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  Competitors, Senators Assail Gates at Hearing

By Rajiv Chandrasekaran
Washington Post Staff Writer
Wednesday, March 4, 1998; Page A01

Microsoft Corp. Chairman Bill Gates was assailed yesterday by business rivals and lawmakers at a packed Senate hearing for squelching competition in the computer industry. When it was over, the panel's chairman branded the software giant a monopoly and warned that Microsoft "will have to learn to live by the rules that govern monopolies."

The contentious four-hour Judiciary Committee hearing – equal parts political circus, technology tutorial and legal interrogation – signaled a new, more public scrutiny of the software giant's role in the economy, with supporters lauding its innovations and critics warning of a business juggernaut that could thwart new ideas.

Microsoft, whose Windows operating-system software runs more than 90 percent of personal computers, has a "monopoly [that] has led to fewer choices, raised costs and stifled innovation," charged Scott McNealy, chief executive of Microsoft rival Sun Microsystems Inc.

McNealy and James Barksdale, chief executive of another Microsoft competitor, Netscape Communications Corp., called for a more vigorous application of antitrust laws against Microsoft, which they accused of using its market power to control commerce and content on the Internet and to dominate software for interactive television, hand-held computers and powerful back-office machines.

Gates delivered a spirited defense, scoffing at the notion that any one company could control the Internet because, he said, the medium is too large and diverse to be corralled. He maintained that government intervention, not his actions, threatens technological innovation.

"The software industry's success has not been driven by government regulation but by freedom and the basic human desire to learn, innovate and excel," Gates said, sitting to the front of his seat, his voice shaking slightly. "Will the success of this industry continue? I believe the question can be answered resoundingly 'yes' – if innovation is not restructured by government."

The hearing, which is unlikely to lead to new legislation, comes as the Justice Department and 11 state attorneys general are examining new legal moves against the company. The Justice Department last fall filed a lawsuit over Microsoft's tactics in distributing its Internet-browsing software, but it now is considering bringing a broader antitrust case that would accuse the company of monopolistic conduct that violates the Sherman Act, sources close to the investigation have said.

"They are now a monopoly, and they will have to learn to live by the rules that govern monopolies," committee Chairman Orrin G. Hatch (R-Utah) said after the hearing. Asked if the Justice Department should expand its case, he said, "It looks like they probably should."

At the hearing's outset, Hatch said that "some are concerned that where there's a lot of money to be made, or where competition could threaten Microsoft's dominant position, Microsoft exploits its monopoly power – virtually guaranteeing that no one entrant has a realistic possibility of succeeding."

In a move that could be expected to appease antitrust investigators and please competitors, Microsoft said last night that it is considering dropping a feature from new versions of its Internet-browsing software that allows users to quickly connect to World Wide Web sites selected by Microsoft. The feature, called the "Active Channel" bar, is being examined by the Justice Department because of allegations that Microsoft is using the technology – which is installed on every new Windows-equipped computer – to unfairly favor some Internet content providers.

A company official, however, said the technology is being considered for removal because "it has not been a particularly successful business strategy."

The company last week decided to allow about 40 Internet service providers whose Web-based sign-up pages can be accessed through a menu in Windows 95 to promote browsers made by companies other than Microsoft, including Netscape's Navigator. Microsoft's previous requirement, which prevented the mention of competing browsers, also was being examined by antitrust regulators.

Although Hatch billed the hearing as an examination of "market power and structural change" in the software industry that was not intended "to serve as an arena for criticizing or attacking any single company," the vast majority of questions focused on Redmond, Wash.-based Microsoft.

The boyish-looking Gates, who was escorted to the hearing room by Washington state's two senators and sat just a few feet away from his father and his wife, found himself on the defensive for the whole proceeding, deflecting questions not just from committee members but from competitors, who were given license to spar with each other. "Mr. Gates was clearly on the hot seat," Hatch said.

Hatch repeatedly tried to get Gates to admit that Microsoft has a monopoly in the operating-system market. But Gates refused to concede the point, telling Hatch that the products he makes "have a short life" and could be replaced with new technologies in a few years.

He said he's not keeping rivals out of the market. "Anybody who is doing great products in this business can do very, very well," Gates said.

While Gates was pilloried inside the hearing room, the world's richest man showed off his star power as he walked out through the marble lobby of the Hart Senate Office Building. A throng of teenage girls on a school visit squealed and waved to him, autograph seekers descended, and a horde of camera crews followed.

More than 300 people, many of them industry lobbyists, waited for hours to get a seat in the committee room, where the throng of cameras rivaled that at the Iran-Contra hearings. The spectacle prompted Sen. Patrick J. Leahy (D-Vt.), the ranking Democrat on the committee, to take his own pictures of the proceedings with a small camera.

The hearing was a study in incongruities. The Senate, which prides itself on tradition and does not even allow laptop computers in its chamber, found itself grilling six brash titans of the New Economy who tossed out three-letter abbreviations for such terms as "application program interface" and "Internet content vendor." A few senators, given questions written by staff members, struggled to make sense of technological terms, sometimes lobbing queries that skirted the point.

At other times, the questioning had laser-like precision. Hatch zeroed in on Michael Dell, founder of Dell Computer Corp. and a Gates ally, asking why his company does not offer Netscape's Navigator browser to consumers buying a computer.

"Does this have anything to do with your Microsoft license?" Hatch asked Dell. When Dell said it did not, Hatch asked, "Could you explain why, when committee staff called Dell's 1-800 number, five different sales representatives – George, Brad, Jason, Bobby and Jeff – told them that Dell could not distribute Netscape because of Dell's licensing agreement with Microsoft?"

Dell said he offers the Netscape browser to "large customers who demand it," but not to individual consumers because it is "widely and freely available on the Internet" and because the company does not believe there is enough demand for the product. At that, Hatch shot back, "How do you know what customers want if you don't offer choice in the first place?"

Toward the end of the hearing, Hatch testily questioned Gates about Microsoft's "Active Channel" contracts with other companies, asking whether those firms are prevented from entering into business deals with Netscape. Gates repeatedly sidestepped the question, causing Hatch to raise his voice and say, "It's a very simple question." Eventually, Gates conceded that about a dozen Microsoft partners have agreements that preclude them for a period of time from paying Netscape to join the channel bar on its browser.

Despite the tough questioning, Gates said the hearing "was a great chance to talk about competition in the PC and software industry." In addition to Dell, Barksdale and McNealy, Gates was joined at the witness table by Douglas Burgum of Great Plains Software Inc. and Stewart Alsop of the venture capital firm New Enterprise Associates.

Barksdale and McNealy told the panel that they do not want new laws to limit competition in the computer industry, a sentiment agreed with by Hatch and other committee members. Both groups urged aggressive enforcement of existing antitrust regulations.

"I believe in winners and losers and the freedom to fail," McNealy said. "What we want today is the enforcement of the laws that are already on the books."

© Copyright 1998 The Washington Post Company

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