Sherman Antitrust Act - The Microsoft Settlement—the Twenty-first Century's First Major Antitrust Settlement

In 1998 the Department of Justice (DOJ), twenty states, and District of Columbia charged computer software giant Microsoft in federal court of violating federal antitrust laws with its monopoly on personal computer (PC) operating systems. Netscape Communication, another software giant on the West Coast, had pioneered the web browser—a system allowing individual Internet users to search for information by using a key word. Microsoft, however, had begun to package a free browser with its Windows operating system, which was installed in many PCs. At issue was whether Microsoft could piggyback a free browser and other software onto its Windows system. These packages made Windows very attractive and it had become the dominant operating system installed by various PC manufacturers. Other companies with similar software were left out.

In 2000 U.S. District Judge Thomas Penfield Jackson found Microsoft guilty of antitrust violations. He ordered the software giant to be broken apart. Microsoft appealed the decision to the U.S. Supreme Court but the Court refused to hear the case and sent it instead to the court of appeals. The appeals court upheld the Microsoft conviction. U.S. District Judge Colleen Kollar-Kotelly then received the case to consider Microsoft's punishment. The DOJ, states, and Microsoft entered negotiations on a settlement. Judge Kollar-Kotelly approved the settlement in November 2002. The settlement did not include the company's breakup. Instead Microsoft was required to treat all PC makers equally and to share technology so other products not made by Microsoft would work well within Windows. By June 2003 all states except Massachusetts had agreed to the settlement.

Contrary to other states, Massachusetts attorney general Tom Reilly refused to settle with Microsoft believing the agreement did not protect consumers and competitors from Microsoft's monopoly in the personal Microsoft founder and CEO Bill Gates. In 1998 computer software giant Microsoft was charged in federal court of violating federal antitrust laws. (AP/Wide World Photos)
computer software market. Massachusetts appealed further.

On June 30, 2004, the U.S. Court of Appeals for the District of Columbia upheld the entire settlement reached in November 2002 between the federal government, states, and Microsoft. Many believed the decision would have a major influence on U.S. antitrust law. Since the mid-1980s few companies found guilty of antitrust violations had been required to break apart. Prior to that time a common penalty was breaking up, the most infamous involved American Telephone and Telegraph (AT&T).

In 1983 AT&T was found guilty of being an illegal monopoly. It was broken up into one long distance company and seven "baby Bell" regional phone companies. The first ruling on Microsoft's antitrust case in 2000 called for Microsoft to be broken up into smaller companies but the final settlement did not require breakup, strengthening the trend away from forced corporate breakups. Further appeals appeared unlikely ending Microsoft's six years of litigation. A similar case against Microsoft in Europe, however, concerning its digital media players was working its way through the European court system in 2004.