ANTITRUST LAW

ANTITRUST LAW

Legislation enacted by the federal and various state governments to regulate trade and commerce by preventing unlawful restraints, price-fixing, and monopolies; to promote competition; and to encourage the production of quality goods and services at the lowest prices, with the primary goal of safeguarding public welfare by ensuring that consumer demands will be met by the manufacture and sale of goods at reasonable prices.
Antitrust law seeks to make enterprises compete fairly. It has had a serious effect on business practices and the organization of U.S. industry.

Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraint of trade and monopolization. These fall into four main areas: agreements between or among competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of MONOPOLY power, and mergers.

The Sherman Anti-Trust Act of 1890 (15 U.S.C.A. § 1 et seq.) is the basis for U.S. antitrust
law, and many states have modeled their own statutes upon it. As weaknesses in the Sherman Act became evident, Congress added amendments to it at various times through 1950. The most important are the CLAYTON ACT of 1914 (15 U.S.C.A. § 12 et seq.) and the ROBINSON-PATMAN ACT of 1936 (15 U.S.C.A. § 13 et seq.).

Congress also created a regulatory agency to administrate and enforce the law, under the Federal Trade Commission Act of 1914 (15 U.S.C.A. §§ 41–58). In an ongoing analysis influenced by economic, intellectual, and political changes, the U.S. Supreme Court has played the leading role in shaping the ways in which these laws are applied.
Enforcement of antitrust law depends largely on two agencies: the FEDERAL TRADE COMMISSION (FTC), which may issue cease-and-desist orders to violators, and the Antitrust
Division of the U.S. DEPARTMENT OF JUSTICE
(DOJ), which can litigate. Private parties may
also bring civil suits. Violations of the Sherman
Act are felonies carrying fines of up to $10 million
for corporations, and fines of up to
$350,000 and prison sentences of up to three
years for persons. The federal government,
states, and individuals may collect treble (i.e.,
triple) the amount of damages that they have
suffered as a result of injuries.
Origins
Antitrust law originated in reaction to a
public outcry over trusts, which were late-nineteenth-
century corporate monopolies that dominated
U.S. manufacturing and mining. Trusts
took their name from the legal device of business
incorporation called trusteeship, which
consolidated control of industries by transferring
stock in exchange for trust certificates. The
practice grew out of necessity. Twenty-five years
after the Civil War, rapid industrialization had
blessed and cursed business. Markets expanded
and productivity grew, but output exceeded
demand, and competition sharpened. Rivals
sought greater security and profits in cartels
(mutual agreements to fix prices and control
output). Out of these arrangements sprang the
trusts. From sugar to whiskey to beef to tobacco,
the process of merger and consolidation
brought entire industries under the control of
just a few powerful people. Oil and steel, the
backbone of the nation’s heavy industries, lay in
the hands of the corporate giants John D. Rockefeller
and J.P. Morgan. The trusts could fix
prices at any level. If a competitor entered the
market, the trusts would sell their goods at a loss
until the competitor went out of business, and
then they wold raise prices again. By the 1880s,
abuses by the trusts brought demands for
reform.
History gave only contradictory direction to
the reformers. Before the eighteenth century,
COMMON LAW concerned itself with contracts,
combinations, and conspiracies that resulted in
restraint of free trade, but it did little about
them. English courts generally let restrictive
contracts stand because they did not consider
themselves to be suited to judging adequacy or
fairness. Over time, courts looked more closely
into both the purpose and the effect of any
restraint of trade. The turning point came in
1711 with the establishment of the basic standard
for judging close cases, “the rule of reason.”
Courts asked whether the goal of a contract was
a general restraint of competition (a naked
restraint) or particularly limited in time and
geography (an ancillary restraint). Naked
restraints were unreasonable, but ancillary
restraints were often acceptable. Exceptions to
the rule grew as the economic philosophy of
laissez-faire economics (meaning “let the people
do what they please”) spread its doctrine of
non-interference in business. As rival businesses
formed cartels to fix prices and to control output,
the late-eighteenth-century English courts
often nodded in approval.
By the time the U.S. public was complaining
about the trusts, common law in U.S. courts was
somewhat tougher on restraint of trade. Yet it
was still contradictory. The courts took two
basic views of cartels: tolerant and condemning.
The first view accepted cartels as long as they did
not stop other merchants from entering the
market. It used the rule of reason to determine
this, and it put a high premium on the freedom
to enter into contracts. Businesses and contracts
mattered. Consumers, who suffered from pricefixing,
were irrelevant; the wisdom of the market
would protect them from exploitation. The
second view was that cartels are thoroughly bad.
It reserved the rule of reason only for judging
more limited ancillary restrictions. Given these
competing views, which varied from state to
state, no comprehensive common law could be
said to exist. But one approach was destined to
win.
The Sherman Act and
Early Enforcement
In 1890, Congress took aim at the trusts with
passage of the SHERMAN ANTI-TRUST ACT,
named for Senator JOHN SHERMAN (R-Ohio). It
went far beyond the common law’s refusal to
enforce certain offensive contracts. Clearly persuaded
by the more restrictive view that saw
great harm in restraint of trade, the Sherman
Act outlawed trusts altogether. The landmark
law had two sections. Section 1 broadly banned
group action in agreements, forbidding “every
contract, combination in the form of trust or
otherwise, or conspiracy,” that restrained interstate
or foreign trade. Section 2 barred individuals
from monopolizing or trying to monopolize.
Violations of either section were punishable by a
maximum fine of $50,000 and up to one year in
jail. The Sherman Act passed by nearly unanimous
votes in both houses of Congress.
Although sweeping in its language, the Sherman
Act soon revealed its limitations. Congress
had wanted action even though it did not know
what steps to take. Historians would later dispute
what its precise aims had been, but clearly
the lawmakers intended for the courts to play
the leading role in promoting competition and
attacking monopolization: Judges would make
decisions as cases arose, slowly developing a
body of opinions that would replace the confusing
precedents of state courts. For a public that
expected overnight change, the process worked
all too slowly. President GROVER CLEVELAND’s
Department of Justice, which disliked the Sherman
Act, made little effort to enforce it.
Initial setbacks also came from the U.S.
Supreme Court’s first consideration of the
statute, in United States v. E. C. Knight Co., 156
U.S. 1, 15 S. Ct. 249, 39 L. Ed. 325 (1895). Rejecting
a challenge to a sugar trust that controlled
over 98 percent of the nation’s sugar-refining
capacity, the Court held that manufacturing was
not interstate commerce. This was good news
for trusts. If manufacturers were exempt from
the Sherman Act, then they would have little to
worry about from federal antitrust regulators.
The Court only began strongly supporting the
use of the law in the late 1890s, starting with
cases against railroad cartels. By 1904, some 300
large companies still controlled nearly 40 percent
of the nation’s manufacturing assets and
influenced at least 80 percent of its vital industries.
After the turn of the twentieth century, federal
enforcement picked up speed. President
THEODORE ROOSEVELT’s announcement that he
was a “trustbuster” foreshadowed one important
aspect of the future of antitrust enforcement: It
would depend largely on political will from the
EXECUTIVE BRANCH of government. Roosevelt
and his successor, President WILLIAM HOWARD
TAFT, responded to public criticism over the
rapid merger of even more industries by pursuing
more vigorous legal action. Steady prosecution
in the first decade of the twentieth century
brought the downfall of trusts.
In 1911, the U.S. Supreme Court ordered the
dissolution of the Standard Oil Company and
the American Tobacco Company in landmark
rulings that brought down two of the most powerful
industrial trusts. But these were ambiguous
victories. In Standard Oil Co. of New Jersey v.
United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed.
619, for example, the Court dissolved the trust
into 33 companies, but held that the Sherman
Act outlawed only restraints that were anticompetitive—
subject, furthermore, to a rule of reason.
Critics of all stripes jumped on this
decision. Some feared that conservative judges
would now gut the Sherman Act; others predicted
a return to lax enforcement; and businesses
worried that in the absence of specific
unlawful restraints, the rule of reason gave
courts too much freedom to read the law subjectively.
Congressional Reform up to 1950
Dissatisfaction brought new federal laws in
1914. The first of these was the Clayton Act,
which answered the criticism that the Sherman
Act was too general. It declared four practices to
be illegal but not criminal: (1) price discrimination—
selling a product at different prices to
similarly situated buyers; (2) tying and exclusive-dealing contracts—sales on condition that
the buyer stop dealing with the seller’s competitors;
(3) corporate mergers—acquisitions of
competing companies; and (4) interlocking
directorates—boards of competing companies,
with common members.
Quick to hedge its bets, the Clayton Act
qualified each of these prohibited activities.
They were only illegal where the effect “may be
substantially to lessen competition” or “might
tend to create a monopoly.” This language was
intentionally vague. Despite specifying different
tests for violations, Congress still wanted the
courts to make the difficult decisions. One
important limitation was added: The Clayton
Act exempted unions from the scope of antitrust
law, refusing to treat human labor as a commodity.
The second piece of federal legislation in
1914 was the Federal Trade Commission Act.
Without attaching criminal penalties, the law
provided that “unfair methods of competition
in or affecting commerce, and unfair or deceptive
acts or practices in or affecting commerce
are hereby declared illegal.” This was more than
a symbolic attempt to buttress the Sherman Act.
The law also created a regulatory agency, the
Federal Trade Commission (FTC), to interpret
and enforce it. Lawmakers who feared judicial
hostility to the Sherman Act saw the FTC as a
body that would more closely follow their preferences.
Originally, the commission was
designed to issue prospective decrees and to
share responsibilities with the Antitrust Division
of the Department of Justice. Later court rulings
would allow it greater latitude in attacking Sherman
Act violations.
These laws helped to satisfy the short-term
demand for tougher, more explicit action from
Congress. Before long, antitrust enforcement
would shift with the mood of the country. As
WORLD WAR I and the 1920s reversed the outlook
of previous years, antitrust policy was characterized
by the hands-off policies of President
CALVIN COOLIDGE, who declared, “The chief
business of the American people is business.”
Economic trends created and supported this
attitude; prosperity seemed a worthwhile
reward. In this era, DOJ gave more attention to
promoting fairness than it did to attacking
restrictive practices and monopoly power.
Although activities such as price-fixing still
came under attack, other kinds of business
cooperation flourished and even received official
encouragement during the early years of the
NEW DEAL. This pattern lasted for a good 15
years, intensifying after the STOCK MARKET
crash of 1929.
Following what historians called the era of
neglect, antitrust made a resurgence. In 1935,
the U.S. Supreme Court struck down President
FRANKLIN D. ROOSEVELT’s NATIONAL INDUSTRIAL
RECOVERY ACT, which coordinated industrywide
output and pricing, in SCHECHTER
POULTRY CORP. V. UNITED STATES, 295 U.S. 495,
55 S. Ct. 837, 79 L. Ed. 1570. The decision radically
affected New Deal–era policy. The following
year, Congress passed the Robinson-Patman
Act in an attempt to make sense of the Clayton
Act’s bans on price discrimination. The Robinson-
Patman Act explicitly forbade forms of
price discrimination, in order to protect small
producers from extinction at the hands of larger
competitors. By 1937, economic decline brought
federal antitrust enforcement back with a
vengeance, as Roosevelt’s administration began
an extensive investigation into monopolies. The
effort resulted in more than 80 antitrust suits in
1940 alone.
One federal court case in this period, United
States v. Aluminum Co. of America, 148 F.2d 416
(2d Cir. 1945) (hereinafter Alcoa), changed antimonopoly
law for years to come. Since the
1920s, the U.S. Supreme Court had looked skeptically
on the role of a business’s size in judging
monopoly cases. In United States v. United States
Steel Corp., 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed.
343 (1920), it said, “[T]he law does not make
mere size an offense, or the existence of unexerted
power an offense. It, we repeat, requires
overt acts.” The decision weakened the monopoly
ban of the Sherman Act. Rather than focus
on abusive business conduct, Alcoa emphasized
the role of market power. Judge LEARNED HAND
wrote for the court, “Many people believe that
possession of unchallenged economic power
deadens initiative, discourages thrift and
depresses energy; that IMMUNITY from competition
is a narcotic, and rivalry is a stimulant, to
industrial progress; that the spur of constant
stress is necessary to counteract an inevitable
disposition to let well enough alone.” The standard
that emerged from this decision applied a
two-part test for determining illegal monopolization:
The defendant (1) must possess
monopoly power in a relevant market; and (2)
must have improperly used exclusionary acts to
gain or protect that power.
Congress added its last piece of important
legislation in 1950 with the Celler-Kefauver
Antimerger Act, addressing a weakness in the
Clayton Act. Because only anticompetitive stock
purchases had been forbidden, businesses would
circumvent the Clayton Act by targeting the
assets of their rivals. U.S. Supreme Court decisions
had also undermined the law by allowing
businesses to transfer stock purchases into assets
before the government filed a complaint. The
Celler-Kefauver amendment closed these loopholes.
The U.S. Supreme Court and
Evolving Doctrine
Vigorous enforcement of antitrust legislation
created an immense body of case law. After
1950, U.S. Supreme Court decisions did more
than anything else to shape antitrust doctrine.
Two competing outlooks emerged. One
regarded markets as fragile, easily distorted by
private firms, and readily correctable through
public intervention. Economic efficiency mattered
less, in this view, than the belief in the
antitrust doctrine’s ability to meet social and
political goals. Opponents saw business rivalry
as being generally healthy. They doubted that
public intervention could cure defects, and they
emphasized the self-correcting ability of markets
to erode private restraints and private
power. This outlook opposed the use of antitrust
measures except to stop behavior that clearly
harms the efficiency of business.
The most aggressive doctrine was developed
under Chief Justice EARL WARREN. The WARREN
COURT often saw the need for decentralized
social, political, and economic power, a goal that
it put ahead of the ideal of economic efficiency.
In 1962, its first ruling on the Celler-Kefauver
Act, Brown Shoe Co. v. United States, 370 U.S.
294, 82 S. Ct. 1502, 8 L. Ed. 2d 510, held that a
merger between two firms that accounted for
only five percent of total industry output violated
the principal antimerger provision of the
antitrust laws. Brown Shoe also reflected the
Court’s hostility toward vertical restraints (i.e.,
restrictions imposed in contracts by the seller on
the buyer, or vice versa) at that time.
This aggressive approach peaked in 1967 in
United States v. Arnold, Schwinn & Co., 388 U.S.
365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249. Arnold
concerned nonprice vertical restraints (i.e., territorial
or customer restrictions on the resale of
goods). The majority ruled that such restraints
were per se illegal—in other words, so harmful
to competition that they need not be evaluated.
In ensuing years, respected antitrust experts,
such as Chief Judge RICHARD POSNER of the
U.S. Court of Appeals for the 7th Circuit, criticized
the Court’s use of “per se” tests to invalidate
vertical price agreements between
competitors or between sellers and buyers, arguing
that such agreements can be efficient.
The U.S. Supreme Court heeded this criticism
in State Oil Co. v. Khan, 522 U.S. 3, 118
S.Ct. 275, 139 L.Ed.2d 199 (U.S. 1997). Relying
heavily on an appellate opinion penned by Judge
Posner, the high court overruled a 29-year-old
precedent that declared all vertical maximum
price-fixing arrangements to be per se violations
of the Sherman Act. Vertical maximum pricefixing
arrangements, like the majority of commercial
arrangements that are subject to
antitrust laws, should be evaluated under the
rule of reason, the Court wrote. The rule-of-reason
analysis will effectively identify those situations
in which vertical maximum price-fixing
amounts to anticompetitive conduct, by allowing
courts to evaluate a variety of factors,
according to the Court. These factors include
specific information about the relevant business;
the condition of the business before and
after the restraint was imposed; and the history,
nature, and effect of the restraint.
By the mid 1970s, the U.S. Court backed off
its robust interventionism. Two pivotal decisions
came in 1977, including the most important
since WORLD WAR II, Continental TV v. GTE Sylvania,
433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d
568. In a decisive departure from the previous
decade’s rulings, the Court abandoned its hostility
toward efficiency. Now, for evaluating nonprice
vertical restraints, it returned to the use of
a rule of reason. Per se rules would remain influential,
but economic analysis would be the primary
tool in formulating and applying antitrust
rules. The second powerful change in doctrine
was Brunswick Corp. v. Pueblo Bowl-O-Mat, 429
U.S. 477, 97 S. Ct. 690, 50 L. Ed. 2d 701. In the
Brunswick decision, the Court wrote that
antitrust laws “were enacted for the ‘protection
of competition, not competitors.’ ” The irony
was addressed to private antitrust litigants. If
they wanted to sue, the Court wrote, they would
have to prove “antitrust injury.” This decision
discarded the old view that the demise of individual
firms was plainly bad for competition.
Replacing it was the view that adverse effects to
businesses are sometimes offset by gains in reduced costs and increased output. Increasingly,
after Brunswick, the U.S. Supreme Court
and lower courts would accept economic efficiency
as a justification for dominant firms to
defend their market positions. By 1986, efficiency-
based analysis was widely accepted in
federal courts.
Even against this restrictive background,
explosive change occurred. The early 1980s saw
the dramatic conclusion of a historic monopoly
case against the telephone giant American Telephone
and Telegraph (AT&T) (United States v.
American Telephone & Telegraph Co., 552 F.
Supp. 131 [D.D.C. 1982], aff ’d in Maryland v.
United States, 460 U.S. 1001, 103 S. Ct. 1240, 75
L. Ed. 2d 472 [1983]). DOJ settled claims that
AT&T had impeded competition in long-distance
telephone service and TELECOMMUNICATIONS
equipment. The result was the largest
divestiture in history: A federal court severed the
Bell System’s operating companies and manufacturing
arm (Western Electric) from AT&T,
thus transforming the nation’s telephone services.
But the historic settlement was an exception
to the political philosophy and the level of
enforcement that characterized the decade. As
the 1980s were ending, the Department of Justice
dropped its 13-year suit against International
Business Machines (IBM). This lengthy
battle had sought to end IBM’s dominance by
breaking it up into four computer companies.
Convinced that market forces had done the
work for them, prosecutors gave up.
Throughout the 1980s, political conservatism
in federal enforcement complemented
the U.S. Supreme Court’s doctrine of non-intervention.
The administration of President
RONALD REAGAN reduced the budgets of the
FTC and the DOJ, leaving them with limited
resources for enforcement. Enforcement efforts
followed a restrictive agenda of prosecuting
cases of output restrictions and large mergers of
a horizontal nature (i.e., those involving firms
within the same industry and at the same level
of production).Mergers of companies into conglomerates,
on the other hand, were looked on
favorably, and the years 1984 and 1985 produced
the greatest increase in corporate acquisitions in
the nation’s history.
As the U.S. Supreme Court strengthened
requirements for evidence, injury, and the right
to bring suit, antitrust cases became harder for
plaintiffs to win. Most decisions during this
period narrowed the reach of antitrust. A few
rare exceptions, such as Aspen Skiing Co. v. Aspen
Highlands Skiing Corp., 472 U.S. 585, 105 S. Ct.
2847, 86 L. Ed. 2d 467 (1985), which condemned
a monopolist’s unjustified refusal to deal with a
rival, faintly recalled the tough outlook of the
Warren Court. Non-intervention, however, took
precedence. In the strongest example, Matsushita
Electrical Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d
538 (1986), the majority dismissed allegations
that Japanese television manufacturers had
engaged in a 20-year pricing conspiracy that was
designed to drive U.S. electronics equipment
manufacturers out of business. The Court discouraged
claims that rested on ambiguous CIRCUMSTANTIAL
EVIDENCE or lacked “economic
rationality,” suggesting that lower courts settle
these by SUMMARY JUDGMENT.
The 1990s
Once again proving that antitrust law never
remains static, the late 1980s and early 1990s
brought more changes in enforcement, economic
analysis, and court doctrine. At the state
level in the late 1980s, governments attacked
mergers and restraints. The U.S. Supreme Court
gave these efforts support in California v. American
Stores Co., 495 U.S. 271, 110 S. Ct. 1853, 109
L. Ed. 2d 240 (1990), upholding the ability of
state governments to break up illegal mergers.
Another trend came again from academia,
where, for years, critics of the CHICAGO SCHOOL
had been re-evaluating its highly influential efficiency
model. They concluded that a proper
analysis of efficiency goals showed that efficiency
demanded tighter antitrust controls, not
stubborn non-intervention.
An important 1992 U.S. Supreme Court case
seemed to support this view. Eastman Kodak Co.
v. Image Technical Services, 504 U.S. 451, 112 S.
Ct. 2072, 119 L. Ed. 2d 265 (hereinafter Kodak),
concerned tying arrangements (i.e., contracts
between buyer and seller that restrict competition)
in the sale and service of photocopiers.
Kodak sold replacement parts only to buyers
who agreed to have Kodak exclusively service the
machines, and the restriction prompted a lawsuit
from 18 independent service organizations
(ISOs). The company defended itself by arguing
that even if it did monopolize the market, it
lacked the necessary market power for a Sherman
Act violation. The Court rejected the idea
that this was enough to create a legal rule that
equipment competition precluded any finding
of monopoly power in the parts and services industry. In declaring Kodak’s arrangement to
be illegal, Justice HARRY A. BLACKMUN warned
about the dangers of relying on economic theory
as a substitute for “actual market realities”—
in this case, the harm done to ISOs who were
shut out of the service market.
After the Reagan years, antitrust attitudes
sharpened in Washington, D.C. The administration
of President GEORGE H. W. BUSH adopted a
slightly more activist approach, which was
reflected in joint guidelines on mergers, issued
in 1992 by the FTC and DOJ. In following the
trend away from strict Chicago School efficiency
standards, the guidelines looked more closely at
competitive effects and tightened requirements.
But understaffed government attorneys generally
lost court cases. President BILL CLINTON
took this activism further. Anne K. Bingaman,
his appointee to head DOJ’s Antitrust Division,
beefed up the division’s staff with 61 new attorneys,
declaring her organization to be the competition
agency. The Antitrust Division filed 33
civil suits in 1994, roughly three times the
annual number that had been brought under
Reagan and Bush. It won some victories without
going to court, in one instance compelling
AT&T to keep a subsidiary private, but it lost a
major lawsuit in which it had claimed that General
Electric had conspired with the South
African firm of DeBeers to fix industrial diamond
prices.
Under President Clinton, the most important
antitrust actions involved federal probes of
the computer microprocessor giant Intel Corporation
and the computer software giant
Microsoft Corporation. In 1999, the FTC settled
a year-old lawsuit against Intel by entering a
CONSENT DECREE under which Intel agreed to
cease retaliating against customers during
INTELLECTUAL PROPERTY disputes over microprocessor
technology. In its 1998 lawsuit, the
FTC claimed that Intel had illegally cut off shipments
of its microprocessor chips and withheld
technical information regarding microprocessors,
to coerce its competitors (Intergraph
Corp., the former Digital Equipment Corp., and
Compaq Computer Corp., which acquired Digital
in 1998) to give up their microprocessor
technology. Intel did not dispute most of the
facts underlying the allegations, but it insisted
that it had acted legally.
However, the Microsoft probe, in its potential
for far-reaching action, was the biggest
antitrust case since those involving AT&T and
IBM. Competitors complained that Microsoft
had been using illegal arrangements with buyers
to ensure that its Windows operating system
would be installed in nearly 80 percent of the
world’s computers. In-depth investigations by
the FTC and DOJ followed. In July 1994, under
threat of a federal lawsuit, Microsoft entered a
consent decree that was designed to increase
competitors’ access to the market. The following
year, Microsoft launched its popular Windows
95 operating system with an upgraded version of
its Internet Explorer Web browser, two products
that the software maker said were integrally
related.
Over the next two years, the federal government
received fresh complaints that Microsoft
was again resorting to anti-competitive practices.
DOJ responded by suing Microsoft in the
U.S District Court for the District of Columbia,
alleging that the software maker had violated the
1994 consent decree by forcing computer makers
to install its Internet Explorer Web browser
as a pre-condition to the computer makers having
the right to sell their PCs with the Windows
95 operating system included. Two months later
U.S. District Judge Thomas Penfield Jackson
issued a preliminary injunction forcing
Microsoft to stop, at least temporarily, requiring manufacturers who sell the Windows operating
system to install Microsoft’s Internet Explorer,
an arrangement that he called an illegal tying
agreement. United States. v. Microsoft Corp., 980
F.Supp. 537 (D.D.C. 1997). Fueled in part by
Jackson’s ruling, DOJ joined 20 state attorneys
general in May 1998 to bring suit against
Microsoft, charging that the software maker’s
illegal bundling of Internet Explorer with Windows
95 violated federal antitrust laws and state
unfair-competition statutes. The following
month, a three-judge panel for the U.S Court of
Appeals for the District of Columbia overturned
the preliminary INJUNCTION that Judge Jackson
had issued to enforce the consent decree, thus
making way for the parties to resolve their dispute
in the joint suit brought by DOJ and the
state attorneys general. United States v. Microsoft
Corp., 147 F.3d 935 (D.C. Cir. 1998).
On October 19, 1998, trial began in the
antitrust suit against Microsoft. Less than a
month later, Judge Jackson had issued a preliminary
finding that Microsoft was exercising illegal
monopoly power in the operating-system
market, and that the software maker had been
using that power to promote its web browser
and to stifle competition through illegal
bundling of the two products. United States v.
Microsoft Corp., 84 F.Supp.2d 9 (D.D.C. 1999).
Jackson issued his final decision in April of 2000.
The judge not only reiterated his preliminary
findings, but also concluded that the same facts
that demonstrated that Microsoft had unlawfully
leveraged its operating-system monopoly
to push rival web browsers out of the market in
violation of federal law also established
Microsoft’s liability under analogous state
antitrust provisions. United States v. Microsoft
Corp., 97 F.Supp.2d 59 (D.D.C.2000).
Later that month, the court proceeded to the
remedy phase of the trial. DOJ and 18 state
attorneys general (two attorneys general had
since dropped out of the suit) asked the judge to
break the company into two parts: one company
to develop and market the Windows operating
system, and the other to develop Microsoft’s
software, including its web browser. On June 7,
2000, Judge Jackson granted the requested remedy,
and Microsoft appealed. The court of
appeals reversed, finding that Jackson had erroneously
applied a per se analyses in making his
findings instead of the appropriate “rule of reason”
standard. United States v. Microsoft Corp.,
253 F.3d 34 (D.C. Cir., 2001). The appellate
court then remanded the matter for further proceedings,
but ordered Judge Jackson removed
from the case after he made extra-judicial comments
to the press in violation of ethical canons
forbidding judges from commenting on the
merits of a pending case. Upon remand, Judge
Colleen Kollar-Kotelly was selected to replace
Jackson.
In September 2001, DOJ announced that it
would no longer seek a breakup of Microsoft,
and agreed to commence negotiations to settle
the lawsuit. Those negotiations bore fruit in
October 2001, when DOJ and nine states
announced that they had reached a tentative settlement
with Microsoft. Ultimately approved by
Judge Kollar-Kotelly on November 1, 2002, the
settlement prevents Microsoft from participating
in exclusive deals that could hurt competitors;
requires Microsoft to offer uniform
contract terms to PC makers; and obliges the
software giant to release some technical information
so that software developers can write
programs for Windows that work as well as
Microsoft’s own products do. The settlement
agreement also compels Microsoft to give manufacturers
and customers a way to remove certain
Microsoft icons from the Windows desktop.
In the court’s order approving the settlement,
the judge expressly reserved the right to reopen
the case herself if she ever suspects Microsoft of
violating the settlement’s terms. United States v.
Microsoft, 231 F.Supp.2d 144 (D.D.C., Nov 01,
2002). To demonstrate its GOOD FAITH,
Microsoft immediately unveiled several business
and product changes to comply with the settlement,
including Windows functionality that
gives users the ability to hide Microsoft programs
like its Web browser and only see competing
products.

After the court approved the settlement,
seven of the nine remaining non-settling states
agreed to drop their lawsuits when Microsoft
offered to pay them $25 million in attorney’s
fees. Two states, Massachusetts and West Virginia,
are continuing to fight, asking the court to
impose tougher sanctions. They want Microsoft
to put Internet Explorer into the public domain,
to translate its Office productivity suite to other
operating systems, and to let computer makers
remove some Windows features.

FURTHER READINGS
Dabbah, Maher M. 2003. The Internationalisation of
Antitrust Policy. New York: Cambridge Univ. Press.
Evans, David S., ed. 2002. Microsoft, Antitrust and the New
Economy: Selected Essays. Boston: Kluwer Academic.
Fundamentals of Antitrust Law (serial).New York: Aspen Law
& Business.
Hylton, Keith N. 2003. Antitrust Law: Economic Theory and
Common Law. New York: Cambridge Univ. Press.
Posner, Richard A. 2001. Antitrust Law. 2d ed. Chicago: Univ.
of Chicago Press.

CROSS-REFERENCES
Chicago School; Clayton Act; Corporations; Justice Department;
Mergers and Acquisitions;Monopoly; Posner, Richard
Allen; Restraint of Trade; Robinson-Patman Act; Sherman
Anti-Trust Act; Unfair Competition.