Microsoft’s Hard-Line Stance in Suit May Misfire With Public

Microsoft has a reputation for using its technological and financial might to blow away any obstacle in its path.

But as it approaches a Jan. 13 hearing on contempt charges for making what the Justice Department calls “an absolute mockery” of a federal court order, legal and industry observers are beginning to ask whether the Redmond, Wash., software giant has gone too far with its salvos aimed at the U.S. government and courts.

“The attitude of contempt that Microsoft brings to Washington is pissing people off,” says Kenneth Flamm, a senior fellow at Brookings Institute and a former deputy assistant secretary of defense for economic security and technology issues.

Given the importance of the Internet and Microsoft’s growing power on it, says Flamm, “there are important public policy issues to be discussed. Instead, Microsoft acts like everybody is too stupid to understand the issue.”

Next week’s hearing before U.S. District Judge Thomas Penfield Jackson will address the Justice Department’s claim that Microsoft was in contempt of court in its response to Jackson’s Dec. 11 injunction ordering that it cease bundling its Windows 95 operating system and Explorer Internet browser as a single product.

The company’s response was to offer customers--that is, computer manufacturers--two alternative versions of Windows 95. In one, the browser was disabled in a way that made the entire operating system, and thus any computer it was to run on, inoperable. The second was an older version of Windows unlikely to appeal to buyers.

Microsoft lawyers said those were the only ways to alter Windows to comply with the judge’s order. But the judge subsequently pointed out that he and an assistant were able to remove Explorer software from a computer in 90 seconds, leaving a fully functional operating system. Microsoft fired back with a brief questioning the technical competence of the judge and Justice Department attorneys, noting: “Poorly informed lawyers have no vocation for software design.”

There is no doubt that much is at stake for Microsoft in the Justice Department’s case. The issue, as the agency framed it in a lawsuit last October, is whether the company is using its unassailable position in personal computer operating systems (through its sales of the popular Windows 95) to develop a similarly dominant position in the market for Web browsers--programs that allow users to view pages on the Internet’s World Wide Web. The fear is that this might destroy the viability of market rivals like Netscape Communications Inc.

The government contended that Microsoft had violated a 1995 consent decree by requiring computer makers offering Windows to include the Explorer browser as well. Jackson’s Dec. 11 injunction was designed to halt the practice temporarily, or until a court-appointed special master can assemble evidence on the issue in May.

As the battle unfolds, both sides will be rolling out some spectacularly big guns.

The company is tapping its vast treasury to hire influential lobbyists and turning to its army of corporate partners for support.

Also in its corner are technophiles such as Vice President Al Gore, a confidant of Microsoft Chairman Bill Gates, who believe Microsoft is one of the nation’s crown jewels and shouldn’t be thwarted. (Gore has not spoken publicly on the lawsuit.)

For his part, Joel Klein, head of the Justice Department’s antitrust division, has gotten high marks for building a strong case. And Klein recently added star litigator David Boies, who made his name successfully defending IBM in a similar antitrust action in the 1980s, to the Justice Department’s Microsoft team. Meanwhile, Netscape, Microsoft’s principal rival in the browser market, has hired the law firm of former Senate Majority Leaders Bob Dole and George Mitchell to make its case in Congress.

Nevertheless, the focus thus far has been on the potential risk of Microsoft’s hardball response to Judge Jackson.

“It’s a mystery, because Microsoft could win without taking such a hard line,” says David Yoffie, a Harvard Business School professor who believes that Microsoft’s success in the browser wars is largely a result of producing a superior product rather than unfair arm-twisting. “Microsoft is underestimating the power that government can have to undermine or hurt [its] business.”

And not only the government: Microsoft may be undermining its case in the court of public opinion. There, some observers detect growing unease at its power over the desktop and, increasingly, over cyberspace. For the first time since the Federal Trade Commission began investigating Microsoft in 1989, the government’s antitrust efforts appear to be winning popular support.

“They are doing more damage to themselves than we could have ever done,” says Gary Reback, an attorney for Microsoft rivals who triggered the current case with a complaint to the Justice Department. “They’ve made [Justice Department attorneys] the cavalry that is protecting freedom of choice and the Internet.”

Microsoft executives prefer to cast their company as the defender of an important principle: that the market, rather than government, should determine the pace and nature of innovation in software.

Microsoft has already appealed Jackson’s injunction on technical grounds. The company is also challenging the judge’s appointment of Lawrence Lessig, a Harvard law professor known to have an incisive understanding of technology, as special master.

Still, Microsoft’s belligerence may have increased the danger of government intervention by elevating the court case from a narrow debate among the “digerati” into a public debate over its growing power in the technology world.

James Love, director of the Consumer Project on Technology, a group affiliated with Ralph Nader that has previously looked at problems of telephone monopolies, now likes to call the debate over Microsoft’s monopoly power “the biggest consumer issue.”

That could harm the company if the public comes to view it as an entity that places its own interests above those of its customers.

“Banks and car makers will be reluctant to put Microsoft between them and the customer,” says Reback.

Nevertheless, Microsoft may be reluctant to yield on the latest Justice Department initiative for fear that any showing of weakness could encourage other enemy forces standing in the wings.

The European Commission, for example, is apparently studying agreements it made with IBM in the mid-1980s that forced IBM to share information about its products with competitors as a model for imposing restrictions on Microsoft. And nine state attorneys general are considering joint action against the software giant.

A decision by Microsoft to compromise on the Web browser issue could invite competitors to attack other, more lucrative products, such as Microsoft Office. That suite, which includes popular productivity applications like spreadsheets and word processors, provides a major proportion of the company’s annual profit. Microsoft’s ability to take over new applications by folding them into Office could be ripe for attack on anti-trust grounds.

For all that, the record suggests that no company benefits greatly or over the long term by engaging the federal government in a lengthy fight. Love of the Nader organization notes that AT&T;, which resisted regulation, was broken up by a federal judge, while IBM, which eventually settled its case with the government, survived and thrives.

“Bill Gates is the consummate tactician,” Yoffie says. “He isn’t afraid of pulling back when he needs to. That’s why it’s such a mystery why he would fight with the country in such a public way.”