I fought the law, and Microsoft won
 

President Reagan signed secret orders permitting the covert sale of arms to Iran--and became embroiled in the second great -gate scandal. Liberal dairy farmers Ben and Jerry signed an agreement with Merry Pranksters Jerry Garcia and company, letting the milkmen call their new ice cream flavor Cherry Garcia. But the forces of nature took the cake--the first supernova visible to the naked eye since 1604 showed up in the sky in February.

What happened to Paperback Software and Mosaic?
Both companies disappeared.
What happened to Lotus Development?
The company won a pile of lawsuits, and then was bought up in a hostile takeover by IBM, where it now exists as a subsidiary.
What happened to Digital Research?
CP/M died on the vine, but Digital Research continued to produce good DOS until it was bought by Novell in 1991. Sadly, DR-DOS couldn't compete in the Microsoft-dominated market.
1987
Lotus Development files a lawsuit against Paperback Software and Mosaic because their spreadsheets look and operate like Lotus 1-2-3. Lotus wins. This marks the first of the big "look and feel" lawsuits and prevents Microsoft from using any trash-canlike icon on its desktop for eight years, because that would make it actionably similar to Mac OS.

Microsoft announces and ships Windows 2.0, which goes on to sell 1 million copies (many of them bundled with a Microsoft Mouse). The MS-DOS Executive continues as the file management program of choice.

In this same period, IBM and Microsoft ship a new joint-venture graphical operating system called OS/2; it's intended to replace Windows and DOS altogether.

The first version of Microsoft/IBM's OS/2 ships.

Bill in 1987

1988
Apple launches a look-and-feel lawsuit against Microsoft and Hewlett-Packard because Windows 2.03 and HP's NewWave application resemble the Macintosh's operating system. NewWave runs on top of Windows (which runs on top of DOS) and adds such features as a trash can icon that contains deleted files. Hewlett-Packard drops the NewWave, but Microsoft holds on until 1993, when it eventually wins.

MS-DOS Executive
MS-DOS Executive.

Microsoft breaks with the tradition of releasing new products with sequential numbering. The upgrade to Windows 2.0 isn't called Windows 2.1; instead, the company releases two versions, Windows 286 and Windows 386, named after the Intel chips they run on. This marks the first case of a splintering Windows market, eventually leading to the flavors CE, NT, and 95.

Microsoft and IBM release OS/2 2.1 with a new graphical interface called Presentation Manager.

Take me to '89-'91; the legal wrangles continue next