Microsoft antitrust legal issues

Microsoft corporation the world’s leading manufacturer of operating systems for the PCs was accused by the U. S Department of Justice and attorneys general of 19 states plus the District of Columbia in the past decade and in the more recent years by the European commission. My goal in this paper is to examine how Microsoft was taking advantage of its competitive position in the market and dominating the market. Microsoft Corporation is an American-based multinational computer technology corporation that develops, manufactures, licenses, and supports a wide range of software products for computing devices.

Headquartered in Redmond, Washington, USA, its best selling products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software. (Wikipedia) United States V Microsoft THE CASE The U. S. Department of Justice and attorneys general for 19 states plus the District of Columbia filed suit against Microsoft in 1998 claiming violation of the antitrust laws. After discussions ordered by the U. S. District Court for the District of Columbia, Microsoft reached a settlement – often referred to as the consent decree – with the DOJ in 2001.

Nine states joined with that agreement, while seven others continued to pursue their claims separately before accepting the District Court’s final judgment in 2002. One state appealed that ruling; however, it was upheld in 2004 by the U. S. Court of Appeals. Additionally, Microsoft reached separate settlements with three state governments – two prior to the consent decree and one after the final judgment. “Antitrust Settlement Fact Sheet: A brief summary of the settlements Microsoft has reached in the antitrust case brought by the Department of Justice and some state governments, as well as a number of private class-action lawsuits.

(Microsoft) FEATURES OF THE CASE Monopolization of the operating systems market Windows also contained a variety of functions that were provided free of charge to independent software vendors (“ISVs”) so that they would find it easier, cheaper, and faster to create applications for Windows. Microsoft sold to ISVs various tools so that they would utilize these functions of Windows, and provided a variety of free services to ISVs.

Clearly ISVs were subsidized in kind so that they would write applications for Windows… Microsoft priced its operating system to Original Equipment Manufacturers (“OEMs”) at an average price of $40-60, a ridiculously low price compared to the static monopoly price… In essence, Microsoft pricing reveals that to a large extent its executives believed that market conditions (most importantly potential competition) constrained higher prices. (Economides, Nicholas). Microsoft provided incentives to ISVs and subsidized their production of software for Windows family of operating systems.

This resulted in the availability of abundant software applications for the use with Windows operating system. It created a barrier to the entry of new operating system manufacturers into the market because people are more likely to prefer that operating system which runs the most applications. So when a new entrant enters the operating systems market with his new operating system, existing Windows users will not be switching to the new operating system as they would not be able to run the wide array of applications using the new operating system that they used to run while they were on windows.

Similarly new users would prefer the use of Window than any other operating system due huge difference in the number of applications each operating system supports. This hindered any new players from entering into the operating systems market. Microsoft supplied its operating system to the OEMs at discounted prices. This lead to many OEMs offering the Windows operating system to the end customers. Therefore the customers had limited choice of operating system selection while purchasing a new PC. It also had priced its operating system at a low price in the market to counter the then current and potential competition.

Thus Microsoft used price as a barrier to entry of new competitors. It was very difficult for the end customers to change the Windows operating system provided by the OEMs. So the customers using windows were forced to use it as switching to a new operating system was difficult. Microsoft being a market leader in the operating systems market had priced its product significantly lower than its competitors. Its competitors who were mainly market challengers were not able to compete with Microsoft in terms of price.

Microsoft Corporation thus monopolized the operating systems market by adopting various strategies discussed above. Tying of windows with other software applications Microsoft added certain functionalities to the Windows which lead to the elimination of some stand-alone add-on markets. For instance the market for disk defragmenting software applications died out when Microsoft included a disk defragmenter in Windows 95. Similarly, the market for disk compression software dropped when it added hard disk compression functionality in Windows 95.

Considering Netscape Navigator as a potential threat, Microsoft developed Internet Explorer and offered it as a free application along with the Windows operating system. This left the Windows users (who were a large chunk of people using the PCs) with no choice but to use Internet explorer for web browsing. This strategy of Microsoft led to the elimination of Netscape from the web browsers market. Attempting to monopolize the browser market In an attempt to monopolize the browser market by leveraging its monopoly in the OS market, Microsoft lost significant amount of money as it tried to gain market share from Netscape.

Even though, Microsoft lost financially by not charging for the internet explorer that it had tied up with its Windows operating system, it did not prevent Microsoft from doing so. This eventually led to the elimination of Netscape from the browser market. Other potentially anti-competitive arrangements The OEMs to whom Microsoft supplied its Windows operating systems had no control on the opening screen of the new PC. Microsoft entered into contracts with OEMs for the distribution of Internet explorer. It also entered into contract with the internet service providers such as AOL for the distribution of its web browser.

The European Union Microsoft Competition Case It is a case by the European commission against Microsoft for abusing its dominant market position (around 95% of the Operating systems market share). What basically started because of a complaint from Novell (specialized in UNIX and Linux operating systems) finally led to the demanding of major remedies by the European commission such as compulsory licensing of intellectual property to non Microsoft PC and server manufacturers and to offer a version of Windows Client PC operating system to the PC manufacturers without including Windows Media Player in it.