U.S. v. Microsoft: The Inside Story of the Landmark Caseby Joel Brinkley, Steve Lohr
It had been a brisk, even perfunctory, courtroom session. On August 21, 1995, Microsoft's tall, silver-haired general counsel, known for his bow ties and aristocratic reserve, was almost visibly gloating. After a long investigation into Microsoft's business practices, he stood on the courthouse steps and declared, "At the end of five years, we were willing to accommodate the government on some licensing matters, and the rest of our practices apparently passed muster." For Microsoft, this was a moment to enjoy, having swatted aside a government challenge to its way of doing business. For the government, it was a hard lesson learned. It was not that Microsoft's business practices had passed muster. Far from it. It came down to not acting quickly enough in the fast-paced world of high technology. But the battle was just beginning. On June 23, 1995, the Justice Department had received a letter from Netscape's outside counsel, Gary L. Reback, sent two days after a Netscape-Microsoft meeting. The letter, which recounted verbal exchanges and events that took place at the meeting, pointed toward violations of the Sherman Antitrust Act. At first, the Justice Department did not grasp the significance of the meeting. But it would prove to be the starting point in the narrative of the government's case. According to Reback's letter, Microsoft had made Netscape an all-or-nothing offer: Microsoft would not give Netscape the technology plumbing in Windows unless the software giant received an equity interest in Netscape, a seat on Netscape's Board of Directors, and otherwise controlled Netscape's ability to compete against Microsoft. The Netscape-Microsoft meeting and Reback's letter led to the most watched antitrust trial of the century, and the first real test of the century-old doctrine of antitrust in the information age. In a trial that captured the world's attention like no other legal battle in recent corporate history, the government alleged that when Netscape rebuffed Microsoft's proposal, the software giant used every bit of its market muscle to stifle the challenge, crush Netscape, and thus protect its monopoly. Microsoft, the government said, then pressured the entire industry–including Compaq, America Online, Apple, Intel, and IBM– to step back from supporting Netscape and from competing with Microsoft in any significant way. The Government's relentless attack on Microsoft portrayed America's most successful company as a predatory monopolist that bullied both its partners and its rivals in the industry. Yet beyond tarnishing Microsoft's reputation, the case had legal implications for everything from electronic commerce to network communications and had successfully posed one enduring question: What are the appropriate legal restraints on the behavior of a powerful company in a dynamic, high-technology industry? Now, New York Times reporters Joel Brinkley and Steve Lohr, who have watched the drama unfold in Washington and in Silicon Valley since before the trial began, give a detailed, richly-textured account of the landmark caseand put the important issues into perspective as only The New York Times can do. As the powerhouse of personal computing, Microsoft has grown faster and touched more lives than just about any other company in recent memory. Guided by its brilliant, driven leader, Bill Gates, the software giant has been dogged by its share of competitors over the years. But no other business rivalry captured the public imagination quite like the one between Netscape and Microsoft. When Judge Thomas Penfield Jackson sided with the government and ruled Microsoft guilty of violating antitrust laws with predatory behavior, shock waves were sent across the country causing record-breaking drops in the Nasdaq, wiping out billions in paper-wealth for Microsoft, and, overall, battering technology-shares across the board. From its earliest pre-trial stages including Microsoft's all or nothing offer to Netscape to divvy up the browser market, to testimony from senior executives of America Online, Apple, Intel, and more, all the way to the dramatic final outcome, U.S. v. Microsoft is a riveting account of the first major antitrust case of the Information Age. Two reporters from The New York Times, Joel Brinkley and Steve Lohr, tell the story of the trialthe charges, the fiery e-mails, the dramatic courtroom confrontations. But they also profile the personalities in a trial that revealed the inner workings of the most powerful company in modern business. Beginning with day one of the trial– U.S. v. Microsoft provides an eyewitness account of how the Internet drama unfolded. Readers will find: * Fascinating, behind-the-scenes information that sets the stage for the infamous "play"–beginning with the swarms of curious spectators lining up outside the Federal courthouse on day one of the trial, October 20, 1998 * Face-to-face meetings with the entire cast of characters, including Microsoft executives, Judge Thomas Penfield Jackson, and David Boies and Joel Klein for the government * Intriguing, first-hand observations * Expert analysis of the implications of this battleand what it means to the entire Internet industry. U.S. v. Microsoft provides the gripping accountwith many new behind-the-scenes detailsof the first major antitrust trial of the Information Age. It Was the Trial that Shook the Information Age. The devastating charges. The revealing emails. The dramatic courtroom confrontations. And in its aftermath, the fast-paced world of high technology may be forever altered. From Joel Brinkley and Steve Lohr, New York Times correspondents who covered the trail day to day, comes the only inside account of the first major antitrust case of the new economy.
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Bruised and Dazed Between Rounds
In the first long months of testimony, the Justice Department and 19 state attorneys general had clearly presented a compelling case against Microsoft, while the company's legal team and witnesses had stumbled badly.
Time and time again, the government's lead trial lawyer, David Boies, had humiliated Microsoft's witnesses. What's more, the company repeatedly seemed to step on its legal team's defense. Government lawyers offered as evidence documents from Gates or other senior executives stating opinions that contradicted the legal arguments Microsoft was offering in court.
But for all the embarrassments, for all the comments Judge Jackson made that seemed to favor the plaintiffs, Microsoft's lawyers continued to argue that antitrust case law fell in their favor and that all of Boies's accomplishments were mere theatrics, nothing more. His maneuvers played well in the news media, Microsoft argued, but they would mean nothing at the Court of Appeals. And some outside ana-lysts continued to caution that the legal outcome remained uncertain.
"Boies has done an excellent job, but the outcome of this case is still in doubt," William Kovacic, a professor at the George Washington University Law School, said in the spring. "There is enough flex-ibility in the doctrine of antitrust and enough uncertainty about how the case law applies to a dynamic, high-technology industry like computer software that it could go either way."
As for the judge's supposed tilt toward the government, Microsoft spokesmen liked to point out that during a chambers conference just after the testimony ended, Judge Jackson had encouraged a settle-ment by telling the group: "Both sides have taken some hits." Of course, others suggested that the remark was the sort of innocuous encouragement lawyers might expect from a judge.
The truth was, Jackson often just didn't believe Microsoft's witnesses. "There were times," he said later, "when I became impatient with Microsoft witnesses who were giving speeches. They were telling me things I just flatly could not credit."
But none of the litigants knew that at the time. Judge Jackson did push them to settle the case during the recess. At first, Microsoft presented the government with a four-page document setting out the company's proposed terms for a settlement. Among the terms, the company agreed to relax contract restrictions with Internet service providerssomething the company had already done. Those and a few other offers impressed no one.
California's attorney general, Bill Lockyer, called the proposal "a minimalist opening offer that is far from what anyone in our group would expect to be adequate," adding, "It was a very small offer." Another government official said of the settlement talks, "The chances are pretty good that all we're doing is a kabuki dance for the judge."
The two sides did meet a few times in Washington to talk about possibly settling the case. And there for the first time, the Justice Department informed Microsoft that the plaintiffs wanted to break up the company. After all, they believed they held a strong hand.
"I've never been involved in a case that went as well as this one," said Kevin O'Conner, an assistant attorney general from Wisconsin. And Boies said, "If someone had told me that they would put on a case that would provide me with as many great opportunities on cross-examination as they gave me in this one, I probably would have taken the case for free."
Microsoft made it clear at the outset that the company would not accept a structural remedy under any circumstances. So on the final day of these talks, Joel Klein, head of the Antitrust Division at the Justice Department, gave a 10-minute, oral presentation of conduct remedies, reading from notes.
They included certain protections for computer manufacturers, regulations on the pricing of Windows and requirements for publishing certain technical information about Windows. Microsoft officers listened impassively. They took away a copy of the document, said they'd think about it and call back.
"There was a clear expectation they would get back to us," said Richard Blumenthal, the Connecticut attorney general. "But they never did."
But in fact, the state and Federal officials who were prosecuting the case, flush with optimism about the way their case had progressed, were beginning to believe that should they win the case, they would not be happy with any remedy that did not restructure the company in some way.
A senior Federal official said the government, having learned from its past relationship with Microsoft, did not believe any sort of behavioral remedycontract restrictions and the like that fell short of changing the company's structure or business motivationswould be effective. Behavioral remedies included contract restrictions and the like that fell short of changing the company's structure or business motivations, and they required constant monitoring and interventionsomething no one wanted.
Which only left breaking up the company.
The state attorneys general were insistent on a structural remedy. In fact, they'd been researching remedies for more than a yearever since May 1998, when Kevin O'Connor, an assistant attorney general in Wisconsin, voiced a fear he had just realized: His state and 18 others were suing one of the richest and most powerful companies in America. What would they do if they won?
"It's like the dog chasing the bus," O'Connor had said. "What's he going to do if he catches it?"
The states quickly chartered a remedies committee, and O'Connor was asked to head it. By then he had decided, "We need to change incentives. The remedy has to change their motivations."
Out of that work by the states, the idea receiving the most favor for a while would have forced Microsoft to license the source code for the Windows operating system to several other companies instantly creating competition in the operating system business. After discussing that for a number of months, the states put the idea to several companies that would be likely bidders. Though these companies were never named, the group certainly included I.B.M., Sun Microsystems and other big companies that already produced operating systems. The states found that none of these companies had any interest in bidding. From their point of view, Windows was too complex and bug-ridden to be workableand probably too expensive.
"Nobody would buy it," Tom Miller, the attorney general of Iowa, said with a chuckle. So the idea was dropped.
But many of the statesincluding New York, Ohio, Minnesota and Utahhad another idea as well. They said they were eager to use provisions in their own laws that would allow them to fine Microsoft for every antitrust "incident." The amount variedfrom $2,000 per incident in Kentucky to $100,000 in New Yorkbut there was little if any case law to suggest how an incident would be defined in this context. And levying fines would require additional state litigation.
Officials in several states said they were hoping to establish that every purchase of a copy of Windows constituted a violation, or incident. "With per-violation or per-occurrence, that would be millions and millions of dollars," said Doug Davis, an assistant attorney general in West Virginia. But state officials acknowledged that it was far from certain that the courts would uphold that interpretation.
Microsoft, meanwhile, was working hard to prepare a compelling rebuttal case. Later in the spring, each side would be allowed to present three more witnesses, whose job would be to rebut the testimony of the previous witnesses. And the company's attorneys said the centerpiece of their rebuttal case would be a compelling argument showing that America Online's purchase of Netscape would make the combined company a powerful competitor to Microsoft. What's more, the lawyers said, the AOL and Netscape executives who had testified early in the trial had misled the judge by testifying as if they had not known the merger was in the works.
Boies called all this "a sideshow."
"For the life of me, I don't know what it has to do with the anti-trust case," he said. "It's about the monopoly power Microsoft exercises over PC operating system."
Nonetheless, Microsoft subpoenaed reams of documents from AOL, Netscape and Sun Microsystems, a partner in the deal. Microsoft also took depositions from senior AOL executives, including the company's chairman, Steven M. Case, and pressed him on the charges it intended to use in court.
At one point during his deposition, Case looked quizzically at the Microsoft lawyer who was questioning him and asked, "Did I wander into the wrong room?"
A short time before the trial was scheduled to resume, both sides issued their witness lists for the rebuttal phase. And the Microsoft team made it clear that they would rely heavily on the America Online allegations. Among its witnesses, Microsoft said it would call as a hostile witness David Colburn, the America Online executive who had testified for the Government early in the trial. In a court filing, Microsoft said it would challenge "the completeness and candor of prior testimony."
Meet the Author
New York Times correspondents Joel Brinkley and Steve Lohr have been covering the case since before the trial even began, down to its repercussions after it all was over. Steve Lohr has been a technology reporter at The New York Times since 1992. Previously, he was The New York Times bureau chief in Manila, a correspondent for the London bureau, and deputy editor of The Times' business news department. Joel Brinkley is a Washington correspondent for The New York Times covering regulatory issues. Previously, he was The Times' bureau chief in Jerusalem, and the White House Correspondent. A 1980 Pulitzer Prize winner for international reporting, Mr. Brinkley is also the author of The Circus Master's Mission and Defining Vision: The Battle for the Future of Television. Joel Brinkley lives in Washington, D.C. and Steve Lohr lives in New York City.
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Wonderful book!! Tells the true story about how Microsoft blatantly violated the antitrust laws to become the bully they are. The books tries to be unbiased, but due to the overwhelming evidence it's hard not to be anti-Microsoft. After reading this book you will hate them with such a passion and find out how arrogant they really are,