This paper examines the antitrust case against Microsoft Corporation, arguing that the company did not constitute a true monopoly under legal or economic definitions. Beginning with Microsoft's founding by Bill Gates and Paul Allen in 1975, the paper traces the company's growth into the world's largest software firm. It then addresses the late-1990s federal suits alleging that Microsoft used its Windows operating system to unfairly promote Internet Explorer at the expense of competitors like Netscape. The paper contends that Microsoft operated in a highly competitive market, that bundling a browser with an operating system was legitimate business practice, and that consumers — not competitors — were the primary beneficiaries of Microsoft's innovations.
"We at Microsoft are confident about our legal position. We believe that at the end of the judicial process, through whatever trial or appellate procedures may be appropriate, we will have shown that Microsoft's creation and its broad distribution of an enormous amount of very innovative software has provided great benefit for consumers around the world," announced Bill Neukom, Executive Vice President of Law and Corporate Affairs for Microsoft Incorporated (Martinez).
Microsoft has been drawn in and out of controversies surrounding the label of "monopoly." As far as competitive practice goes, however, Microsoft's actions have been entirely normal business behavior. Microsoft respectfully disagreed with the court's findings regarding monopoly power, maintaining that no segment of any economy is more intensely competitive — or delivers more rapid innovation to consumers — than the computer software industry.
Microsoft does not live the so-called "quiet life" of a monopoly. The company constantly faces smart, dedicated, and well-resourced competitors, and has responded by making increasingly large investments in research and development, bringing innovative products to market on shorter product cycles, and continually lowering the price of its technology — outcomes that benefit consumers and the broader economy alike.
The story of Microsoft began in 1975, when two friends, Bill Gates and Paul Allen, read an article in Popular Electronics describing a new "personal computer" called the MITS Altair 8800. The Altair was very different from the mainframe computers people were accustomed to at the time. It was a build-it-yourself kit for hobbyists — what arrived in the mail was not a fully assembled computer, but bags of parts and a set of photocopied instructions. After days or weeks of soldering, you ended up with a computer roughly the size of a breadbox, with rows of switches and blinking lights. It was not much to look at, and it was nearly impossible to make it do anything useful, but both Gates and Allen recognized it as the start of a revolution that would change the world.
The "brain" of the Altair — the inexpensive Intel 8080 microprocessor — made possible a truly human-scale computer that could sit on a desk. In those days, when computers typically lived in air-conditioned glass rooms tended by trained technicians, that was a remarkable achievement. To transform that achievement into a real breakthrough, the Altair needed software capable of performing useful computing tasks. That realization set Bill and Paul on the path to forming their own software company.
They understood that microprocessors would grow more powerful and less expensive, driving down the cost of computers and bringing them within reach of far more people — entrepreneurs, students, and home users alike. They concluded that this would create enormous demand for software, and so they formed a small partnership called Micro-Soft to be part of that transformation.
Over the years, the PC grew from a hobbyist's toy into an indispensable tool that continues to reshape the world. It revolutionized how people handle information, communicate, work, learn, and play. The small company that Gates and Allen conceived in a college dormitory became the world's largest software company, employing nearly 40,000 people in more than 50 countries. From their roots in programming languages and operating systems, Microsoft expanded into virtually every kind of software imaginable, from enterprise-grade servers to consumer games.
They started with a vision of "a computer on every desk and in every home." What many critics dismissed as pure fantasy became reality. Microsoft took risks, weathered intense competition, and blazed many new trails — and every day continued finding new ways for technology to enhance and enrich people's lives.
In mid-to-late 1997, Microsoft Corporation was charged with harming competition. Two suits were filed in federal court in Washington, alleging that Microsoft was using its operating system to unfairly promote its web browser, Internet Explorer (Kim). Both suits remained contested.
The "Microsoft monopoly" case was, in the company's view, entirely unwarranted. Competitors charged Microsoft with giving Internet Explorer an unfair advantage by packaging it with Windows 98, arguing this constituted monopolistic behavior. By definition, however, a monopoly involves "exclusive control, as of a commodity or service, by one group." Microsoft did not fit this description — other companies competed actively in the browser market, most notably Netscape.
Furthermore, anyone who followed the industry could see how dramatically the competitive landscape had changed even since the lawsuit began in the summer of 1998. Industry analysts noted that Windows faced serious challenges from a wide array of competitors, including Linux and other operating systems, middleware and platform products from AOL, Netscape, and Sun's new mega-alliance, and a range of new computing devices such as palm-sized computers and intelligent telephones. Powerful companies — Sun Microsystems, AOL, IBM, and Oracle — made no secret of their intent to render Windows obsolete. These competitive pressures were real and ongoing.
Free enterprise is a foundational principle of the American economy. All companies in the United States are entitled to compete freely. Senator Hatch, a Republican leading the charge against Microsoft, was in some ways acting against his own party's support for free markets — a position many observers found inconsistent.
Microsoft, by definition, was not a monopoly because it was not preventing competitors from selling their products. Microsoft was not stopping Netscape from placing its browser on store shelves. As Microsoft itself stated: "A monopoly, by definition, is a company that has the ability to restrict entry by new firms and unilaterally control prices. Microsoft can do neither" (Allbritton).
U.S. Senator Slade Gorton helped clarify the situation for the court: "If Microsoft were in violation of antitrust law, consumers would be a clear victim of the company's success, rather than its chief beneficiaries" (U.S. Senator Gordon).
Netscape Navigator remained available for purchase. Consumers were not buying it largely because they had a comparable — and many would argue superior — alternative already included with their operating system. Microsoft had the legal right to sell its products together to increase value for customers. No law prohibited bundling products, and doing so was a sound business decision that also served consumers.
"Sherman Act protects consumers, not struggling competitors"
Microsoft does not believe itself to be a monopoly. It believes that it is doing the business it set out to do and is providing consumers with their needs and nothing else. The other companies that struggled with Microsoft's competitive position did so largely because they lacked the capacity to match Microsoft's expanding product range and pace of innovation. Microsoft did not prevent anyone from purchasing competing products, nor did it engineer its software to block other programs from running on it.
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