Microsoft case has tumultuous history, related fallout

The legal trail leading to U.S. District Judge Colleen Kollar-Kotelly’s decision later today in the federal government’s antitrust lawsuit against Microsoft Corp. has been more than a decade in the making. Along the way, a variety of related inquiries, complaints, lawsuits and appeals have created courtroom drama, roiled the IT industry and spurred consumer action.

Settlements have been reached, only to be blasted by Microsoft competitors and shot down by judges. Two federal judges involved in different stages of the proceedings have been rebuked in appeals court reviews. And now, with the floodgates opened by the latest federal case, more than a hundred lawsuits filed by consumers and competitors are yet to be resolved.

One of the initial milestones in the federal case history was passed in July 1994, when the U.S. Department of Justice (DOJ) reached its first antitrust-related settlement with Microsoft after several years of investigations by DOJ staff, the U.S. Federal Trade Commission and a separate probe by the European Commission.

The settlement, in the form of a consent decree, avoided a lawsuit and called for Microsoft to stop charging manufacturers a blanket royalty on all PCs sold even when the machines weren’t bundled with Windows. A similar agreement was reached with the European Commission.

DOJ antitrust chief Anne Bingaman, however, had to defend the deal she brokered in light of criticism that it didn’t address whether Microsoft had an unfair advantage in the applications market by preventing competitors from seeing certain Windows application programming interfaces, an issue before Kollar-Kotelly in her just-released decision.

“We were within hours of suing them before they capitulated. If this [settlement] was such a ‘nothing,’ why did they fight it?” said Bingaman in a 1994 Computerworld interview.

In the following years, Microsoft fought every attempt at what it deemed was intervention in its legal business practices. Meanwhile, the consent decree it entered into with Bingaman was rejected in February 1995 by U.S. District Judge Stanley Sporkin, who was assigned to review the matter.

Sporkin questioned whether the DOJ negotiated away important issues in secret. In June 1995, however, an appellate court ruled that the settlement was in fact in the public interest and said Sporkin had overstepped his authority in considering issues beyond the scope of the investigation. The appellate panel also said Sporkin’s ruling contained personal bias against Microsoft — a foreshadowing of what would happen in the current antitrust case. The appeals panel sent the 1995 case back to the lower court and to a different judge.

Finally, in August 1995, U.S. District Court Judge Thomas Penfield Jackson signed the consent decree into law. This turned out to be only the beginning of Jackson’s high-profile involvement with the case.

DOJ files contempt complaint

In October 1997, the DOJ filed a complaint in the U.S. District Court for the District of Columbia, asking that Microsoft be held in contempt of the 1995 consent decree and be charged $1 million daily for requiring PC manufacturers to license and distribute the Internet Explorer browser as a condition of licensing Windows 95. Jackson took the case, and in December 1997 issued a preliminary injunction barring Microsoft from requiring PC makers to offer Internet Explorer with Windows.

After Microsoft filed an appeal on the injunction ruling, the U.S. Court of Appeals for the District of Columbia in June of 1998 ruled that Jackson erred in imposing the injunction. But the legal maneuvers over a fairly narrow question of violation of the consent decree proved to be just a skirmish before the real conflict — a broad-based antitrust lawsuit. This lawsuit, the current case that is going through the appeals process, began in May 1998, with the DOJ filing a claim that Microsoft violated the Sherman Act that governs federal antitrust law by using its operating systems dominance to thwart competition.

A number of states also filed claims that Microsoft violated state antitrust laws; those cases were later consolidated by Jackson.

In their 1998 lawsuit, the DOJ and the states accused Microsoft of anticompetitive behavior in its exclusive dealings with PC makers, in tying its Internet Explorer browser to the Windows 95 and Windows 98 operating systems, in unlawfully maintaining a monopoly in the PC operating system market and in attempting to create a monopoly in the browser market.

Jackson presided over a 76-day trial in the district court. Microsoft brought out witnesses to back up its steadfast stance that it merely played using the hard-knuckled, albeit legal, methods of the IT game.

Many observers, however, said the software company’s image was tarnished by legal drama that included a publicly available videotaped deposition with Microsoft Chairman and then-CEO (currently chairman and chief software architect) Bill Gates, who seemed to arrogantly avoid responding to straightforward questions by lead prosecution attorney David Boies, and seemingly endless e-mail messages illustrating the intense aggression of Microsoft’s top executives.

Microsoft feared

Prosecution witnesses added fuel to the fire with statements about how widely Microsoft’s tactics were feared.

“I’ve seen grown men quake when considering doing things that might displease Microsoft,” said Jean-Louis Gassee, former chairman and CEO of operating system maker Be Inc.

In November 1999 Jackson issued his findings of fact, saying that Microsoft has a monopoly in the PC operating systems market and that the company would “use its prodigious market power and immense profits to harm any firm that insists on pursuing alternatives” to its products.

He then referred the case to a mediator for a settlement. Nearly four months of settlement talks produced no results, and in April 2000 Jackson issued his conclusions of law: Microsoft was liable for the tying, monopoly maintenance and attempted monopolization claims. Jackson didn’t find enough evidence to support the government’s claim that Microsoft’s exclusive dealings with PC makers were unlawful.

Jackson asked the government to submit proposed remedies to Microsoft’s anticompetitive business practices. The DOJ asked for constraints that would curb what it deemed to be Microsoft’s unfair and illegal business practices, as well as structural relief in the form of breaking the company up into an application business and an operating system business.

In June, Jackson ordered a set of remedies almost identical to the ones proposed by the DOJ.

Microsoft appealed Jackson’s final judgment within a week, and the case moved to the court of appeals.

The appeals court rules

The appeals court issued its decision in June 2001, upholding one of the three findings found by the lower court: Microsoft violated antitrust law by attempting to maintain its monopoly in the desktop operating system market through anticompetitive behavior.

Microsoft acted to protect its dominance in the PC operating system market that was threatened by Netscape Communications Corp.’s Navigator browser and Sun Microsystems Inc.’s Java programming language, the appeals court found.

While upholding some of the District Court’s findings, the appeals court rejected its remedies. It reassigned the case to a new judge, criticizing Jackson for acting inappropriately by holding interviews with the media and making “offensive comments” about Microsoft.

In August 2001 the case was assigned to Kollar-Kotelly, whose job it then became to determine appropriate remedies to Microsoft’s anticompetitive behavior. In her first hearing regarding the case, she urged Microsoft and the DOJ to reach a settlement.

The DOJ and Microsoft announced in early November their proposed settlement, which included restrictions to Microsoft’s behavior that both parties characterized as beyond the legal findings outlined in the appeals court decision.

Shortly after, nine of the 18 states involved in the case also agreed to the settlement. The remaining nine states and the District of Columbia chose to seek stricter remedies for Microsoft than what the proposed settlement included.

Those holdout states and Microsoft presented oral and written arguments to Kollar-Kotelly earlier this year, resting their cases in June.

New remedies sought

The nonsettling states sought remedies to be imposed on Microsoft that went beyond the proposed settlement with the federal government. They wanted, for example, to force Microsoft to make its Office desktop software run on competing operating systems, and make the underlying code of the Internet Explorer Web browser freely available to developers.

In the last round of hearings, Gates rehabilitated himself in the eyes of many observers, appearing live in court and directly answering questions, avoiding the apparent evasiveness of his earlier testimony, and articulating the company’s notion that the remedies sought by the nonsettling states would take away Microsoft’s incentives to innovate and send his company’s multibillion-dollar research and development engine “into a 10-year period of hibernation.”

The legal road to Kollar-Kotelly’s decision has already had several effects.

Increasing antitrust scrutiny, for example, in 1995 dissuaded Microsoft from going through with its announced deal to buy leading personal financial management software maker Intuit Inc.

Jackson’s findings of fact, upheld by the same appeals court that overturned some of his remedies, paved the way for more than a hundred separate private lawsuits brought by consumers in various states as well as companies including Sun and Be. Most of these cases were consolidated under District Court Judge J. Frederick Motz in Baltimore, who in January blocked a settlement proposal between Microsoft and plaintiffs representing more than 100 private antitrust class-action lawsuits. He said the deal, which would have given, according to the settling parties, about $1 billion of computers, software and support to the nation’s poorest schools, wouldn’t have led to a fair resolution of the cases.

With the class-action cases as well as private cases from competitors yet to be resolved, it appears that Microsoft could be battling antitrust and unfair business-practice lawsuits for years to come.