'I'm rubber, you're glue' Featured

9:59am EDT July 22, 2002

Historians may one day recall it as the antitrust trial of the century, but participants in U.S. Department of Justice v. Microsoft Corp. often sound less like passionate scholars of bedrock economic principles than bratty schoolkids playing King of the Hill. Consider:

  • Bill Gates threatens to cut off Intel Corp., his closest business partner, if its executives don't stop developing software Gates calls competitive with Microsoft products. Industry players say Gates wants the whole software playground to himself.

  • Former Intel vice president Steven McGeady says Microsoft wanted to "extinguish" Web browser pioneer Netscape Communications Corp. Microsoft lawyers accuse McGeady of being a sore loser because he got edged out of his job.

  • America Online acquires Netscape. Microsoft lawyers plead no fair to the Feds's antitrust prosecution, because if AOL can do it, Microsoft should be able to do it, too.

  • In open court, the judge laughs out loud at Bill Gates's videotaped deposition.

"Whatever the outcome is going to be from this lawsuit, we all have to survive in this industry together," says Lora Loftis, vice president of business development at The Pixel Company in Seattle, Wash., one of the thousands of firms that have grown up, literally or figuratively, in the shadow of Microsoft. "We're growing up and I think a lot of these things are happening because of our youth."

Antitrust lawyers, government regulators, industry CEOs, investors and executives are anxiously eyeing the spit fight that seems to have broken out in a Washington, D.C., courtroom. Billions, maybe trillions, of dollars are at stake. The outcome-including the possible break-up of Microsoft-promises lengthy appeals and more market upheavals, which will leave allies and competitors uncertain for years.

Observers differ on what might be the long-term fallout of bitter exchanges between one-time, and most likely next time, collaborators. The cut-throat invective against market rivals on display at the Microsoft trial "are par for the course in aggressive, fast growing industries," says Jay Amato, chairman of the Technology Access Action Coalition, a Washington, D.C., lobbying group formed this summer. "The shareholders are not paying [high tech executives] to be nice or to be popular. They're paying them to win-period."

Some are playing for higher stakes than others. Bryan Sparks's company, Caldera Inc., has a two-year-old lawsuit pending against Microsoft. When he filed, alleging anticompetitive and illegal acts, Sparks was alone and fearful of retaliation. Today, "It doesn't matter how the verdict goes," he says. "We believe we have a rock solid case." Whether the Justice Department wins or loses, Sparks believes, "There will be a cloud of suspicion around Microsoft's behavior." Since Caldera filed, Netscape, Sun Microsystems and others have followed suit. Sparks believes the challenges to Microsoft's hegemony will continue.

Jeffrey M. Shohet agrees that more legal action is probable. "Microsoft has not had any trouble making enemies along the way," says the chairman of the antitrust practice group at Gray Cary Ware & Freidenrich LLP in San Diego. "I don't think anyone really trusts a long-term alliance with Microsoft. It's so powerful. They don't really need anyone."

Shohet thinks Microsoft's go-get-'em attitude toward competitors is normal for its industry. But he also believes the company probably violated the Sherman Antitrust Act, as the Justice Department charges. He dismisses Microsoft arguments that the turn-of-the-century trust-busting law is out of date. The Sherman Act is barely two paragraphs long, he notes. "It's more like a constitution than a piece of legislation and a constitution can last forever."

Amato, at TAAC, counters that if government probes into intellectual property disputes with Intel and partnership practices at Cisco Systems go forward, technology standards may be thwarted and prices could go up. Meanwhile, government subpoenas of e-mail records at Microsoft set an ugly precedent for all companies, encouraging them to alter their recordkeeping policies. "The more [e-mail] you save, the more there is to discover, and the more there is to be misunderstood," Amato says.