On the morning of April 3, 2000, a federal judge in Washington issued a ruling that read like a verdict on an era. Microsoft, he wrote, had used its monopoly over the personal computer to crush a rival and stifle a new kind of software. By the end of that trading day the company had shed roughly a seventh of its value, and the tremor rolled outward into a NASDAQ that was already beginning to wobble. The most powerful technology company on earth had just been told, in the plain language of antitrust law, that it was a lawbreaker — and for a while it looked as though the punishment would be to cut it in half.
How Microsoft arrived at that morning, and how it slipped away from the guillotine over the following year, is one of the great courtroom dramas of the digital age. It is a story about a browser, a memo, a videotape, and a judge who could not stop talking to reporters.
The Government Comes Calling
The seeds were planted years earlier. The Federal Trade Commission opened an inquiry into Microsoft in 1990; its commissioners deadlocked 2–2 in 1993 and closed the file. The Department of Justice picked it up almost immediately, and in July 1994 Microsoft signed a consent decree promising not to bundle other products into Windows as a condition of sale — while carefully reserving the right to “integrate” new features into the operating system itself. That single word, integrate, would become the hinge of everything that followed.
By 1998 the fight had a face: the web browser. Netscape's Navigator had defined the early Web, and Microsoft had answered by building Internet Explorer directly into Windows and pressuring PC makers to feature it. The company insisted IE was not a separate product at all but a feature of the operating system, as inseparable as the Start menu. On May 18, 1998, the Justice Department and twenty states plus the District of Columbia disagreed in the strongest possible terms, filing a sweeping antitrust suit. The trial opened that October before Judge Thomas Penfield Jackson, with the government's case led by the famously relentless litigator David Boies.
Boies had a gift for turning a company's own words against it. Internal Microsoft emails spoke of the plan to blunt Netscape in vivid, unguarded language, and one phrase — a vow to “cut off Netscape's air supply” — came to symbolize the whole prosecution. The most damaging witness, though, never set foot in the courtroom. Bill Gates had given a videotaped deposition, and clips of it were played for the judge: the world's richest man parsing the meaning of ordinary words, claiming not to recall his own emails, sparring over what “we” and “concerned” meant. It was a public-relations disaster, and it colored how Jackson read everything else.
Guilty — and Sentenced to Split
The rulings came in stages. On November 5, 1999, Jackson issued his Findings of Fact: Microsoft possessed monopoly power in the market for Intel-compatible PC operating systems, and it had wielded that power to harm competitors and consumers alike. On April 3, 2000, came the Conclusions of Law — Microsoft had violated both Section 1 and Section 2 of the Sherman Antitrust Act of 1890, the same statute once used against the railroad and oil trusts. Then, on June 7, 2000, the remedy: Jackson ordered Microsoft broken into two independent companies, one for the operating system and one for applications like Office. It was the boldest antitrust remedy since the breakup of AT&T.
The figure below traces the case through its three acts — the district court that found Microsoft guilty and ordered it dismantled, the appeals court that rewrote the ending, and the settlement that finally closed the book.
The Reversal
Microsoft appealed to the U.S. Court of Appeals for the D.C. Circuit, and on June 28, 2001, a seven-judge panel handed down a unanimous, book-length opinion that split the difference in the most consequential way possible. The core finding stood: Microsoft had unlawfully maintained its operating-system monopoly, and the liability under Section 2 was affirmed. But the court vacated the breakup entirely, calling it a remedy imposed without adequate process and on shaky legal footing where the tying claims were concerned.
And then the appeals court did something remarkable: it disqualified Judge Jackson from the case. During the trial he had given interviews to reporters, comparing Microsoft's executives to gang members and drug traffickers and musing about the company's arrogance. That conduct, the panel held, created an appearance of bias serious enough to remove him and send the remedy question to a fresh judge. The man who had ordered Microsoft cut in two was himself removed from the bench of the case.
With the breakup dead and a new administration in Washington less eager to dismember the company, the endgame turned toward settlement. On November 2, 2001, Microsoft reached a deal with the Justice Department: no breakup, but a set of conduct rules requiring it to share interface information with rivals, let PC makers configure and remove middleware, and submit to oversight by a technical committee. Nine states signed on; a handful of holdouts pressed for tougher terms and largely lost. On November 1, 2002, Judge Colleen Kollar-Kotelly approved the consent decree, and the great antitrust war of the 1990s ended not with a dismemberment but with a leash.
What It Cost, and What It Bought
Microsoft survived intact, and to a generation of critics that looked like a defeat for the government. But the case left marks that a balance sheet cannot show. For three years the company's leadership was consumed by lawyers and depositions rather than the emerging threats of search, the Web, and mobile. The swagger that had defined the Gates era was now a liability to be managed. And a rising generation of competitors — a young search company in Menlo Park among them — watched a chastened Microsoft think twice before reaching for the reflexes that had beaten Netscape. Sometimes the deterrent matters more than the sentence.
Next time: with the courtroom behind them and a new CEO on stage, Microsoft goes looking for its next act — and a sweat-soaked Steve Ballmer bellows the word that would define it. Part 13: “Developers, Developers, Developers.”
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