Break up? Make up? Appeal?

Microsoft watchers, company leaders and critics weigh the software giant's future in the wake of the antitrust ruling.

Published April 3, 2000 3:30PM (EDT)

Here are reactions to Monday's Microsoft antitrust ruling from participants and expert observers.

Stephen Manes

Biographer of Bill Gates, Forbes columnist and co-host of public television's "Digital Duo"

Microsoft has always lived fairly close to the edges of the law, and has come out on the right side of some of the decisions, and on the wrong one in some -- including where they lost the patent infringement case against Stac, and they solved the problem by buying a piece of the company. Likewise, they just settled out of court with Caldera, for an unnamed figure of money assumed to be in the nine figures.

They've been forced to sign consent decrees -- where you swear you do nothing wrong and you promise to never do it again. Microsoft's very first product was subject to binding arbitration. In 1977, there was a legal dispute over the very first contract the company had signed. Microsoft is not a stranger to a courtroom and the legal process.

I think Microsoft had any number of ways open to it to increase its dominance and to maintain its market power. And in a typically arrogant factor, they at minimum skirted and in the judge's view broke the law. There are any number of ways that they could have screwed Netscape, and they picked the one that they should haven't tried, especially since they were under a consent decree that dealt with these kinds of practices.

Microsoft has been an incredibly arrogant company with a general disregard for the truth and an extreme regard for public relations. When Microsoft calls itself innovative you don't know whether to laugh or cry. Now they've been caught out in the kind of business practices that they've been engaging in for a long time, some of which may have been legal before they became a monopoly but aren't once you are a monopoly.

They keep talking about freedom to innovate: Microsoft is possibly the least innovative big company around. Just about anything you care to name in Microsoft products has its roots somewhere else.

The judge got this right: Microsoft used its platform monopoly as a lever to go out of the way to stomp anyone who might threaten it. The only time it's been great for consumers is when it's had competition. When it had a competitor in operating systems, particularly with IBM in OS Warp, it went from Windows 3.1 to Windows 95; this was a substantial improvement. But the improvements since then have been basically nonexistent. Now that it's wiped Netscape, it's improved the browser minimally. Once Netscape was out of the picture, the browser improvement became minor and trivial. Once it eliminated WordPerfect with Microsoft Word, it's made some improvements, but they're marginal and small.

Competition is good for the consumer and it's good for Microsoft. When there's competition, Microsoft competes, but once it's stopped the competition it doesn't compete, and consumers don't get better products.

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Morgan Chu

Co-managing partner in Irell & Manella and lead counsel for Stac Electronics in its 1994 court victory against Microsoft

I think this could have significant long-term repercussions for the entire software industry. Assuming the conclusion of the court holds up on appeal, I think that the marketplace will become more competitive with respect to applications. I think we'll see greater innovations. I think we'll see companies pursuing new products, new services, making research and development investments where they wouldn't have pursued them previously because of the long shadow Microsoft has cast. And as a result you'll spur innovation. You'll have consumers and the market deciding what's best, not Microsoft.

Other antitrust suits will also be able to argue that Microsoft is collaterally estopped with respect to certain conclusions. The basic rule is that if you have fairly litigated an issue and lost that issue, you -- Microsoft in this case -- can't litigate the issue again. There are already pending about 100 other lawsuits, from what I've heard, that relate to Microsoft's anti-competitive conduct. Some of those undoubtedly have issues that are similar to or identical to the issues here. If they're identical -- say, for example, if Microsoft tried to argue that it wasn't a monopoly -- then Microsoft could be collaterally estopped. Information from this case would stop Microsoft from arguing the same set of facts because those facts had already been decided on. It's a broad principle taken up in all courts; the questions will be whether or not the issues are the same, or identical, instead of similar. It will be up to the judges whether they want to stay or postpone the proceedings to wait for the appeal. I suspect that they'll proceed in their ordinary process and not raise the appeal.

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Ken Wasch

President of the Software and Information Industry Association

We think it's a slam-dunk win for consumers -- the judge has recognized that Microsoft was engaged in practices that effectively killed the Netscape Navigator browser and deprived consumers of choice. But this is not about the browser but about Microsoft's ability to leverage its monopoly to engage in unlawful activities to preserve its monopoly, and tie its product to another product.

We think this opens the door for very strong conduct remedies or structural remedies -- some form of breakup, or some divestiture of business units.

It's amazing, watching the Gates and Ballmer press conference, the defiant stance they've maintained -- here you have a defendant that has been found guilty, and they are showing no remorse and no interest in modifying what a judge says are illegal practices. It's surprising.

In the settlement discussions, Microsoft offered to end price discrimination between computer manufacturers. But during the trial it said it wasn't doing that. It also said it would separate the browser from the operating system. In the trial it said it couldn't do that, either. It also said in settlement talks that it would supply technical information to third parties at the same time as its own developers. But in the trial it said it was already doing that. So in the last week it's cut the legs out of its own argument!

Ultimately, strong remedies will let a thousand flowers bloom and let computer manufacturers truly differentiate their product by offering different bundles of software and access to Internet content.

Steve Ballmer

CEO of Microsoft

When people ask me about this case, I tell them three things: I tell them that the right of appeal [a cell phone goes off] and the right to a cell phone is a fundamental tenet of the American legal system, and that until the appeal is over nothing is settled. We've learned that from experience.

I tell them I couldn't be more proud of this great company, its incredible employees and its breakthrough products. And I tell them I believe in this company more today than I ever have. I believe in our people, our technology and our vision. We need to stay very focused in on that.

It's important for us to all think about what today's ruling means and what it does not mean. The ruling does not change the challenges and opportunities before us. Windows 2000 is the foundation for a whole new generation of products and services that will make the dream of next-generation Windows services on the Internet a powerful reality. The combined power of amazing software, the Internet and wireless technologies will free our products from the desktop and servers and take them into literally every corner and walk of life. If you take a look at devices like pocket PCs, smart kitchen appliances, the My Pad that Bill had a chance to unveil last month, it's really quite amazing.

And the boundaries of innovation are really being expanded as never before, and it's those incredible opportunities and challenges that will shape the destiny of Microsoft and our industry.

At the same time, we do recognize that we have a special responsibility to set a positive example in our industry. We've spent the past 25 years thinking of ourselves as a small aggressive company playing catch-up to industry giants, even though at some point along the way we became a large company. Our success has really come from the opportunity that Microsoft and that Windows have created for consumers and for thousands and thousands of companies even while we competed with a few of those companies.

We have failed to adequately demonstrate all of that opportunity for consumers and business alike. Our intense focus on moving forward has at times been seen as threatening and our passion for being the best has been misinterpreted. We can do better. But that doesn't mean innovating any less or delivering any less value to consumers. It does mean that the values we hold dear -- opportunity for everyone, integrity, innovation, customer focus and partnership -- have been called into question today. We continue to cherish those values as we always have.

In the coming weeks, I intend to speak directly to many key customers and partners to assure them that today's ruling will not cause us to slow our efforts to provide the products and services they need to run their businesses. I had an opportunity today to talk to a wonderful software developer building on our platform, and the list and range of new things that they want to see in the basic platform was daunting. But we're dedicated to delivering on the kind of things that folks like that want.

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Ralph Nader

Consumer advocate

The remedies are what it's all about, and based on the findings of fact, and today's legal findings, it seems to me that [Judge Thomas Penfield Jackson] has to order the breakup of Microsoft -- at least separating the operating system business from their applications business, and also requiring Microsoft to divest itself of its browser. They need to spin it off.

That's what would be the structural remedy. If he goes the other way and orders a behavioral remedy, saying, "You have to stop entering anti-competitive contracts and prohibitive agreements," well, that requires year after year of monitoring. And they could never keep up with Microsoft. Unless there's a huge federal police force watching Microsoft, they'll evade. It's been a defiant company for years: It defied the judge, it even misled the judge on several occasions. So to end up with "You should do this and you shouldn't do that" is quite readily evadable by a company like Microsoft. But what they can't evade is a breakup of the company. A breakup is the best thing to allow competition by innovative competitors, which will then benefit consumers.

The only real innovation Microsoft has shown the world is how to crush its competitors with monopolistic, anti-competitive behaviors. This is not a company that's used to innovation -- it's the great imitator.

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Ron Chernow

Historian, author of "Titan, the Life of John D. Rockefeller, Sr."

If you go back to the spring of 1998, we got this giant federal antitrust suit because of the breakdown of negotiations that spring -- their desperate last-minute efforts to stop the case failed. A major antitrust case always suggests a failure of prior negotiations, because the federal government is reluctant to enter these cases -- they are expensive and drag on for years.

Here is a case where Microsoft had shown very little willingness to compromise before -- the case was a violation of a previous consent decree. It was clear that this was going to be an unusually tough and uncompromising company to deal with, consistent with its reputation in the industry for a no-holds-barred approach to the competition.

If you go back to spring and summer of 1998, it started out as a much more narrowly focused case on the bundling of the browser with the operating system; it wasn't really a great deal more than that. But what happened, as the case proceeded, a lot of Microsoft's enemies came out of the woodwork; the lineup of the people testifying against Microsoft got larger and more impressive and the nature of allegations became larger and more sweeping. The government had a brilliant prosecutor in David Boies, and his showmanship encouraged a lot of people to join the case. A lot of momentum built up.

They kept raising the stakes, and when the moment came for negotiation, the bar had been set very, very high; the Justice Department and many state attorneys general had a very triumphant feeling, and they felt that the power was on their side. They suddenly were demanding very major concessions and many of them wanted to go beyond conduct remedies to the structural remedies, including the breakup of the company.

I'm not sure that Gates is being blasi about this -- I watched the 6 p.m. press conference and I was struck by the fact that Gates was very heavily made up. He's usually not. Someone must have said to him, "Bill, you look pale and need to be touched up," which suggests that he had a much stronger reaction than he was letting on. We know from various press reports that he's been table-pounding furious, and feels this tremendous sense of injustice and of being under siege. I feel that the press conference he had was more of a studied attempt to project a self-confident and even cheerful image, even if it wasn't entirely convincing.

I've said about Gates before that the essence of his commercial success has been because he is so uncompromising. The same thing that he's been successful with in business is the same reason it's hard for his personality to cope with an antitrust trial. His unrelenting drive and character, which are so advantageous in business -- those characteristics work against you in the political sphere, which requires compromise and the ability to negotiate. When the case was filed in 1998, Microsoft had been in business for 25 years, and it was clear that Gates was a successful but relentless businessman; he would have had to reinvent himself to become a subtle negotiator. It wasn't in his nature.

What makes these sorts of antitrust cases so fascinating, where the Standard Oil comparison is so interesting, is that they involve companies run by the founder-entrepreneur. The founder-entrepreneur sees the company as his own life writ large -- Microsoft and Bill Gates are synonymous, and Standard Oil and Rockefeller are synonymous. If you accuse that company of breaking the law, you are directly attacking the very being of that personality.

It's not about money -- Gates has more money than the most monstrous egotist could want. And the history of breakups in general is that shareholders tend to profit by the breakup. Rather, this has been a very, very disorienting experience for him -- somebody who was lionized by the press for many, many years, and credited with the restoration of technological supremacy by the United States, is suddenly demonized as the prince of darkness.

Personalities like Rockefeller and Gates are like religious fundamentalists -- they are total belief systems, which is why they are good motivators. The company is the expression of that religion; and fundamentalists are not prone to compromise. The more you attack them the more defensive they become.

In the case of Gates, he's spent the last 25 years trying to figure out ways to leverage the power of Windows; from his point of view he probably feels that he's doing the same thing he always did, and why is this happening? The reason it's happening, I think, is because legitimate forms of behavior in normal businesses are different when done by a monopoly. When you get up to 95 percent market share it gets illegal ...

I was very surprised when I was doing the research for "Titan" that Rockefeller, who like Gates had a very uncompromising attitude, when the worst actually occurred and the company was broken up, there was more resignation than I would have expected. He did manage to move on with his life. Rockefeller had the advantage, which Gates doesn't, that by the time the Supreme Court broke up Standard Oil in 1911 he was 72 years old; he was retired and devoting himself to God and golf and related pastimes, so in a way it was academic. He wasn't really in the industry anymore.

Gates is a young enough man that I doubt that if the worst were to happen he would be interested in retirement. He could probably afford it if he watched his pennies, but I don't think he'd do that. One possibility is if they broke up the company and he stayed with one of the pieces -- Big Bill staying with one of the baby Bills -- he might experience as a businessman a new lease on life, recapturing the fun of the old days when he was not Darth Vader. He's too creative and energetic to exit the field.

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Tim O'Reilly

CEO of computer book publisher O'Reilly & Associates

My sense is that while this case has been heating up, it's really acted as a curb on Microsoft's aggressiveness. They've been a better citizen recently because they've been watched. And that really has benefited the industry and given it breathing room. This will give it some more; we're seeing the cracks in Microsoft's monopoly. I actually believe that looking forward, Microsoft is in a weaker position than ever before. Microsoft might argue that they're not really a monopoly as a result, but I don't think they have to have wielded their monopoly successfully to have broken the law. It's about leveraging a monopoly. They did try and do that and the competitors they could identify, like Netscape, they did in fact put out of business.

It's ironic, but Microsoft's attacks on Netscape -- their attempt to "cut off Netscape's air supply" -- also contributed to the success of open source. They focused their battle on Netscape because they were thinking of client-side competition. But they didn't count on the appeal of Apache and the whole open-source platform for the Web ... If Microsoft had seen open source as as much of a competitor as Netscape back in 1995, they would have ended it, either with a patent lawsuit or some other attack. Now, I think we're going to see continued momentum toward open source. There's a squeeze on Microsoft from two ends: the vendors who say, "We don't have to pay these guys," and the Web application vendors like MapQuest, eBay and Amazon. Those guys are looking to support open source, because it works for them. They don't want to get into a market where Microsoft can essentially tax their efforts.

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William Neukom

Microsoft general counsel

If the plaintiffs read these conclusions carefully, and think it through, they will realize that the case has been narrowed appreciably ... We are somewhat encouraged by aspects of this. It is not good news, certainly, but it is not unexpected.

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Eliot Spitzer

New York attorney general

The thing that strikes me about the opinion is the careful thought and analysis that Judge Jackson has put into this; he's followed this case with tremendous care and has been creative in the way he addressed the tying issue ... He's left Microsoft in a very difficult position -- the thoughtfulness of his position puts them in a bind, with a remote chance of success on appeal. They need a clean sweep in the D.C. Circuit to limit their liability, and I don't think anyone would want to bank on this.

Microsoft right now, despite all their naysaying, is probably wishing they had resolved this last week with the attorneys from the DOJ.

By Salon Technology staff report

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