Settle Antitrust Case
Setting
November 2001. After three years of litigation, Microsoft faced a stark choice:
- June 2000: Judge Jackson ordered Microsoft split into two companies
- June 2001: Appeals court reversed breakup but upheld monopoly finding
- Post-9/11: New Bush administration, different DOJ priorities
- New judge: Colleen Kollar-Kotelly pushing settlement
The question: Fight on or settle?
People
- Responsible: Steve Ballmer (CEO), Brad Smith (General Counsel)
- Approvers: Microsoft Board
- Consulted: Bill Gates, Outside counsel
- Informed: Employees, Shareholders
The Case Status
What Microsoft Had Lost
- Monopoly finding: Upheld on appeal — legally binding
- Anticompetitive conduct: Found on several counts
- Public perception: "Evil empire" narrative entrenched
What Microsoft Had Won
- Breakup reversed: Company would remain unified
- Judge Jackson removed: New judge more balanced
- Political climate shifted: Bush DOJ less aggressive
Alternatives
Option A: Continue Fighting
Pros:
- Might win more on appeal
- Avoid consent decree restrictions
- Principle of not admitting wrongdoing
Cons:
- Years more litigation (5+ years possible)
- Continued distraction from business
- Risk of worse outcome
- Employee morale hemorrhaging
Option B: Settle on Government Terms
Pros:
- Certainty and closure
- Focus returns to business
- Stock price stabilizes
- Morale recovery possible
Cons:
- Consent decree restrictions (10 years)
- Implicit admission of wrongdoing
- Precedent for future enforcement
Decision
Chosen: Option B — Settle
Brad Smith's mandate from Ballmer: "Time to make peace."
Settlement Terms
Restrictions Accepted
| Restriction | Duration |
|---|---|
| No exclusive OEM contracts | 10 years |
| API documentation required | 10 years |
| Technical oversight committee | 10 years |
| No retaliation against OEMs | 10 years |
What Microsoft Avoided
- Company breakup
- Office divestiture
- Structural separation
- Ongoing conduct supervision
- Massive fines
The Brad Smith Factor
Ballmer hired Brad Smith as General Counsel with explicit mission: rebuild relationships.
Smith's approach:
- Acknowledge past behavior — Stop defending every action
- Engage constructively — Work with regulators, not against
- Build trust — Actions, not just words
- Long-term thinking — Reputation matters
This philosophy shaped Microsoft's regulatory relationships for 20+ years.
Consequences
Positive
- +Closure — 21-year saga ended (consent decree expired 2011)
- +Focus restored — Leadership could focus on business
- +Enterprise pivot — STR-002 accelerated
- +Regulatory relationships — Brad Smith became industry statesman
- +Stock stability — Removed litigation overhang
Negative
- −Innovation constraints — Consent decree limited product decisions
- −Competitive hesitation — Fear of antitrust haunted company
- −Mobile caution — May have contributed to iPhone response failure
- −Lost decade narrative — Stock stagnation blamed partly on case
The Broader Impact
For Microsoft
The settlement marked the end of Microsoft's "dominant aggressor" era and the beginning of its "enterprise partner" era. The company that once crushed competitors now had to compete carefully.
For the Industry
The case established precedents for technology antitrust:
- Platform leverage is scrutinizable
- Integration claims don't excuse tying
- Consent decrees can shape industry structure
For Regulators
The Microsoft case trained a generation of antitrust lawyers who would later pursue Google, Amazon, Apple, and Meta.
Brad Smith's Reflection
"The antitrust case was the most important thing that ever happened to Microsoft's culture. We had to learn humility. We had to learn to work with others. We had to learn that winning isn't everything."
The settlement was a strategic defeat that enabled strategic transformation.