Bill Gates Read online

  Gates: Every Internet content provider that has a business relationship with Microsoft is free to develop content that uses competitors’ platforms and standards.

  Hatch: But my question is do you put any limitations on content providers that limit them…for doing any advertising or promoting Netscape?

  Gates: Well, understand, there are more people in the Netscape channel guide than there are on the Microsoft channel guide.

  Hatch: How about Microsoft: Do they put limitations or restrictions on people from advertising and promoting Netscape?

  Gates: I am not aware of any limitation that prevents them from doing content that promotes Netscape.

  Hatch: Do you use your exclusive arrangements with the companies—do you use that as leverage to stop them from advertising or promoting Netscape?

  Gates: I don’t—we don’t—…

  Hatch: Does Microsoft then limit—place and limit on any content providers that limits them…for advertising or promoting Netscape or any other competitor?

  Gates: I said earlier that on the pages that you link to through the channel guide—that on those pages you don’t promote the competitive product, but that is a unique URL. You are free to promote their content in quite a variety of ways, but not off the specific page that we link to.12

  HOW DID THIS HAPPEN?

  When the DOJ filed a motion to declare Microsoft in contempt of the first consent decree, the reasoning was that Windows and Internet Explorer were both covered products under the consent decree, a combination that would not be allowed. Microsoft would argue that Internet Explorer was integrated into Windows, so the product was allowed within the scope of the consent decree. Once the investigation reopened, the U.S. government and U.S. states suing Microsoft were able to look into many more issues than just the connection between Windows and Internet Explorer; in fact, the investigation looked into behaviors toward competitors that would also be anticompetitive or violate the initial consent decree in other ways.

  Operating systems—then and now—of course already had a large number of included tools, so a question revolves around what counts as integrated and what does not. Given the progression from programming languages to operating systems to applications to utilities as software a computer would frequently use, Windows would be an operating system, Microsoft Office is an application that runs on the operating system, and there were already dozens of nice little add-on utilities like calculators, fax capability, and MS Paint, which themselves could preclude competitors. Clearly, Microsoft had the ability to add some features and functionality to Windows without running afoul of the consent decree.

  AUGUST 27, 1998: THE FIRST DAY OF THE GATES DEPOSITION

  Gates gave his deposition not in a courtroom or the office of attorneys but in a boardroom at Microsoft headquarters, beginning August 27, 1998. Kawamoto quoted a source familiar with the deposition as saying he was “evasive and nonresponsive” to the questions asked on day one, and “the source said that when Gates was asked to verify a quote attributed to him in a published article, he said he would have to view the transcript of the interview to see its full context before commenting.” The first day of the deposition lasted nine hours, so there were many questions of Gates from the states and the DOJ. And the media was already reporting—before the case began—that Gates was not coming across as a sympathetic character.13

  In Gates’s deposition (used in the Microsoft trial), he was challenged by many of the DOJ attorneys on competitive issues and came across as being disconnected from the actions of the firm of which he was the CEO, despite two decades of statements that Gates was excessively involved with the firm. On a critical case that could shape the future of the firm, Gates asserted that he had never read the DOJ filing or been given a summary of the case against Microsoft:

  Q: Now, have you ever read the complaint in this case?

  A: No.

  Q: Have you ever received a summary of the complaint in this case?

  A: I wouldn’t say I’ve received a summary, no. I’ve talked to my lawyers about the case but not really the complaint.

  On a June 23, 1996, e-mail to internal staff at Microsoft.

  Q: In the second paragraph you say, “I have 2 key goals in investing in the Apple relationship 1) Maintain our applications share on the platform and 2) See if we can get them to embrace Internet Explorer in some way.” Do you see that?

  A: Yeah.

  In 1997, when Apple and Microsoft had launched a partnership at MacWorld Boston, there was an e-mail involving Gates that noted that the threat of cancelling the MacOffice 97 project would harm Apple immediately, and thus would be the strongest bargaining point.

  Q: Now, let me direct your attention to the second item on the first page of this exhibit. And this purports to be an e-mail from Mr. Waldman to you dated June 27, 1997; is that correct, sir?

  A: The second one, uh-huh.

  Q: You have to answer audibly yes or no, Mr. Gates.

  A: Yes, the second one.

  Q: Now, in the second paragraph of this e-mail to you, the second sentence reads, “The threat to cancel Mac Office 97 is certainly the strongest bargaining point we have, as doing so will do a great deal of harm to Apple immediately.” Do you see that, sir?

  A: Uh-huh.

  Q: Do you recall receiving this e-mail in June of 1997?

  A: Not specifically.

  Q: Do you have any doubt that you received this e-mail in June of 1997?

  A: No.

  Post-agreement with Apple, there was a communication about using Apple to undermine both Sun and Netscape, in a three-line message written by Bill Gates:

  Q: So the subject is post-agreement with Apple, and the very first sentence is, “I want to get as much mileage as possible out of our browser and Java relationship here.” Second sentence says, “In other words, a real advantage against Sun and Netscape.” Third line says, “Who should Avie be working with? Do we have a clear plan on what we want Apple to do to undermine Sun?” Now, do you have any doubt that when you talk about, “I want to get as much mileage as possible out of our browser and Java relationship here,” you’re talking about Apple?

  A: That’s what it appears.

  Further information includes moving Netscape out of the market segment that would include Windows 95, including an e-mail that Gates had apparently sent to have Apple interfere in Sun’s business.

  Q: The e-mail goes on to list working goals which are:

  “1. Launch STT, our electronic payment protocol. Get STT presence on the Internet.

  2. Move Netscape out of the Win32 Internet client area.

  3. Avoid cold or hot war with Netscape. Keep them from sabotaging our platform evolution.”

    Do you understand the reference to Win32 Internet client to be a reference to Windows 95?

  A: No

  Q: Well, let me show you a document and try to probe what you mean by being involved. Let me give you a copy of a document that has been previously marked as Government Exhibit 265. A portion of this document is an e-mail message from you to Paul Maritz and others and the portion I’m particularly interested in, and you can read as much of the three-line e-mail as you wish, is the last sentence, which reads, “Do we have a clear plan on what we want Apple to do to undermine Sun?” Did you send this e-mail, Mr. Gates, on or about August 8, 1997?

  A: I don’t remember sending it.

  Q: Do you have any doubt that you sent it?

  A: No. It appears to be an e-mail I sent.

  When copied on an e-mail that Microsoft should work to convince Apple to materially disadvantage Netscape, Gates admits he did not order his staff to stop attempts to harm the firm.

  Q: Did you ever say to Mr. Bradford in words or substance in February of 1998 or thereafter, “Mr. Bradford, you’ve got it wrong, we’re not out to significantly or materially disadvantage Netscape through Apple”?

  A: No.

  Q: Did you e
ver tell Mr. Bradford or anyone else in February, 1998 or thereafter, that they should not be trying to get Apple to do things that would significantly or materially disadvantage Netscape?

  A: No.

  GATES’S TESTIMONY IN THE TRIAL

  One of the more surprising components of the highly publicized Microsoft trial was that Bill Gates was the single-most important figure but never actually testified in the trial. He was never called as a witness by Microsoft’s legal team, and the government could not compel him to testify unless he was testified in Microsoft’s defense. His involvement in the trial was solely based upon his deposition taken by the various lawyers in August 1998, which was admitted into the court record over a series of days.

  Gates’s recorded deposition was apparently considered to be epically beneficial to the government’s case against Microsoft. Components of the videotaped deposition made frequent appearances in court. In fact, while dozens of other individuals were deposed and had parts of their depositions aired in court on one or two days, Gates’s videotaped deposition made many appearances, over eight different days from early November 1998 through January 1999.

  There was video of Gates played on November 2, 9, 16, and 17; December 2 and 15; and again on January 5. And procedurally, the whole deposition was admitted into the court record on January 13, 1999.14 How bad did these appearances seem to be in real time in Judge Jackson’s courtroom? As reported in late 1998:

  By most measures, the flesh-and-blood Gates has come off far less admirably in his videotaped performance at his company’s antitrust trial. He squirms and hedges. He argues with prosecutors over the definition of commonly used words, including “we” and “compete.” Early rounds of his deposition show him offering obfuscatory answers and saying “I don’t recall” so many times that even the presiding judge had to chuckle. Worse, many of the technology chief’s denials and pleas of ignorance have been directly refuted by prosecutors with snippets of E-mail Gates both sent and received. And it’s far from over: The government has taped more than 20 hours of testimony from Gates, which it plans to play in snatches as the trial unwinds over the next two months.15

  The case would seem to be going poorly for Microsoft if the judge was laughing at the responses he was hearing from Bill Gates. The case would seem to be going exceptionally poorly if the judge had visible reactions to the statements made by Microsoft’s lawyers. “Reporters noted that Judge Jackson rolled his eyes or scowled at statements by Microsoft’s attorneys and laughed during videotaped testimony by company cofounder Bill Gates.”16

  The firm claimed that Internet Explorer was so integrated into the Windows 98 product that the functionality could not be removed without slowing down Windows but the government had developed a program that was claimed—and reported by the press—as removing Internet Explorer and not hurting the performance of Windows 98. Microsoft vice president James Allchin was on the stand when Microsoft decided to show a video of the performance of the computers. Unfortunately, someone at the company had filmed the wrong computers, and the U.S. government’s lead lawyer—David Boies—pounced on Allchin’s and Microsoft’s credibility, not once but twice. And even when Allchin repeated the demonstration for the court, the press did not report the results that favored Microsoft’s claim.

  The video flap, he says slowly, “was the most humiliating moment of my professional life.” He’s lost sleep over it. He’s tried to imagine how he could have handled things differently. He wishes he’d taken more control over the making of the video. “Having my integrity questioned was super, super hard for me,” he says. Which is not to say he’s making excuses for what happened. “It was our own fault,” he tells me sorrowfully.17

  Microsoft had a difficult case to make and Judge Jackson had a lot of evidence to analyze once the case was rested. Gates was, in a conversation with an author writing a book about the trial, exceptionally pragmatic in stating: “No matter what the outcome, the lawsuit is a bad thing. The costs to the company and the taxpayers have been huge. The last thing any company wants is to be sued by the government.”18

  BETWEEN THE TRIAL CLOSING AND JUDGMENT

  In the time between the trial closing and the issuance of the Statement of Fact in the Microsoft case, Gates continued to be quoted in various venues.

  When somebody’s successful, people leap to simple explanations that might make sense. So you get these myths. People love to have any little story. Yes, I’m intense. I’m energetic. I like to understand what our market position is. But then it gets turned into this—the ultracompetitor. It’s somewhat dehumanizing. I read that and say, I don’t know that guy.19

  You basically have to convince the other guys not to spend enough money to compete with us, to keep just making it harder and harder, move the terms up, we just keep raising the bar, and eventually maybe one of them will try to do stuff with us. But a lot of them will just say “Forget It.”20

  LEAKED MICROSOFT MEMO AFTER THE RECESS OF THE TRIAL

  In the first of two times a Microsoft lawyer was noted by name in the media in relation to the antitrust trial, a memo written on March 3, 1999, was leaked to a member of the press—indirectly—the next week. In that memo, David Heiner wrote that the government’s had proven no charges against Microsoft, the case against Microsoft was harming consumers, and that all the government had done was create a “lot of noise around various random incidents or pieces of E-mail.”21 Judge Jackson would disagree with Mr. Heiner.

  THE FINDINGS OF FACT

  Judge Thomas Penfield Jackson’s Findings of Fact were issued on November 5, 1999. While readily available online in both html and PDF format today, the initial findings were not posted online. In fact, reading the findings of fact took a while for Microsoft staff, as Judge Jackson used a competitor to Microsoft’s Word to create the electronic file (probably the earliest clear indicator of his judgment in the case). In his findings of fact, he does declare Microsoft to be a monopoly that used monopoly power, in violation of the Sherman Antitrust Act of 1890.

  With Jackson’s decisive ruling on the facts, Microsoft appeared to be buried. It had dug itself deeper into its hole, a hole started with its take-no-prisoners corporate culture, a hole that deepened when it refused to alter its behavior even though it had signed a 1994 consent decree to do so, a hole it then dug still deeper when it openly distained Washington and government regulators or treated Judge Jackson as if he was a dim-witted Luddite when he ruled in December 1997 that Microsoft untie its browser from Windows 95, a hole it expanded when Gates did not reach a negotiated settlement with Justice in May 1998, and a hole it transformed into a cavern when a belligerent Gates was deposed.22

  33. Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market. Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market.23

  On this, there was little disagreement; for Intel-compatible PCs, Microsoft was the primary operating system on the primary platform. There were other nascent options like Linux (a free, open-source program similar to Unix) available for PCs and servers but Microsoft was the sole option for most users on PCs, as Mac OS was—and remains—on the Mac, with periodic upgrades. However, the market scope of the PC was much greater.

  34. Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft’s share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft’s dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft’s customers lack a commercially viable alternative to Windows.24

  Microsoft’s share was indeed large, and the cost to develop and promote a new operating system would create a
barrier to entry. The question is “how high”? Could an organization have readily re-envisioned what an operating system was and released a product that grew rapidly? We have recent evidence from the introduction of Google Chromebooks that a new entrant to the market can rapidly grow market share, using partnerships with firms that also produce Windows netbooks.

  408. The debut of Internet Explorer and its rapid improvement gave Netscape an incentive to improve Navigator’s quality at a competitive rate. The inclusion of Internet Explorer with Windows at no separate charge increased general familiarity with the Internet and reduced the cost to the public of gaining access to it, at least in part because it compelled Netscape to stop charging for Navigator. These actions thus contributed to improving the quality of Web browsing software, lowering its cost, and increasing its availability, thereby benefitting consumers.25

  Here, Judge Jackson says that Internet Explorer and the active competition between Microsoft and Netscape was actually beneficial to consumers and made the cost cheaper and more accessible. This is not a normal clause to write in a ruling that a company is a monopoly. And Netscape was still a for-profit company that was purchased by AOL the year before, using the browser to direct customers to their websites and portals. Unlike consumers, business users still paid for Netscape Navigator and AOL had stressed that despite owning Netscape, partnering with Microsoft was still a strategic priority for the firm.

  Microsoft stated there were 12,000 software firms, Netscape distributed 160 million copies the past year, and Netscape was on 40 percent of all Windows 98 machines. Many users were finding competition in a market that had been deemed to be a monopoly in these findings.26

  409. To the detriment of consumers, however, Microsoft has done much more than develop innovative browsing software of commendable quality and offer it bundled with Windows at no additional charge. As has been shown, Microsoft also engaged in a concerted series of actions designed to protect the applications barrier to entry, and hence its monopoly power, from a variety of middleware threats, including Netscape’s Web browser and Sun’s implementation of Java. Many of these actions have harmed consumers in ways that are immediate and easily discernible. They have also caused less direct, but nevertheless serious and far-reaching, consumer harm by distorting competition.27