On this day in 2000, a U.S. District Court judge ruled that Microsoft should be broken up into two separate companies. This was in response to the company’s anti-competitive practices, which the court felt were limiting consumer choice and innovation. While the order was eventually overturned on appeal, it still highlights the importance of competition in the tech industry and opinions on government overstep.
So, how did Microsoft get to this point? And what happened after the break-up order was overturned? Let’s take a look.
The Judge’s Decision to Break up Microsoft
The June 2000 ruling was a result of an antitrust lawsuit filed against Microsoft in 1998. The case claimed that Microsoft had used its monopoly power to stifle competition in the software market.
The judge ruled that Microsoft had to be broken up into two companies: one that would focus on the Windows operating system, and the other that would focus on Microsoft’s other software products.
The decision was meant to create more competition in the software market and give other companies a chance to succeed.
Microsoft’s Monopoly on the Market
Since its rise in the mid-80s, Microsoft controlled much of the market for personal computer operating systems and software.
At the time, the company’s Windows operating system was installed on more than 90% of the world’s computers, and its Office suite of products was used by businesses and consumers alike, with no to no competition.
Microsoft also had a monopoly on the market for web browsers with its Internet Explorer product, even though that monopoly would fall in the late 2000s with the rise of Mozilla Firefox and Google Chrome.
Other Microsoft products, such as Visual Basic, and Media Player also had little to no competition.
The Trial
The trial began on May 18, 1998, and lasted for nearly four months. 20 states joined the lawsuit against Microsoft, and the company was represented by high-profile lawyer Johnnie Cochran.
During the trial, Microsoft was accused of using its monopoly power to force computer manufacturers to pre-install its products on new machines, and of bundling its products together to make them difficult to replace with competitors among other allegations.
Videotapes played at the trial showed how Microsoft could slow down other software products so that they would not work as well or look as good as Windows.
The tapes also showed how Microsoft could threaten to withhold its products from companies that did not cooperate with its demands.
Bill Gates even gave a video deposition during the trial in which he admitted that Microsoft had tried to “squeeze out” its browser competitor, Netscape.
On September 21, 1998, Judge Thomas Penfield Jackson issued a preliminary injunction ordering Microsoft to provide equal treatment to competing software products and for the company to not withhold its products from companies that did not cooperate with Microsoft.
In effect, Microsoft was to be broken into two companies with one focusing on hardware and the other on software.
Microsoft’s Response to the Ruling
Microsoft appealed the ruling, and it was eventually overturned by a higher court in September 2001.
The company did not have to be broken up, but it was found guilty of violating antitrust laws and ordered to take steps to limit allegations in the future.
These concessions had a large effect on the company and changed the way Microsoft operated in regards to hardware and software products being bundled together.
Microsoft was forced to open up its operating system to competing applications and had to offer a version of Windows without its own Media Player software. They also had to agree to allowing computer manufacturers to ship non-Microsoft browsers with Windows and giving consumers a choice of which browser they wanted to use.
The Outfall
As usual, Microsoft continued to dominate the software market after this ruling, with its Windows operating system and Office suite of products. However, it faced stiffer competition from rivals such as Apple and Google in the years that followed.
The company’s share of the browser market fell from over 90% in the early 2000s to below 50% by 2013, as Firefox and Chrome gained users.
And while Microsoft’s antitrust problems seemed to be a minor speed bump in the road to world domination after the 2001 ruling, the company continued to be investigated by European regulators for years
