DOJ Antitrust Case: United States v. Microsoft Corp
Timeline
| Date | Event |
|---|---|
| 1990 | FTC investigation begins (deadlocks 2-2) |
| Aug 1993 | DOJ assumes case from FTC |
| Jul 1994 | Consent decree signed (no tying apps to Windows) |
| Oct 1997 | DOJ alleges IE bundling violates decree |
| May 1998 | DOJ files comprehensive antitrust lawsuit |
| Aug 1998 | Bill Gates 20-hour deposition (INC-002) |
| Nov 1999 | Judge Jackson: Microsoft is a monopoly |
| Jun 2000 | Breakup ordered — split into OS and Apps companies |
| Jun 2001 | Appeals court reverses breakup, upholds monopoly finding |
| Nov 2001 | Settlement reached |
| May 2011 | Final consent decree expires |
Duration of regulatory scrutiny: 21 years (1990-2011)
Impact Assessment
Market Cap Destruction
| Period | Market Cap | Change |
|---|---|---|
| Dec 1999 | $600B | Peak |
| Late 2000 | $270B | -55% |
The breakup ruling (June 2000) crushed market confidence. Microsoft went from world's most valuable company to years of stock stagnation.
Organizational Impact
- Bill Gates stepped down as CEO (January 2000)
- Leadership retreats derailed by morale crisis
- Brad Smith hired as General Counsel with mandate: "time to make peace"
- Engineering resources diverted to compliance
- Innovation constrained by consent decree requirements
Root Causes
The Browser Wars Strategy
Microsoft's December 7, 1995 announcement that IE would be free and bundled with Windows (DEC-012) was brilliant competitive strategy but created the legal exposure:
- Tying allegation: IE + Windows = illegal bundle
- Predatory pricing: Free product to destroy Netscape
- OEM restrictions: PC makers couldn't remove IE or promote Netscape
The Gates Deposition Disaster (INC-002)
Bill Gates' combative deposition style backfired catastrophically when video was shown in court. His evasiveness on basic facts undermined Microsoft's credibility.
Resolution Terms (2001 Consent Decree)
- No exclusive OEM contracts — PC makers could preinstall competitor software
- API documentation — Must share technical interfaces with competitors
- Technical oversight committee — Government-appointed compliance monitoring
- No retaliation — Cannot punish OEMs who work with competitors
What was avoided:
- Company breakup
- Forced divestiture of Office or IE
- Structural separation requirements
Lessons Learned
For Microsoft
- Aggressive competitive tactics have regulatory limits
- Executive behavior in legal proceedings matters enormously
- Consent decrees constrain strategy for decades
- Winning the market while losing the courtroom is possible but costly
For Industry
"The antitrust case proved that even monopolies have boundaries. Microsoft won the browser war but lost a decade of innovation capacity fighting the legal war." — Industry analyst
Long-term Consequences
Positive:
- Forced cultural maturation
- Brad Smith's "make peace" strategy built relationships with regulators
- Survived as unified company
Negative:
- Distracted leadership during critical mobile transition
- Conservative product strategy to avoid antitrust scrutiny
- Lost a generation of talent to Google and startups
- Stock price stagnation (1999-2014)
The antitrust era fundamentally redirected Microsoft from consumer dominance toward enterprise specialization—a pivot that paradoxically positioned the company for long-term profitability.