Microsoft's legal tangles

The software giant's antitrust troubles date back to the beginning of the decade, and more loom.

June 23, 1998 6:00 p.m. PT

3 min read

Tangles between trustbusters and

the software giant date back to the beginning of the decade, and there may be more to come.

Probes of Microsoft's business practices
1990	Federal Trade Commission begins investigating Microsoft's software marketing practices. Focuses on the possible anticompetitive nature of "tie-in" sales of applications and operating systems.
1993	Justice Department takes over the investigation.
1994	Microsoft and Justice Department reach a settlement that regulates Microsoft's marketing practices through the year 2000. Microsoft agrees that OS licenses must not contain conditions that apply to other MS software. DOJ files suit to halt Microsoft's $2 billion acquisition of Intuit.
1995	Microsoft and Intuit cancel merger plans to avoid a legal fight. U.S. District Judge Stanley Sporkin refuses to sign the '94 settlement, saying it does not go far enough. U.S. Appeals Court overturns Sporkin's decision. U.S. District Judge Thomas Jackson approves the settlement. Justice Department says that it will continue its investigation of Microsoft. Looks at whether the MS plan to bundle Microsoft Network with Win 95 is anticompetitive. Under the 1995 court order, Microsoft is prohibited from forcing computer makers to license any other Microsoft product as a condition of licensing Windows 95.
1996	Netscape files a complaint with the Justice Department, alleging Microsoft used unfair and anticompetitive practices in promoting its Internet Explorer browser. Netscape charges that Microsoft offered computer makers a $3 discount on Windows 95 software if the vendor did not install Navigator. Microsoft denies the allegation. Justice Department requests documents from Microsoft regarding its browser agreements with computer manufacturers and sellers. Justice Department asks Netscape for documents for a formal investigation of Microsoft. The investigation is still pending.
1997	State of Texas launches a formal antitrust investigation of Microsoft's business practices on the Internet. It is the first state to conduct its own probe of the software giant. Justice Department requests further information on Microsoft's plan to acquire WebTV. Says it is part of its regular review of mergers. State of Massachusetts begins an antitrust investigation of Microsoft. Justice Department asks a federal court to hold Microsoft in civil contempt for violating terms of the 1995 court order barring it from imposing anticompetitive licensing terms on manufacturers of personal computers. The DOJ seeks to impose a $1 million-per-day fine if violation of the court order continues. Texas files a lawsuit against Microsoft, charging the software giant with interfering in the state's antitrust investigation. In December, Judge Jackson issues a temporary order forbidding Microsoft from requiring Windows 95 licensees to carry the Internet Explorer Web browser. The company says it will appeal the order and allows PC makers to choose an older version of Windows 95 that is stripped of Internet features or a more updated version of the operating system with Internet Explorer. Stripping out the IE 3 files from Windows 95, according to Microsoft, would make Windows 95 inoperable. Six days after the Jackson's ruling, the Justice Department argues Microsoft "flouted" the court's order. Government attorneys again ask the judge to find Microsoft in contempt and impose a $1 million fine for every day it violates the order. Again, the case focuses on whether Internet Explorer is an integrated part of Windows or a separate product. Jackson says a court clerk uninstalled IE 3.0 in 30 seconds, but Microsoft contends that the uninstall program deletes only the icon and a few files that make the browser accessible, and that 97 percent of the IE code remains installed. "special="" master"="" assigned="" collect="" and="" weigh="" evidence="" on="" grounds="" that="" computer="" expert="" named="" may="" be="" biased.="" company="" calls="" an="" email="" sent="" netscape="" executive="" "smoking="" gun"="" formally="" seeks="" his="" disqualification.="" <="" font="">
Jan. 1998	A hearing on Microsoft's compliance with Judge Jackson's ruling reveals that the company and the court differ on terms of compliance with the court order. The software giant maintains that the government gave conflicting requests on how it should obey the injunction and that it should not be found in contempt. In yet another setback for Microsoft, Jackson issues a sternly worded order denying a motion to disqualify special master Lawrence Lessig from the case. Analysts and court observers suggest that the company's aggressive legal tactics may be backfiring, which may lead the jurist to side with the government on some pivotal issues. Lessig, meanwhile, insists on his impartiality in a sworn declaration. Later in the month, the Justice Department and Microsoft announce a settlement where the company agrees to immediately provide computer vendors with the most up-to-date version of Windows 95 without the desktop icon for Internet Explorer, resolving the hotly contested contempt issue. Microsoft's appeal of Jackson's preliminary injunction is still pending, however. CEO Bill Gates says Microsoft settled its contempt-of-court charges partly because of the press ridicule it endured after offering a crippled version of Windows to satisfy a court order. Attention once again is turning to the open-ended and high-stakes question of what antitrust action will mean for Windows 98.

Feb. 1998	Eleven state attorneys general subpoena Microsoft for documents relating to its upcoming release of Windows 98. In addition, the appointment of special master Lessig is suspended by a federal appeals court, pending further review. Gates agrees to appear at a Senate Judiciary Committee hearing on competition in the computer industry headed by Sen. Orrin Hatch (R-Utah), who has been critical of Microsoft's business practices. Hatch also invites Netscape chief Jim Barksdale and Sun Microsystems CEO Scott McNealy. A Texas judge dismisses a suit in which the state's attorney general accused Microsoft of illegally interfering with an ongoing investigation into the software giant's business practices. Antitrust enforcers appear to be blanketing the Internet provider industry with subpoenas, searching for evidence that Microsoft is using its dominance in PC operating systems to corner new markets created by the Net. Online providers America Online, MCI Communications, EarthLink Network, and Sprint all confirm they have received subpoenas
Mar. 1998	Following a face-to-face meeting between state attorneys general and Justice Department officials in San Francisco about possibly joining forces against the software giant, 27 states file a brief in federal appeals court in Washington supporting the Justice Department's antitrust case against Microsoft. Gates tells a packed Senate Judiciary Committee hearing on competition in the computer industry that "technology is ever-changing," pointing to his company's ability to leapfrog IBM as a reason why Microsoft should not be held to antitrust laws applicable specifically to companies that overwhelmingly dominate their industries. Chief executives Barksdale of Netscape and McNealy of Sun disagree, saying Microsoft must be held to a different standard because it is a monopolist. Microsoft quietly backs away from some of the deals that drew much of the government's scrutiny in the first place, dropping restrictions involving its Internet Explorer browser with computer makers, content providers, and ISPs. Redmond executives say they are not reacting to any government pressure and that decisions on any IE promotional deals are routine--and routinely changed.
Apr. 1998	DOJ regulators send out another round of civil subpoenas as they return their attention to computer makers in their investigation of Microsoft. Moreover, sources add the Justice Department is looking at other issues as well, including the marketing of Windows NT, Microsoft's actions in the Java market, and its partnerships with Internet content providers. Microsoft modifies hundreds of contracts with content companies worldwide to remove provisions that limit their ability to promote browsers made by competitors such as Netscape. The contracts dictate terms content providers must adhere to in order to be placed on Microsoft's Active Channel Bar. Later in the month, the company gives computer makers the option of shipping a version of Windows 98 that hides the controversial Active Channel Bar. Turning up the political heat on Microsoft, conservatives Bob Dole and Robert Bork announce a group--which includes players outside the technology industry, as well as Redmond rivals Netscape and Sun--to lobby against the software giant for allegedly anticompetitive practices. In federal appeals court, Microsoft continues to hold its ground by arguing that in issuing a preliminary injunction separating the company's Web browser from Windows 95, Judge Jackson overstepped his legal authority. The Justice Department counters that the judge had "inherent authority" to make his ruling. The three-judge panel gives no indication as to when it might release a ruling.
May 1998	In what could be a coordinated assault on Microsoft, the Justice Department and up to a dozen states are considering filing antitrust lawsuits, sources say. The suits would be filed in Washington, take aim at similar business practices, and the various agencies would work together in gathering evidence. Microsoft's Gates and other company executives host a rally with about 60 partners to warn that any delay in the release of Windows 98 would have serious consequences for the personal computer industry and the U.S. economy. Meanwhile, a number of industry watchers say that postponing the operating system's release will likely have a minimal impact on the PC sector. Some computer makers, companies, and customers also appear to be less than enthusiastic about the Windows upgrade. The Justice Department and Microsoft finally take opposing positions on whether a lower court's preliminary injunction applies to Windows 98, due on retail shelves in late June. A federal appeals court unanimously rules that a lower court's order requiring Microsoft to offer its Internet Explorer browser separately from Windows does not apply to Windows 98, which is about to be shipped to computer vendors. Although the court ruling issued in December by Judge Jackson explicitly referred to "Windows 95 and successor versions thereof," the U.S. Court of Appeals for the District of Columbia says Windows 98 is not bound by the order. Microsoft immediately hails this as a victory. In a surprise announcement, Texas's attorney general says he is rethinking taking any antitrust action against Microsoft because computer companies in that state are raising concerns that such a suit may hurt the industry. Attorneys general from Texas, New York, and Connecticut have led the states' efforts regarding the software giant. Attorneys general from 20 states and the District of Columbia join the Justice Department May 18 in filing parallel historic antitrust suits against Microsoft, charging the company with using its monopoly power to "develop a chokehold" on Internet software. Judge Thomas Penfield Jackson puts the cases on a fast track by combining the two lawsuits and setting a trial date of September 8.