If Gates Loses, Then What?

By ADAM COHEN

When federal prosecutors asked John D. Rockefeller for financial data in the suit that broke up Standard Oil, his lawyer's response was brief and to the point: "I'll see you in hell first." Microsoft hasn't been that dismissive of its own high-profile antitrust suit, but it's come close. Vice chairman Steve Ballmer declared, "To heck with Janet Reno," last year. And earlier this month a supremely self-assured Bill Gates told a meeting of 2,000 Microsoft shareholders that "the facts simply don't support the government's claim."

But as the Justice Department begins Week Six of its hard-hitting case, Microsoft's blithe confidence is starting to resemble a room-size mainframe computer that operates on punch cards: it's more than a little out of date. Executives from Intel, Apple and other high-tech leaders have been parading into federal court in Washington with tales of being bullied, bloodied and browbeaten by Microsoft. Even onetime skeptics among the experts following the case are starting to ask, What if the government actually wins this thing?

Remedies in antitrust suits can be tricky. No one's going to jail (at least not based on this civil lawsuit), and the point of the suit isn't to get fines or money damages. If the Justice Department prevails, Judge Thomas Penfield Jackson would have to rewrite the rules of engagement so that Microsoft could no longer unfairly exploit its dominant market position. And that could even mean what every Microsoft hater truly lusts for: a breakup of the company.

The Justice Department hasn't tipped its hand about what remedy it might seek. "They've been saying here's a dangerous predator roaming the wilderness and preying on rivals at will," says law professor Bill Kovacic of George Washington University. "Now they have to tell the judge what kind of cage to confine it in." But even without Justice's input, several ideas have emerged about how the beast could be tamed.

Go forth and sin no more. The court could start by undoing Microsoft's past bad acts--striking down its coercive contracts with other companies and forcing it to unbundle the Internet Explorer browser that it has built into its Windows operating system. Judge Jackson could then spell out what Microsoft can and can't do in the future. He could personally monitor Microsoft's behavior, much as Judge Harold Greene oversaw AT&T for more than a decade after the breakup of the phone company.

Break the code. Right now, some non-Microsoft programmers say they are disadvantaged in writing applications that work on Windows because they don't have sufficient access to crucial Microsoft codes that mate the applications to the Windows software. As a result, they say, Microsoft has a big edge in selling lucrative word-processing, finance and other software to users of Windows, which runs more than 90% of the world's personal computers. The court could supervise the sharing of Microsoft's codes--known in techspeak as application-program interfaces, or APIs--and thereby ensure a level playing field for all programmers who want to write for Windows. Not surprisingly, Microsoft sees no such need. "Our applications are successful because they are better products, not because there is a cheat sheet," says Tod Nielsen, the company's general manager of developer relations.

Price check. The court could force Microsoft to add a "commercially reasonable" charge when it bundles features like Internet Explorer with Windows. If consumers had to pay extra for items like Explorer--and less when it was absent--rival companies would have a more competitive market for their own applications software.

Split the bill. The most extreme remedy would be to bust up Microsoft, just as AT&T was forced to spin off its regional phone lines as Baby Bells, and Standard Oil was chopped into Mobil, Exxon and other companies. One way of dividing Microsoft would be to split it in two: one company to make operating systems like Windows, another to make applications like Word, the word-processing program. Separating the two businesses in this way would fully open up the applications market. But the approach has some drawbacks. For one thing, it's hard to get agreement these days on just where an operating system stops and an application begins.

Alternatively, the court might decide to split Microsoft into a handful of "Baby Bills" that would compete against one another with equal access to Windows--none would have monopoly power. Bust-ups have been rare throughout the century, and any such dissolution would be reviewed skeptically by the Supreme Court. Still, "it's a possibility the company has to take seriously," Kovacic says.

In that case, Microsoft might simply decide to pack up and leave the country. One of the more intriguing scenarios being discussed in high-tech circles is that if the courts do get tough, Microsoft could always move its Redmond, Wash., headquarters 100 miles north to Canada. That country has "a toothless and totally ineffective antitrust agency," says Daniel Martin Bellemare of McGill University's Center for the Study of Regulated Industries. Or Gates could buy a Caribbean island and take Microsoft offshore. On the Isle of Gates, every computer would run Windows, and there would be no such thing as antitrust law.