Antitrust Law

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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 (15U.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 price-fixing, 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 inter-state 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 anti-monopoly 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 price-fixing 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. 2d568. In a decisive departure from the previous decade's rulings, the Court abandoned its hostility toward efficiency. Now, for evaluating non-price 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, 429U.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, 75L. 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, 109L. 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.