PROFILE : Neukom Turns Tough Lawyer to Aid Microsoft
William Neukom was a 37-year-old junior member of a Seattle law firm in 1979 when one of the managing partners approached him with a special assignment. “He told me, ‘My son and his business partners are moving their business up here from New Mexico. I thought you could keep an eye on them,’ ” Neukom remembered.
The managing partner was William Gates Jr., the boss’ son was Bill Gates III, and the company was Microsoft--then a dozen scruffy programmers who had just finished their first product, a language for programming personal computers.
Neukom could hardly have anticipated what Microsoft was to become, or that the company would eventually find itself embroiled in an epic legal struggle with the U.S. government. But today, as the latest phase of a U.S. Justice Department antitrust investigation of Microsoft nears its culmination, Neukom, now general counsel for the software giant, has emerged as a central player in a complex, high-stakes legal drama.
He has assumed the role with gusto, assembling a dream team of lawyers--including former Federal Trade Commissioner Patricia Bailey--and aggressively confronting the Justice Department at almost every turn. It’s a strategy that critics say may yet backfire--but few who have observed the man or the company expected anything else.
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“Most legal departments take on the culture of the company they represent,” said Mike Morris, in-house counsel for Sun Microsystems Inc. “Microsoft has a very arrogant, in-your-face culture.”
So far, score one for Microsoft and one for Justice Department. Neukom had one win when a federal appeals court upheld a settlement Microsoft reached with the Justice Department in July, 1994. That deal forced some changes in the way Microsoft licenses the DOS and Windows operating systems, but was regarded by most as a slap on the wrist. The Justice Department won one when it forced Microsoft to abandon its acquisition of personal finance software maker Intuit Inc.
And a tie-breaker of sorts is in the offing: the Justice Department has stepped up its investigation of Microsoft’s plans to bundle the software for a new on-line service, the Microsoft Network, with the upcoming Windows 95 software operating system. Microsoft’s competitors want Microsoft to separate its on-line service from Windows--and many of those reading the tea leaves in Washington now expect the Justice Department to try and force such an action.
Neukom, 54, sporting a full mane of silver hair and a signature bow tie, presents a sharp contrast to the youthful, often disheveled Bill Gates. Whereas Gates sometimes comes across as blustery, Neukom appears cool, at least most of the time.
But five years in the spotlight has apparently taken a toll. Neukom’s relationship with Anne Bingaman, assistant attorney general for antitrust, and her staff has become strained, sources said. Many describe table-pounding shouting matches between Neukom and Justice Department staffers. Neukom often becomes irritable when discussing the antitrust investigation.
“It’s not all that surprising given the kind of scrutiny Microsoft’s been under,” said Sturgis Sobin, a partner with Washington, D.C., law firm Ablondi, Foster & Sobin, who has represented Microsoft competitor Novell Inc. “Even the best of lawyers if you put them under this kind of pressure are going to respond to that pressure.”
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Neukom’s combative style, however, and especially some of his public comments at various stages of the investigation, may be creating some extra problems. When the appeals court upheld the consent decree, for example, Neukom loudly proclaimed victory.
“I feel happy I went to law school,” Neukom crowed. “It is not the job of antitrust law to control the economy and ensure that there is an absolutely level playing field in all markets.
“Some companies will bring certain advantages to certain areas. . . . That may not be fair, but that’s business,” he added.
Those kinds of comments are hardly prudent, other lawyers suggest.
“I probably wouldn’t have run a victory lap,” Morris said. “After all, these two parties are going to have to deal with each other for a long time.”
Said another lawyer who asked not to be identified: “There have been a whole series of classic comments coming from Microsoft regarding these investigations. I know they irritate the hell out of the Justice Department.”
Microsoft executives, including Gates, have complained loudly about the Justice Department probe. Recently, Microsoft filed a lawsuit to delay the investigation of the on-line service, accusing the Justice Department of harassment. It was a highly unusual move, given that the two sides were still negotiating deadlines for Microsoft’s delivery of documents.
Still, some who know Neukom say he can’t be held entirely responsible for the hard-ball tactics.
“He’s charged with representing a very aggressive company,” said David Bradford, in-house counsel for Novell. “There’s got to be some tension there in trying to reign in managers and leaders who like to play out on the fringe” of propriety.
“There are probably easier things in the world than being Bill Gates’ lawyer,” Sun’s Morris added. “I’m sure Bill Gates thinks he’s a better lawyer than his lawyer is.”
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Although Gates keeps a close watch on Microsoft’s legal strategy, insiders say he trusts Neukom’s judgment. Having worked together for more than a decade, the two are able to speak in a kind of shorthand.
Neukom recalls that he was at first reluctant to take on Microsoft. “I was a litigator,” known for his skills in trying a case before a judge and jury, he said. “My practice was varied. My experience wasn’t in corporate law,” a world of closed-door negotiations.
But Neukom was smart. A philosophy major at Dartmouth who had gone on to receive his law degree from Stanford, he first captured the attention of Gates, the father, when the two worked on projects together for the Seattle Bar Assn., before the senior Gates hired Neukom to work at his firm.
As a favor to his boss, Neukom agreed to represent the ragtag group of computer programmers at Microsoft. In the early days, his toughest chore was persuading a local landlord to let his young clients into their rented offices after hours. “The landlord didn’t understand how software programmers work,” he explained. Neukom negotiated a lease that allowed Microsoft staffers 24-hour-a-day access.
Gates, the elder, had no doubts that he had picked the right lawyer.
“His intellectual style was a good match with the management style of Microsoft,” he said. “He had strong analytic abilities and plenty of self-confidence. He was obviously the right person. The fact that he didn’t have any experience in corporate law was a secondary consideration.”
By 1985, Neukom joined Microsoft, and the work got harder. In 1988, Apple Computer Inc. filed a lawsuit against Microsoft, alleging copyright infringement. Apple claimed that Microsoft Windows was a copy of its Macintosh software. After years of pretrial arguments, the case was finally dismissed, and the final appeals were denied last year.
By then, Microsoft was deeply embroiled in the federal antitrust investigation. It began with a Federal Trade Commission probe in June, 1990, and, after two years and two votes in which the commission deadlocked on whether to take action against the software giant, the investigation appeared to be dead.
But Bingaman, hired to breathe new life into a moribund antitrust division, revived the probe. She negotiated a settlement of the case last year, only to have it rejected by U.S. District Judge Stanley Sporkin, who said it didn’t go far enough.
Stung by Sporkin’s criticism, the Justice Department filed a lawsuit to block Microsoft’s $2-billion acquisition of personal finance software vendor Intuit Inc. The review of the Intuit purchase, in turn, spawned the investigation of the Microsoft Network.
Microsoft refuses to back down on its plan to include the network software with Windows 95, which is scheduled to be shipped on Aug. 24. Nor does the company have any plans to allow other on-line service providers--including America Online, CompuServe, and Prodigy--to make their software a part of Windows 95.
And the company continues to aggressively sign content providers, most recently wooing away NBC from America Online and Prodigy by offering the broadcaster a lucrative deal that the others could not match.
When asked if the Justice Department will once again strike out at Microsoft, Neukom feigns nonchalance. “Who knows?” he says. “I couldn’t have guessed many of the things that have happened.”
