The 18th of May 1998, and the US Department
of Justice begins the process of suing Microsoft for thwarting competition, whilst extending
its own Software Monopoly. Pretty heavy stuff, but to understand how
we got to this point, first, let's rewind a little... By the 90s MS-DOS was the operating system
of choice, having made a deal with IBM in the early 80s, to come bundled with their
range of personal computers. IBM PC clones popping up during the 80s, had
solidified this hardware and software combination to create a go to platform for businesses
and consumers alike. By the end of the 80s, MS-DOS was used on
roughly 80% of the world's desktop computers. The only problem with MS-DOS was its command
line nature, which needed some comprehension and knowledge before you could use it. Microsoft had therefore been working on a
Graphical User Interface, known as Windows, but more interestingly a GUI named OS/2 which
they were developing jointly with IBM since 1985. Versions of both these GUIs had been released,
but it wasn't until 1989 that the FTC flagged the agreement between the two companies as
possible collusion, and began investigating. You see, most countries have rules to try
and maintain competition in markets, and stamp out devious practices which aren't in consumers
interests. Although they're not always enforced. In the United States, this legislation falls
under Antitrust Law. The Sherman Act 1890 §1 prohibits "Every
contract, combination in the form of trust or otherwise, or conspiracy, in restraint
of trade or commerce", therefore ensuring businesses have a duty to act independently
in the market, by hopefully, introducing better products or better prices. For example, price fixing between two companies
would be seen as quite bad. Ironically, with Windows 3.0 being released
in April 1990, and quickly hitting success where previous versions hadn't, the IBM and
Microsoft agreement was about to fizzle out anyway, but that didn't stop the FTC from
investigation Microsoft for other potential violations. Operating (if you'll forgive the pun) in a
$1 billion dollar+ market, the continued success of Microsoft's newly revamped Windows experience,
led to significant revenue and significant market share. Now, Section 2 of the Sherman Act states that
"every person who shall monopolise, or attempt to monopolise any part of trade or commerce
among the several states, is committing an offence". The courts have interpreted this to mean that
although a monopoly isn't unlawful, it can be if acquired through prohibited conduct,
such as exclusive dealing, price discrimination, product tying or predatory pricing. And so it was that in March 1991, the Federal
Trade Commission began their next inquiry into whether Microsoft had entered into this
realm of prohibitive conduct, with it's current operating system monopoly. Their main concerns being that Microsoft were
tying other products to the sale of Windows, including the likes of Paintbrush and the
Write Word Processor, whilst also having exclusive knowledge of their development strategy, giving
them a significant advantage over competition in developing new software and even peripherals,
to take advantage of their latest upgrades. However, the FTC seemed to change their focus
from month to month, moving to finally homing in on the licencing tactics Microsoft used
to push their Operating Systems to PC manufacturers, offering a 60% discount for every PC they
sold, whether it included their OS or not. Later changing to insisting that each PC had
to have their OS, to obtain any bulk discount at all. Ironically now, following the end of their
deal, working the field to ensure that products like Novells DR-DOS and IBM's OS/2 was kept
out of the market. Two companies, of several, that had kept up
pressure on the FTC to dig deeper. Investigations continued in various forms,
until December 1992, when the FTC concluded that Microsoft HAD engaged in anti-competitive
behaviour, now, also, with the backing of the competition division of the European Union. An FTC official would state "We need to fix
this thing without killing the goose that laid the gold-en egg.". Despite various measures the FTC could have
imposed, Microsoft simply agreed to a 1994 consent decree which supposedly limited its
ability to lock out competitors. However, Bill Gates’ one-word assessment
of its effect was simply “nothing.” And so time would continue, with Microsoft's
"killer app", Windows '95, launching after a short delay, in August 1995, and once again
transforming the Personal Computing space. For many rivals, this was an even deeper nail
into the coffin, and even technically more advanced competing products such as IBM's
OS/2 Warp were left with little hope. But, here was now the age of the internet,
and crucially, the Word Wide Web, and seemingly something Microsoft weren't quite ready for. At least, not enough to build it into the
core of their new OS. It was a little program called Netscape Navigator
which had been leading the charge on this new avenue since early 1995, and for those
wanting to get on the information super highway, it was the natural choice, whether they were
using Windows 3.1, 95, Linux, a Macintosh or even OS/2. After all, it was technically free for non-commercial
users, although Netscape called this, an "evaluation" release. Now, Navigator was actually derived from the
Mosaic Browser, co-written by Marc Andreessen at the University of Illinois, which had already
made waves. With Andreessen leaving Illinois, he was forced
to change the name of his work, and so the company Netscape was formed, with Navigator
as the browser. It didn't take long for this to really take
off, with Andreeseen quickly found on the cover of Time Magazine, and his company's
stock hitting $75 per share on the first day of trading. The world wide web was hot, and for once,
Microsoft wasn't at centre stage. In fact, according to Andreessen, it was quickly
going to fall by the way side, stating "We really want to reduce Windows to a buggy set
of device drivers, underneath the browser, which would be the new top layer that people
would see and interact with". So, here we were in early 1995, with cloud
computing being presented as the future. Something completely at odds with Microsoft's
strategy, and Netscape weren't the only people realising the potential here. Bill Gates has got a great game going on here, he's got us all thinking we need to train our kids on Windows... Wrong. It's just a waste of time. It seemed to be May 26th 1995, when Bill Gates
finally realised what was at stake here, sending out a huge company wide memo entitled "The
Internet Tidal Wave". This wasn't quick little note, this was a
god damn thesis, and it's goal was to align all of Microsoft's staff on one thing: The
Internet. "Netscape. Their browser is dominant, with 70% usage
share" "One scary possibility being discussed by
Internet fans is whether they should get together and create something far less expensive than
a PC which is powerful enough for Web Browsing" "Our server offerings need to beat what Netscape
is doing" "The Internet is the most important single
development to come along since the IBM PC was introduced in 1981" Gate's first instinct, has been to naturally
try and buy Netscape, or at least cut a deal, arranging a meeting in June 1995 - which he
would later deny. But this really boiled down to Microsoft ordering
Netscape to exit the browser scene, where upon Microsoft would allow them to claim some
other smaller markets. As you might expect, this proved unfruitful,
with Netscape believing they had the clear advantage, which, they did. Following this lead, Gates knew it was essential
they have their own internet browser, and licenced the Mosaic source code from Spyglass
Ltd, who had themselves bought it from Illinois University, and with a little work, created
Microsoft Internet Explorer, which they hastily bundled with the Microsoft Plus! pack, available
on shelves shortly after the release of Window '95 itself. They knew that they couldn't release Explorer
as it's own product, as they wouldn't be able to catch up Netscape. They also knew that Explorer wasn't quite
ready for that. Even though the first iteration of Internet
Explorer tried it's hardest to include all the features of Navigator, it was based on
early Mosaic code, meaning it was quite behind the curve. Even still, people had to buy the Microsoft
Plus! pack for some $50, to obtain it. In contrast, they could still just grab Netscape
Navigator from a coverdisk for free, and away they went. From Microsoft's perspective, this was somewhat
less than ideal, and so their next move was clear. Internet Explorer would be bundled with subsequent
releases of Windows '95, form 14th February 1996 onwards. What's more, existing owners of '95 could
simply obtain Service Pack 1, and have the same functionality. Thereby not only crumbling Netscape's price
advantage, but also creating a more hassle free route of getting on the internet. This bundled version was also Internet Explorer
2.0, which had been given a thorough overhaul by Microsoft's developers, attempting to integrate
all the features of Navigator, thereby erasing any qualitative edge Netscape held. Microsoft had also began the process of integrating
Internet Explorer heavily with the Windows operating system, making it difficult for
a user to opt for another browser. As you can imagine, Netscape were fuming. Their answer was to hire attorneys Gary Reback
and Susan Creighton to fight their corner. If you were going to hire people, these were
the right people to hire. Reback had suffered with guilt after helping
sell a fledgling software company, Dynamical Systems Research (along with it's founder
Nathan Myhrvold), to Microsoft in 1986, whose team and technology paved the way for Windows
3.0 and Microsoft's domination. Whilst Creighton was a passionate and articulate
anti-trust specialist, with a heap of experience. Reback and Creighton quickly got to work,
operating on the sound basis that Netscape and other competition, could be effectively
eliminated altogether. Their case against Microsoft drew on new antitrust
theories looking forward, rather than historically. Essentially, if Windows became more valuable,
and the more people adopted it, its size could give it an insurmountable advantage, even
if other products were technically superior and rolled out for free as well. Microsoft quickly started moving into every
corner of the internet market. Among other deals, the company invested $1
billion in Comcast to help speed up broadband deployment, and it purchased the startup WebTV
to capture potential internet users who didn’t use a PC (remember, those people who said
they wanted a low cost PC to serve the internet). In 1997, The Wall Street Journal also reported
on Microsoft’s plans to take over online commerce with its Sidewalk web service, with
CTO Nathan Myrhvold confirming that the company wanted a “vig” (or vigorish, a financial
payout) for every internet transaction made using Microsoft technology. It looked like Windows certainly was becoming
more valuable, and quickly too. At this point Netscape were making substantial
revenues from commercial Navigator licences, but businesses were quickly moving to the
free model offered by Microsoft and their Explorer, undercutting the entire business,
as Microsoft had intended. But, all was not lost for Netscape. With the arrival of the Clinton administration
in 1993, shaking up the market was back on the agenda. Whilst more Conservative governments might
let things be, Clinton's Justice Department were keen to enforce some anti-trust practices,
and keep the marketplace fare. So what better than to take on the biggest
of them all, Microsoft. Along with the lawyers appointed and paid
for by Netscape, along with a few other companies, Section 2 of the Sherman Act was looking more
appetising than ever. Susan Creighton was asked by the CEO of Netscape,
Jim Barksdale to create a white paper, in the form of a booklet or guide, that would
outline the whole situation. The whole situation, of course, boiled down
to the fact, that without Government intervention, Netscape was as dead as a Dodo. For a public company, that was a real concern,
and one that needed to be treated delicately. Therefore, rather than being put in the public
domain, limited numbers of this document were sent to significant government officials,
and people who might help sway the decision. This all occurred still firmly in 1996. For the next year or so, the FTC would continue
to be involved with minor disagreements with Microsoft. Sort of echoes stemming back from the 1989
Nexus point. But whilst technology was moving at a rapid
pace, and Microsoft were claiming more and more of the market, the Justice system moved
slow. By early 1998, Netscape was looking doomed. Internet Explorer was now firmly the browser
of choice among the masses, with Netscape reserved for techies and those in the know. But the Antitrust case was just getting started. Netscape vs. Microsoft was still the headline
here, but Sun Microsystems, who created servers that most of the web were running on, and
were responsible for creating the Java web language, were now the main force behind the
anti-Microsoft alliance. Microsoft, has the power today, to exercise predatory, and exclusionary control over the very means by which we access this internet. In April 1998, Doug Melamed, was the acting
assistant attorney general of the Justice Department's Antitrust Division, and he along
with Chief economist Daniel Rubinfeld and Reback decided to meet up with Microsoft,
at an undisclosed hotel, to see if a settlement could be made, before going ahead with the
case. However, according to Rubinfield, Gates and
his team were firmly of the belief that had not violated the law, with Steve Ballmer (who
was then on the way to becoming Microsoft's President) stating "if we want to put a ham
sandwich [into our operating system], we can". Microsoft's arrogance was as plain as day,
and it's something that would continue throughout the trial. Today we are taking another step, to keep our marketplace competitive. The Justice Department has charged Microsoft with engaging in anti-competitive, and exclusionary practices designed to maintain it's monopoly, in personal computer operating systems On the 18th May 1998, the case began... This is the day that the Department of Justice,
along with 20 state attorneys general filed their Anti-trust complaint against Microsoft. Five months later, a videotape was made of
Bill Gate's deposition testimony, and its contents would be central to the prosecuting
team's opening statements.... -When was the company founded? 1975 -What positions have you held with Microsoft since then? Partner, chairman, CEO Now, it's clear that Gates was trying to distance
himself from whatever he could in these tapes. But god damn Bill, this is nit picking on
Super Hero levels. There must have been a common understanding, I wouldn't say a definition. -How would that common understanding be arrived at, other than through a definition? Well somebody can give examples I'm just saying, there doesn't have to be a formal definition for two people to have a context in a conversation of what a word means, either or one has to say, I define the word as follows So maybe I interpreted the use of your word, definition, too strictly. -OK So if you define definition, for this conversation, in a loose way then I'll understand what you mean If the goal was to confuse, disorientate and
wear out the interviewees, then well, you may have just been successful. Not recalling the specifics in the interview, is that it's very unlikely I would make a statement like that without some common understanding between myself and the reporter of what, that term, which, out of context, is incredibly ambiguous what it meant, in the context, of her series of questions But if it was to help the Judge, see your side of the case... maybe.. not. Do you recall, er, errr being told in substance, what is stated here? at any time? in the language that I have just quoted No, that's a self contradictory question you can't say you're asking me something's in substance and then say, in the language you've just quoted -lemme that's completely contradictory Carrying out the deposition was the Anti-trust
Bureau Chief, Stephen Houck, and David Boies, Chief Prosecutor of the Justice Department,
and they certainly had their work cut out. if somebody takes the trouble to understand it, yes -right -That is, if somebody reads all the way through, takes the trouble to figure out, what is here... -you say.. -that's a fair and accurate statement of my views. -correct? Er, views on whate? -views on, the things that you're talking about in the memo! But here was a situation Bill Gates wasn't
comfortable in. A situation far departed from being deep in
code, conjuring up the next software feature, or product idea, and in all honesty, it didn't
seem like Microsoft's legal team were feeling at home either. On one side, you could see that Microsoft
were very clearly in a monopolistic position, and that Gates had done his very best to cut
competition off at the knees and make Windows a power house of a product. But, on other other side, surely this was
good business. This is what the "American Dream" was all
about. Gates had even been raised that way, pushed
into competition from an early age, and learning to take the process incredibly seriously. Windows and it's bundled software was clearly
designed to try and make the user stick with Microsoft product, in as easy process as possible,
which is sound business sense, and in many respects, seen as good news for consumers,
many of whom were still new to this digital age. Microsoft argued that it wasn't affecting
consumer choice, it was only affecting rivals in the market. However, it was quickly evident that Microsoft
were actually stemming innovation in some respects, even their own innovation, to extract
the most financial gain from consumers as possible. Here was a trial, followed with incredible
scrutiny by the press, appearing on magazine covers and newspapers regularly, often ignorning
the other companies complaining about Microsoft and focusing on Netscape vs. Microsoft. On a few occasions Microsoft's legal team
showed footage which was clearly doctored. On one instance a title-bar miraculously changed
in the middle of a demonstration, as they tried to prove that removing Internet Explorer
from Windows 98 would have a negative impact on performance, and was therefore an integral
part of the Operating System. These slips ups were what kept the public
engaged, as they watched one of the biggest companies in the world, desperately trying
to prove their case. But the prosecution, time and time again went
back to Gate's emails and deposition, featuring aggressive phrases such as "crush them" and
"take away their oxygen supply". What you might normally class as office banter,
kept firmly behind doors, was now being viewed in a very dim light. One often used phrase was "knife the baby",
to describe killing off a competitors competition. At one point Gates snapped "Look, look, this
is called capitalism!....We create a product called Windows. Who decides what's in Windows? The customers who buy it." This aggression seemed to be one of Microsoft's
main tactics, but an advantage David Boies seemed to possess, was an incredible memory,
managing to remember reams and reams of emails off the top of his head. Putting Microsoft's defence team under pressure
time and time again, as they tried their best to maintain as much "freedom to innovate"
as possible. Microsoft had hired a media representative
called David diGenova (who went on to be a part of Trump's legal team), to try and frame
Gates in a positive light during the hearings, but what the court and public saw on camera
was a different person. Someone undoubtedly intelligent, but also
deceptive, arrogant and manipulating. At a December 1998 press meeting, hastily
arranged and conducted via satellite hookup Gates would angrily snap "I had expected Boies
to ask about competition in the software industry but he didn't do that... he's really out to
destroy Microsoft". The next day, papers ran with the headline
"Destroy Microsoft", confirming Gates as a very worried man. And, do you know who else should be worried? YOU should be. Regardless of what web browser you're using. Whether you've stuck with IE all these years,
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the channel, and now, let's get back to the trial. On Februrary 26th 1999, after Microsoft's
last witness, the trial was recessed for 13 weeks. So by early March, Gates knew time was running
out, and the outcome was looking pretty bleak. Judge Thomas Penfield Jackson would soon unveil
his verdict, but Microsoft had one last hope, in the guise of Richard Posner, Chief Justice
of the United States Court of Appeals for the Seventh Circuit. It would be Jackson who would bring in to
act as a mediator. The hope here, was to create a settlement
that would be work for all parties involved, but that was harder than it seemed. After 14 drafts, Posner asked Gates to sign
his name to a proposal. At that point, it wasn't going to cause much
harm for Gates, and so he put pen to paper. However, this proposal wasn't enough to satisfy
the prosecution. By March 29th, Draft 18 was complete, and
would comprise of the DOJ's final offer. This document not only required that Microsoft
set a uniform price list for Windows, but to stop creating exclusive contracts with
ISPs and Content Providers, as well as opening up it's programming interfaces, to allow third
parties to have the same inside opportunities as Microsoft. There would be some concessions, such as allowing
Internet Explorer to exist within Windows, but it also allowed PC manufacturers to licence
Windows source code and modify the Operating System to how they saw fit. Gates identified this as going too far, and
turned down the proposal. Stating "I would have been glad to do a settlement,
but, when it comes to giving up the ability to innovate in Windows, that was something
that, whether it's for Microsoft's shareholders or consumers at large, was not something I
felt was right to give up." On April Fool's day, the mediation was declared
a failure, and so Jackson would deliver his final verdict on April 3rd, that not only
started that Microsoft had a monopoly over PC operating systems and that it wields power
in ways that harm American consumers, but also, that it was guilty of almost every other
count brought against it. Two months later the DOJ and representing
States requested that that Microsoft be split in two. One division to deal exclusively with the
Operating System side of business, the other for all other applications. This was potentially a killer blow for Microsoft,
and would see it's share price plummet, wiping out more than $200 billion in wealth almost
overnight. But before the end 1999, Judge Thomas Penfield
Jackson agreed to the proposed remedy and a ruling was made. Despite this ruling, we believe the courts will ultimately find that all of Microsoft's actions, have been completely legal, and good for consumers. This actually went against convention, where
a set of follow on hearings would be implemented, allowing both Microsoft and the Government
to explain the pros and cons of the remedy. But seemingly, Jackson had had enough. Of course, with this being out of the ordinary,
Microsoft appealed and it wouldn't take long for it to be sent back through the system
for review. Things had of course happened in this time
frame, Bill Gates, although remaining Chairman of the board, had now appointed Steve Ballmer
as company CEO, deeming he was more suited to the public spectacles and requirements
the company was now facing. George Bush had taken the Presidency, and
both people and ideals were again being shuffled about. An DC appeals Court would reverse Jackon's
breakup order in June 2001 and it was at this point that the Justice Department stepped
in and settled the case. It noted that Judge Jackson had consented
to behind the scenes interviews with top newspapers and magazines, comparing top Microsoft executives
to drug dealers and Gates himself to Napoleon. They found no evidence of actual bias, but
the actions of the trial judge were deemd to "seriously taint proceedings ad question
integrity of the judicial process". The court also found that the Microsoft's
liability for it's "monopoly on the operating system market being a presumptive indicator
of attempted monopolisation of the web browser market", to be false. A final judgement was completed in November
2002, and although the core ruling that Microsoft had behaved in an anti-competitive manner
remained intact, key for Microsoft, the punishment was a lot, lot lighter. Especially when you consider that the technical
committee, in practice, would have massive difficulties enforcing
the settlement. This settlement, eliminates the uncertainties of the lawsuit and enables Microsoft to focus on the future. That settlement essentially prohibited Microsoft
from retaliating against non-Microsoft software vendors or computer manufacturers. It also prohibited them from stopping computer
manufacturers including non Microsoft middle-ware in their Windows PCs. Such as alternative browsers for example. Something that Microsoft had forced upon vendors
before, with the threat of taking away their Windows licensing agreements. The deal also required Microsoft to properly
disclose to software makers and computer manufacturers the Application Programming Interfaces used. >The Impact< Of course, by now Netscape was very much out
of the picture, but other, Open Source alternatives would soon rise from the ashes, and the agreements
put in place would help them to get a firmer grip, against Microsoft's own, often less
powerful offerings. Sun Microsystems, a major contributor to open
source software, would be bought out by Oracle in 2010, often with cheaper server alternatives
running Linux based operating systems becoming the the norm for ISPs and datahouses. In 2009 the European Union made it legally
binding for Microsoft to offer a "choice screen" on their Operating System, allowing consumers
to choose an alternative browser if they wish. Although that didn't stop Microsoft from falling
back into old habits, and being fined 561m Euros in 2013 for failing to implement these
choices in a Windows 7 update, blaming it on a "technical error". However, now you even now find this on Android
phones and the like. So you can see the impact these cases and
subsequent antitrust legislation have had around the world. Of course, Microsoft had argued their Freedom
to Innovate plea throughout this case, and many argue that by intervening, the government
is meddling with the affairs of private companies, and ultimately, the health of the economy. Whilst supporters of antitrust might argue
that these decisions actually strengthen the free market, and help grow the economy further. In Microsoft's case, they would quickly find
their new competition, whether they liked it or not. These came in the form, not of Browsers, but
of the websites browsers were used to access. Yes, content providers such as Google, Facebook
and the emerging internet landscape were the new competition, and Microsoft had missed
the boat, perhaps in part to their legal issues. But it may be those very legal issues, which
helped these .com industries realise that the battle ground was not just owned by the
dead hand of Microsoft, it was theirs, if they wanted it. It's very easy to say this and that in hindsight,
but what's clear is that companies come and go, and the next steps aren't always clear,
especially to the old boys. Of course Microsoft are still here, and still
the favoured operating system on most home PCs. But perhaps the course to get here has been
a bit rougher than it would have been in another timeline, another reality. It's impossible to gauge whether that's good
or bad. It's just the course of events that happened. But to me, it's a bloody interesting course
of events. I hope you enjoyed it too. Thanks for watching. Have a great evening.
