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JUSTICE VS. MICROSOFT: THE SECRET TALKS THAT LED TO A TRUCE
What prompted intensive settlement talks between Microsoft and the Justice Dept., just hours before Justice
and at least 18 states were set to file antitrust suits against the company? According to sources, Microsoft laid
out a series of compromises it was willing to make in an attempt to head off the lawsuit. They included
making adjustments to its contracts with Internet service providers, content providers, and online services that
grant the partners favorable treatment in exchange for promoting Microsoft's Internet Explorer browser.
Microsoft also offered to address Justice's concerns about a preference for its browser built into Windows 98.
But, say sources, Microsoft continued to oppose government say-so over what it can put into its operating
system software -- a position that trustbusters, over the long run, are likely to oppose. "The bottom line is that
Microsoft convinced the Justice Dept. and the states that there was reason to sit back down at the settlement
table," says one source.
Actually, the stand-down agreement between Microsoft, Justice, and state attorneys general followed a week
of secret talks. While Justice sources downplayed the significance of the discussions as "just talk," the
negotiations began with Microsoft Chairman William H. Gates meeting with Justice Antitrust Chief Joel Klein
on the evening of May 5, according to sources. Twenty-four hours later, Microsoft and Justice agreed on a
framework for resolving the issues through a consent degree. Justice then took that outline to the state AGs,
who studied it overnight. Word came back to Microsoft at 7:30 the next morning that the AGs had signed on.
As a show of good faith, Microsoft then agreed to put off shipment of Windows 98 until at least Monday,
sources say.
The negotiations were conducted largely in a series of phone calls between Klein and William Neukom,
Microsoft's senior vice-president for legal affairs. Justice kept the states informed about progress, according
to sources close to the talks. Gates apparently kept in close touch with negotiations, even though he is staying
at his family compound on Washington's Olympic Peninsula, where he had gone for one of his twice-annual
"think" weeks.
The settlement talks are now expected to continue through the weekend. Neukom left Microsoft's Redmond
(Wash.) campus on May 14 to fly to Washington, D.C., for face-to-face bargaining with Justice and a few
AGs.
Even though Microsoft is willing to put off the release of Windows 98 to computer makers for at least a few
days, the software maker says it still plans to release the product to consumers on June 25. "There are
important principles at stake," says Microsoft spokesman Mark Murray. "Particularly, we want to protect the
right of a company to innovate and improve its products."
One government source says even if a settlement is reached, Justice will continue a broader investigation into
Microsoft's business practices. "The fact that Microsoft is negotiating with the Justice Dept. and apparently is
prepared to make substantial concessions certainly undermines any argument that Justice has no case," says
Senate Judiciary Committee hairman Orrin G. Hatch (R-Utah), an outspoken Microsoft critic.
By Steve Hamm in Redmond, Wash., with Michael France in New York and Susan B. Garland in
Washington
BUSINESS WEEK ONLINE
May 14, 1998
SAP'S HASSO PLATTNER: SQUARELY IN BILL GATES'S CORNER
On the sunny afternoon of May 14, Hasso Plattner, CEO of German software giant SAP, met at an outdoor
cafe in Frankfurt with Business Week reporters Thane Peterson and David Woodruff to discuss the U.S.
Justice Dept.'s antitrust battle against Microsoft. Here, in an exclusive for Business Week Online, is Plattner's
fiery defense of Bill Gates, and his take on Netscape, Sun Microsystem's Scott McNealy, and a host of other
issues:
On the merits of the antitrust case: "Bill Gates is absolutely right on this. It's stupid to tell Microsoft it
can't integrate its browser technology into its systems."
On Gates challengers like Netscape: "Microsoft is right on the one side. But there is a whole group of
people on the other side who are fighting for their survival. They may arouse sympathy. But we have to think
logically about this. Microsoft has every right to develop its own browser and integrate it. If there's an
installation process for other browsers -- a little click of the mouse -- that's no big deal."
On Netscape vs. Microsoft: "Microsoft's browser is better, damn it. Two years ago, we were Netscape
users and now we're Microsoft users. Netscape made billions on paper. Why couldn't they build something
that was better? Does your country really want to tell Microsoft, 'Hey, slow down a bit so all the others can
compete better?'"
On Sun Microsystems' criticism of Microsoft: "If Java is as great as [Sun CEO] Scott McNealy says,
where's the problem?"
On high-tech monopolies: "The other monopoly is Oracle in databases. Nobody even talks about that."
On how technology advances are likely to overtake the trustbusters: "For me, there is no case here at
all. In a few years, all software will be downloaded from satellites anyway."
On SAP's relationship with Microsoft: "95% of the front-end software on our systems is from Microsoft
-- because that's what the customer wants."
On paranoia at SAP because of the case: As with Microsoft's products, "there are several components in
our products. I tell everybody in our company I don't want to end up like Microsoft. We sell other people's
components. We don't recommend them but we don't block them. And I tell our people: 'Don't make stupid
comments'" about other companies' components.
On Microsoft critics in the computer hardware business: "The whole computer industry had a chance
to build a perfect UNIX system. They didn't achieve anything. They opened the window for Microsoft, and
now they're complaining that it's windy. It's not just marketing. Microsoft built a better system, NT. It works
better now, and it's about to become great."
On whether Bill Gates asked him to speak out on Microsoft's behalf: "I think I asked him. I think it
was even before we met at Davos [Switzerland] earlier this year. He said, 'Great.'"
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