King Kong vs. Godzilla

Microsoft fought its way from two guys in a dorm room to kingpin of the software industry. The government sent in its finest market cops to keep an eye on the company. They found something suspicious in Microsoft’s behavior with respect to DR-DOS and decided to delve a bit further.

The long, tortuous road to Armageddon began simply. The market cops arrived in Redmond intent upon watching Microsoft’s every move. And just in case they happened to miss anything, the rest of the software world stood poised and ready to point it out to them. But what were they looking for? Virtually all of the charges ever brought against Microsoft fall into one of two broad categories: maintenance of monop­oly or leveraging. Microsoft has tried to erect barriers to prevent poten­tial entrants from challenging its sovereignty of the translation frontier, thereby maintaining its monopoly of the platform. Microsoft has also used its platform monopoly to gain an unfair advantage over competi­tors in software markets beyond the platform, thereby leveraging its platform monopoly into other software markets. Sometimes the same activity accomplishes both goals.

In 1990, members of the FTC staff, encouraged by application soft­ware developers banging down their doors demanding that something be done to stop the behemoth from Redmond, began to scrutinize Microsoft’s burial of DR-DOS.

While the feds of the FTC staff were busy investigating Microsoft’s past destruction of DR-DOS to maintain its operating system monopoly, Microsoft was busy leveraging that monopoly to take over various appli­cations markets. Competing application developers were understandably more concerned about their own fate in the very near future than the fate of a departed compatriot of the recent past. Even this early in the game, the market cops had to deal with both maintenance of monopoly and leveraging.

The FTC staff stayed engaged for about three years before presenting its recommendations to the five actual commissioners of the FTC. The rule is that if a majority of the commissioners vote to file a complaint, the FTC sues. If not, the FTC doesn’t file a suit—no matter how strong the staff thinks the case is. The commissioners met. When it came to Microsoft, one recused himself. The other four deadlocked 2-2; no majority, no lawsuit. But they did agree to hold another vote after taking a bit more time to think things through. And so, after much lobbying and jockeying for position, they did. But the deadlock remained. The FTC couldn’t go forward without a majority. The matter seemed about to die, which is what typically happens when the FTC decides not to sue a company that it’s been investigating. But this was Microsoft, and so the standard rules didn’t apply.

The matter didn’t die; the DoJ picked it up and continued the inves­tigation. While it was ongoing, though, the applications end of the soft­ware market went through some significant changes. Borland, best known for its Quattro Pro spreadsheet, and WordPerfect, best known for its eponymous word processor, both capitulated. Lotus, manufacturer of the popular programs Notes and 1-2-3, was reeling; IBM would soon acquire the company. Novell had shrunk to a bit player in the PC- applications market. The competitors who had been lobbying the feds to prevent Microsoft from leveraging its operating system monopoly into the applications software market had all but disappeared. By the middle of 1994, Microsoft was an applications kingpin. And still, the investi­gation continued.

That left both the DoJ market cops and their targets at Microsoft wondering what to do with the summer. They decided to spend part of it in Europe. It seems that while the American antitrust agencies were scrutinizing Microsoft’s behavior, their European counterparts were doing the same. DG IV shared many of the DoJ’s concerns and wanted Microsoft to take many of the same actions.

Finally, the dust settled. The lawyers had crafted an agreement that everyone could sign. The final sticking point had been Microsoft’s insis­tence that customers who wanted to buy one product, say MS-DOS, also had to buy another, say Windows or Word. Microsoft was willing to concede that point and stop the marketing practice. But Microsoft simply couldn’t agree to stop its software’s evolution. After all, as everyone versed in software engineering knows, when an application becomes robust, its developers can integrate it into the platform without worry­ing about harming the platform’s performance. That’s how functions tra­verse the long arduous journey from isolated modules dangling off the frontier down the translation chain toward the hardware. Microsoft couldn’t agree to freeze its software in time; evolution would come to a dead halt. The market cops of two continents were willing to concede that point. And with those concessions in place, so was the framework for a consent order. Microsoft agreed not to “bundle,” but retained the right to “integrate.” Everyone signed. Gates the antitrust neophyte had waved a basic rite of software engineering in front of the erudite market cops and outsmarted them all. The government investigation of Microsoft was finally over.

Or was it? The courts still had to clear the consent decree, but Tunney Act proceedings are typically rubber stamps. Sure, a judge could object to the order, but in practice they don’t.

Well, Stanley Sporkin, for one. Under normal circumstances, one lone dissenter might not amount to much, but this involved Microsoft. And, more to the point, Stanley Sporkin was the federal judge presiding over the Tunney Act hearing. Judge Sporkin concluded that the consent decree wouldn’t constrain Microsoft effectively. He threw it out. In February 1995, the government’s hard-fought deal with Microsoft was no more.

Or was it? The government and Microsoft had discovered a common enemy. Microsoft’s lawyers joined Deputy Assistant Attorney General Joel Klein to oppose Judge Sporkin’s ruling; they appealed his decision to the Court of Appeals for the D.C. Circuit, where they fared better. In June 1995, a panel of three appellate judges disagreed with Judge Sporkin—vehemently. They yanked Sporkin from the case and replaced him with a randomly chosen colleague, Judge Thomas Penfield Jackson, a Reagan appointee with a pro-business reputation. In August 1995, at a second Tunney Act proceeding, Judge Jackson reinstated the consent order. Microsoft was now contractually bound to stop bundling prod­ucts together but free to integrate previously distinct products into a single, new, next-generation incarnation. That same month, Microsoft launched its important, new flagship product: Windows 95.