In Ongoing Legal Drama, Gates Is a One-Man Show
Is Bill Gates Microsoft’s biggest problem?
Many Microsoft investors, analysts and adversaries blame the giant software company’s implacable chairman and co-founder for the collapse of settlement talks in its antitrust battle with the U.S. government, resulting in Monday’s ruling that Microsoft violated federal and state antitrust laws.
It is Gates, say sources in and out of the company, who set the Redmond, Wash., company’s courtroom strategy of conceding nothing on the charges that it competed unfairly with rivals in several software markets. And it is Gates, they add, who set the terms of possible settlements.
“It’s still a one-man outfit as far as some important decisions go,” said Steven D. Houck, a former New York assistant attorney general who led the courtroom fight on behalf of 19 states, including the District of Columbia, that had joined the federal government’s lawsuit. “Gates is very combative. He’s not used to losing, and he lives in a world of his own up there in Redmond.”
With Judge Thomas Penfield Jackson’s ruling Monday that Microsoft broke the law, the company is likely to face penalties stiffer than anything it might have given up in negotiations. Those penalties could include splitting the company into several components, a goal that the Justice Department had abandoned during the settlement talks.
Certainly other parties to the lawsuit deserve some blame for the collapse of the settlement talks. Federal Judge Richard Posner, who presided over the talks, said over the weekend that the two sides were far apart in their settlement proposals. For its part, Microsoft blamed the 19 states; General Counsel William Neukom remarked Saturday that Posner “mentioned the skill and flexibility of the Department of Justice and Microsoft. But it was a process involving more than those two parties.”
Yet observers say that Gates, as Microsoft’s dominant shareholder and executive, could have settled the case long ago for far less than is now threatened.
The problem, people involved in the talks said, was that it was impossible for Gates to give up anything truly meaningful because he has never been willing to concede that either he or his company violated the law.
“Way down deep, he doesn’t think he’s done anything wrong,” one source said. “It’s pretty hard to settle for a guy like that.”
Gates’ views also are shaped by a broader conviction that the government should have virtually no role in the Darwinian process by which high-tech companies develop their products and battle with rivals in the marketplace. He deeply believes his company benefits the world in general and everyone who uses its products in particular.
And he has long expressed the view that Microsoft derives its financial success from giving consumers what they want and that any government interference will only hamper its ability to improve its products.
Yet it is far from universally accepted that Microsoft’s domination of the market for personal computer operating systems--its ubiquitous Windows--has inevitably produced the best products without stifling competition. Windows is widely decried as bug-prone, for example. Jackson further ruled on Monday that Microsoft’s competitiveness had undermined, perhaps permanently, the potential of software such as Sun Microsystems’ Java to increase the utility of desktop computers.
The history of antitrust cases also suggests that the rightness or wrongness of a company’s position under the law is less important than ending the case as swiftly as possible, lest it become a mortal distraction for executives, employees and customers. Take the reaction of Intel Corp. when the government sued it for antitrust violations in 1998.
“Intel said they were going to settle the case at all costs,” said Michael Gartenberg, an industry analyst at Stamford, Conn.-based Gartner Group. “It didn’t matter who’s right and who’s wrong. And that lawsuit went away very quickly.”
Intel settled the lawsuit by the Federal Trade Commission in March 1999, about six months after it was filed.
Gates’ approach to the government complaint resembles far more that of another industrial magnate almost exactly 100 years ago. That was John D. Rockefeller, whose Standard Oil trust came under government attack at the turn of the last century. Rockefeller evaded the first court rulings against Standard Oil by reorganizing the company. But in the end he lost the battle, as his huge trust was broken up into 33 separate companies.
There is little question that Gates’s personality pervades Microsoft, for good and ill. Microsoft insiders have consistently painted a picture of a corporation in which gaining Gates’ ear is the one foolproof way to get a project green-lighted, and losing his interest the swiftest path to oblivion.
“Microsoft is a corporate culture based on four premises,” Gartenberg said: “You work very hard; Bill is always right; it’s us versus them; and Bill is always right.”
The company’s close identification with the personality of its co-founder and chairman has been beneficial, in that it has infused Microsoft with Gates’s youthful self-confidence and combativeness--a virtue when its future was insecure and its main rivals were industrial behemoths such as IBM. But it also may have allowed Gates, 44, to become isolated in his conviction that the company should fight the government’s lawsuit to the bitter end.
Another aspect of Gates’s worldview that has infused the company is a belief that its business strategy could unfold in a social and political vacuum. This was noted as early as 1995 by U.S. Judge Stanley M. Sporkin, who presided over the company’s first antitrust trial.
In rejecting the government’s negotiated “consent decree” in a lawsuit over the company’s licensing of an earlier version of Windows, Sporkin wrote, “Microsoft, a rather new corporation, may not have matured to the position where it understands how it should act with respect to the public interest and the ethics of the marketplace.”
Sporkin was later overruled by an appeals court, but his insight proved prescient: The company’s perceived flouting of that settlement’s terms made its adversaries in the later case, especially the states, extremely wary of imposing settlement terms that could lead to future disagreements over interpretation.
For all that, Jackson’s ruling does not end the case, and it is entirely possible that Microsoft might emerge a victor, if a bloodied one, after months of further deliberations over possible remedies and years of appeals. The company is clearly hoping that if it doesn’t win on appeal, changes in the federal government--a Bush administration in the White House, for example--and in the high technology industry will lead to an eventual weakening of the other side’s negotiating position.
Indeed, the federal government eventually dropped a long-running suit against IBM as the company’s domination of its industry waned.
But in the intervening years, that suit forced IBM to change its behavior, encouraging the gains by its competition, analysts said. That process is likely to repeat itself with Microsoft, although Gates, characteristically, insists that his business continues as usual.
“The ruling is just a step in the legal process,” he told the Wall Street Journal over the weekend. “It doesn’t change any situation relative to what we do.”
