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The antitrust case against microsoft

The Anti-Trust Case Against Microsoft

Since 1990, a battle has raged in United States courts between the United States

government and the Microsoft Corporation out of Redmond, Washington, headed by Bill

Gates. What is at stake is money. The federal government maintains that Microsoft's

monopolistic practices are harmful to United States citizens, creating higher prices and

potentially downgrading software quality, and should therefore be stopped, while

Microsoft and its supporters claim that they are not breaking any laws, and are just doing

good business.

Microsoft's antitrust problems began for them in the early months of 1990(Check

1), when the Federal Trade Commission began investigating them for possible violations

of the Sherman and Clayton Antitrust Acts,(Maldoom 1) which are designed to stop the

formation of monopolies. The investigation continued on for the next three years without

resolve, until Novell, maker of DR-DOS, a competitor of Microsoft's MS-DOS, filed a

complaint with the Competition Directorate of the European Commission in June of 1993.

(Maldoom 1) Doing this stalled the investigations even more, until finally in August of

1993, (Check 1)the Federal Trade Commission decided to hand the case over to the

Department of Justice. The Department of Justice moved quickly, with Anne K.

Bingaman, head of the Antitrust Division of the DOJ, leading the way.(Check 1) The case

was finally ended on July 15, 1994, with Microsoft signing a consent settlement.(Check 1)

The settlement focused on Microsoft's selling practices with computer

manufacturers. Up until now, Microsoft would sell MS-DOS and Microsoft's other

operating systems to original equipment manufacturers (OEM's) at a 60% discount if that

OEM agreed to pay a royalty to Microsoft for every single computer that they sold

(Check 2) regardless if it had a Microsoft operating system installed on it or not. After the

settlement, Microsoft would be forced to sell their operating systems according to the

number of computers shipped with a Microsoft operating system installed, and not for

computers that ran other operating systems. (Check 2)

Another practice that the Justice Department accused Microsoft of was that

Microsoft would specify a minimum number of minimum number of operating systems

that the retailer had to buy, thus eliminating any chance for another operating system

vendor to get their system installed until the retailer had installed all of the Microsoft

operating systems that it had installed.(Maldoom 2)

In addition to specifying a minimum number of operating systems that a vendor

had to buy, Microsoft also would sign contracts with the vendors for long periods of time

such as two or three years. In order for a new operating system to gain popularity, it

would have to do so quickly, in order to show potential buyers that it was worth

something. With Microsoft signing long term contracts, they eliminated the chance for a

new operating system to gain the popularity needed, quickly.(Maldoom 2)

Probably the second most controversial issue, besides the per processor agreement,

was Microsoft's practice of tying. Tying was a practice in which Microsoft would use their

leverage in one market area, such as graphical user interfaces, to gain leverage in another

market, such as operating systems, where they may have competition.(Maldoom 2) In the

preceding example, Microsoft would use their graphical user interface, Windows, to sell

their operating system, DOS, by offering discounts to manufacturers that purchased both

MS-DOS and Windows, and threatening to not sell Windows to companies who did not

also purchase DOS.

In the end, Microsoft decided to suck it up and sign the settlement agreement. In

signing the agreement, Microsoft did not actually have to admit to any of the alleged

charges, but were able to escape any type of formal punishment such as fines and the like.

The settlement that Microsoft agreed to prohibits it, for the next six and a half years from:

-Charging for its operating system on the basis of computer shipped rather than on

copies of MS-DOS shipped;

-Imposing minimum quantity commitments on manufacturers;

-Signing contracts for greater than one year;

-Tying the sale of MS_DOS to the sale of other Microsoft products;(Maldoom 1)

Although these penalties look to put an end to all of Microsoft's evil practices, some

people think that they are not harsh enough and that Microsoft should have been split up

to put a stop to any chance of them forming a true monopoly of the operating system

market and of the entire software market.

On one side of the issue, there are the people who feel that Microsoft should be

left alone, at least for the time being. I am one of these people, feeling that Microsoft does

more good than bad, thus not necessitating their breakup. I feel this way for many reasons,

and until Microsoft does something terribly wrong or illegal, my opinion will stay this way.

First and foremost, Microsoft sets standards for the rest of the industry to follow.

Jesse Berst, editorial director of Windows Watcher newsletter out of Redmond,

Washington, and the executive director of the Windows Solutions Conference, says it best

with this statement: "To use a railroad analogy, Microsoft builds the tracks on which the

rest of the industry ships its products." ("Why Microsoft (Mostly) Shouldn't Be Stopped."

4) With Microsoft creating the standards for the rest of the computer industry, they are

able to create better standards and build them much faster than if an outside organization

or committee were to create them. With these standards set, other companies are able to

create their applications and other products that much faster, and better, and thus the

customers receive that much better of a product.

Take for instance the current effort to develop the Digital Video Disc (DVD)

standard. DVD's are compact discs that are capable of storing 4900 megabytes of

information as apposed to the 650 megabytes that can be stored on a CD-ROM disc now.

For this reason, DVD's have enormous possibilities in both the computer industry and in

the movie industry. For about the last year, companies such as Sony, Mitsubishi, and other

prominent electronics manufacturers have been trying to decide on a set of standards for

the DVD format. Unfortunately, these standards meetings have gone nowhere, and

subsequently, many of the companies have broken off in different directions, trying to

develop their own standards. In the end, there won't be one, definite standard, but instead,

many standards, all of which are very different from one another. Consumers will be

forced to make a decision on which standard to choose, and if they pick the wrong one,

they could be stuck down the road with a DVD player that is worthless. Had only one

company set the standards, much like Microsoft has in the software business, there

wouldn't be the confusion that arose, and the consumers could sit back and relax, knowing

that the DVD format is secure and won't be changed.

Another conclusion that many anti-Microsoft people and other people around the

world jump to is that the moment that we have a company, such as Microsoft, who is very

successful, they immediately think that there must be something wrong; they have to be

doing something illegal or immoral to have become this immense. This is not the case.

Contrary to popular belief, Microsoft has not gained its enormous popularity through

monopolistic and illegal measures, but instead through superior products. I feel that

people do have brains, and therefore have the capacity to make rational decisions based on

what they think is right. If people didn't like the Microsoft operating systems, there are

about a hundred other choices for operating systems, all of which have the ability to

replace Microsoft if the people wanted them. But they don't, the people for the most part

want Microsoft operating systems. For this reason, I don't take the excuse that Microsoft

has gained their popularity through illegal measures. They simply created products that the

people liked, and the people bought them.

On the other side of the issue, are the people who believe that Microsoft is indeed

operating in a monopolistic manner and therefore, the government should intervene and

split Microsoft up. Those who are under the assumption that Microsoft should indeed be

split up, believe that they should either be split into two separate companies: one dealing

with operating systems and the other dealing strictly with applications. The other group

believes that the government should further split Microsoft up into three divisions: one

company to create operating systems, one company to create office applications, and one

company to create applications for the home. All of these people agree that Microsoft

should be split up, anyway possible.

The first thing that proponents of Microsoft being split up argue that although

Microsoft has created all kinds of standards for the computer software industry, in today's

world, we don't necessarily need standards. Competing technologies can coexist in today's

society, without the need for standards set by an external body or by a lone company such

as Microsoft. A good analogy for this position is given in the paper, "A Case Against

Microsoft: Myth Number 4." In this article, the author states that people who think that

we need such standards, give the example of the home video cassette industry of the late

1970's. He says that these people point out that in the battle between the VHS and Beta

video formats, VHS won not because it was a superior product, but because it was more

successfully marketed. He then goes to point out that buying an operating system for a

computer is nothing at all like purchasing a VCR, because the operating system of a

computer defines that computer's personality, whereas a VCR's only function is to play

movies, and both VHS and Beta do the job equally.

Also, with the development of camcorders, there have been the introduction of

many new formats for video tapes that are all being used at once. VHS-C, S-VHS and

8mm formats all are coexisting together in the camcorder market, showing that maybe in

our society today, we are not in need of one standard. Maybe we can get along just as well

with more than one standard. Along the same lines, there are quite a few other industries

that can get along without one standard. Take for instance the automobile industry. If you

accepted the idea that one standard was best for everyone involved, then you would never

be tempted to purchase a BMW, Lexus, Infiniti, Saab or Porsche automobile, due to the

fact that these cars all have less than one percent market share in the automobile industry

and therefore will never be standards.

Probably the biggest proponent of government intervention into the Microsoft

issue is Netscape Communications, based out of Mountain View, California. Netscape has

filed law suits accusing Microsoft of tying again.("Netscape's Complaint against

MicroSoft." 2) This time, Microsoft is bundling their world wide web browser, Internet

Explorer 3.0 into their operating system, Windows 95. Netscape is the maker of Netscape

Navigator, currently the most widely used internet browser on the market, and now,

facing some fierce competition from Microsoft's Internet Explorer. Netscape says that in

addition to bundling the browser, Microsoft was offering Windows at a discount to

original equipment manufacturers (OEM's),("Netscape's Complaint against MicroSoft." 2)

to feature Internet Explorer on the desktop of the computers that they shipped, thus

eliminating any competition for space on the desktop by rival companies such as Netscape.

If the OEM wants to give the consumer a fair and even choice of browsers by placing

competitors' browser icons in a comparable place on the desktop, Netscape has been

informed that the OEM must pay $3 more for Windows 95 than an OEM that takes the

Windows bundle as is and agrees to make the competitors' browsers far less accessible and

useful to customers.("Netscape's Complaint against MicroSoft." 2) Another accusation

that Netscape is making against Microsoft is that they are doing the same type of things

with the large internet service providers of the nation. They are offering the large internet

providers of the nation, such as Netcom and AT&T, space on the Windows 95 desktop, in

return for the internet provider's consent that they will not offer Netscape Navigator, or

any other competing internet software to their customers.("Netscape's Complaint against

MicroSoft." 3)

Netscape is becoming ever more concerned with Microsoft's practices, because for

now, they are going untouched by the government and it looks as if it will stay that way

for quite some time now. The are very much worried, as they watch the numbers of users

switching to Microsoft's browser, and the number of users using Navigator slipping.

Besides all of the accusations of monopolistic actions Netscape lay down on them,

Microsoft does seem to have one advantage when it comes to the browser wars. Their

new browser, version 3.0, matches Netscape's feature for feature, with one added plus: it

is free and Microsoft says that it always free. So is their internet server, Internet

Information Server. Whereas Netscape charges $50 and $1500 for their browser and their

web server, respectively.("Netscape's Complaint against MicroSoft." 3)

With all the information that has been presented for both sides of the issue, you are

probably left in a daze, not knowing what to think. Is Microsoft good? Or is Microsoft

bad? Well, the answer is a little bit of both. Even though the Justice Department found

that Microsoft might be practicing some techniques that are less than ethical, they did not

find that Microsoft was breaking any anti-trust laws, nor did Microsoft actually admit to

the accusations when they signed the agreement. If anything, them signing the agreement

was more of a sorry than an full fledged admission of guilt. Other people might disagree

with me, and there might be a lot of allegations floating around from different companies,

but the fact of the matter is plain and simple. Microsoft has not been formerly charged and

found guilty of any illegal practices pertaining to them being a monopoly.

I believe that the government should stay out of the affairs of the economy, rather

than get tangled up in a mess, and just end up deadlocked like the FTC did in 1990. And

even if the government did get involved, due to the extremely fast paced nature of the

computer industry, and the extremely slow nature of the government, there may not be

any resolve for quite a while.

Source: Essay UK - http://www.essay.uk.com/coursework/the-antitrust-case-against-microsoft.php



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