The idea that the federal government could dictate rules for his business has always been offensive to Microsoft CEO Bill Gates -- so much so that it has clouded his business judgment and turned a fixable problem into one that could cost his company many billions of dollars and perhaps its very existence.
That's the drama buried under the stinging 207-page "findings of fact" issued Friday in the Microsoft case by Judge Thomas Penfield Jackson. Through a series of poor decisions that were a mix of principle and pique -- and shaped by what friends and business associates say is a kind of personal immaturity -- Gates has put his company at risk. What the marketplace couldn't do to him, Gates has done to himself.
Two years ago, when the Justice Department was preparing its antitrust case and a settlement could have been negotiated fairly easily, Gates was in a tightly contained rage. He muttered to visitors that if the trustbusters wanted to turn Microsoft into a regulated monopoly, well then, fine -- but they'd have to hire some retired AT&T executives to run the company, because he wanted nothing to do with it.
Gates seemed hurt and angry and mystified all at the same time. How could they do this? How could they attack a company that had helped launch the computer revolution and created trillions of dollars in wealth? He couldn't imagine that his critics could be so shortsighted or ungrateful. Gates was convinced that the government was challenging Microsoft's basic freedom to innovate, and so he decided to dig in his heels and fight.
The potential cost of Gates's stubborn stand became clear Friday, when Judge Jackson issued his scathing ruling, which branded Microsoft a monopolist that "has demonstrated that it will use its prodigious market power and immense profits to harm" its rivals. That harsh language almost guarantees that Jackson will find Microsoft in violation of the Sherman Antitrust Act and move to penalize the company for its illegal actions.
Justice Department antitrust chief Joel Klein is now deciding what sanctions to request. His list ranges from relatively simple "conduct remedies" -- such as new rules for Microsoft's contracting, pricing and product integration -- all the way to "structural remedies" that might include a breakup of the software giant into two or three smaller companies.
Ominously for Microsoft, Klein is weighing a possible breakup of the company partly because it would be a clean solution -- letting the market do its work and avoiding any continuing government role in policing the technology business. "I'm not looking for the federal government to decide what goes into every computer," Klein said in an interview yesterday. "What we're about is competition, not regulation."
Nearly as dangerous for Microsoft (and perhaps more so for its shareholders) is the prospect of a wave of private antitrust suits and state actions on behalf of consumers. Unless Microsoft settles the case quickly, before Judge Jackson enters his final judgment, the findings of fact will be available for private plaintiffs to use in their lawsuits. There's a long list of potential plaintiffs -- including Netscape, Apple and many dozens of other companies that could claim they were harmed by Microsoft's monopoly power and tactics. The cost of all these cases could run to tens of billions of dollars -- something that should make even the world's richest man queasy.
The alternative for Microsoft is to try to hammer out a settlement with Justice before Judge Jackson's findings become final. It's likely that in private negotiations with Klein, Microsoft could find an alternative to a structural breakup. But the company will have to offer more concessions now than it would have last summer, just as it had to offer more last summer then when the case was filed in October 1997.
One top Justice Department lawyer who has been in the courtroom every day likens Microsoft's behavior to that of a stubborn investor who didn't buy Micosoft stock when it was $20 a share and keeps refusing to buy it as it climbs in value -- because he could have bought it cheaper before.
The odd thing is that Gates would never do this in business. He's famous for his unsentimentality -- for his ability to turn on a dime when he sees the market moving against him and quickly cut his losses.
That's what the famous "browser war" at the heart of the Microsoft case is really about: Gates realized that a disruptive new technology called the Internet had arrived, and he forced Microsoft to abandon many of its old ideas so that it could build a better browser than its rival, Netscape.
Gates could use some of that laudable boldness now, in finding a way to settle the case before it causes even greater harm to the company he so lovingly built. If he doesn't, Microsoft stockholders could reasonably ask whether their CEO really has their best interests at heart.