Why Did Microsoft Face Antitrust Charges in 1998?

On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft (MSFT). The charges were brought to determine whether Microsoft'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. 

Antitrust laws apply to virtually all industries and to every level of business. 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.

The DOJ's case against Microsoft was plagued with problems, including questions about whether charges should have been brought against Microsoft in the first place. The argument proposed that if Microsoft was to be considered a monopoly, it was at best a non-coercive monopoly. People chose to run Microsoft Windows on their computers. With options like Unix, Linux and Macintosh, consumers demonstrated a preference for the convenience of Microsoft's Windows product. 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.

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. Economists in support of Microsoft even published a full-page open letter to U.S. president Bill Clinton in major newspapers stating that antitrust laws hurt consumers as well as the success of domestic firms in global competition.

Despite the creative editing of video, facts and emails, Microsoft lost. The ruling on April 3, 2000, called for Microsoft to divide the company in half, creating two companies that were to be called "baby bills." The operating system would make up one half of the company and the software arm would make up the other.

Before this could be achieved, however, the fangs were removed from the ruling during the appeals process. However, rather than being broken by the antitrust ruling, Microsoft saw its once invincible market share erode due to old-fashioned competition. As a result, 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.

(For more on this subject, read A History of U.S. Monopolies.)