Ten years hard – Microsoft's long antitrust struggle

And nothing bad happened till the other month - didn't they do well?

MS on Trial Happy tenth anniversary, Microsoft: it's now ten years since news first broke that you were under antitrust investigation. It's been a long battle, and it's by no means over yet - but the point is not so much that Microsoft has been under investigation for over a decade, but that it's been able to hold off serious corrective action from the authorities for that long.

It might look like the DoJ's winning now, but maybe Microsoft should look on the bright side - it's come a long way in that ten years of not losing.

It all started a bit more than ten years ago, because it was in November 1989 that FTC Bureau of Competition lawyer Norris Washington read the joint announcement at Comdex of a closer collaboration between IBM and Microsoft. The intended roles of OS/2 and Windows were defined in a way that sounded to Washington like collusion to control the market. Not until May 1990 was the FTC given reluctant permission by the DoJ to carry out a formal investigation, because there was a feeling that Microsoft, as a successful company, should not be investigated.

Microsoft received a letter from the FTC in June advising it of the investigation, but the FTC realised that although there had been collusion between IBM and Microsoft, events had overtaken the investigation because the IBM/Microsoft relationship had become acrimonious, with Microsoft pushing Windows and denigrating OS/2. But the FTC had begun to receive evidence of other business practices by Microsoft that required new attention.

The investigation didn't become public knowledge until nine months later: Pete Peterson, COO of WordPerfect, mentioned to Rick Sherlund of Goldman Sachs in March 1991 that the FTC had been examining Microsoft, Sherlund told his clients, and Microsoft was forced to acknowledge the non-public FTC investigation two days later. At this time, the FTC was interested in the alleged Chinese Wall between the OS and applications development teams, and even flirted with the possibility of splitting Microsoft into "Baby Bills". FTC staffers realised that the commissioners would not have the political stomach to do this, so didn't put it forward formally.

Enter the M-word

Microsoft was told in April 1991 that the FTC had decided to expand the scope of its investigation to examine third-party allegations that Microsoft "has monopolised or has attempted to monopolise the market for operating systems, operating environments, computer software and computer peripherals for personal computers". Bill Gates commented: "Certainly I take the [FTC] enquiry seriously..."

At the end of January 1992, Digital Research - acquired by Novell in 1991, and whose DR-DOS was a major victim of Microsoft's marketing practices - made a formal complaint to the FTC. Other software developers began to cooperate more with the FTC, and Novell told the FTC about the incompatibilities that Microsoft had added to the then unreleased Windows 3.1 to stop beta versions functioning properly with DR-DOS. Gates commented: "Maybe [competitors] hope the government will pass the Competitive Relief Act, so that Microsoft is no longer permitted to write good applications."

In December 1992, FTC Bureau of Competition lawyers prepared a 250-page informal report requesting that Commissioners agree to the seeking of a narrowly-focussed, temporary injunction against Microsoft's monopolistic practices being pursued in a federal court. Microsoft declined to accept an offer from FTC staff of a possible consent decree. Microsoft shares fell 6 per cent, prompting Gates to remark while he was in Australia: "At some point, for their own dignity, [the DoJ] will have to sue us."

FTC suggestion 'communist,' quips Gates

In early January 1993 the FTC commissioners received the report but there was much acrimony between the commissioners. The FTC was not expected to do anything that would be harmful to the US software industry, and FTC staff were told by the commissioners to consider only a narrow case; there wasn't going to be a breakup. The FTC commissioners voted in February 1993 and deadlocked, so a simpler case was prepared. When commissioner Dennis Yao suggested that Microsoft might give Novell advance copies of Windows so that any incompatibilities with DR-DOS could be detected, Gates said: "Sure, if you want to be a communist about it, we could do that". The commissioners had a tied vote again in July, but left the case active.

Meanwhile, British MP Nigel Griffiths had complained In December 1992 that a new Microsoft contract with a two-year commitment which would require 400 UK OEMs to pay Microsoft a royalty on each computer sold, whether MS-DOS was installed or not, as part of what was called Microsoft Easy Distribution. Those who failed to agree faced a 40 per cent price rise. Trade secretary Michael Hesseltine suggested that such practices should be referred to the Office of Fair Trading, but OFT action was deferred because of a complaint to the European Commission by Novell in June 1993. Because of a 1991 treaty on unfair competition between the EU and the US there was contact, and subsequently collaboration between the EC and the US.

Anne Bingaman the new DoJ antitrust chief said she was an "unabashed and enthusiastic supporter of vigorous antitrust enforcement" and would be interested in reviewing the stalled Microsoft case, taking it over in July 1993. Gates was extremely annoyed: "The only issues... have been promoted very heavily by Novell in order to do a better job of selling their attempted clone product [DR DOS]", and claimed Noorda "has a tremendous vendetta against us".

Stac case exposes contradictory MS claims

In 1994, the DoJ looked at the transcript of the Stac case, noting that Microsoft had previously said that undocumented calls in MS-DOS were relatively unimportant from a competitive viewpoint, and did not give Microsoft applications developers an advantage. But in the Stac case, Microsoft argued that the undisclosed calls were trade secrets that were valuable and essential for developers of compatible DOS and Windows applications. The DoJ continued to build the case and in June negotiations began with Microsoft, and then with the EC in Brussels. Bingaman told Gates she would take action unless he agreed to a Consent Decree. Microsoft leaked that as a "pragmatic company it had settled in previous cases, even when they thought they were right" and signed a Consent Decree on 15 July 1994, and a similar agreement with the EC. The Complaint noted that "Microsoft has unlawfully maintained its monopoly of personal computer operating systems and has unreasonably restrained trade".

The industry was incensed that Microsoft had got off so lightly, and a protest developed into a legal challenge during the Tunney Act proceedings, conducted by Judge Sporkin, into whether the settlement was in the public interest. He concluded it wasn't, but Microsoft won in the Court of Appeals when in a bizarre situation, Microsoft and the DoJ were on the same side arguing for the consent decree. Judge Jackson was appointed to sign the consent decree, which he did in August 1995. When Microsoft "integrated" IE into Windows, the DoJ claimed it broke the integrated product clause of the consent decree, and started a contempt of court action in October 1997, only to lose it when Microsoft appealed, because of faulty wording in the consent decree. The result was that a new case was started in May 1998 which continues to this day, and may well run for a few more years.

The most interesting aspect of all this is how long Microsoft has been able to prevent effective action to deal with its monopolisation. The difference now is the determination of the DoJ to conclude the matter satisfactorily - always assuming of course that a new political administration does not decide to hobble the case. ®


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