Gates Came Close to Settling Antitrust Case Last Year, Book Says

Microsoft Corp. came so close to settling the government’s landmark antitrust case last year that Chairman Bill Gates signed a version of a proposed consent decree a month before talks failed, according to a new book about the case.

During secret negotiations overseen by a mediator, Microsoft tentatively agreed not to punish manufacturers for installing competing software on personal computers, according to “World War 3.0: Microsoft and Its Enemies,” by Ken Auletta.

The world’s biggest software company also tentatively agreed to disclose the codes developers need to make their programs run on the Windows operating system, Auletta wrote.

The two sides were much closer to a settlement than was reflected in news reports April 1, when Richard Posner, a Chicago appeals court judge who acted as mediator, declared that the effort to negotiate an out-of-court settlement had failed, Auletta reported.

“What the stories didn’t capture was how eager Microsoft was to settle, so eager that Bill Gates had been willing to abandon endlessly touted principles to achieve an armistice,” Auletta wrote in the book, to be published Jan. 16 by Random House, a division of Bertelsmann.

Auletta covered the 78-day antitrust trial for the New Yorker magazine.

The talks broke down over disagreements between the U.S. Justice Department and Microsoft over technical definitions, the book said. Government antitrust enforcers sought to ensure that competing programs would be “interoperable” with Windows and other Microsoft programs, Auletta reported.

Auletta wrote that Posner became angry over 11th-hour demands made by representatives of the 19 states that also sued Microsoft. The judge ultimately excluded the states from day-to-day negotiations, Auletta reported.

Posner preferred to deal directly with Gates and Joel Klein, the Justice Department’s antitrust chief, Auletta wrote. When he announced the failure of the talks, Posner thanked lawyers for Microsoft and the Justice Department for their efforts, omitting any reference to the states.

A month before the talks failed, Posner pushed Microsoft to accept a series of provisions, including a new demand by the Justice Department that the software giant disclose the codes--known as application programming interfaces--that software developers need to enable their programs to run on Windows.

Posner told Microsoft “if they accepted Justice’s new disclosure demand, Joel Klein and the Justice Department would sign the consent decree,” Auletta wrote.

Gates “met with senior Microsoft officials and decided to surrender,” the book said. “According to Microsoft’s account, a deflated Gates phoned Posner that night and told him that if the government would make a few small amendments he would hold his nose and sign the decree.”

The next day, Gates signed the document, an act Auletta quotes a senior Justice Department official characterizing as “a public relations stunt” that was “designed to get leaked.”

Gates’ signature on the document, however, did not become news.

The talks unraveled over the next several weeks after the Justice Department sought clarification of several technical terms to determine Microsoft’s willingness to make Windows and other programs “interoperable” with rival software.

The disagreement over the technical language exposed a “deep chasm” between the government and Microsoft, Auletta reported.

Before the discussions broke down, both sides had agreed to a number of restrictions on the company’s dealings with computer makers, including giving them the option of removing Microsoft’s Internet Explorer Web browser from the next version of Windows, called Millennium, Auletta wrote.

In return, the government agreed to vacate U.S. District Judge Thomas Penfield Jackson’s scathing findings of fact about Microsoft’s conduct, Auletta reported. That would prevent plaintiffs’ lawyers from using the ruling as evidence in private antitrust suits against the software giant.

Microsoft spokesman Jim Cullinan declined to comment on Auletta’s book. Jeffrey Blattner, a senior Justice Department official who participated in the talks, also declined to comment, saying he had not seen the book.

“Without looking at it, I can’t characterize it,” he said.

Microsoft is appealing a two-way split ordered by Jackson, who found the software giant illegally used its Windows monopoly to dominate the PC software market.

The Justice Department told a federal appeals court Friday that two career government lawyers, Jeffrey P. Minear and David C. Frederick, would argue the government’s case during hearings set for Feb. 26 and 27.

The designation of two career lawyers to represent the government comes as the Justice Department prepares for the inauguration of George W. Bush as president. Neither lawyer is an appointee of the Clinton administration.

Minear and Frederick are both assistants to the U.S. solicitor general and have extensive experience before the U.S. Supreme Court.

Microsoft said Richard Urowsky, one of its defense lawyers from the New York firm of Sullivan & Cromwell, would argue Microsoft’s appeal before the U.S. Court of Appeals in Washington.

Urowsky successfully argued Microsoft’s 1998 appeal of a decision by Jackson in an earlier antitrust case. The appeals court lifted an order Jackson had imposed requiring Microsoft to give computer makers the option of installing a version of Windows without Internet Explorer.

Auletta’s book quotes Jackson as saying he took “mild offense” at that decision, “where they went ahead and made up about 90% of the facts on their own.”

Jackson, according to Auletta, said the court was made up of “supercilious” judges.

“One of the most frustrating things for judges dealing with the court of appeals is the way they thrash through the thicket of legal scholarship,” Auletta quotes Jackson as saying. “They embellish law with unnecessary, and in many cases, superficial scholarship.”