The end of the decade-long federal court supervision of Microsoft’s licensing practices last month provides an opportunity to reflect on the impact that case has had. A lasting legacy of the U.S. v. Microsoft case is that monopolists in dynamic and rapidly changing high-tech industries do not receive special treatment under the Sherman Act. There is no presumption that high market shares will be counteracted by the possibility of innovation by competitors, without convincing proof.
In an article for Law360, Constantine Cannon’s Mitch Stoltz reflects on the long-term impact on antitrust in the software industry of the Justice Department’s 1999 monopolization suit against the software giant.
The historic case was resolved in 2001 with a settlement that provided for a decade of government oversight of Microsoft, which ended in May 2011.
The DOJ and state attorneys general had claimed that Microsoft’s use of contracts with PC manufacturers to control which programs could appear on the Windows “desktop” violated Section 2 of the Sherman Act as a form of monopolization or attempted monopolization. They also claimed that Microsoft’s commingling of the computer code for the Windows operating system and the Internet Explorer browser was a form of tying that illegally excluded other browsers, such as Netscape Communicator, from the market.
Microsoft and its supporters claimed that its restrictive contracts were not anticompetitive because, despite its very high market share in the PC operating system market, the possibility of rapid innovation by competitors like Netscape effectively checked any Microsoft attempt to wield market power. They also argued that combining the browser with the operating system was innovative and that to punish it as tying would bring the courts into the business of judging technological merit.
After a bench trial and appeal, the Court of Appeals for the D.C. Circuit ruled that Microsoft possessed and abused monopoly power in violation of Section 2 through its manufacturer contracts. The court also ruled that the “tying” of two software programs technologically must be evaluated under the rule of reason, taking into account procompetitive and anticompetitive effects, rather than being declared per se illegal.
In other words, the court held that lower courts can and should look into the technological merit of combining two software programs to see if the combination truly benefits consumers rather than simply locking out competitors.