Inside the Minds of Joel Klein and Bill Gates
By Joseph Nocera

(FORTUNE Magazine) – What a wild couple of weeks it's been in Microsoft land! First, esteemed jurist Richard Posner, brought in as a mediator in the Microsoft antitrust case, thought he might be close to a settlement. But it wasn't to be. When settlement talks died, causing the company's market cap to drop some $85 billion in one day, Judge Thomas Penfield Jackson issued his scathing ruling declaring that Microsoft had violated the antitrust laws. Bill Gates quickly visited Capitol Hill to press his cause, while antitrust chief Joel Klein prepared for the "remedy phase," in which he'll propose possible sanctions. Although both men have been circumspect in their public remarks, we couldn't help wondering what they're really thinking. Here's our best guess.


What was I thinking? That settlement proposal we put on the table during that last crazy week of Posner's mediation efforts--I felt queasy about it almost from the minute I signed off on it. It was so weak. Yes, it would have constrained some of Microsoft's most egregious conduct, but it wasn't even close to the kind of remedy I think we need. Should never have let it out the door. Only did it because Posner was pushing so hard for an agreement, and I wanted to show him that we were willing to go the extra mile. I was terrified that Microsoft would agree to it--and the case would end right then and there. All of my hard work for zip (well, close to zip). When Microsoft turned it down, the people on my side were flabbergasted. Even Posner could scarcely believe it. Me, I breathed a huge sigh of relief. If you want to know the truth, I never wanted to settle this case. I want to win this case.

Best part--I just may. Jackson's decision was hugely gratifying, of course. It was hardly a surprise that he sided with us, not after his "findings of fact" in November, but everyone in antitrust felt a real sense of vindication. What was Jackson's line? "Microsoft placed an oppressive thumb on the scales of competitive fortune." Couldn't have said it better myself.

Even though the decision was overwhelmingly in our favor, I can see where it may cause us some problems. Wish he hadn't been so obvious about thumbing his nose at the court of appeals, for instance. He practically called them idiots for overruling him two years ago on the issue of "tying" Internet Explorer to Windows. The appellate judges are going to be loaded for bear on that one. Too bad. We produced a lot of evidence during the trial to show that bundling Explorer and Windows was a classic example of illegal tying. But Jackson's inflammatory language has probably cost us that part of the appeal.

Still, the heart of Jackson's decision--his conclusion that Microsoft maintained its monopoly power through a series of illegal practices--looks pretty airtight. I can't believe Bill G. really thinks he'll win on appeal. What's he smoking up in Redmond?

You know what really fries me? This notion that Microsoft thinks it can lobby its way out of legal trouble. The day after the decision, Gates has that meeting with congressional Republicans on Capitol Hill, and they came out of it practically calling for my head. Then Microsoft goes out and hires that pinhead Ralph Reed to lobby that other pinhead, George W. Bush, thinking that maybe he'll pull the plug on the case if he wins the presidency. It's nuts. Even if Bush wins, the case can't be stopped. We've got 19 states as plaintiffs, and even though they're a pain in the neck most of the time, they're insurance that the case will continue, no matter who's President.

Plus, his lobbying effort is so offensive. Companies don't run to Capitol Hill when they have antitrust problems. Heck, we put Dwayne Andreas' son in jail when we prosecuted Archer Daniels Midland for price-fixing--and we didn't hear a peep from Congress, even though Andreas had political connections. I gotta say, though, Microsoft's actions aren't exactly surprising--Bill G.'s never seen a line that he won't cross.

With the remedy phase right around the corner, I'm trying to decide right now what I should ask Jackson for. I'm feeling under the gun--there's only a short time left to make that decision. The truth is, I'd love to break Microsoft up. (I'd never admit that to anyone.) It won't fly, though. During the mediation process, Posner kept telling us that a breakup was a nonstarter; the court of appeals would never go along with it. He's probably right. Still, there's one thing I promise: The remedies I'll propose are going to be very tough. I'm going to insist that Microsoft open up the Windows source code, that Windows pricing be uniform, and that Microsoft not be allowed to bundle new products into the operating system. I'm going to make sure, in other words, that Microsoft will never again use its Windows monopoly to crush a rival. Despite all the blather you hear from Microsoft, that's what my fight--and this case--have always been about.

Jackson has scheduled a hearing on remedies for late May. There'll be witnesses to cross-examine. And I've got a nice little surprise waiting for Microsoft. I convinced David Boies to come back and to do the cross-examinations for us. Heh, heh. I can hardly wait.


Well, at least now we know the Justice Department's not going to try to break us up. The press--can you believe how anti-Microsoft the press is?--had a field day speculating about a breakup. But it never made sense, and now everyone realizes it. That's the only good thing that came out of that ridiculous settlement process. When push came to shove, Klein never even raised the possibility. Good call; Posner would have laughed him right out of his chambers. Posner's my kind of guy--incredible bandwidth. And unlike Jackson, he understood our point of view. We got along great.

I keep hearing how we're supposed to want the case to drag on forever, but that's just not true. This thing has become a terrible distraction. It's killing morale. You think it's fun getting pounded in the press day after day? (Did I mention how much I hate the press? ) We've got to get it behind us. That's why we worked so hard to come up with settlement ideas. And what was Justice doing? Sitting on its hands, letting us do all the heavy lifting. Then, when Joel K. finally offered a proposal, we countered, just like we do in any negotiation. So what happens? He starts backing away from his own proposal, like it's toxic or something. Then the attorneys general leak the details to our competitors, who start whining that it's not tough enough. And so Joel ends up disowning his own proposal. It was so political. What a waste of time.

Yeah, we got hammered by Jackson. Big deal. The guy's been against us from the start, especially after we stuck it to him in the court of appeals when he tried to force us to separate Explorer from Windows. The reports I got from the Microsoft folks at the trial were that he never gave us a fair shake. Like with my videotaped deposition--okay, I didn't handle it all that well (although I wasn't as bad as the press says). But it was never supposed to be played in court. Justice double-crossed us--and the judge went along with it. Typical.

The good news is, we're almost done with Jackson; we just have to get through the remedy phase, and then we'll finally get to a court where the judges actually understand antitrust law: the court of appeals. Actually, that's not the only good news: When Jackson's decision came down, my lawyers were practically dancing in the aisles because it was so filled with legal errors. They tell me we've got a great chance of getting it thrown out on appeal--and I believe it. Here's my favorite example of the judge's sloppy thinking: In one part of his ruling, he says that our exclusionary contracts--the ones that kept computer makers from pre-installing Netscape--didn't violate the antitrust laws. But in another place, he says that those contracts were part of the pattern of illegal acts that allowed us to maintain our monopoly. How's that for judicial logic? Gimme a break.

It was great to be in Washington the day after Jackson's decision. I got incredible support from the Senators and Congressmen I spoke to. But you know what? Most Americans support our position--every poll we've done shows that. Justice complains about my lobbying, but all I'm trying to do is explain what most rational people already know: Microsoft has done an incredible amount of good for the economy and for consumers. Why is it, by the way, that when we lobby it's a capital crime, but when our competitors lobby against us nobody says a peep?

So now, remedies. I know what Justice wants: to make us promise not to add any more features to Windows. I'll never, ever, go along with that. I'll fight to the Supreme Court if I have to. And speaking of fights, I've got some news for those lawyers who have started to file private antitrust suits. Microsoft ain't Philip Morris. I've got billions in the bank. I've done nothing wrong. And I'll fight them all to the death. They want lawsuits? I'm ready. Bring 'em on, baby. Bring 'em on.