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Originally published May 11, 2011 at 9:37 PM | Page modified May 12, 2011 at 7:53 AM

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Long antitrust saga ends for Microsoft

Microsoft has spent 21 years — more than half its lifetime — fighting antitrust battles with the U.S. government. Both sides will finally be at peace Thursday, when an antitrust consent decree expires.

Seattle Times technology reporter

Microsoft antitrust history

May 1998: The U.S. Department of Justice, 20 states and the District of Columbia sue Microsoft, accusing the company of illegally engaging in predatory practices to protect its monopoly in personal-computer operating systems.

October 1998: The antitrust trial begins in U.S. District Court for the District of Columbia.

January 2000: Microsoft Chief Executive Bill Gates announces he will become chief software architect and Steve Ballmer will be CEO.

April 2000: U.S. District Judge Thomas Penfield Jackson rules Microsoft unlawfully maintained a monopoly in Windows and unlawfully tied its browser to Windows.

June 2000: Jackson orders a breakup of Microsoft into two companies.

September 2001: Justice says it would no longer seek a breakup of Microsoft.

November 2001: Justice and Microsoft agree on a proposed settlement for the antitrust case.

November 2002: U.S. District Judge Colleen Kollar-Kotelly approves the settlement; Microsoft is ordered to comply with a five-year consent decree.

May 2006: Microsoft and Justice agree to extend the consent decree until November 2009.

January 2008: Kollar-Kotelly grants extension.

April 2009: Parties agree to extend the consent decree to May 12, 2011.

May 2011: Consent decree expires on May 12.

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Microsoft has spent 21 years — more than half its lifetime — fighting antitrust battles with the U.S. government. It has earned a page in the history books, waging one of the biggest monopoly wars in this country.

The company barely escaped being split up after it was ruled an unlawful monopolist in 2000 for using its stranglehold on the PC market with its Windows operating system to cripple competitors, such as Netscape's Navigator Web browser.

A court settlement approved in 2002 and a consent decree curbing some of its practices saved Microsoft.

Both sides will finally be at peace Thursday, when the decree expires.

"It was a great case, one of the most important antitrust cases of its generation," said George Priest, a law professor at Yale.

The case marks one of the most important turning points in Microsoft's history, up there with its first agreement to build an operating system for IBM and the introduction of the first version of Windows that featured graphic icons.

While the technology landscape has left the browser wars at the heart of the dispute far behind, and Microsoft continues to make billions from Windows and Office, the case left deep scars.

When the settlement of the landmark antitrust lawsuit against the company was proposed Nov. 2, 2001, the stock traded at $27.63 a share. On Wednesday the stock closed at $25.36 per share.

Meanwhile, competitors like Apple have soared and new rivals like Google have taken flight.

The antitrust lawsuit, some say, was the reason co-founder Bill Gates, the tech visionary behind Microsoft's success, stepped down as chief executive.

Also, while Microsoft may have escaped with its Windows dominance intact, its monopoly on computing is over.

Many new options

Computing has spread to a panoply of devices — smartphones, tablets and e-readers. On these new mobile platforms, Windows is far from dominant.

"Since the antitrust suit, they have become much more cautious and much less aggressive," said Michael Cusumano, a professor at MIT Sloan School of Management, who just wrote about Microsoft in the book "Staying Power."

"They're afraid, it seems. Whether it's antitrust in U.S. or in Europe, they seem to be slowly reacting to the world around them, rather than trying to get in there fast."

Microsoft released this statement about the consent decree's expiration: "Our experience has changed us and shaped how we view our responsibility to the industry. We are pleased to bring this matter to successful resolution, and we are excited to keep delivering great products and services for our partners and customers."

The company plans no events to mark the expiration.

(An antitrust case with the European Union was settled in 2009, although Microsoft is still appealing a $1.4 billion fine for failing to comply with a 2004 antitrust order in Europe.)

Microsoft's antitrust troubles were first ignited in 1990 with an investigation of the company by the Federal Trade Commission. That led to a consent decree with the Justice Department that was disputed.

In 1998, the Justice Department and 20 states filed suit charging the company with violating antitrust laws. A historic trial began in October of that year.

At issue was whether Microsoft had used its Windows monopoly to force computer makers to exclude a browser made by Netscape on their PCs.

In 2000, federal Judge Thomas Penfield Jackson ruled that Microsoft had unlawfully maintained its monopoly with Windows and had unlawfully tied its Internet Explorer browser to Windows. A few months later, he ruled that the company needed to be split up.

Breakup avoided

Jackson was later removed from the case after he talked with reporters in an off-the-record discussion before his final decision. In late 2001, the parties in the case agreed to settle without a company breakup. U.S. District Judge Colleen Kollar-Kotelly, the new judge in the case, approved the settlement in 2002.

Microsoft agreed to abide by a consent decree overseen by Kollar-Kotelly for five years. It was later extended twice, finally expiring May 12, 2011.

The consent decree barred Microsoft from entering into Windows agreements that excluded competitors from new computers, and forced the company to make Windows interoperable with non-Microsoft software. In addition, an independent technical committee would field complaints that might arise from competitors.

The Justice Department said the arrangement leveled the playing field.

"As a result of the Department of Justice Antitrust Division's efforts in the Microsoft case and final judgment, the competitive landscape changed allowing the marketplace to operate in a fair and open manner bringing about increased innovation and more choices for consumers," the department said in a statement Wednesday.

Herbert Hovenkamp, a University of Iowa law professor who advised the states, said the case broke new ground. "We've seen the emergence of an entirely new field called IP [intellectual property] antitrust," he said. "It's had a fairly dramatic impact."

Yale's Priest, who advised Microsoft during part of its case, disagrees. "Nothing was served by it," he said.

Observers say the one thing changed on the legal front is that companies, Microsoft included, now use the threat of antitrust investigations to attack rivals.

Microsoft, for instance, has complained to regulators about Google's dominance in the search industry.

Meanwhile, technology has left the core issue — the browser wars — in the dust. Pervasive broadband has made it irrelevant whether PCs are sold with preinstalled copies of Microsoft's Internet Explorer. Now, anyone can download competing browsers — Mozilla Firefox, Apple Safari, Google Chrome, Opera — in a few minutes, for free.

Many developers are more worried about their applications running on the iPad and an Android smartphone than whether they will run on Windows.

Change for Gates

Some believe the antitrust case was what pushed Bill Gates out of the top job at Microsoft. "The most important aspect of the entire proceeding was Bill Gates' departure from an operating role as CEO," said Mark Anderson, chief executive of Strategic News Service in Friday Harbor. "That changed everything."

Two months after Jackson's devastating initial ruling in November 1999, Gates said he was stepping down as CEO to become Microsoft's chief software architect. Gates had come across as arrogant, evasive and sullen in video depositions shown during the trial.

"I've always felt there was a very tough question at the board level that led to his departure. It only happened at the last possible minute before DOJ cut them into pieces," said Anderson.

Microsoft declined to comment on whether the board asked Gates to step aside.

The move left Microsoft President Steve Ballmer, the sales and operations guy, to become CEO.

"Every successful technology company has one very bright tech guy out of the top two guys. It's a pretty well trodden path, almost no exceptions," said Anderson.

No more bully

He gave credit to Ballmer for changing Microsoft's reputation from schoolyard bully to class president.

"For all the tough language used today about Steve's performance, I don't know anyone who could have pulled off two miracles in a row. One was that he saved the company from being split up when the DOJ was just totally committed to doing that," Anderson said. "The other was he managed to turn the company brand from one of fear and hate around the world to one of statesmanship and general benign partnership."

The downside is the company lost its tech visionary, he said.

"It doesn't feel like Apple," Anderson said. "It doesn't feel creative. It just feels like we took a fast follower company and then by losing the product guy, the tech guy, what are we left with? We're left with the operating guy."

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com

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