In late 1997 the Justice Department accused Microsoft of violating the 1994 agreement by requiring computer manufacturers that installed Windows 95 to also include Internet Explorer, Microsoft’s software for browsing the Internet. The government contended that Microsoft was illegally taking advantage of its power in the market for computer operating systems to gain control of the market for Internet browsers. In response, Microsoft argued that it should have the right to enhance the functionality of Windows by integrating Internet-related features into the operating system.
Also in late 1997, computer company Sun Microsystems sued Microsoft, alleging that it had breached a contract for use of Sun’s Java universal programming language by introducing Windows-only enhancements. In November 1998 a federal district court ruled against Microsoft on an injunction filed by Sun earlier that year. The injunction forced Microsoft to revise its software to meet Sun’s Java compatibility standards. The two companies settled the case in 2001, with Microsoft agreeing to pay Sun $20 million for limited use of Java. However, in 2002 Sun filed an antitrust suit seeking $1 billion in damages against Microsoft after Microsoft announced it planned to stop using Java.
Microsoft temporarily settled with the Justice Department in its antitrust case in early 1998 by agreeing to allow personal computer manufacturers to offer a version of Windows 95 that did not include access to Internet Explorer. However, in May 1998 the Justice Department and 20 states filed broad antitrust suits charging Microsoft with engaging in anticompetitive conduct. The suits sought to force Microsoft to offer Windows without Internet Explorer or to include Navigator, a competing browser made by Netscape Communications Corporation. The suits also challenged some of the company’s contracts and pricing strategies.
The federal antitrust trial against Microsoft began in October 1998. Executives from Netscape, Sun, and several other computer software and hardware companies testified regarding their business deals with Microsoft. In November 1999 Judge Thomas Penfield Jackson issued his findings of fact in the antitrust case, in which he declared that Microsoft had a monopoly in the market for personal computer operating systems. In 2000 Jackson ruled that the company had violated antitrust laws by engaging in tactics that discouraged competition. He ordered Microsoft to be split into two companies: one for operating systems and another for all other businesses, including its Office software suite. He also imposed a number of interim restrictions on the company’s business practices. The judge put these penalties on hold while Microsoft appealed the decision.
In June 2001 an appeals court upheld Jackson’s findings that Microsoft had monopoly power and that the company used anticompetitive business practices to protect its Windows monopoly. However, the appeals court threw out the trial court’s ruling that Microsoft had illegally integrated Internet Explorer into Windows, returning the issue to a lower court for review under a different legal standard. The appeals court also reversed Jackson’s order to break up the company, in part because of the judge’s failure to hold a proper hearing on the remedy and in part because of comments he made to reporters outside the courtroom about the merits of the case. The court found that Jackson’s comments were improper because they created the appearance of bias, even though the court found no evidence of actual bias. The appeals court ordered that the case be assigned to a different district court judge to reconsider the remedy for Microsoft’s violations of antitrust law.