Mighty Microsoft in the Dock
GLASS, ANDREW J.
Washington-USA MIGHTY MICROSOFT IN THE DOCK By Andrew J. Glass Washington Last October 19, when the Microsoft trial began here, Justice Department antitrust chief Joel Klein stood on the...
...That somebody could be Scott McNealy, Gates' one-time Harvard buddy, who has pushed his company, Sun Microsystems, to develop Java, a technology that McNealy hopes will someday make Windows superfluous...
...On the second, the attorneys general from the 19 states that have j oined the government's suit, led by Iowa Democrat Thomas Miller, also are crafting recommendations...
...The antitrust charges lodged last May stem from Microsoft's earlier behavior in the Internet browser wars...
...Asked what he would do if he were presiding at the Microsoft trial, Federal Trade Commission Chairman Robert Pitofsky said: "The remedy is where the challenge will be...
...Boies' task was made easier by a strategy his target adopted that occasionally left U.S...
...The company would of course be free to appeal, all the way to the U.S...
...Rather, it seems set on convincing Jackson that Microsoft is an abusive monopoly, behaving in an exclusionary and predatory manner...
...That's the bottom line," says William Neukom, Microsoft's veteran general counsel, who has sat at the head of the defense table as 24 witnesses paraded by...
...Still another path would oblige Microsoft to license Windows' source code...
...Before the case was filed, we put every effort into a settlement," he answered...
...He testified that the software market remains so dynamic, Microsoft's current dominance could implode at any time—just as IBM's did in the era of mainframe computers...
...Meanwhile, the quest for effective remedies to propose should the judge decide against Microsoft is proceeding along two tracks...
...At the end of February, because of a scheduling conflict, Judge Jackson put the trial on hold until at least mid-April...
...Jackson remains free, naturally, to chart his own remedial course and to seek his own outside expert advice...
...In 85 per cent of the antitrust cases brought by the Justice Department since World War II, it has either won or has wrested a consent decree...
...Perhaps the most effective antitrust measure would be barring Microsoft from negotiating exclusive or preferenti al contracts with personal computer makers...
...It's very hard to strike that balance in high technology...
...In January, for example, economist Richard Schmalensee, acting dean of MIT's Sloan School of Management, was brought in as an expert defense witness...
...But seeking to leverage strength in one arena, such as computer operating systems, to gain supremacy in another, such as cyberspace, is strictly forbidden...
...High-tech is different," he said...
...Inside, David Boies, the government's hired top legal gun, set about picking apart Microsoft's defenses...
...SOME 95 out of every 100 personal computers being shipped today are preloaded with Microsoft Windows...
...District Judge Thomas Penfield Jackson shaking his head in disbelief at what he had just heard...
...Nevertheless, the software giant claims it lacks monopoly power...
...One can understand, though, why Bill Gates gives the impression of being a bit paranoid about his company's future...
...Under the antitrust laws, monopolies per se are not illegal...
...In developing DOS, the precursor to Windows, during the early 1980s, he did the kind of nasty turn to IBM that he fears somebody is going to do to him...
...Andrew J. Glass, a longtime contributor to The New Leader, has been covering the Microsoft trial for Cox Newspapers...
...That would put an end to the current prac - tice of forcing those who already have...
...To underscore his point, he cited the recently announced deal between Netscape Communications and America Online as proof of the fluid nature of the software business...
...The software giant hopes to avoid any civil penalties by persuading him that its actions in the marketplace, although highly aggressive, did not harm consumers...
...Still, Microsoft has relentlessly attempted to prove its vulnerability because the heart of the government's case is the company's alleged choke hold on competition...
...Appearing on a legal panel in New York, Pitofsky contended the rapid rate of change in the high-tech field makes it far harder to apply standard antitrust formulas than in such traditional sectors as oil or steel...
...But more than four months of testimony by both sides—buttressed by some 2,000 government exhibits, gleaned from 3.3 million subpoenaed documents—has yet to answer a basic question: Can a law that has been on the books for nearly 110 years deal effectively with arapidly changing industry whose value rests almost solely on intellectual property...
...One so-called "death penalty" under study would break Microsoft into several firms, with each permitted to market a different type of software...
...The notion that the government can observe this torrent of innovation in technology and decide who ought to do what in terms of the design of their products I think is foolish...
...When it resumes, each side will present three rebuttal witnesses, its closing argument, and written proposals outlining the conclusions they respectively believe the judge should draw from the facts presented...
...Investors, for their part, have yet to see Microsoft as being unduly threatened by the antitrust challenge or by industry trends...
...But there's a basic principle here: Are we allowed to make Windows into a better product...
...Since the trial began, they have bid up the value of Microsoft stock by nearly 60 per cent...
...He thinks Microsoft has a long way to go to demonstrate "that there is a realistic potential for eroding [its] market...
...That would enable rival companies to clone the operating system, and thirdparty developers could extend its overall functionality...
...It's the key to our business...
...Another would divide Microsoft into rival "Baby Bills," each of which would offer its own version of Windows, Microsoft applications and server technology...
...Jackson does not appear to be buying this line...
...The next day, at a media lunch, I asked Gates whether he had thought of striking a deal with the government...
...say, Windows 95, to pay again for the latest preloaded Windows when they buy a new machine...
...The government contends that Microsoft flouted the 1995 decree by bundling its Internet Explorer browser directly into its Windows 95 operating system, after first selling the Explorer to retailers as a stand-alone item...
...In other words, he seemed to suggest that if the crown jewel were left alone, everything else could be negotiated...
...Says Microsoft's Neukom: "We're in a very innovative business where companies reinvent themselves and their product lines on a very rapid basis...
...The stock market currently values Microsoft as being worth in excess of $350 billion, a staggering 17 times the company's book value —amounting to more than S12 million per employee...
...Whatever answer finally emerges will not be soon in coming either...
...Instead, the company's lawyers have maintained that Windows is at risk of being consumed by Linux, an operating system now freely distributed on the Internet that only computer nerds love, or Java, a rival applications platform that has yet to establish its worth...
...If he does, he is likely to turn to Harvard Law School Professor Lawrence Lessig, on whom he sought to rely in an earlier phase of the case...
...You don't want to underadminister or overadminister the law in that industry...
...Microsoft successfully challenged Lessig's appointment then as a special master...
...Beyondthat, sure, we'11 enter into a dialogue...
...Gates could bet the farm by electing to sit under the media spotlight as a rebuttal witness in April and trying to persuade Jackson that he has clean hands...
...Those ended with a consent decree signed in 1995 that was approved by Jackson...
...But that could turn out to be a bad wager...
...Supreme Court...
...I wouldn't be surprised if four years from now Microsoft's market capitalization fell from $300 billion to $ 1 billion," McNealy told me a short time ago as we shared a latenight brandy at the World Economic Forumheld annually in Davos, Switzerland...
...In some respects, the latter approach would be comparable to the 1984 breakup of AT&T...
...Albert Foer, president of the American Antitrust Institute, was not impressed...
...Former Wall Street trader MichaelMilken has observed: "Investors are so optimistic about the future income of Microsoft, a company founded less than 25 years ago, that they have given it a market capitalization about equal to the gross domestic product of Russia...
...Having produced e-mail evidence showing that William H. Gates, Microsoft's cofounder, never intended to change the way his company does business, the Justice Department does not appear to be interested in negotiating a new consent decree...
...Microsoft could have argued that it was a "good" monopolist—that it strove to improve its products, make its customers happy and keep its prices low...
...Whether these task forces will meld their ideas in a joint proposal to the judge is not yet known...
...Washington-USA MIGHTY MICROSOFT IN THE DOCK By Andrew J. Glass Washington Last October 19, when the Microsoft trial began here, Justice Department antitrust chief Joel Klein stood on the steps of the United States District Court and said: "Microsoft has used massive monopoly power to harm competition and harm consumers, to limit what products can come to market and prevent people with new and better ideas [from getting] a fair chance...
...At this stage in the trial, there is no reason to believe, after reviewing the evidence, that even the world's richest man could beat those odds...
...On one, Klein has an ad hoc panel of Justice Department and independent legal experts, plus cyber-savvy economists, weighing possible courses of action...
Vol. 82 • March 1999 • No. 3
