Baby Bills

Baby Bills

Investopedia / Ryan Oakley

What are Baby Bills?

Baby Bills is a nickname for the smaller companies Microsoft (MSFT) would have been broken into if Microsoft had been forced to dissolve after having been found guilty of violating antitrust laws in 1999.

In 2000, a judge ordered Microsoft to break apart into smaller companies, but an agreement was reached in 2001 that allowed Microsoft to stay intact as a single company. The phrase Baby Bills was a portmanteau of Baby Bells and Bill Gates, or a collection of smaller companies resulting from Bill Gates: babies of Bill.

Key Takeaways

  • Microsoft wasn't required to break up in 2000, but if it had been the smaller companies that would have resulted are referred to as Baby Bills.
  • This was only one of the multiple major legal battles Microsoft has been involved in over the years.
  • The term relates to smaller firms (babies) of Bill Gates, and a throwback to when "Ma Bell" was forced to disband in 1982 resulting in "Baby Bell" companies.
Baby Bills History

Investopedia / Alison Czinkota

Understanding Baby Bills

Baby Bills is a joke nickname for the companies software giant Microsoft would have been required to split up into had the antitrust order of June 7, 2000 stood.

In 1990, the Federal Trade Commission (FTC) began an investigation into whether Microsoft had a monopoly on operating systems for PC computers. In 1993 the FTC deadlocked on whether Microsoft had abused its monopoly, but at the same time the Department of Justice (DOJ), opened its own investigation into Microsoft as a monopoly and whether or not the company was exploiting the monopoly.

In 1994 the DOJ ruled that Microsoft was not allowed to attach other Microsoft products to the MS operating system. In essence the DOJ was trying to limit Microsoft's monopoly power only to the operating system and prevent it from achieving monopolies in other types of products.

Microsoft was in the process of developing de facto monopolies in word processing and spreadsheet software as other products were losing market share, and the Justice was attempting to mitigate this.

Microsoft continued to bundle Internet Explorer along with the MS operating system and claimed that it was a feature and not a product. The DOJ and 21 Attorneys General sued Microsoft for this, and the trial began in 1998. In 1999 Microsoft was found guilty of having and abusing a monopoly.

On June 7, 2000 Microsoft was ordered to break up into smaller companies, one of which would have contained the operating systems, one of which would have contained software applications, and a third of which would have had internet and ecommerce systems.

These hypothetical companies were referred to as Baby Bills. In 2001 Microsoft reached an agreement with the DOJ to open up its programming interfaces to third-party companies to develop software for the MS operating system. Microsoft was not forced to break up into smaller companies.

Meaning of ‘Baby Bills’

Baby Bills is a portmanteau of Baby Bells and Bill Gates, CEO and founder of Microsoft. Baby Bells refers to the smaller companies formed when the AT&T (T) telephone monopoly, called "Ma Bell," was ordered to disband in 1982.

Examples of Other Microsoft Legal Battles

In 2008 the European Union (EU) fined MSFT €899. The fine was related to what the EU viewed as unreasonable royalty fees MSFT charged for providing other companies with information which would make their software compatible with the Windows operating system.

The royalty fees were introduced after a 2004 antitrust case against Microsoft determined that it withheld information from other companies with the intent to limit those company's ability to make software compatible with Windows.

Microsoft began providing the necessary information to other companies, for a royalty. This royalty declined over time, under pressure from the EU, but Microsoft was still fined for the years in which the EU viewed the royalty as punitively high.

Article Sources
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  1. U.S. Department of Justice. "Memorandum Opinion: U.S. V. Microsoft Corp." Accessed Jan. 2, 2021.

  2. U.S. Department of Justice. "Complaint: U.S. V Microsoft Corp." Accessed Jan. 2, 2021.

  3. U.S. Department of Justice. "U.S. V. Microsoft: Court's Findings of Fact." Accessed Jan. 2, 2021.

  4. U.S. Department of Justice. "Department of Justice and Microsoft Corporation Reach Effective Settlement On Antitrust Lawsuit." Accessed Jan. 2, 2021.

  5. European Commission. "Antitrust: Commission Welcomes General Court judgment in Microsoft Compliance Case." Accessed Jan. 2, 2021.

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