Microsoft Antitrust Oversight Ends With a Whimper

On May 12, the U.S. government will officially end its oversight of Microsoft that began years ago after a massive antitrust battle between the company and the Department of Justice. Since then, much has changed in the competitive landscape, and much has been learned about the nature and effectiveness of antitrust prosecution.

By Erika Morphy
04/29/11 5:00 AM PT

Talk about your anti-climatic endings. Thirteen years after the Sturm und Drang that was the government prosecution of Microsoft on antitrust grounds, the mammoth, multi-million dollar case has ended with a straightforward, run-of-the-mill legal proceeding.

The case will end on May 12 without any further oversight hearings, Judge Colleen Kollar-Kotelly said at the last hearing held this week in the District of Columbia. The government had no objection. Microsoft declined to comment beyond its formal statement, which was that it was pleased it was over.

It was a quiet end to a case that to some had already diminished significantly in importance.

"The case was largely irrelevant to the tech industry," Hillard M. Sterling, a partner with Lewis Brisbois Bisgaard & Smith LLP, who followed the prosecution and settlement from the beginning. "The competition moved on and then shifted dramatically, far away from the browser. The conclusion of the supervision, therefore, barely registers a blip on the competitive radar."

Ultimately, he said, the case's best use is as an illustration of how antitrust law is not a silver bullet to safe competition in rapidly-developing markets.

Remember the Old Browser Wars?

Microsoft's saga began when the Federal Trade Commission began investigating whether it was using the dominance of the Windows operating system to shut out rivals to its Web browser, Internet Explorer. The Justice Department soon took over and, along with several states, filed suit against the company. The government won the first round in court but lost the case on appeal.

By 2001, weary of their expensive legal battles, Justice and Microsoft settled. The terms included Microsoft sharing key technical information about Windows, providing licenses and a long period of oversight, which is now ending.

In some ways Microsoft was lucky, said Ryan Radia, an analyst with the Competitive Enterprise Institute. Some of the harsher proposals being tossed about regarding Microsoft's fate didn't come to pass. "It was not split up as some wanted, for example," he told the E-Commerce Times.

Still, it was a waste of resources on all sides, he added.

"People who support the settlement argue that the precedent the government established in going after Microsoft chilled future anticompetitive activities of tech companies. But it is not clear that is what happened. It is also not clear that the settlement was beneficial to consumers," he said.

Where Now?

For Microsoft, it will be almost business as usual. The company says it will continue to abide by the terms of the settlement, although it hardly has a choice, noted Cozen O'Connor Antitrust Group Cochair Melissa Maxman, who represented civil private plaintiffs in the class actions against Microsoft that were settled in 2004.

"The reality is that the European Commission won its suit against Microsoft and thus Microsoft has ongoing reporting and licensing requirements that remain in the EU even after the U.S. oversight is done," she told the E-Commerce Times.

The most immediate sign that the case is truly over, at least at Redmond, will be a huge pool of resources with suddenly nothing to do. More than 400 employees had reportedly been deployed to document compliance to the agreement.

Presumably Microsoft will redeploy these resources to other, more productive areas of the company, Maxman said.

Once so deployed, Microsoft could get back on the track it was on before it was derailed by the government. Or has it been on the same track all along, inconvenienced but not terribly pulled out of shape by the government's intervention? If this case had never happened, would it be still struggling against Google and now Facebook? Would it still have been caught by surprise by the rush to mobile? Would it still, in other words, be a once-unstoppable tech titan that is now somewhat marginalized?

Radia maintains Microsoft would indeed be in better shape to compete with Google if the government had left it alone.

Others -- both foes and fans of the prosecution -- are unconvinced.

"What would it look like today if the case had never been brought? Much like it does now," said Sterling.

"Microsoft' marginalization was caused by its own creative limitations and its own business making decisions," he said. "Exhibit A is how Microsoft is now turning to antitrust regulators to save it from Google's dominance. It can't blame that turn of events on government supervision."

While it still has a large share of the market for operating systems, Microsoft now has strong competition from Google, Apple and others in other technology industry product markets, Maxman noted -- which was not the case in 1999-2000.

"But it is very hard to say whether this is a result of the government antitrust action or natural market forces," she added. "The high-tech market's constant, rapid-paced evolution and increasing concentration ensure that antitrust issues will continue to emerge, but in many instances the free market can adjust the playing field more quickly and efficiently than can government involvement."

Antitrust Today

The actions of the Obama Administration Antitrust Division seem to embrace this notion, she continued, as it has been more reticent to take aggressive action in this area than many expected given the ongoing oversight.

For example, she said, in February of 2010, the division elected not to challenge a 10-year agreement between Microsoft and Yahoo that effectively combined two of the three major search engines (Bing and Yahoo).

"The division essentially concluded that the agreement would allow the combined search engine to compete more vigorously with Google and that this benefit outweighed the anticompetitive dangers of eliminating a major competitor. The would signal that the division, at least, does not see Microsoft as the monopolistic predator it did a decade ago," she said.

Perhaps that will be the best legacy from this debacle, Sterling concluded. "The government is unlikely ever again to embark on such an ill-advised antitrust case."