In its 2008
annual report, Microsoft stated:
Antitrust In the 1990s, Microsoft adopted exclusionary licensing under which PC manufacturers were required to pay for an MS-DOS license even when the system was shipped with an alternative operating system. Critics attest that it also used predatory tactics to price its competitors out of the market and that Microsoft erected technical barriers to make it appear that competing products did not work on its operating system. A Microsoft purchase of
Intuit was scuttled in 1994 due to antitrust concerns that Microsoft would be purchasing a major competitor. After bundling the
Internet Explorer web browser into its
Windows operating system in the late 1990s (without requiring a separate purchase) and acquiring a dominant share in the web browser market, the
antitrust case
United States v. Microsoft was brought against the company. In a series of rulings by judge Thomas Penfield Jackson, the company was found to have violated its earlier consent decree and abused its monopoly in the desktop operating systems market. The "findings of fact" during the antitrust case established that Microsoft has a
monopoly in the PC desktop operating systems market: Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows. (III.34) The findings of fact go on to explain the nature of the "barrier to entry": The judge who decided the original case
was removed from the decision concerning the penalty due to public statements, and replaced by a judge more sympathetic to Microsoft. While new penalties were under consideration, the Clinton administration ended and the Bush administration took office. The new administration announced that in the interest of ending the case as quickly as possible, it would no longer seek to break the company up, and that it would stop investigating claims of illegal tying of products. Eighteen days later, Judge Kollar-Kotelly ordered the justice department and Microsoft to "engage in discussions seven days a week, 24 hours a day." The judge cited the events of September 11, 2001, in her direction to begin settlement talks but did not explain the linkage between the two. Attorney General Ashcroft, however, denied that the events of September 11 had any effect on the outcome. Microsoft subsequently reached a settlement with the
Department of Justice and some of the states which brought suit against it. Several
class-action lawsuits filed after the conviction are still pending. In early 2002, Microsoft proposed to settle the private lawsuits by donating $1 billion (~$ in )
USD in money, software, services, and training, including Windows licenses and refurbished PCs, to about 12,500 underprivileged public schools. This was seen by the judge as a potential
windfall for Microsoft, not only in educating schoolchildren on Microsoft solutions but also in flooding the market with Microsoft products. Among the protesters were
Apple Inc. which feared further loss of its educational market share. The federal judge rejected the proposed settlement. In 2003 to 2004, the
European Commission investigated the bundling of
Windows Media Player into Windows, a practice which rivals complained was destroying the market for their own products. Negotiations between Microsoft and the Commission broke down in March 2004, and the company was subsequently handed down a record fine of €497 million ($666 million) for its breaches of EU competition law. Separate investigations into alleged abuses of the server market were also ongoing at the same time. On December 22, 2004, the European Court decided that the measures imposed on Microsoft by the European Commission would not be delayed, as was requested by Microsoft while waiting for the appeal. Microsoft has since paid a €497 million fine, shipped versions of Windows without
Windows Media Player, and licensed many of the protocols used in its products to developers in countries within the
European Economic Area. However, the European Commission has characterized the much delayed protocol licensing as unreasonable, called Microsoft "non-compliant" and still violating antitrust law in 2007, and said that its
RAND terms were above market prices; in addition, they said
software patents covering the code "lack significant innovation", which Microsoft and the EC had agreed would determine licensing fees. Microsoft responded by saying, that other government agencies had found "considerable innovation". Microsoft appealed the facts and ruling to the European Court of First Instance with hearings in September 2006. In 2000, a group of customers and business filed a
class action suit in
Comes v. Microsoft Corp., alleging that Microsoft violated
Iowa's antitrust laws by engaging in
monopolistic practices. In 2002, the
Iowa Supreme Court ruled that indirect purchasers (consumers who purchased computers from a third-party, with Microsoft's software pre-installed in the computer) could be included as members of the class in the class action suit. On
remand, the trial court certified two classes of plaintiffs, and the Iowa Supreme Court ultimately affirmed the class certification. In August 2007, the parties ultimately reached a settlement valued at $179.95 million. On September 17, 2007, the EU
Court of First Instance rejected Microsoft's appeal. The court affirmed the original contested finding: All elements of Microsoft's appeal were dismissed. Microsoft accepted the judgment of the Court of First Instance and proceeded to make available
interoperability information as originally required by the European Commission. Microsoft also faced competition law in South Korea and was fined $32 million (~$ in ) in December 2005 and ordered to unbundle instant messaging, Windows Media Player and Windows Media Service, or let competitors' products take their place. Microsoft noted in their October 2005 SEC filing that they may have to pull out of South Korea, although they later denied fulfilling such a plan. Microsoft's 2006 appeal was struck down; they have another appeal pending. Microsoft also faced sanctions from
Japan Fair Trade Commission twice in 1998 when Japanese manufacturers were forced to include
Microsoft Word on new systems instead of homegrown word processor software
Ichitaro, and again in 2004 for clauses detrimental to ability of Japanese computer manufacturers to obtain a Windows OEM license. A further raid followed in 2026 on similar charges regarding cloud computing services. European antitrust regulators on February 27, 2008, fined Microsoft $1.3 billion for failing to comply with a 2004 judgment, that the company had abused its market dominance. The new fine by the European Commission was the largest it has ever imposed on an individual company, and brings the total in fines imposed on Microsoft to around $US 2.5 billion, with current exchange rates. Microsoft had previously been fined after the commission determined in 2004 that the company had abused the dominance of its Windows operating system to gain unfair market advantage. The commission imposing the new fine said, that it was because the company had not met the prescribed remedies after the earlier judgment. In July 2020,
Slack filed an antitrust complaint with the European Commission against Microsoft, alleging that Microsoft broke EU competition rules by
tying its
Microsoft Teams software to its
Microsoft 365 and Office 365 software suites. In July 2023, the European Commission formally opened an investigation into the alleged antitrust violation, and in June 2024 the European Commission announced its preliminary view that Microsoft had violated antitrust law, finding that "Microsoft may have granted Teams a distribution advantage by not giving customers the choice whether or not to acquire access to Teams" when purchasing its other software suites, and that "This advantage may have been further exacerbated by interoperability limitations between Teams' competitors and Microsoft's offerings." If the European Commission confirms its preliminary view, Microsoft potentially faces a fine of up to 10% of its annual worldwide revenue. The first decision in this antitrust case was given in 2004 citing that Microsoft withheld needed
interoperability information from rival software companies which prevented them from making software compatible with
Windows. The commission ordered Microsoft to provide this information. Microsoft agreed to this, providing the information for royalty fees of 6.85% of the licensee's revenues for the product on grounds of innovation (specifically, 3.87% for the patent license and of 2.98% for the information license). The EU found these royalty fees unreasonable and Microsoft was ordered to lower them. Microsoft complied with this, adjusting the royalty rates to 1.2% (changing the rates for the licenses to 0.7% and 0.5%, respectively) in the European Union, while keeping the rate the same for the rest of the world. The EU still saw this as an unreasonable rate, and Microsoft, two months after lowering the rates, reduced the rates yet again to a flat rate of €10,000 or a royalty of 0.4% applicable worldwide. Microsoft's royalty rates, which were deemed unreasonable for the period of 15 months between June 21, 2006, and October 21, 2007, are the cause for the fine. So far, the EU has fined Microsoft €1.68 billion in 3 separate fines in this case. This fine will go towards the European Union annual budget. European Commissioner for Competition Neelie Kroes stated that the fine was "reasonable and proportionate," as the figure could have gone up as high as €1.5 billion, the maximum that the EU commission can impose. She also said that it should act as "a signal to the outside world, and especially Microsoft, that they should stick to the rules" and that "Talk is cheap. Flouting the rules is expensive." Although she also expressed hope that "today's decision closes a dark chapter in Microsoft's record of non-compliance with the Commission." It is not certain whether Microsoft will appeal this decision. A Microsoft spokesperson has stated that Microsoft will review this latest fine, citing that "The commission announced in October 2007 that Microsoft was in full compliance with the 2004 decision, so these fines are about the past issues that have been resolved." Microsoft's General Counsel Brad Smith commented "It's clearly very important to us as a company that we comply with our obligations under European law. We will study this decision carefully, and if there are additional steps that we need to take in order to comply with it, we will take them." Microsoft had appealed against fines by the EU before, but all the charges were defeated. If Microsoft does not appeal the decision, the company will have 3 months (starting February 27) to pay the fine in full. The decisions came after Microsoft announced they were disclosing 30,000 pages of previously secret software code last Thursday (February 21). The EU competition commissioner commented that this move "does not necessarily equal a change in business practice."
Spanish antitrust investigation In September 2011, the competition commission in
Spain began an investigation into Microsoft's licence agreements, which prevent the transfer of Microsoft software to third parties.
United States United States v. Microsoft Corp.,
87 F. Supp. 2d 30 (
D.D.C. 2000) was a set of consolidated civil actions filed against
Microsoft Corporation on May 18, 1998, by the
United States Department of Justice (DOJ) and twenty U.S. states.
Joel I. Klein was the lead prosecutor. The plaintiffs alleged that Microsoft abused
monopoly power in its handling of
operating system sales and
web browser sales. The issue central to the case was whether Microsoft was allowed to bundle its flagship
Internet Explorer (IE) web browser software with its
Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft's victory in the
browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this unfairly restricted the market for competing web browsers (such as
Netscape Navigator or
Opera) that were slow to download over a modem or had to be purchased at a store. Underlying these disputes were questions over whether Microsoft altered or manipulated its
application programming interfaces (APIs) to favor Internet Explorer over third party web browsers, Microsoft's conduct in forming restrictive licensing agreements with
OEM computer manufacturers, and Microsoft's intent in its course of conduct. Microsoft stated that the merging of Microsoft Windows and Internet Explorer was the result of
innovation and
competition, that the two were now the same product and were inextricably linked together and that consumers were now getting all the benefits of IE for free. Those who opposed Microsoft's position countered that the browser was still a distinct and separate product which did not need to be tied to the operating system, since a separate version of Internet Explorer was available for
Mac OS. They also asserted that IE was not really free because its development and marketing costs may have kept the price of Windows higher than it might otherwise have been. The case was tried before
U.S. District Court Judge
Thomas Penfield Jackson. The DOJ was initially represented by
David Boies. On June 30, 2004, the U.S. appeals court unanimously approved the settlement with the Justice Department, rejecting objections that the sanctions were inadequate. ====Acquisition of
Activision Blizzard==== On January 18, 2022,
Microsoft announced its intent to acquire
Activision Blizzard for $68.7 billion in cash. Under the terms of the agreement, which was finalized on October 13, 2023, Microsoft would own
Activision,
Blizzard Entertainment, and
King under the
Microsoft Gaming umbrella. The acquisition proposal itself has reignited antitrust concerns targeted at Microsoft, with mixed reactions from international regulators and rival companies. In December 2022, Microsoft faced a legal action by customers against the acquisition under
Clayton Antitrust Act of 1914.
Usage of Microsoft Office 365 and Teams in schools and governmental institutions The Court of Justice of the European Union on 16 July 2020 had ruled that "it is illegal to send private data from the EU to the US" Microsoft Office 365 had been banned from several schools in Europe over privacy concerns. In March 2024, the
European Data Protection Supervisor (EDPS) found that the use of Microsoft 365 by the
European Commission (EC) violated "several key data protection rules" of the
EU Regulation 2018/1725 that defines privacy rules for EU institutions. The EC was ordered by the EDPS to suspend all Microsoft 365 related data flows that violated the rules.
Tax disputes In 2007, the
Internal Revenue Service began investigating Microsoft over allegations that the company may have transferred some software rights to its international subsidiaries in an effort to evade paying tax to the United States. In 2014, after Microsoft was held in
contempt of court after refusing to hand over the required foreign data, Microsoft filed a Freedom of Information request on September 22, 2014, regarding a contract between law firm
Quinn Emmanuel Urqhart and Sullivan and the IRS; when IRS did not respond within the required 20 day period (the IRS responded by saying it needed an extension, but after the time elapsed did not provide the requested information) Microsoft filed a lawsuit against the IRS in November.
Other In March 2004, during a consumer class-action lawsuit in Minnesota, internal documents subpoenaed from Microsoft revealed that the company had violated nondisclosure agreements seven years earlier in obtaining business plans from
Go Corporation, using them to develop and announce a competing product named PenWindows, and convincing Intel to reduce its investment in Go. After Go was purchased by
AT&T and Go's tablet-based computing efforts were shelved, PenWindows development was dropped. In May 2004, a class-action lawsuit accused Microsoft of overcharging customers in the state of California. The company settled the case for $1.1 billion, and a California court ordered Microsoft to pay an additional $258 million in legal fees (including over $3,000 per hour for the lead attorney in the case, more than $2,000 per hour for colleagues, and in excess of $1,000 per hour for administrative work). A Microsoft attorney responded, "Somebody ends up paying for this. These large fee awards get passed on to consumers." The total bill for legal fees was later reduced to just over $112 million. Because of the structure of the settlement, the law firm which sued Microsoft could end up getting more money from the company than California consumers and schools, the beneficiaries of the settlement. In 2006, Microsoft initiated an investigation of
Lithuanian government institutions for determining whether they choose long-term strategies of the software they use correctly. The investigation, funded by Microsoft itself, will be performed by the
Vilnius University together with the Lithuanian Institution of the Free Market, a
think tank organization. The investigation was initialised after the government started to prepare 860 thousand litas project to encourage the use of open-source software. The vice-president of Microsoft, Vahe Torossian, stated that "the government should not be technologically subjectivist". Microsoft was sued for the "Windows Vista Capable" logo and in
Iowa.
Microsoft Word was also a subject of court case. On July 12, 2013, Microsoft is suing the U.S. Customs and Border Protection over Google phone ban. Homeland Security Secretary Janet Napolitano is also named in the lawsuit. ==Private==