As a legal drama, the showdown between Microsoft Corp. and the government that begins Monday in a Washington, D.C., courtroom comes along perhaps once in a generation.
It pits the world’s richest man, running the most successful company of the ’90s, against the law enforcement might of the U.S. government, 20 states and the District of Columbia. Egging them on are a slew of Bill Gates’ most bitter rivals, themselves among the wealthiest, most willful men in the country. The result will be one of the biggest antitrust trials of the century.
Gates isn’t expected to take the stand, but the contentious Microsoft chairman and CEO may appear in a videotape of his pretrial testimony.
Subpoenaed memos and e-mails and deposed recollections in the case demonstrate that, stereotypes notwithstanding, technology geeks are as given to powermongering, intrigue and revenge as anyone else.
But all of that may be a sideshow.
As compelling as the display of the cyber-elite’s soiled laundry is likely to be, the lasting importance of the Microsoft case may lie in how it answers this question:
Who regulates and controls the software industry and the Internet?
Much has been made of the wealth created by the high-tech sector of the economy during a decade of laissez faire market regulation. But Microsoft’s growing muscle, together with the increasing importance of technology companies to national prosperity, has led to calls for greater government vigilance.
The government charges Microsoft with illegally preserving a monopoly in operating systems and using that monopoly to try to grab the lion’s share of the market for browsers, the software that lets a computer user pilot through the Internet.
Government lawyers are a long way from winning, and many observers think their suit was critically weakened by an adverse ruling in a related case early this summer.
Nevertheless, the government recently filed papers seeking a hearing for unspecified “permanent relief,” if it should prevail.
Some observers think the filing signals a possible request for the court to break up Microsoft–which vies with General Electric Co. as America’s most valuable company in terms of market capitalization–just as courts did to Standard Oil Co. in 1912, when it was the nation’s corporate titan.
But a source connected with the government’s case said discussions about corrective action are premature: “We’re not looking to break up the company. It is certainly one of the potential remedies, but we are not emphasizing one over another. We’ve done a lot of thinking about corrective action and we won’t know what the remedy is until we know what the violations are.”
Microsoft’s Windows operating system serves as the central nervous system on more than 80 percent of all personal computers in the U.S., but the 23-year-old Redmond, Wash.-based company resolutely denies possessing a monopoly.
In what is likely to be one of the undergirding themes of its defense, Microsoft insists that it merely has a large market share built the old-fashioned way: by being better than anyone else at giving fickle consumers what they want.
“History has shown that high market shares in computer software are vulnerable and susceptible to rapid deterioration, should the market leader fail to continue innovating at a rapid and competitive pace,” the company said in a recent position paper on competition in the software industry.
Already, the case, filed jointly on May 18 by the Department of Justice, 20 states including Illinois, and the District of Columbia, has undergone one dramatic shift in emphasis.
In early briefings, government attorneys emphasized elements of the suit detailing Microsoft’s hardball tactics in the so-called browser wars with Netscape Communications Corp., among them the practice of bundling the Microsoft Internet Explorer browser into Windows and treating it as a single product.
Since a computer is useless without an operating system, and computer-makers are almost totally reliant on Windows, bundling has made them an automatic distribution channel for the Microsoft browser.
Antitrust officials claimed that Microsoft’s refusal to offer an operating system without a browser rolled in was a ploy to force Internet Explorer on consumers.
In late June, the U.S. Court of Appeals decided that Microsoft was within its rights to package the browser with the operating system. “Antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross purposes with antitrust law,” the appeals panel ruled.
Ever since then, Microsoft has argued that the heart of the government’s case is kaput.
“We believe that central elements of the government’s claim have been refuted by the factual record and the recent appeals court decision,” Microsoft’s senior vice president for law and corporate affairs, William H. Neukom, said in the wake of the opinion.
Publicly at least, company executives are taking a bet-the-farm stance, insisting they have no contingency plans for reconfiguring their products if they lose the case.
But while Microsoft has maintained a hard-line position, the scope of the government’s case has evolved so that Netscape now is the starting point for a far bigger story of how Microsoft shoved aside or bullied fellow corporate giants to bolster the fortunes of its operating system and browser.
The government witness list starts with Netscape CEO James Barksdale, but also includes senior executives from America Online Inc., Sun Microsystems Inc., Intuit Inc., Intel Corp., IBM Corp. and Apple Computer Corp., all of whom are expected to testify to unsavory proposals from Microsoft, or soured dealings with the software behemoth. (Tribune Co., the parent of this newspaper, owns 1 percent of America Online stock).
The tentacles of the government’s case, fleshed out in a summer of discovery, involve allegations that Microsoft:
– Tried to sabotage Sun’s Java programming language by developing a Windows-dependent version.
– Imposed exclusionary contracts on Internet content and service providers like AOL.
– Pressured Intuit, the maker of popular personal-finance software, to drop support for Netscape’s Navigator browser.
– Pressured Apple and Intel to back off development of audio/video software that would compete with Microsoft products.
Among the most sensational allegations is that in 1995, Microsoft leaned on Netscape to collaborate in a division of the browser market. Microsoft describes those discussions as merely an attempt “to explore ways in which the two companies could work together to improve their respective products.”
Furthermore, Microsoft insists that the declining fortunes of Netscape’s Navigator browser–which slipped from more than 75 percent of the market to around 50 percent in less than two years–are due not to unfair competition, but to the Mountain View, Calif.-based company’s own bumbling.
In court papers and interviews, Microsoft executives bounce between derision and bitter complaint about the evolving breadth of the government’s case, which it now characterizes as straw-grabbing desperation.
“It was supposed to be surgical intervention,” said Charles Rule, a Microsoft consultant and former Justice Department antitrust lawyer. “The bottom line is that the case that they appear to be ready to go to trial with bears little resemblance to what they started out with in May.”
Legal and academic observers tracking the suit are divided about the impact of the appeals ruling allowing the browser-operating system coupling.
“I think the government’s case has been weakened significantly,” said Alan Silberman, an antitrust attorney with Sonnenschein Nath & Rosenthal of Chicago. The remainder of the case is “far more technical,” Silberman said. “Anywhere the judge does not see a traditional, broad consumer issue, I think the government has a much tougher row to hoe.”
But another view is that there are worthy elements to the government’s case that simply were overlooked in initial assessments.
“The government had more cards in the deck than the public or the media understood, because the issue that was easiest to understand and that came up first was the browser,” said Terry Moritz, an attorney with Chicago-based Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz.
Indeed, Netscape, because of its willingness to speak out, is a kind of media lightning rod for many alleged Microsoft excesses. But the government suit also mentions collisions with Sun, Intuit and AOL, albeit fleetingly.
“You don’t have to plead all of your evidence when you file a case,” said New York University law professor Eleanor M. Fox. “The government probably didn’t have all of the evidence. They went to discovery and they found it.”
The case will be heard without a jury by Judge Thomas Penfield Jackson.
It was one of Jackson’s orders in that case that was overturned by the appeals court.
That reversal may have provided useful guidance for the government and in particular for Jackson, according to Shane Greenstein, associate professor of management and strategy at Northwestern University’s J.L. Kellogg Graduate School of Management.
“You’ve got to believe he understood the signal, that if you can’t find very traditional antitrust lines, you’re going to get reversed,” Greenstein said.
Despite the hype surrounding the case, its ultimate impact may rest on how quickly it is settled.
Big antitrust cases tend to move slowly. The suit leading to the 1984 breakup of AT&T Corp. lasted eight years, and a complaint against International Business Machines went on for a siege-like 13 years before the government dropped it as technologically irrelevant in 1982.
Those time frames are eons in the development of the Internet, which was virtually unknown except to university researchers at the beginning of the decade.
At least once before Microsoft has outlasted investigators. From 1990 to 1994, the government probed the way Microsoft charged computer-makers for MS-DOS, a predecessor of Windows. By the time Microsoft signed a consent decree altering its pricing policy, MS-DOS had built up its market share, to the detriment of a rival operating system, Novell Inc.’s DR DOS.
The need for speedy resolution is not lost on the government. Its chief litigator in the Microsoft case is David Boies, the architect of IBM’s successful decade-plus defense by delay.
It may be, however, that the laws written more than 100 years ago to curb the ponderous grasping of railroads and oil companies need updating to keep up with companies like Microsoft and its rivals, which operate in an environment where fortunes accumulate, or vanish, in the blink of an eye.
“There is this `only the paranoid survive’ aspect” in the high-tech world, said Northwestern’s Greenstein. The benefit of running scared is that “it keeps people from becoming complacent, it keeps them innovative and forward-thinking. The drawback is that occasionally, they believe their own rhetoric, their own press clippings and they go too far. And on some level that is bad for society. The question is, how do you keep the good part and get rid of the bad part? “
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ON THE INTERNET: Get previous coverage of the case, find links to court documents and submit questions to a cyberlaw expert at chicagotribune.com/go/microsoft
