High Noon Both sides came out with lawyers blazing as federal antitrust chief Joel Klein's prosecutors went gunning for the Bill Gates gang. Behind the scenes at the Microsoft trial.
(FORTUNE Magazine) – MONDAY, OCT. 19: United States v. Microsoft is less than an hour old and--whoa!--there's Bill Gates. Not in person, of course; it was revealed weeks ago that neither the government nor Microsoft planned to include Gates among the 12 witnesses each side is allotted. Which is not to say his words and actions won't be at the center of this thing. Moments into the opening statement, David Boies, the renowned antitrust lawyer who is arguing the government's case, shows a brief video clip from Gates' deposition.
On the courtroom monitors, the richest man in America is wearing a plain green suit. Arms hugged against his body, eyes closed as he listens to an unseen interrogator, Gates looks at once deeply uncomfortable and deeply bored. "You are aware," he is asked, "that...at that meeting [a critical June 21, 1995, meeting between Netscape and Microsoft executives] there was an attempt to allocate markets between Netscape and Microsoft. Correct, sir?"
"My only knowledge of that," the Microsoft CEO replies languidly, "is that there was an article in the Wall Street Journal very recently that said something along those lines."
"Are you aware of any instances in which representatives of Microsoft have met with competitors in an attempt to allocate markets?"
"I am not aware of any such thing, and I know it's very much against the way we operate."
"Have you ever read the complaint in this case?"
"Do you know whether in the complaint...there are allegations that concerned a 1995 meeting between Netscape and Microsoft representatives relating to alleged market-division discussions?"
"I haven't read the complaint, so I don't know for sure. But I think somebody said that that is in there."
The video stops. Its effect on the packed courtroom is electric.
Not since Standard Oil has there been a business trial with the ramifications of U.S. v. Microsoft. The government and Microsoft have been wrangling for most of the 1990s over the company's alleged monopoly power. This trial is their version of high noon. The stakes could not be higher. If Microsoft wins, its rough-and-tumble brand of capitalism--playing rough is all the company concedes--will secure a kind of legal imprimatur. A resounding victory for the government, on the other hand, will likely lead to major changes in Microsoft's business conduct. The Justice Department would have the leverage to keep Microsoft from using its Windows monopoly to bend the computer industry to its will.
The case is being tried on the second floor of the Federal District Courthouse in Washington, D.C. The courtroom is surprisingly small, with room for 100 or so spectators. Half the seats are for press. Judge Thomas Penfield Jackson, who will decide the case, refused to use a larger "ceremonial" courtroom on the sixth floor. ("I heard he said that they tried Watergate in this courtroom, and this case isn't any bigger than that one," explains a courthouse employee.) The upshot is that there aren't enough seats. Since 4 A.M., people have been jockeying in ever-lengthening lines, hoping to hear the government's opening argument. Even now, with court in session, many are still in line. The judge has decreed that any spectator who leaves, even to go to the bathroom, will lose his seat to the next person waiting. One of those in line is Mary Boies, the prosecutor's wife. She gets in around midmorning.
Her husband is the worst-dressed man in the room. He's wearing a worn blue suit and black sneakers, and he's strapped a cheap Casio watch around the outside of a shirtsleeve. His voice is creaky, thanks to the lingering effects of a cold. No matter: Boies is still a commanding presence--a true courtroom star. His opening statement, delivered without notes, will last two and a half hours, and is completely spellbinding. "He's not afraid to play to the crowd," says a lawyer enjoying the show.
Boies milks every inconsistency in Gates' deposition. He follows each video clip with E-mails that torpedo the sworn testimony we've just heard. Before the trial, Microsoft has said repeatedly that Justice's evidence consists of E-mail "snippets" ripped from their more benign context. Be that as it may, the snippets Boies has chosen are killers. "How much do we need to pay you to screw Netscape?" Gates is quoted as asking in an E-mail that recaps a meeting with AOL executives. "This is your lucky day."
Boies' goal, of course, is to paint Microsoft's leader as a liar. Immediately after showing Gates denying any knowledge of the June 21 meeting with Netscape, Boies presents internal Microsoft E-mail that demonstrates just the opposite. "I think there is a very powerful deal of some kind we can do with Netscape," Gates writes. According to Boies, the deal would have forced Netscape to forgo selling browsers in the Windows market, which Microsoft had decided to keep for its own browser. (Gates concludes: "I really want to see something like this happen!!")
This is the heart of the case. As Boies describes it, after Netscape turned down Microsoft's proposal, the larger company set out to "crush" its smaller rival. Microsoft integrated its browser into Windows and, according to Boies, put the screws to the rest of the industry. Boies quotes a Hewlett-Packard memo to Microsoft. "If we had a choice of another supplier based on your actions in this area," writes an HP exec, "you would not be our supplier of choice." But of course HP has no choice. That's the point.
Boies finishes around 2:30 P.M. He has made a powerful impression. Writer Michael Lewis, who has flown in to cover the trial for the online magazine Slate (which Microsoft owns), looks around in stunned amazement. "How," he asks, "can this be refuted?" Outside the courthouse, William Neukom, Microsoft's chief counsel, steps up to the TV cameras. Boies' argument, he intones, was "based entirely on...snippets." But of course.
TUESDAY, OCT. 20: "Free the Snippets." Overnight an anti-Microsoft group has had buttons made up to hand out to reporters. Most of us chuckle when we see them. And why not? Microsoft's use of the word snippets has become a running joke.
Yet there's no doubt that the company's PR machine has had an effect on reporters covering the trial. For weeks Microsoft has sponsored panel discussions in Washington and hooked up reporters with experts for interviews that amount to tutorials on antitrust law. Spokespeople offer daily sound bites as well as "friendly" critiques of reporters' stories. "So you thought those were 'hot' documents," I hear a young Microsoft flack named James Cullinan say to a reporter during a break. "They certainly were interesting," the reporter replies. "Aah," says Cullinan, smiling, "so now they're interesting. That's not quite the same as hot."
The effect of Microsoft's campaign is that no reporter--except maybe Michael Lewis--thinks the case will be a slam dunk for the government. On the contrary, we've all learned that the burden of proof is on the Justice Department and that antitrust law has evolved to favor dominant companies like Microsoft. We've all read the midsummer court-of-appeals decision that seems to undercut the government's claim that Microsoft's integration of its browser into Windows was illegal. Boies' opening argument--brilliant though it was--has changed none of this.
The lawyer who makes Microsoft's argument this morning is a Sullivan & Cromwell litigator named John Warden. He is the second Sullivan & Cromwell lawyer to argue on the company's behalf before Judge Jackson. The first one, Richard Urowsky, had a high-handed manner that so annoyed the judge in preliminary hearings that Microsoft decided to change horses. A rotund man with a glowing, reddish face, Warden makes a point of charming the judge--they quickly establish a rapport. Warden's main characteristic is his voice, a supple instrument that growls, whispers, bellows, and mocks. Though an Indiana native, he speaks with a slight Southern drawl, honey mixed with grits.
This morning, though, he speaks only to middling effect. He sticks to Microsoft's standard defense, which can be summarized as follows: Netscape, "the government's ward" as Warden puts it, was unable to compete on the merits of its products and ran to the Justice Department for protection. The government foolishly took the case, only to discover it's a loser. So now the U.S. is resorting to snippets instead of evidence and trying to "demonize" Bill Gates. What's more, says Warden, everything Microsoft has done is standard competitive behavior; its actions don't even come close to violating antitrust law.
After lunch the government's first witness, Netscape CEO James Barksdale, takes the stand. To speed the trial, Judge Jackson has ordered each side to submit its witnesses' direct testimony on paper in advance; thus the first thing that happens in this court once a witness is sworn in is his cross-examination. Barksdale's testimony is a 127-page narrative centered on the June 21 meeting and its aftermath. This is what Warden now attacks.
For the first hour Warden and Barksdale spar gently. Toward the end of the day, though, Warden begins pressing Barksdale on a seemingly minor matter: Is his basic contention--namely, that Microsoft tried to put Netscape out of business--based on any evidence beyond what is in his direct testimony? The question seems to perplex Barksdale, and the two go round and round. Finally the CEO explodes in frustration. Is there evidence not in his direct testimony? You bet there is, he says. "Four years of talking to my sales force and my customers and the people who depend on me and my shareholders, who tell me things about what Microsoft is trying to do to us!" He's in high dudgeon. "We couldn't get contracts.... We couldn't get direct statements. We are not a government agency or law enforcement agency. We asked our Department of Justice, for whom our taxes go to pay their salaries, to look into this matter. I assume they got plenty of things that would corroborate this."
Warden moves in for the kill. "If all these wrongs were being done to you, why didn't you file your own lawsuit?"
"Too expensive," growls Barksdale.
Over the course of the next week, Barksdale will be many things--funny, testy, cogent, defensive, combative. He'll give as good as he gets. But at this moment, he sounds exactly as Microsoft has portrayed him. He sounds like a whiner.
WEDNESDAY, OCT. 21: U.S. antitrust law is a slithery thing, a mishmash that has evolved over 82 years as courts weighed in with diverse interpretations of the Sherman Act. Microsoft's pretrial publicity was aimed at persuading reporters that Microsoft is on the side of facts, just facts, while its rivals are semi-incompetents glomming onto a mess of--yes--snippets and crying for government help. In Barksdale's second day of testimony, his side does indeed seem like a mess.
Barksdale is not the problem. He's a better witness than he was yesterday. ("One thing my lawyer told me," he volunteers, "is that if I'm about to say 'I guess,' I should just shut up.") Barksdale's problem today is his Netscape colleagues, especially the company's co-founders, chairman of the board James Clark (who appears elsewhere in this issue--see "Jim Clark's Boat Is Smarter Than Yours") and wonder boy Marc Andreessen. To his clear dismay, Barksdale spends a fair portion of the day deflecting and often contradicting things they've said--things that seem to help Microsoft.
Almost as soon as court begins, Warden puts an E-mail from Clark on the monitors. It is dated December 29, 1994--days before Barksdale became CEO and some six months before the infamous June 21 meeting. Written at 3:00 A.M., the E-mail is nothing less than an abject plea to Microsoft to do business with Netscape. "We have never planned to compete with you," Clark writes. He adds--in words Warden booms out to the court--"We'd like you to work with us... Depending on the interest level, you might take an equity position to divide the market."
Ouch. As Warden gleefully points out, just six months later, when Microsoft supposedly proposes just such an equity investment, Netscape screams bloody murder. Barksdale can claim all he wants that Clark wrote the E-mail "in a moment of weakness." No matter. Warden has a Netscape snippet he can run with.
Barksdale finds himself forced to repudiate his own chairman on the stand. He claims he never knew the E-mail existed until recently. He insists that then-CEO Clark's note never represented Netscape policy. Then Warden asks: "Does [Clark] enjoy a public reputation for veracity?"
To the amazement of the courtroom, Barksdale takes a long time to respond. "I couldn't comment on that," he says finally.
Warden: "Do you regard him as a truthful man?"
Another long pause. "I regard him as a salesman."
An hour or so later Warden turns his guns on Andreessen. The Microsoft lawyer introduces into evidence the proofs of a not-yet-released book entitled Competing on Internet Time: Lessons From Netscape in the Battle With Microsoft. It quotes Andreessen as saying that Netscape's original strategy was to make its browser "free but not free"--Netscape would let consumers download the software for a 90-day trial and only later ask them to pay. If they didn't, Andreessen added, Netscape didn't care, because the aim at that early stage was to gain market share, not generate revenues.
But wait! The government is claiming that Microsoft's practice of giving away its browser is an anti-competitive tactic designed to "cut off Netscape's air supply." How anti-competitive can this be if Netscape used the exact same approach?
Once again Barksdale is put in the position of saying, in effect, that a Netscape co-founder doesn't know what he's talking about. Revenues, he claims, mattered a great deal to Netscape--"We had a payroll to meet." Eventually the CEO is reduced to bemoaning Andreessen's age--he's 26, Barksdale points out, "and he often says things that I wish he wouldn't."
During lunch reporters hover around Christine Varney, a Netscape attorney, to get her reaction. "We don't drink Kool-Aid at Netscape," she responds with a smile. "People can say what they think." It's clever spin control. At least some people at Netscape are learning to play this game.
THURSDAY, OCT. 22: Today Warden's questions have a rhythm that grips the courtroom. He is leading Barksdale methodically through a sequence of questions that will culminate in a confrontation over the June 21, 1995, meeting. You can see it coming a mile away.
First he highlights an E-mail exchange between Microsoft and Netscape that suggests they were getting along. Then he hammers on a June 2, 1995, meeting in which the companies discuss the possibility of a "special relationship" that would give Netscape an early peek at new versions of Windows. Warden sneers at notes Marc Andreessen took of the June 21 meeting--notes alleging that Microsoft said it wanted to "draw a line" in the browser market to keep the companies from competing. Warden seems to suggest that it was all a setup--that Andreessen's sole purpose in taking the notes was to hand them to the government.
Mid-afternoon. The climactic moment arrives. After a series of increasingly tough questions, Warden thunders: "I suggest to you, Mr. Barksdale, that if you look at the whole record of events up to the June 21, 1995, meeting...the only fair conclusion that can be reached is that Marc Andreessen invented or imagined a proposal to divide markets and that you and your company signed on to that...in order to assist in the prosecution of this lawsuit!"
It sounds like something straight out of Perry Mason--except that here, in real life, the witness doesn't crack. "Well, I absolutely disagree with you," Barksdale says sternly. "That's absurd."
Warden: "Is there anything...besides Mr. Andreessen's notes that corroborate, in any way, the allegation that anyone made any kind of market-division proposal on June 21, 1995?"
Barksdale: "As I have said, I was in the meeting. I know what I know. I was a witness to it, and you weren't."
That night a reporter organizes a dinner for a handful of journalists and PR executives, including a flack from Netscape and three from Microsoft. Everyone agrees that the restaurant will be a "spin-free" zone. But the Netscape woman winds up seated next to Jim Cullinan from Microsoft--and they just can't help themselves. Their conversation gets increasingly heated until the Netscape woman stands up. "I'm getting a little upset," she declares. The table decides that the two must be separated. In the Microsoft trial, there are no spin-free zones.
MONDAY, OCT. 26: Everyone's had a three-day weekend (Judge Jackson holds no sessions on Friday) and we come back refreshed, energized, ready to re-engage this beast of a trial. Just one problem: On the stand, again, is Jim Barksdale.
We're all Barksdaled out. Even Barksdale sounds Barksdaled out. There's exasperation in his voice, a tone that implies 'I can't believe I'm still doing this.' His wife says they spent the weekend in Colorado trying to relax; it doesn't seem to have helped.
A half-hour into the afternoon session, as Warden continues to challenge Barksdale with no end in sight ("What is a Super Kiosk Mode?" "What is the basis for the statement on page 93 of your testimony that Microsoft coerced Intuit?"), the judge's eyes begin to close. Slowly his head nods toward his chest. He's asleep! Even Judge Jackson is Barksdaled out.
TUESDAY, OCT. 27: The line to get into court, which had dwindled to nothing late last week, again stretches down the hall. Robert Bork, the former Supreme Court nominee and current Netscape consultant, is here today. So is Joel Klein, head of the government's antitrust division. So is Iowa Attorney General Thomas Miller, who chairs a committee of state attorneys general involved in the case. The honchos have come for the same reason as the rest of us. They want to see Bill Gates.
Alas, they'll be disappointed. Late last week Boies had told the court that he hoped to play part of the Gates video deposition today. But since Barksdale is spending one last day on the stand, and since a new witness, from AOL, is due tomorrow, the Gates-a-thon--Boies may introduce as many as eight hours of Bill's testimony into evidence--will have to wait.
Nevertheless, the crowd gets a good show. Warden finished his cross-examination yesterday, so it's Boies' turn to question Barksdale. To be honest, it's a pleasure having Boies back. In a single morning he takes Barksdale through all the key elements of the cross-examination--details Warden needed a week to cover.
Of course, he and Warden have different goals. The Microsoft lawyer's job is to poke holes in Barksdale's account, to cast doubt on his credibility and muddy the waters. Swamping the CEO with hundreds of questions did just that; by the time Warden had finished, our heads were spinning and it was hard to remember what it was that Microsoft was supposed to have done to Netscape. Boies' task, on the other hand, is to make the waters clear again--to reestablish the government's narrative. And that's what he does.
Take, for instance, the June 21, 1995, meeting. Warden has suggested that Andreessen's detailed notes were fiction, even that the meeting was a setup. Every document or E-mail he introduced was chosen to show that whatever happened at that meeting, nobody from Microsoft asked Netscape to divide the market.
But Boies has his own set of documents and E-mails, and they make Microsoft look very bad indeed. He shows clips from both the Andreessen and Clark depositions supporting Barksdale's account.
Then Boies introduces the day's most startling piece of evidence--a note scrawled by Apple CFO Fred Anderson, recounting a phone call in which he explains to Barksdale that Apple dropped Netscape's browser for its flagship Macintosh computer because Microsoft "threatened to abandon the Mac," which would have meant "we were dead." Testifies Barksdale: "I was as mad as stew when I heard that."
By the time Judge Jackson looks down at Barksdale and tells him he can go, it's 4:30 P.M. Barksdale has been on the stand for over a week. During that time he has come to personify the government's main contention--that Microsoft's practices were the acts of a monopolist bent on destroying a smaller competitor. Notwithstanding Warden's best efforts, Barksdale has never wavered from that position. As he walks out of the courthouse, Boies comes over to shake his hand. "Thank you," Boies says. "Thanks for everything."
WEDNESDAY, OCT. 28: There are moments in this trial when Microsoft seems to have a little in common with the Jersey Mob. Yesterday's revelation about Apple is an example: When Microsoft "persuaded" Apple to use its browser instead of Netscape's, wasn't it simply making Apple an offer it couldn't refuse?
I stumble across another example in the fourth-floor press room during today's lunch break. Among stacks of documents from the government's case, there's an E-mail, dated May 1996, from an executive at @Home, the startup that offers consumers Internet access via their TVs. Reporting on a conversation between Gates and Tele-Communications CEO John Malone, the memo says that when the subject of @Home came up, Gates "just exploded," threatening to "do whatever it took to crush" the small company. I'm not sure how this relates to the trial downstairs, but it's chilling nonetheless. It winds up in USA Today the next morning.
In the courtroom Microsoft has a pretty good day. An AOL executive named David Colburn is on the stand. He has a two-day growth of beard, wears cowboy boots, and favors a sarcastic tone that seems to infuriate Warden.
Colburn is a government witness because of one of the most infamous events in the browser wars--the decision by AOL to make Microsoft's Internet Explorer its default browser, preempting a deal with Netscape announced the day before. The government contends, of course, that AOL went with Microsoft because of Microsoft's monopoly over the desktop--that is, it could offer AOL a position in Windows, which is something Netscape could never match. Warden sets out to show that Microsoft won because its technology was better. Though Colburn refuses to concede the point, Warden has plenty of ammo--E-mails from AOL chief Steve Case and other executives praising Microsoft's browser and describing Netscape as "arrogant" and "difficult to work with."
In the afternoon Warden goes further. He tries to show that, in fact, it was Netscape and AOL conspiring against li'l ol' Microsoft. He puts up an E-mail from Steve Case, addressed to "My dearest comrade Barksdale." It says: "My recollection is that Stalin teamed up with Roosevelt and Churchill, and it is that alliance that beat Hitler." (Warden: "Was it common practice at AOL to analogize Microsoft to Hitler?") And Warden's got documents that will make headlines in the next day's papers--showing that in late 1995 Netscape and AOL contemplated a strategic agreement not to invade each other's primary market.
Warden: "This is a market-division proposal, is it not?"
Colburn: "I wouldn't call it that."
Later, before the cameras outside the courthouse, Boies tries to explain why the proposed Netscape-AOL alliance is not a problem. "The big difference," he says, "is that neither Netscape nor AOL had monopoly power. The antitrust rules make a big distinction between what a monopolist can do and what everyone else can do."
Cullinan, the Microsoft PR guy, is standing directly behind me.
"Oh, come on," he practically spits.
THURSDAY, OCT. 29: There's a filibuster under way, but not over in the U.S. Senate. It's taking place right here in the Microsoft trial.
Why? Once again the government hopes to play Gates' videotaped deposition. Once again the courtroom is filled to capacity. And once again, it's not to be. For most of the morning, Warden takes Colburn through some of the very same E-mails they went over yesterday; indeed, Colburn pointedly begins most of his answers by saying: "As I said in my testimony yesterday...." At lunch, as Colburn strides out of the building, one of his lawyers leans toward him and says, "They're going to be asking your shoe size before this is over."
Well, not quite. Early in the afternoon Judge Jackson tells the lawyers he plans to adjourn today's session at 4 P.M. Warden ends his questioning at 3:59:55, give or take a few nanoseconds. On the way out to talk to the press, Boies can only shake his head and smile. "I think I'm going to change tactics," he says. "I'm going to stop announcing when we want to screen the Gates deposition."
Still, even without the Gates-a-thon, the trial is more than living up to its billing. It's already given us a revealing look at how high tech works; it's showcased a bunch of wonderful characters; it's had both high drama and low humor. The only thing missing is sex.
But hey, it's early yet.