Microsoft Corporation (Microsoft) has been under investigation since 1990 for alleged antitrust violations. The Department of Justice (DOJ) believes that Microsoft has a monopoly in the field of operating systems (OS) and that Microsoft has traditionally consolidated this monopoly through illegal exercises of monopoly power. As a result, the Department of Justice persuaded Microsoft to sign a consent decree addressing Microsoft's illegal pricing policies and overly restrictive nondisclosure agreements. However, Microsoft is still under investigation for alleged exploitation in the field of software development and online services and for the alleged use of vaporware (a term used for products announced well before the release date, so as to prevent consumers from purchasing competing products ). The Federal Trade Commission (FTC) began investigating Microsoft in 1990, for possible violations of the Sherman and Clayton Antitrust Acts, which are designed to stop the restraint of trade by businesses, particularly monopolists. By August 1993 the FTC was in a stalemate; instead of dropping the case, they turned it over to the Department of Justice. Anne K. Bingaman, head of the Justice Department's antitrust division, proposed a settlement that was signed on July 15, 1994. For Microsoft, the advantage of the settlement was that it would not have to admit to any wrongdoing. If the Justice Department proved a case against them in court, it would open Microsoft up to cases from private companies, who would then be awarded incredible damages; Microsoft could avoid this situation by signing the consent decree, without actually admitting anything in it. The Consent Decree and Antitrust Law The settlement covered Microsoft's two most harmful practices, its pricing policies and its nondisclosure agreements (NDAs) in connection with Windows 95. The settlement included some measures; one such measure gives the Justice Department full access to Microsoft documents for use in other investigations. Although this final provision would prove very beneficial, Judge Stanley Sporkin rejected the settlement, questioning why the Department of Justice had not pursued everything stated in the original complaint. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get Original EssaySporkin was later canceled and the consent decree was signed. The most important part of the agreement was a clause that would end Microsoft's practice of selling MS DOS to original equipment manufacturers (OEMs) at a 60% discount if they agreed to pay Microsoft for each computer sold, instead of paying them for every computer sold. computer sold with MS DOS pre-installed. As a result, if the OEM wanted to install a different operating system on some of its computers, it would effectively pay for both operating systems. This is unfair for several reasons, the first being that consumers are, in effect, paying Microsoft when they purchase another product, the second being that it would be uneconomical for an OEM to forgo the 60% discount in favor of installing a less popular product . OS on some of its computers. The question before the FTC, and then the DOJ, was whether or not Microsoft had a monopoly in the PC operating system market and whether or not their pricing practices were anticompetitive. In United States v. EI du Pont de Nemours and Company, the Supreme Court defined monopoly power as the power to control prices or exclude competition by increasingthe barriers to entry into the relevant market significantly. The most important doctrine in prosecuting Microsoft was enunciated in United States v. Griffith, which states that a monopolist cannot use a monopoly in one field as leverage to gain a monopoly in another. The Griffith case had to do with movie theaters. Griffith used his monopoly status in small towns (where they owned the only theater) to get better contracts from film companies. If the company wanted to show the film in small towns, they were forced to accept the contract terms offered by Griffith. As a result, Griffith obtained films for substantially less than his competitors, which gave Griffith lower costs in both monopolistic cities and competitive markets. What Griffith did was anticompetitive because Griffith used monopoly power in small towns as leverage to gain market share in competitive cities. In United States v. Grinnell Corporation, the Supreme Court introduced a test for whether or not a monopolist was actually using monopoly power illegally: "(1) The possession of monopoly power in the relevant market and (2) the intentional acquisition or retention of that power as distinct from growth or development as a result of superior product, business acumen, or historical accident This means that monopolization is not illegal, but the use of monopoly power is This position was further developed in Telex Corporation v. International Business Machines Corporation. This case, the court recognized that a monopolist could use practices that any company, regardless of size, could legally employ use its market power in a way that prevents competition. Basically, a company can be a monopolist as defined in du Pont, but when a monopolist acts in a way that only a monopolist can do (as defined in the second test in Grinnell). ), the monopolist broke the law. In the case of Microsoft's pricing policy, the Justice Department, if it were to go to court, would have to demonstrate Microsoft's monopoly power in the field of operating systems and subsequently demonstrate that its pricing policy is anticompetitive. Proving that Microsoft has a monopoly in the field of operating systems would not be difficult, and if the Department of Justice ever goes to court with Microsoft, it will have to demonstrate Microsoft's monopoly power. If the Justice Department had decided to file a lawsuit, proving that Microsoft's pricing practices were anticompetitive would not have been difficult. The fact that Microsoft has been able to adopt the pricing policies it has adopted is evidence of its ability to exclude competition from the market. This fact, reinforced by the fact that MS DOS has held over 70% of the PC operating system market for the past decade, and currently has a market share of almost 90%, demonstrates that Microsoft is indeed a monopoly by definition established in the Du Pont case. The same evidence used to demonstrate that Microsoft has a monopoly could also later be used to demonstrate that they are violating section 2 of the Sherman Antitrust Act under the tests set forth in Grinnell and the doctrine set forth in Telex. According to the Grinnell test, Microsoft falls into the first category, because it has monopoly power, and it also falls into the second, because it maintains that power not through superior products or business acumen, but through anticompetitive pricing policies that limit choices. of consumers. The real effects of theseplans can be seen in the case of Novell's DR DOS, the number one alternative to MS DOS, which does not come pre-installed on any domestically manufactured computer, even though it is probably a better product. Novell has been hurt by the fact that no OEM will sell computers with DR DOS pre-installed, because for an operating system to survive, independent software vendors (ISVs) must be willing to write software for it. If the operating system does not come pre-installed on any computer, no ISV will write software for it. If there is no software for this, consumers won't buy it. Microsoft also violates the Grinnell Doctrine by using monopoly power as leverage to obtain favorable contract terms. Clearly, Microsoft has used its monopoly power in this field to maintain control of an already cornered market. By raising barriers to entry into the operating systems field, Microsoft may have caused lasting damage to competition. The deal did little to loosen Microsoft's monopoly power, but it did cause Microsoft to change its pricing structure to one in which Microsoft's contracts allow OEMs to sell systems with competing operating systems without paying Microsoft, banning the aforementioned processor agreements. According to the decree, only copy and system licenses would be legal. The other remedy in the deal was non-disclosure agreements (NDAs). Microsoft forced ISVs to sign overly protective NDAs that prevented ISVs from writing software for competing operating systems. The NDAs in question involved a product code-named Chicago, released as Windows 95. The Department of Justice argued that ISVs were, in effect, forced to sign these contracts. Considering Microsoft's past, it was not unreasonable to assume that Windows 95 would become a major operating system in the future and having products for it would be vital to an ISV's survival. From Microsoft's actions we can deduce that Microsoft noticed this and used it to their advantage. While NDAs are a common practice in many industries, designed to keep secrets secret, Microsoft has instead used them to force ISVs to stop developing products for competing operating systems for an unreasonable period of time. Microsoft was clearly using a practice that was not available to a company without monopoly power in order to maintain its monopoly power, which is a clear violation of Grinnell. On a related note, Apple, the company that makes Macintosh computers, the PC's main competitor, claims that Microsoft CEO Bill Gates called and threatened to stop making Macintosh products if Apple didn't stop developing a program it was supposed to compete with a similar computer. Microsoft program. Microsoft is the largest producer of Macintosh programs. As stated earlier, without strong software support, an operating system cannot survive. System 7, the Macintosh operating system, would therefore presumably suffer as a result of Microsoft's decision. Apple also claims that Microsoft would not send them a beta copy of Windows 95 until they removed Microsoft's name from a lawsuit. While these allegations cannot be proven, they certainly fit Microsoft's way of doing business, and if they could be proven, they would certainly constitute grounds for legal action. More importantly, these practices violate the doctrine set forth in Aspen Skiing Company v. Aspen Highlands Skiing Corporation, in which Justice John Paul Stevens expressed the court's opinion: "The absence of an absolute duty to cooperate does not meanthat whenever a company refuses to participate in a particular corporate venture, that decision may not have probative value, or may not give rise to liability in certain circumstances." This decision has its roots in Lorain Journal Company v. United States, in which the Supreme Court declared that refusing to deal with someone was okay unless it was for the purpose of monopolization. According to Aspen, even if Microsoft has the right to refuse to deal with Apple, doing so would be evidence of an abuse of monopoly power. More precisely, by threatening not to deal with Apple, Microsoft uses its dominant position in the field of Macintosh applications to gain influence in another field, contrary to Griffith. If Microsoft succeeds in creating an industry standard, its innovation rightfully earns it a short-term monopoly under Berkey and Telex (until other software companies create applications that conform to the standard). However, if Microsoft had used its power in Macintosh applications as leverage, as Apple claims to have done, Microsoft would have broken the law under the Grinnell doctrine. The ruling and current investigation The Tunney Act of 1974 provides for a 60-day judicial review of all consent decrees, in which parties objecting to the decrees can file complaints with the judge, and the judge can then decide whether the decree should be valid or less. When the law was promulgated, its purpose was to ensure that no decrees existed that were not in the public interest. Judge Stanley Sporkin found Microsoft's consent decree lacking. As a result, he refused to sign it. His decision was later reversed. The fact that he did not want to sign the decree demonstrates his weakness. Microsoft is alleged to have engaged in several other practices that would merit investigation, including vaporware, and thus make claims in relation to Windows 95 and the Microsoft Network, Microsoft's online service. Another important criticism is that Windows 95, covered in the decree, is considered by some to be an intermediate phase between MS DOS and Windows NT. The interfaces of Windows 95 and Windows NT are quite similar. The main difference between the two products is that, while 95 is covered by the decree, NT is expressly excluded, due to its small market share. If NT is successful, Microsoft will have, in a sense, successfully rescinded the consent decree. However, the fact that the DOJ can now ask questions that need to be answered has been extremely beneficial to the DOJ and extremely costly to Microsoft. In the 50 months leading up to the settlement, the Justice Department received 1 million pages of documents from Microsoft. After the consent decree was signed, the Justice Department launched what Microsoft called the harassment campaign and eventually sued Anne K. Bingaman. This was a request for documents regarding a merger with Intuit, the dominant financial software company. Complying with the request cost Microsoft $5 million in legal and copy fees. This investigation is seen by most as the reason the deal was not made. Vaporware's claims seem impossible to prove. Microsoft has been consistently late in releasing products. The most notable was Windows 95. Windows 95 was supposed to come out in the spring of 1995, so Microsoft pushed the release date back to the summer, then to the fall, and finally to early 1996. Windows 95, in fact, was released by the end of 1995. , but the series of delays make it a prime example of vaporware. Microsoft's competitors believe thatMicrosoft announces products well before they are ready, so that the market becomes more enthusiastic about their release and consumers do not buy competitors' products. Since anyone can announce products, Microsoft is protected from the Telex case. The only way the government could make any kind of case would be to prove that Microsoft intentionally lied about products or release dates. For this reason, perhaps, the litigation on this issue has not been taken seriously into consideration. What is being seriously considered are the results of Microsoft's vertical integration. One example is a Windows feature called Object Linking and Embedding, which was used in Microsoft's spreadsheet program, Excel, before Microsoft provided specifications for its use to other software companies. Precedent, however, protects Microsoft, because in the Berkey case the court ruled that even a monopolist is not required to pre-disclose the specifications of a new product. The circumstances of the two cases are very similar. In Berkey's case, Kodak had monopoly power in the film field and introduced a new film format. Kodak had pre-disclosed the format two months before its release, but, when it was released, Kodak was the only company making cameras that accepted the new film format. The court ruled that because a monopolist can compete like anyone else, it can legally invent and market products. Because pre-disclosure makes inventions and innovations less profitable, it also makes them less likely. Therefore, as in the case of Telex, it is the monopolist's right to engage in this standard business practice; the consumer also benefits, because temporary monopolies promote innovation. Since Microsoft did not attempt to maintain a monopoly on OLE technology, it is certainly not at fault. However, relying on the Berkey case as precedent presents problems for several reasons. The first is that Berkey was a District Court decision and therefore does not have the status of a Supreme Court case. Second, legal scholars see the decision as blameworthy. According to some, the best line of thinking that can be drawn from the Berkey case is simple: The Justice Department and the courts should weigh the long-term market power that will be given to the monopolist for its innovation against the beneficial effects for consumers. in having new products. Under the Griffith Doctrine, leverage is itself illegal. Here Microsoft has exploited its monopoly on operating systems to gain market share in the software field. The test established in the Berkey case is whether or not a non-monopolist can do what Microsoft did. Since the two situations are nearly identical, and the Berkey court found that Kodak could, in fact, have done what it did, even if it had not been a monopolist, it is logical to assume that they would find themselves similarly placed in a case against Microsoft. However, given the fallacy of precedent, the benefits and costs should be weighed. In this case, consumers benefited from the new OLE technology, but it was used as leverage to transfer some of Microsoft's operating system monopoly into the spreadsheet market. Judging by Excel's sales, consumers began to think that Excel was a better product than its competitors. The case that the Justice Department has been dealing with the most lately is Windows 95. The main question raised is whether or not Microsoft's networking software bundle constitutes an antitrust violation. On August 8, 1995, the Justice Department announced that it would not finish the investigation before the release date of the 24th.