U.S. v. Microsoft Corporation: An Ethical Analysis

Microsoft Corporation was sued by the Department of Justice and 21 state governments in 1998 with separate but analogous lawsuits. The main contentions of the plaintiffs against Microsoft were that it misused its monopoly status in the operating systems market to forbid competition both in the internet platform and browser market in infringement of Sherman Act and also antitrust acts of various states.

Since Microsoft Corporation manufactures and markets internet web browser, pc operating system, and its applications, the court held that Microsoft enjoyed monopoly power in the operating system market by practicing anti-competitive mechanisms, tried to dominate the web browser marketplace, and tied illegally its operating system to its web browser.

The plaintiffs alleged that Microsoft indulged in four varieties of antitrust violations namely

1. unlawful exclusive dealing arrangements
2. unlawful tying in infringement of section 1 of the Sherman Act.
3. unlawful monopoly maintenance
4. attempted monopolization under section 2, the district court held in favor of states and the department of justice and ordered that Microsoft be reorganized under which there would be a separation of Microsoft application businesses and its operating systems.

Though the D.C Circuit court reversed the findings of the district court’s verdict on the monopolization of the operating system market but confirmed the remedy ordered by the district court. A settlement was made by Microsoft with the department of justice and nine states resolving all claims. However, nine other states refuted that settlement reached was inadequate in proportion to the violation and appealed for more far-reaching relief. (Pearlstein 823). Further, Microsoft was prohibited inter alia from initiating reverse actions against original equipment manufacturers that encouraged analogs products manufactured by competitors of Microsoft. (Belson 109).

It is to be observed that the Sherman Act is the foremost and pivotal American antitrust legislation and is a prominent vague piece of legislation. It contains a general restriction on illegal contracts and monopolization in restraint of trade and it has never explained what a specific violation connotes. (Weinstein 7).

Legal Issue Statement

1. In the information economy, Microsoft’s window operating system is like the sun in the solar system. Windows is the most preferred platform for tens of millions of users worldwide even today. Window’s interoperability has matured due to its vast usage. Many distinctive functions like memory management and de-fragmentation available earlier in separate now are being regarded as part of the Windows system. Though consumers are enjoying many advantages due to its interoperability, it has resulted in grave antitrust issues. One of the pressing concerns is that Microsoft would employ its monopoly strength in the operating system to forbid innovation in other software markets by “incorporating “its earlier competitive functions into windows. This nervousness between the threat to competition and the advantages of interoperability was at the hub of the decision given by the D.C. Circuit’s verdict in this case.
2. The main allegation against Microsoft was that its efforts to maintain its monopoly status by destroying the markets shares of Netscape Navigator, a web browser like Internet Explorer, and Sun Java, a cross-platform programming language by tying its windows application, Internet Explorer and its other products. It was alleged that Microsoft was involved in varieties of anticompetitive initiatives mainly to hamper the threats posed by Java and Navigator. Monopoly acts of Microsoft included obtaining exclusive dealing contracts with “OEMs”¹ and “IAPs²” thereby restricting these entities from utilizing Navigator in addition to IE and exerting heavy pressure on Apple Computers to stop its use of Navigator.

Applicable Legal Rules

1. The charges framed against Microsoft was that it engaged in market domination and tried market domination under “section 2 of the Sherman Act “ of the U.S.A which forbids activities of sought monopolization which include activities that make a dangerous probability of success of “market domination” and also tying under “section 2 of the Sherman Act. ”
2. In “United States v. E.I.DuPont de Nemours & Co, “ the court will determine whether the defendant has monopoly authority in that market, with market domination power explained as “the authority to influence prices or to keep out rivals.
3. In Rebel Oil Co v. Atl. Richfield Co, it was held that direct evidence will be rarely available and in such cases, the court normally relies on circumstantial evidence like market share mingled with the barriers to entry.
4. In Spectrum Sports Inc v. McQuillan³ , the court recognized competitive impact when the defendant’s deeds “inequitably aimed to annihilate competition”.

Observations

• “Section 2 of the Sherman Act “requires the following should exist in the anti-monopoly lawsuit.

  • The ownership of market domination authority in the particular market.
  • The determined maintenance or acquisition of that authority not relied on an advanced business shrewdness, product or momentous accident.
  • Had the defendant’s demeanor have anticompetitive impact?
  • Had the defendant’s deeds in fact hurt competition?
  • Whether the monopolist has a “procompetitive justification” for its demeanor and in such cases, if the plaintiff can demonstrate anticompetitive impact?
  • Can the applicant show that the “anticompetitive “injury of the demeanor surpasses the “procompetitive “advantage in case the plaintiff cannot rebut the procompetitive rationalization?
• Further, it has to be clearly established that under “section 2 of the Sherman Act,” corroboration must establish that

  • The defendant was practicing an anticompetitive or predatory demeanor.
  • Having a specific aim to monopolize.
  • A perilous endeavor of attaining monopoly power as held in Spectrum Sports⁴.

Legal Conclusion

1. Judge Jackson of District Court held that Microsoft was responsible for attempted market domination under “section 2 of Sherman Act “and also found Microsoft’s offer to Netscape to share browser market enough to form a “perilous probability” that Microsoft might attain a monopoly in the browser market. Jackson opined that by tying the licensing of Windows on the procurement of IE, Microsoft had established an illegal tie-in.
2. The Circuit Court confirmed the lower court’s verdict that Microsoft engaged in monopoly activities for PC operating systems with Intel-compatibility and engaged in anticompetitive demeanor.
3. However,” D.C Circuit Court” overruled the “district court’s” verdict that “Microsoft” tying of Window and IE was per unlawful. Disregarding Supreme Court precedent squarely on point, the court declared a new tying rule for scenarios “involving platform software products.” In spite of assessing these understandings under the per se rule , as demanded by Jefferson Parish and Northern Pacific, the court decided that the rule of reason is the proper test and remitted back the case to the district court for verdict under this yardstick. (Weinstein 14).

Ethical Issue Statement

Whether Microsoft monopoly role is aimed to crush other players in the market like Netscape Navigator, Java etc. Is it ethical to compel the OEM like Intel, Apple to solely deal with Microsoft products like Windows and Internet Explorer?

Support for Ethical Issues

Is it ethical for local businessman can forbid outsiders to operate in analogues business in their provinces even if the outsiders promptly defer the applicable taxes? Suppose, if the outsiders offer analogues goods at cheaper price and offer better quality services, then the local businessman has no right to prevent them from operating in their provinces. In such cases, the court will disregard the benefits reaped by the local businessman as the consumers were in detriment. Thus, the trial court and D.C court have disregarded pro-consumer goods concept adopted by Microsoft as its triumph card in barring its competitors to function effectively in the software market.

Ethical Alternatives

A viable legal alternative is that Microsoft should allow its competitors with required information to make their products fully suitable to Microsoft’s Windows operating system allowing their competitors to function in the market in analogues status.

Choosing an Ethical Option

Thus, Microsoft’s case is an eye opener to all the software manufacturers who want to indulge in anticompetitive and tying efforts to curb the functioning of their competitor’s in the market.

Works Cited

Belson Jeffery. Certification Marks. New York: Sweet & Maxwell, 2002.

Pearlstein Debra J. Antitrust Law Developments. (Fifth). New York: American Bar Association, 2002.

Weinstein Samuel Noab. Sherman Act Violations: Monopolization: Tying: United States V.Microsoft Corp. Annual Law Review of Berkeley Technology Law Journal, 2002.

Footnotes

1. Original Equipment Manufacturers.
2. Internet Access Providers.
3. 506 U.S.447, 458 (1993).
4. 506 U.S at 456.