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World War 3.0

Microsoft, the US Government, and the Battle for the New Economy

World War 3.0
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The Internet Revolution, like all great industrial changes, has made the world's elephantine media companies tremble that their competitors-whether small and nimble mice or fellow elephants-will get to new terrain first and seize its commanding heights. In a climate in which fear and insecurity are considered healthy emotions, corporate violence becomes commonplace. In the blink of an eye-or the time it has taken slogans such as "The Internet changes everything" to go from hyperbole to banality-"creative destruction" has wracked the global economy on an epic scale.

No one has been more powerful or felt more fear or reacted more violently than Bill Gates and Microsoft. Afraid that any number of competitors might outflank them-whether Netscape or Sony or AOL Time Warner or Sun or AT&T or Linux-based companies that champion the open-source movement or some college student hacking in his dorm room-Microsoft has waged holy war on all foes, leveraging its imposing strengths.

In World War 3.0, Ken Auletta chronicles this fierce conflict from the vantage of its most important theater of operations: the devastating second front opened up against Bill Gates's empire by the United States government. The book's narrative spine is United States v. Microsoft, the government's massive civil suit against Microsoft for allegedly stifling competition and innovation on a broad scale. With his superb writerly gifts and extraordinary access to all the principal parties, Ken Auletta crafts this landmark confrontation into a tight, character- and incident-filled courtroom drama featuring the best legal minds of our time, including David Boies and Judge Richard Posner. And with the wisdom gleaned from covering the converging media, software, and communications industries for The New Yorker for the better part of a decade, Auletta uses this pivotal battle to shape a magisterial reckoning with the larger war and the agendas, personalities, and prospects of its many combatants.


From the Hardcover edition.
Random House Publishing Group; February 2001
ISBN 9780375506796
Download in EPUB or secure PDF format
Excerpt
Chapter 1: The Prosecutors



Bill Gates's nemesis, United States Assistant Attorney General Joel I. Klein, appeared an unlikely foe. Gates demonized the five foot seven, fifty-two-year-old chief of the Justice Department's Antitrust Division as a corporate-baiting populist, but in fact Klein was at first very much the voice of restraint in internal debates over whether to sue Microsoft. Klein was more Washington insider than maverick and proud of it. His was the classic second-generation immigrant-success story: he was a Bronx-born son of hardworking immigrant Jews from Hungary and Russia who pushed him to get the college education they lacked and who swelled with pride when he earned an academic scholarship to Columbia, where he majored in economics. After graduating magna cum laude from both Columbia and Harvard Law, where he was articles editor of the Harvard Law Review, Klein came to Washington in 1973 to clerk first for Chief Judge David
Bazelon of the U.S. Court of Appeals for the D.C. Circuit, and then for Supreme Court Justice Lewis Powell, Jr., where Klein was a passionate advocate for social justice, seeking to nudge the more conservative Powell (a nudge Powell welcomed). In their book on the Supreme Court—The Brethren—Bob Woodward and Scott Armstrong offer a
miniprofile of only one clerk: Joel Klein. "Powell had a profound impact on me," said Klein, who saw him as a philosopher-king. When Klein faces tough issues, he says he asks himself, "What would Justice Powell do?" What Powell usually did was move slowly, carefully.

After clerking for Justice Powell, Klein joined a public-interest law firm, the Mental Health Law Project, where he litigated on behalf of the mentally ill and retarded. Later, he and two colleagues started a law firm specializing in constitutional and health-care cases, and he remained active in mental-health issues, serving as treasurer of the World Federation for Mental Health and as chairman of the Green Door, a community-based mental health-treatment program in Washington.

Klein aspired to be inside the tent, and opportunities came at the annual Renaissance Weekends in Hilton Head, South Carolina, which were dominated by powerful Democrats and those who wanted to be, and which were co-organized by his Harvard classmate Philip Lader. Through this network, Klein came to the attention of Renaissance regulars such as Bill and Hillary Clinton, and when Clinton ran for president in 1992, Klein was aboard as a volunteer. When Clinton appointed Ruth Bader Ginsburg to the Supreme Court, Klein was asked to help prepare her for her Senate confirmation. In 1993, he was recruited by White House Counsel Bernard Nussbaum to succeed Vincent Foster as deputy White House counsel. He found himself quickly caught up in the internal debate over how much the Clintons should reveal about the failed Whitewater land deal and the proper handling of it. Klein pushed for full disclosure, and criticized Nussbaum's attendance at meetings with Treasury officials who were investigating the land deal. This position helped earn him the enmity of Nussbaum, who thought Klein too eager to please a braying press corps. "I don't talk about people I have nothing good to say about,"snapped Nussbaum when asked about Klein. Klein proved correct in his assessment that if the White House didn't release all documents relating to Whitewater, they would see them drip out torturously, one at a time.

With White House support, Klein was chosen by Anne K. Bingaman, head of the Justice Department's Antitrust Division, to be her deputy in 1995. At the time Klein came aboard, he found that Microsoft was at the top of the division's agenda, as it had been since 1993, when the members of the Federal Trade Commission had deadlocked over whether Microsoft's business practices were unduly thuggish and Bingaman's department had launched a major investigation. A year later,
Microsoft and Justice reached a settlement whereby Microsoft agreed to a consent decree that placed curbs both on its freedom to tie products together and on some of its contract restrictions, including one provision that had required PC manufacturers to pay a royalty to Microsoft for each machine sold regardless of whether it used Microsoft's operating system. But the consent decree also secured for Microsoft the right to "integrate" new features into its products, as
long as these features or applications were truly integrated and not bolted on to kill competition. The provision was vaguely worded: Microsoft was allowed, for example, to develop new features but not to sell or market them, which might be a distinction without a difference and one over which the two sides might one day bicker.

Among Klein's first tasks on joining the division was to defend this agreement with Microsoft in a Tunney Act proceeding, a normal procedure whereby the courts certify that such decrees are in the public interest. Although a Tunney Act proceeding is meant as a check, usually consent agreements are rubber-stamped by a judge. In this case, Judge Stanley Sporkin of the U.S. District Court didn't cooperate, however. Sporkin took the unusual step of ordering two hearings, during which he made much of a book he had read on the beach that was critical of Microsoft, and he questioned each side about its content.*

James Clark, the chairman of Netscape, irate at what he felt were Microsoft's efforts to strong-arm its way to dominance in the browser business, asked Gary Reback, an attorney with the Silicon Valley law firm of Wilson, Sonsini, Goodrich & Rosati, to weigh in. Reback filed an exhaustive amicus brief on behalf of three anonymous clients, as is permitted under the Tunney Act, in which he asserted that the consent decree was toothless and therefore not in the public interest. At the end of the hearings, Sporkin concurred, ruling in February 1995 that the consent decree was an "ineffective remedy" to curb Microsoft's predations. Sporkin did not mince words:

Microsoft has done extremely well in its business in a relatively short period of time, which is a tribute both to its talented
personnel and to this nation's great ethic that affords every citizen the ability to rise to the top. Microsoft, a rather new corporation, may not have matured to the position where it understands how it should act with respect to the public interest and the ethics of the market place. In this technological age, this nation's cutting edge companies must guard against being captured by their own technology and becoming robotized.


From the Hardcover edition.