His Own Worst Enemy Bill Gates flops on video. The judge rebukes a Microsoft lawyer. An Intel exec testifies for the feds. In round two of our coverage of U.S. v. Microsoft, software's heavyweight takes it on the chin.
(FORTUNE Magazine) – Monday, Nov. 2: Something's up. Today is unfolding differently from most mornings in the Microsoft trial. Usually the press and public enter the courtroom just before 10 A.M. But today at 10 the lawyers and Judge Thomas Penfield Jackson are in a closed-door hearing, and it's another half-hour before the public is finally let in. Moments after the judge enters the courtroom, he and lawyers for both sides have a short, private sidebar. Then Jackson calls a recess. A half-hour later, the lawyers are shepherded into his chambers. When the judge finally reappears, it's almost noon.
"Gentlemen," he says, "this is fairly easy. Both of your designations are appropriate....So I would ask the plaintiffs to have videos made of the counterdesignation that [Microsoft's lawyers] have made, and we will see it all."
We will see it all. When Jackson utters those magical words, everything becomes clear. The lawyers have been arguing about Bill Gates' infamous videotaped deposition--the tape we were promised twice last week by David Boies, the government's chief lawyer, but never got to see. Darkly, the press suspected that Microsoft's lawyer, John Warden, dragged out his questioning of witnesses to prevent the video from being shown. Today, however, Boies has decided to show some of it before the next witness takes the stand. Microsoft has been arguing this morning that portions it wants shown should be seen by the court alongside the government's "designations." Finally, the judge has ruled: We will see it all.
Thus it comes to pass that on the first day of the third week of the Microsoft trial, nearly two hours of the much anticipated Gates video are screened. You've no doubt seen some of it by now, since bits have been playing on TV ever since. You saw the person widely viewed as one of the world's sharpest businessmen claiming not to recall E-mails he wrote, professing ignorance of important company goals, behaving as if he can barely remember his name. You may have seen the bit where Gates, when asked who attended a Microsoft executive staff meeting, replied, "Probably members of the executive staff." Or maybe you saw where Gates is asked: "Do you believe that QuickTime [an Apple program that is an important point of contention here] competes with any software distributed by Microsoft?" Sounding eerily Clintonesque, Gates replies, "Depends on what you mean by 'compete.'"
What couldn't have been clear in the snippets you saw on TV was the sheer awfulness of the thing in its totality. The long pauses before Gates answered the simplest of queries. The hint of contempt in his voice. His repeated refusal to even try to explain straightforward statements in his E-mails--statements like: "Do we have a clear plan on what we want Apple to do to undermine Sun?" Even in the one area where Gates and Boies (the interrogator on the video) have a substantive argument--over whether the "key" goal in doing a 1996 Apple deal was settling a $1.2 billion patent dispute (as Gates contends) or getting Apple to load Microsoft's browser into the Macintosh operating system (as the government alleges)--Gates fares poorly. The fact that some of these video clips are portions Microsoft wanted played is astonishing. From where I'm sitting in the second row, it all looks bad.
Here's what else you didn't see. You didn't see Judge Jackson shake his head in amazement at some of Gates' responses. You didn't see spectators guffawing in several places. And you didn't see Boies. As the tape rolls, he stands at the podium, watching Gates on the biggest of the video monitors. For most of the afternoon, he grins contentedly as he listens to himself querying the Microsoft CEO. At moments when he knows a particularly juicy exchange is just around the corner, his smile gets even broader. "You look like you're enjoying yourself," someone says to him at the break. "I am," he replies.
Tuesday, Nov. 3: It's Election Day, so no trial today. But the events of yesterday are reverberating. In addition to all the TV coverage, the Gates testimony makes the front page of the New York Times and the Washington Post. It's the stuff of water-cooler conversations all over the country. As well it should be: if nothing else, the Gates deposition made for fabulous theater.
Yet the thought nags: Was it anything more than theater? Does watching hour upon hour of Bill Gates refusing to give a straight answer really help prove that Microsoft committed anticompetitive acts? Maybe the Microsoft people have a point when they dismiss the tape as little more than a sideshow. (They also complain that it's a sneaky way for the government to have Gates "testify" at the trial without having to call him as a live witness.)
Boies has defended playing the video by claiming that it will enable Judge Jackson to evaluate the credibility of Microsoft's CEO. One would be hard-pressed to argue that this isn't a legitimate goal. Lord knows, Microsoft's lawyers spend most of their time trying to undermine the credibility of the government's witnesses.
But there's another reason for using the Gates deposition, which becomes clear today when I get my transcript of Monday morning's abbreviated session. Remember that sidebar--the one no one could hear except the lawyers and the judge? During such huddles a court reporter transcribes what is said, and it becomes part of the published record of the trial.
In yesterday's sidebar, as I can now read for myself, Microsoft's lawyer, John Warden, began by complaining about the unfairness of releasing the tape to the press. "A videotaped deposition is a highly misleading record," he told the judge, "not to the court, of course, but to the public." He asked Jackson to rule that the videotape shouldn't be transmitted beyond the courtroom on the grounds that it violates the stricture against having cameras in federal court. Only a transcript should be released, he pleaded. The judge replied that under the rules, all evidence must enter the public domain. Since the video itself is the evidence--rather than a transcript of the deposition--it is the video that must be released.
And that's why the government prefers Gates on video to Gates in person. If the government called him as a witness, only the 150 or so people in the courtroom would ever see his testimony. But with the deposition introduced as evidence, the whole world gets to see how Bill Gates answered questions about his company's behavior. It's the ultimate spin control.
Wednesday, Nov. 4: A new day brings a new set of characters. Today's witness is Avadis Tavanian, Apple Computer's senior vice president for software engineering. A baby-faced 37-year-old, Tavanian sits in the front row as he waits for court to begin, chatting calmly with his lawyer--acting for all the world as if this will be a stroll in the park. Warden is sitting out this cross-examination. His replacement is Theodore Edelman, a 40-year-old Sullivan & Cromwell litigator with close-cropped hair, fashionable wire-rimmed glasses, and the demeanor--in court at least--of a pit bull. As Edelman waits for the judge to enter the courtroom, he stares intently at the floor, his jaw muscles clenching, preparing for battle.
Like the previous witnesses, Tavanian submitted his direct testimony on paper some time ago. (The judge had asked witnesses to do this in an effort to speed the trial.) Tavanian's 45-page statement was released last Friday, so the press has had plenty of time to absorb it. Our initial reading is that this is not going to be a stroll in the park for the Apple executive. Anything but.
There are two reasons for this. First, Tavanian has made some explosive allegations. He claims, for instance, that in spring 1997, Microsoft threatened to abandon an eagerly awaited upgrade of its Office suite of applications for the Macintosh unless Apple agreed to make Microsoft's Internet Explorer its default Web browser. He also says that Microsoft tried to force Apple to abandon its popular QuickTime multimedia software, which competes with Microsoft's DirectX software. Indeed, he makes a "market division" allegation similar to the one by Netscape CEO Jim Barksdale during the trial's first week. According to Tavanian, Microsoft executives wanted to "carve up" the multimedia business by forcing Apple to "cede the playback market" to Microsoft. The software giant, in turn, would allow Apple to dominate the market for "authoring" tools--that is, software for creating multimedia--which is much more limited.
Second, Tavanian's testimony is full of sweeping assertions, the kind that make cross-examiners salivate. How, one wonders, can he possibly prove such blanket statements as "Microsoft has designed its multimedia product to exclude competitors and extend its monopoly power"? He describes events that took place before he joined Apple in 1997. Throughout, he reports on events he did not witness, but that he heard about later--classic hearsay. True, Judge Jackson is allowing hearsay into the record, but still...
Edelman bores right in on Tavanian. Leaning forward, he calls attention to a correction to Tavanian's original testimony that the Apple executive filed a few days ago. Then he points up a small discrepancy in an earlier deposition by Tavanian regarding the use of computer-industry market research from a firm called Dataquest. ("Were you just confused there, too, Dr. Tavanian?" Edelman asks in a tone of withering sarcasm.) He forces Tavanian to admit that he is neither an economist nor a lawyer, and therefore lacks the credentials to justify his repeated use of the word "monopoly"--which, in an antitrust trial, has a very specific meaning. Tavanian remains unflappable, but a pro-Microsoft trade group executive seated next to me chuckles as Edelman scores points.
Yet brutal as this line of questioning is--and effective as it might be in a different kind of trial--it is jarringly off-key. Edelman's j'accuse style of interrogation is a classic tactic in a jury trial. But there's no jury here. There's just a judge, and he is plainly annoyed by the pettiness of the questioning. Stories have begun cropping up suggesting that Jackson is anti-Microsoft, in part because he is unquestionably giving the Microsoft lawyers a hard time. But my own sense is that it's because Microsoft's legal team is refusing to adapt to the kind of trial he wants to preside over. Jackson is uninterested in hair-splitting. He doesn't want witnesses cornered into having to respond "yes" or "no"--indeed, he has repeatedly told the Microsoft lawyers that witnesses will be allowed to explain their answers. And he doesn't want lawyers attacking a witness' credibility on the basis of some insignificant discrepancy. This judge wants to get at the big picture. Can't Edelman see that?
In the afternoon, things turn sour for the Sullivan & Cromwell litigator. He takes the court through a series of slides designed to show how "easy" it is for a Mac user to change the default browser from Internet Explorer to Netscape's Navigator. But as the slides come up, Tavanian keeps reminding the court how confusing these steps are and how difficult changing the default browser actually is. To Edelman's dismay, the judge agrees. "It certainly doesn't tell me how to do it," Jackson says finally.
I shoot a glance at William Neukom, Microsoft's general counsel, who sits at the defendant's table each day. His face, as always, is impassive. But he is slowly grinding a pen into his chair.
Thursday, Nov. 5: An extraordinary thing is happening this morning: The witness is taking control of his own cross-examination. Steve Jobs calls Tavanian "one of the smartest people I've ever met," and today we see why. Apple's software chief may not be a lawyer, but he has an uncanny feel for how to play this judge and this trial. Bill Gates could learn a few things by watching Tavanian handle his cross-examination.
For starters, he has a wonderful talent for explaining complicated technology in terms anyone can understand, something the judge clearly appreciates. His manner is enormously appealing--he never seems angry or argumentative and always seems eager to respond, no matter how harsh the questioning. Most important, he has figured out the judge's rules. Edelman, foolishly, is still trying to corner Tavanian into giving "yes" or "no" answers. But the Apple executive has long since realized that he can pretty much say whatever he wants. He'll often give Edelman a yes or a no--then turn to the judge and add a lengthy explanation that effectively rebuts Edelman. Looking at Jackson is especially inspired, because it both engages the judge and makes it absolutely impossible for Edelman to cut him off.
The result is that Edelman, brawler though he is, never lays a glove on Tavanian. On the contrary: Tavanian is so nimble he actually strengthens some of his allegations.
For instance, Edelman spends an arduous half-hour trying to get Tavanian to concede that at various meetings between Apple and Microsoft, no one from Microsoft actually told Apple to shut down QuickTime. "It's true they never told us directly that we had to stop shipping it," Tavanian finally admits. "However, what they were proposing at every level--and sometimes with very direct threats--was effectively killing QuickTime." Then, looking straight at the judge, he adds the coup de grace: When, in a meeting with Microsoft, an Apple executive said, "Do you want us to knife the baby?"--i.e., kill QuickTime--the Microsoft official replied, "Yes, we're talking about knifing the baby." Needless to say, that brutal phrase will appear in all the news accounts tomorrow.
Late in the morning, Edelman's obliviousness to the judge gets him into trouble. He has introduced a memo put together by two midlevel Apple employees, discussing ideas for a possible relationship with Microsoft. Edelman keeps calling the ideas "proposals." Each time he does so, Tavanian tells him that these never became real proposals because they were quickly rejected by higher-ups at Apple.
As Edelman persists in calling them "proposals"--and Tavanian just as persistently contradicts him--you can see the judge getting agitated. Finally, about the fifth time this happens, Jackson steps in. "Mr. Edelman, you keep mischaracterizing what he's told you," he scolds. "It's misleading language, and it is not acceptable to me."
The afternoon session is almost painful to watch. Twice more, Jackson slaps Edelman down. Toward day's end, the judge simply ignores the lawyer and takes over the questioning himself. When Edelman finishes his cross-examination, he slumps disconsolately into his seat. Two fellow lawyers quickly come over to him. I can't hear what they say, but it sure looks as if they're trying to cheer him up.
Monday, Nov. 9: One last Edelman humiliation. During his short re-cross of Tavanian this morning, he shows a tape of Steve Jobs at the famous 1997 MacWorld convention--the one where he announced that Microsoft would invest $150 million in Apple. The purpose of showing the video is to underscore Microsoft's contention that the Apple-Microsoft relationship did not come about because of any alleged blackmail but because the companies had common interests. Of course, on the stage that day, that's what Jobs says.
But far more interesting than the actual announcement was the way the MacWorld crowd reacted to the news that Apple would make Internet Explorer its default browser. It booed lustily. When Jobs explained that Microsoft was committed to upgrading Mac Office for the next five years, the crowd let out a giant cheer of relief. And when he announced that the $150 million investment would be in the form of nonvoting stock, it laughed heartily. In the courtroom the judge begins to laugh almost as heartily. Thus again does a Microsoft tactic backfire. The video seems to underscore Tavanian's contentions, not Microsoft's. When Edelman asks the court to enter it as evidence, a government lawyer pops up and replies gleefully, "We have no objection whatsoever, your honor."
Tuesday, Nov. 10: Intel inside--and doesn't that make your head spin. Intel is supposed to be Microsoft's partner, the other half of the great Wintel duopoly. Intel makes the microprocessors that power the PCs that run Windows. Bill Gates and Andy Grove are supposed to be soul mates, the two men whose vision shaped the modern PC industry. Intel and Microsoft are Laurel and Hardy. They're Fred and Ginger. They're Lennon and McCartney. Aren't they?
Maybe they're not. Maybe the relationship is fraught with tensions and fractures that have never come to light before. Maybe the Grove/Gates love match has been overblown. Certainly these are thoughts that run through your mind as you observe the strange spectacle of a vice president from Intel inside the courtroom, sitting on the witness stand, hurling dark accusations at Microsoft. How can this be happening?
The witness is Steven McGeady. He took the stand yesterday after Tavanian stepped down. His current Intel job is in what seems to be corporate Siberia: He's head of the company's "Internet Health Initiative." But just a few years ago he was in charge of some 100 Intel programmers who were developing software for the Internet. Their projects included something called native signal processing--a technology to allow for the smooth transmission of video and audio--as well as working with Sun on its Java programming language. McGeady plainly believes that the reason he no longer has that job--and the reason Intel abandoned NSP--is threats by Microsoft. Yesterday afternoon he described these threats as "credible and fairly terrifying."
Officially, Intel professes to be neutral in this fight. The company has sent a PR executive, the jovial Chuck Malloy, to the trial expressly to remind reporters of Intel's neutrality. But we in the press corps can't help but wonder how neutral Intel really is. Microsoft's flacks take pains to point out that McGeady was subpoenaed and thus had no choice but to appear. But that doesn't wash for two reasons. First, McGeady is hardly a reluctant witness. Quite the opposite: He acts like someone who's been waiting a very long time to unload on Microsoft.
Second, it seems implausible that anyone from Intel would be cooperating with the government without at least tacit approval from the top. If subpoena power were all that was needed to generate anti-Microsoft witnesses, then surely someone from Gateway or Hewlett-Packard or one of the other computer manufacturers would be testifying for the government. But they're not; indeed, the lack of a witness from the PC-maker community is one of the biggest weaknesses in the government's case. (An executive from Compaq is testifying--for Microsoft.) What, we all wonder, will McGeady's appearance do to the Intel/Microsoft relationship in the future? That's the question we want to ask Malloy--but, of course, that's off limits because Intel is "neutral."
There are times when this trial seems to reveal a secret history of the software industry. This is one of those times. As McGeady testifies--as part of being neutral, Intel refused to let him turn in his statement in advance--his questioner, Boies, enters one illuminating E-mail after another into the record. What they suggest, at the very least, is that the Intel/Microsoft relationship is not exactly a marriage of equals. In fact, it doesn't even appear to be close.
"On August 25, 1995," McGeady writes of a meeting he attended, "Bill Gates told Intel CEO Andy Grove to shut down the Intel Architecture Lab" [which is where NSP was being developed]. An E-mail from an Intel executive reports on another meeting with Microsoft: "They are upset with us being in 'their' [operating system] space--no surprise there. Interestingly, they have evolved their thinking on what their 'space' means."
Boies puts up an Intel document reporting on yet another meeting with Gates. In this one, Gates allegedly tells the Intel executives that he doesn't mind if Intel spends 30% of its effort on third-party software developers--so long as the chip giant spends the other 70% on Microsoft initiatives. The memo adds (again paraphrasing Gates): "Intel using Netscape in a Windows environment is not a problem (provided that we do not set up the 'positive feedback loop' for Netscape that allows it to grow to a de facto standard)." Here's an Intel executive, summing up the problems between the two companies: "There are many cultural, strategic, and legal issues that cloud the relationship. But the fundamental issue is that Microsoft believes that the largest developer of Pentium Processors...[has] no business developing platform-level software." And finally, after Intel agrees to abandon NSP, there's this, from a Microsoft executive named Paul Maritz, whose fingerprints seem to be on everything the government has looked into. "We will watch Intel's feet and mouths, and if the walk/talk is different [from what the company is telling Microsoft], we will go on the attack again."
As it happens, Paul Maritz is in court today. His presence is no accident: It has become Microsoft's practice to fly in company executives--executives who will likely have to take the stand later in the trial--and seat them where they have a direct view of the witness whose testimony they will later have to refute. Although most of these executives won't talk about the case, they've been generally friendly. But not Maritz. When Ken Auletta of the New Yorker introduces himself and tries to make small talk, Maritz freezes. He offers an unfriendly smile and a limp handshake. Then he turns his back on Auletta and sits in stony silence.
Wednesday, Nov. 11: Am I missing something? Today--another day off in the Microsoft trial (it's Veterans Day)--both the Times and the Wall Street Journal have stories that focus on something that happened yesterday that struck me as fairly insignificant. Boies had introduced notes McGeady had taken of a 1995 Intel meeting with Bill Gates in which Gates had said, "This antitrust thing is going to blow over." The investigation, he supposedly added, "hasn't changed our business practices at all." But even after reading the news accounts this morning, with their grim explanations of why this comment could hurt Microsoft, I'm having a hard time seeing what the big deal is. Gates didn't go so far as to say that he was ignoring the 1995 consent decree that reined in Microsoft a bit. Besides, just before these comments, McGeady quotes Gates as having said that the real problem is that the Justice Department doesn't understand how competitive the software industry is--which squares completely with Microsoft's public position. Throwing this quote into the record gave the courtroom a momentary frisson, but it seemed gratuitous. It lends credence to Microsoft's complaint that the government is trying to "demonize" Gates.
To my mind, the real story yesterday was that, for perhaps the first time in the trial, a Sullivan & Cromwell lawyer did an effective job of contradicting a government witness. The lawyer, Steven Holley, did it in two steps. First, he laid out a plausible counter-narrative to explain why Microsoft opposed native signal processing. From his line of questioning, we learned that NSP had been developed for the soon-to-be-obsolete Windows 3.1--"In retrospect, a mistake," McGeady conceded. Intel was trying to persuade Microsoft to adopt NSP just when the company was focused on getting Windows 95 out the door. Holley's clear implication was that accommodating Intel might have delayed--and even harmed--Windows 95.
In addition, Holley used portions of a deposition by an Intel exec named Ron Whittier, who was McGeady's boss in 1995. It was a truly odd moment, seeing two Intel executives, one in person and one on tape, in effect arguing about whether Microsoft was behind Intel's decision to drop NSP. (Perhaps this is how Intel defines neutrality.) And it only got odder. At one point, Whittier said on tape that Intel acted primarily in its own self-interest in dropping NSP. Holley quickly stopped the video and turned to McGeady. "Is Mr. Whittier telling the truth when he says that?" Holley asked.
"That's PR spin," scoffed McGeady.
"In his deposition?" responded Holley--genuinely incredulous that the witness would suggest that his own colleague would shade the truth under oath.
"Yes," McGeady replied calmly.
Thursday, Nov. 12: McGeady recovers nicely today, with Boies feeding him more sympathetic questions on redirect. But the most memorable moment comes right at the end, when Judge Jackson asks the witness the question we've all wanted to ask for days: "Are you representing Intel here?" McGeady dances around the question, so the judge asks again. "I'm not trying to be evasive, your honor, but it's a very complicated question." Jackson takes another tack: "Is there anything you've said here that would contradict Intel's stated corporate policy or views?" "There's only one dramatic way my testimony is not in sync with Intel policy," the witness replies. "It is very important for Intel to have a good working relationship with Microsoft. My appearance here today is obviously at variance with that goal."
With no trial on Fridays, Thursday is the end of the week for those of us who populate the courtroom every day. Each Thursday night the journalists--along with flacks for both sides--gather at a different Washington watering hole to unwind. We've become a small community, and these gatherings--almost entirely devoid of any serious trial talk, thank goodness--have gained the status of ritual. At the second get-together, a few weeks ago, someone organized a pool to bet on when the trial would end. Once upon a time, Judge Jackson said he hoped the Microsoft trial would last no longer than a few months. But here we are, four weeks into the thing, and we've only gotten through our fourth witness. There are still 20 to go. I had bet, pessimistically, that the trial would end on March 17--St. Patrick's Day. Now, two weeks later, as I sip my beer and talk to my new friends, I think: What a cockeyed optimist I was.