Gates in the Dock

By Chris Taylor

You couldn't blame Microsoft's legal team for feeling a little cranky last week. Just as the lawyers prepped for opening arguments in their historic antitrust suit, word came through that their bid to force a pair of Harvard and M.I.T. professors to hand over taped, off-the-record interviews had been tossed out of a Boston court. What these tapes were said to contain had the software giant's people salivating: top executives at Netscape, their chief rival in the browser wars, were caught candidly admitting to strategic--perhaps fatal--business blunders. It would have been "the best evidence," laments Charles ("Rick") Rule, Microsoft legal consultant and former Assistant Attorney General. The loss of this juicy morsel was another rude awakening for Bill Gates: federal courts, it seems, are a lot less pliable than software start-ups.

The rudest awakening, however, could be the one that begins next Monday, when the antitrust action brought by the Justice Department and 20 states kicks off in Washington. While it will not be the trial of the century--there is already too much competition for that title--U.S. v. Microsoft could be the trial of the 21st century. Redmond's defenders and detractors agree that the case marks a turning point for antitrust law--and for any would-be monopolist of the third millennium. Will the 108-year-old Sherman Act establish a beachhead in cyberspace? Or will antitrust cops be forever banished from the world of bits and bytes? It is not just a Silicon Valley issue, either. "If Microsoft wins," says William Kovacic, an antitrust expert at George Mason University, "dominant firms everywhere get still broader latitude to do whatever they please."

Step One in the government's case, then, is to prove Microsoft's dominance. This hardly seems a difficult task. Between various versions of Windows and DOS, Microsoft controls 97% of the market for PC operating systems. Still, Redmond bristles at any use of the M word. "Monopoly," says Rule, "is not the same as market share." Why not? Because some breakthrough innovation could turn this fast-moving industry upside-down in a heartbeat, or so the theory goes. But in the tradition-bound setting of a courtroom, such Clintonesque semantics--"It depends on what you mean by monopoly"--may be a tough act to swallow. David Boies, the Justice Department's chief counsel and a veteran of the old IBM antitrust suit, told TIME last week that he intends to ask everyone who testifies to stake his or her credibility on whether Windows constitutes a monopoly. "I doubt even [Microsoft's] witnesses will be able to keep a straight face," he says.

Step Two: Prove this firm does whatever it pleases. By Thursday, when Boies filed his latest witness list, the charges against Microsoft had swollen to include cutting off Netscape's air supply, bullying Apple and Intel, seducing AOL and blackmailing Compaq. Just about every computer and software firm under the sun--including Sun--has been pulled into the Justice Department's case. Gates stands accused in court documents of personally directing an effort to leverage the power of Windows in negotiations and exclusive deals with computer makers and Internet providers. The DOJ "is desperate to find something to float [its] case on." This is sheer cynicism, says Microsoft chief counsel William Neukom. To DOJ antitrust chief Joel Klein, it is simply a comprehensive list of battle-scarred victims who learned to get out of Gates' way or face the consequences.

Which explains why Microsoft is taking no prisoners--and sparing no Harvard or M.I.T. academics--in its pursuit of exculpatory materials. During the past month, Microsoft lawyers have issued subpoenas for minutes of top-level strategy meetings at a long list of competing companies, from Apple to Oracle. Microsoft intends to prove that collaborative and antagonistic relationships are the harsh facts of life in the software world. "They don't seem to understand the high-technology business," Neukom complains. Translation: Everyone else is doing it. Why can't we?

The answer is that monopolists, like Presidents, can be held to a higher standard. Signing exclusive contracts is all very well, legally speaking, if you control 10% of a particular market. Increase your share to 30%, and your exclusionary practices may attract the attention of the Feds. Control half the market or more, and you should hear klaxons blaring every time you twist a rival's arm. With a 97% share, and 120 high-priced lawyers in its employ, Microsoft can hardly play dumb on this score.

We will know the verdict soon enough. The judge and the Justice Department plan to wrap up this trial by early December--a microsecond by antitrust standards. If the 13-year antitrust action against IBM felt like World War I trench warfare, this is a Gulf War-style cruise-missile attack. But the aftermath may prove equally inconclusive. Even if they win, the Feds and the states will have to figure out how to punish Microsoft without crippling the whole computer industry. Boies admits there are no "clean, surgical strikes" in antitrust cases any more than there are "clean, surgical nuclear strikes" in warfare. In other words, watch out for the fallout.