Microsoft's ambitions are anything but small. The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office Suite software. The company has expanded into markets such as video game consoles, interactive television, and Internet access. With its core markets maturing, Microsoft is targeting services for growth, looking to transform its software applications into Web-based services for enterprises and consumers. Microsoft has reached a tentative settlement to end an ongoing antitrust investigation, agreeing to uniformly license its operating systems and allow manufacturers to include com

When it rains, it pours. The Associated Press headline and story lead-in of January 2001, announcing Jackson v. Microsoft, must have caused the hearts of anti-trust-weary Microsoft supporters to skip a beat: “New Trouble for Microsoft: Software Giant Facing Discrimination Suit. The suit . . . asks for 5 billion” (New trouble, 2001). Just a few months earlier, the NewsFactor Network announced another discrimination suit, Donaldson v. Microsoft, with the potential for damages in the billions of dollars.

Microsoft Lawsuit Pits Johnnie Cochran vs. Bill Gates: Two of the most influential teams of attorneys practicing in the civil rights arena have joined their suits against Microsoft Corp. alleging a pattern of racial and sexual discrimination against African-Americans and female employees. Hundreds more may join the suit (Durham-Vichr, 2001).

The issue that concerns the SEC is the revenue recognition policy that Microsoft has implemented. Upon release of Windows 95 operating system, Microsoft changed the way they accounted for their revenues. Beforehand, they recognized revenues upon shipment of their product. However, since integrating its Internet technologies into an existing product at no additional costs, they thought it appropriate to recognize only 80% upfront and the remaining 20% as the unearned revenue to be recognized over the life of the product. The unearned revenue was to represent subsequent deliverables such as browsers, product support, future upgrades, and possible bug fixes. When any of these items were made available, Microsoft would debit the unearned revenue from their records. This sounds like a legitimate reason and a reasonable percentage to use when one first views the situation. However, not all of the unearned revenue was debited over the life of the product.

But appearances can deceive. In Donaldson v. Microsoft, the court concluded that the plaintiffs “failed to establish the existence of a class of persons sharing any common claim of discrimination.” In addition, the court stated, they failed “to come forward with some evidence of either disparate treatment or disparate impact arising from the implementation of the [evaluation ratings] system”, the issue at the center of the plaintiff’s allegations (Donaldson v. Microsoft, 2001, p. 11). The Jackson v. Microsoft case, on the other hand, was never decided on its merits because of a successful motion to dismiss by Microsoft. But in view of the close similarity of the two cases and the fact that both were heard in the same court, it appeared reasonable to assume the likelihood of a similar outcome. In Microsoft’s words, “the court concluded that the plaintiffs did not demonstrate that there was any pattern or practice of race or gender discrimination at Microsoft” (Microsoft’s response, 2001).

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