Bill Gates

by Michael Becraft

  This part of the findings was indeed a problem for Microsoft, as there was ample evidence that the company did try to restrict those firms in the market, often by using leverage with other firms (like Apple).

  By constraining the freedom of OEMs to implement certain software programs in the Windows boot sequence, Microsoft foreclosed an opportunity for OEMs to make Windows PC systems less confusing and more user-friendly, as consumers desired. By taking the actions listed above, and by enticing firms into exclusivity arrangements with valuable inducements that only Microsoft could offer and that the firms reasonably believed they could not do without, Microsoft forced those consumers who otherwise would have elected Navigator as their browser to either pay a substantial price (in the forms of downloading, installation, confusion, degraded system performance, and diminished memory capacity) or content themselves with Internet Explorer.28

  Jackson determined that Microsoft had written contracts that would not allow the computer manufacturers to have other software boot automatically with Windows, yet Internet Explorer was included by default. He noted that consumers could still choose Netscape’s Navigator but would pay some form of price as a result (although not a monetary cost).

  412. Most harmful of all is the message that Microsoft’s actions have conveyed to every enterprise with the potential to innovate in the computer industry. Through its conduct toward Netscape, IBM, Compaq, Intel, and others, Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft’s core products. Microsoft’s past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft. The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.29

  Judge Jackson is very clear on his thoughts in this final statement. Microsoft’s market power did allow for discussions about how to react to competitors, often in a way that would increase costs and/or limit markets. A question was whether Microsoft truly used the immense profits to harm other firms. There were immense profits that could have been used (that would then be “expenses,” in accounting terms), but did Microsoft intentionally decrease profitability to harm other competitors? Or did Bill Gates see positions in the computer industry as so tenuous that he had to compete in a way that assumed Microsoft could fail overnight. Over the years, he made many statements that Microsoft would one day end, and that no company had an assured spot in the industry.

  GATES’S RESPONSE TO THE FINDINGS OF FACT

  Gates issued a response to the findings of fact as issued by Judge Jackson, and noted that the findings of fact would not be the last step in the legal process, as Microsoft did not agree with the ruling. Among the components of the statement, Gates mentioned “built-in support for the Internet” but without referring to the previous consent decree. The previous consent decree had provided limits in what could be added in current—and future—Windows operating systems. He stressed that the court did recognize that customers benefited from Microsoft’s initial foray into the Internet, that Microsoft would be pursuing the case, and closed with the assertion that Microsoft was simply seeking to provide more resources for consumers.

  The court’s findings do acknowledge that Microsoft’s actions accelerated the development of the Internet, reduced the cost to consumers and improved the quality of Web-browsing software.

  Microsoft competes vigorously and fairly. Microsoft is committed to resolving this case in a fair and a factual manner, while ensuring that the principles of consumer benefits and innovation are protected.

  The lawsuit is fundamentally about one question: Can a successful American company continue to improve its products for the benefit of consumers? That is precisely what Microsoft did by developing new versions of the Windows operating system with built-in support for the Internet.30

  WORLD WAR 3.0

  David Boies, after the trial, noted the following to the author of World War 3.0:

  That deposition played a very important role in what happened at the trial. At the end of the day, when the findings are written, they can’t be written without referring to the Gates deposition. That deposition did several things. First, it effectively knocked Gates out as a witness…. This deposition framed the trial. It made every Microsoft witness much more subject to a credibility test.

  Gates deposition effectively precluded Microsoft from coming up with a benign explanation for their behavior because Gates was the central decision maker, and Gates was unable to come up with the explanations.31

  An astute litigator, Boies was indeed correct. The lawyers for Microsoft would have difficulty having Gates, the CEO, testify in the trial given the chain of e-mails provided and the content of the deposition. Right or wrong, any testimony that concurred with—or conflicted—the content of the deposition would have harmed Microsoft.

  MICROSOFT RENEWED ATTACK—MAY 22, 2000

  In the period before the ruling, Microsoft asked that earlier court documents—from the consent decree five years earlier—be used in the new case to argue against breaking up the company. Those documents were issued by the government and talked about how a breakup of Microsoft would harm the economy and consumers.

  “Microsoft did a whole bunch more things wrong after the consent decree,” said Robert Litan, vice president and director of economic studies at the Brookings Institution. Litan, who was a deputy assistant attorney general between 1993 and 1995, helped negotiate the 1995 consent decree in the earlier case against Microsoft. “A breakup is not as preposterous today as it was back then.”32

  Bill Gates giving his ill-fated testimony before the Senate Judiciary Committee, in March, 1998. (AP Photo)

  However, in May 2000, the article further noted: “Securities analysts and some antitrust experts say the odds that Microsoft will eventually be split in two are remote. Even if Judge Jackson were to order such a split, he is very likely to be reversed on appeal.” Effectively, the experts did not believe that Microsoft would ever be split even if Judge Jackson made a ruling that the best regulatory option would be splitting Microsoft into two firms; this bit of light foreshadowing tells us what happens next.33

  The order to break apart Microsoft was issued by Judge Thomas Penfield Jackson on June 7, 2000. Appeals of this verdict were certain, as is the case of most highly contested trials. However, the future of Microsoft seemed a little dimmer at the time. The judge explicitly called for:

  the separation of the Operating Systems Business from the Applications Business, and the transfer of the assets of one of them (the “Separated Business”) to a separate entity along with (a) all personnel, systems, and other tangible and intangible assets (including Intellectual Property) used to develop, produce, distribute, market, promote, sell, license and support the products and services of the Separated Business, and (b) such other assets as are necessary to operate the Separated Business as an independent and economically viable entity.34

  When reading the judgment, one can discern that Judge Jackson defined the “operating system business” first (although that definition is much later in the document), then made the “applications business” everything not included in the operating system business. And by everything else, he meant everything else.

  “Operating Systems Business” means the development, licensing, promotion, and support of Operating System Products for computing devices including but not limited to (i) Personal Computers, (ii) other computers based on Intel x86 or competitive microprocessors, such as servers, (iii) handheld devices such as personal digital assistants and cellular telephones, and (iv) television set-top boxes.

  “Applications Business” means all businesses carried on by Microsoft Corporation on the effective date of this Final Judgment except the Operating Systems Business. Applications Business i
ncludes but is not limited to the development, licensing, promotion, and support of client and server applications and Middleware (e.g., Office, BackOffice, Internet Information Server, SQL Server, etc.), Internet Explorer, Mobile Explorer and other web browsers, Streaming Audio and Video client and server software, transaction server software, SNA server software, indexing server software, XML servers and parsers, Microsoft Management Server, Java virtual machines, Frontpage Express (and other web authoring tools), Outlook Express (and other e-mail clients), Media player, voice recognition software, Net Meeting (and other collaboration software), developer tools, hardware, MSN, MSNBC, Slate, Expedia, and all investments owned by Microsoft in partners or joint venturers, or in ISVs, IHVs, OEMs or other distributors, developers, and promoters of Microsoft products, or in other information technology or communications businesses.35

  In the accompanying Memorandum and Order, Jackson stated that Microsoft lawyers knew all along that breaking up the company was possible, that Microsoft had never conceded to any violations, the company’s conduct had not changed, and that Microsoft had been untrustworthy in the past. While stating that the structural division was required, Jackson noted “Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct.”36

  Jackson was prescient, noting in closing that the appeal of the break-up order would return to his courtroom and that the order to break up the company did not need to happen. Not if the ruling were to be appealed by Microsoft, but that the case would come back after appeal: “The final judgment proposed by plaintiffs is perhaps more radical than might have resulted had mediation been successful and terminated in a consent decree…. And, of course, the Court will retain jurisdiction following appeal, and can modify the judgment as necessary in accordance with instructions from an appellate court or to accommodate conditions changed with the passage of time.”37

  Jackson knew that a settlement would not have resulted in a break-up order, and that his break-up order was guaranteed to be appealed. And although Gates was no longer CEO, he remained chairman of Microsoft.

  “This is the beginning of a new chapter in this case,” Microsoft Chairman Bill Gates said in a video statement. “We will be appealing this decision, and we have a very strong case on appeal. This ruling is inconsistent with the past decisions by the appeals court, with fundamental fairness and with the reality of the marketplace.”38

  BACKDROP IN CASE

  Stephen, in New Statesman, described the impact of the ruling immediately on Microsoft. At the moment of the decision, Gates theoretically lost 15 percent of his total net worth as measured by external entities. This ruling was a sizable blow to Gates, to Microsoft, and the ability to operate the firm as had been done in the past. Stephen noted his belief the success of Gates was not simply based upon his technological capability but the technological capability paired with he described as the “ruthlessness of a Murdoch,” referring to Rupert Murdoch, simultaneously suggesting that the combination of those two characteristics effectively removed other viable software programs from the market.39

  One ironic aspect of the computing industry at the time was that the firms “harmed” by Microsoft’s monopoly also decided to grow by joining forces. For instance, AOL bought Netscape (competing browser to Internet Explorer), then AOL created an alliance with Sun (Java was a competing software platform), yet AOL still wanted to work with Microsoft’s Internet Explorer to expand AOL’s availability as an ISP through Windows. And software company Oracle bought hardware company Sun Microsystems, which owned the Java Platform. This means AOL, Java, Oracle, Netscape, and Sun were all interconnected by the time Judge Jackson ruled in the case, with one of the companies insisting that partnering together—and with Microsoft—was actually necessary:

  An internal AOL document says that the acquisition of Netscape and the alliance with Sun is “not about Microsoft. We have always considered Microsoft both a tough competitor and an important partner. This deal doesn’t change that. Our intention is to continue to use Microsoft’s Internet Explorer within the AOL service, because we believe it is important to have AOL bundled with Windows.” Colburn, 6/22/99am, at 6:2–17; DX 2522.40

  In further irony, Infoworld gave its 1999 Award for Industry Achievement to Linus Torvalds, who had created a free operating system as a hobby. The Linux operating system was running on between 10 million and 25 million servers at the time Judge Jackson ruled against Microsoft. Contrary to Gates’s assertions starting in 1976, there are individuals who would make completely new operating systems without financial reward. And contrary to Judge Jackson’s ruling, innovation would continue to happen in the industry—some of that innovation would be willful competition against various established companies. Petreley states of a person developing a new operating system in the 1990s as a hobby, then letting other people commercialize the product that could be downloaded for free: “In a sense, that makes Torvalds the quintessential anti-Gates. Bill Gates is a contract law genius who was given the persona of a technical whiz by marketing.”41

  JACKSON CAME UNDER FIRE FOR PUTTING GATES UNDER FIRE

  While United States District Court judge Thomas Penfield Jackson had supervised cases against Microsoft from the approval of the initial consent decree in 1995—when the previous judge’s ruling on the first consent decree had been overruled on appeal—until 2000, there were still more changes to come. As reported by the Berkman Center for Internet & Society at Harvard University,

  Pushing the envelope of the code of conduct that bars judges from public discussion of pending cases, Jackson spoke out about Microsoft both prior to and after rendering his decision, reportedly comparing its executives to inner-city gang members.42

  Auletta had written in Final Offer about his interactions with Judge Jackson:

  He was only half joking when he told me, “If I were able to propose a remedy of my devising, I’d require Mr. Gates to write a book report.” The assignment, Jackson said, would be a recent biography of Napoleon, and he went on, “Because I think he has a Napoleonic concept of himself and his company, an arrogance that derives from power and unalloyed success, with no leavening hard experience, no reverses.”43

  Jackson compared Microsoft executives to five drug gang members who had appeared in his court after assassinating three people, yet didn’t see anything wrong with the behavior. He then even questioned the competence of Microsoft’s chief lawyer:

  Since the evidence appeared so lopsided, Jackson often wondered why Microsoft didn’t abort the trial—and stop the damage to its reputation—by seeking a settlement. He blamed Microsoft’s chief counsel, William Neukom, saying that he should have arranged a truce before the financial markets were roiled and a judge was forced to play Solomon. One day, Jackson said of Neukom, “I don’t think he’s very smart, or at least I don’t think he has any subtlety. He’s the general counsel of this company. He should have said, ‘Look, you may think you’re doing the right thing, but there are a lot of people who don’t, and the time has come for us to be flexible.’”44

  APPEALS COURT AND MONOPOLY, AND JACKSON

  At the Appeals Court, the judges did not overrule the determination that Microsoft was a monopoly but did issue very precise exact statements rebuking the comments Judge Jackson had made outside of court against Gates, his firm, and other Microsoft executives. In fact, Jackson got real-time feedback from the court. If the judge hearing the case could not remain impartial, that act alone would open any ruling made by the judge to further, continuing appeals. Appellate Judge Edwards made the comment that the judicial system would be “sham” if judges spoke about participants in trials in the way Judge Jackson had done. Appellate Judge Sentelle noted that the average citizen could only explain the behavior of Jackson as a form of bias, and Appellate Judge Williams took particular offense to the description of Gates as similar to drug gangs, noting: “He chose a particular metaphor. Metaphors are very powerful. And th
e metaphor he chose was the one best devised, that you could imagine, except possibly the Holocaust, to indicate that Microsoft was beneath the pale, beyond the pale.”45

  The expression that “Justice Is Blind,” with imagery of Lady Justice holding a scale to weigh evidence, is exceptionally important in trials—and appeals—when there is a lack of impartiality or fairness (real or perceived) from the judge or panel of judges. And the Microsoft case was highly visible and impacted a firm worth many billions of dollars. At that point, the writing was on the wall. Judge Jackson would not be supervising the Microsoft case through appeals and a settlement, and the Appeals Court would be “providing feedback” before issuing its next order.

  Although the order from the Appeals Court was still months away, on March 12, 2001, Judge Jackson recused himself from two cases involving Microsoft in a Memorandum; the antitrust case as well as a discrimination case where Microsoft was the defendant. Given the comments from peers on the Appellate panel, he could judge the tone of their pending ruling. In his order, he stated that due to being the randomly assigned judge after the departure of Judge Sporkin and overseeing the case from 2005 to present:

  Over the course of those prior proceedings, I formed unfavorable judgments as to the lawfulness of Microsoft’s business practices. Those judgments are fully reflected in my several opinions in those cases. I also formed—and retain—a further impression of Microsoft, also evident, I believe, from my opinions as well as from any public statements attributed to me after the trial. That impression is of a company with an institutional disdain for both the truth and for rules of law that lesser entities must respect. It is also a company whose “senior management” is not averse to offering specious testimony to support spurious defenses to claims of its wrongdoing.46