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Home » Resources » Case Studies » How Microsoft Outnegotiated Netscape in the Browser War

How Microsoft Outnegotiated Netscape in the Browser War

Microsoft won negotiations with AOL competing against the browser market leader Netscape by getting the best out of their marketing resources.

Microsoft vs. Netscape: Strategies 

Back in 1996, Steve Case’s AOL was urgently seeking a top-notch internet browser to market AOL’s products. Both Bill Gates’ Microsoft and Netscape Navigator were vying with AOL to take them on as a client. In terms of their best alternative ( BATNA ), Netscape held a decisive advantage due to its strong technical superiority and dominance in the browser market.

Microsoft was just in the process of entering the market and held a fledgling percentage of the overall browser market. However, they had a long way to go relative to Netscape’s much superior overall market hold. Additionally, people generally considered Microsoft’s browser as technically inferior to Netscape’s. Bill Gates had deemed that gaining a greater presence and market share of the browser market was a competitive priority. This was despite this unequal valuation of their positions.

Microsoft vs. Netscape: Positions

Netscape adopted the position that since they were so powerfully based, they would only negotiate with AOL by holding out for a high per-copy fee. In essence, the deal would have been based on a “ browser for dollars ” agreement. Steve Case, the CEO of AOL, viewed the position of Netscape as: “ They [Netscape] were very aggressive about selling the browser, but they wanted a very high per-copy fee. The attitude was, ‘We’re so hot, we’ll license to everyone, so you better take it’. ” This was a miscalculation that doomed Netscape to negotiation and eventual business failure .

Microsoft had very limited leverage at the negotiation table. This was due to being new to the market and possessing what many considered an inferior product. Netscape engaged in waiting for AOL to respond to their proposal. Meanwhile, Microsoft readjusted their focus. They shifted their own proposal to concentrate on their business marketing strength, rather than the technology issue. In essence, Microsoft used a creative strategy to change the nature of a weak position or BA to enhance their position while weakening Netscape’s in the process.

An Offer You Can’t Refuse

Microsoft concentrated its pitch on the marketing features it could offer to AOL, which it knew Netscape could not match. They did so by offering to bundle AOL into the Windows operating system. More importantly, they offered to do this for free! They also promised AOL that they would provide additional technical adaptations if AOL were to sign a multiyear contract. As David Colburn, AOL’s chief negotiator and business development head, would later state: “ The willingness of Microsoft to bundle… with the Windows operating system was a critically important competitive factor that was impossible for Netscape to match. ”

Despite the fact Microsoft and AOL were competitors, the match was perfect for both parties simply because collaborative seller Microsoft had the foresight and negotiation skills to change the nature of their offering to their advantage, and made AOL an offer it could not refuse.

The end result was that AOL would now be able to position the AOL icon directly next to the Microsoft Network icon in what AOL described as “ the most valuable desktop real estate in the world. ” Simply put, they could reach out to a market that equated to an additional fifty million people per year. Importantly, they could do so at zero cost. AOL would no longer have to bombard the market by sending out its discs at a cost of $40-80 per acquired customer, and still actively compete with Microsoft in the process.

Although Microsoft surrendered some of its market share to AOL in the short term, the company achieved its loftier goal of making a huge stride forward in gaining a significant share of the browser market.

Can this case study be used in classroom with proper citation?

Microsoft finally won the battle leaving behind Netscape in the browser war. Both were fighting for taking AOL as their client. The article contains a complete briefing regarding this matter if anyone has interest to know more can get it from here.

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‘Crush Them’: An Oral History of the Lawsuit That Upended Silicon Valley

Twenty years ago, Microsoft tried to eliminate its competition in the race for the future of the internet. The government had other ideas.

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Share All sharing options for: ‘Crush Them’: An Oral History of the Lawsuit That Upended Silicon Valley

Nineteen-ninety-eight changed the course of technology, which is to say that it changed the course of history. A nearly bankrupt relic of ’80s tech nostalgia released a gumdrop-shaped PC called the iMac . An innovative search engine originally known as BackRub became a company with an even stranger name . A fast-growing online bookstore hatched a plan to start selling, well, everything .

In hindsight, these were tectonic shifts, but they hardly registered as tremors compared to the earthquake emanating from Washington, D.C. On May 18, 1998, the U.S. Justice Department and 20 state attorneys general filed an antitrust suit against the most powerful tech company in America: Microsoft.

The then-23-year-old giant, which ruled the personal computer market with a despotic zeal, stood accused of using monopoly power to bully collaborators and squelch competitors. Its most famous victim was Netscape, the pioneering web browser, but everyone from Apple to American Airlines felt threatened by late-’90s Microsoft. The company was big enough to be crowned America’s most valuable firm, bold enough to compare attacks on its domain to Pearl Harbor , and, eventually, bad enough to be portrayed as a (semifictionalized) cadre of hypercapitalist murderers in a major motion picture . The “don’t be evil” optics that colored the rise of today’s tech giants (and have recently lost their efficacy ) were a direct response to Microsoft’s tyrannical rule.

To say history is repeating itself isn’t quite accurate, but in recent times we’ve seen a former tech wunderkind dragged in front of Congress , a raft of Hollywood productions casting our handheld gadgets as a bridge to dystopia , and a chorus of calls for the tech giants to be dismantled by the government . This is not the kind of ’90s nostalgia the titans of the internet had in mind.

Giants always fall, eventually. Microsoft may have simply been too bloated by the turn of the century to outflank more nimble competitors like Google and Apple. But there’s still considerable debate about whether it was the government lawsuit that nudged the company into an abyss of late-to-the-party products such as the Zune MP3 player and the Bing search engine. Microsoft never would have thought of these ideas first, but absent government intervention, it might have devised ways to eliminate the companies that did. “Because of antitrust enforcement, that’s why we have Google,” says Gary Reback, a well-connected antitrust lawyer who represented Netscape in the ’90s. “There is no other reason.”

And yet it’s only because Google has become so Microsoft-like in its dominance that the 20-year-old case still resonates. (Amazon and Facebook have also been accused of monopolistic tendencies.) In a world where a handful of companies control much more of our data than Windows 95 ever did, it’s an open question how much this famous case really accomplished. Our current tech overlords may be doomed to repeat the transgressions of the Microsoft era — some antitrust watchers believe they already have. “One of my theories about antitrust is it goes in cycles,” says Stephen Houck, one of the government lawyers who took the deposition of Microsoft founder Bill Gates. “Microsoft or some other tech company gets very successful, they make a lot of money, and they tend to get arrogant and think they know more than the government.”

Just how similar were Microsoft’s actions two decades ago to what’s going on today? And how critical was the government’s lawsuit to unseating Microsoft from its perch of power to make room for a new crop of innovators? On the 20th anniversary of the filing of the Justice Department’s suit, we asked the lawyers who tried the case, the competitors who found themselves under Microsoft’s heel, and the journalists tasked with making sense of it all to recount tech’s most important legal battle, in their own words. (A representative from Microsoft did not respond to requests to participate in this project. All titles refer to roles interviewees held at the time during which the story takes place.)

I. The 800-Pound Gorilla

By the mid-’90s, Microsoft had become the dominant player in tech, with its Windows operating system powering 90 percent of personal computers and its Office suite the standard in workplace software. The Redmond, Washington–based company cast a pall over innovation in Silicon Valley, until a well-funded startup called Netscape invented a way to bring the internet to the masses.

Gary Reback (antitrust lawyer representing Netscape): The tech industry in the United States had always been monopolized by a company. First it was AT&T, then it was IBM, then it was Microsoft. … Their basic dominance was almost a suffocating dominance. There wasn’t a feeling that there was anybody that would or could compete with them from Silicon Valley.

Steven Levy (senior editor, Newsweek ): It was widely known that venture capital funds wouldn’t fund you if you were going to go into an area where Microsoft was involved.

Jon Mittelhauser (founding engineer, Netscape): Software was this large process that big companies did that they sold on the shelves at brick-and-mortar stores. Because of that, there weren’t very many of them and frankly there was really only one, and it was Microsoft. They had pretty much swallowed everybody else. There was this long history of the first word processor that got traction was WordPerfect, and it got killed by Microsoft Word. And the first spreadsheet was Lotus and it pretty much got killed by Microsoft Excel. Any company that was successful that was doing software basically had two options — one was Microsoft copied what you did and did it better and got a business, [or] two was you got bought by Microsoft. They were the 800-pound gorilla.

Mittelhauser was one of several University of Illinois students who helped code Mosaic, the first popular web browser, while working at the National Center for Supercomputing Applications. The project was led by Marc Andreessen, who would go on to become the cofounder of Netscape and the prominent venture capital firm Andreessen Horowitz. Andreessen and the Mosaic team recognized early on that what they were building could one day usurp Windows.

Mittelhauser: When the first version of Mosaic came out, it was one of those things that, for lack of a better term, kinda went viral. Mosaic exploded across all of what the internet was at that point, [at] universities and research institutes. And because we were just stupid kids who didn’t really know what we were doing, it was buggy as hell. But we didn’t really care because we just put up new versions every other day.

Levy: Andreessen, his confidence was unparalleled. He teamed up with Jim Clark, who was an experienced entrepreneur from Silicon Graphics. The first time I talked to him, he was talking about how the web would be the next operating system. It was a template for the future of unlimited ambition by internet entrepreneurs, like [Jeff] Bezos and the Google people and even [Mark] Zuckerberg later on. He was young, but no one was gonna tell him that he couldn’t rule the world.

Mittelhauser: Marc and Jim flew out, met the rest of the team, and hired us on the spot. … This was in April of ’94. My plan at that point had been to spend the summer working on a master’s thesis, but instead I basically wrote a master’s thesis in two weeks in May. May 2nd of ’94 we opened the door to the first office. At some point later in May I graduated, as far as I know. I wasn’t there. I was heads-down building Netscape.

Steve Lohr (technology and economics reporter, The New York Times ): It was the pioneering commercial browser. Marc Andreessen famously said what they wanted to do was reduce Windows to a buggy set of device drivers underneath the browser, which would be the new top player that people would see and interact with. Microsoft wasn’t thrilled about that.

Levy: Out of nowhere, it was the hot company. Andreessen posed barefoot on the cover of Time . This was something that was alien to people back then. Even Bill Gates wore shoes.

Mittelhauser: The IPO [in August 1995] is the single moment when we were feeling the most on top of the world. … We were the hot thing, we were on all the magazine covers, we had just gone public faster than any company ever.

Levy: It’s hard to overestimate the impact that IPO had. It really was the beginning of the internet boom. The day that Netscape went public, a company that had no revenue all of a sudden [had] billions of dollars in valuation. It just opened everyone’s eyes and really opened the floodgates to everything we know of as Big Tech today.

Mittelhauser : At the point we started Netscape, Microsoft didn’t even know what a web browser was, really. … Folks would ask us who our competition was because we were kind of this new thing and we would always say Microsoft. Folks would go, “What are you talking about? They’re not doing anything remotely close to you.” And it was like, “Yeah, but they’re going to.”

II. The Browser Wars

The rise of Netscape posed an existential threat to Microsoft, which feared that the web browser would supplant the desktop operating system as the primary way people interfaced with computers. Microsoft soon began developing a competing browser, dubbed Internet Explorer, and strategized about how to steal market share from Netscape.

Reback: Gates had missed the whole internet. They hadn’t understood what was coming and how that would affect them. The reason they got into so much trouble is because once Gates understood what was there, by this time Netscape [was] pretty far ahead.

Doug Melamed (acting assistant attorney general, Justice Department’s Antitrust Division): There were the memos, the internal emails from Microsoft. The famous “inflection point” one. Gates apparently from time to time would kind of retreat and reflect about the world. He was obviously an enormously visionary businessman. And then he would come back and share his thinking with the company.

Bill Gates (in May 1995 internal Microsoft memo entitled “The Internet Tidal Wave” ): Perhaps you have already seen memos from me or others here about the importance of the Internet. I have gone through several stages of increasing my views of its importance. Now I assign the Internet the highest level of importance. In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. The Internet is the most important single development to come along since the IBM PC was introduced in 1981.

Andrew Gavil (antitrust professor, Howard University School of Law): In the famous email memo that Bill Gates wrote, which became a big part of the case, he warned about the commoditization of the operating system. That was anathema to Microsoft. If Windows became just another commodity, they would lose all the value they had created.

Gates (from “The Internet Tidal Wave”): A new competitor “born” on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. … One scary possibility being discussed by Internet fans is whether they should get together and create something far less expensive than a PC which is powerful enough for Web browsing.

Gavil: That was sort of the trigger for, “All right, we gotta do something about it.” But because they were behind, “do something” was not limited to “let’s build a better browser.” It was “let’s slow these guys down.”

In August 1995, the same month Netscape went public, Microsoft released the first version of Internet Explorer. The bare - bones browser was licensed from Spyglass, a company that owned the rights to the original version of Mosaic, which Andreessen and Mittelhauser had worked on. The company soon began bundling the browser with Windows.

Mittelhauser: It was based on the crappy shit I wrote as a college student, so the original version wasn’t too scary. But frankly, I also knew Microsoft’s whole modus operandi at that point was the first version was bad, the second version was OK, and the third and fourth version started to pass the other folks. That’s what happened with the word processor and the spreadsheet. Microsoft had billions of dollars and hundreds of developers. They could throw a lot of effort into problems.

Jon Stephenson von Tetzchner (cofounder of Opera, a competing web browser): When you’re competing with companies like Microsoft, they’ll use every trick in the book. … They used various different methods to make it very difficult to get any kind of distribution.

Mittelhauser: Because the only way you ran software back then was using Microsoft Windows, they started bundling it and deeply integrating it with the operating system in ways that other folks like us couldn’t, and there was basically no way to compete against that.

Gavil: There were a series of contractual things where [computer manufacturers] had to run Windows in a certain way. There were things that limited the ability of [computer manufacturers] to include other software, even to promote themselves. Essentially they couldn’t choose the best browser on the market to offer with their computers.

Harry First (antitrust bureau chief, New York Attorney General’s Office): They pressured Intel not to work with Sun [Microsystems, the developer of Java]. They pressured Apple to use Internet Explorer as the browser and not to use Netscape at a time when Apple was almost out of business. … All sorts of efforts to win the browser war, or “jihad” as they called it at one point.

Gavil: They sort of spread the [Internet] Explorer code throughout the Windows code, so that if you tried to remove it, you would actually mess up all of Windows. There was no technical or business justification for writing it that way. The main reason to write it that way was to make it not removable.

Mittelhauser: The actual license for the Netscape browser was free for noncommercial use, but commercial companies had to pay. … We were actually bringing in a fair amount of browser revenue. Microsoft came along and just gave away the browser for free, for any use, for commercial use, noncommercial use, whatever. That undercut that whole business.

First: It wasn’t being free that was a bad thing. It was the end result of that being that Internet Explorer would be the exclusive browser and that no other competitor would arise as a competing operating system. … It was basically exclusionary behavior. It was an effort to smother Netscape in the cradle and cut off its air supply.

Reback: What Microsoft was doing was not just damaging to a company — namely Netscape — but it was damaging to a whole new generation of technology.

III. The Road to Court

Due to a shift in conventional economic theory and a spate of conservative presidents, antitrust cases had fallen out of favor in the two decades before the Microsoft trial. The arrival of Clinton administration appointees in the Justice Department, combined with the pointed efforts of Netscape-hired lawyers to plead their case, put Microsoft on a collision course with the law.

Daniel Rubinfeld (chief economist, U.S. Justice Department’s Antitrust Division): There hadn’t been a big Section 2 [of the Sherman Antitrust Act of 1890] case for a long time. Section 2 cases are difficult to bring, just in terms of the legal burdens you have to overcome. You’re going against a monopoly firm. It’s usually a big, successful firm, and that sort of raises political concerns. So, typically the Section 2 cases are more likely brought under Democratic administrations than Republican administrations.

Gavil: Netscape and its lawyers and economists, they put together a white paper that they presented to the Justice Department that laid out all of the evidence they had collected on Microsoft. That was a really critical event in the development of the case.

Reback: Part of being an antitrust lawyer is if you want the government to do something, you’ve got to explain what it is that’s going on, why it’s bad, and what you want them to do. … Jim Barksdale was the CEO [of Netscape]. He asked me to create a document which we could in effect publish like a book, that you would just buy at the airport to read on the plane, and it would explain what was going on.

Susan Creighton, who now represents Google, I asked her to do the primary [research]. … We created this lengthy white paper, a book. We give it to the client to read before we send it to the government.

Barksdale takes one look at this and has shpilkes , basically. The reason is of course that if you apply the analysis to what Microsoft is doing, you come to the conclusion, as we did in the white paper, that without the government doing something, Netscape’s toast. By this time Netscape is a public company. He can’t publish something that says, “I’m toast unless the government does something,” because what if the government doesn’t do anything? This becomes a real problem.

A compromise is finally that we could send it to the government, but it had to be confidential. Occasionally I’d get permission to give it to somebody. I had to give out numbered copies. That increased its allure. The cover is pure white with a red “Confidential” stamp on it. I still have a couple of them.

First: It made Netscape’s case credible. In terms of laying out network effects and why this conduct was exclusionary, it was a credible argument. … It wasn’t exactly the Justice Department doing their bidding, but I think it probably helped shape the notion that you really could do something about this.

Rubinfeld: I thought [the Netscape white paper] was very provocative and interesting. I became aware of it and I read it pretty carefully, but I’d say its influence on me was very modest. A lot of the claims that are in those white papers turned out not to be part of our case and we didn’t think there was a lot of evidence to support them, but they were very well-written, thoughtful white papers. So it was one of the things I certainly took into account.

Though the Netscape white paper was published in August 1996, the government continued to slowly collect evidence and engage in minor legal skirmishes with Microsoft. Meanwhile, Netscape rapidly bled market share as Internet Explorer improved in later builds and became more deeply entrenched in the Windows ecosystem.

Reback: At first, it wasn’t clear that [the Department of Justice] was going to do anything. We get increasingly frustrated and Netscape is getting the daylights pounded out of them.

Mittelhauser: I’m not sure a lawsuit or any of that was ever the right solution to start with, but by then it just didn’t matter. By the time anything got through the court system and something happened, it just wasn’t going to impact the business. Part of the problem, and obviously the courts are still struggling with this, was technology moves incredibly fast, and the courts move very slow.

Reback: It’s one of the great ironies here. After years of effort to get the government to do something, by [1998] Netscape’s body is already in the morgue.

By early 1998, when Netscape was just months from being acquired by AOL, the Justice Department’s looming antitrust case was beginning to take on an air of inevitability .

Rubinfeld: The actual decision to bring the case formally in the antitrust division is [U.S. Assistant Attorney General] Joel Klein’s decision, but I think it would be fair to say it was based on a discussion between Joel, Doug Melamed, and myself, because we were the three political appointees working on this case.

Among those of us who ultimately made the decision to bring the case and pursue it, I don’t think there was any predisposition at all. … I didn’t go to Washington thinking I was going to sue Microsoft.

Melamed: In the 11th hour, two or three weeks before the case was filed, we went off to meet with Microsoft folks to discuss a last-minute effort to see if we could settle the case. To avoid alerting the press, we agreed to meet at a hotel, instead of at the Justice Department, and as I recall we drove in separate cars to minimize the risk that we would draw attention. It was a kind of cloak-and-dagger scene that one doesn’t ordinarily associate with antitrust enforcement.

Rubinfeld: Bill Gates and the team really believed they had not violated the law, or they would not have gone to court.

Lohr: They could’ve settled that before it started. The line in the sand for Microsoft was the freedom to put anything it wanted to into Windows. And [Steve] Ballmer’s line was, “If we want to put a ham sandwich in it, we can.”

IV. A Villain Is Born

At a splashy press conference on May 18, 1998, Attorney General Janet Reno claimed that Microsoft had “used its monopoly power to develop a choke hold on the browser software needed to access the internet.” That day the Department of Justice and 20 state attorneys general formally filed their complaint against Microsoft. Five months later, on the first day of the trial, lead prosecutor David Boies made a videotaped deposition of Bill Gates the centerpiece of his opening arguments.

Lohr: The first day, they aired this videotape of Gates’s deposition testimony. It’s hilarious. The line was, he’s really nitpicky and defensive and knocking everything down … bickering over the definition of “market share.” The joke became, later, the only thing he didn’t understand was the “share” part.

Reback: He came across as petulant and arrogant. He argued about the word “the” in one of the questions. People all of the sudden started thinking, “God, is this the guy we want running the entire country?”

Stephen Houck (antitrust bureau chief, New York Attorney General’s Office): I took the first day of his deposition, and David [Boies] did the second two. [Gates is] a very formidable guy. Obviously very bright. … He was trying to distance himself from the memos. Some of them sounded pretty bad. And he had trouble doing that. That was, I think, his biggest problem. He was trying to minimize his involvement when he clearly, to me at least, was involved in many of the key decisions about the browser.

Houck: There’s an exchange between him and David on the second day, where David showed him an email which came from billg@microsoft, which was his handle. David said something like, “Did you write this?” He said no. So David asked, “Where’d this come from?” Gates said, “A computer.”

Melamed: He looked bad, there’s no question. He didn’t look truthful. He looked calculating, and I think that probably both damaged Microsoft’s public image and influenced [Judge Thomas Penfield Jackson].

A Sample of Bill Gates’s Deposition With David Boies

David Boies: What non-Microsoft browsers were you concerned about in January of 1996?

Bill Gates: I don’t know what you mean “concerned.”

Boies: What is it about the word “concerned” that you don’t understand?

Gates: I’m not sure what you mean by it.

Gates: Is there a document where I use that term?

Boies: Is the term “concerned” a term that you’re familiar with in the English language?

Gates: Yes.

Boies: Does it have a meaning that you’re familiar with?

Full transcript here.

Levy: When you interview Bill, you really need to be prepared. He’s one of the smartest people I’ve ever met. And what I learned is when you interview him, you really should listen to what you’re saying. The wrong way to interview him is to sit there with a bunch of questions on your clipboard and go from one to the other, because what he’ll do is take issue with the way you ask a question or whether your question contradicts some obscure piece of software from the early ’80s. It can get to be kind of a jousting match.

Houck: Microsoft hired this guy [Joseph] diGenova, the person who was going to be on Trump’s legal team . His purpose was he would come out and talk to reporters and say what a wonderful job Bill Gates did. You could believe Mr. diGenova or you could believe your eyes.

Levy: [The deposition] hurt the public perception of him. [It was originally] of this young whiz kid before the constant Steve Jobs comparisons, which really didn’t take ascendancy until Steve Jobs came back to Apple. People looked at him in light of his intelligence and his business acumen. I think the arrogance he [possessed] broadened the perception of Microsoft as this industry bully.

Gates (at a December 1998 press briefing ): I had expected Boies to ask about competition in the software industry, but no, he didn’t do that. … Mr. Boies has made it clear in the negotiations leading up to the case, he’s really out to destroy Microsoft.

In the midst of Microsoft’s legal troubles, the director Peter Howitt was developing the film Antitrust , which depicts a tech conglomerate called NURV and its quest to build a massive internet-based distribution network. Tim Robbins portrayed the company’s ruthless CEO, who had more than a passing resemblance to Bill Gates.

Peter Howitt (director, Antitrust ): We weren’t allowed to say it out loud. [Robbins] wasn’t playing Bill Gates, but I think he liked the idea that people would make that comparison. … The job of Tim Robbins’s character was to find the algorithms that could deal with all the various types of data so they could all be sent down to the same handheld device. What he was doing to achieve that was luring people, abusing them, stealing, and just being a megalomaniacal nightmare.

We’re fascinated to know how you become that successful, and we think there must be some bodies buried somewhere. People who like to tell stories will take that and create Antitrust or they’ll create The Circle . … I suppose part of us wants to believe you can’t be that successful without being really badly criminal.

V. The Daily Spectacle

The Microsoft trial was closely followed by the press. The story regularly featured on major magazine covers and national newspaper front pages. The mountain of incriminating evidence against Microsoft, in the form of internal emails and botched courtroom demonstrations , offered plenty of fodder for reporters.

Rubinfeld: Most trials are pretty boring. You know what’s going to happen ahead of time. This trial had a lot of exciting moments. Both Microsoft and the government were doing press conferences immediately after each day’s trial. There were probably 40 reporters there every day. I’ve been involved in a lot of trials, and I’ve never seen a trial like that before. You had to wait for hours to get a seat if you didn’t have a particular reason to be there.

Lohr: It, the [Charles] Lindbergh trial, and the O.J [Simpson] trial are the only trials The New York Times has covered every single day.

Houck: It was a wide variety of press —  The Washington Post , The Times , the Seattle papers, the tech press, the business press, the legal press. It touched a lot of different communities.

Lohr: There were so many people that wanted to get in, there was this whole brisk business in hiring line sitters. Almost [like] at some sporting event. People slept overnight. … You also had people outside the courtroom with banners and signs and stuff.

Houck: This is the first case where emails were used to a large extent. There were a number of very compelling emails to suggest that Microsoft was doing things to protect their operating system, not to benefit consumers, which is ultimately what caused them problems.

Lohr: There were these phrases like “take away their oxygen supply” and “crush them.”

Michael Pettit (president of ProComp, an anti-Microsoft lobbying group): If there was a product that interfered with what Microsoft’s vision was, Microsoft employees would use language like let’s go “ knife the baby ,” meaning let’s kill off that technology. … They thought it was acceptable hardball business tactics, and it was very clear that their tactics crossed the line.

Melamed: The physical visual images of Gates and [his] deposition, that’s all cosmetic. But the case was built on these emails.

In the courtroom, it was primarily star prosecutor David Boies who used the Microsoft emails to undermine the company’s credibility, showing that Gates and his lieutenants had been privately strategizing on how to thwart Netscape long before they claimed in public.

Rubinfeld: David has an unusual style as a litigator. He has incredible memory, but if you know something about David’s history, when David grew up he had dyslexia. So he had a problem with reading. The staff would brief David, give him long memos on different issues he would talk about. He would then take it back to his hotel room or wherever he was staying and study it, but when he appeared in the courtroom, he never relied on his notes because it would slow him up too much. He committed it all to memory. So in the courtroom, he was amazing.

Andrew Chin (law clerk who assisted the judge in the Microsoft case): He was completely off-book and [working] off memory and intricate knowledge of both economic and technical details. And just had this real sense of timing and leading the witness right up to the point where he found himself cornered with only the answer that he wanted to get. Just very impressive work.

Lohr: You had to build a story, right? As to who these characters were on this particular day and some crucial development or some central point. And that’s also what Boies was good at. At creating a story that was consistent with undermining the credibility of Microsoft.

David Boies (chief prosecutor, Justice Department, during a 2008 retrospective speech at Harvard): In our country, every trial is really two things. It is a search for truth, and it is a morality play. … A lot of what happened is that the Microsoft witnesses were not prepared for the morality play function of a trial.

Microsoft’s legal team seemed comparatively unprepared, according to many people who followed the case closely. They made several unforced errors, including showing a video demonstration of a Windows user deleting Internet Explorer that appeared to be doctored.

First: Microsoft’s lawyers started out by being very confrontational, very aggressive, and very oppositional. Making big claims about things that turned out not to be true. So I think early on [they] lost the confidence of the trial judge.

Lawrence Lessig (legal scholar who advised the judge before the Microsoft case): They were executing according to a strategy, and the strategy was focused on being as aggressive as they could be to carve out as much freedom for the company as they could have.

Chin: One of the phrases they were using is “freedom to innovate.” And that resonates with a lot of people in the tech community. There’s a strong libertarian streak to Silicon Valley, and so that was kind of the master narrative that the Microsoft legal team was advancing.

Levy: You would go to Microsoft and you would talk to [executive] Jim Allchin and you could see how it was wearing down these people. You’d go there, and they’d be back from being in Washington, and they would really get beat up there. It was like torture for those people. A lot of them were engineers, and they were cultivated in this culture to play for keeps. In their hearts and their minds, they were good people working for a technology company, and they’re up there treated like criminals. It took a toll.

VI. A Breakup That Didn’t Last

In November 1999, Judge Thomas Penfield Jackson ruled that Microsoft had indeed used its monopoly power to harm rivals and consumers. An even bigger shock than his initial ruling came in 2000, though, when the judge agreed to the government’s proposed remedy: breaking Microsoft into two separate companies.

Melamed: It was a huge deal. Joel [Klein] announces that the government’s going to ask that the company be broken up. The stock market the next day went down. I don’t know whether there was any connection at all, but I know some folks in the [Clinton] administration were at least initially concerned about the remedy.

President Bill Clinton (at a 2007 press conference at Microsoft headquarters): In our administration, we had no contact between the White House and the Justice Department over enforcement of the laws. … The first time I heard about the Microsoft case was when I read about it in the paper.

Gavil: It was called OpsCo and AppCo in the theory. So you’d have an operating system company and you’d have an applications company. The theory was that once you separated those, the incentives of the two companies would change. So the incentives of the operating system company would be to develop an operating system that would work with lots of different programs … [and] if I’m thinking about designing a new operating system, I now know that the [apps] company might be interested in working with me to give me a version of Office that will work on my operating system.

Janet Reno (U.S. Attorney General, on the day Judge Jackson ruled to break up Microsoft): Today’s ruling will have a profound impact not only by promoting competition in the software industry, but also by reaffirming the importance of antitrust law enforcement in the 21st century and the importance of competition.

Rubinfeld: We assumed that there would be a follow-on set of hearings where Microsoft and the government would explain the pros and cons of the remedy, but Judge Jackson cut that and said he was prepared to impose the remedy without the hearing. That was a surprise.

Melamed: He was just basically saying, “I’m tired of the case, I want to get rid of it.” In my view, that was irresponsible, and the Court of Appeals obviously saw it the same way.

Lohr: What the appeals court did was send it back down again for review, and at that point the Justice Department stepped in and settled.

Lessig: I think it was one of the great tragedies of the case. Jackson moved too quickly and ordered the breakup without asking for a hearing about whether there should be a breakup. … I often think that if he had held a two-day hearing on the question of breaking up Microsoft and then issued an order breaking up Microsoft, it would have stuck.

As the Microsoft case dragged on into George W. Bush’s term, an appeals court reversed Judge Jackson’s breakup order in 2001. A less drastic settlement was reached in 2002, establishing an independent technical committee to oversee Microsoft’s activities and requiring the company to establish an internal antitrust compliance program. The punishment was lighter, but the core ruling that Microsoft had behaved in an anticompetitive fashion remained intact.

Houck: President Bush and his folks came in and they were not as enamored with Section 2 of the Sherman Act as previous folks had been. So I thought Microsoft got off pretty light.

Reback: The technical committee could not technically enforce the settlement, but they could tell the Justice Department. When that was proposed, I thought it was a big joke — you’re going to get three guys that are going to oversee Microsoft? Give me a break.

Levy: The conventional wisdom — and I don’t really dispute it — is that it wasn’t really the exact terms of the settlement but the chastening experience overall which led Microsoftto be more vulnerable in the future.

Lohr: It may have been distracting for Gates in particular. It was his creation and it was constantly being harassed. I remember I went to some dinner they had had after the settlement in New York, and it was clear he still took it seriously. … It was a sore subject and he wasn’t gonna let it go. His view was that he won and the government was tearing him down.

VII. The Case’s Impact

The impact of the case on Microsoft and its nascent rivals at the time — especially Google — is a subject of debate among antitrust experts.

Brad Smith (general counsel, Microsoft, during a 2008 retrospective speech at Harvard): You don’t see us anymore saying, “We don’t have to do that because we’re not a monopoly.”… It was clear that the industry, the government, the world at large expected us to step forward and assume more responsibility without appearing to quibble with whether that responsibility was required by the law itself.

Gavil: One of the myths [that Microsoft made up] is that the antitrust case somehow caused a distraction and that they had problems afterward because of all the effort that went into the antitrust case. I think it’s quite the opposite. I think they got into trouble in the first place because they were not really on the ball. They missed the internet phenomenon. Nobody did that to them.

Mittelhauser: What both Microsoft and Netscape missed out on was that realization that the browser didn’t really matter. It was sites that mattered. We easily could have bought Yahoo, Google, etc. But the Google guys and the Yahoo guys basically worked with us and we helped get them set up.

Houck: Some people say the decree caused Microsoft to lose its edge. I’m not really convinced that was the case. I think what it did do is make them very careful about using market power they had in Windows to affect related areas of software like the browser or search or operating systems for handheld devices.

Lohr: It helped provide an opening for Google, for sure. I remember doing this story when Google was upset because Microsoft was trying to hide the Google Search box. And then they fell away from that, they had to make it easier for the Google Search box to appear.

Houck: If there hadn’t been the lawsuit or hadn’t been the [consent] decree, based on their past behavior, Microsoft very well might have done things that made it a lot more difficult for Google. Even with desktop search, that was one of the areas we were looking at in terms of what Microsoft could and couldn’t do with Windows. Google was probably one of the beneficiaries.

Reback: Microsoft had run Netscape out of the browser market. Internet Explorer was literally 98 percent of the market. The only way you could get to Google was through Microsoft. You had to go onto the Microsoft browser and type www.google.com. Now if you did that, there’s no reason Microsoft had to send you to Google. They could have just put up the big red warning screen, saying “Don’t click on this site. It’s a bad site. It takes your personal information without telling you …” I have long asserted, based on my conversations with Microsoft people, that they didn’t do it because they were tired of getting fined a billion euros a pop. It was clear what would happen to them if they killed Google or the next generation of technology.

The reason they didn’t do that was the threat of antitrust enforcement. Because of antitrust enforcement, that’s why we have Google. There is no other reason.

Google, ironically, has become the tech company that’s faced the most antitrust scrutiny in the 2010s. At the same time, Facebook may soon be subject to congressional oversight because of its privacy practices, and Amazon has become a political target of President Trump. Tech giants are under more legal scrutiny today than at any time since the Microsoft trial.

Reback: One of my clients back in the Microsoft days was Sun Microsystems, and in particular their senior vice president who [was] in charge of Java. His name was Eric Schmidt. He understood completely what Microsoft was doing, and, as I like to say, there are only about eight plays in the monopolist’s playbook. He saw all of them. So that when he got market power [as the CEO of Google], he could execute those same kinds of exclusionary plays and he knew exactly what to do. He knew what worked for Microsoft and what didn’t. It’s a very, very parallel situation. … There are no coincidences here.

Lohr: They were very wary of Microsoft in the early going for sure, when Eric Schmidt was fully engaged as the real chief executive of Google. They positioned themselves as very different from Microsoft. Skeptics would argue that they did it differently, but they did much the same thing.

Lessig: It’s interesting to think about the right to compete on the Microsoft platform and the right to compete on the Facebook or Google platform. Google and Facebook create innovation platforms, but they reserve the right perpetually to decide whether your application is allowed to run, and they can pull the plug anytime they want, and they do. With Microsoft running software on the operating system they provided, they never asserted the power to determine which programs were allowed to run or not. … Microsoft might have learned a lesson and behaved in a more open or respectful way with competitors, but the whole industry moved to a world where the platform owner has more power than the platform owner ever presumed to have in the days of Microsoft. That’s an important difference, which you might say undermines the significance of the case.

Rebak: The thing about these technology industries is I can’t go back and fix things. If something anticompetitive happened in the airline industry, I could easily go back in and fix things and break things up. They’re still the same planes, they’re the same passengers, they’re the same gates, they’re the same air routes. They don’t change. That’s not the case with technology. Once a new technology is crushed, it’s gone. It’s not coming back — ever. We can’t do the same kind of fix easily. We’re at a situation with Google where I can’t go back and restore competition. If I’m going to make some competition, I’m going to have to do it by breaking the company apart, and that becomes all the more difficult.

Houck: One of the basic principles of antitrust law is if somebody earns a large market share because their product is better or cheaper or more appealing to consumers, they deserve the rewards for doing that. Microsoft had been worried about protecting that and were doing things they shouldn’t have been doing to protect the monopoly. So you have to look very specifically at the type of conduct these other companies are doing.

Gavil: I haven’t seen public evidence that any of these big successful companies that are being picked on have engaged in that kind of anticompetitive campaign that Microsoft did. There’s different issues. Facebook is not about antitrust. It’s about privacy.

Lohr: If you look at this from an antitrust standpoint, it’s hard to see what you do with Facebook, for example. It’s more a privacy issue. It isn’t the abuse of market power in any kind of traditional sense. The consumer harm is qualitative whereas the traditional measurement’s always been price. On the other hand, all of this — antitrust and privacy — these are all what they call social law. It responds to the political climate of the time.

Reback: One of the differences is that the dominant companies of today have a much greater penetration into your personal life. They say they sell ads but in reality they sell your most intimate secrets and longings and purchases — that’s what they sell. That has enormous consequences for antitrust enforcement, because back in the day if you knew what to look at, you could see what Microsoft was selling and what they were doing. But no one outside of Google really understands how Google operates.

The Microsoft case didn’t stop tech companies from amassing never-before-seen power. It didn’t even really stop Microsoft, which has emerged from a wayward decade to see its stock continually hit record highs in 2018. But it did usher in a period of substantial innovation and competition in the tech sector, and it reestablished the government’s right to step in when that competition starts to falter because companies — even beloved, fast-moving tech companies — are getting too big.

Reback: I like to say to people the trial is the remedy. Because once you understand what’s going on, that automatically stops the other guy from doing it. That’s something we’ve never had so far with Google and Facebook.

Melamed: A line I use a lot at legal conferences is, “We don’t refrain from enforcing murder laws because we can’t resurrect the corpse.” It was important to show that Section 2 [of the Sherman Antitrust Act] could be a useful tool after 20 years of it being ignored.

Lohr: That’s always the argument in these antitrust cases. It’s bullying and it’s an abuse of market power, and the mechanism by which they do it is different than it was in the 19th century but it’s essentially the same.

Von Tetzchner: It’s not about products, it’s about our lives and the collection of information and the steering of our product decisions and the like. What may sound like a small problem about which browser you use — who cares? — is a much bigger issue when you look at the impact it has on society.

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Publication date: 20 January 2017

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Microsoft is planning the introduction of Internet Explorer along with Windows 95. Issues include how aggressive the company should be in providing its browser with Windows 95 and restricting OEMs (original-equipment manufacturers) from putting other browsers on their computers. Should Microsoft go for initial share, concentrate on stealing over time, retain customers, or enlarge the total size of the browser market? Students use a Markov process with initial states and switching probabilities to gain insight into resolving these issues.

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Bodily, S.E. and Vakharia, S. (2017), "Browser Wars: Microsoft Versus Netscape", . https://doi.org/10.1108/case.darden.2016.000053

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The Microsoft vs. Netscape browser’s war: A game theory based analysis

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Samuel Bodily

Microsoft is planning the introduction of Internet Explorer along with Windows 95. Issues include how aggressive the company should be in providing its browser with Windows 95 and restricting OEMs (original-equipment manufacturers) from putting other browsers on their computers. Should Microsoft go for initial share, concentrate on stealing over time, retain customers, or enlarge the total size of the browser market? Students use a Markov process with initial states and switching probabilities to gain insight into resolving these issues.

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Internet is causing paradigm shifts on almost every aspects of the life. One major paradigm shift also occurs on the strategic competition field. The new strategic competition is studied based on Porter’s value chain analysis and Internet can be considered as a technological improvement on the information and communication technology, which can also be considered as an interface between companies and the environment. The company/environment interface is directly related to the strategic competition and Porter’s five forces. By the new paradigm of information and communication, companies should pay a great attention on their Internet based reputation built on the Internet based interfaces. For example, a company with millions of shares on the social media has an obvious advantage over a company on the same sector without any web page. In this study, the companies are criticized by their Internet interfaces, which are social media interfaces such as Facebook or Twitter and company web pages and blogs measuring hate-marks and love-marks of the companies and Web 2.0 sources such as wikis. After collecting statistical information about these Internet interfaces of each company on Internet interfaces, the companies are indexed based on their Internet interface utilization. Furthermore a new model of competition based on Porter’s value chain analysis is built and applied for the Internet interfaces.

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What the Microsoft Antitrust Case Taught Us

By Richard Blumenthal and Tim Wu

Mr. Blumenthal is a Democratic senator from Connecticut. Mr. Wu is a law professor who who specializes in antitrust.

• May 18, 2018

Twenty years ago today, Microsoft was sued by the Department of Justice and a coalition of 20 state attorneys general (including one of us, Mr. Blumenthal, of Connecticut) for violating federal antitrust law.

Microsoft, the world’s dominant software firm, and Bill Gates, the world’s richest man, faced a challenge from the upstart company Netscape and its internet browser, Netscape Navigator. The suit accused Microsoft of illegally protecting its operating-system monopoly and seeking a new monopoly for its own browser, Internet Explorer. The fear was that Microsoft would kill Netscape, monopolize the browser market and use that point of control to dominate the coming age of the web.

After a tough fight, the government won the case. There is now no browser monopoly, and the world has come to rely on the many apps, firms and ideas that were born after Microsoft’s control was broken. Microsoft has become a gentler giant, and Mr. Gates has become a philanthropist.

Yet it is worth remembering that at the time, challenging Microsoft was not a popular decision. Microsoft was a well-liked company and Mr. Gates was widely heralded as a visionary genius. Many, Microsoft most of all, argued that enforcing the antitrust laws against Microsoft would damage innovation and impede the economic growth fueled by the technology sector.

This view turned out to be wrong. Innovation surged in the newly opened markets and the United States continued to spearhead growth in the technological world. The enduring lesson of the Microsoft case was that keeping markets open can require a trustbuster’s courage to take decisive action against even a very popular monopolist.

Imagine a world in which Microsoft had been allowed to monopolize the browser business. Holding a triple monopoly (operating system, major applications and the browser), Microsoft would have controlled the future of the web. Google, the tiny start-up, would have faced an unfair fight against Bing. Microsoft-Myspace might have become the default social network instead of Facebook. And who knows whether Netflix or any other online video service would have been started?

It took the power of law enforcement to rebut Microsoft’s claims that everything it was doing was pro-competitive, innovative and innocent. The discovery of candid internal company memos, a famously revealing deposition of Bill Gates and a full trial made it clear that Microsoft saw the internet as a major threat to its monopoly rule and was seeking to tame it.

The presiding judge, Thomas Penfield Jackson of the United States District Court for the District of Columbia, was right to propose that Microsoft be broken into two companies — one for the Windows operating system, one for other products. In the end, unfortunately, Microsoft was kept whole.

Some limitations were placed on Microsoft’s behavior, such as a requirement that it share certain programming information with third-party companies. The appropriateness of that remedy is still debated. But what we do know is that the remedy pushed Microsoft to act with more caution, creating an essential opening for a new generation of firms.

It might seem like a cruel irony that the immediate beneficiaries of the Microsoft antitrust case — namely, Google, Facebook and Amazon — have now become behemoths themselves. But this is how the innovation cycle works: It creates room for saplings to grow into giants, but then prevents the new giants from squashing the next generation of saplings. (Microsoft was itself, in the early 1980s, the beneficiary of another antitrust case, against IBM, the computing colossus of its time.)

Which takes us to the present day. Unfortunately, ever since the Microsoft case there has been remarkably little oversight of the technology sector, despite the obvious signs of corporate consolidation and outsize market power. Enforcement of the antimonopoly laws has fallen: Between 1970 and 1999, the United States brought about 15 monopoly cases each year; between 2000 and 2014 that number went down to just three.

Antitrust efforts have become too fixated on the idea that the only real harm consists of raising of prices for consumers. Yet in the Microsoft case, Internet Explorer was “free,” even though Microsoft was bent on destroying competition with it. Today, both Google and Facebook offer products that are free. Society has grown to rely on them, but because they have no dollar price, antitrust regulators have been hesitant to take action.

Any American can tell you that there is no free lunch. Everything has a price. We pay for these products and services with our time and our data. And like Microsoft, these firms have come to exert too much control over our shared technological future.

At a hearing before the Senate, Mark Zuckerberg, the chief executive of Facebook, was asked to name Facebook’s biggest competitor — a company providing a similar service that consumers can go to if they are unhappy with Facebook. Mr. Zuckerberg could not name one. Part of the reason for this is that Facebook bought its most obvious competitors, Instagram and WhatsApp, and continues to acquire upstart companies before they can reach that point.

The pattern is familiar. And if the Microsoft case showed us anything, it is that we should not trust any one company to decide our future.

Richard Blumenthal is a Democratic senator from Connecticut. Tim Wu is a law professor at Columbia, the author of “The Curse of Bigness: Antitrust in the New Gilded Age” and a contributing opinion writer.

Follow The New York Times Opinion section on Facebook and Twitter (@NYTopinion) , and sign up for the Opinion Today newsletter .

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U.S. v. Microsoft: Timeline

A little hazy on events? For those who snuck out in the middle, or have simply forgotten about things during the hiatus, here's a cheat sheet of key moments in the antitrust trial of U.S. v. Microsoft.

• November 4, 2002: The European Commission reaffirms its intention to uphold European Union law in its own separate probe into the company, which a spokesperson says is factually and legally different from the U.S. case.
• November 1, 2002: Judge Colleen Kollar-Kotelly rules that a proposed settlement serves the public's interest as required under the Tunney Act, which sets standards of review for antitrust settlements.
• September 6, 2001: U.S. Justice Department says it no longer seeks the breakup of Microsoft and wants to find a quick remedy in the antitrust case.
• August 29, 2001: New judge Colleen Kollar-Kotelly orders the parties to report on the remaining issues in the legal battle by Sept. 14 and schedules a meeting on the status of the case for Sept. 21.
• June 28, 2001: A federal appeals court reverses the breakup order.
• February 27, 2001: A federal appeals court hears Microsoft's appeal of Judge Jackson's decision.
• February 21, 2001: Microsoft and Bristol Technology announce a settlement of litigation between the two companies.
• September 26, 2000: The Supreme Court refuses to hear the case.
• June 7, 2000: Judge Jackson orders the break up of Microsoft into two companies.
• June 6, 2000: Microsoft submits final brief.
• June 1, 2000: Judge Jackson grants government deadline extension to June 5.
• May 25, 2000: Judge Jackson sets deadline for government lawyers' final breakup proposal.
• May 24, 2000: Judge Jackson will hear arguments in the penalty phase of the case.
• May 10, 2000: Deadline for Microsoft to respond to the government proposals for sanctions.
• April 28, 2000: Government attorneys file their proposed punishment, urging Judge Jackson to split Microsoft into two separate companies as penalty for breaking antitrust laws.
• April 5, 2000: The judge sets May 24 for an expedited hearing on the penalty phase of the case in an effort to move quickly to the appeal promised by the software giant.
• April 3, 2000: Two days after settlement talks collapse, the judge rules that the software giant violated antitrust laws and consistently acted to hold onto its power over industry competitors. Microsoft appeals the ruling immediately.
• April 1, 2000: U.S. Court of Appeals Chief Judge Richard Posner ends efforts to mediate the trial.
• February 22, 2000: Oral arguments are held before Judge Jackson.
• February 1, 2000: Microsoft files its final brief, pointing to the AOL-Time Warner merger as the main reason why the antitrust case should be thrown out.
• January 25, 2000: Federal and state prosecutors file a rebuttal to Microsoft's brief, saying the software maker evaded monopoly charges.
• January 19, 2000: Microsoft officially responds to Judge Jackson's ruling, saying that widespread competition precludes it from holding monopoly power.
• __November 30, 1999: __ Mediation begins as both sides meet with Judge Richard Posner to see if they can settle the ongoing antitrust lawsuit.
• November 5, 1999: Judge Thomas Penfield Jackson issues his initial findings of fact, finding that Microsoft held monopoly power and used it to harm consumers, rivals, and other companies.
• September 21, 1999: The government and Microsoft accuse each other of foul play in their closing arguments.
• June 24, 1999: The trial adjourns after 76 days of testimony spread over more than eight months.
• June 7, 1999: IBM executive Gary Norris testifies to Microsoft's attempts to bully Big Blue.
• June 1, 1999: Round two of the antitrust trial begins.
• May 28, 1999: Former Symantec CEO Gordon Eubanks, a Microsoft witness, deposed.
• May 21, 1999: America Online CEO Steve Case says in a deposition that his company purchased Netscape without having much interest in its Web browser.
• May 18, 1999: Netscape executive Peter Currie testifies in a deposition that he once wondered if America Online's fear of Microsoft might scotch its purchase of Netscape.
• March 30, 1999: Attorneys from both sides meet for settlement talks.
• March 10, 1999: A leaked Microsoft memo blames the press for focusing on Bill Gates rather than the facts of the trial.
• March 4, 1999: Senator Slade Gorton, a Republican from Microsoft's home state of Washington, says the Justice Department has gone too far and should drop the case against his constituent.
• February 26, 1999: The trial breaks for recess.
• February 2, 1999: A government lawyer accuses Microsoft of manipulating videotaped evidence in a courtroom demo.
• January 13, 1999: The defense phase of the trial begins.
• January 12, 1999: The final day of the government's case. In a climactic turn, the government's top economic witness admits that Microsoft has done nothing so far that would harm consumers.
• November 17, 1998: Sun Microsystems wins a crucial ruling when a federal court tells Microsoft to stop selling products that contain an incompatible version of Java. Meanwhile, South Carolina drops out of the antitrust lawsuit against Microsoft, saying there was sufficient competition in the Internet market.
• November 9, 1998: Microsoft chairman Bill Gates testifies in a videotaped deposition that he never intended to keep Intel out of the software business.
• October 20, 1998: Netscape CEO Jim Barksdale takes the witness stand.
• October 19, 1998: The court hears opening arguments in the first day of the antitrust trial.
• September 22, 1998: According to a study by a market researcher, Netscape finally cedes its browser-share lead to Microsoft's Internet Explorer.
• May 18, 1998: The big day. The U.S. Justice Department and 20 state attorneys general file an antitrust suit against Microsoft, charging the company with abusing its market power to thwart competition, including Netscape.
• May 12, 1998: An appeals court rules that the injunction against Microsoft should not apply to Windows 98, allowing Microsoft to proceed with the launch of its new product. A 2-1 majority rules that Microsoft can integrate whatever it wants into the OS as long as it benefits consumers and can't be replicated.
• January 22, 1998: Facing a contempt citation, Microsoft signs an agreement giving computer makers freedom to install Windows 95 without an Internet Explorer icon.
• January 13, 1998: A contempt-of-court hearing opens in Washington. A government witness argues that it is easy to uninstall Internet Explorer, while a Microsoft witness argues how hard it is. Jackson rebukes Microsoft attorneys repeatedly over statements made in court.
• December 19, 1997: In a demonstration held in his own courtroom, Jackson uninstalls the desktop icon for Internet Explorer.
• December 15, 1997: Microsoft appeals a ruling that temporarily bars it from requiring PC makers to use its Internet Explorer Web browser if they use the Windows 95 operating system.
• December 11, 1997: In a preliminary injunction, Jackson orders Microsoft to stop requiring PC makers to ship Internet Explorer along with Windows 95. But he rejects the government's request for a contempt-of-court citation and a $1-million-a-day fine for alleged violations of his 1995 court order. That order sought to restrain how the company leverages its marketplace dominance in desktop operating systems.
• December 5, 1997: Jackson hears opening arguments in the case.
• October 27, 1997: The Justice Department files a complaint demanding a $1-million-a-day fine against Microsoft for its alleged violation of the 1995 consent decree. The complaint claims that Microsoft overstepped its bounds by demanding PC manufacturers bundle the Internet Explorer Web browser with their hardware products before being able to obtain a Windows 95 license.
• August 19, 1997: The Justice Department once again has Microsoft in its sights. This time, the government wants to determine whether the software maker's $150 million investment in Apple Computer, or its equity stakes in three companies that develop Internet streaming technologies, would squelch competition.
• August 1995: After months of legal wrangling, U.S. District Court Judge Thomas Penfield Jackson officially approves the 1994 consent decree.
• April 1995: The Justice Department files suit to block a proposed merger between Microsoft and Intuit, claiming the marriage would quash competition in the electronic checkbook market. Within weeks, Microsoft scraps its merger plan.
• July 1994: Microsoft settles antitrust charges with the Justice Department, signing on to a consent decree that forbids the company from using its operating system dominance to squelch competition.
• August 1993: Frustrated by two Federal Trade Commission deadlocks in the investigation, the Justice Department takes over, focusing on Microsoft's DOS marketing practices.
• June 1990: The Federal Trade Commission launches a probe into possible collusion between Microsoft and IBM in the PC software market.

Read ongoing U.S. v. Microsoft coverage

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Why Did Microsoft Face Antitrust Charges in 1998?

Antitrust laws apply to virtually all industries and to every level of business. Governments design them in order to make sure there's fair competition in the market. They prohibit a variety of practices that restrain trade including price-fixing, anti-competitive corporate  mergers , and predatory acts designed to achieve or maintain  monopoly  power. In simpler terms, antitrust laws prevent companies from making and boosting their profits by playing dirty.

Without these laws in place, consumers wouldn't have the choices they do and would be forced to pay higher prices in order to get the goods and services they require. Some companies may try to circumvent the laws to try to position themselves as a leader in the market . The government may step in to stop them from establishing a monopoly , thus knocking out the competition. This article focuses on the 1998 Microsoft antitrust case. Read on to learn more about the case and the ruling that followed.

Key Takeaways

• Antitrust laws ensure one company doesn't control the market, deplete consumer choice, and inflate prices.
• Microsoft was accused of trying to create a monopoly that led to the collapse of rival Netscape by giving its browser software for free.
• Charges were brought against the company which was sued by the Department of Justice in 1998.
• The judge ruled that Microsoft violated parts of the Sherman Antitrust Act and ordered the company to break up into two entities.
• Microsoft appealed the decision, which was overturned.

The Microsoft Antitrust Case

Microsoft ( MSFT ) was one of the world's most successful software companies in the 1980s. The company's rising presence in the personal computing market raised alarm bells with federal authorities. The Federal Trade Commission (FTC) launched an investigation in the early 1990s to determine whether Microsoft was trying to create a monopoly. Although that investigation was closed, the Department of Justice (DoJ) picked it up.

On May 18, 1998, the DoJ and the attorneys general of 20 different states filed antitrust charges against Microsoft to determine whether the company's bundling of additional programs into its operating system constituted monopolistic actions. The suit was brought following the browser wars that led to the collapse of Microsoft's top competitor, Netscape, which occurred when Microsoft began giving away its browser software for free.

Charges were brought against Microsoft to determine whether its bundling of additional programs into its operating system constituted monopolistic actions.

The government case accused Microsoft of making it difficult for consumers to install competing software on computers operated by Windows. If Microsoft was found to have made it unreasonably difficult for consumers to uninstall Internet Explorer and use a competing browser, the company's practices would be deemed anti-competitive. The case meandered along with accusations of misleading statements and a variety of courtroom distractions. A group of economists even published a full-page open letter to President Bill Clinton in major newspapers in support of Microsoft stating that antitrust laws hurt consumers as well as the success of domestic firms in global competition. They urged authorities to drop protectionism fueled by antitrust laws.

Problems With the Case

The trial didn't necessarily run very smoothly. In fact, the DOJ's case against Microsoft was plagued with problems. First, there were questions about whether charges should have been brought against Microsoft in the first place. Microsoft claimed that its competitors were jealous of its success. Meanwhile, those who supported Microsoft proposed that if the company was to be considered a monopoly, it was, at best, a noncoercive one. They argued that even with options like Unix, Linux, and Macintosh, consumers demonstrated a preference for the convenience of Microsoft's Windows product on their computers. Windows may not have been the superior product, but it could run on a Toshiba laptop or on a number of clones. The ease of its installation and its other bundled software allowed it to become the norm.

Despite the creative editing of video, facts, and emails, Microsoft lost the case. The presiding judge, Thomas Penfield Jackson, ruled that Microsoft violated parts of the Sherman Antitrust Act , which was established in 1890 to outlaw monopolies and cartels. He found that Microsoft's position in the marketplace constituted a monopoly that threatened not only the competition but also innovation in the industry. Jackson also called for Microsoft to divide the company in half and create two separate entities that would be called baby bills . The operating system would make up one half of the company and the software arm would make up the other.

Microsoft's Appeal

Microsoft didn't take the ruling lightly and appealed the decision. The company took issue with the judge's position, citing bias in favor of the prosecution. The appeals court overturned Jackson's decision against Microsoft. Instead of seeking to break up the company, the Department of Justice decided to settle with Microsoft. In its settlement, the DoJ abandoned the requirement to break up the company, In return, Microsoft agreed to share computing interfaces with other companies.

Post-Antitrust Case

The company saw its once invincible market share erode due to old-fashioned competition. But the lessons learned from the case continue to resound. Many now wonder if bringing antitrust cases against non-coercive monopolies is merely a costly redundancy of work the free market can do at no charge.

The Washington Post. " FTC Deadlocks Again in Microsoft Investigation ."

U.S. Department of Justice. " Justice Department Files Antitrust Suit Against Microsoft for Unlawfully Monopolizing Computer Software Markets ."

Independent Institute. " An Open Letter to President Clinton from 240 Economists Dear President Clinton: on Antitrust Protectionism ."

U.S. Department of Justice. " U.S. V. Microsoft: Court's Findings of Fact ."

U.S. Department of Justice. " U.S. v. Microsoft Corporation ."

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