The New York Times
June 9, 2000
SPECIAL REPORT: PURSUING A GIANT
Retracing the Missteps in Microsoft's Defense at Its Antitrust Trial
By JOEL BRINKLEY and STEVE LOHR
The judge in the Microsoft antitrust case, Thomas Penfield
Jackson, is certainly no judicial radical. A former Naval officer,
he was an active Republican when Ronald Reagan appointed him to the
federal bench in 1982.
His record before the Microsoft case suggested, if anything, that
he was pro-business. In 1987, the federal government sued General
Motors, contending that its cars had dangerous brake defects. Judge
Jackson sided with the car company, dismissing the government's
evidence as merely "anecdotal accounts of skidding events."
So when news reports emerged in late January that government
officials involved in settlement talks in Chicago had proposed a
breakup of Microsoft, Judge Jackson was alarmed.
"I should tell you, I am not at all comfortable with restructuring
the company," he said in February, in a rare audience with a
sitting judge during the course of a trial. "I am not sure I am
competent to do that. Microsoft is a large and important company,
innovative and admirable in a lot of ways. And it is an engine for
the nation's economy. I just don't think that is something I want
to try to do on my own. I wouldn't know how to do it."
But in another interview late last month, he sounded very
different. He said Microsoft's recent behavior had helped change
his mind.
"I've been astounded by some of the statements of Gates and
Ballmer," he said, referring to the continuing protestations of
William H. Gates, the company's chairman, and Steven A. Ballmer,
the president, that Microsoft did absolutely nothing wrong. The
remarks that so irked him came after his legal ruling in April that
Microsoft had repeatedly violated the nation's antitrust laws with
its predatory and anticompetitive behavior.
"I'm in the midst of a growing realization," the judge added, "that
with what looks like Microsoft intransigence, a breakup is
inevitable."
And on Wednesday, he ordered just that: a plan to split Microsoft
into two separate companies.
Just as Judge Jackson's thinking has evolved, so have the views of
many others in government and industry who watched the case. In
interviews with The New York Times over the last several months,
dozens of the state and federal officials who have investigated and
prosecuted Microsoft for the last four years, as well as industry
executives, described many moves by Microsoft that they think
backfired and led to a resounding court defeat.
At the outset, the plaintiffs and defendant seemed evenly matched.
"Microsoft and the government were the perfect opponents," observed
David Boies, the government's lead trial lawyer. "The government
has some power, but Microsoft has at least as much. Anyone else
facing either one of them would be overmatched."
[INLINE]
Paul Hosefros / The New York Times
The Judge - Thomas Penfield Jackson was appointed by President Reagan
in 1982.
_________________________________________________________________
And watching from the bench early on, the silver-haired,
63-year-old Judge Jackson said he was awed by the legal prowess on
display in his courtroom.
"It's exhilarating to watch," he said. "You'll never see better."
But over the months, the balance shifted heavily in favor of the
government. In fact, Microsoft's problems began well before the
trial opened in October 1998. It misjudged the legal trouble that
its own e-mail and other documents could create. It chose not to
reach an out-of-court settlement when the sanctions it faced were a
wrist-slap compared with the breakup plan it now confronts --
though those decisions, given the company's conviction that it
would win on appeal, were a calculated gamble. Whether that gamble
pays off will not be known for months, or years.
In court, however, the Microsoft defense stumbled repeatedly. And
with each misstep, the government was emboldened.
The prosecutors assembled and then presented their case with ever
greater confidence, continually broadening it to embrace a far
richer array of charges than the one that started it all:
Microsoft's decision to tie a Web browser to the Windows operating
system.
As the case progressed, the government presented evidence to show
that Microsoft had bullied friends and competitors alike, halting
innovations that threatened its Windows monopoly. And as the
allegations spilled out in court, Microsoft was increasingly on its
heels as it tried to argue that all the government had really shown
was that the company was a rough-and-tumble competitor, not an
economic outlaw.
Still, Judge Jackson remained strikingly respectful of the
defendant. "There is no doubt in my mind that Microsoft is a
unique, gifted, efficient and ingenious organism," he said in
February.
In the end, however, the judge lost all patience with Microsoft. On
the trial's final day last month, a Microsoft lawyer appealed for
another round of hearings on the government's remedy proposal,
saying Microsoft could not possibly defend itself "in the brief
time given."
"In the brief time given?" Judge Jackson retorted with a sharp
tone. "This case has been pending for two years!"
[INLINE]
Paul Hosefros / The New York Times
The Plaintiffs - Attorney General Janet Reno, Joel I. Klein, her
deputy, center; and Tom Miller.
_________________________________________________________________
In the interview the next day, Judge Jackson, observed: "I am not
aware of any case authority that says I have to give them any due
process at all. The case is over. They lost." Besides, he added,
"I'm suspicious that they are just playing for time, hoping they
will get to deal with a new administration" that might approach the
company with a softer hand.
Judge Jackson agreed to be interviewed several times after
testimony in the trial had ended, with the understanding that his
comments could not be published until the case had left his
courtroom. The discussions, beginning last September, were
friendly, informal and unstructured.
Officials from the Justice Department and the states agreed to
similar ground rules. Microsoft's cooperation was first requested
months ago; the company's general counsel granted a lengthy
interview last week.
The goal in all of the interviews was to understand how the case
started, how it grew from a technical fight over Internet browsers
into a broader battle over Microsoft's dealings with its
competitors and partners, how the government won so handily, and
why, to everyone's surprise, Microsoft fared so poorly.
Now the case goes to appeal, where Microsoft believes it can
overturn everything that happened in Judge Jackson's courtroom.
As Microsoft sees it, the government's case was a grab bag of
accusations based mainly on the selective use of its e-mail
messages. Some of it may look bad but, Microsoft insists, none of
it should add up to an antitrust violation.
"It's the kind of evidence that a skilled trial lawyer can use to
make the public wonder about how tough Microsoft plays this game,"
William H. Neukom, a senior vice president and general counsel of
Microsoft, said in an interview at its corporate campus in suburban
Seattle. "But that is not the way the law is supposed to work."
Microsoft will also argue on appeal that evidence Judge Jackson
relied on should have been deemed inadmissible -- newspaper
articles, e-mail messages from low-level employees and the like.
More broadly, Microsoft believes that its view of the computer
industry -- for reasons that still puzzle the company's executives
-- was never appreciated by the government or the judge. "It's
clear that the whole story of Microsoft, the whole story of the PC
was missed here," William H. Gates, the chairman, said during a
news conference on Wednesday.
Judge Jackson, in the February interview, said simply, "I think
Microsoft didn't take this seriously enough."
Past as Prologue
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'This Antitrust Thing Will Blow Over'
[INLINE]
Justin Lane for The New York Times
David Boies led the prosecution.
_________________________________________________________________
Joel I. Klein, a prominent Washington appellate lawyer, joined the
Justice Department in April 1995 as principal deputy to Anne K.
Bingaman, chief of the antitrust division. The next year, he
succeeded her.
His first task was to seek final court approval of a consent decree
reached with Microsoft the previous year to settle a Justice
Department antitrust suit. Microsoft had agreed to stop tying the
sale of one software product to the sale of another.
But what Mr. Klein did not know then was that Microsoft began
flouting at least the spirit of the consent decree it had just
signed.
"This antitrust thing will blow over," Mr. Gates told a group of
Intel executives in July 1995, according to one Intel executive's
notes of the meeting, obtained by the government. "We haven't
changed our business practices at all."
In 1995, Mr. Klein heard from America Online. The company
complained that Microsoft was violating antitrust law by bundling
MSN, its new online service, with Windows. But the department
decided not to act.
In June 1996, however, Microsoft took the step that led to Judge
Jackson's courtroom. For months, James L. Barksdale, the president
of Netscape Communications, the commercial pioneer in software used
to browse the Web, had been growing increasingly irritated by what
he regarded as the bare-knuckle tactics Microsoft deployed against
his company.
But then Microsoft did something more: it threatened to cancel
Compaq Computer's license to Windows -- Microsoft's
industry-standard operating system, which Compaq could not survive
without -- because the PC maker planned to feature the Netscape
browser, not Microsoft's Internet Explorer.
"I'm not a lawyer, but I have more than 30 years experience in
business," Mr. Barksdale recalled recently. "I just knew that that
was something wrong."
He calls Microsoft's threat to cancel Compaq's Windows license "the
singular act" that prompted him to take his grievances to the
Justice Department. To accomplish that, he asked the company's
lawyer, Gary L. Reback, to write a "white paper" detailing the
problem.
The 222-page paper accused Microsoft, among other things, of using
its dominance in operating systems to force PC makers to take
Microsoft's browser.
And in August Mr. Barksdale sent a copy to Mr. Klein.
Mr. Klein said the paper got his immediate attention. "There was a
big difference in my mind between MSN and this," he said. "To me,
conditioning one product on another was clearly a violation of the
consent decree. I authorized San Francisco to investigate."
Right away, the Justice Department's San Francisco office asked
Phillip R. Malone, an up-and-coming young lawyer, to head the
Microsoft team. And the next month, he and four other lawyers began
faxing civil investigative demands to Microsoft for documents
related to the Netscape charges and Microsoft's Internet strategy.
Such demands are the civil equivalent of a subpoena.
As each new request spilled out of a fax machine in Microsoft's
legal department, a Microsoft lawyer would discuss the request with
Mr. Malone. Then the investigators simply waited. "The documents
just arrived in the mail," Mr. Malone said.
Never once, he added, did an investigator have to visit Microsoft
and look in file cabinets or hard drives for overlooked documents
or e-mail messages.
Microsoft's lawyers examined all the documents before they were
sent off. Several government officials said these lawyers should
instantly have realized those documents meant trouble.
"You can't be a lawyer and not know these documents are lethal,"
Mr. Klein observed.
Microsoft lawyers say they understood that some of the e-mail
messages could quicken a prosecutor's pulse. But they saw it as a
tactical problem -- the fiery communications of business
aggression, which might seem incriminating at first glance -- but
not evidence of an antitrust violation. "No smoking gun," in the
view of one company lawyer.
Yet as the boxes of papers went out the door, Microsoft's legal
troubles mounted.
More remarkably, the most damaging documents -- the ones that
galvanized the resolve of state and federal prosecutors nationwide
-- were written months after that first government request arrived,
months after Microsoft's leaders knew that everything they wrote
was likely to wind up in prosecutors' hands.
Judge Jackson likened the phenomenon to the federal prosecution of
drug traffickers, who are repeatedly caught as a result of
telephone wiretaps. And yet, he said, "they never figure out that
they shouldn't be saying certain things on the phone."
But Mr. Neukom said Microsoft had been under investigation for so
long, and e-mail was so essential to the operations of the company,
that managers simply could not edit every thought and continue to
manage effectively. "E-mail is a big part of how we run this
company," he said. "And candid, frank, open e-mail communication is
a big part of our efficiency."
A Growing Case
______________________________________________________________
U.S. Finds Allies in State Capitals
[INLINE]
Associated Press
Richard Blumenthal, the attorney general of Connecticut, joined the
suit.
_________________________________________________________________
While Microsoft dealt with the growing federal investigation, a new
group took up the chase: state attorneys general. That compounded
Microsoft's problems. In time, the company would face not just the
Justice Department but 20 sovereign and independent prosecutors
from the states as well.
About the time the Justice Department's first document requests
arrived at Microsoft in September 1996, Mark Tobey, an antitrust
lawyer in the Texas attorney general's office, read a Time magazine
cover story about the browser war with the headline: "An epic
battle is taking place between Microsoft and Netscape." Mr. Tobey,
whose state is home to Compaq and Dell Computer, two companies
highly dependent on Microsoft software, decided to have a look at
the subject.
He managed to get a copy of the Netscape white paper. With that and
other information, on Feb. 9, 1997, the Texas attorney general's
office issued its own civil investigative demand to Microsoft --
the first formal action from a state attorney general.
In April 1997, the state attorneys general gathered in Washington
for their annual spring conference, and during a meeting of the
antitrust section chiefs, Mr. Tobey outlined what he had been
doing, hoping to recruit allies.
Mr. Tobey's presentation on Microsoft stirred little interest --
quite the opposite, in fact. Tom Miller, attorney general of Iowa,
was chairman of the antitrust committee, and his first thought was:
"Oh my God, Microsoft? We're not going to sue Microsoft, are we?"
But through the spring and summer Mr. Tobey argued and lobbied and
eventually persuaded several of the larger states to have a look at
the Microsoft documents.
And in relatively short order, the accumulating evidence persuaded
other states, including Connecticut, Illinois, Massachusetts, New
York and Wisconsin, to join the investigation because the documents
had stunned them.
"I didn't know much about technology, or about the industry,"
recalled Richard Blumenthal, attorney general of Connecticut. But
as he read the documentsÈ "I was really struck by the brutal, overt
tactics. You rarely see things like this written down."
In the minds of almost every federal and state official
interviewed, three documents stood out as the most influential. The
first was a white paper that Mr. Gates wrote in May 1995, titled
"The Internet Tidal Wave."
"A new competitor born on the Internet is Netscape," Mr. Gates
wrote. As the leader in Web browsing software, Netscape, he added,
could set the technical rules for Internet computing and thus
"commoditize the underlying operating system" -- Microsoft Windows,
on 85 percent of all personal computers. In other words, Mr. Gates
was saying, Netscape threatened to make Windows irrelevant.
[INLINE]
James E. Allchin, an executive, wrote a key e-mail message.
_________________________________________________________________
The Gates memo, though not legally damaging on its own, pinned a
motivation to what followed.
Two more documents that arrived during the fall of 1997 got all of
the prosecutors excited. They were e-mail messages by James E.
Allchin, a senior Microsoft executive in charge of the Windows
group. He was worried about the company's Internet strategy.
Microsoft's browser, Internet Explorer, was being given away and
bundled with Windows. Still, it was not catching on.
In e-mail messages to another senior executive written Dec. 20,
1996, and Jan. 2, 1997 -- more than three months after the federal
government had begun obtaining documents relating to Microsoft's
Internet strategy -- Mr. Allchin wrote: "I do not believe we can
win on our current path. Even if we get Internet Explorer totally
competitive with Navigator, why would we be chosen? They have 80
percent market share. My conclusion is we have to leverage Windows
more." He added, "We need something more: Windows integration."
To the prosecutors, this was the smoking gun. Mr. Allchin seemed to
be clearly saying that unless Microsoft deeply embedded its browser
into its monopoly product -- and thus made users go out of their
way to use Netscape -- Internet Explorer would surely lose. When
these documents arrived at the Justice Department office in San
Francisco, Mr. Malone knew he had something special. He took them
to Washington and discussed them with Mr. Klein and others.
"Everybody saw it; they really captured the essence of what we
believed," Mr. Malone said. "They had that power."
An Interim Suit
______________________________________________________________
Evidence of Threats Favors Prosecutors
In early October 1997, Microsoft's lawyers attended a meeting at
the Justice Department to try to explain why it included its Web
browsing software in Windows. At the meeting, Mr. Klein "held up
two disks, one holding Windows and the other with the browsing
software," Mr. Neukom said. "He said, 'You should have consulted
us. It's easy to separate these.'
"That was the level of analysis," Mr. Neukom said, indicating he
was not impressed.
But once again, at another crucial point, Microsoft misread its
opponents.
The federal government was feeling more confident. By the summer of
1997, Mr. Malone said, "I certainly felt we had a case."
The Justice Department had not only gathered hundreds of documents
from Microsoft, but had also interviewed dozens of industry
executives, including crucial officers at Netscape.
And by early fall, Mr. Klein said, "it was becoming clear to me
that we had a larger case" beyond the browser question.
By now, the government's inquiry had gathered evidence that
Microsoft had threatened Compaq, I.B.M. and Intel; essentially
bribed America Online; and tried to hobble Sun Microsystems, among
others -- all to protect the Windows monopoly.
On Oct. 20, 1997, Mr. Klein filed what proved to be an interim suit
against Microsoft, accusing the company of violating the 1994
consent decree by forcing computer makers to take Internet Explorer
along with Windows.
The idea was to step in before Microsoft released a new version of
Internet Explorer, due out soon, "rather than to let that event
pass, waiting for the big case," A. Douglas Melamed, deputy
assistant attorney general in the Justice Department's antitrust
division, said.
Judge Jackson was assigned that case, and in mid-December, he
ordered Microsoft to offer computer makers a version of Windows
that did not include Internet Explorer -- even though Microsoft had
argued that Windows and Internet Explorer were the same product.
Microsoft responded that the company would offer manufacturers a
choice: one version of Windows that was obsolete, or another that
did not work properly.
The Justice Department reacted angrily, and, as it turned out,
Judge Jackson was irritated, too. Asked what had struck him about
Microsoft's defense during this case, the judge referred to this
exchange in court, with David Cole, a Microsoft vice president, in
January 1998:
"It seemed absolutely clear to you," the judge asked him from the
bench "that I entered an order that required that you distribute a
product that would not work? Is that what you're telling me?"
"In plain English, yes," Mr. Cole replied. "We followed that order.
It wasn't my place to consider the consequences of that."
In the end, Microsoft agreed to offer a version of Windows with
Internet Explorer hidden and partly disabled, and an appeals court
was due to consider the case in the spring. But it hardly mattered
any longer. Windows 98 was due out in just a few months, and
Microsoft was saying Internet Explorer would be even more tightly
entwined.
The Lobbying
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A Multistate Tour Leaves Ill Will
In late March 1998, the antitrust chiefs in about a dozen states
agreed on a multistate action against Microsoft.
At the Justice Department, Mr. Klein still was not saying what he
planned. Still, by the first week of March anyone watching closely
could have guessed he was serious when he hired Jeffrey H.
Blattner, a former chief counsel of the Senate Judiciary Committee,
as special counsel for information technology.
His actual job, Mr. Blattner explained later, was chief of staff
for the Microsoft case, and as preparation for his new role he read
the evidence, principally the Microsoft documents. Right away, he
said, "I had a very clear sense that lawyers never get to see
documents like this."
Microsoft, apparently, was paying close attention, because within a
few weeks the company set out on a lobbying campaign.
In late March, Dennis C. Vacco, then New York's attorney general,
got a call from Fred Foreman, a former United States attorney in
Chicago. They had been colleagues years earlier, when Mr. Vacco was
United States attorney in Buffalo. Mr. Foreman had been hired by
Microsoft, and he asked if he and representatives of his new client
could come in for a talk.
A few days later, the Microsoft contingent arrived in New York,
including Mr. Foreman and David A. Heiner, a Microsoft lawyer. The
atmosphere in Mr. Vacco's office was friendly -- until Mr. Heiner
made Microsoft's pitch: Why was his company being viewed as a
competitive threat, he asked. After all, he said, Microsoft holds
"only 4 percent of the worldwide software market."
Microsoft certainly knew that Mr. Vacco was not particularly well
informed about the software industry. But before meeting the
Microsoft group, Stephen D. Houck, a lawyer in the attorney
general's office, had given him a detailed briefing about the case.
Mr. Houck said Mr. Vacco did not say much in response to the 4
percent remark. But as Mr. Vacco thought about what he had been
told, he said, "I was almost derisive." After all, he added, the
case was not about the worldwide software business. It was about
the PC operating-system business, and Microsoft held about 85
percent of that market.
"I don't know if they were purposely playing me because they
thought I had a lack of knowledge," Mr. Vacco said. "But I knew
that was ridiculous." Microsoft's visit, he said, hardened his
resolve.
That scene was replayed in state after state, about 12 in all.
Then, in April, the Microsoft team showed up at the Justice
Department. During a meeting in Mr. Klein's conference room, they
gave a demonstration of Windows 98 and the benefits that the
company said resulted from the integration of Internet Explorer.
"The meeting was cordial," Mr. Klein said. "We knew all of these
people. We'd dealt with them before," including "on the MSN-America
Online case, when they obviously got the result they wanted."
Mr. Neukom said Microsoft spent several days preparing for the
meeting. "It was absolutely in our best interests to understand
their concerns," he said. But "there was very little indication of
open-mindedness on the other side of the table."
"Their mentality was that there are two separate products that you
forced together to crush Netscape," Mr. Neukom recalled. But by
then, in fact, Microsoft had given the government hundreds of
documents that would provide ammunition for a much broader case.
Negotiations
______________________________________________________________
The Failed Efforts to Avoid a Trial
By mid-April 1998, the Justice Department had produced a draft of
its suit that Mr. Klein, Mr. Boies and other officials took to
Attorney General Janet Reno. They met with her three times over a
period of several days. Ms. Reno and her staff asked many
questions, but finally she gave permission to file suit.
Right away, Mr. Klein asked David Boies to sign a contract as a
special government employee so he could serve as the lead courtroom
lawyer. Though he had worked for the government as a consultant
since December, Mr. Boies only then immersed himself in the
Microsoft documents.
"What most impressed me was the enthusiastic zeal with which they
used their monopoly power," he said. "In my experience, most
companies will use it, but they are nervous, uncomfortable about
it. But in this case there was such clarity and baldness in the
conduct. I'd never seen anything like it."
In late April, Mr. Klein and the other leaders of the antitrust
division met with the leaders of Microsoft, including Mr. Gates, at
the Washington offices of Sullivan & Cromwell, Microsoft's law
firm, where Mr. Gates made impassioned arguments against the suit.
As Mr. Neukom recalled it, Mr. Gates told Mr. Klein, "What we're
doing is good for consumers, good for the industry and good for
Microsoft."
"Bill just felt that if he could talk to them and not through
lawyers, they'd understand," Mr. Neukom added.
The government lawyers responded by laying out their allegations.
They tried to get Microsoft to respond. Now the company's chairman
knew firsthand that the government had a broad and potentially
serious case. But "we couldn't get them to focus on the issues,"
Mr. Boies said. "They just kept saying they didn't have monopoly
power." Once more an opportunity to avoid the suit slipped away.
In a several phone calls in mid-May, including some between Mr.
Gates and Mr. Klein, Microsoft appeared to be making a last offer
to settle the case: Microsoft would allow computer makers to alter
the opening screen of the Windows operating system. As the case had
broadened, that issue had been added to the government's growing
list of concerns.
On the strength of that, Mr. Klein agreed to meet with Microsoft
and hold what antitrust lawyers call "last rites" talks, the United
States government's final approach to the defendant in search of an
equitable settlement before moving to court.
On May 16, 1998, the talks opened. As the two sides sat on opposite
sides of a glossy walnut conference table, Mr. Boies leaned forward
and looked directly at Mr. Neukom.
Everyone at the table knew his deep experience in antitrust cases;
he had been the lead lawyer for I.B.M. during that company's long
antitrust battle with the government. "You know, once the United
States government files suit against you, everything changes," Mr.
Boies recalls saying. "People are more willing to come forward and
testify against you. Others are more willing to question you,
resist you. The whole world changes."
Still, as Mr. Boies recalled the moment, Mr. Neukom and the
company's others lawyers looked back at him with blank, unwavering
expressions. "They didn't really respond other than to repeat what
they'd been saying all along" -- that the government did not
understand the software industry.
In Microsoft's view, it was the government that had no intention of
settling the case. Mr. Neukom recalled the two days of talks ending
with a senior Justice Department official telling him: "I guess
we're in litigation. You have no idea how difficult we can make
your lives."
The last rites talks fell apart. And today many government
officials and industry executives regard Microsoft's refusal to
settle the case that day, before the suits were even filed, as the
biggest mistake the company has ever made.
But in another respect, the company's refusal was not surprising.
During a court hearing a short time later, a Microsoft lawyer
approached Mr. Boies and offered the following remark, as Mr. Boies
recalled it: "The government has been making the same arguments for
eight years. We always give the same responses. Our side always
prevails. When is the government going to leave us alone?"
The Judge
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Hoping to Avoid Another AT&T
As the state and federal governments were preparing to file their
suits, Judge Jackson recalled last month, he watched these
developments with "a fair amount of trepidation."
Because he had tried the earlier case, this new one would come to
his courtroom. It was certain to be big, complex and possibly
precedent-setting.
But in truth, Judge Jackson had tried only two antitrust cases in
his 16-year judicial career. And to say he knew little about
technology was at best an understatement. His abiding concern:
"Please don't let me screw this up!"
Still, "I thought I could do this," the judge said he decided. "I'd
done it before, become literate on esoteric topics for which I have
no background," notably as a successful trial lawyer in the 1970's
defending medical malpractice cases, another highly technical area
he had known little about.
A week after the suits were filed, the judge called the litigants
to his courtroom to set a schedule and tell them he wanted a
fast-track trial.
Later, he said he was determined to "stay away from disasters like
the I.B.M. and AT&T cases" each of which had dragged on for a
decade. "I'm a great believer in taking evidence, closing the
record as quickly as you can and then shipping it upstairs" to the
court of appeals. The very last thing he wanted, he said, was to
find himself in the same position as Harold H. Greene, the judge
who spent years trying AT&T and then overseeing the breakup of the
company. Judge Greene died in January.
On June 23, 1998, a three-judge panel of the Court of Appeals
handed down a ruling overturning Judge Jackson's decision in
December ordering Microsoft to take Internet Explorer out of
Windows 95. The ruling said Microsoft had every right to integrate
new products into Windows, if there was a plausible consumer
benefit.
Microsoft was jubilant, and the plaintiffs, at first, were crushed.
Judge Jackson said he was "wounded" -- and angry. "I think it was
wrongheaded on several counts," he said.
Mr. Boies got a copy of the appeals court decision just as he was
boarding a plane for San Francisco, where he was to meet with the
Justice Department's investigative team.
During the trip west, he read it and then read it again, "and by
the time I got to San Francisco, I was convinced it was a good
thing for us" because "it gave us a road map of what the court of
appeals criteria would be." Mr. Boies could frame his case around
it. Just after he landed, he explained that to the Justice
Department team. But he added with a grin, "They didn't immediately
recognize our tremendous good fortune."
Through the summer, state and federal officials feverishly prepared
for trial, trying with little success to persuade Microsoft's
supposed victims -- computer makers and others -- to testify. "They
were afraid of Microsoft," said Tom Miller, attorney general of
Iowa. "We didn't have any particular success." But over the summer,
even more useful Microsoft documents came in, and government
depositions of other industry leaders gave power to the growing
list of charges.
The Deposition
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A Mumbling Gates Delights Prosecutor
By late August 1998, the trial was scheduled to begin in less than
a month, and the government was still negotiating with Microsoft
over the deposition of Mr. Gates, forcing Judge Jackson to postpone
the opening day. Finally, in the last days of August, Mr. Boies and
Mr. Houck flew to Seattle for three days of deposition interviews
with Microsoft's chairman.
As he set up in a Microsoft conference room, Mr. Boies said he was
apprehensive as he got ready to face the powerful corporate chief.
"I was expecting him to be articulate, passionate, tough, direct,
intelligent and very, very knowledgeable about everything relating
to the case," just as he had been in their last meeting the
previous spring, Mr. Boies said. In other words, "a very effective
witness."
But as soon as the deposition opened, a very different Mr. Gates
was on display. This one was mumbling, uninformed, obdurate and
unaware of anything related to the government's charges. And Mr.
Boies was thrilled. He knew just what he had to do.
[INLINE]
Agence France-Presse
William H. Neukom, the company's general counsel, said Microsoft never
expected the video testimony of Bill Gates to be used in court.
_________________________________________________________________
"You want to capture as much of that as you can," he said. "If you
have a witness that says 'I don't know,' you want to get him to say
'I don't know' 1,000 times." Mr. Gates obliged.
After the first two days of deposition, there was a five-day break
before the third and final day. Surely, Mr. Boies concluded, Mr.
Gates' lawyers would talk to their client in the interim, explain
how damaging his testimony had been.
"I was really concerned that a recharged Gates would come back,"
Mr. Boies said. "I had two days of him in the can, and I could see
its value diminishing. I almost didn't take the third day."
But he did, and Mr. Gates came back, his behavior unchanged. When
the deposition ended, Mr. Boies knew he had a powerful tool.
Mr. Neukom said Microsoft never expected the tapes to be used in
court, only the transcripts. Had Microsoft's lawyers known the
tapes would be shown in court, Mr. Neukom said, "we would have
prepared our witness differently," changing the style of his
presentation, but not the substance. Yet, the Justice Department
thought even the transcripts were inflammatory.
Mr. Boies was determined to play part of the Gates tape on the
trial's opening day, now set for Oct. 19, and as often as he could
in the days following. He said he hoped it would send this message
to the judge: "The chairman of the company doesn't have any
credible explanation for what they did, even though he was
intimately involved. If he doesn't have an explanation, then how
can you credit the explanations of his underlings?" The strategy
worked.
As he watched the Gates tape, Judge Jackson said later, he was
thinking, "I can't conceive of Bill Gates being allowed to testify
like that on deposition."
Judge Jackson said it was an "ingenious strategy" on the part of
the prosecution. "Here is the guy who is the head of the
organization, and his testimony is inherently without credibility.
At the start, it makes you skeptical about the rest of the trial.
You are saying, if you can't believe this guy, who else can you
believe? It was a brilliant move by David Boies."
The Trial
______________________________________________________________
A Loss of Patience From the Bench
As the trial proceeded and the testimony grew ever more technical
and obscure, many evenings the government legal team left the
courtroom, and as they walked down the courthouse steps they would
be thinking about the judge, and, as Mr. Boies recalled it, one
lawyer would ask the other: "Do you think he understood?"
Judge Jackson chuckled at the question but in February said: "By
and large I was able to follow what they were saying." Still, when
Judge Jackson left the courtroom many days, he would corner his law
clerks and ask them to explain the technology issues he did not
understand. "I had excellent law clerks," he said. "They were
computer literate enough to explain things to me. We talked all the
time."
Toward the end of the trial, with Microsoft's defense in disarray,
the judge grew ever more abrupt. "There were times when I became
impatient with Microsoft witnesses who were giving speeches," he
said. In addition, "they were telling me things I just flatly could
not credit," echoing the impression Mr. Boies had said he hoped the
judge would take away from the trial.
When the main part of the trial ended on Feb. 25, 1999, the two
sides held settlement discussions at the judge's urging. In fact,
Judge Jackson vigorously pushed the litigants to settle, but this
turned out to be another missed opportunity.
By now, Microsoft could have little doubt that the government held
a strong hand. The post-trial mood of the federal and state
government lawyers was confident. "I've never been involved in a
case that went as well as this one," said Kevin J. O'Connor, an
assistant attorney general from Wisconsin.
But Microsoft was not ready to concede a thing.
During several meetings that opened on March 29 and ended in early
June, Mr. Klein told Microsoft for the first time that the
government wanted to break up the company. The Microsoft team said
they were unwilling even to discuss the idea. In an interview
later, Mr. Neukom said he was not particularly surprised, but
regarded it mainly as an opening maneuver in negotiations. But once
again, that was a grave misreading; the government was utterly
serious.
Nonetheless, during the last meeting, Mr. Klein laid out a proposal
not for a breakup but for conduct remedies similar to the ones the
judge approved on Wednesday. The Microsoft team listened
impassively. When Mr. Klein was finished, the Microsoft lawyers
said they wanted to think about it. But as Mr. Neukom said in the
interview, "It was way over the top."
At the end of the meeting, "there was a clear expectation they
would get back to us," said Mr. Blumenthal, the Connecticut
attorney general. "But they never did."
The Ruling
______________________________________________________________
Overcoming Qualms About a Breakup
By fall, the trial was over; only the judge's rulings were left,
and Judge Jackson looked back at the experience. A fast-paced trial
schedule, he said, can produce one of two results: a settlement, or
a war.
"And what we got was a war. This is like the battle that ended the
War of the Roses," he said in September. "That's the way I look at
this case, like the fall of the House of Tudor. Something
medieval."
He said he was separating the findings of fact in his verdict from
the final ruling, the conclusions of law, because "I want to
encourage a settlement." And a few weeks later the idea to ask
Richard A. Posner, chief judge for the United States Court of
Appeals in Chicago, to serve as mediator, hit him like "a bolt out
of the blue."
"I knew," he explained in February, "that the egos were
sufficiently high on both sides that, with any ordinary person,
they would just say, 'So, who are you?' " And when he called Judge
Posner, "I was grateful that, one, he would take a call from a
district court judge, and two, that he didn't say, 'I have so many
things going on I don't have time.' "
After four months, the settlement talks failed; Microsoft once
again rejected a package of conduct remedies prepared by the state
and federal governments -- certainly knowing, given the history,
that a breakup proposal might well follow. And as the time for a
final ruling loomed early this year, Judge Jackson was obviously
troubled.
"I have been in splendid isolation on this case long enough," he
said. "I would welcome another mind studying my work product to see
if I am correct or wrongheaded. I want to move this case upstairs
as quickly as possible."
That, as much as anything else, prompted him to speed through the
remedy phase. "The sooner this gets definitively resolved, the
better it is for the country -- including the defendant."
As for his reluctance, in February, to break up Microsoft, Judge
Jackson said last month, "I'm still uncomfortable." On Wednesday,
however, he accepted the government breakup proposal without
alteration.
"Assuming, as I think they are, that the Justice Department and the
states are genuinely concerned about the public interest," he said,
"I know they have carefully studied all the possible options. This
isn't a bunch of amateurs. They have consulted with some of the
best minds in America over a long period of time.
"I am not in a position to duplicate that and re-engineer their
work. There's no way I can equip myself to do a better job than
they have done. I think this is the best possible proposal, neither
the most drastic that could be imposed or as loosely constructed as
the consent decree" in 1995 "which they did not think accomplished
what they intended."
As for his competence to supervise a breakup, the judge said he was
certain the government would help him. Still, Judge Jackson leaned
back in his chair and shook his head.
"Shades of Harold Greene," he said with a rueful smile. "I tried so
hard to avoid the pitfalls he encountered in that trial."
_________________________________________________________________
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