Demonizing Gates

By Adam Cohen/Washington

Antitrust is one of the most labyrinthine fields of law, relying on nuanced readings of complex statutes and analogies to dusty cases about oil refineries and railroad gauges. But the Justice Department decided to make things simple on the first day of its sweeping antitrust suit against Microsoft: it dispensed with the case law and put Bill Gates front and center. A disembodied, larger-than-life Gates hovered over Judge Thomas Penfield Jackson's courtroom on a 10-ft.-tall computerized video monitor during much of government lawyer David Boies' opening statement. The thrust of Boies' argument: the fidgety, spectral man-in-the-monitor was coolly dissembling about his plans to dominate the world technology market.

U.S. v. Microsoft was supposed to be an epic ideological showdown--perhaps the greatest since the government broke up John D. Rockefeller's Standard Oil trust in 1911. The Department of Justice antitrust chief, Joel Klein, would argue the liberal position that government must intervene when a monopolist abuses its position of dominance in the market. And Microsoft would make the libertarian case that markets work best when they operate freely. But a week into the trial, the real battle seems to be between two warring views of Gates. Is he the brilliant innovator who has brought the wonders of the information age to millions of satisfied customers? Or is he the rapacious capitalist leveraging his software monopoly to crush competitors? How the courts view the world's richest man--his net worth is now upwards of $50 billion--more than what antitrust ideology they adopt will probably determine the outcome of what could be a landmark case.

In his opening statement, Boies tried to give the court a glimpse of the darker Gates. At Boies' signal, Gates appeared on the courtroom video monitors denying the government's crucial charge that Microsoft tried to buy off Netscape, its archrival in the Internet browser business. "Somebody asked if it made sense investing in Netscape, and I said it didn't make any sense," Gates said, in a clip from his August 1998 deposition. But a moment later, the video monitors were displaying a seemingly contradictory 1995 e-mail, in which Gates wrote of Netscape, "We could give them money as part of the deal, buy a piece of them or something." On another key point, video Gates declared that he was "not involved" in setting up a meeting with Netscape to work out an alleged deal to divide up the browser market. But Gates the e-mailer was soon caught saying, "I think there is a very powerful deal we can make with Netscape. I would really like to see something like this happen!"

It was a bang-up way to start a trial. Microsoft's outside-the-courthouse spin team peddled the view that Boies' opening statement was based on "loose and unreliable rhetoric and snippets that were not in any reliable context." But court watchers were already arguing whether Gates' statements were actually perjurious or merely Clintonesque. Some saw an even more sinister subtext to Boies' opening statement and the incorporeal, larger-than-life double-tongued creature he described as luring unwitting followers to his crusade for world domination. Could the U.S. government really be suggesting that Gates is evil incarnate?

It may seem farfetched, but that's precisely what Microsoft charged. On Day Two of the trial, lead Microsoft lawyer John Warden accused Boies of trying to "demonize Bill Gates" and of casting Microsoft as "the great Satan." Bill Gates as Beelzebub is actually a familiar trope in computerland. The Internet is filled with discussion groups debating whether Gates is the devil and Microsoft the Evil Empire. Search the Web for sites that pair the words Gates and Satan, and you'll turn up tens of thousands of hits. Harvard law professor Lawrence Lessig was a court-appointed monitor in an earlier Justice Department suit against Microsoft before Gates' lawyers uncovered an old e-mail in which Lessig joked that when he installed Microsoft's browser on his computer he "sold his soul."

The government never did use the D word, but Justice Department lawyers have good tactical reasons for keeping Gates' own words and deeds at the heart of their case. Justice began its antitrust campaign against Microsoft with a straightforward claim that the company was guilty of improperly "bundling" its Internet Explorer browser into its popular Windows software. Judge Jackson bought the argument, but it was shot down by the D.C. Circuit Court of Appeals--a reversal that Microsoft viewed as decisive. Justice is now making a more wide-ranging argument that there is a pervasive pattern of Microsoft's using its monopoly on PC operating software--Windows--to coerce other companies to do its bidding in a broad array of other business relationships. "It's not necessarily any one contract but the pattern of conduct over the course of time and the cumulative effect that the contracts have," says University of Minnesota Law School dean E. Thomas Sullivan.

To make this kind of economic-bullying case, it helps to have a bully in chief. By pinning anticompetitive actions on Gates directly, Justice can show that those actions had the endorsement of the company itself, and were not carried out by rogue underlings. Personalizing the case also gets Justice out of an ideological quandary. The appeals courts that will probably hear this case--the D.C. Circuit and the Supreme Court--are fairly conservative on antitrust cases. The less the Microsoft case seems to be about antitrust doctrine and the more it is packaged as an attempt to rein in the behavior of a predatory company and CEO, the better Justice is likely to fare on appeal.

Not surprisingly, Microsoft has reacted indignantly to the government's "personal attacks on a visionary and innovator." John Warden, delivering Microsoft's opening statement, contended that Gates and his company had done nothing but engage in the hard-driving competition that is the essence of the free market. "The antitrust laws are not a code of civility in business," Warden told the court. He argued that Justice is trying to fix a software market that isn't broken. Microsoft is not a monopoly because there are few "barriers to entry" stopping would-be competitors from jumping in, Warden maintained. "There are no factories to build, no mineral deposits to locate." All it takes to make software, he said, is "human brains and the capital to support those human brains."

To keep the trial moving briskly--the hope is to wrap up in six to eight weeks, compared with the 13 years the IBM antitrust trial dragged on--Judge Jackson has limited each side to 12 witnesses. And he has imposed the unusual condition that all witnesses submit their direct testimony in written form. Only cross-examination and redirect take place in the courtroom.

Despite its difficulty in making the "bundling" argument, Justice has continued to build its case around the Internet browser--the principal software used to navigate the Internet. The government contends that Microsoft has been intent on overtaking Netscape's Navigator because it fears that such browsers may one day be used as an alternative operating system for computers in a way that could make Windows obsolete. Winning the browser war, Boies charged, was Microsoft's way of gaining "a choke hold on the Internet."

The first and only witness during Week One was Netscape CEO James Barksdale. He contended, in 127 pages of direct testimony, that Microsoft systematically "set out to use its vast power as the producer of Windows to 'cut off Netscape's air supply.'" Netscape is a strong case study for the Justice Department because its alleged injuries are clear and dramatic. According to AdKnowledge, Netscape had almost 77% of the browser market in January 1997, compared to Microsoft's Internet Explorer's 20%. By August 1998, Microsoft had 49% to Netscape's 48%.

At the heart of Barksdale's testimony was a June 21, 1995, meeting between Netscape and Microsoft to discuss the Internet browser market. It was at that meeting, Netscape says, that Microsoft crossed the line from aggressive competitor to rapacious monopolist. "It was like a visit by Don Corleone," Netscape co-founder Marc Andreessen recalled later. "I expected to find a bloody computer monitor in my bed the next day." Barksdale charged in his testimony that Microsoft's goal at the meeting was to illegally divide the browser market, keeping the lion's share for itself. "I have never been in a meeting in my 33-year business career in which a competitor had so blatantly implied that we should either stop competing with it or the competitor would kill us," he asserted.

Barksdale's testimony was intended to back up the government's claim that Microsoft engaged in a pattern of "predatory acts" involving many key technology players, including America Online and Compaq. Justice says Microsoft used improper coercion to get these companies to help it crush Netscape. In the case of America Online, the government says, Microsoft refused to put AOL's icon on the Windows desktop unless AOL abandoned Netscape in favor of Internet Explorer. With Compaq, the government says, Microsoft threatened to terminate the company's license for Windows after it dropped Explorer in favor of Navigator.

Justice contends that it was Microsoft's aggressive use of its market power--not the quality of its browser--that accounts for Internet Explorer's rapid growth at Netscape's expense. To make the point, Justice unveiled a memo from Hewlett-Packard complaining that Microsoft had prohibited it from installing Netscape if it wanted to keep installing Windows on its computers. "We are very disappointed," an H-P manager wrote. "From a consumer perspective, it is hurting our industry. If we had another choice of another supplier, based on your actions here, we would take it."

But Microsoft contends that Netscape has been losing market share not because of unfair competition but because it cannot hold its own against steadily improving versions of Internet Explorer. "The goal of antitrust law is not to prop up competitors," says Robert Levy, a Cato Institute analyst and Microsoft supporter. As for the critical "Don Corleone" June 21 meeting, Microsoft says Netscape's account is "fantastical." During his cross-examination of Barksdale, Warden charged that Andreessen "imagined or invented a proposal to divide markets" and that Netscape "signed on to that imaginary concoction" to prop up the Justice Department's case.

Microsoft scored some points of its own in the first week. In three days of cross-examining Barksdale, Warden drew blood when he produced a secret e-mail written by Netscape co-founder James Clark to a Microsoft executive. Clark wrote that Netscape never intended to compete with Microsoft, and he invited the company to invest in his company. Barksdale said the e-mail dated back to Netscape's early days, when it seemed the company might go under, and Clark sent it without notifying him or the Netscape board. Still, Clark's plea undercut the government's contention that Microsoft had rapaciously forced itself on an unwilling Netscape.

As the trial enters Week Two, the Justice Department shows no sign of letting up on Gates. He is not on either side's witness list, but the government has announced that it plans to play eight hours of Gates' 20-hour video deposition this week. Microsoft blasted the Justice Department's ploy as an attempt to distract the court from the problems with Barksdale's testimony and to hide the real issues in the case. But the government is intent on keeping the focus squarely on its target. Eight hours of video Gates may seem a lot, but Justice is clearly betting that the devil will be in the details.

--With reporting by Declan McCullagh

With reporting by Declan McCullagh