Microsoft Declared a Monopoly

You can tell a lot about Bill Gates' state of mind from the way he dresses. Much of the time, the chairman of Microsoft Corp. looks as though he's just rolled out of bed - his clothes are casual and rumpled, his hair is uncombed and his shoulders are speckled with dandruff.

Microsoft Declared a Monopoly

You can tell a lot about Bill Gates' state of mind from the way he dresses. Much of the time, the chairman of Microsoft Corp. looks as though he's just rolled out of bed - his clothes are casual and rumpled, his hair is uncombed and his shoulders are speckled with dandruff. But when Gates, 44, appeared at a news conference in Redmond, Wash., last week to respond to the latest in a series of legal blows against his company, his appearance was sombre and serious, more East Coast corporate lawyer than West Coast computer geek. Wearing a dark blue suit and a tailored shirt, the world's richest man tried to reassure investors and Microsoft employees that his software empire remains strong and secure, despite a ruling that it has repeatedly violated U.S. antitrust laws. Declared Gates: "We believe we have a strong case on appeal."

Gates' uncharacteristic attention to appearances underscored a central fact in the antitrust action: having dragged on for most of the past decade, the case against Microsoft is now as much about image as it is about technology and the legal definition of an abusive monopoly. The battle between Microsoft and Netscape Communications Corp. in the market for Internet browser software, the main issue in the trial, is for all intents and purposes over - Netscape having been soundly trounced (and then swallowed by another Microsoft rival, Internet giant American Online Inc.). As for the issue of monopoly, no one seriously doubts that Gates has used his control over the Windows operating system, which runs 90 per cent of the world's desktop computers, to extend Microsoft's reach into other emerging product categories. The debate really focuses on whether those tactics have, on balance, hurt consumers. The U.S. justice department says they have; many Microsoft customers, and even some of Gates' rivals, would beg to differ.

But what matters in the court of public opinion is perception, not fact, and in that sense Microsoft is paying a heavy price. From the moment U.S. federal authorities began to investigate the software giant in 1991, the company has behaved as though it was beyond the reach of politicians and regulators, implying that people in government could not possibly understand the inner workings of the high-tech industry. During the 76-day trial in Washington, which wound up last June, Microsoft executives often came across as shockingly unprepared - displaying, if not contempt, haughty disregard for the judicial system. Gates himself did enormous damage to the company's case during a videotaped deposition in which he appeared arrogant and evasive, claiming not to recall key meetings and e-mail exchanges in which he or his subordinates outlined plans to crush their competitors. Even Microsoft's staunchest supporters shook their heads at that one. How could the world's richest company, with hundreds of PR advisers and spin doctors at its beck and call, have put on such a clumsy performance at such a pivotal time?

Ironically, if anyone is winning the PR war it is Thomas Penfield Jackson, the 63-year-old federal district court judge who has become Microsoft's worst nightmare. Before the trial even began, Jackson swore that he wouldn't let United States vs. Microsoft deteriorate into a Vietnam-like morass, as happened to an earlier antitrust trial against IBM. That case extended over 13 years, by which point most Americans could not have cared less about the outcome. (Ronald Reagan ordered the case abandoned in 1982 after he assumed the presidency.) To prevent something similar from happening to Microsoft, Jackson rushed the two antagonists into court - the trial began only five months after federal and state regulators filed suit against the company - then limited each side to 12 witnesses and forced lawyers to submit much of the testimony in writing. Compared with other antitrust hearings, the trial unfolded at lightning speed.

Since then, however, the proceedings have slowed to a crawl. In what might be described as the legal equivalent of Chinese water torture, Jackson opted to split his judgment into three parts. In November, he issued his findings of fact in the case, ruling that Microsoft has monopoly power and used that power to stifle competitors. Last week, he made public his conclusions of law, stating that the company's actions violated antitrust statutes. The next step will be to decide on an appropriate penalty; the options include a court-ordered breakup of the company or a requirement that it make public the Windows source code so that rivals could offer their own versions of the popular operating system. A hearing to consider possible sanctions is set to begin on May 24.

By stretching his decision out over many months, Jackson has subjected Microsoft to successive waves of unfavourable media coverage and public scrutiny. The strategy was partly intended to put pressure on the company for an out-of-court settlement, but so far Microsoft has resisted. In late March, the company put forward a detailed proposal in which it offered to amend some of its business practices, but the document didn't come close to meeting the prosecution's demands. Government officials complained privately it was full of loopholes and escape clauses that cast doubt on Microsoft's sincerity.

Last week, Gates insisted that he remains open to a negotiated settlement. But if that was the goal, it would have made more sense to reach an agreement before Jackson handed down his legal conclusions - which can now be used as a weapon in any number of separate class-action cases and private lawsuits that might be brought against the company. It seems more likely that Microsoft decided long ago to tough out the negative publicity and the months of legal proceedings in hopes of getting a more sympathetic hearing from a higher court. "Until the appeal is over," said a defiant Steve Ballmer, Microsoft's chief executive officer, "nothing is settled."

The truth is that Microsoft has everything to gain by stalling and refusing to settle out of court. The U.S. Court of Appeals, in a 1998 ruling that overturned an earlier decision by Jackson against Microsoft, has already shown itself skeptical of government antitrust enforcement. Microsoft's chances will also improve if Republican candidate George W. Bush wins next fall's presidential election. The Texas governor declined to comment on last week's ruling, but a spokesman drew attention to Bush's past remarks favouring "innovation over litigation." Given that approach, Gates no doubt feels it would be foolish to fold his cards now. Better to wait, hope for the best and, in the meantime, continue to do business the Microsoft way. Other than wearing a new suit now and then, compromise just isn't Gates' style.

Maclean's April 17, 2000