process. Microsoft also
argued (rather ineffectively) that consumers benefit from
the de facto standardization that its large market share
brought to the operating systems market.
The law :
The anti trust law in the areas that apply to
Section 2 of the Sherman Antitrust Act.
Section 1 of the Sherman Antitrust Act.
Finding of fact and conclusion of
(April 2000) find for the plaintiffs (U.S. Department of
Justice and 19 States) inalmost all the allegations
against Microsoft. In particular, Judge Penfield Jackson
1. The relevant antitrust market is the PC operating
systems market for Intel compatible computers.
2. Microsoft has a monopoly in this market “where it
enjoys a large and stable market share.”
3. Microsoft’s monopoly is protected by the “applications
barrier to entry,” which the judge defines as the
availability of an abundance of applications running
4. Microsoft used its monopoly power in the PC
operating systems market toexclude rivals and harm
5. Microsoft hobbled the innovation process.
6. Microsoft’s actions harmed consumers.
7. Various Microsoft contracts had anti-competitive
implications, but Microsoft is not guilty of anticompetitive exclusive dealing contracts hindering
the distribution of Netscape Navigator.
Tying In Agreements
Ruling in Jefferson Parish – Four elements involved in per
se tying violation:
The tying and tied goods are two separate products;
The defendant has market power in the tying product
The defendant affords consumers no choice but to
purchase the tied product from it; and
The tying arrangement forecloses a substantial
volume of commerce
Microsoft had monopoly power in the tying product
it threatened to close off a substantial share of the
Consumers had no choice of avoiding IE if they opted
The issue in question was whether Windows and IE were
two separate products or not
Microsoft’s attorneys claimed that Windows and Explorer
were “functionally integrated.” In fact, they shared files so
that if you uninstalled Explorer, Windows would not
function properly. But Princeton computer scientist William
Felton who was a prosecution witness showed this
problem could be easily corrected
Analysis under the provisions of
the Competition Act, 2002.
Section 3 of the Indian Competition Act,
corresponds to Section 1 of Sherman Act.
Section 4 Exp. (a) : Dominant position.
Section 19 (3) : enumerates certain factors to be
considered by the Competition Commission while
determing whether an agreement has an
appreciable effects under Section 3 of the Act.
Effects on consumers.
In principle, there are three ways that consumers
could be hurt by potentially anticompetitive actions
First, consumers may be hurt because these
actions increase prices.
Second, consumers may be hurt because these
actions may limit their choices in terms of 25
variety and quality.
Third, these actions may limit innovative activity,
thereby hurting future consumers.
Regardless of the final outcome, the effects of U.S. v.
Microsoft are likely to be felt for a long time. If a
breakup actually occurs, it is likely to impose the dark
shadow of radical antitrust intervention on the whole
computer industry. There are many firms in the
computer sector that have a dominant position in their
So the competitive law should be applied in efficient
way so all these kind of anti-competitive practices can
be stopped and the New- Economy will not be far
SUGGESTION: There is an other way than remedy by
limiting the term of copyright for software and special
preferences comes to 5 years, instead of a billion years
as a business, because of the pace of change quickly
everything moves would still create all incentives to
innovate that would spy right system creates and yet