The Truth, The Whole Truth, and Nothing But The Truth

The untold story of the Microsoft antitrust case and what it means for
the future of Bill Gates and his company.

By John Heilemann

I. THE HUMBLING

The judge in Chicago wanted his signature. Just two little words on
the bottom line: Bill. Gates.

It was early last March, three full months after the formal mediation
between Microsoft and the Justice Department had started, and Gates
knew he didn't have much time. Any day now, Judge Thomas Penfield
Jackson would unveil his verdict in United States v. Microsoft, one of
the largest antitrust actions in American history. Nobody doubted what
the outcome would be: In November, Jackson had disgorged a 207-page
"findings of fact" that was searing in its tone and staggering in the
totality of its rejection of Microsoft's version of events. If the
verdict fit the findings, it was going to be ugly - maybe ugly enough
to bring about the company's dismemberment.

Microsoft's last hope for averting disaster lay in the hands of a
different judge - the judge in Chicago, Richard Posner. Posner, the
chief justice of the United States Court of Appeals for the Seventh
Circuit, was a conservative jurist with a towering reputation as an
antitrust scholar. Soon after Judge Jackson issued his findings of
fact, he asked Judge Posner to step in as a mediator. For anyone else,
trying to forge a peace between these combatants would have been a
fool's errand. But given Posner's stature, Jackson hoped - prayed - he
might just pull it off.

Every week since the end of November, Posner had summoned a team of
lawyers from the DOJ and from Microsoft to his chambers in Chicago.
Meeting with each side separately, he had, in effect, "retried the
case," said one participant - rehearsing the arguments, reviewing the
evidence. Gates himself had flown out to meet Posner and spent hours
on the phone with him afterward, delving into the details of
Microsoft's business. "The guy's super-smart," Gates told me later,
bestowing on Posner his highest plaudit. By February, the judge had
begun producing drafts of a proposed consent decree, which would put
certain limits on Microsoft's conduct. After presenting each draft to
the opposing parties, Posner solicited their comments and criticisms,
then cranked out another draft to push the ball forward. For a month
or so, it went on like this, back and forth, to and fro - until they
arrived at Draft 14. With Draft 14, Posner seemed to think he'd come
close to crafting a settlement Microsoft would accept, but which
restricted its behavior in significant ways. So in order to show the
DOJ that Microsoft was serious, Posner asked Gates to put his name to
the proposal.

There were those at Microsoft who thought Posner naive. The government
would never be satisfied, even if the company were to sacrifice its
firstborn - or, something rather more precious, its source code.
Others simply thought Draft 14 too draconian. But although Gates could
see the skeptics' points, he was anxious to put this whole nightmare
behind him. He swallowed hard and scrawled his signature.

The skeptics were right: It wasn't enough. Yet Posner still believed
that a settlement could happen. For another month, he kept churning
out drafts - Draft 15, Draft 16, Draft 17. In the last week in March,
Posner asked Jackson for 10 days more; he was near, very near, to
securing a deal. (So certain was Judge Jackson that the case would be
settled, he took off on vacation to San Francisco.) By March 29, Draft
18 was complete. It reflected the DOJ's final offer.

In Gates' office in Redmond, the chairman's inner circle convened for
one of the company's most fateful debates. Throughout the mediation,
Gates had relied on this handful of people: Microsoft's newly elevated
CEO, Steve Ballmer; its general counsel, Bill Neukom; and the senior
executives Paul Maritz, Jim Allchin, and Bob Muglia. The document
before them required that Microsoft set a uniform price list for
Windows; prohibited it from striking exclusive contracts with Internet
service and content providers; forced it to open its application
programming interfaces. And although Draft 18 would let Microsoft add
new features to Windows - features like Web browsing, which had
provoked this lawsuit in the first place - PC makers would have the
right to demand versions of the operating system without those
features; and they would also be able to license the Windows source
code, so they could modify the desktop, integrate rival software, or
add features of their choosing.

There were critics who would say this was all trivial tinkering,
modest stuff of marginal utility. But the Microsoft high command
didn't see it that way. Even for those among them who'd been asked by
Gates to be devil's advocates in favor of settlement, Draft 18 was a
bridge too far. It was not a proposal that Gates could sign on to.

In Silicon Valley and in Washington, DC, Gates' decision to reject
Draft 18 was seen as the latest blunder in his three-year battle with
the federal government. It was an act of bloody-mindedness, of myopia,
of hubris. But when I visited Gates recently in Redmond and asked him
about his refusal to settle, he displayed not the slightest hint of
doubt. The son of a lawyer, steeped in the language of contracts,
Gates knew a bad deal when he saw one; and this was a deal that would
have wrecked his business. Gates was aware that the courts were
imperfect, and he considered Judge Jackson's more imperfect than most.
But Gates had "faith," he told me, "that in the final analysis, the
judicial system will come up with absolutely the right answer."

Whatever the logic of Gates' gamble, its immediate effect was swift
and irrevocable. On March 31, Microsoft sent material to Posner that
would form the basis of Draft 19, which he then read by phone to the
DOJ. The very next afternoon, April 1, still four days shy of his
self-imposed deadline, the mediator declared his mediation a failure.
 

In public, and even more pointedly in private, Microsoft blamed the
breakdown on the coalition of state attorneys general who were the
DOJ's partners in prosecution. In the crazy final days of the
negotiations, the states had sent Posner a set of their own demands -
demands considerably in excess of the DOJ's. In his only public
statement on the talks, Posner was ambiguous about the precise cause
of their collapse. Citing only "differences among the parties," he
praised the professionalism of Microsoft and the DOJ, but made no
mention of the attorneys general. However, in an early working version
of Posner's statement that few people ever saw, the judge went out of
his way to rap the states on the knuckles for their left-field
intercession - while at the same time making clear that the truly
insurmountable gap was "between" Microsoft and the DOJ.

With the mediation kaput, Jackson hustled back from the coast and
delivered his verdict on April 3. It was nearly as gruesome as
everyone expected. A month later, the DOJ and the states asked that
the court split Microsoft in two. A month after that, Jackson agreed,
ordering exactly the breakup the government requested.

It was the spring in Redmond when illusions were shattered, when old
verities crumbled and the stock price tumbled, when everything that
was solid melted into the air. By the time Jackson handed down his
breakup order, Microsoft's Nasdaq value had been chopped nearly in
half since March - wiping out more than $200 billion in wealth.
Competitors crowed. The press piled on. Private class-action antitrust
lawyers began to swarm. In the middle of June, Microsoft announced
with great fanfare its grand new Internet strategy, and an industry
that had so long hung on its every hiccup, that had trembled at the
sound of its virtual footsteps, dismissed the initiative as
half-cooked vaporware - or, more charitably, yawned. Three months
later, in mid-September, a yearlong exodus of top executives reached
its peak when Paul Maritz announced he was leaving the company. Even
for the truest of true believers, faith had become a scarce commodity.
 

Gary Reback was known as a guy who got paid to complain about Bill
Gates - the rough Silicon Valley equivalent of drawing a salary for
breathing.

The humbling of Microsoft is the last great business story of the 20th
century and the first great riddle of the 21st. There are fancier ways
of putting it, but the riddle is this: How did it happen?

Perhaps no corporation in history has ever risen so far so fast.
Having celebrated its 25th anniversary this summer, Microsoft is no
longer a babe in the woods. Yet among the totemic firms of the past
century, from Standard Oil and US Steel to General Motors and General
Electric, none attained such stature, power, or profitability in such
a breathtakingly short span of time. Even in the computer industry,
where the awareness of Microsoft's ascent is acute, people often
forget just how quickly it happened. As recently as 1992 or 1993, the
company, though plenty influential, was hardly seen as an omnipotent
leviathan. Five years later, that had changed. In the autumn of 1997,
when the Justice Department first took after Microsoft in a serious
way, Gates' many rivals in Silicon Valley applauded. But their
pleasure was tempered by a perception that Microsoft was so
indomitable, and the government so "dynamically anticlueful," as one
digital quip-merchant put it, that nothing much would come of the
DOJ's pursuit.

Theories abound as to why things turned out so spectacularly
otherwise. Some now maintain that it was more or less inevitable; that
Microsoft's business practices, once brought to light, would be enough
to convict it in any court in the land. As a DOJ lawyer once said to
me, "It was the stuff they did before the case was even filed that
sealed their fate." Others suggest that Microsoft's history was bound
to catch up with it in other respects; that its enemies in the Valley
were lying in wait, ready to strike at the first opportunity. (Not
surprisingly, this is a theory that Gates seems to favor.) Still
others dwell on the tactical errors - on the ineptitude of Microsoft's
lawyers and its halting incompetence in the realm of high politics.
And still others focus on Gates himself; on his arrogance, and the
insularity and isolation of the culture he'd wrought.

There are kernels of truth in each of these theories, but even taken
together they fall short of eureka. What they fail to capture is the
sometimes random confluence of forces: the way people with disparate
agendas and mixed motivations came crashing together to produce an
outcome that now seems obvious.

All through its conduct, the Microsoft trial was compared to a war.
"The War of the Roses," said Judge Jackson, or "the fall of the House
of Tudor. Something medieval." But war is hell not just because it's
so bloody. War is hell because it's so unpredictable, so chaotic, so
hot and dusty and shot through with confusion. The Microsoft trial was
a war that neither side actually wanted to fight, in which unexpected
alliances arose and old enmities surfaced at the most inopportune
moments. It was war in which one hand rarely knew what the other was
doing and carefully planned offensives ganged aft agley. Coincidence,
timing, and blind shithouse luck all played their parts. And so did
large acts of cowardice and small acts of courage, often committed by
unknown soldiers.

This is the story of the generals in that war, of Bill Gates and Bill
Neukom, Joel Klein and David Boies. But it is also the story of the
unknown soldiers - people you've never heard of, whose stories have
never been told. It's the story of Susan Creighton, the sweet-tempered
antitrust lawyer who was Netscape's secret weapon. It's the story of
Mark Tobey, the Texas crusader who took up the case when the Feds were
still sleeping. It's the story of Mike Hirshland, the Republican
Senate aide who found in Microsoft an unlikely passion, and it's the
story of Dan Rubinfeld, the economist whose theories pushed the DOJ
where it didn't want to go. It's the story of Steve McGeady, the Intel
apostate who took the stand against Gates. And it's the story of Mike
Morris, the lawyer from Sun Microsystems who mounted a lobbying
campaign that brought together some of Microsoft's most powerful
opponents, and that was one of the Valley's most closely guarded
secrets - until now.

Acting sometimes in concert and sometimes alone, these anonymous
characters and countless others like them accomplished things that had
once seemed impossible. They thrust Silicon Valley neck-deep into the
swamps of Washington, DC. They put the high tech industry's dirty
laundry on display for all to see. They made antitrust law into
national news. And they felled a giant that had once seemed
invincible.

This is the story of the end of an era - and also of more than one
kind of innocence.

II. THE CASE THAT ALMOST WASN'T

Though no one at the company knew it at the time, Microsoft's troubles
with the Department of Justice began in earnest in the spring of 1996,
with the literary aspirations of two amateur authors in Silicon
Valley. Since 1990, when the Federal Trade Commission opened the first
government probe into its practices, Microsoft had been under the
antitrust microscope more or less constantly; not a year had passed
without it receiving at least one civil investigative demand (CID) for
documents. As one federal inquiry morphed into the next, Gates and
Ballmer gradually came to see the investigations not merely as legal
scrutiny but as a kind of proxy warfare (and, later, as nothing less
than a vast high tech conspiracy) instigated by their rivals in the
Valley and elsewhere. Yet as suspicious as they were about the source
of their regulatory entanglements, Microsoft's leaders could not have
dreamed that so much damage would be unleashed by a quiet woman who
called herself a "law-and-order Republican," a shrill man who was
regarded by some as mildly unhinged, and the book they wrote together
- a book that was never published in any form, and whose contents, but
for this story, would still be shrouded in secrecy.

Susan Creighton and Gary Reback were not, however, your typical
wannabe wordsmiths. They were lawyers and antitrust specialists with
the Valley's preeminent law firm, Wilson Sonsini Goodrich & Rosati.
They were passionate, smart, articulate, and angry. They had been
retained by Netscape to tell the world, not to mention the DOJ, about
the myriad ways in which Microsoft was endeavoring to drive the
pioneering startup six feet under. And they were rapidly approaching
the end of their rope.

It was Reback who served as the duo's frontman. Throughout the
computer business and the government, he was known as a guy who got
paid to complain about Gates - the rough Silicon Valley equivalent of
drawing a salary for breathing. Over the years, he had amassed a
client roster that included some of the industry's most prominent
firms - from Apple and Sun to Borland and Novell, though not all of
them admitted it - and had earned a reputation as Redmond's most
relentless and strident critic. (The cover of Wired 5.08 declared him
"Bill Gates' Worst Nightmare.")

In Reback, Microsoft faced an adversary with a rare combination of
technical savvy and antitrust expertise. As an undergrad at Yale, he
had worked his way through school programming computers for the
economics department; as a law student at Stanford, he had studied
antitrust under the late William Baxter, who, as head of the DOJ's
antitrust division under Ronald Reagan, would oversee the breakup of
AT&T. Now in his late forties, Reback wore sharp suits, wire-rimmed
glasses, and a perpetually pained expression. When he talked about
Microsoft - which was pretty much constantly - his demeanor was
fretfulness punctuated with blind outrage. His voice teetered on the
edge of whine. "The only thing J. D. Rockefeller did that Bill Gates
hasn't done," Reback would wail, "is use dynamite against his
competitors!" Crusader and showboat, egotist and quote machine, he had
a taste for avant-garde economic theories and a tendency to level
extravagant accusations without much hard proof to back them up. He
was, in the strictest sense, a zealot: a man both fanatical and
fanatically earnest in his beliefs. Later, when the DOJ decided to go
after Microsoft, a government lawyer was assigned to "deal" with
Reback. "His heart's in the right place," this lawyer told me. "But
he's twisted. He leaves me these voicemails in the middle of the
night, raving about all kinds of stuff. He really needs some help."
History might well have judged Reback a marginal figure, just another
Gates-hating ranter, were it not for one inconvenient fact: Almost
everything he claimed turned out to be true.

Reback's history with Microsoft was long, tangled, and not without its
ironies. In the early 1980s, he secured for Apple the copyright
registration for the Macintosh graphical user interface, a copyright
that would eventually be at the center of a protracted lawsuit with
Microsoft. Not long afterward, a bearded, elfin entrepreneur from
Berkeley appeared on Reback's doorstep and asked for help in selling
his fledgling software company. The company was called Dynamical
Systems Research; the entrepreneur, Nathan Myhrvold. After Apple
passed up the deal, Microsoft stepped in, buying Myhrvold's firm and
Myhrvold along with it. Forever after, Reback was convinced that this
transaction was pivotal to the rise of Windows, a conclusion that
filled him with no end of guilt.

>From then on, Reback became an anti-Microsoft missionary. As first the
FTC and then the DOJ looked into the company, he peppered the Feds
with briefs alleging a litany of predatory sins. In July 1994, the DOJ
sued Microsoft for violating the Sherman Antitrust Act - but then
dropped the suit after entering into a consent decree with the
company. The consent decree contained only a few mild curbs; Gates
himself summarized its effect bluntly: "nothing." At the behest of a
clutch of Microsoft's rivals in the Valley, who saw the decree as a
Potemkin remedy, Reback spearheaded a spirited, but ultimately futile,
campaign in federal court to scuttle it.

Indeed, all of Reback's warnings went unheeded, with one exception.
That fall, after Microsoft announced its plan to take over the
financial-software firm Intuit for $1.5 billion, Reback, working
primarily on behalf of an anonymous client (it was, in fact, the
database company Sybase), prepared a white paper on the deal for the
DOJ. Replete with novel economic concepts such as "network effects"
and "increasing returns," the paper argued that if the merger weren't
stopped, Microsoft would come to rule online financial services as it
had the PC desktop. Reback was warned by the DOJ's chief economist
that his analysis might be rejected as "totally preposterous." But it
wasn't. In April 1995, the government moved to block the deal, and,
rather than wage a costly battle, Microsoft bailed.

It was two months later, on June 21, that Reback received a call from
Jim Clark, the chair of one of his firm's newest clients, Netscape.
Earlier that day, Clark said, a team of Microsoft executives had
visited Netscape's headquarters, met with its CEO, Jim Barksdale, its
technical wunderkind, Marc Andreessen, and its marketing chief, Mike
Homer, and offered them a "special relationship." If Netscape would
abandon much of the browser market to Microsoft; if it would agree not
to compete with Microsoft in other areas; if it would let Microsoft
invest in Netscape and have a seat on its board, everything between
the two companies would be wine and roses. If not ...

"They basically said, OK, we have this nice shit sandwich for you,"
Mike Homer told me later. "You can put a little mustard on it if you
want. You can put a little ketchup on it. But you're going to eat the
fucking thing or we're going to put you out of business."

The next day, Reback phoned Joel Klein, the former deputy White House
counsel who had recently been named the second-ranking lawyer in the
antitrust division, and persuaded him to send Netscape a CID for some
detailed notes Andreessen had taken during the meeting. A few weeks
later, Reback flew to Washington with Clark, Andreessen, and Homer to
state their case in person. The DOJ lawyers listened politely, jotted
a few things down, said thanks - and then promptly forgot about it.

Thus began a pattern that would repeat itself again and again over the
next two years. By the following spring, Barksdale & Co. were hearing
a stream of reports about Microsoft's efforts to "cut off Netscape's
air supply" - a phrase that would later acquire talismanic status -
not least that Microsoft had threatened to cancel Compaq Computer's
Windows license when Compaq tried to replace Internet Explorer with
Netscape Navigator on some of its machines. With the browser war
turning vicious and Netscape's complaints to the government getting
nowhere, Reback and the company's general counsel, Roberta Katz,
decided that desperate measures were in order. They would put
Netscape's story down on paper, find a publisher, and present their
plight in the bookstores of America.

Reback and Creighton's white paper read less like a legal treatise
than a true-crime potboiler, a high tech Executioner's Song.

Penning this opus would fall to Susan Creighton. Cerebral and literary
where Reback was blustery and verbal, Creighton was a Harvard- and
Stanford-educated attorney who had clerked on the Supreme Court for
Justice Sandra Day O'Connor. On May 1, Creighton sat down at her desk
at home, surrounded by reams of documents, her infant child perched on
her lap, and began tapping away.

Three months later, Creighton emerged with a 222-page piece of
anti-Microsoft agitprop (with charts and tables courtesy of her
husband, a local professor and desktop-publishing enthusiast). The
tome would eventually bear the dust-dry title "White Paper Regarding
Recent Anticompetitive Conduct of Microsoft Corporation," but it read
less like a legal treatise than a true-crime potboiler, a high tech
Executioner's Song. Creighton spun the tale of Microsoft's 20-year
rise to power; of how it had employed a blend of strategic brilliance
and nefarious tactics to destroy its competitors and hence "to acquire
virtually complete control over what is arguably the most important
tool in the American workplace"; and of how, faced with a potent new
challenger, it had "engaged in a variety of anticompetitive acts that
surpass its previous illegal conduct." The white paper accused Gates
and his lieutenants of first attempting to divide the browser market
with Netscape, and then, when that failed, of using their muscle with
Internet service providers and OEMs - original equipment
manufacturers, as PC makers are known - to shut down Netscape's
distribution channels. Creighton accused them of illegally tying their
browser to Windows. And of predatory pricing. And of exclusive
dealing. And even of offering "secret side payments potentially
amounting to hundreds of millions of dollars" to distributors to keep
Netscape software off their customers' desktops.

Even more incendiary was Creighton's hypothesis as to Microsoft's
motives. With help from Reback and Garth Saloner, a leading-edge
Stanford economist who had assisted in drafting the Intuit white
paper, Creighton put forward a nuanced theory of "monopoly
maintenance": that Microsoft's primary objective was not to dominate
the browser market for its own sake, but rather to protect its
dominance over operating systems. What Gates realized, Creighton
argued, was that the browser was more than just another software
application - it was potentially a rival platform that held out the
possibility of turning Windows into a commodity, and, as Gates himself
put it, an "all but irrelevant" commodity at that.

"This is, at bottom, a very simple case," the white paper concluded.
"It is about a monopolist (Microsoft) that has maintained its monopoly
(desktop operating systems) for more than ten years. That monopoly is
threatened by the introduction of a new technology (Web software) that
is a partial substitute - and, in time, could become a complete
substitute - for the monopoly product. Before that can happen, the
monopolist decides to eliminate its principal rival (Netscape), and
thereby protect its continued ability to receive monopoly rents. The
monopolist is aided by the fact that circumstances are ideal for its
predatory strategy: The monopolist has vast resources, while its rival
has very modest ones; barriers to entry are high; and, once the rival
is out of the way, the monopolist's road ahead looks clear."

When Creighton and Reback delivered the white paper to Netscape, the
reaction was curiously schizophrenic. On one hand, Creighton
remembers, "Barksdale and the others said to us, 'Thank you! Someone
has finally put into words what we've been trying to say; it's like
we've found our voice.'" Yet the white paper made chillingly clear
just how dire Netscape's situation was. "As people saw what their
position looked like in black and white, there was increasing concern
about making it public," Creighton says. "They said, 'Jesus, there's
no way we can let this get out.'" In particular, Barksdale was worried
about the reaction of Wall Street. "My fear was that people would read
it as the whinings of some sad-sack loser," he told me. "What would
the markets think if we said, 'Well, if the government doesn't help
us, we're doomed'?"

And so it was determined that the Netscape white paper would have an
audience of one: the DOJ. Creighton was crestfallen; Reback, enraged.
For not only had the DOJ already demonstrated its lack of interest in
Netscape's ongoing evisceration, but now Joel Klein had been named the
acting head of the antitrust division. Reback had no love for Klein,
whose first major victory at the DOJ had come in 1995 when he defended
the government's consent decree with Microsoft against Reback's
challenge in federal court. Reback's suspicions, along with those of
many in the Valley, only deepened when soon thereafter Klein took the
lead in deciding that the DOJ would do nothing to halt Microsoft's
plan to put an icon for its fledgling online service, the Microsoft
Network, on the Windows 95 desktop.

For a brief moment, Reback's pessimism seemed mistaken. In September
1996, not long after the white paper was shipped off to Washington,
the DOJ announced it was opening an investigation into Microsoft's
Internet activities. Years later, after their triumph in court, Klein
and his allies would point to this as evidence that, as soon as
Netscape came forward with credible allegations, the DOJ jumped on the
case like a dog on a bone. But this was revisionist history on a
massive scale. The DOJ's investigative team consisted of a couple of
lawyers working part-time on the matter in the San Francisco field
office. In the course of the next year - a year in which, for all
practical purposes, Netscape was reduced to rubble - those DOJ lawyers
sent a single CID to Microsoft, limited in scope to the company's
dealings with Internet access providers, and a single CID to Netscape.
The San Francisco team, whose leader was a bookish fellow named Phil
Malone, drove Reback to distraction. "One of them actually said to me,
'browser, schmowser,'" Reback recalls.

If Klein wouldn't act of his own volition, Reback and Creighton
decided, they would simply have to goad him, or bait him, or shame him
into doing it. The Netscape lawyers began lobbying anyone willing to
lend them an ear. The FTC. The Senate Judiciary Committee. The
European Commission. They drafted new white papers, these less secret.
And they trawled for allies among firms outside Silicon Valley -
American Airlines, Walt Disney, publishers, banks - which might one
day find themselves reliant on, or beholden to, Microsoft.

The most promising nibble came from an unlikely pond: the office of
the Texas Attorney General. Reback, of course, knew that Texas was
home to a thriving high tech economy, and to two of the world's
biggest PC manufacturers, Compaq and Dell. What he wasn't aware of was
that it was also home to a populist, reformist assistant attorney
general named Mark Tobey, who'd become suspicious of Gates' power
after reading a story in Time magazine about the browser wars. Within
weeks of examining the white paper, Tobey issued a set of CIDs to
Microsoft and Netscape. When the documents arrived, he was fast
persuaded the case was worth pursuing. From then on, Tobey became
Reback's staunchest ally in lobbying states' attorneys general to look
into Microsoft's behavior.

At first, the AGs were more than reluctant, but as the summer of 1997
unfolded, Microsoft seemed intent on giving them reasons to change
their minds. First there was an article in The Wall Street Journal in
which Reback's old friend Nathan Myhrvold was quoted as saying that
Microsoft's strategy for Internet commerce was to get a "vig" (short
for "vigorish," bookmakers' slang for a cut of the action) from every
transaction on the Net that used Microsoft technology - every
transaction on the Net, that is. Then came stories that Microsoft was
negotiating a similar arrangement with cable-television firms when it
came to digital TV. Then there was Microsoft's investment in Apple, a
deal which marked the official end of what was once computing's
fiercest rivalry and demonstrated that Steve Jobs' company was
dependent on Bill Gates' for its very survival, and which was seen in
the Valley as a mortal blow to Netscape, whose browser was being
ousted from its last refuge, the Mac desktop. Suddenly, Reback's
alarums were being met with the most welcome three words an agitator
can hear: "Tell us more."

His campaign finally starting to catch sparks, Reback submitted to the
DOJ a second Netscape white paper - in which he and Creighton
contended that Microsoft's goal was to gain a chokehold over all of
online commerce - and then quickly orchestrated a series of secret
meetings with many of the allies he'd managed to round up, arranging
for the DOJ's Phil Malone to witness the proceedings.

For two solid days in the last week of August, Reback turned Wilson
Sonsini's Palo Alto offices into a kind of anti-Microsoft three-ring
circus. In one conference room, lawyers on the staff of the Senate
Judiciary Committee's chair, Orrin Hatch, huddled with an assortment
of Silicon Valley executives, collecting leads and gathering evidence
of Microsoft's alleged malfeasance. In another conference room down
the hall, the general counsels to a number of Microsoft's competitors,
including Netscape, Sun, and Sabre - the airline industry's
computerized reservation system, which Microsoft planned to take on
with its travel site Expedia.com - held brainstorming sessions to map
out a wide-ranging political campaign against Redmond on the Hill, in
the statehouses, and in the press. The meeting would prove to be the
birth of ProComp, an anti-Microsoft lobbying outfit in Washington, DC.
 

But neither of these was the center ring. That was in the law firm's
main conference room, where Mark Tobey, seated beside Malone, Reback,
Creighton, Katz, and representatives from the AG's offices of several
other states, conducted the first-ever depositions in what would
become US v. Microsoft. There, Andreessen, Homer, and other Netscape
executives laid out detailed accounts of many of the incidents in the
white papers, including, most important, the June 1995 meeting at
which Microsoft had allegedly made its market-division proposal. Asked
by Tobey why he'd taken notes on the meeting, Andreessen replied, "I
thought that it might be a topic of discussion at some point with the
US government on antitrust issues." (During the trial, Microsoft would
cite the comment as evidence that the meeting was a setup, and
Netscape and the DOJ would retort that Andreessen was just being
sarcastic. "Bullshit, on both counts," Andreessen told me. "I'd read
all the books. I knew their MO. We were a little startup. They were
Microsoft, coming to town. I thought, Uh-oh. I know what happens
now.")

Malone sat silently and took it all in. For the past year, he had been
in charge of the DOJ's desultory inquiry; now he was watching as a
state-level law-enforcement official - from Texas, no less - seized
the initiative in an investigation of the world's second most valuable
corporation. Although Reback was taunting him mercilessly - "Phil,
whaddaya think? That didn't sound like a market-division proposal, now
did it?" - Malone somehow managed not to lose his composure. Until the
very end, that is.

"When the depositions were over," Reback recalls, "Tobey goes up to
Malone and says, 'This looks like the endgame. The only remedy I can
see is to break Microsoft up.' And Malone turned purple. Purple! Here
the DOJ isn't doing anything, and Tobey is saying, Hey guys, it's
over. I really thought Phil was about to have a coronary."

For Reback and Creighton, the August meetings at Wilson Sonsini marked
a turning point. The lawyers from the Senate Judiciary Committee were
leaning their way, and had started talking about the possibility of
holding hearings on competition (or the lack thereof) in the software
industry - and even, perhaps, of summoning Gates himself to Capitol
Hill. Tobey and the states, a contingent that had grown to include
Massachusetts and New York, were in hot pursuit. With the founding of
ProComp, Microsoft's congenitally disorganized competitors seemed for
once to be getting their act together. And, through the good offices
of a shaken Phil Malone, the Netscape attorneys had fired a loud,
bracing shot across the DOJ's bow.

The message was clear: The Microsoft matter wasn't going away. The
real question, however, remained: Was Joel Klein finally ready to
listen?

"Microsoft is a company run by engineers. Engineers like simplicity.
They don't like nuance. That's how Bill sees the world. And if it's
how Bill sees the world, it's how Microsoft sees the world."

III. THE ACCIDENTAL TRUSTBUSTER

Mike Hirshland thought not. Hirshland was Orrin Hatch's number two
staffer on the Senate Judiciary Committee. He was barely 30,
garrulous, and wicked smart, a former clerk for Supreme Court Justice
Anthony Kennedy. He was also a diehard Republican, a free-marketeer,
and therefore a man instinctively averse to government meddling in the
affairs of commerce. But what Hirshland had learned about Microsoft's
behavior troubled him deeply. Returning to Washington from the Valley
in the fall of 1997, he began calling up computer manufacturers such
as Compaq and Internet service providers such as EarthLink to see if
the allegations in the white papers about Microsoft's exclusionary
practices held water. After a few weeks of poking around, he was
convinced that "this was pretty damn serious."

On a gorgeous autumn day, Hirshland and the Judiciary Committee's
chief counsel went down to the DOJ to meet Klein and his deputies.
"They told us, 'If what you're basing this on are the Netscape white
papers, forget about it,'" Hirshland recalls. "They said, 'A lot of
those leads just didn't pan out. Reback? You can't trust that guy; he
makes stuff up. And besides, we're not really sure that tying the
browser to the operating system is illegal anyway.'"

"What about all the exclusionary contracts?" Hirshland countered.
"What about the OEMs? The ISPs? EarthLink? AOL? Gateway? Compaq?"
Klein and his team fell silent. "Next thing you know," Hirshland told
me, "they had their notebooks out and were writing everything down."

Afterwards, Hirshland and his boss walked back to the Hill. "Jesus
Christ, that was all news to them!" Hirshland exclaimed. "Those guys
aren't going to do jack."

This was not a unique assessment in the fall of 1997. Joel Klein had
been around Washington a long time, and a fairly clear consensus had
emerged as to what kind of an antitrust chief he was likely to be.
Klein was brilliant, scholarly, and sophisticated; also careful,
cautious, and pathologically pragmatic. Politically astute and
avowedly pro-business, he was nobody's idea of a tough-talking
trustbuster in the tradition of Teddy Roosevelt or William Howard
Taft. He would only take cases he knew he could win. And so,
therefore, he'd leave Microsoft alone.

In his early fifties, Klein is short and slight, with a perpetual tan
and a shiny bald pate. He walks and talks softly, and seems on first
inspection to carry no stick at all. The son of a postman, he grew up
in Queens, hoping to be a professional athlete. Robbed of that dream
by the cruelties of genetics, he focused on academics, graduating
magna cum laude from both Columbia University, where he majored in
economics, and Harvard Law School. After stints as a clerk to Justice
Lewis Powell and an advocate for the mentally ill, he went on to be a
founding partner in a boutique Washington law firm specializing in
complex trial and appellate work. In the 1980s, he earned a reputation
as one of the most accomplished Supreme Court advocates of his
generation, arguing eleven cases before the Court and winning eight -
a record he may yet have the chance to improve in the Microsoft case.
 

For Klein, who had wanted badly to be Solicitor General, the antitrust
post was a consolation prize - and a prize, in the end, that was
almost denied him. Having sailed through his confirmation hearings in
the spring of 1997, he hit unexpectedly turbulent waters in the Senate
when his name came up for final approval, in large part because of his
approval of the controversial merger of the phone giants Bell Atlantic
and Nynex. "We've got an antitrust fellow here who rolls over and
plays dead," said Senator Ernest Hollings of South Carolina, one of
several who put a formal hold on his nomination. With The New York
Times calling Klein "a weak nominee" and editorializing that the
administration should withdraw him, and with his opponents obstinate
and apparently committed, he seemed for a moment to be in serious
trouble.

What few people knew was that one of those opponents was Gary Reback,
who lobbied Senator Conrad Burns of Montana to put a hold on Klein as
well. On Capitol Hill, where the only thing that moves faster than a
senator sprinting toward a TV camera is confirmation scuttlebutt, word
spread quickly about Reback's maneuvers, and found its way,
inevitably, to the ears of Joel Klein. "Of course I heard," Klein told
me later. "It did make me smile when Microsoft said I was carrying
Netscape's water."

Yet even if Reback's finaglings didn't hurt Netscape's cause, they
certainly didn't help. "The situation wasn't good," says Christine
Varney, who became Netscape's chief Washington counsel that fall and
was an old friend of Klein's. "Netscape found itself in a position
where its principal antitrust lawyer had fought tooth and nail to
defeat Joel's nomination, and now, lo and behold, Joel was the
antitrust AG. As I said: not good."

In the DOJ's antitrust division, Klein was surrounded by lawyers so
sober they made him look impetuous. But there was one dissenter to the
hypercautious consensus: Dan Rubinfeld, a joint professor of law and
economics at UC Berkeley, who had just taken over, at Klein's
invitation, as the division's chief economist. Another small bald man
with a low-key demeanor and a high-pitched metabolism, Rubinfeld
seemed at first glance no more likely than his boss be eager to take a
whack at Bill Gates. As a private-sector consultant, Rubinfeld had a
lengthy record of appearing as an expert witness in corporate
lawsuits, almost always on the side of the defense. In fact, years
before, Rubinfeld had served as Microsoft's main expert in its
prolonged, and successful, copyright litigation with Apple. "I had no
anti-Microsoft bias when I got here," he told me. "I knew those people
well. I respected them. I had spent a lot of time up there." Rubinfeld
paused. "Though I don't expect I'll get another invitation to Redmond
anytime soon."

When Rubinfeld took a look at the white papers, what struck him wasn't
so much the catalogue of abuses they accused Microsoft of perpetrating
as the clarity of Reback and Creighton's analysis. Since the 1970s,
antitrust economics had been dominated by the free-market orthodoxies
brought into vogue by a group of University of Chicago scholars such
as Milton Friedman and Ronald Coase, who argued that the market
functioned so well that government intervention was unnecessary and
even harmful. As an academic, Rubinfeld was part of a growing vanguard
of "post-Chicago School" economists who rejected those orthodoxies;
Garth Saloner, the Stanford professor who worked with Creighton and
Reback, was another. Like Saloner, Rubinfeld had spent the past few
years thinking about dynamic high tech industries and had embraced the
new economic ideas, from network effects to technological "lock-in,"
being advanced to explain how such industries work - ideas at the
heart of the Netscape briefs.

The more Rubinfeld studied the situation, the more he worried about
the impending launch of the new version of Microsoft's browser, IE4,
which was designed to be more tightly bound to Windows than any
previous browser had been. "Nobody would fight over which browser is
on the desktop," Saloner told Rubinfeld at a meeting engineered by
Reback. "This is about control of the gateway to electronic commerce.
This is about somebody" - Microsoft - "potentially owning commerce.
We're talking airlines, cars, banks, you name it."

At Rubinfeld's urging, Klein called Phil Malone in San Francisco and
told him to send another CID to Microsoft. Broader than the CID a year
earlier, it focused particularly on the company's OEM licensing
agreements with respect to IE4. As the Microsoft papers began to pour
in, the DOJ was startled not only by what they said but by the sheer
baldness of how they said it. Two emails sent in late 1996 and early
1997 from Jim Allchin, Microsoft's top Windows executive, to Gates'
third-in-command, Paul Maritz, stood out. In one, Allchin began, "I
don't understand how IE is going to win. The current path is simply to
copy everything that Netscape does packaging and product-wise. Let's
suppose IE is as good as Navigator/Communicator. Who wins? The one
with 80% market share ... My conclusion is that we must leverage
Windows more." In the other, he wrote, "You see browser share as job
1. The real issue deals with not losing control of the APIs on the
client and not losing control of the end-user experience ... We have
to be competitive with [browser] features, but we need
something more - Windows integration."

Soon the investigators also had in hand evidence supporting several
key allegations by Hirshland about exclusionary contracts with OEMs
and ISPs, and especially about Microsoft having threatened to revoke
Compaq's Windows license if it removed IE in favor of Navigator.

Yet even then, a debate raged in the DOJ about what to do. There were
many voices who urged Klein to hold his fire; to investigate further
and bring a broad lawsuit, if it was justified, later. Rubinfeld
disagreed. Under the 1995 consent decree, Microsoft was prohibited
from requiring OEMs to license any other product as a condition of
their Windows licenses. But according to Microsoft's marketing plans,
that was exactly what it intended to do with IE4. Indeed, the DOJ now
had proof that Microsoft had been doing the same for some time with
IE3. Why not simply sue the company for violating the consent decree,
Rubinfeld asked, and put off any decision about a broader case until
later? "The browser market hasn't tipped yet, but it's really close,"
he said. By filing a narrow case now, perhaps the DOJ could keep that
from happening.

Klein had entered the DOJ with little background in antitrust. But in
the past two years, he'd learned enough to know that the issues of
"tying" and bundling were some of the murkiest areas in antitrust law
- areas made even murkier by the subtle and abstract nature of the
product in question: code. Still, it was hard for Klein to imagine a
clearer case of illegal tying than the one Microsoft was planning with
IE4, nor one more manifestly at odds with the letter and the spirit of
the consent decree. Moreover, he was aware that in the few months
since his confirmation the political winds around Microsoft had
shifted appreciably. He knew that the contingent of states looking
into the company, which seemed to swell by the week, was charging
ahead, and was likely to take action whether he did or not. After a
few more conversations between his staff and Mike Hirshland, he knew
that the Senate Judiciary Committee was planning to hold hearings. He
knew that Democrats on the Hill still had doubts about whether he had
the stomach to joust with big business. And, while he still was far
from sure about bringing a broader suit, he sensed in his gut this was
one he could win.

And so, on October 20, 1997, Klein stood next to Attorney General
Janet Reno, with flashbulbs popping and cameras whirring, as she
announced that the DOJ was not only seeking an injunction against
Microsoft for violating the consent decree, but was asking a federal
court to impose a fine of $1 million a day - the largest civil fine in
Justice Department history - until the company stopped tying its
browser to Windows. "Even as we go forward with this action today,"
Klein added, "we also want to make clear that we have an ongoing and
wide-ranging investigation to determine whether Microsoft's actions
are stifling innovation and consumer choice."

Out in Silicon Valley, Gary Reback heard that, laughed, and wondered
if Klein was just blowing smoke. "This filing is a fine first step,
but it's only a first step," Reback muttered to me over the phone.
"All we can do is hope that it's just the first shoe to drop."

What no one could have guessed - not Reback, not Klein, and certainly
not Gates - was that, for Microsoft, it was the start of a hailstorm
of footwear that would continue, amazingly and unabatedly, for the
next three years.

"Bill said, 'Of course, I have as much power as the president has.'
Melinda's eyes got wide, and she kicked him under the table, so then
he tried to play it off as a joke. But it was too late."

IV. THE SHADOW OF THE MAN

The morning the news from Washington broke, Gates was in the high
desert outside Phoenix, attending a high-end high tech conference
called Agenda at the famously opulent Phoenician Hotel. That night,
rather than mingle with the rest of the industry's A-list - Andy
Grove, John Chambers, Steve Case, Scott McNealy - at the official
dinner, Microsoft's CEO retreated to a private supper with a handful
of friends. When the conversation turned to the DOJ, he explained in a
tone at once dismissive and defiant why the government was wrong, why
Microsoft was right, and why, in the end, he had nothing to worry
about. Gates held forth at some length on these subjects, but it was a
single sentence from his former girlfriend, the Silicon Valley venture
capitalist Ann Winblad, who had spent the better part of the day holed
up with him in his room as he absorbed the details of the case, that
most perfectly captured his reaction to the lawsuit:

"These people have no idea who they're dealing with."

The next day, the man the government was dealing with took his turn on
the Agenda stage. Dressed in a madras-plaid shirt and a pair of
khakis, Gates laid out his company's arguments in unequivocal terms:
that the consent decree specifically allowed Microsoft to develop
"integrated products," and that IE was just such a product -
fundamentally melded into Windows. "There's no magic line between an
application and an operating system that some bureaucrat in Washington
should draw. It's like saying that as of 1932, cars didn't have radios
in them, so they should never have radios in them." The central
question, Gates contended, was this: "Is one company excluded from
innovation, or not?"

>From the audience, Gates was asked about public opinion, about the
growing sense, not only in Washington but in the industry at large,
that Microsoft was wielding its power too wantonly. "You're sort of
asking us if we're going to change, to start telling engineers, 'Slow
down, slow down. Go home,'" Gates replied. "No, we're not."

Through most of the session, Gates was calm and collected, if
occasionally curt. Then Rob Glaser, a former protege of his at
Microsoft and now the CEO of the Web media-streaming firm
RealNetworks, stepped up to the microphone. "Bill, do you really think
there is no limit to what should or should not be included in the
operating system?" Glaser asked. "If there is a limit, who should set
it? Microsoft? The Justice Department?"

"Look, look, this is called capitalism!" Gates snapped. "We create a
product called Windows. Who decides what's in Windows? The customers
who buy it."

For Gates, the Q&A at Agenda was a gentle preview of what lay ahead.
Although the DOJ was the primary provocateur, it wasn't the only one.
The European Commission had opened an investigation of its own. Soon,
the Japanese government would do the same. Ralph Nader, the old
economy's hoariest rabble-rouser, was organizing an anti-Microsoft
summit in Washington, featuring some of Redmond's most vocal foes. One
of them was Sun CEO Scott McNealy, who had just filed a separate
lawsuit over Microsoft's use of the trendy software technology Java,
in which Sun accused Microsoft of breach of contract, trademark
infringement, false advertising, and unfair competition.

Thus in the fall of 1997 did Microsoft find itself subject to a degree
of public scrutiny unlike any it had received in its 20-year history.
Its reaction was telling.

First there was Steve Ballmer, standing on a stage in San Jose a few
days after the DOJ's filing, bellowing, "To heck with Janet Reno!"
Then there was Microsoft's first formal response to the case, a legal
memorandum which labeled the DOJ's arguments "perverse," "uninformed,"
"misguided," "misleading," "wrong," "just wrong," "simply wrong," and
"without merit," and which suggested that the government was acting
not on behalf of consumers but the company's competitors.

Then there was the business with the ham sandwich. When the DOJ issued
its reply brief to Microsoft's memorandum, one passage stood out.
"Microsoft asserts that 'integrated' means whatever Microsoft says it
means," the brief said. "Indeed, in its discussions with the
government before the Petition was filed, Microsoft flatly stated that
its interpretation of the [consent decree] would enable it to
require OEMs to put 'orange juice' or 'a ham sandwich' in the box with
a PC preinstalled with Windows 95."

This was true. At a meeting with the DOJ before Klein pulled the
trigger, Richard Urowsky of the New York firm Sullivan & Cromwell -
Microsoft's primary outside legal counsel - had let his flair for the
dramatic flourish run away with him. Even today, three years later,
Microsoft's legal team still fumes over what it calls the government's
"ham-sandwich leak." "It was taken totally out of context," a
Microsoft lawyer tells me. "What he said was, 'We could put in a ham
sandwich, but nobody would buy it.' It was a perfectly legitimate
thing to say. People wouldn't buy it if we put a ham sandwich in the
OS. It was a metaphor for consumer choice." Unfortunately for
Microsoft, Urowsky's declamation, repeated endlessly in the press, was
taken as another sort of metaphor entirely: a metaphor for its
arrogance, for its unwillingness to acknowledge any limits to its
power.

As autumn began to fade into winter, Microsoft was being roughed up in
the media, and the company's reaction seemed to grow only more clumsy
and paranoid each day. The trend reach new heights at its annual
shareholders meeting, when Gates lashed out at the "witch-hunt
atmosphere" being ginned up by his enemies in the Valley and in DC.
All through its history, Microsoft had been adroit, even masterful, at
presenting its image to the public; now it seemed to be melting down.
The sight was so strange, so unexpected, I was sure the press accounts
were conjuring an exaggerated impression. There was no way the company
could really be as rattled as it seemed.

Then I went to see Steve Ballmer.

Ballmer is Gates' best friend, a classmate of his at Harvard who
worked briefly at Procter & Gamble and spent a year at Stanford's
business school before joining Microsoft in 1980. He has worn a number
of official hats at the company, but, unofficially, he has always been
Gates' number two. If Gates is Microsoft's ego, Ballmer - beefy,
boisterous, a natural-born cheerleader - is its rampaging id.

Even so, I was unready for what occurred when we met on a chill
December afternoon in San Francisco, where Ballmer had come to deliver
a speech to some customers. Sitting in a windowless conference room at
the Westin St. Francis hotel, I asked Ballmer about an internal
Microsoft document concerning Microsoft's licensing of Java, which had
come to light in the DOJ's investigation. In it, PaulMaritz stated
that the company's goal was to "get control of" and "neutralize" Java,
whose cross-platform raison d'etre was seen as posing a threat to
Windows. Scott McNealy had told me he considered the document prima
facie evidence that Microsoft had signed its contract in bad faith. I
asked Ballmer if McNealy was right.

"Sun is just a very dumb company," Ballmer began.

"We always honored our license. We always intended to. We always
have." His voice quickly rising, Ballmer continued, "Sun wasn't
confused. We weren't coming in there saying, Hallelujah, brother! We
love you, Sun! We said, We don't like you as a company - nice people;
I like Scott - and you don't like us! We said, Hey Sun, you want to
get on the back of us and ride, baby, ride You want on? OK, here's the
terms!"

Ballmer's face was beet-red now, and he was screaming so loudly that,
had there been any windowshades, they would have been rattling. Up on
his feet, leaning across the table so that his face was no more than 6
inches from mine, pounding his meaty fists on the tabletop so hard
that my tape recorder leapt and skittered, he roared, "Nobody was ever
one little teeny tiny bit confused that we and Sun had this wonderful
dovetailing of strategic interests! Those sub-50-IQ people who work at
Sun who believe that are either uninformed, crazy, or sleeping!"

I took this as a Yes.

Extending a long middle finger to the government and your competitors
is not conventional behavior among the top executives of most
blue-chip companies. But, of course, Microsoft was different -
self-consciously so. Populated by an army of young men (mainly), most
of them unusually bright, many of them abnormally wealthy, working
endless hours and pulling frequent all-nighters, Microsoft has always
retained the air of a fraternity - a fraternity of rich eggheads, but
a fraternity nonetheless. For years, Softies were wont to sport
buttons that read FYIFV: Fuck You, I'm Fully Vested. Another favorite
acronym, meant to suggest how far the company would go, in Ballmer's
words, to "get the business, get the business, get the business," was
BOGU: Bend Over, Grease Up.

Machismo, callowness, and profanity are not exactly unique to
Microsoft. What is unique, however, is the intense insularity of the
Redmond culture. Situated hundreds if not thousands of miles from its
competitors and partners, staffed mostly by folks who have never
worked anywhere else, Microsoft is the frat house from another planet.
Time and again, its engineers express apparently genuine surprise and
a lack of comprehension that other high tech companies harbor deep and
abiding suspicions of their employer. Even Ballmer, a sharp guy
despite all the hollering, was quoted this past June in Newsweek
saying, "People say a lot of things about us, but never has anyone
said we're untrustworthy." Hello?

At the very heart of the Microsoft culture is technology - an
assertion that will sound either axiomatic or ludicrous depending on
your prejudices. To most Americans, Microsoft is more than a
technology culture; it is the technology culture. In the Valley,
though, the view is different. There, even among some Microsoft
allies, it is an article of faith that the company is incapable of
innovating; that it is a copycat, a "fast follower," an assimilator of
breakthroughs achieved elsewhere; that its products, despite their
awesome popularity, are crashingly mediocre.

No matter what outsiders may think, Microsoft executives fervently
believe that their company does in fact innovate, a belief they
support by pointing to the extraordinary $3 billion the company spends
each year on research and development, in areas ranging from voice
recognition to artificial intelligence. Yet starting in the early
1990s, the company also devoted vast resources to buffing its image,
waging multimillion-dollar advertising campaigns and carefully
orchestrating press coverage to turn Microsoft, Windows, and Gates
himself into household names. One of the clearest indications that
Microsoft was becoming as much a marketing culture as an engineering
culture came in 1994, with the hiring of Robert Herbold as chief
operating officer. A mild fellow of middling age, middling stature,
and a certain bland charm, Herbold was a computer-science PhD who had
risen to become the top marketing executive at Procter & Gamble. He
spoke the lingo of branding, of corporate identity, of making
"deposits" in the "key mental bank accounts" of customers. On arriving
at Microsoft, he quickly implemented the full complement of
consumer-research techniques that he'd used at P&G, from extensive
polling to focus groups.

As Microsoft began its recalcitrant flailing in the fall of 1997, I
couldn't help wondering what Herbold was thinking. Here was his
company, violating every conceivable rule in the big-brand handbook of
crisis management. Consider: What would McDonald's do if it found
itself in similar straits? What would Coca-Cola do? Or Disney? Answer:
Their CEOs would appear on the DOJ's doorstep and ask, in voices
sugary with solicitude, What can we do to make the problem go away?
Yet this approach never seemed to have occurred to anyone at
Microsoft. A few months later I visited Herbold in Redmond and asked
if it made sense to interpret the company's belligerence as a sign
that Microsoft had failed to internalize the idea that its success
rested on its image as well as its technology.

"Yeah, it does," Herbold said. "But there comes a point in any
company's life where, if a fundamental principle as to how you operate
is being threatened, you have no choice but to stand tall." Like Gates
and everyone else I spoke to at Microsoft, Herbold was adamant that
the consent-decree case threatened to undermine the company's ability
to innovate. If thwarting that meant extreme and even potentially
self-destructive measures, so be it.

"Always keep in mind, Microsoft is a company run by engineers," a
departed Microsoft executive, himself an engineer, said to me later.
"Engineers like simplicity. They like clarity. They like rules. They
don't like nuance. They don't like shades of gray. They're totally
binary. Ones or zeros. Black or white. Right or wrong. Innovate or not
innovate. That's how Bill sees the world. And if it's how Bill sees
the world, it's how Microsoft sees the world.

"Remember, no one has ever accused Microsoft of being a democracy."

Gates "was going through a period where he kept saying, 'I hate my
job. I hate my life. I hate this situation. I don't know what to do.'"
 

Nowhere in the annals of modern business has Emerson's apercu that "an
institution is the lengthened shadow of one man" held more abundantly
true than at Microsoft. From the moment the company was founded,
everything about it - good and bad, strong and weak - has been a pure
crystalline reflection of Gates' mind, his personality, his character.
In the computer industry, few founders have been able or willing to
stick with their firms as they've grown, guiding them from birth to
maturity. Scott McNealy is a notable exception; so is Larry Ellison,
of Oracle. But although McNealy and Ellison are both forceful and
dynamic CEOs, neither has ever come close to exerting the type of hold
over his company that Gates has always maintained over Microsoft.

Gates inspires this intense following without being, in any
conventional sense, a charismatic or especially winning figure. What
he is, is very smart, and in the Microsoft culture that he himself has
engendered, smartness is valued above all. "There are probably more
smart people per square foot right here than anywhere else in the
world," the former Microsoft executive Mike Maples has said. "But Bill
is just smarter."

The slavish fealty accorded Gates at Microsoft draws gales of derision
from critics and competitors. Netscape's former counsel, Roberta Katz,
says it was the "blind obedience, the willingness to suspend all
judgment and follow the party line, all this zombielike devotion to
the Maximum Leader" that led Microsoft inexorably to its fate in the
courts. "It's the whole voice-of-God thing," says Bill Joy, Sun's
chief scientist. "They're always asking, What would Bill think? As if
Bill's the oracle. As if Bill knows best. It's hard to be creative in
that kind of environment, and it's very hard to do clean-sheet work,
because all the old stuff is the oracle's stuff, and who's going to
tear that up to start fresh? It's why they can't innovate no matter
how many smart people they hire." Gates, says Joy, is "the low priest
of a low cult."

While the notion that Gates is a technological genius is a central
part of his public legend, the depiction elicits eye-rolling (and less
charitable responses) in computing circles, where his technical gifts
are regarded almost universally as solid but unexceptional. "Neither
Bill nor Paul &##91;Allen] was tremendously technically
sophisticated when they started Microsoft, and they're not now," says
David Liddle, the former director of Allen's now-defunct think tank,
Interval Research, and a friend of both men. In 25 years working in
software, Gates personally has made no significant contributions to
computer science. He holds but one patent. Yet at Microsoft,
top-flight scientists speak of his technical fluency in tones of awe.
Gates, they say, is a fox and not a hedgehog; a technologist whose
strength is breadth, not depth. Craig Mundie, the Microsoft executive
who has spent more time recently with Gates discussing the future of
technology than anyone, told me, "Bill's great gift is synthesis: his
ability to accumulate a huge amount of information and then synthesize
it on a grand scale."

In a way, the myth of Gates as a mighty technologist has overshadowed
his rightful claim to genius as a businessman. Of course, Gates is
often credited, and justly so, with being among the first to discern
that software could be the basis of an enterprise; with having
appreciated that software, not hardware, was where the serious money
would be made in personal computing; and with having shrewdly
persuaded IBM, when it asked Microsoft to provide an operating system
for its first PC, in 1980, to allow his firm to retain the rights to
that software, MS-DOS. But Gates' insights were far more sweeping than
that. Before he arrived on the scene, the computer industry had always
been organized vertically. That is, it consisted of companies like IBM
and DEC that built their own machines, designed and manufactured their
own chips, and developed their own operating systems and applications,
all of them proprietary. Side by side with Intel's CEO, Andy Grove,
Gates envisioned a different structure, a horizontal structure, in
which specialized competition would take place in each layer of the
industry: chip company versus chip company, software company versus
software company, computer company versus computer company. He figured
out, again with Grove, that the position of maximum power and profit
in this new structure came from owning one of two critical industry
standards: the OS or the microprocessor. And, finally, he understood
that Microsoft's control of the OS standard could be leveraged in ways
that would give the company enormous advantages in competing for other
software markets.

Gates' strategic foresight was twinned to a tactical discipline and a
single-mindedness that were unusually fierce. For a long time, he
seemed oblivious to the marginalia of corporate life, the perks and
the status symbols, that distract so many executives. His office was
modest. He disdained titles. He flew coach. And while he never
suffered from a deficit of ego, he was relatively immune to
intellectual vanity, keeping close tabs on ideas and trends gaining
currency beyond Microsoft's borders. "He carefully reads the wind and
weather," Liddle says, "and he does not have false pride about
admitting he's wrong" - as he did most famously in turning Microsoft
around in the mid-1990s after initially missing the emergence of the
Internet.

Nor was he prone to technical vanity. Where other high tech CEOs
wasted time and money pursuing perfect, elegant solutions, Gates
refused to let the great be the enemy of the good, or even to let the
good be the enemy of the minimally serviceable. Over and over, he
attacked new markets with the same pragmatic sequence of moves: Dive
in fast with a half-assed product to establish an early foothold,
improve it steadily (even Microsofties joke that the company never
gets anything right until version 3.0), then use clout, low prices,
and any other means necessary to gobble up the market. About the
extent of Microsoft's appetites, Gates and his lieutenants were
unabashed. "My job is to get a fair share of the software applications
market," Mike Maples said in 1991, on the eve of the launch of Office.
"And, to me, that's 100 percent."

Gates' hunger for new conquests left a trail of bloody bodies strewn
in Microsoft's wake. Digital Research. WordPerfect. Novell. Lotus.
Borland. Apple. "Bill [had an] incredible desire to win, and
to beat other people," ex-Microsoft executive Jean Richardson recalled
in the PBS documentary Triumph of the Nerds. "At Microsoft, the whole
idea was that we would put people under."

But while Gates' style of competition was at once relentless and
remorseless, it seemed to be fueled as much by anxiety as by cruelty.
Long before Andy Grove made "Only the paranoid survive" the
watchphrase of Silicon Valley, Gates was living the mantra at
Microsoft. "Bill runs scared much more than people think," says
William Randolph Hearst III, a Valley venture capitalist and one of
Gates' closer friends. "He does what he does out of fear, not sadism.
The history of business is full of guys looking out the 50th-story
window of their corporate headquarters, seeing some little pipsqueaks
down below, and going, 'Oh, forget it; how could they ever threaten
us?' And then getting their clocks cleaned. Bill just knows he doesn't
want to be one of those guys."

Or, as Gates himself said to me one day in his office, "The fact that
you can't name the place you're going to die doesn't mean you
shouldn't pay attention to your health."

The mortality of skyscraper-dwelling overlords was a phenomenon with
which Gates was intimately familiar. When his company's partnership
with IBM began, Big Blue was arguably the exemplary corporation of the
modern age. It was 3,000 times the size of Microsoft and had defined
commercial computing for three decades. "It's easy to forget how
pervasive IBM's influence over this industry was," Gates recalled.
"When you talk to people who've come into the industry recently,
there's no way you can get it into their heads: IBM was the
environment." Then the men from Armonk met Gates, and everything
changed. By the early 1990s, not only had IBM's hegemony been
shattered, but the company was on the ropes - losing billions of
dollars a year, laying off employees by the thousands, struggling for
its very survival. Meanwhile, Microsoft was ascendant. In January 1993
it surpassed IBM in market value and never looked back; a few weeks
later, IBM's board tried in vain to recruit Gates to become the
company's chair. The role reversal was complete: Microsoft was now the
environment.

The fall of IBM was a seminal experience for Gates and Ballmer,
shaping their perspectives in countless ways, both obvious and subtle.
"If you asked me where I learned more about business than anyplace
else, I wouldn't point to school, I wouldn't point to my two years at
Procter & Gamble, I wouldn't point to Microsoft," Ballmer told me. "I
would point to my 10 years working with IBM." With the passage of
time, he and Gates would come to extol and emulate IBM's strengths -
its devotion to research, its attentiveness to customers. But during
Microsoft's formative years, their opinions were somewhat less
favorable.

"We hated IBM," says Peter Neupert, a former Microsoft executive who
worked with Big Blue on the joint development of the operating system
OS/2 and is now the CEO of drugstore.com. "We hated their
decisionmaking process, which was incredibly bureaucratic and stilted.
We hated their silly rules and requirements; the red tape was
unbelievable. And we had zero respect for their engineering talent.
The core of Microsoft is: Great talent matters. We had a great team;
theirs was big, slow, and sloppy." (Among the OS/2 coders, IBM stood
for Incredible Bunch of Morons.) "We fought bigness at every stage. We
had no processes. We had no planning department. Anything that would
slow decisions down was rejected by design. Bill wanted to preserve a
freewheeling style, where you made decisions fast and didn't get
bogged down. It all comes from his programmer orientation. The people
who were rewarded most at Microsoft were cowboys and misfits - the
guys IBM would never hire. That was a point of pride."

If IBM provided Gates with an object lesson in the perils of
gigantism, it also offered him a case study in how debilitating a
constant fear of government intrusion could be. From the early 1950s
until the early 1980s, IBM had been continually under investigation
by, or in litigation with, federal antitrust authorities. In 1956, the
company had signed a consent decree that forced it to license its
patents at a "reasonable" price to all comers; and in 1969, the DOJ
had launched its landmark 13-year lawsuit accusing IBM of illegal
monopolization of the computer industry - a lawsuit which, despite
being dropped in 1982, saddled the company with a legacy of
competitive restraint and legalistic caution that played no small part
in its vulnerability to the PC revolution that Microsoft spearheaded.
"Every decision they made - on products, packaging, marketing - was
based at least in part on legal constraints or perceived legal
constraints," Neupert recalls. "It was screwy." And it made a large
and lasting impression on the boys from Redmond. "Bill thought a lot
about it. The question was: How important are we going to let the
lawyers be at Microsoft? In dealing with IBM, they'd have lawyers in
technical meetings. Ludicrous."

Gates' answer to the question was: Not very. It would prove fateful.
In 1985, the year before Microsoft went public, its legal department
consisted of Bill Neukom and two other employees. In the next 15 years
the department would steadily expand to more than 400 employees, 150
of them attorneys. Yet despite all those warm bodies, through the
1980s and most of the 1990s Microsoft failed to adopt an official
antitrust-compliance policy or a comprehensive antitrust-training
regime for its employees.

Today, Microsoft's lawyers are at pains to deny that this is so. They
produce documents listing an array of programs (Executive Competition
Counseling, Consent Decree Training, Legal Road Shows) intended "to
ensure that Microsoft employees understand and comply with legal
obligations under US and other antitrust laws." Antitrust training has
even been incorporated into the "Microsoft 101 training vehicle" for
all new employees - although that incorporation took place in 1999,
well after the company's imbroglio with the government began.

Ballmer recently insisted to me that Microsoft has had "antitrust
audits, antitrust reviews, antitrust training" since the mid-1980s.
"Now, do we train every Tom, Dick, and Harry in the company?" he said.
"No. But it's not every Tom, Dick, and Harry that's making the
decisions." Yet in dozens of interviews with current and former
Microsoft executives, I found few who could recall having received
antitrust training, and of those who could, even fewer who remembered
anything they'd been taught, beyond the vague instruction to "obey the
law." (On the stand in the trial, Paul Maritz would testify that he
knew of no antitrust-compliance policy at Microsoft.)

To trustbusters such as Joel Klein, Gates' unwillingness to implement
a thorough antitrust program was a plain sign of his immaturity as a
CEO. "Major corporations in America have these things - they just do,"
Klein told me. "It's just sensible; it's just prudent." Even in high
tech, the absence of such a program at Microsoft has long raised
eyebrows, including those of Gates' ally, Andy Grove. Grove, who would
no more concede that his company has a monopoly on PC microchips than
he would admit a fondness for New Age management techniques,
instituted a far-reaching antitrust regimen at Intel as long ago as
1986. For years thereafter, he periodically raised the issue with
Gates, and then complained to other Intel executives about Gates'
"pigheaded" refusal to follow suit. Yet something more complex and
calculating than mere pigheadedness was at work. To Gates' way of
thinking, being without an antitrust program may have carried with it
certain legal risks, but the risks of enacting one were even greater.
"Bill's thought was that once we accept even self-imposed regulation,
the culture of the company will change in bad ways," a former
Microsoft executive told me. "It would crush our competitive spirit."
 

Morris' top-secret "Project Sherman," which comprised a superstar
group of antitrust authorities, would span three months and consume $3
million of Sun's money.

Or, as Gates himself put it to another of the industry's leading CEOs,
"The minute we start worrying too much about antitrust, we become
IBM."

Years later, when bemused analysts and commentators tried to explain
the behavior that got Microsoft into such hot water with the
government, one theory in particular came into vogue: After years of
seeing itself as David, the feisty underdog doing battle with the
industry's behemoths, Microsoft had failed to realize that somewhere
along the way it had become Goliath - and that Goliaths were subject
to a stricter set of rules than Davids were. The truth, however, was
slightly different. Gates hadn't failed to recognize anything. After
witnessing the collapse of IBM up close and personal, he was
determined not to let Microsoft fall prey to a similar syndrome, and
had repeatedly taken explicit steps to preserve the company's Davidian
attitudes and attributes in spite of its mass and muscle. The result
was a culture built on a willing suspension of disbelief; a culture
whose public posture was, in 1997, neatly - and ridiculously - summed
up by COO Bob Herbold thus: "Think about the technology business in
its broadest sense. Microsoft is a small but important player in that
very large industry."

In private, though, when the man who ran Microsoft let down his guard,
he betrayed no confusion about what he and his company had become. A
close friend of Gates' recalls a dinner with him and his then-fiancee
(now wife) Melinda French back in 1993. "We were talking about
Clinton, who'd just been elected, and Bill was saying blah, blah, blah
about whatever the issue was," this friend remembers. "Then Bill
stopped and said, 'Of course, I have as much power as the president
has.' And Melinda's eyes got wide, and she kicked him under the table,
so then he tried to play it off as a joke. But it was too late; the
truth was there. If Bill ever thought of himself as a scrappy little
guy, he didn't anymore."

By the middle of the 1990s, Gates may have been as powerful as the
president in some ways, yet he remained as paranoid as a speed freak
at the end of a very long binge. The proximate cause of his paranoia
was Netscape. In May 1995, in a now-famous memo titled "The Internet
Tidal Wave," Gates argued that the startup's browser held the
potential to "commoditize the underlying operating system" - Windows.
What worried him, Gates told me, wasn't merely the threat posed by the
browser or other forms of middleware but the sudden momentum Netscape
had gained in the industry. "Lightning struck," Gates said. "There was
a belief that they were the exciting thing, they were the coming
company. You'd go to their developer conferences, go to Marc
Andreessen's press conferences, read the article about what flavor of
pizza he ordered. That phenomenon was getting developers to pay a lot
of attention to the Netscape browser." He added, "Expectations are a
form of first-class truth: If people believe it, it's true." And
people were believing in Netscape.

As was Microsoft, in a sense. When Andreessen and his colleagues first
started talking about turning their lean little browser into a
full-blown platform, the idea struck Gates and Ballmer as perfectly
plausible - not surprisingly, since Microsoft had pulled off the same
trick in the course of ten years with Windows, which was originally
nothing more than an application running on top of DOS.

The only thing that surprised Microsoft about Netscape's strategy was
the brazenness with which the upstarts shouted it to the world. Nathan
Myhrvold told me, "There's a good analogy to bicycle racing. In
bicycle racing, you don't want to be first until the end. What you
want to do is draft the guy in front of you. And then, in the last
minute, you dart out. The middleware gambit is about drafting the
leader." Yet here was Andreessen publicly proclaiming in the summer of
1995 that Netscape's plan was to reduce Windows to "a poorly debugged
set of device drivers." "They didn't save it up," Myhrvold said. "They
fucking pulled up alongside us and said, 'Hey, sorry, that guy's
already history.'"

The tactic drove Redmond into a rage. The day after Andreessen's quote
appeared in the press, John Doerr, the prominent venture capitalist
and Netscape board member, received a chilling email from Jon Lazarus,
one of Gates' key advisers. In its entirety, it read: "Boy waves large
red flag in front of herd of charging bulls and is then surprised to
wake up gored."

The consent-decree case resulted from Microsoft's very first thrust:
the decision to bundle and then integrate IE into Windows. Even apart
from its effect on Netscape, Gates firmly believed that Web browsing
was a natural addition to any OS, one that would serve consumers and
make computing easier. Adding IE to Windows for free, he told me, was
"the most defensible thing we've ever done." It was also indisputably
legal, he said. When Microsoft had bargained with the DOJ (and with
the European Commission, which was simultaneously pursuing its own
investigation) over the consent decree in 1994, Gates had taken great
care to be sure that the provision on tying was worded broadly enough
to give Microsoft unfettered freedom to put new features into Windows.
Indeed, when Neukom presented Gates with a proposed draft of the
decree which stated that Microsoft would not be prohibited from
"developing integrated products which offer technological advantages,"
Gates barked, "Remove those last four words!"

Gates, Neukom, and the rest of Microsoft's legal team were therefore
stunned when the DOJ filed the consent-decree case. It seemed to them
that the Feds were either woefully unaware of the negotiating history
of the decree (given that the deal was cut under Klein's predecessor)
or had willfully chosen to ignore it. Equally maddening was the
premise of the DOJ's claim: that because Explorer was distributed to
PC makers on a different disk from Windows, and because it was also
marketed as a standalone product, it was by definition not
"integrated." At a meeting with the DOJ that fall, Klein held aloft
the two disks and said, "See? Two separate products." To Microsoft,
the gesture was glaring evidence of Klein's technological
cluelessness. Once IE and Windows were installed together, they fused
into one seamless whole; the fact that they were distributed on
separate disks, as software products often are, was irrelevant. "It's
all just bits," Neukom said to me later. "Antitrust law isn't about
how you distribute the bits; it's about how the bits relate to each
other."

Klein may have been clueless about the commingling of code, but the
DOJ's argument found a friendly pair of ears on the large round head
of Thomas Penfield Jackson. Jackson was the gruff, grandfatherly
federal judge who had somehow lucked into hearing the consent-decree
case. After nearly two months of legal volleys, on December 11 he
issued a stopgap split decision that cut sharply against Microsoft. On
one hand, the company had offered a "plausible interpretation" of the
term "integrated" and a "reasonable explanation" as to why its
behavior was kosher under the consent decree; so Jackson rejected the
government's motion to fine Microsoft $1 million a day. On the other,
though the judge remained undecided on the merits of the case and
needed more time to sort out the issues, he found that the DOJ
"appears to have a substantial likelihood of success" and that "the
probability that Microsoft might also acquire yet another monopoly in
the Internet browser market is simply too great to tolerate
indefinitely until the issue is finally resolved." And so Jackson
handed down a preliminary injunction ordering Microsoft to "cease and
desist" from requiring PC makers to install IE as a condition of their
Windows licenses. Until the case was decided, Microsoft was to offer
them a browser-free version of the OS.

Microsoft's response was flagrant, provocative, and ill-considered.
Having maintained all along that removing the browser code from
Windows would break the OS, the company decided to comply with
Jackson's order in a remarkable fashion: by offering OEMs a choice of
either a two-year-old version of Windows without IE or a current
version that simply didn't function. Joel Klein was livid. "Usually
the phrase 'contempt of court' is metaphoric," he sputtered to me. "In
this case, it was literal."

Microsoft's maneuver led to the consent-decree case's most famous -
and famously comical - incident. Before a packed courtroom, Judge
Jackson announced that he and his clerks had been doing some hacking,
and had found that IE could be uninstalled with no noticeable harm to
Windows in "less than 90 seconds."

A few weeks later, in mid-January, after another hearing in which
Jackson heaped scorn on Microsoft and its witnesses, the company
backed down. In consultation with the DOJ, it agreed to offer computer
makers a version of Windows that still contained some IE code, but in
which the browser was disabled and hidden from view. Today, Gates and
his lawyers still refuse to admit that this was what they should have
done in the first place, not least because most PC manufacturers would
have continued (and in fact did continue) to take the version of
Windows that included IE. "Do I wish we'd found a more politically,
personally, atmospherically palatable response?" one of Microsoft's
senior lawyers muses. "Sure. But we couldn't then and we still can't."
 

"Maybe we should have gone to the DOJ and said, Hey, this won't work.
Why don't we go to the judge and try to figure it out?" another
Microsoft attorney tells me. "But we were in an adversarial situation,
remember. And we were trying to make a point that was lost on the
court."

The price of making that point would prove to be greater than
Microsoft could ever have imagined. Two and a half years later, when
Jackson issued his order that the company be split up, he cited its
"illusory" and "disingenuous" compliance with his injunction in the
consent-decree case as evidence that Microsoft was "untrustworthy" and
that conduct remedies alone weren't sufficient to rein in its power.
And even in the short term, the damage was severe. In America and
abroad, in the news columns and in editorial cartoons, criticism,
sarcasm, and even mockery suddenly appeared where once there'd been
little besides adulation. For the first time ever, Ballmer
acknowledged that the company's polling and focus groups had begun to
show that the negative publicity was taking a toll on Microsoft's
image. "It's not cataclysmic, but it's clear," he said.

At the same time, Microsoft's insolence seemed only to have emboldened
the DOJ and the states as they turned their attention to the question
of whether to launch a full-scale antitrust action against the
company. If anyone had a doubt that they were serious, one piece of
news should have instantly dispelled it: that Klein had retained David
Boies, the famed New York litigator who had successfully defended IBM
against the government's antitrust charges in the 1970s and 1980s, as
a consultant.

The gathering storm was unlike anything Gates had ever weathered.
Competitors had been assailing him and his company in every fashion
imaginable for more than a decade. But what was happening now ... this
was different. This wasn't business. This was the government, an
adversary not unknown to Gates, but one against whose slings and
arrows his defenses weren't nearly so robust.

In the months ahead, it would often be said that, for a company of its
importance Microsoft had paid dangerously little attention to politics
over the years. As recently as 1995, the company had no
government-affairs office in Washington, DC. Yet Gates didn't think of
himself as a political innocent. He had never been partisan, but who
was these days? He had issues he cared about - trade, immigration,
encryption, taxes - and had lobbied on behalf of. He had even dabbled
a bit in the art of the schmooze. He had golfed with Bill Clinton on
more than one occasion. He had dined with Newt Gingrich back when that
meant something. He had hosted Al Gore on a visit to Microsoft. (For a
time, Gore's daughter Karenna had worked at >Slate.) More to the
point, Gates believed that he and Microsoft had delivered to this
administration perhaps the greatest political gift of the postwar era:
the new economy. Who had done more than he had to spark the PC
revolution? What company had done more to provide the underpinnings of
the information age?

Reback assembled a Murderer's Row of Valley executives, financiers,
and technologists who would parade before the Project Shermanites
during a single daylong session.

Directly and indirectly, Microsoft had generated untold wealth. In
Windows, it had built a platform on which much of the high tech
economy stood. It had created products on which millions of workers
relied. It had propelled the Nasdaq to improbable heights. And now,
after all this, after all he had done, the government that should have
been showering him with praise and gratitude was casting him as a
villain, a scoundrel, a grasping monopolist. It was crazy,
infuriating. And it was starting to get under his skin.

As the consent-decree contretemps wound to a close, the blind outrage
that had colored Gates' mood for months remained intact, but
increasingly it was overshadowed by something darker. Among his small
circle of close friends, word began to spread that Gates had fallen
into a deep blue funk. "His own government suing him, that's not
chocolate sundae," his father would later tell Newsweek. "He was
concerned, he was angry, he was distracted from things he'd rather be
doing." Actually, it was much worse than that. According to one old
friend, "He was going through a period where he kept saying, 'I hate
my job. I hate my life. I hate this situation. I don't know what to
do.'"

Seeing Gates so demoralized disturbed his friends. It also worried the
Microsoft board. On January 24, the directors (who included Steve
Ballmer, Paul Allen, the ex-Microsoft president Jon Shirley, venture
capitalist Dave Marquardt, Mattel CEO Jill Barad, and a
Hewlett-Packard executive named Richard Hackborn) gathered for their
monthly meeting. It was a gray Saturday just 72 hours after the
company had come to terms with Jackson and the DOJ on the preliminary
injunction, and the board expected that much of the meeting would be
taken up with discussion of the consent-decree case and the broader
suit that the government was contemplating. At least a few of
Microsoft's directors were hoping to raise another issue as well: the
possibility of promoting Ballmer to president from his current
position as executive vice president of sales and support - in order,
as one board member put it to me, "to take some of the burden off
Bill's shoulders." Yet it was only when Gates began to speak that
anyone fully realized how great the burden had become.

Looking haggard, as though he hadn't slept in days, Gates plunged into
an extended and emotional tirade, railing at the DOJ, castigating the
judge, bemoaning the sheer irrationality of what had befallen his
company. Everyone in the room was familiar with Gates' outbursts,
which were, after all, a signature of his leadership style. But this
was a different brand of diatribe - more stream-of-consciousness than
usual, and far more personal. His voice quavered; his body quaked. And
where Gates in full lather was normally condescending and sometimes
cruel, now he was seized by unbridled self-pity. The DOJ was
demonizing him. The press hated him. His rivals were conspiring to
take him down. The political establishment was ganging up on him. His
enemies were legion; his defenders, mute.

How had this happened? What could he do?

Gates' eyes reddened. "The whole thing is crashing in on me," he said.
"It's all crashing in."

And with that, the richest man in the world fell silent, and began to
cry.

V. THINGS FALL APART

It was said by admirers and antagonists alike that Gates was endowed
with a greater ability than perhaps any CEO in history not only to see
several chess moves ahead but to do so on several chessboards
simultaneously. Yet no matter how many chess games are being played,
the same rules apply from board to board. Knowable rules. Fixed rules.
The trouble for Gates and Microsoft was that the ordeal they now
confronted was less like a chess match than a piece of improvisational
theater, where the stage is full of actors armed with different
scripts, motivations, and objectives. Careering around the proscenium,
this motley cast - Microsoft, the DOJ, the states, Silicon Valley,
Judge Jackson, and the rest - would at times stay in character; at
times not. At times they would read out well-rehearsed lines; at times
they would extemporize wildly.

For Microsoft, the most baffling of subplots was the one playing out
in the realm of politics. Starting in 1997, a number of Valley figures
had begun building bridges to Washington, DC, in a manner
unprecedented in the high tech industry. The institutional form this
outreach took was a bipartisan organization called TechNet, whose
cochairs were Netscape's CEO, Jim Barksdale, and John Doerr, the
venture capitalist who had funded not only Netscape but Sun, Intuit,
@Home, and an array of other Microsoft rivals, and who was famously
tight with Al Gore. In Redmond, suspicions ran rampant that Barksdale,
Doerr, and other TechNetters were using their newly minted access in
the capital to lobby the administration and Congress to take on
Microsoft.

These suspicions weren't entirely unfounded. In the fall of 1997,
TechNet had arranged a trip to the Valley for the White House's
then-deputy chief of staff, John Podesta, during which executives
repeatedly raised the Microsoft issue with him. And according to
someone close to the group, on at least one occasion, a Valley figure
spoke about it with President Clinton. How did Clinton respond? "He
expressed sympathy with our point of view," this person said. "But
then, this was Clinton, so it could have been meaningless."

The effects of such lobbying was probably nil. Though Silicon Valley
is a rich vein of campaign cash, the politics of pursuing Microsoft
were highly fraught. "It's a no-winner," says Greg Simon, a Gore
campaign official who once served as the vice president's cyberpolicy
guru. "People say, 'Why are you going after them? Do you want to kill
the goose that laid the golden egg?'" Still, Microsoft was right to
worry that their foes were playing the influence game more adroitly
than they were. For if mining the muddy Clintonite middle yielded few
tangible (or at least public) results for the Valley, it hit paydirt
among those with more concrete ideologies.

On the left there was of course Ralph Nader, but more unexpected, and
more influential, was the support the Valley stirred up on the right.
Most notably, Netscape and ProComp together reeled in Robert Bork, the
conservative jurist whose 1978 book, The Antitrust Paradox, was a
sacred text for Chicago School economists and the generation of
conservative judges named to the bench by Nixon and Reagan, because of
its potent arguments that antitrust enforcement was only justified in
the rarest of cases. Bork was initially skeptical of Netscape's
complaint - until he took a gander at the first white paper. There he
found that Susan Creighton had cited a case in support of her
arguments that was also cited conspicuously in Bork's own book.
"You're right, I wrote this," Bork said. "And it applies, perfectly."
 

Among the relatively few executives in Redmond with a background in
politics, the Valley's success in nailing down support at both ends of
the political spectrum was troubling. As one executive said to me, "If
Ralph Nader and Bob Bork agree about Microsoft, my God, there really
is no political risk in going after us."

Enter Orrin Hatch. In February, Hatch announced that he was planning
to hold a hearing on Microsoft - and to invite Bill Gates to attend.
The idea belonged to Mike Hirshland. Assuming Gates showed, the
hearing guaranteed adulation from Silicon Valley and a copious
quantity of TV time - and thus promised to feed Hatch's twin joneses,
for campaign cash and national publicity. To assure that Gates felt he
was being treated fairly, Hatch set aside a full hour for a briefing
with Gates the day before the hearing, despite his normal practice of
never - ever - allotting more than 20 minutes for any meeting.

On the drizzly Monday afternoon of March 2, Gates arrived with an
entourage of nearly a dozen at Hatch's first-floor office in the
Russell Senate Office Building. The decor of Hatch's digs was classic
early-modern senatorial drab - blue carpet, dark wood, flag in the
corner. Hatch was on the Senate floor, casting a vote, but soon he
strode in and apologized for being late. Gates stared at the clock on
the wall, turned to the chair of the Senate Judiciary Committee, and
said coolly, "Well, given that we're starting 15 minutes late and I'm
only going to have 45 minutes now, we should get right to it."

Hatch, thunderstruck, said nothing.

It went downhill from there. When Gates told Hatch that the DOJ was
trying to force Microsoft to remove IE from Windows, Hirshland piped
up and said he was mischaracterizing the government's position.
Whipping around, Gates snapped, "You don't know what you're talking
about." When Gates demanded to see a summary of the questions he might
be asked, Hirshland handed him a list of broad categories. Pointing to
one topic, Gates wailed, "If you ask about that, this will be a
kangaroo court!" Then Gates inquired about the seating arrangements
for the hearing. When he was told he'd be seated between Barksdale and
McNealy, Gates leapt to his feet and exploded, "No! No! No! If you put
me between them, I will not appear at this hearing!"

Hatch, by now more amused than annoyed, leaned back and said, "OK, OK,
we'll put you on one end of the table and we'll let you speak first.
Happy?"

Compared with the prelude, the hearing itself was a bit of a letdown.
Hundreds of gawkers lined up outside to catch a glimpse of Gates
decked out like a kid in a wedding - in a suit and tie and decent
leather shoes, his hair freshly cut and plastered down. Gates'
handlers had studiously prepared him, putting him through mock
hearings in which a Microsoft lawyer posed as Hatch and two Microsoft
executives played McNealy and Barksdale. Even so, Gates' performance
ranged from passable to poor. He was often evasive. He repeatedly
contended that Microsoft was not a monopoly, a statement met with
pervasive skepticism. And, in the hearing's final minutes, an actual
moment of drama arose, in which a dogged (and well-briefed) Hatch was
able to extract an admission from him that Microsoft's contracts with
Internet content companies barred them from promoting Netscape's
browser.

To many observers, and especially those ill versed in the kabuki that
passes for communication inside the Beltway, Hatch's convocation
seemed to have accomplished little or nothing. But the senator's
message wasn't lost on Klein. Two weeks after the hearing, Klein told
me, "I knew there was political support for taking on Microsoft. That
was not a shock to me. But the Senate hearing provided a real sense of
comfort. The politics of this thing were becoming clearer. Microsoft
goes up to the Hill and says they don't have a monopoly, and people
just say, That's silly."

To other politicos, silly was an understatement. Jeff Eisenach, the
head of the Progress & Freedom Foundation, the think tank once known
as Gingrich's braintrust, said to me at the time, "When Gates walked
out of that hearing, he was a lot closer to a broad Sherman Act case
than when he walked in. When you're the richest man in the world and
not a single senator speaks up on your behalf, you know you've got
problems."

"In all my years practicing antitrust law, I have never seen such
powerful people so scared," Michael Sohn told Klein and his team. "It
utterly amazed me."

For two of Gates' most outspoken rivals, the Hatch hearing was a day
at the circus: the media circus. Barksdale had a ball. Silver-haired
and Southern-fried, with courtly manners and a hint of hambone,
Netscape's CEO seemed vaguely senatorial himself. He began his opening
remarks by turning to the gallery and asking, in his best Mississippi
drawl, how many people in the room had a PC. Maybe three-quarters of
them raised their hands.

Barksdale asked, "How many of you use a PC without Microsoft's
operating system?"

The hands all fell.

"Gentlemen, that's a monopoly."

McNealy, by contrast, seemed a touch nervous. He also committed a
thumping faux pas by getting up abruptly in the middle of the hearing
and heading for a business meeting in New York. Before he left,
however, McNealy snapped off a winner of his own, quipping that "the
only thing I'd rather own than Windows is English ... because then I
could charge you $249 [for the] right to speak English, and I
could charge you an upgrade fee when I add new letters like N and T."
 

Even before the Senate shindig, Barksdale and McNealy had emerged as
the public faces of the anti-Microsoft movement. Their companies were
loosely but indisputably aligned, despite the feuds that flared
sporadically between their employees. Sun was a hardware firm that
dabbled in software, and it was far larger and more established than
its ally, with $8.6 billion in sales in 1997 compared with Netscape's
$533 million. But when it came to the legal campaign against
Microsoft, Netscape was the senior partner, both in front of the
camera and backstage. It was Netscape's bid to topple the ogre - bold,
romantic, inspiring, doomed - that had captured the public's
imagination in a way that Sun, even with Java, never had. It was
Netscape that was Microsoft's main victim. And it was Netscape, with
its white papers and the tireless lobbying by Reback and Creighton,
that had finally surmounted the DOJ's inertia and got things cooking
in the courts.

Then, on the first working day of January 1998, Netscape announced it
had badly missed its fourth-quarter earnings estimates; ultimately, it
would report an $88 million loss and fire 400 of its 3,200 employees.
At that moment, things changed. While Netscape would remain forever
the poster child of the Microsoft case - imagine Marc Andreessen's
picture on the side of a milk carton - the pioneering startup was no
longer the brains or the heart of the anti-Microsoft coalition. Sun
was.

Although McNealy had a reputation as Gates' most caustic and
extravagant critic, he assumed the mantle of leadership skittishly.
Despite having cultivated a public image as a brash, high-sticking,
trash-talking corporate rebel, McNealy's private persona was cautious
and conflict-averse to the point of phobia. He was known to be
incapable of firing anyone (for that deed he used surrogates) and
rarely made decisions without consensus among his senior staff. "His
demeanor is radical," Mike Morris, Sun's general counsel, remarked to
me. "But his instincts are conservative."

McNealy's instincts were forever at war with his antipathy for
Microsoft, which was real and deep and unforgiving. As Sun had
transformed itself from an obscure workstation maker into a leading
manufacturer of high-end servers, competing with giants such as IBM
and HP, some of McNealy's lieutenants, and especially his number two,
Ed Zander, had encouraged him to mute his Microsoft attacks. We need
detente with Redmond, they said; our customers are begging for it.
McNealy was also hesitant about lobbying the government, even on
Microsoft, because he didn't believe in it - the government, that is.
"Washington, DC, is my least favorite town in the world," he told me
at one point. "I see all these unbelievable monuments to government,
agencies that have no reason for being on the planet - the Department
of Agriculture, Transportation, FEMA, Health, Education, Commerce -
all these huge erections of brick and mortar and masses of people
running around redistributing wealth. The whole thing drives me
absolutely into a freaking funk."

I noted that McNealy hadn't included the DOJ in his list of huge
erections. He smiled. I asked what he thought the Feds should do to
deal with Microsoft. "Shut down some of the bullshit the government is
spending money on and use it to buy all the Microsoft stock. Then put
all their intellectual property in the public domain. Free Windows for
everyone! Then we could just bronze Gates, turn him into a statue, and
stick him in front of the Commerce Department."

Had McNealy's legal theories been all that Sun brought to the
anti-Microsoft movement, Redmond could have rested easy. But the
company brought Mike Morris, too. A small man with a round belly, a
brown beard, and pudding-bowl bangs across his forehead, Morris had
been Sun's chief lawyer since 1987. Like McNealy, he was a Michigan
native, but they had grown up on decidedly different sides of the
tracks - McNealy in posh Bloomfield Hills, as the son of a senior
auto-industry executive, Morris in the sticks, as the son of
tool-and-die maker. And that was the least of the differences between
them. Where McNealy was a blunderbuss when it came to politics, and a
libertarian whose tastes in presidential candidates ran to Steve
Forbes, Morris was a capital-L liberal with the cagey instincts of a
natural-born political consultant. Where McNealy was screamingly
heterosexual, Morris was openly gay, and a bit of an activist. And
where McNealy shied away from conflict and confrontation, Morris
reveled in it, especially when his adversary happened to be Microsoft.
It was Morris who had pushed McNealy to file the Java lawsuit in
October 1997. After claiming a victory there, he persuaded his boss to
file another Java suit, this one more radical, in that it asked the
court to order Microsoft to make changes in Windows. In the midst of a
furious internal debate over filing the second suit, Ed Zander accused
Morris of being a "fanatic."

"I'm not a fanatic, I'm just realistic," Morris said angrily. "We've
got our boots on their throats. The right thing to do is to press
until they stop breathing. If you're going to strike at the king, you
better cut his head off."

Decapitating Microsoft was on Morris' mind again when, a few days into
1998, he picked up the phone and called Joel Klein. For the past nine
months, Morris had been in contact with Klein as part of a three-way
effort to nudge the government toward a case against Microsoft. His
partners in the triad were Netscape's Roberta Katz and Sabre's
counsel, Andy Steinberg. Together they had founded ProComp; lobbied
the DOJ; assisted Mike Hirshland in his inquiries; told their tale in
concert - from the multiple, harmonious viewpoints of a systems
company, a software company, and a content company - to anyone who'd
listen; and urged wary Silicon Valley bosses to talk in confidence to
the DOJ. Now Morris was plotting a solo mission: to put together a
sort of private blue-ribbon commission of nationally renowned
antitrust lawyers and economists, have them draw up an outline of the
kind of Sherman Act case that would make sense for the DOJ to file,
including a discussion of possible remedies, and then present the
whole thing to Klein and his people.

Might the DOJ find that helpful? Morris asked him.

Sure we would, Klein replied.

So began a project that would span three months and consume $3 million
of Sun's money: "Project Sherman." As Morris intended, Project Sherman
comprised a superstar group of antitrust authorities, including the
famed Houston litigator Harry Reasoner; University of Chicago
economist Dennis Carlton and several of his colleagues from the
economic consulting firm Lexecon; Arnold & Porter chair and prominent
Washington attorney Michael Sohn; Stanford economist Garth Saloner;
and former FTC general counsel Kevin Arquit, who handled Sun's
antitrust work in Washington. In choosing his experts, Morris took
care to select people with impeccable credentials - mainstream
credentials, Establishment credentials; the kind of people who spoke
Joel Klein's language; the kind who might come across as reasonably
objective despite the fact that Sun was paying them $600 to $700 an
hour. The political sensitivity of the project was, needless to say,
extremely high, for here was one of Microsoft's most ardent
competitors bankrolling a costly endeavor to influence the DOJ - an
endeavor undertaken with the department's encouragement. And so it was
done in utmost secret. Apart from McNealy, Morris informed almost no
one at Sun, and the other participants were sworn to strict
confidentiality. One of them said to me, "I haven't even told my wife
about this."

>From mid-January to mid-April, the Project Sherman crew met every two
weeks, usually at the O'Hare Hilton in Chicago. At first, the meetings
were contentious. For one thing, "There was an awful lot of ego in
that room," one person recalls. "An awful lot of grandstanding." For
another, the group quickly divided into factions: lawyers and
economists; tech-savvy and tech-challenged; Washington insiders and
Washington outsiders. "We had these people who claimed to know Joel
well," recalls one participant. "They'd say all the time, 'Let me tell
you, I know Joel, and Joel will never go for that.'" The FOJ problem
was especially nettlesome when it came to the question of remedies.
One economist told me recently, "The Washington people kept arguing
for conduct remedies because they were so sure Joel would never agree
to a structural remedy." He laughed. "Boy, I guess they must be
feeling pretty dumb now."

There was another debilitating split within the group. Among those
from the Valley, the idea that Microsoft's monopoly and its predatory
practices had chilled innovation and distorted investment was taken
for granted; it was a given. But for people like Reasoner, Carlton,
and Sohn - the big guns, whom Morris intended to wheel out in front of
Klein - it was speculation garnished with hearsay. Reasoner kept
asking, "Where the hell is the evidence?"

Morris' plan was to bring the Project Sherman gang to the Valley and
expose them firsthand to Microsoft's influence. He turned to Gary
Reback, asking him to arrange a series of hush-hush meetings with
industry figures who could address the question with authority.
Nothing gave Reback more kicks than a covert operation where he was
pulling the strings. Within days, he had assembled a Murderer's Row of
Valley executives, financiers, and technologists who would parade
before Morris' group during a single daylong session. Reback told his
witnesses that the meeting was important and that it might help
influence the DOJ, but he told them little else; not the names of the
economists and lawyers they'd be addressing, or who their fellow
witnesses would be, or the identity of the meeting's sponsor. To keep
the bigwigs from running into one another at Wilson Sonsini's offices,
he instructed them to enter and exit through different lobbies.

The tutorial the Project Shermanites received on the appointed
late-March day was wide-ranging, and, according to one person who
attended, they reacted to certain parts of it with shock and
amazement. They heard from Eric Schmidt, the CEO of Novell, about the
vulnerability of being a firm that both competes with, and is reliant
on, Microsoft software. They heard from the Apple software wizard Avie
Tevanian about why conduct remedies like opening up Microsoft's APIs
wouldn't accomplish anything. They heard from Sun's Bill Joy (who had
no idea that his company was paying for this show) about why Tevanian
was right, but why splitting Microsoft into three identical firms, the
so-called Baby Bills solution, might be worse: "I keep thinking of
'The Sorcerer's Apprentice.'" They heard from John Doerr about
Microsoft's recent habit of gathering together the Valley's VCs and
offering helpful suggestions about which technologies it might be
advisable to invest in and which might be best left to Redmond. "My
firm's policy is never to back a venture that competes directly with
Microsoft," Doerr said. "Only damned fools stand in the way of
oncoming trains."

And they heard from Jim Clark. "When I left Silicon Graphics I had a
net worth of $16 million and I invested $5 million to start Netscape,"
Clark said. "Microsoft has practically killed Netscape. I'll never
invest in another thing to compete with them. I'll never touch another
market that has anything remotely to do with Microsoft's path. And if
I'd known four years ago what I know now - that Microsoft would
destroy us and that the government wouldn't do anything about it for
three fucking years - I never would've started Netscape in the first
place."

A few weeks later, Morris and a select subset of his experts (big guns
plus Saloner; no Reback) flew out to Washington for their audience
with the DOJ. It was now the middle of April. Four months had passed
since the consent-decree case had climaxed, and Morris knew little
more about where the DOJ's investigation stood than what he read in
the papers. Certainly the trustbusters seemed eager to see him: Klein
had called twice to try and move up the date of the presentation, and,
arriving at the DOJ, Morris found himself playing to a packed house.
Klein, his number two Doug Melamed, Rubinfeld, Malone, and Boies were
there, along with a swarm of junior antitrust-division staffers, all
crowded into the conference room next to Klein's office.

Taking seats across the table from Klein and his deputies, Morris'
team proceeded to outline the case they believed the DOJ should file.
Just as the Netscape white papers had argued, the core of that case
was illegal monopoly maintenance and monopoly extension - a violation
of Section 2 of the Sherman Act. For years, Microsoft had leveraged
its power over the desktop to invade adjacent markets, from
productivity applications to server operating systems. Sometimes those
markets were tremendously valuable in their own right; Office alone
raked in billions each year for Gates' company, and Microsoft's next
target - the server space in which Sun was a leader - was even richer.
Other times, the market itself was worth next to nothing in terms of
dollars and cents, but controlling it was essential to preserving
Microsoft's dominance on the desktop. Browsers were one example of
this. But Java was an equally compelling one. By letting programmers
write software that would run on any OS, Java threatened to render
Windows irrelevant, if not obsolete. Microsoft's response had been to
license Java from Sun and then violate that license by creating a
Windows-only variant of the technology in an attempt to subvert its
cross-platform purpose. With both Java and the browser, as Saloner put
it later, Microsoft's MO was the same: "We will embrace it, we will
make it ours, we will apply it to our operating system, and we will
kill it. We will do what we must to protect the mothership - the OS."
 

A Microsoft executive had made a suggestion about what Apple should do
with its multi- media technology QuickTime: "Knife the baby."

The Sun presentation ran for nearly four hours. Deploying his experts
to make most of the arguments - Reasoner and Sohn on the law, Carlton
on the economics - Morris tried to anticipate and shoot down
Microsoft's defenses. In particular, the team addressed the question
of harm, of who'd been hurt by Microsoft's actions. After all, the
company would say, consumers are happy; prices are falling; high tech
is thriving; so is Sun, by the way. What that picture left out,
however, was the damage to innovation - the products left undeveloped,
the areas of technology left unexplored. For example, there was almost
no R&D on operating systems anymore. What did that imply for the
future of technology? And how long could innovation continue to
flourish in an industry suffused with fear?

"I went out to Silicon Valley," Mike Sohn told Klein and his team. "In
all my years practicing antitrust law, I have never seen such powerful
people so scared. It utterly amazed me."

At the end of the afternoon, the talk turned to remedies, and Dennis
Carlton took the floor. In a way, Carlton was the least likely, and
thus the most impressive, member of the Sun team. One of the
best-regarded economists in the country, he was also a classic
conservative straight out of the Chicago School: suspicious of
plaintiffs, friendly to business, inherently skeptical of government
intervention in general and antitrust enforcement in particular. All
of which was why Morris had worked doggedly to recruit him in the
first place.

Throughout the day, Carlton had spoken with calm conviction about the
economics of the case; about monopoly maintenance, market power, and
Microsoft's predation. Now, with the DOJ officials hanging on every
word, Carlton did what had once been nearly unthinkable. First, he
laid out a range of conduct remedies (contract restrictions, technical
requirements) and methodically described the pros and cons of each, in
every case listing more cons than pros. Then, without the slightest
hesitation, he presented the case for a structural remedy - not a
full-blown breakup of Microsoft, but a scheme that would force the
firm to license all its intellectual property to some number of third
parties, giving birth to a set of clone companies that would create
competition in the markets for operating systems and applications.

Garth Saloner knew it was coming, but even he found it a powerful
moment. "This is not one of us Silicon Valley loonies saying this,"
Saloner later observed. "This isn't Gary Reback. This isn't Roberta
Katz. This isn't Garth Saloner. This is Dennis Carlton. Things have
moved. The world has changed. If you're Joel Klein or Dan Rubinfeld, I
would think you'd take comfort in that."

Mike Morris had no illusions that Klein and his colleagues would
swallow the case his team put forward - let alone the remedy - whole.
Instead he was trying, as he put it, simply "to give them a sense that
this wasn't a wild goose chase; that this was a good case, a real
case."

As the meeting drew to a close it was impossible to know if the effort
had succeeded. For four hours, the DOJ officials had maintained what
one participant described as a "highway-patrol demeanor":
professional, poker-faced, pristinely neutral. They had asked
countless questions but given nothing away.

But many months later, when I asked Rubinfeld about the Sun
presentation, he answered in a way that would have made Morris' day:
"It was memorable. It was impressive. It told us some things that we
did not know. But mostly, and this can't be underestimated, it
reinforced in our minds that what we were doing wasn't crazy."

What the DOJ was doing was girding for war. By mid-April, Klein had
persuaded David Boies to sign on as the antitrust division's "special
trial counsel" for about one-fifteenth of his customary $600-an-hour
fee. ("It didn't take a lot of persuading," Klein recalls. "About a
half a second after I asked, he said, 'When do I start?'") Klein also
brought another pivotal player into his inner circle: Jeffrey
Blattner, a former chief counsel to Ted Kennedy's staff on the Senate
Judiciary Committee who'd made a reputation in Washington as a sharp
operator during the bloody 1987 battle to keep Robert Bork off the
Supreme Court. Blattner's title was Special Counsel for Information
Technology, but his de facto role was chief of staff for the Microsoft
case, with duties that would include stroking the Hill, spinning the
press, and plugging any (unwanted) leaks from within the division.

In short, all the smoke signals wafting out of the DOJ's Pennsylvania
Avenue headquarters indicated that Klein was on the verge of filing a
broad Sherman Act suit. The only questions were: How broad? And to
what end?

To find out, I arranged to meet Klein on the Saturday morning after
the Sun presentation. It was a brilliant spring day, with Washington
aswirl in cherry blossoms and dogwood. Over the next two years, Klein
and I would have nearly a dozen of these discussions, all on the
understanding that nothing he said would appear in print until after
the trial was done. The setting was always the same: Klein's
fourth-floor corner office, where he would sit in a high-backed
leather chair, dressed usually in a dark suit and tie, and talk for an
hour or two about the strategy, tactics, and legal principles at stake
in a case he believed would help set the rules of competition for the
digital age. He spoke quickly, quietly, candidly, and not without
humor, in a voice still tinged with the accents of Astoria and
Bensonhurst.

"I think we're at decisionmaking time," Klein began, pointing out that
the introduction of Windows 98 was only a few weeks away. After months
of concentrated investigation, Klein was satisfied that he had
sufficient evidence to level a number of charges against Microsoft:
that its exclusive contracts with ISPs and content providers were
anticompetitive; that its contracts with OEMs placing "first-screen"
restrictions on how they could modify the Windows desktop and boot-up
sequence were illegal; and that its integration of IE with Windows
constituted an unlawful tying of two separate products together. In
all this, Klein said, the company's motives were clear, and clearly
predatory. "When you see document after document, from Gates on down,
saying that Netscape could basically commoditize the operating system,
that's important stuff," he said. "That's what was going on in the
minds of these people when they say, Well, what we ought to do in
response is go right at 'em and cut off their oxygen."

Klein felt confident that each of these tactics was a violation of
Section 1 of the Sherman Act, which states: "Every contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal." The question was whether
to go further and accuse Microsoft of monopoly maintenance under
Section 2. Section 2 says: "Every person who shall monopolize, or
attempt to monopolize, or combine or conspire with any other person or
persons, to monopolize any part of the trade or commerce among the
several States ... shall be deemed guilty of a felony."

For all the exhortations of Netscape and Sun, monopoly maintenance was
not a mainstream case to bring. And it wouldn't be a simple one to
prove, especially given the products in question. To start with,
explaining how the combination of Java and Netscape's browser, neither
of them a direct rival to Windows, nonetheless posed a threat to the
OS would require the DOJ not only to elucidate the intricacies of
software APIs but to do so in a vocabulary Judge Jackson (who, having
presided over the consent-decree case, would handle any related
Sherman Act suit) could readily comprehend. No mean feat, that.

Inside the DOJ, a pitched debate was still being waged among those who
preferred to keep it simple, to stick with a more traditional Section
1 case, and those angling hard for Section 2. Just as he had during
the run-up to the consent-decree suit, Dan Rubinfeld led the hawks,
although now he had backing from the hardline Boies. "Contrary to what
a lot of other economists and lawyers in the division believed, I
thought it would be perhaps easier to win a bigger case than a
narrower one," Rubinfeld recalled. "What we had with Microsoft was a
pattern of practices where the whole was greater than the sum of the
parts." And although the majority of misdeeds the DOJ had nailed down
so far - including the June 1995 meeting between Microsoft and
Netscape - revolved around the browser, the investigation had begun to
unearth evidence of Microsoft malfeasance involving other competitors.
"We hadn't had time to flesh out the pattern of bad acts completely,"
Rubinfeld said. By filing a Section 2 claim, "we could put a legal
placeholder in our complaint and try to fill it in later. If we could
stand it up, the case would be broad. If we couldn't, it would be a
browser case."

For nine months, Klein had heard from every putative Microsoft victim
in the known world. He'd heard tales of treachery, duplicity, and
outright thuggery. He had watched as the mood in Washington had turned
decisively against Gates and his company. And yet, far from spoiling
for a fight, he still seemed wary, slightly gun-shy. On the question
of what sort of remedy he might seek, Klein expressed a preference for
something "surgical." Did that mean he wasn't considering a breakup?
"I think that's accurate - at least for now," he replied. "There are
real costs that one has to be very cognizant of to breaking up a
company like Microsoft."

I asked Klein if he'd ever met Gates, and he said that he hadn't. Was
he looking forward to that day?

"I don't know. People ask me this a lot. Maybe it reflects a blind
spot. I mean, obviously there's something about meeting Bill Gates -
though, as my kids would tell me, it's not as exciting as meeting some
rock star. I feel weird, because I have the sense that everybody
expects there's gonna be this great day. But I don't personalize this
stuff. I really don't."

"I am one happy camper," Klein whispered to me in the back of the hall
at the Agenda conference. "We really kicked their butts."

The great day arrived just two weeks later, when Gates and Bill Neukom
traveled from Seattle to Washington for a summit with Klein and his
lieutenants. The Justice Department had put Microsoft on notice that
it intended to file suit sometime before May 15, the Windows 98 ship
date; at least a dozen state attorneys general were prepared to do the
same. Now it was time to offer the soon-to-be defendant a final
opportunity to reach an accord outside of court - a meeting known
inside the antitrust division as "last rites."

And so on the evening of May 5 the two camps convened in the offices
of Microsoft's main outside law firm, Sullivan & Cromwell, in an
eighth-floor conference room with windows looking out on the Old
Executive Office Building. On Microsoft's side of the table sat Gates,
Neukom, and a pair of S&C attorneys; on the DOJ's side were Klein,
Boies, Blattner, and Melamed. Typically, when a company and the
government get together in an effort to avert a massive lawsuit, the
tenor of the discussions is all about give and take, with each side
laboring, however misguided it thinks the other is, to find common
ground. But Gates' approach "was more in the nature of a lecture - the
world according to Gates - than a constructive dialogue," Klein told
me later. For the next two hours he held forth - forcefully,
passionately, and often patronizingly - about the nature of the
software business and the needs of his company. He asked no questions
of the DOJ, and his answers to theirs took the form of prolonged
soliloquies.

In the world according to Gates, the notion that Microsoft had a
monopoly was ludicrous. "Give me any seat at the table - Java, OS/2,
Linux - and I'd end up where I am," he proclaimed. "I could blow
Microsoft away! I'd have programmers in India clone our APIs. If you
were smart enough, you could do it." Asked if Netscape's browser was
designed to compete with Windows, Gates shot back, "Not compete.
Eliminate."

When the DOJ team tried to get Gates to address the full range of
their concerns - the exclusive contracts, the first-screen
restrictions - he repeatedly brushed them off, returning again and
again to a single issue: integration. Klein recalled, "He made the
argument in myriad different ways that the future of technology was
through product integration; that he'd put billions of things into the
operating system and he needed to be able to keep putting whatever he
wanted into Windows. And if the government blocked that, it would
basically kill his business. That was the clear top line, bottom line,
and every line in between." What startled Klein was the personal terms
in which Gates made these points. "It wasn't just, You're going to
kill my business; it was, You're going to kill me. And clearly we, the
government, were the instrument of this great personal affliction."

As David Boies watched Gates give no quarter, he couldn't help
thinking that the CEO was dangerously underestimating his adversary.
>From his decade-long stint in the trenches of the IBM case, Boies knew
well that the DOJ was not just another adversary; that it had "the
same resources, the same imperatives, the same commitment" as any
corporation, no matter how resolute. It was a point worth making, he
told himself. So as the meeting drew to an end, Boies looked across
the table at Gates and Neukom and asked if he could offer a word of
advice.

"You know," Boies said, "once the United States government files suit
against you, everything changes. People you thought you could trust
turn against you. People you thought were your allies turn out to be
enemies. Everyone is more willing to question you, to resist you. The
whole world changes."

Gates and Neukom stared back blankly. "The government kept making
these melodramatic statements," one of Microsoft's senior lawyers
said. "They just didn't understand the fundamentals of our business.
It was a bit like two ships passing in the night."

Initially, Klein felt the same way. But as he turned the meeting over
in his mind afterward, he began to discern in the contours of Gates'
intransigence what he thought were the faint outlines of a settlement.
Microsoft seemed to be signaling that the first-screen limitations and
restrictive contracts meant little to it. Maybe, if the company were
willing to give significant ground there, and if the DOJ showed
flexibility on product integration, a deal could be done that would
satisfy both parties.

For the next nine days, Klein and Neukom burned up the phone lines
with proposals and counteroffers. From the Microsoft side came a
series of concessions to loosen the firm's grip on the first screen
and give OEMs greater freedom over the Windows desktop. The company
also offered a variety of ideas - a "browser folder," perhaps, or a
"ballot screen" whereby users could choose between IE and Navigator -
to create a more level playing field for Netscape. Indeed, at 1:30 am
on the Thursday morning that the DOJ was set to file suit, Gates
himself phoned Klein at home to discuss whether Microsoft might agree
to a "must-carry" provision wherein it would ship Netscape's browser
with every copy of Windows. A few hours later, after another
conversation with Neukom, Klein decided to delay launching the suit
until the following Monday, so that Microsoft and the DOJ could devote
the weekend to face-to-face negotiations.

In Silicon Valley the sound that greeted Klein's announcement was the
gnashing of high tech teeth; in Washington, it was the low murmur of
cynical assumptions being confirmed. What the Valley had long feared
and the political class had long expected finally seemed to be coming
to pass: At the eleventh hour, Joel Klein was caving. And although
that judgment was too harsh, at its core was a kernel of truth: Klein
wanted a settlement and he wanted it badly.

The reasons were almost too numerous to count. In suing Microsoft,
Klein would be taking on a company with unlimited resources and the
best legal talent that money could buy, not to mention a PR operation
populated by literally hundreds of footsoldiers, strategists, and
high-priced ad gurus. For all the tarnishing Gates' image had recently
suffered, Microsoft's CEO remained an icon of the new economy. Even
for a man more daring by nature than Klein, the political and legal
risks of challenging Gates would have been daunting, the rewards
uncertain. If he settled the case, Klein could declare victory and go
home. The victory would be limited, but it would also be immediate -
no small thing in an industry running on Internet time. And it would
avert a protracted lawsuit in which the government's prospects were
decidedly murky. A month earlier, the DOJ and Microsoft had argued the
appeal of the consent-decree case before a three-judge panel on the US
Court of Appeals for the District of Columbia, and the judges had
seemed markedly hostile to the government's position. As for the
broader case the DOJ was about to unleash, the antitrust Establishment
(Mike Morris' experts notwithstanding) regarded it as a shot in the
dark.

Even David Boies had his doubts. "At that point, we didn't have all
the evidence that we would subsequently get," he told me later. "We
had some evidence of Microsoft's broader conduct, but they denied that
conduct. We had a lot of things we believed, but whether we could
ultimately prove them or not was very uncertain. We had a judge who we
thought was a good judge, but he was a careful judge, a very
conservative judge. We knew he was going to make us prove every
element of the offense. So we were in a situation where, if we could
have achieved anything like a reasonable settlement, I think we would
have jumped at it."

Dan Rubinfeld remembers thinking that Microsoft could have capitalized
on the DOJ's ardor. "If I had been free to give them advice, that was
the moment I would have said, 'Look, this is the time. Do a deal with
us. You know me. You trust me. Really. Do it.'"

Instead, Neukom flew back to Washington, sat down with the DOJ and the
states on a Friday afternoon, and played a brand of hardball that
quickly brought the negotiations to a halt. Not long into the first
session, it became clear to the government that certain compromises
Microsoft had already offered - in particular, ceding power over the
desktop to OEMs - were now being yanked off the table. If that was so,
there was not much to talk about. For Microsoft's part, one of its top
attorneys said that the government's "basic attitude throughout was
arms-folded, we-need-more, we-need-more. They made no counteroffers.
We were not difficult or nonchalant. We tried our darnedest."

Late on Saturday morning, Neukom drafted a memo laying out Microsoft's
stance (which included dropping its restrictive contracts, adopting
the browser "ballot page," and not much else) and handed it to Jeff
Blattner. Blattner, who was leading the DOJ's negotiating posse, could
see the talks were about to fall apart and suspected Microsoft might
leak the memo to the press. Pushing it back across the table, he said
flatly, "I don't negotiate from a list." Roughly translated, that
meant sayonara.

In retrospect, Microsoft's failure to settle seems a colossal and
inexplicable blunder. Even putting aside its mysterious retreat from
its first-screen concessions (Had Neukom gotten ahead of Gates? Had
Gates himself had a change of heart? Had the DOJ misunderstood the
company's previous offers?), there were any number of other solutions
at hand. In the consent-decree case, for example, Microsoft had agreed
to offer OEMs two versions of Windows 95, one with IE visible, the
other with it hidden; already it was clear that most of the OEMs were
taking the version that the company preferred. Had Gates proposed that
the same arrangement be applied to Windows 98, the company would have
sacrificed little in business terms and conceded nothing about its
future right to integrate features into the operating system.
Meanwhile, the government would have been hard-pressed to spurn the
offer, as its officials acknowledge today. Yet, when I raised the
point with Gates, Neukom, and the rest of the Microsoft legal team,
they said uniformly that this entirely obvious idea had never been
entertained by the company; and that, even if it had, the DOJ would
never have accepted anything less than forcing Microsoft to carry
Netscape's browser.

There is, however, an alternative explanation: that despite the Sturm
und Drang of those 10 days in May, Microsoft's aim in the settlement
negotiations was something other than settlement. "It was a fishing
expedition," Christine Varney, Netscape's Washington counsel, opines.
"They wanted to find out what was in the case. When you're a litigant,
you want to know as much as possible about what you're facing - if
there's some smoking gun that you don't know about. So you find out,
then you recalibrate and decide whether to settle or not."

What Microsoft found out - or thought it found out - was that the suit
the DOJ intended to bring wasn't nearly as sweeping as the company had
feared. To Microsoft's lawyers, it sounded like a browser case, a
tying case, and tying was the legal ground on which they believed that
their standing was firmest. "They thought, 'This is going to be a
narrow case, so let's fight it,'" Boies told me. "'If we lose, we lose
a narrow issue. We can afford to fight this case and lose.'" He went
on, "Also, remember that Microsoft had been fighting with the
government in one way or another for almost 10 years. And every time,
they'd managed to come out really well. I think they thought they were
smarter than we were. I think they thought they knew more than we did.
And both of those things may very well have been true. But I think
they underestimated our ability and willingness to learn."

Microsoft wasn't alone in its view that the government's case was a
narrow one. When the DOJ and 20 state attorneys general filed suit on
May 18, the Monday after the settlement talks collapsed, the complaint
charged Microsoft with four counts of violating the Sherman Act:
exclusive dealing and unlawful tying under Section 1; monopoly
maintenance in the OS market and attempted monopolization of the
browser market under Section 2. Yet the narrative that Klein spun
around the case painted Netscape as its hero and victim, and the
short-term remedy the DOJ was seeking was inescapably
Netscape-centric: a preliminary injunction forcing Microsoft either to
offer a version of Windows 98 without IE or to bundle Navigator with
the OS as well. Netscape was thrilled: It certainly looked like a
browser case to Jim Barksdale. Sun was disconsolate: It looked like a
browser case to Mike Morris too. And the rest of the Valley rolled its
eyes: Didn't the government realize that the browser war was over? "If
they'd done two years ago what they did today, it might have been
useful," Gary Reback groaned from a New York phone booth. "It's been a
long haul to get this far. It's going to be a long march to get where
we need to be. And some of us are getting awfully tired."

Some of them were worse off than that. Since the early days of
Reback's efforts, no one in government had been a more steadfast ally
than Mark Tobey. The assistant attorney general from Texas had got the
ball rolling with his Netscape depositions and then lobbied furiously
to create a groundswell among the states. But a few days before the
Sherman Act case was filed, Texas had been forced to withdrawal its
support, under pressure from the state's computermaking kingpins,
Compaq and Dell. Because both companies were reliant on Microsoft, the
widespread assumption was that they were acting on orders from
Redmond. Tobey told Reback, "I never dreamed they'd be able to shut me
down entirely."

Then came another blow to the anti-Microsoft movement, a development
that also plunged the DOJ into sudden despair. On June 23, the federal
appeals court issued its ruling in the consent decree case. Striking
down Judge Jackson's preliminary injunction, the Appeals Court found
that he had "erred procedurally," by not giving Microsoft a chance to
contest the injunction, and "substantively," by misreading the law on
tying. "Antitrust scholars have long recognized the undesirability of
having courts oversee product design, and any dampening of
technological innovation would be at cross-purposes with antitrust
law," the court's opinion read. "We suggest here only that the limited
competence of courts to evaluate high tech product designs and the
high cost of error should make them wary of second-guessing the
claimed benefits of a particular design decision."

In Microsoft's eyes, it was an overwhelming victory. The next morning,
Gates picked up The New York Times and read that even Joel Klein's
allies shared Microsoft's assessment of the Appeals Court's ruling.
"This cuts the legs out from under the Justice Department on their new
case," the former DOJ antitrust official Robert Litan was quoted as
saying. "It's potentially devastating."

McGeady was "quarantined" from the rest of Intel. "Nobody even told me
I was on the witness list. I read about it in my underwear in The New
York Times."

For the first time in months, reading the Times made Bill Gates smile.
 

David Boies was smiling too, though it made his associates think he'd
gone crazy. By common consensus, Boies was the most brilliant
litigator of his generation. Before setting up his own shop in 1997,
he had spent 30 years with the York firm Cravath, Swaine & Moore after
graduating second in his class from Yale Law School. Over the years,
Boies had represented a vast assortment of splashy clients against an
array of even splashier opponents. In addition to his antitrust work
for IBM, he had defended CBS against a takeover bid by Ted Turner and
a libel suit by General William Westmoreland. He had helped Texaco
fight off the corporate raider Carl Icahn and helped Westinghouse take
on Philippine president Corazon Aquino. On behalf of George
Steinbrenner, he'd sued Major League Baseball; on behalf of the
government, he'd sued Michael Milken. He rarely lost at trial and had
never had a victory overturned on appeal.

In his mid-fifties, Boies had thinning brown hair, a flat Midwestern
twang, and a downmarket demeanor (Lands' End suits worn with blue knit
ties he bought by the bagful) that belied an annual paycheck of more
than $2 million. His courtroom manner was casual and conversational,
which tended to lull his adversaries into a fatal haze of complacency.
His memory was borderline photographic; his competitiveness, modestly
terrifying. To a colleague at Cravath he once uttered the words that
will surely be his epitaph: "Would you rather sleep or win?"

Boies got hold of a copy of the Appeals Court decision just before
boarding a flight from New York to San Francisco. By the time the
plane landed he was certain that, far from being a death knell, the
opinion actually worked to the DOJ's advantage. "It helped in three
ways," he told me later. First, though the court was plainly on
Microsoft's side, it made no bones about the fact that the company had
a monopoly. Second, Boies said, when it came to tying, "The court said
that if you can prove that they don't need the tie to achieve the
benefits, then that's just bolting two products together, and that
violates the tying laws." Third, he went on, "The court said that if
you can prove that they did it not for efficiency purposes but for
anticompetitive purposes, that trumps everything. In other words, the
court was adopting an intent standard, and, given the Microsoft
documents we had in hand, that was a standard I thought we could
meet."

The Appeals Court had effectively provided Boies with a kind of road
map, a guide for framing his arguments on product integration. At the
same time, what the court said didn't touch the DOJ's Section 2 claims
- claims that Boies now believed it was essential for the government
to beef up before the trial began. But more than all that, the ruling
gave Boies an overarching sense of confidence about the case in
general. "Even in a decision that was really quite pro-Microsoft,
there was no hint that the court was saying 'The antitrust laws don't
apply here; we're going to give the software industry or Microsoft a
free pass,'" he noted. "And once I knew they didn't get a free pass, I
knew we could prove an antitrust violation."

To do that, however, and especially to flesh out a powerful case of
monopoly maintenance, Boies would need witnesses - strong and credible
ones. And, unfortunately, the DOJ would have precious little time to
round them up. When the government filed suit, both sides had assumed
that Judge Jackson would hold a quick hearing on the DOJ's request for
a preliminary injunction and then schedule a full trial to start
perhaps a year later. But apparently Jackson had other ideas. In a
surprise maneuver, he decided to put aside any preliminary hearing and
move directly to trial - and soon, setting a date to commence in early
September. If Jackson had his way, US v. Microsoft would be short and
sweet. To ensure that it was, he adopted an unusual procedure limiting
each side to 12 witnesses, all of whom would deliver their direct
testimony not on the stand but in writing, with courtroom hours being
reserved strictly for cross-examination.

The accelerated schedule set the DOJ a formidable task: Klein and his
team had the summer months to chase down all the allegations of
misconduct they had heard, establish their veracity, and then persuade
a reasonable number of the aggrieved parties to step forward, under
oath and in the glare of a high-profile trial, and testify. Shortly
after the Appeals Court decision came down, Gary Reback had breakfast
with Klein in Washington and found the assistant attorney general in a
nerve-addled state. "We've filed this thing," Klein told him, "but we
have no witnesses."

"If I were Joel, I'd have been pissing my pants right then," Reback
recalls. "The judge said 12 witnesses. I kept looking at my fingers
and thinking, how are we ever going to get there?"

In the tech world, the memory of the 1995 consent decree, seen
universally as a dismal failure, remained fresh. And even with the
Sherman Act case, the current crop of trustbusters hadn't gone very
far toward restoring the industry's confidence in the DOJ. "There was
a lot of trepidation in the Valley about whether the government was
capable of getting any of this right," Reback remembers. "Nobody
wanted to get anywhere near this thing. Nobody wanted to be
subpoenaed. Nobody was sure they could pull it off."

Reback, naturally, joined in the hunt for witnesses; so did Orrin
Hatch and Mike Hirshland. Klein's team of 20-odd lawyers talked with
dozens of companies in Microsoft's crosshairs. Software companies and
hardware companies. Internet tyros and Fortune 500 stalwarts. They
talked with Yahoo!, Excite, RealNetworks, Palm. And with most of the
OEMs - Compaq, Acer, Gateway, Packard Bell, HP, Sony. Yet by the
middle of July, the DOJ's witness list was so barren that Klein told
me he was considering filling a quarter of his slots with Netscape
executives, another slot with someone from Sun, and many of the rest
with economists and technical experts. He didn't have much choice.
After several weeks of tree-shaking, the DOJ's efforts had produced a
meager harvest.

And then, quite suddenly, some fruit began to fall.

It began with Intuit, whose CEO, Bill Campbell, had spent much of his
estimable career at the sharp end of the Microsoft stick. In the
1980s, Campbell worked at Apple and helped launch the Macintosh, and
then became CEO of the doomstruck pen-computing company GO, whose
executives claimed Gates first stole their ideas and then muscled OEMs
to keep them from allying with the startup - nixing a key deal with
Compaq, in particular, when GO was on the brink of bankruptcy. At
Intuit, Campbell and board member John Doerr (who backed both Intuit
and GO) were, in Campbell's words, "the last holdouts" against the
plan by the firm's chair, Scott Cook, to sell Intuit to Microsoft back
in 1995. After the DOJ scotched the deal, Microsoft waged a fierce
campaign to topple Intuit in the financial-software market. Against
the odds, Campbell prevailed, doing whatever was necessary - including
abandoning an alliance with Netscape - to keep Intuit's place on the
Windows desktop.

The DOJ had long believed that Intuit had a story to tell. In its
court papers, the government cited a Microsoft email in which Gates
wrote, "I was quite frank with [Cook] that if he had a favor
we could do for him that would cost us something like $1M ... in
return for switching browsers in the next few months I would be open
to doing that." But Campbell wanted no part of the DOJ. He regarded
its lawyers as woefully overmatched ("I told them, the Bill Neukoms of
the world are going to cream you government pantywaists") and the
suit's short-term remedy as worse than meaningless ("They've got to
put both browsers in the OS? Great. Now I have to pay double ransom").
Then that summer he got a call from Mike Hirshland, who told him the
DOJ had hard evidence Microsoft had indeed killed the Compaq deal that
might have saved GO. He also got a call from Hirshland's boss. "You
know damn well there is some unethical behavior out there that's
possibly illegal," Hatch said. "The only way we can expand the case is
if people like you are willing to talk."

Campbell thought about it, and by late July, he was ready to raise the
subject with Intuit's board and its top executives. In favor of
putting someone forward to testify was John Doerr, who argued, "If we
feel we're getting screwed, we ought to say so." Against it was Cook,
who said that helping the government would be an admission of defeat;
it would put Intuit on a par with the Valley's congenital complainers.
At the end of the three-hour meeting, a vote was taken: Everyone
except Cook agreed that Intuit should testify. For Campbell, a former
college football coach, it all came down to a question of cojones: "I
thought, goddammit, we ought to be strong enough to stand up and be
counted."

Just around the time Campbell was climbing on board, the DOJ caught
another big break. The government investigators had been trying for
months, without much luck, to nail down rumors that several years
earlier Microsoft had strong-armed its ally Intel over Intel's plans
regarding the Internet. Now, as the DOJ was taking depositions from
various Netscape officials, Jim Clark recalled that an Intel executive
named Steve McGeady had once told him about a meeting in which Gates
had declared his intent to "take Netscape's air." Clark shot off an
email to McGeady asking if he'd be willing to talk to the DOJ. McGeady
wrote back almost instantly, correcting Clark's memory (it was Paul
Maritz, not Gates, who'd alluded to Netscape's impending lack of
oxygen) but adding, "If the DOJ asks me to testify to that effect, I
will, without hesitation." In short order, the government arranged to
depose McGeady.

The DOJ should already have been aware of Steve McGeady. Three years
earlier, on a tip from Reback, the antitrust division had sent him a
CID for documents concerning a clash between Intel and Microsoft over
an Intel software technology called Native Signal Processing. But like
the ark of the covenant at the end of the first Indiana Jones movie,
the NSP documents had apparently been buried somewhere deep in the
bowels of the DOJ, and the entire issue had faded from its collective
memory - and from Intel's as well. "Four days before my deposition, I
say to my Intel lawyer, I assume you've reviewed these documents from
1995," McGeady told me. "He says, 'What documents?' He doesn't know.
So he calls the Justice Department. They don't know either!" McGeady
rolled his eyes. "It was like the Keystone Kops do antitrust."

McGeady's deposition was dynamite stuff. At the same time, the DOJ's
dealings with Intel were wary and delicate. For nearly 20 years, Intel
and Microsoft had collaborated so closely that they were often
regarded as a unitary being: "Wintel." The moniker was misleading, for
the relationship was riven with fractures and fissures; Andy Grove
liked to refer to the companies not as strategic partners ("I really
hate that phrase," he snarled) but as "fellow travelers" - not
soulmates, but seatmates on the same train. But because Intel was
hugely dependent on Microsoft, and vice versa, keeping peace with
Gates was one of Grove's prime priorities. So when Intel eventually
confirmed that McGeady would be testifying in the trial, the company
took pains to assume a posture of perfect neutrality. McGeady was not
being "sent" to testify; he was merely being "allowed" to testify.
What choice do we have? Intel said, in effect. The government wants
him; we can hardly refuse.

Behind the scenes, Intel's neutrality was far from perfect. With the
stealth and finesse of an accomplished Byzantine courtier, the
company's general counsel, Peter Detkin, was helping drive the
stiletto into Microsoft's back. Detkin, a former partner at Wilson
Sonsini, had been a longtime colleague of Gary Reback. There was no
love lost between the two men, but over the years Reback had conducted
what he called "deep-throat meetings" with Detkin and other Intel
lawyers in the bar at Hyatt Rickeys in Palo Alto. When the government
started asking about McGeady, Detkin turned to Reback and Susan
Creighton as a covert back-channel to the DOJ. "Peter used Wilson
Sonsini as a safe conduit to pass information to the government," a
lawyer close to the situation told me. "The nature of the information
was: If you look here, or here, or here, you'll find something
interesting."

News that the DOJ had deposed McGeady hit the Valley like a
thunderbolt from a clear blue sky. If Intel was cooperating with the
government (as everyone assumed it was, no matter what the company was
saying), then the DOJ's case was undeniably gathering steam. With
Intel and Intuit on board, Boies was able to lock down witnesses from
two companies at which he had close connections: IBM, where the
ancient Microsoft hatreds still burned, and AOL, whose head of
government affairs, George Vradenburg, had years earlier hired Boies
to handle the Westmoreland libel case when Vradenburg was in-house
counsel to CBS.

McGeady's testimony took on the flavor of a software-world Scenes from
a Marriage : Microsoft clearly wore the pants in the family, while
Intel played the part of the long-suffering spouse.

The DOJ got another boost with Judge Jackson's decision in
mid-September to delay the trial's start until mid-October. The extra
month would buy the DOJ some breathing room. It would also provide a
chance to go after the most glittering prize of all: Steve Jobs and
Apple.

The DOJ's interest in Apple was twofold. First, there was the
headline-grabbing deal between Cupertino and Redmond in August 1997,
in which, the government believed, Microsoft had threatened to cancel
Office for the Macintosh unless Apple replaced Navigator with IE as
the Mac's default browser. Then there was multimedia. The DOJ had
recently received from Reback another of his patented white papers,
this one focused on the Apple multimedia technology QuickTime. The
white paper alleged that over the previous two years Microsoft had
engaged in a passel of predatory tactics to stifle QuickTime - tactics
that loudly echoed its approach to Netscape's browser. According to
the Reback document, Microsoft had proposed to carve up the multimedia
market with Apple; it had then pressured OEMs to drop QuickTime; it
had inserted technical incompatibilities that disabled QuickTime in
Windows; and it had struck exclusionary deals with content providers
to develop only for Microsoft's competing NetShow technology. At one
point, a Microsoft biz-dev manager had made a suggestion about what
Apple should do to QuickTime which was so irresistibly colorful that
Reback made it the white paper's title: "Knife the Baby."

In the autumn of 1998, Apple's recovery under Jobs was still fragile,
its relationship with Microsoft forever precarious. If the DOJ had any
prayer of persuading the company to throw caution aside and sign up
for the trial, Reback was clearly the man to see. In the mad scramble
for fresh evidence and plausible witnesses, whatever lingering
resentments Klein harbored toward the monomaniacal lawyer had receded.
Reback was simply too useful, too plugged-in and switched-on, to be
ignored. In a series of phone calls that September, Klein told Reback
that he desperately wanted the Apple story to be part of the trial -
and he wanted Jobs to be the one to tell it. Though the DOJ's witness
list was shaping up nicely, Klein was concerned that it lacked star
power, featuring as it did only one big-name CEO - Jim Barksdale.
Klein told Reback, "We have an uuml;bermenschen problem."

Jobs was certainly uuml;ber, but no one had ever accused him of being
a mensch. Visionary, volatile, volcanic, and vain, Apple's CEO had
made no secret of his skepticism about the DOJ's capacity to prosecute
Microsoft. "The government is bullshit! The government is bullshit!"
he'd barked when a government lawyer visited him that spring to ask
for his help in building the case. "You guys have done nothing, you
haven't figured it out, you've been too slow, you'll never change
anything. This is an incredibly sensitive time for Apple. Why should I
jeopardize the future of my company when I have no faith that the
government is going to do anything real?"

To Jobs, "real" meant one thing: breaking Microsoft up. For all his
doubts about the DOJ's competence, he was now grudgingly impressed by
the government's progress. In late September, after several lengthy
talks with Reback, his friend Bill Campbell, and a number of DOJ
intermediaries in the Valley, Jobs agreed to have a conversation with
Klein about the possibility of testifying. When the two men connected
by phone, with Jobs on vacation in Hawaii, he wasted no time in
getting to the point. He wanted to hear Klein's thinking on remedies.
 

Are you going to do something serious? Jobs demanded. Or, he asked,
"Is it going to be dickless?"

At the other end of the line, Joel Klein squirmed. Even if he had
settled on a remedy, which he manifestly hadn't, it would be grossly
inappropriate to discuss it with Jobs - or with any other Microsoft
competitor. Klein told Jobs this. He told him he could offer him no
commitments, no promises. Klein said, "It's a chicken-and-egg problem;
the power of the remedy will be determined by the quality of the
case."

Jobs was singularly unimpressed, and he let Reback know it.
Frustrated, irritated, Reback called Mike Hirshland to commiserate.
"Joel blew it," Reback sighed. Jobs hadn't needed a firm commitment.
He needed to be sold on the notion that the DOJ was, a la Microsoft,
hardcore about the case. But Klein hadn't been selling; he'd been
legalistic, stilted, excessively circumspect. He'd been ... Joel.

As he listened to Reback moan, Hirshland had a brainstorm. Why not
have Boies give Jobs a call? Not being a DOJ official, the litigator
might have more freedom, more latitude, to deliver a proper pitch.
After hanging up with Reback, Hirshland called Boies and ran the idea
past him. Sure, Boies said, but I'll need Joel's blessing. "It might
be delicate," Boies went on. "Can you get Senator Hatch to call Joel
and tell him this needs to happen?" Which Hirshland promptly did.

Meanwhile, Reback had had a bright idea of his own. Realizing that
part of Jobs' reluctance to testify revolved around the fear (a rare
one for him) of standing alone at center stage, of being by far the
most significant person in computing to be opposing Gates in so public
a forum, Reback suggested to Apple's CEO that perhaps there was a way
to give him some cover. What if another industry figure of Jobs'
stature were to testify alongside him? Jobs liked the idea - though to
his mind there was only one person who belonged in that category: Andy
Grove.

Thus began a brief but frantic spell during which the DOJ and much of
the anti-Microsoft movement was seized by the most feverish of
fantasies: the Grove-Jobs twofer - get one, get both.

And a fantasy is precisely what it was. Not only was Grove the
archetypal practitioner of corporate realpolitik, but at that moment
Intel was engulfed in a substantial antitrust inquiry of its own, one
being conducted by the FTC.

Nevertheless, Grove was deluged at home with plaintive calls from the
DOJ's Silicon Valley surrogates. He heard from Hatch, and even from
Steve Jobs. What none of Grove's suitors knew was that he was also
receiving entreaties from Gates and Neukom, begging him to testify on
Microsoft's behalf. Grove's reply to both sides was the same: Intel is
neutral in this case and so am I. Besides, he told them, any testimony
he gave was certain to be a double-edged sword. "I've been in the
middle of all this shit for years," Grove told me. "I don't lie. I
particularly don't lie under oath. And I particularly don't lie under
oath when there's no reason to. I would have said things that neither
side would have been happy to hear."

With Grove's irrevocable refusal, the DOJ lost its chance at Jobs. By
the time Boies called Apple's CEO, "He'd made up his mind," the lawyer
recalls. "He just didn't want to testify." Yet in failing to land the
Valley's two reigning kingfish, the DOJ came away with two less
spectacular but important victories. All along in its dealings with
Intel, the government had feared a double cross; that, under pressure
from Gates, the company would provide a witness, and perhaps even
Grove, to testify for the defense. Now Grove had given his word that
that wouldn't happen. And while Jobs rebuffed Boies when it came to
testifying himself, he pledged to send Avie Tevanian in his stead.

By early October, with the inclusion of Tevanian and another software
expert, James Gosling of Sun, the DOJ's witness list was complete. In
the end, it had but one gaping hole: No OEM official would testify
about how Microsoft leveraged its Windows monopoly to exercise
coercive power over computer manufacturers. (IBM's witness, John
Soyring, would talk only about the development of OS/2.) The search
for an OEM whistleblower had consumed more man-hours at the DOJ than
securing any other witness, but no amount of suasion was enough to
convince PC makers that they had more to gain than lose by airing
their grievances. "Most of the major OEMs are simply afraid," Klein
told me that October. "A lot of them said to us, 'What you're doing is
terrific, but we just can't afford to stick out our necks.' The power
that Microsoft has over these people with the Windows license and the
Office license is simply extraordinary."

The failure to land an OEM was frustrating for Klein, but it did
nothing to diminish his sense of how far his team had come. After
months of anxiety and hand-wringing, Boies and Klein were happy
warriors - happier than anyone realized. For the DOJ's lawyers knew
something few others did: They had a surprise witness up their
sleeves. A witness of unimpeachable authority. A witness with power
beyond reckoning and cash beyond counting. A witness guaranteed to
overshadow even the brightest lights on the list they'd announced. A
witness - need it be said? - who would soon have Microsoft's defenders
paraphrasing Pogo: We have seen the enemy, and he is Gates.

Stylistically, Bill Neukom was an odd man out at Microsoft. In his
fifties, he had a wavy pompadour of silver hair, a handsome face, and
a vaguely patrician air. He was tall and trim and impeccably dressed,
his suits well-pressed and invariably accented with suspenders and
florid bow ties. Polite and formal, Neukom spoke in precise sentences
that he strung together to form perfect paragraphs. He was
occasionally turgid and always verbose. Once, after I'd finished a
long interview with him, another Microsoft executive remarked, "I'm
sure he crammed 20 minutes of substance into those two hours."

In 1988, three years after becoming Microsoft's in-house counsel,
Neukom directed the defense against the Apple copyright suit, which
threatened, Gates told me, to "absolutely put us out of business." The
case dragged on for five years, and the received wisdom in the press
was that Microsoft was in the wrong; that it had plainly ripped off
Apple's graphical user interface to create Windows. But Neukom advised
Gates to ignore the headlines and focus on the law, which the attorney
was certain supported Microsoft's position. The court's vindication of
that view, in 1993, was Neukom's greatest triumph, and a source of
Gates' trust in his judgment.

Just as he had in the Apple dispute, Neukom believed unequivocally
that the law was on Microsoft's side against the DOJ. To prove it, he
and his lawyers set out over the summer of 1998 to pull together
evidence to show that, far from being a monopolist, Microsoft faced
competition from all sides; that the company's contracts with OEMs and
ISPs were commonplace in the industry; that the infamous June 1995
meeting with Netscape was nothing more than a routine powwow between
an operating-system vendor and an applications provider; that
integrating IE into Windows wasn't part of a nefarious plot to wipe
out Netscape but a natural extension of the OS, just as Microsoft's
past inclusion of features such as printer drivers and memory
management had been; that, in fact, the company's plans to incorporate
browsing into Windows had begun before Netscape had even been born. In
support of these claims they came up with hundreds of internal
documents and email. They took dozens of depositions. And they
assembled a witness list composed almost entirely of Microsoft
executives, who would tell the company's story in court.

As the Microsoft lawyers readied their case, the most potent of all
their potential witnesses dropped out of sight. In late July, Gates,
as his board of directors had been urging him to do for months, named
Steve Ballmer Microsoft's president. In an email to employees, Gates
said that, from then on, Ballmer and Bob Herbold, the COO, would be
responsible for running the company day-to-day, while he would spend
his time on product development and new technology. "In no way am I
pulling back," Gates wrote. "The hours I put in and my enjoyment of
the work I do will be absolutely the same." And with that, he took off
on a weeks-long vacation.

Nathan Myhrvold attributed the government's crusade to the impulses of
"very successful people whose deepest regret is that they're not as
rich as Bill."

Yet even when Gates was at play, business and the trial were never far
from his mind. "He seemed totally in the loop," one person who saw him
during that time told me. "He was aware of the issues, he'd read all
the evidence and read up on the law, the procedures, the timing -
everything."

Ten days before Gates was scheduled to be deposed by the DOJ, he
jetted down to Silicon Valley for a dinner hosted by his friend Heidi
Roizen, a software entrepreneur and former Apple executive, who had
recently signed on as Microsoft's informal ambassador to the Valley.
It was August 17, the day Bill Clinton came clean with Ken Starr - and
with the nation - admitting for the first time his dalliance with
Monica Lewinsky, and when Roizen's guests arrived at cocktail hour
they eagerly scurried upstairs to watch Clinton's speech to the nation
on the big screen in their hosts' bedroom. Perched at the edge of the
bed, Gates heckled the president mercilessly, with a degree of venom
that took many of the others aback. Clinton was a loser, he said; his
speech was "hot air," a "pile of crap." To more than one person, it
seemed obvious that Gates blamed Clinton for his antitrust woes. "If I
did what he did in my office," Gates squawked, "the shareholders would
throw me out!"

On August 27, in a windowless conference room in Microsoft's Building
8, Gates sat down across from his own Ken Starr for an extended spell
of exquisite torture. "I expected that the Bill Gates I'd be facing
would be the same Bill Gates I'd been in a room with that spring,"
David Boies told me. "The Bill Gates I'd met was smart and tough and
articulate, a very passionate and effective spokesman for his point of
view." Boies grinned. "Needless to say, that was not the Bill Gates
who showed up for the deposition."

The Bill Gates who showed up for the videotaped deposition was not
only the polar opposite of his public persona, he was a caricature of
the polar opposite. He was dour and edgy. He was petulant and
passive-aggressive, obfuscatory and obscurantist. He was a quibbler, a
pedant, an amnesiac, a baby. He was the sort of CEO who would profess
not to recall countless emails he'd written and who would claim to be
ignorant of his company's strategies. Who would quarrel stubbornly
over the meanings of words like "concern," "compete," "definition,"
"ask," and "very." Who would take five minutes to concede that when
another Microsoft executive talked about "pissing on" Java, it was
not, as Boies put it, a "code word that means saying nice things."
Who, when asked who had attended a meeting of Microsoft's executive
staff, would reply, "Probably members of the executive staff."

For his part, David Boies stayed cool. He was patient and persistent,
asking certain questions again and again and again, often using
precisely the same phrasing, until Gates either coughed up a straight
answer or provided Boies an equally valuable display of prevarication.
Judge Jackson had decreed that Boies could take as long as he wanted
for the deposition. Early on, the lawyer remarked placidly, "I've got
as much time as I need to finish the examination, sir, and I'm
prepared to spend as many days here as I have to." In the end, that
would be three, yielding 20 hours of Bill Gates unplugged.

At the end of Day One, Boies phoned Klein. "They're never going to
call him as a witness now," he said confidently.

Klein was incredulous. "Well, that's not what we've heard," he
replied. "We've heard that they're telling everybody they're going to
bring him."

"They're not going to bring him. He's already said too many things he
could never explain on the stand."

At the end of Day Two, although Boies hadn't yet covered all the
ground he intended to, he was so delighted with the material he'd
already garnered that he seriously considered ending the deposition
right there. Gates was headed off for a long weekend on an Alaskan
cruise hosted by Paul Allen, and Boies, already perplexed that Gates'
lawyers hadn't stepped in to curb his behavior, assumed his quarry
would return in greater command of himself. But Boies decided to risk
it. On Day Three, his reward - among others - was one of the
deposition's genuinely priceless exchanges. Handing Gates an email
he'd written, Boies offhandedly remarked that at the top of the
message Gates had typed "Importance: High."

"No," Gates said curtly.

"No?"

"No, I didn't type that."

Then who did?

"A computer."

Gates' performance was an unmitigated disaster, and not only in terms
of PR. As a piece of evidence, it handed Boies the largest, most
gnarled club imaginable with which to bludgeon both Gates and
Microsoft as a whole, for the deposition fairly screamed that the
dissembling at the company started at the top. It was a point that
would not be lost on Judge Jackson. "Here is the guy who is the head
of the organization, and his testimony is inherently without
credibility," he told The New York Times after the case was over. "At
the start, it makes you skeptical about the rest of the trial. You are
saying, if you can't believe this guy, who else can you believe?"

Many observers would blame Gates' lawyers for the deposition fiasco,
but Boies believes it wasn't that simple. "I've said many times that
if I had been his attorney I would have stopped the deposition," Boies
said. "But the thing I don't know, and the thing nobody will know
unless I get Bill Neukom more drunk than he should be, is how much of
it was the lawyers' unwillingness to act and how much of it was the
client rejecting their absolutely unambiguous instructions." Not that
Boies doesn't have his suspicions. "You have in Gates someone who is
very smart, very rich, very powerful, and very much in command. He's a
very hard client to say no to."

Very hard - or perhaps impossible. Since Microsoft's birth, Gates has
seen himself as its chief legal strategist, Bill Neukom's presence
notwithstanding. Reared in a lawyerly household, schooled by his
father in lawyerly thinking, Gates' lawyerly proclivities have shaped
the company and the software business profoundly. It was Gates who, in
1976, published a kind of manifesto, "An Open Letter to Hobbyists," in
an early computer hobbyist newsletter, which asserted for the first
time that software, like hardware, was a valuable commodity - it was
intellectual property, and as such its creators deserve to be
compensated. It was Gates whose grasp of the fine points of contracts
had allowed him to outmaneuver IBM in the MS-DOS deal that would be
the foundation of Microsoft's empire. And for all the accolades heaped
on Neukom for the outcome of the Apple suit, the greater credit
actually belonged to his boss. "Neukom did yeoman's work, but make no
mistake, it was Bill who won the Apple case," a former Microsoft
executive asserts. "He was deeply engaged in the case, he knew the
issues, both technical and legal, and he played a huge role in framing
them for the court. Hell, he practically wrote our briefs himself."

As the Sherman Act trial drew near, Gates boned up on antitrust,
studying the law, poring over precedents. "Bill knows the courts to an
amazing degree," a senior Microsoft manager told me. "He knows all
about the judges - who they are, how they've decided in the past,
district by district, all over the country. This is not a normal
client who just sits across from his lawyers and takes their advice.
No way."

To this day, Gates insists that his deposition performance has been
badly mischaracterized. He answered honestly and precisely, he says.
He seems especially wounded by the portrayal of him as forgetful,
insisting over and over, in Rain Man-like cadences, "I have an
excellent memory, a most excellent memory." "Did I fence with Boies?"
Gates asks rhetorically. "I plead guilty. Whatever that penalty is
should be levied against me: rudeness to Boies in the first degree."
His tone of voice was regrettable, and so were the camera angles, he
says, yet all this was mere atmospherics and therefore irrelevant.

Microsoft's lawyers are somewhat less sanguine. Compelled by reality
(and a concern for their own reputations) to acknowledge the damage
done by the Gates tapes, they blame Judge Jackson, who had issued a
pretrial order that led them to believe the tapes would never be shown
in court. Had they thought otherwise, Neukom told me, they would have
prepared Gates differently - but only in terms of style, not
substance. (They would also have made sure that the lighting was more
flattering.)

Boies scoffs at the idea that Microsoft didn't know the tapes would be
aired: "What, they thought I was taking them for my memory book?" He
offers his own theory, which revolves around Gates' assumption going
into the deposition that he would be called as a witness by one side
or the other. "He must have thought that if he came as a witness, we
wouldn't be able to introduce the videotape," Boies said. "And he was
probably right about that. If he had been a witness, I don't think the
judge would have let us play it. As a result, he wasn't really focused
on how he looked in the deposition. He was prepared to stonewall. He
was prepared to do all kinds of things that you might do if you
believed nobody was going to see it."

Instead, the degree of Gates' stonewalling was so great, and his
evasions were so egregious, that the deposition set in motion a
cascade of unintended consequences. Suddenly, Microsoft had to keep
its most powerful witness off the stand, lest he be humiliated in the
attempt to defend the indefensible and explain the inexplicable. The
DOJ, meanwhile, now had no reason to call Gates, for whatever he said
in the courtroom could hardly serve the government's purposes more
effectively than the testimony it already had in the can. The world's
richest man had no date to the dance. And the video was fair game.

"It was like the Russian Revolution," Boies concluded. "Everything had
to fall into place just so for it to turn out as it did."

Like the czars in Petrograd in 1917, Microsoft in the late summer of
1998 could feel the ground shifting beneath its feet. Nearly a year
had passed since the DOJ had filed the consent-decree case, and in
that time, almost everything that could possibly go wrong had.
Surrounded by Bolsheviks and Mensheviks, populists and nihilists, the
old regime began, for the first time, to betray a hint of what Gates,
on a carefree day, would have called "concern," but that others might
properly have described as panic.

Some months after his testimony, Dick Schmalensee would tell a fellow
economist privately, "The lawyers are not in charge. All the shots are
being called by Gates."

Trying to roll back the tide, Microsoft flooded Judge Jackson's
chambers with pretrial motions - nine of them in September and
October. The motions' themes cried out from their titles: "Motion to
Limit Issues for Trial"; "Arguments for Excluding Extraneous
Last-Minute Issues from Trial"; "Motion for a Continuance Needed to
Address Testimony of Plaintiffs' New Trial Witnesses"; and so on. The
case the government had filed in May, Microsoft argued, was all about
browsers and a tad about Java. Broadening it beyond those issues was
illegitimate, unfair, and a sign that the DOJ realized the Appeals
Court's decision had "eviscerated" the core of its original complaint.
At the very least, Microsoft maintained, the company needed more time
to build a thorough defense.

The DOJ's response was swift, emphatic, and gently mocking. In one of
its reply briefs, it wrote, "To the limited extent that plaintiffs
offer evidence adduced in discovery concerning events and transactions
not strictly limited to browsers and Java, those events and
transactions (a) directly evidence monopoly power and barriers to
entry, which issues are (of course) part of plaintiffs' complaints,
and of every Sherman Act Section 2 case; (b) demonstrate Microsoft's
intent to monopolize, which issue is (of course) also part of
plaintiffs' complaints, and of every Sherman Act Section 2 attempt
case; and/or (c) demonstrate a pattern that is relevant to
understanding and establishing Microsoft's conduct with respect to
browsers and Java." The DOJ's Jeff Blattner put it more colorfully:
"We haven't broadened the case - we've broadened the evidence. In a
murder case, you refer to the body in the filing. But at trial you
bring out the bloody glove, the bloody shoes, the murder weapon."

Right up to the eve of the trial's first day, the back-and-forth
between the sides continued unabated. But with every volley, the
referee remained consistent. Time and again, in written orders and
pretrial hearings, Judge Jackson informed Microsoft that the trial
would be broad, and that it would focus on one large question: whether
the company had "maintained its operating-system monopoly through
exclusionary and predatory conduct." As Jackson put it
matter-of-factly to Bill Neukom and his team, "My view of the case is
not as narrow as yours."

And so it was that, on the morning of October 19, the courtroom phase
of the Microsoft case began. For three solid hours, David Boies,
slightly stoned on antihistamines and armed with only a few scribbled
notes on one side of a manila folder, held the room pretty much in the
palm of his hand. There was nothing soaring about his oratory, nothing
ornate or mellifluous. Instead, the power of his opening lay in the
narrative he unfurled and the evidence he unveiled in support of it.
The story he told was straightforward: Faced with the threat posed by
the browser and Java, Microsoft had tried first to coerce Netscape
into not competing with it, and then, after being rebuffed, it had put
the screws to the entire industry in an effort to destroy the startup
and keep its grip on the desktop. As he walked Judge Jackson through
the government's claims, Boies displayed on the courtroom monitors a
sequence of documents that painted Gates and Microsoft as the most
rapacious (and unsubtle) of monopolists. And, the piece de resistance,
there was Gates unplugged.

Here was Microsoft's CEO onscreen, denying knowledge of the June 1995
meeting - saying, indeed, "I had no sense of what Netscape was doing"
at the time. And here was an email from Gates to Maritz and other
Microsoft brass a few weeks before the meeting: "I think there is a
very powerful deal of some kind we can do with Netscape.... We could
even pay them money as part of the deal, buying some piece of them or
something. I would really like to see something like this happen!!"

When Boies was done and the court gaveled out of session, Bill Neukom
appeared before a gaggle of reporters on the courthouse steps. Calmly
but adamantly, he denounced Boies' tactics as hollow theatrics,
accusing him of using "loose rhetoric and out-of-context snippets" to
disguise the fact that he had no case and adding that "none of these
snippets, none of this rhetoric, even approaches proof of
anticompetitive conduct."

The next day, Joel Klein flew to Scottsdale, Arizona. On the one-year
anniversary of the consent-decree case, he was scheduled to give a
keynote address at Agenda, the conference at which Gates had first
heard the news that his government was suing him. The speech Klein
would deliver was a high-minded affair, a discussion of regulation,
market failure, and "the case for government involvement in the
computer industry." He would offer few comments on the trial, and
those he would offer were as dry and arid as the high-desert air.
Klein knew better than anyone that the government had a long row to
hoe. He expected Microsoft to mount an awesome defense. And he knew
that one good day in court was no cause for chest-thumping.

Still, that one good day had been a very good day. In the back of the
hall, Klein whispered to me, "I am one happy camper. We really kicked
their butts."

VI. IN THE DOCK

The E. Barrett Prettyman federal courthouse squats at the northwest
edge of Capitol Hill and bears all the hallmarks of the neo-brutalist
architectural style that came into vogue in Washington in the 1950s.
The six-story facade is gray and granite and imposingly free of
inspiration. Inside, the walls are of marble - light gray streaked
with darker gray. Down in the basement, a barebones cafeteria serves
food, also gray, to the several hundred maintenance people and clerks
who work in the building. (The judges tend to take their meals
elsewhere - in Judge Jackson's case, at his club, the Metropolitan.)
And yet, however mundane its appearance, the courthouse has provided
the setting for more historic legal confrontations than anyplace but
the Supreme Court itself. The Watergate trials, the arguments over the
Pentagon Papers, the Whitewater/Lewinsky grand jury hearings - all
were conducted here, at the corner of Constitution Avenue and Third
Street, NW.

The Microsoft trial took place on the second floor, in Courtroom No.
2, a small space with five rows of pews in the back providing seats
for just 100 spectators. Given the level of interest among the press,
Judge Jackson had been urged to hear the case in the large ceremonial
courtroom upstairs. But Courtroom 2 was where Judge John J. Sirica had
tried the Watergate defendants, and Jackson told his clerks, "This
case ain't any bigger than that one." In addition to being relatively
cramped, the courtroom was windowless, airless, and charmless, bathed
in fluorescent light and perfumed with the scent of stale arguments
and fresh acrimony. In the absence of a jury, the jury box was
occupied by sketch artists, who often surveyed the scene through
special eyewear that resembled the night-vision goggles worn by Navy
SEALs and Green Berets.

The lawyers from each side huddled around tables at Jackson's feet.
Based strictly on appearances, it wasn't hard to see why oddsmakers
favored Microsoft's team, which was composed of men in slick suits
with hard eyes and harder hair. The government's table, by contrast,
had a slightly ragtag look to it, the clothes off-the-rack, the
coiffures pure Supercuts. Boies, with his mail-order apparel and
scuffed black sneakers, could easily have passed for a GS-11 from the
Department of Agriculture.

As much as the government's case had widened, its sine qua non
remained Netscape, so the first witness Boies called was Barksdale.
The job of questioning him fell to Microsoft's lead litigator, John
Warden, a Sullivan & Cromwell partner with great experience in
antitrust. In 1979, Warden had won the Appeals Court decision in
Berkey Photo v. Kodak, which held that "any firm, even a monopolist,
may generally bring its products to market whenever and however it
chooses." A rotund man with dark-framed glasses, Warden spoke in a
deep Southern drawl that rose up from his throat like a foghorn
booming from the bottom of a well. (In private, Barksdale and
Netscape's lawyers took to calling him "Boomer.") Between the lawyer
and the witness, a Mississippi native, there were times in the next
few days when, if you closed your eyes, you could imagine you were in
a county courthouse far down below the Mason-Dixon line. While Warden
mangled the names of Netscape's multiethnic employees, Barksdale
peppered his answers with downhomeisms such as "We put a little
Kentucky windage on it" and "it still irritated the stew out of me."

Barksdale's written testimony ran to 126 pages, and Warden appeared
intent on refuting everything in it. Yet the matter that drew his most
sustained fire was Barksdale's account of the June 1995 meeting.
Warden first posited that, far from being a feared aggressor,
Microsoft had been invited - no, begged - to do a deal by Netscape. In
support of this assertion Warden produced an email to Microsoft from
Jim Clark, written at 3 am on December 29, 1994. "We have never
planned to compete with you," Clark wrote. "We'd like to work with
you. Working together could be in your self-interest as well as ours.
Depending on your interest level, you might take an equity position in
Netscape, with the ability to expand that position later."

Barksdale reeled. At the time the email was sent, he had been a few
days away from becoming Netscape's CEO; he had not known Clark had
written it. And although he'd recently been forewarned by the DOJ that
there had been a Clark-Gates exchange, no one had mentioned that Clark
had, in effect, offered to sell the company to Microsoft. Barksdale
told Warden that Clark had written the email in a "moment of
weakness." He said Clark had been freelancing, that his note never
represented the company's true strategy. But as Barksdale stared at
the email on the courtroom monitor, all he could think to himself was,
"Well, goddamn."

Warden asked Barksdale if Clark enjoyed "a public reputation for
veracity."

Long pause. "I couldn't comment on that," Barksdale said. "I don't
know."

"Do you regard him as a truthful man?"

Even longer pause. "I regard him as a salesman."

Throughout the Microsoft trial there would be moments that revealed
what the journalist Joe Nocera called "the secret history of the
software industry." This was one of them. To a Silicon Valley
outsider, Barksdale's disavowals of Clark could only seem incredible -
a prime example of Kentucky windage. Clark was Netscape's chair, after
all, the man above Barksdale on the company org chart. But the truth
of it was, Barksdale had never taken orders from Clark, who had a
reputation for being modestly insane; indeed, he had agreed to become
CEO only after receiving assurances from VC John Doerr that he would
have complete freedom to ignore Clark's advice - which he'd done with
impunity. As for the suggestion that Netscape was begging for a deal,
it ignored how much had changed in the six months between Clark's
email and the meeting in question. In December 1994, Netscape's sales
were zero and its capital evaporating; by June 1995, it was the
fastest-growing software company in history, one whose board had just
voted to launch the IPO that would ignite the Internet boom.

The next day, Warden hammered away at Andreessen's notes from the
meeting - "These notes of his aren't verbatim, are they?" - and at a
chronology of events supplied to the DOJ a month later by Reback,
which failed to mention the "stunning proposal to divide markets" that
Barksdale was now alleging. "If you look at the whole record of events
up to the June 21, 1995, meeting," Warden bellowed, "the only fair
conclusion that can be reached is that Marc Andreessen invented or
imagined a proposal to divide markets and that you and your company
signed on to that invention or imaginary concoction in order to assist
in the prosecution of this lawsuit!"

"I absolutely disagree," Barksdale said sternly, his face turning
crimson. "I was in the meeting. I know what I know. I was a witness to
it, and you weren't."

Out in the Valley, Reback heard about Warden's argument and was
stunned. Whatever the chronology said, Reback knew that he'd phoned
Klein and requested a CID the day after the June meeting, that Klein
had complied hours later, and that Reback had sent in Andreessen's
notes the following day. Digging through his records, Reback found a
copy of the CID and faxed it off to Klein. (Apparently, the DOJ's had
been buried away with the paperwork around the fruitless Microsoft
Network investigation that had been going on at the time.) Over the
weekend, the DOJ turned the documents over to Microsoft. The next
Monday morning, Warden resumed with a new line of attack: Given the
immediacy of Reback's request and the rapidity of the DOJ's response,
didn't it all smack of a conspiracy?

"Isn't it a fact, Mr. Barksdale," Boomer boomed, "that the June 21,
1995, meeting was held for the purpose of creating something that
could be called a record and delivered to the Department of Justice to
spur them on to action against Microsoft?"

Jackson's disdain for Microsoft's defense became more and more
evident. "The code of tribal wisdom," he said, "says that when you
discover you are riding a dead horse, the best strategy is to
dismount."

Barksdale: "That's absurd."

Afterward, on the courthouse steps, Microsoft's foes gleefully mocked
Warden's gambit. Squinting into a warm October sun, Netscape's outside
counsel Christine Varney quipped, "We've gone from Alice in Wonderland
to Oliver Stone's JFK."

"In my experience as a litigator," Boies chimed in, "there are few
signs more encouraging than when the opposition starts saying, 'They
set us up.'"

Barksdale had expected to testify for two days; he spent a week on the
stand. When it was over, Microsoft had scored on a number of fronts.
It had got him to admit that he hadn't actually heard anyone from
Microsoft speak of cutting off Netscape's air supply; in fact,
Barksdale allowed that he'd first come across the phrase in a
biography of Larry Ellison - an admission that pointed up that much of
the government's evidence was hearsay and that Microsoft wasn't the
only software outfit given to rough talk or hyperbolic metaphor. More
significant, Barksdale acknowledged that more than 26 million copies
of Navigator had been downloaded over the Net in the first eight
months of the year, and that the company planned to distribute another
159 million copies in the next twelve. If that were true, Warden
asked, how could the DOJ claim that Microsoft had foreclosed
Netscape's distribution channels? If people could still "freely choose
at no cost Netscape's Web-browsing software," as Warden put it, how
could consumers possibly have been harmed?

Yet the overarching impression conveyed by Microsoft's defense was one
of indiscriminate flailing. In the space of a few days, Warden had
argued that Microsoft couldn't be said to have destroyed Netscape
because Netscape was alive and well - but if Netscape was on the
ropes, it was the company's own fault. He had argued that Microsoft
hadn't acted like a bully - but if it had, it was acceptable, because
everyone else in the industry did it. He had argued that the June 1995
meeting was either an elaborate frame-up, or an elaborate fiction, or
a cordial meeting between potential allies, or the wary circling of
potential rivals. Lawyers call this "arguing in the alternative."
Generally, it is not a compliment.

The government's next witness was David Colburn of AOL. A legendary
hardass, Colburn was the guy sent into every big deal at nut-cutting
time. In March 1996, he had engineered the browser war's most famous
double cross, in which AOL agreed to license Navigator one day, only
to announce the next that it had chosen IE as its default browser,
under terms that rendered the Netscape deal worthless. At great
length, Warden attempted to induce Colburn to admit that AOL had done
this because Microsoft's browser was superior. At even greater length,
Colburn insisted that it just wasn't so; that, technically speaking,
the products were a wash; and that the decisive factor was Microsoft's
ability to give AOL's icon prime placement on the Windows desktop.

When Warden tired of this colloquy, he turned his attention to a
series of emails in late 1995 between AOL's CEO, Steve Case, and
Barksdale. In one of them, Barksdale argued that the two companies
should team up to take on Microsoft. Case agreed, proposing a "grand
alliance" that might also include Sun; suggesting that members of the
alliance not invade one another's primary markets; and endorsing an
idea of Andreessen's that "we can use our unique respective strengths
to go kick the shit out of the Beast from Redmond that wants to see us
both dead."

Warden asked Colburn, "A market-division proposal, isn't that
correct?"

"I wouldn't call it that," Colburn deadpanned. "What it seemed like to
me was a strategic relationship."

Once again, Warden was saying: Everyone does it. To which Boies, on
the courthouse steps, responded: "The antitrust rules make a big
distinction between what a monopolist can do and what everyone else
can do." The difference, Boies said, was that "neither Netscape nor
AOL had monopoly power."

Apple's Avie Tevanian, by all accounts one of the best minds in
software, proved a lethal witness. For three weeks, Judge Jackson had
absorbed the testimony of a parade of executives and lawyers who, when
it came down to it, knew next to nothing about the raw material at the
heart of the case - code. Jackson was ready to hear Tevanian's
allegations that Microsoft had tried to divide the multimedia market
with Apple; had pressured OEMs (and Compaq in particular) to drop
QuickTime, even when Apple was letting them bundle it for free; and
had wielded the threat of canceling Mac Office to blackmail Apple into
adopting IE as its default browser. But what the judge wanted most
from the witness, it turned out, was a software tutorial. Tevanian was
only too happy to oblige.

The lawyer cross-examining him was S&C's Ted Edelman, who, like a
tag-team wrestler, had stepped into the ring to relieve a fatigued
John Warden. Edelman, a clever young man with serrated edges, realized
he was in trouble early in Tevanian's second day on the stand, when,
without warning, Jackson started questioning the witness himself.
"What is a codec?" the judge inquired tentatively. Soon the proceeding
was spinning out of Edelman's control. Every time he asked a question,
Tevanian would turn and address his answer to the judge. When Edelman
attempted to pin Tevanian down on one point, Jackson slapped the
lawyer around: "Mr. Edelman, you keep mischaracterizing what he's told
you. It's misleading language, and it's not acceptable to me."
Eventually, Edelman found himself cut out of the loop completely, as
Jackson and Tevanian engaged in a lengthy - and, for Microsoft,
damaging - dialogue on the question of tying.

"From a technological perspective," Jackson asked, uttering a phrase
that must have felt like Swahili as it left his lips, "what benefit,
if any, is there, do you believe in integrating a browser as
distinguished from bundling it with an operating system?" Less than
none, replied Tevanian. "What you're telling me is, you don't think
there is any benefit and there may be a detriment to the ultimate
consumer?" That's right, replied Tevanian. "My final question: Is it
possible to extricate your browser from the operating system without
otherwise impairing the operation of the system?" Certainly, replied
Tevanian. At which point Jackson - memories of the consent-decree case
surely galloping across his cerebrum - nodded gravely, jotted a note,
and then shot a glare toward the defense table.

The Microsoft team wore masks of misery. By the time Tevanian exited
stage left, the defense was showing its first signs of disarray, with
Neukom calling courtroom huddles during breaks and improvising tactics
on the fly. After the case was over, Microsoft's lawyers and its PR
people would agree on one thing, at least: Tevanian had been the
government's best witness, his turn on the stand the moment when it
first occurred to them that Microsoft might actually lose the case.

The DOJ was well-pleased with Tevanian, and with Barksdale and Colburn
too, but Boies had no time for self-congratulation. Next on the stand
would be Steve McGeady. Intel had declined to let McGeady submit
written testimony, and thus he would be the only government witness
whom Boies would examine directly. He was, as Klein put it to me, "the
one wild card in our deck." And while the spectacle of an Intel
official airing the Wintel alliance's soiled laundry in public would
have been wild enough on its own, the drama was heightened
immeasurably by one stark reality: Nobody - literally, nobody - knew
what McGeady was going to say.

There were two salient facts about Steve McGeady. One was that he was
exceedingly intelligent. The other was that he detested Microsoft.
Whether these facts were connected was a moot point, but they had
unquestionably defined his career at Intel.

McGeady was a Reed College Unix hacker who studied physics and
philosophy, never graduated, and joined Intel in 1985, at age 27.
Though few people are aware of it, Intel employs several thousand
software engineers, most of whom write code that's embedded in its
chips. (As Andy Grove says, "Silicon is frozen software.") It was from
this crowd that McGeady emerged as a rising star. In 1991, he became
one of the founders of the Intel Architecture Labs, an operation in
Hillsboro, Oregon, that Grove hoped to turn into an R&D facility for
the entire PC industry. Yet because many of its projects involved
software, IAL was in constant conflict with Microsoft; indeed, the lab
was a hotbed of what McGeady calls "a whole subculture of
Microsoft-haters," of whom he was loudest and most acerbic. Not long
after IAL's inception, he was asked to address a high-level strategy
meeting on "the software environment" at Intel's headquarters in Santa
Clara. After listening to Grove describe Intel and Microsoft as fellow
travelers and another executive talk about being "hungry for a new
relationship" with Redmond, McGeady opened his speech by saying, "I'll
tell you, when I think of hungry fellow travelers, I think of the
Donner party."

In the early 1990s, McGeady was involved in a series of increasingly
bitter run-ins with Microsoft. Matters came to a head in the spring
and summer of 1995, when a two-pronged rift pushed the two companies
to the brink of open war. One prong was NSP, which was a layer of
multimedia software developed by IAL that Microsoft opposed; the other
was Intel's support for Netscape and Java, of which McGeady, Intel's
chief Internet evangelist, was a primary champion. On both fronts,
McGeady believed not only that Grove caved to pressure from Gates, but
that IAL was "gelded" in the process. At that point, McGeady retreated
into self-imposed exile, heading off to spend a year at the MIT Media
Lab. On returning, he was put in charge of Intel's Internet health
care initiative - a pet project of Grove's, who had been diagnosed
with prostate cancer. McGeady's prospects were fine, but the wounds of
the past remained open and raw. He told me, "I really think Microsoft
is a fucking evil corporation; they're way out of line in all this."
So when the chance to testify presented itself, McGeady jumped first
and asked questions later.

>From the moment of his deposition in August, McGeady was
"quarantined," as he puts it, from the rest of Intel. He spoke to no
one about the case except Intel's lawyers. He had no idea what Grove
was thinking, no idea what the company was telling the DOJ. ("Nobody
even told me I was on the witness list; I read about it in my
underwear in The New York Times.") McGeady assumed Intel was
cooperating, at least tacitly, because it hadn't fought the CIDs or
tried to block his deposition. At the same time, however, he had been
informed by Intel's lawyers that he wouldn't be submitting his direct
testimony in writing. Also, Intel's lawyers were being squirrely about
whether they represented him personally or only in his capacity as an
Intel executive. Then, in early October, McGeady learned that
Microsoft wanted to depose him a second time; and that the men from
Sullivan & Cromwell were demanding his personnel file, including his
performance reviews and salary records. Things, it seemed, were about
to get nasty. The time had come to get his own lawyer.

One of the first things McGeady learned from his new attorney was that
the DOJ had asked repeatedly to interview him - requests that Intel's
lawyers had failed to convey. In the absence of written testimony from
McGeady, the government wanted a clearer sense than could be divined
from his deposition of what he'd be willing to say on the stand. Sure,
McGeady said. A DOJ lawyer was coming to Oregon for the second
deposition, on October 7. McGeady would meet him the next morning,
whether or not Intel approved.

Disapproval would be too anemic a word for Intel's reaction. With its
own FTC investigation under way, and the health of its relationship
with Microsoft hanging in the balance, Intel was on a very thin
tightrope. Grove had assured both sides that the company was neutral.
He had assured Gates, especially, that Intel was doing nothing
willingly to assist the government. Keeping up appearances was
essential here - and now McGeady was about to make a great big mess.

At 7 am on the day of his interview with the DOJ, McGeady's phone
rings, waking him, and the voice of his Intel lawyer, Jim Murray,
pipes through the receiver.

Don't talk to the government today, Murray tells McGeady; we want to
maintain neutrality.

Gates' bottom line: They'd done nothing wrong. They'd made no
mistakes. In the end, they'd be exonerated: "Every action that's been
attacked in this case was Microsoft working on behalf of consumers."
In a word, everything at Microsoft was A-OK.

"Nobody ever asked me about that," McGeady replies.

"We don't have to ask you. You're an employee."

"Fuck that. I'm going."

A half-hour later, while McGeady is in the shower, the phone rings
again. This time it's Intel's chief counsel, Peter Detkin, in a state
of barely controlled fury.

"You're violating Intel confidences!" Detkin yells. "If you do this,
it's a fireable offense!"

Detkin doesn't know Steve McGeady very well; he doesn't know that the
best way to ensure that he'll do something is to tell him not to; he
doesn't know that McGeady has, in his own words, "a real severe
authority problem." So McGeady's reaction is unexpected.

"Pound sand, Peter. This is the fucking US government, OK? Just
because you think you want to be seen as neutral doesn't mean I do.
This is my reputation and my morality. So fuck you."

As McGeady arrives at his lawyer's office for the meeting with the
DOJ, the phone rings yet again. Apparently, the situation has
escalated to DefCon 3: Grove's second-in-command, Craig Barrett, is on
the line now. Barrett's message is the same, and emphatically stated:
Don't do this.

"Sorry, Craig," McGeady says. "If the government doesn't want to talk
to me, I won't talk. But if they do, I will."

Hanging up the phone, McGeady walks into the conference room, shakes
hands with the DOJ attorney, sits down, and starts to chat. One more
time, a phone call arrives - but this time it's not for McGeady. It's
for the government lawyer - Joel Klein is holding. Not three minutes
later, the lawyer returns, apologizes, gathers his things, and leaves.
 

There it was: Intel had phoned Klein and twisted the screws. Boies
later told me, "They said very bluntly, If you insist on meeting with
McGeady, then you're going to make us hostile, you're going to make us
an enemy. We've been neutral up till now, but if you do this, we are
not going to be neutral anymore."

If the turn of events was profoundly unsettling for McGeady, it was
hardly more comfortable for the DOJ. "First we can't get a written
statement from the guy," Boies recalls. "Then we can't meet with him
before we name him as a witness. Then we can't meet him before or
after his depositions. I put that son of a bitch on the stand without
ever having talked to him!"

Steve McGeady testified for three days in the middle of November,
dressed in a dark suit and a patterned tie, wearing eyeglasses, a
thick gray-brown beard, and an implacable expression. He sat
motionless in the witness box and proceeded to pull back the curtain
on the most lucrative partnership in the history of modern business.

Before Boies began his questioning, he played some excerpts from the
Gates deposition. On the courtroom monitors, the lawyer asked
Microsoft's CEO, "Did you ever express any concern to anyone at Intel
... concerning Intel's Internet software work?" After an interminable
pause, Gates replied, "I don't think Intel ever did any Internet
software work."

Boies: "And if they did, I take it that it's your testimony that no
one ever told you about it?"

Gates: "That's right."

Boies: "Did you or others on behalf of Microsoft tell Intel that
Microsoft would hold up support for Intel's microprocessors if Intel
did not cooperate with Microsoft?"

Gates: "No."

Boies: "Did you, Mr. Gates, ever yourself try to get Intel to reduce
its support of Netscape?"

Gates: "I'm not aware of any work that Intel did in supporting
Netscape."

It would take McGeady roughly two hours to make Gates out to be a liar
on all this and more. In response to Boies' questions, McGeady told
the court that Gates had been briefed many times on Intel's Internet
software development - once, at least, by McGeady himself. Gates
"became quite enraged," McGeady said, about "the software engineers in
IAL who were, in his view, competing with Microsoft." McGeady told the
court that at one 1995 meeting, "Bill made it very clear that
Microsoft would not support our next processor offerings if we did not
get alignment" on platform software - a threat that McGeady called
"both credible and fairly terrifying." He told the court how Intel's
NSP had caused a "conniption" at Microsoft, which saw the software as
an invasion of its turf. He told how Intel's support of Java had been,
in the words of one email, a "show stopper." And he testified that "it
was Microsoft's desire that we essentially clear and get approval for
our software programs from them before proceeding."

McGeady also told a story about Paul Maritz - a story that gave
credence to one of the trial's least consequential but most highly
publicized claims. In the fall of 1995, McGeady said, he'd attended a
meeting where Maritz laid out for a handful of Intel executives
Microsoft's strategy for defeating their "common enemy," Netscape. The
strategy had three elements: Microsoft would "embrace, extend, and
extinguish" open Internet standards; it would fight Netscape "with
both arms," meaning both its OS and its applications; and, Maritz
fatefully declared, it would "cut off Netscape's air supply" by giving
away IE for free.

McGeady's testimony was buttressed by an assortment of astonishing
documents, the most explosive of which was a memo he'd written after
an August 1995 meeting attended by both firms' CEOs. Bearing the title
"Sympathy for the Devil," the memo said, "Bill Gates told Intel CEO
Andy Grove to shut down the Intel Architecture Labs. Gates didn't want
IAL's 750 engineers interfering with his plans for dominating the PC
industry." More damning still were a slew of Gates' own emails, which
Boies entered into evidence in rapid-fire succession. "We are trying
to convince them to basically not ship NSP," Gates wrote after a
dinner with Grove in July 1995. "We are the software company here and
we will not have any kind of equal relationship with Intel on
software." A few months later, after Microsoft had pressed
computermakers aggressively to reject Intel's multimedia software,
Gates wrote, "Intel feels we have all the OEMs on hold with our NSP
chill ... This is good news because it means OEMs are listening to
us."

By the end of his first day in the dock, McGeady had made so many
incendiary allegations that Boies feared the Intel brass would
intercede - either pressing him to clam up or pulling him off the
stand altogether. By the end of the second day, his testimony had
taken on the flavor of a software-world Scenes from a Marriage. The
Intel-Microsoft coupling had always seemed a union of equals. But in
the picture McGeady painted, it was Microsoft that clearly wore the
pants in the family, while Intel played the part of the long-suffering
spouse, sticking with the relationship because, as one Intel memo put
it, "divorce will be bad for the kids." ("The kids," McGeady
explained, were the OEMs and other industry players.)

The S&C lawyer charged with McGeady's cross, Steve Holley, knew he
faced an uphill slog. He started off well enough, using the
depositions of McGeady's immediate superior and of other Intel
executives, as well as a raft of emails, to sketch a coherent
counter-explanation of why Microsoft had torpedoed NSP: Rather than
being tailored for the forthcoming Windows 95, Intel had targeted the
technology at Windows 3.1. "In retrospect, a mistake," McGeady
allowed.

But Holley ran into trouble with his next move, a venomous and
voluminous attack on McGeady's credibility. McGeady was arrogant.
McGeady was biased. McGeady was, in the words of one of his colleagues
in an email Holley brandished, a "prima donna." ("I've been called far
worse," McGeady said with a grin.) He was also a fabulist and a
fabricator, argued Holley. Harking back to Barksdale's testimony, the
lawyer accused McGeady of cribbing the air-supply quote from a Larry
Ellison biography. He accused McGeady of being in league with Jim
Clark. He even accused him of being rude about his boss, citing an
email in which McGeady referred to Intel's chair as "mad-dog Grove."
 

"What is the point of this?" Judge Jackson demanded. "Are you just
trying to embarrass him?" In an act of perjury as great as any ever
committed in Courtroom No. 2, Holley denied it.

Still, Jackson was curious about Steve McGeady. He had a question of
his own, a question that everyone in the courtroom was, in fact, dying
to ask. So when the cross-examination ended, Jackson said, "Mr.
McGeady, to what extent do you understand that you are a spokesman for
Intel Corporation here as distinguished from speaking for yourself?"
As ears pricked up and eyes widened at the lawyers' tables and in the
spectators' pews, McGeady hemmed and hawed. Jackson tried again: "Are
you here with the blessing of your CEO?"

"'Blessing' would be a strong word," McGeady mumbled. "I'm not trying
to be evasive, Your Honor. It's a difficult question.... I believe
that in certain circumstances, Dr. Grove and other executives might
share some of my opinions. In some cases they would share them
privately. They may not agree with my expression of them."

"Are you aware of any instances which are actually at variance with
what you understand to be corporate policy?" Jackson asked.

"Perhaps only the most dramatic, Your Honor," McGeady answered. "It's
important to Intel to maintain a positive working relationship with
Microsoft. My appearance here, obviously, creates a problem there."

And with that, McGeady got up and went back to Oregon.

Eight weeks later, the moment that filled him with more trepidation
than any court appearance ever could finally arrived. At an annual
black-tie dinner for Intel's senior executives, McGeady came face to
face, for the first time since being quarantined the previous summer,
with Andy Grove. Clutching a cocktail, surrounded by a boisterous
crowd, McGeady made small talk for a few minutes and then gingerly
tiptoed into the danger zone: "Hey, Andy, um, about that other thing,
you know, no hard feelings, I hope ..."

Grove's eyes twinkled. "Vell," he replied in his Hungarian accent, "I
vould have done it a different way. But I guess it vorked out OK in
the end."

For sheer drama, nothing in the rest of the government's case
approached the quality of its first four witnesses; the next two
months were up and down. John Soyring of IBM rehashed the
controversies around OS/2. James Gosling of Sun, a long-haired,
pot-bellied, bushy-bearded Buddha figure with so many forms of RSI
he's officially handicapped in the state of California, testified with
such low-key candor that his testimony kicked up little dust. Edward
Felten, a Princeton professor, contended that he'd devised a small
software program that could remove IE from Windows 98 - something
Microsoft claimed was impossible. William Harris, the new CEO of
Intuit, stumbled badly on the stand by wandering out of the land of
fact and into the realm of speculation, and by offering half-baked
ideas about remedies, which allowed Microsoft's lawyers to suggest,
not without reason, that he was calling for a National Operating
System Commission. Finally, the MIT professor Franklin Fisher, a giant
in the field of antitrust economics who had worked with Boies on the
IBM case, argued that Microsoft had created high barriers to entry in
the operating-system and browser markets, and that the company had the
ability, even if it didn't use it, to raise prices almost at will -
two key tests of monopoly power. As the first half of the trial came
to a close, an air of confidence tinged with cockiness filled the
hallways of the DOJ.

In public, at least, Microsoft's lawyers displayed an almost
commensurate degree of confidence. The facts and the law were on the
company's side, Neukom told me. As Warden had argued during his
opening statement, "The antitrust laws are not a code of civility in
business," and although Microsoft had played tough, its actions had
only benefited its customers. Indeed, even Professor Fisher, when
asked by a Microsoft lawyer if consumers had been harmed, had said,
"On balance, I would think the answer was no, up to this point." And
while it was undeniably true that Microsoft possessed a high share of
the OS market, Neukom believed that the company had demonstrated
conclusively that the software business was fiercely competitive, and
that Microsoft's position in it was forever under siege.

Neukom's point had been underscored in late November, when AOL
announced, in effect, that the "grand alliance" Steve Case had dreamed
of in 1995 was about to become a reality. In exchange for $4.2 billion
in stock, AOL planned to acquire Netscape and then to team up with Sun
Microsystems to create an Internet powerhouse aimed squarely at
challenging Microsoft. On the courthouse steps, Neukom declared, "From
a legal standpoint, this proposed deal pulls the rug out from under
the government. It proves indisputably that no company can control the
supply of technology. We are part of an industry that is remarkably
dynamic and ever-changing."

Yet for all of Neukom's proclamations to the contrary, the mood behind
the scenes on the Microsoft team was considerably more sober. Judge
Jackson had rejected almost all of the defendant's motions. He had
repeatedly upbraided the S&C attorneys. He had rolled his eyes, shaken
his head, and giggled conspicuously (along with the press) every time
another piece of billionaire verite had flickered on the courtroom
monitors. In late November, at a conference in chambers with lawyers
from both sides, John Warden had made one of numerous pleas to have
the judge stop Boies from showing the tapes in "bits and pieces" and
instead to have the whole thing shown. Jackson had again shaken his
head. "I think the problem is with your witness, not with the way in
which his testimony is being presented," the judge said. "I think it's
evident to every spectator that, for whatever reasons, in many
respects Mr. Gates has not been particularly responsive to his
deposition interrogation."

Within a couple of weeks of the trial's opening bell, Neukom and S&C's
lawyers had started tailoring their approach for the appeals-court
case that seemed increasingly inevitable. Jackson had given them
plenty of grounds for complaint, from the trial's unique procedures
(the 12-witness limit, say) and the broadening of the case to his
decision to admit what Warden called "multiple layers of hearsay" as
evidence.

"Vindication will be bittersweet," said a Microsoft official. "Now,
either the decision stands, and people think we're criminals, or it's
overturned, and people think we somehow got away. No vindication will
erase that stain."

Jackson's court wasn't the only forum in which Microsoft was faring
poorly. To any reporter who was willing to listen, Microsoft PR
specialists flogged polls indicating that the company's image remained
in fine shape. Privately, though, one of them told me, "We knew we
were losing the PR war, and badly."

In early December, a decision was made to roll out the big gun: Gates
himself appeared, via satellite hookup, at a hastily arranged press
conference at the National Press Club. "In the software industry,
success today is no guarantee of success tomorrow," he said. And, "The
government is trying to increase the cost that consumers have to pay
for browsers." And, "Three of our biggest competitors band together to
compete with Microsoft, yet, amazingly, the government is still trying
to slow Microsoft down." Then Gates did something unusual: He turned
to the topic of his deposition and vented his spleen at David Boies.
"I had expected Mr. Boies to ask me about competition in the software
industry, but he didn't do that," Gates said. Instead, "he put pieces
of paper in front of me and asked about words from emails that were
three years old." Asked about Judge Jackson's recent criticism of his
performance, Gates snapped, "I answered truthfully every single
question ... but Mr. Boies made it clear ... that he is really out to
destroy Microsoft ... and make us look very bad."

On TV that night, and in the papers the next day, "destroy Microsoft"
would be every reporter's lead. With just two words, Gates had
provided ringing confirmation of what many in the media already
suspected: that he was paranoid, self-pitying, and quite possibly
delusional.

And maybe he was. Soon enough, I would see for myself.

VII. IN THE BUNKER

The weather when I arrived in Redmond was filthy: the sky soupy gray,
the roads slick with rain, the landscape draped in a fog thick as
porridge. It was January 1999, midway through the trial's courtroom
phase. After three treks to Microsoft's campus in as many months, I
had started to think of it as a mushroom colony - a damp, leafy
mulchpile where spongy-beige coders multiplied in the dark. There were
45 buildings on campus, and a new one seemed to spring up every week.
Many of the buildings were connected by a labyrinthine series of
hallways and passages, so that employees could shuffle from their
offices to the company food courts and back again without ever
encountering even a dewdrop of moisture. On days like this, you could
drive around campus for hours without seeing a soul - and often, you
had to. Even on a holiday (in this case, Martin Luther King Jr.'s
birthday), the parking lots were jammed to capacity with Acuras, BMWs,
and SUVs.

The official line at Microsoft was that the trial was mere background
noise; that no one was distracted by it; that they were all too busy
cranking out the next great chunk of software. Yet in reality the
topic was inescapable. All over downtown Seattle, some renegade artist
had plastered up posters featuring a macabre caricature of Gates under
the headline "Trust Me" - the first word overlaid with a blaring red
"Anti-." One day, in one of the Microsoft cafeterias, as my designated
PR handler went on about how surprised she was that nobody ever talked
about the doings in Washington, DC, an Indian programmer to our left
regaled his friends with a detailed assessment of the government's
technological ineptitude, while a German to our right called Joel
Klein a socialist. (My handler smiled sheepishly and picked at her
stir-fry.) Even the hallways were papered with protest. BOYCOTT THE
GOVERNMENT. BUY MICROSOFT read a bumper sticker on one office door.

Among the Microsoft executives I spoke to, the sense of persecution
was pervasive and acute. The only question had to do with the
government's motives: Was it acting out of malice or plain stupidity?
Brad Chase, a close Gates consigliere, blamed the "Alice in
Wonderland" culture of Washington, and suggested that Klein was driven
by (unspecified) political pressure. Charles Fitzgerald, who was
Microsoft's one-man "truth squad" on Java, saw the culprits in Silicon
Valley, and postulated the existence of shadowy meetings between
McNealy, Ellison, Barksdale, and Doerr (four men whose combined egos
were barely containable within one state, let alone one room) to plot
twin conspiracies against Microsoft in the courts and in the
marketplace. Nathan Myhrvold preferred a psychoanalytical take,
attributing the government's crusade to the impulses of a collection
of "very successful people whose deepest regret is that they're not as
rich as Bill."

Other executives, and especially those who had already been touched
directly by the trial, were deeply embittered. In 1995, as Paul
Maritz' 26-year-old technical assistant, Chris Jones had been among
the Microsoft contingent that attended the infamous June meeting at
Netscape. Jones claimed that nothing untoward had happened there.
Indeed, he told me that the very idea that he'd been part of some
"Microsoft mafia" trying to intimidate Netscape into dividing the
browser market was "ludicrous" on its face. The Microsoft team was
made up mostly of junior-level staff like him. The Netscape side was
led by Barksdale, an "impressive guy who'd been doing business for a
long time." Jones said, "I think the perspectives on who was being
intimidated in that meeting differ." Taken at face value, the comment
was a telling reflection of the insularity of the Microsoft culture.
Regardless of Barksdale's age and experience, Netscape was a
money-losing startup, and Microsoft was - well, Microsoft. When Jones
walked in the door, what the Netscape people saw wasn't some
26-year-old kid; they saw a 26-year-old kid who spoke for Maritz, one
of the most powerful executives in the software industry.

And that was how the DOJ saw Jones too. In a deposition in April 1998,
Jones had made statements that the government believed supported its
case, a number of which had turned up in its court filings and in
Boies' arguments in court. The statements were damaging - and, in
Jones' opinion, taken flagrantly out of context. From a 45,000-word
deposition, he said, the DOJ had lifted a few isolated, ambiguous
comments that served its purposes while ignoring numerous
straightforward denials that didn't. Microsoft had taken pains to
point this out, but the press had run with the DOJ's interpretation
anyway. For months, Jones' friends and family had been asking him: Is
it true? Did you really do this, say this? By the time I met him,
Jones was shaken. "It's been disillusioning, because it's a case where
being really honest and answering questions fully did not serve me
well," he said. "I'd be happy if there was a trial on the merits, but
there's so much other bullshit going on - the PR, the leaks, the Gates
video - you can't even tell what the merits are."

Listening to Jones describe his sense of being violated by the DOJ, it
was impossible not to think of Microsoft's chair. The transformation
of his deposition into a kind of televised water-torture - drip, drip,
drip - had been one of the most severe public humiliations inflicted
on a CEO in recent memory. In Microsoft's executive ranks, the
traditional reverence toward Gates was now tinged with a new emotion:
protectiveness, even a touch of pity. "I feel sorry for Bill," Greg
Maffei, Microsoft's then-CFO, told me over a late dinner the night
before one of my meetings with Gates. "This poor guy. Look at all he's
accomplished, look at all he's done. Now he's being vilified. Not
exactly a happy resting place." I mentioned Gates' depression at the
end of the consent-decree case. "That was bad, but the videotape thing
has been worse," Maffei said. "The fact that it goes on and on, that
it feels like it's never going away. Every day they play a new snippet
and make him look bad, and there's no way to punch back. It's tough on
him because it makes him second-guess himself, which is not" - Maffei
chuckled - "what Bill generally does."

I asked Maffei if he thought the clash with the government had changed
Gates. "How could it not?" he said. "He's human. No human could go
through what he's gone through and come out the other side unchanged."
 

Once upon a time, not very long ago, interviewing Bill Gates was one
of the great pleasures in journalism - assuming you had a mild streak
of masochism. From Microsoft's earliest days, he dispensed with the
standard CEO patter and established a rapport with the media that was
decidedly more frank. Though he could charm and flatter as
proficiently as anyone, he would also badger, mock, and harangue. His
favorite riposte to Microsoft subordinates - "That's the stupidest
fucking thing I've ever heard!" - was one he never hesitated to hurl
at a reporter who happened to ask him something silly or obvious. But
the flip side was that, if you coughed up a question Gates considered
sharp, he tried hard to answer it with equivalent insight. "Right!
Right!" he'd yelp, jumping up to his feet, pacing around the room,
engaging in an act most other public figures would regard as
dangerously rash: thinking out loud. Despite the abuse, interviewing
Gates was exhilarating.

By the time of our meeting in January 1999, that Gates was long gone.
With the release of Windows 95, a milestone in the history of high
tech hype; with his ascension to the pinnacle of personal wealth; with
the construction of the 37,000-square-foot, $30 million lakeside
compound he called home; with all this, Gates had transcended the
software business and become a celebrity in the broadest sense
possible. This had taken its toll. It had sanded down his rough spots,
leaving him smoother, more polished, but infinitely blander. Now,
under assault by the government, Gates seemed increasingly
schizophrenic, vacillating in public between bursts of outrage - his
attacks on Boies, say - and excretions of saccharin. In the space of
one month that winter, he managed to appear on both Rosie O'Donnell's
and Martha Stewart's TV shows, where he avoided all topics of
controversy and rabbited on about the joys of parenthood.

The Gates I encountered that cold misty morning was guarded, distant,
and defensive. He wore brown slacks, brown loafers, and a white dress
shirt with faint brown stripes and his initials monogrammed on the
breast pocket. His hair was freshly washed and parted vaguely on the
side; an unabashed cowlick shot up from the back of his head. We sat
at right angles from one another on Breuer chairs positioned next to a
small maple coffee table. The tabletop had nothing on it but a jar
filled with a dozen identical black ballpoint pens, which Gates would
use every so often to draw diagrams for me on a yellow legal pad.

We talked for a while about the mid-1990s, the timeframe around which
the trial revolved. That Gates had been late to grasp the significance
of the Web, and had then turned Microsoft on a dime to embrace it, was
a fact no one disputed - until the court case, that is, when the
company suddenly, and for obvious reasons, started peddling the
revisionist history that its plans for the Web had taken shape before
Netscape's founding. I noted that the first edition of Gates' book,
The Road Ahead, which was published in the fall of 1995, had barely
mentioned the Internet.

"That's not true! This is a book ..." he started to say, then caught
his irritation and trailed off. "Certainly there were things we
missed. We did our big mea culpa in December '95 in terms of realizing
the importance" of the Web. "But the Internet, you could still say, Do
people get it? Did people know six months ago that Amazon was worth
$20 billion? How many people got it? I didn't happen to get it. I
didn't go out and buy it, so, darn, that's another thing I missed."

The night before, Maffei had pointed out that, before the
consent-decree case was filed, "in the public eye and most influential
circles, Bill sort of walked on water; he could do no wrong." I
wondered how it felt to have seen the tide turn so dramatically.
"Eighteen months ago, you were universally admired," I said to Gates.
"Hardly anything really bad had ever been written about you."

"That's not true!" he protested again. "Let's live in the real world
for about half a second here."

I asked him if he felt like a victim of what Bill Clinton had
memorably described as "the politics of personal destruction."

"It's overwhelmingly true that the case is misguided," Gates replied
calmly. "Was Netscape able to distribute their product? Is that tough
to decide? Was Netscape able to thrive in terms of being able to get
advertising revenues &##91;from its Web portal]? Well, they were
purchased for over $4 billion. Those are the two questions the
complaint in this case raises. And that's it. So, clearly, if they've
got a tough time with those, they're going to go try and throw as much
mud as they can. And there's going to be competitors who are going to
show up and participate in that."

Not only competitors, I interjected. Had Intel's participation in the
case put a strain on its relationship with Microsoft? "That has no
effect on the relationship whatsoever," Gates replied. "You're asking
very Hollywood-type questions. These are companies that have to keep
innovating in their products. We don't make chips. We're dependent on
Intel."

Maybe so, but to see Intel on the witness stand was still rather
striking.

Gates' face turned the color of claret. "No, it's not Intel up there -
it's Steve McGeady! Don't say Intel! Intel was not up there! Steve
McGeady was up there. Was I surprised that Steve McGeady does not like
Microsoft? No."

Considering how things were going in court, I asked if Gates regretted
having not settled the case in May 1998. "I would have been glad to do
a settlement," he said. But, "when it comes to giving up the ability
to innovate in Windows, that was something that, whether it's for
Microsoft's shareholders or consumers at large, was not something I
felt was right to give up."

I asked Gates if he believed it was possible to have a monopoly in the
software industry. "In operating systems, no," he said.

Impossible?

"It's not possible."

Why?

"Because people's expectations of what they want out of the operating
system are constantly changing. They want something better. Why have I
increased our R&D from a few hundred million a year to $3 billion?
Because it's a very competitive business.... A monopoly is where you
don't have competition. The notion that this is a market without
competition is the most ludicrous thing I have ever heard in my life."
 

Monopoly or no, Windows was unquestionably an enormous asset for
Microsoft. ("An asset of the shareholders of Microsoft," as Gates put
it.) And it was one over which the company had claimed total freedom -
the freedom to add a ham sandwich, for instance. Was there any limit
to how far he was willing to press the advantage of owning the
dominant operating system?

"I don't know what you mean by 'advantage,'" he said, inspiring in me
the brief fantasy that I was David Boies. "It is one of the more
proven things that just because we put something in the operating
system doesn't mean people will use it," Gates went on, citing the
early, failed versions of IE, as well as the MSN client software.
"Putting new features in the OS is a very, very good thing. Some of
those features will end up being used heavily and some won't. All you
have to do is look at the growth of the software industry to say this
is an industry that's delivering for consumers in a fantastic way. So,
yes, innovation is OK."

Gates hadn't answered the question, so I asked it again, this time
more precisely: "Is there any limit to what you regard as appropriate
to put into the operating system?"

"Let's say a piece of software is free and it's distributed on the
Internet. Then it's available to everyone, friction-free. Is that
software part of every PC? Well, logically, it is. They can just click
and download it and get it on the PC. So, if we decide essentially to
have a piece of software that's free, many, many companies can do
that."

I repeated the question once more.

"Understand, anybody can give any piece of software away for free.
That's just a fact."

"They can't integrate it into the operating system," I said, "because
they don't own the operating system."

"Anyone who owns a product, like AOL, integrates new capabilities all
the time. Netscape integrated massive new capabilities into their
browser - mail and conferencing and dozens of other things. The fact
that companies innovate in these products and put new features in,
that's a good thing. I can't even think of a scenario where that would
be negative."

But AOL doesn't own the operating system, I said.

"They own their online service."

And so it went, round and round like that for 15 minutes or so. Six
times I asked Gates the question; six times he ducked and dodged. It
was truly depressing. The idea that Microsoft had the unfettered right
to add anything it wanted to Windows was an extreme principle - but it
was a real principle, and it was one that was arguably worth
defending. The old Bill Gates would have defended it forthrightly. The
new Gates wouldn't, or, at least, didn't. After a year of withering
press and tribulations in the courts, Gates may still have retained
the courage of his convictions. But he was flaccid, lifeless; all the
piss and vinegar seemed to have been drained out of him. In more than
an hour, he didn't call me stupid even once.

Yet for all his dismay about how the case had been going, Gates still
seemed to hold out a sliver of hope. "Are you going out to DC for the
rest of the trial?" he asked as I got up to leave. I said that I was.
 

"I'm really looking forward to our witnesses," he said. "Now people
will finally hear the other side of the story." For the first time all
morning, Gates actually looked pleased. "You know, you've got to have
faith that the facts will come out in the end. And the facts, in this
case, are all on our side."

VIII. SHOWTIME

On the other coast, in the other Washington, the DOJ had just rested
its case, and was readying itself to prove Gates wrong. "The next
three weeks are critical for us," a senior government lawyer confided
to me. "Microsoft is putting its three most important witnesses on
first. The pressure's on David to make some headway right off the bat.
If he does, we're in good shape. If he doesn't, we could be in
trouble."

First up was Richard Schmalensee, an MIT professor with wavy gray hair
and a well-tended mustache. Like his colleague Franklin Fisher (who,
by an irony, happened also to be his academic mentor), Schmalensee was
one of the country's most formidable economists, the dean of the Sloan
School of Management. In antitrust cases, economists are crucial.
While executives can testify about particular events and decisions,
the economists, as Dan Rubinfeld puts it, "weave the facts together
and explain why a company's business practices make sense and are
legitimate."

Rubinfeld and Boies considered Microsoft's choice of Schmalensee as
its inaugural witness a risky one. "When your economist goes first, he
sort of lays out in advance a justification for what the other
witnesses are about to say," Rubinfeld explains. "If he does a good
job, everybody else looks good. If he doesn't, it casts a shadow on
everything that follows." It was this reasoning that led Boies,
despite his faith in Fisher from their work together on the IBM case,
to put him last on the government's witness list.

The DOJ was doubly surprised that Schmalensee was the only economist
in Microsoft's quiver. (The government had two.) In an antitrust
trial, there are two big issues for an economist to address: Does the
company in question have monopoly power? And has it abused that power?
Both Boies and Rubinfeld told me that if they'd been advising
Microsoft they would have counseled the company to concede the first
issue, as Boies did in the IBM suit, so as to strengthen its hand on
the second; both believed Microsoft hadn't done this out of fear that
the concession would be used against it in future antitrust
litigation. But by asking Schmalensee to advance both claims,
Microsoft placed him in a vulnerable position.

Boies punched holes in Schmalensee's attempts to assert that Linux,
BeOS, and the Palm OS posed a significant threat to Windows. But the
coup de grace came on Day Two. In preparing for Schmalensee's cross,
Rubinfeld and his team of economists were startled to discover a 1982
Harvard Law Review article in which the witness argued that
"persistent excess profits" indicate monopoly power - an argument that
contradicted his current position. The DOJ had no doubt that
Schmalensee would have an explanation ready if Boies asked about this.
How could he not? Yet when Boies confronted him with his own writing,
Schmalensee was dumbstruck. He said, slightly slackjawed, "My
immediate reaction is: What could I have been thinking?"

>From that point on, Boies believed Judge Jackson saw Schmalensee as
Microsoft's "what-could-I-have-been-thinking expert witness."

When Boies asked Schmalensee whether he'd tried to determine how much
of Microsoft's profits came from operating systems, the economist said
he had, but was told by the company that it didn't have that data.

Boies: "And did you accept that explanation at face value, sir?"

Schmalensee: "I was surprised, but I will be honest with you ...
Microsoft's internal accounting systems do not always rise to the
level of sophistication one might expect from a firm as successful as
it is."

Meaning?

"Mr. Boies, they record operating-system sales by hand on sheets of
paper."

"Your honor," Boies said, grinning madly, "I have no more questions."
 

At the lunchtime recess on the afternoon Paul Maritz was to take the
stand, Boies sat alone in the empty courtroom, staring up at the
ceiling for a very long time, then down at the documents spread out
before him, like a surgeon contemplating his instrument tray. Boies
was aware, like everyone else, that his cross of Maritz was the
trial's most high-stakes operation. As Microsoft's group vice
president for platforms and applications, Maritz was generally
regarded as the company's number-three man, and, in the absence of
numbers one and two, he would be the seniormost executive to appear in
court. His fingerprints were all over virtually every strategic
decision under scrutiny; indeed, it often seemed as if his name was on
more of the email evidence than Gates'. Anticipating a showdown, Joel
Klein arrived and took his occasional seat in the front row, just
behind the government lawyers' table. The courtroom was packed; the
atmosphere, electric.

For the next four days, Boies and Maritz tangled like a pair of
scorpions in a sock. When it was over, Neukom would declare the
Microsoft executive victorious, trumpeting the fact that Boies had
left untouched most of the claims in Maritz' 160-page direct
testimony.

Boies, meanwhile, was convinced that refuting every jot and tittle of
Maritz' testimony was unnecessary and maybe unwise. Better to drill
down on a few crucial points and throw a haze of doubt on the witness'
credibility.

One of Boies' prime targets was the 1997 Apple deal. In his testimony,
Maritz denied that Microsoft had used the threat of canceling Office
for Mac to induce Apple to adopt IE. He claimed that the browser was
but a minor part of the negotiations, whose overriding concern was
settling a potential patent dispute between the two companies. The
problem for Maritz was the email trail. Boies presented one message
after another, many from Gates himself, in which the browser issue
featured prominently while the patent issue was mentioned only in
passing or not at all. Maritz stuck to his guns. He insisted that Greg
Maffei, Microsoft's CFO, who negotiated the agreement with Steve Jobs,
had assured him that the first time Maffei brought up making IE the
Mac's default browser was during a long walk around Palo Alto with a
barefoot Jobs in July 1997 - well after the "primary deal terms,"
including the continuation of Office, were settled.

Watching this, I could only shake my head. I had covered the
Microsoft-Apple negotiations. On the day after Jobs announced the deal
at the August 1997 Macworld trade show in Boston, I interviewed
Apple's top executives about how it had come together. The dickering
had gone on until 2 am, just a few hours before Jobs' keynote. What
was the hangup? The default-browser issue, the Apple guys said; if
they hadn't given in, the deal would have fallen apart, and Apple
would have lost Microsoft's commitment to Office. A week later, I
called the very same Greg Maffei whom Maritz was now citing and put
the question to him. Yes, he said, the browser had been the late-night
sticking point. I asked what leverage Microsoft had used to secure
IE's status as the fallback browser. "I don't want to comment on
that," Maffei said. I pressed the point. Was it fair to assume that,
at the eleventh hour, Apple had reason to fear the cancellation of
Office? "Yeah, that's fair," he said.

(Three years later, Maffei also admitted to me that although Microsoft
had bought $150 million in Apple shares as part of the deal - "We
invested in the company when people had lost faith," Gates would boast
- he had hedged Microsoft's bet by simultaneously shorting the stock.)
 

Boies then turned to Netscape's air supply. After a bit of thrust and
parry, the adversaries deadlocked. Maritz denied ever having said
anything of the kind, and Boies could produce no smoking email; Steve
McGeady remained Maritz' sole accuser.

But the truth was that, among the several Intel officials who attended
that meeting, at least one could have corroborated McGeady's account.
Frank Gill, a former top executive, now retired, was no
Microsoft-basher, and his opinion of McGeady was nearly as harsh as
Gates'. Yet when I spoke to him, Gill's memory of the meeting was
identical to that of Intel's chief troublemaker. I asked Gill if
Maritz uttered the fateful phrase. "He said it," Gill replied. "When
you're in business meetings, you often hear people say, 'Let's kill
the bastards,' when they don't literally mean either 'kill' or
'bastards.' I really didn't think it was a big deal." But he was sure
he'd heard Maritz say it? "Yes, I did, firsthand. I was there."

The third member of Microsoft's putative power troika of leadoff
witnesses was Jim Allchin, a grade-A geek with a shock of white hair
who was responsible for development of the company's core products.
Allchin called himself "the Windows guy."

"We expected him to come in and claim that software was an arcane
science, show a slick demo, and run circles around us technically," a
DOJ lawyer told me. Instead, as media accounts have amply recorded,
Allchin became the victim of the goriest and most celebrated
evisceration of the Microsoft trial. Yet for all the drama of the
tape-doctoring fiasco, Boies scored a more significant legal triumph
two days earlier, when he walked Allchin through a different portion
of the Microsoft video. It was a segment that enumerated the benefits
- 19 of them, in all - of the "deep integration of Internet
technologies" in Windows 98. Stopping at the first benefit, Boies
asked Allchin: If a user took a PC running Windows 95 without an
integrated browser and simply added a standalone retail copy of IE4,
wouldn't that user get exactly the same benefit shown in the video?
"Yes, I believe that's correct," Allchin replied. Boies moved on to
the next benefit: same question. Eighteen more times he did this.
Eighteen queries that began, "And again, sir." And 18 times, Allchin,
his tone shifting from frustration to despair, answered in the
affirmative.

Laborious though it was, this sequence of questions went "right to the
heart of the Appeals Court decision" in the consent-decree case, Boies
told me. The Appeals Court had said that tying two products together
was legitimate only if doing so "offers advantages unavailable" from
purchasing the products separately. With Allchin's 19-fold admission,
Boies believed he had proven that Windows 98 didn't meet that test.

The humbling of Allchin - and of Schmalensee, and of Maritz - left the
DOJ jubilant. Microsoft "put their home-run hitters at the top of
their lineup," a government official told me. "And they all struck
out."

The defense, meanwhile, was officially in disarray. The Wall Street
Journal said so on its front page, in a blistering analysis by the
reporter John Wilke, who quoted a number of economists - and not just
economists but pro-Microsoft economists, culled from a list provided
by the company itself - who flayed the firm for not conceding the
obvious: that it did indeed try to eliminate competitors; that it was
indeed a monopoly. In the Washington antitrust bar, Sullivan &
Cromwell's performance was criticized as bordering on incompetent. Yet
the question that remained was whether the fault really lay with S&C
or even Neukom or whether it lay with Microsoft's chair. Some months
after his testimony, Dick Schmalensee told a fellow economist
privately, "The lawyers are not in charge. All the shots are being
called by Gates."

After Allchin stepped down on February 4, it took Boies three weeks to
dispatch the nine remaining Microsoft witnesses. A few of them,
notably marketing executive Brad Chase, emerged relatively unscathed.
For most, though, the trip to Courtroom 2 was like strolling through
hell in a suit soaked with gasoline. Dan Rosen, the employee sent to
testify about the June 1995 Netscape meeting, uttered such patent
falsehoods that Boies felt no compunction about calling him a liar
outright: "You don't remember that, do you, sir?" he asked at one
point. "You're just making that up right now, aren't you sir?" As an
email showed, Rosen didn't and he was. Robert Muglia, Microsoft's
designated Java witness, prattled on so incessantly and nonsensically
that, with no help from Boies, he drove Judge Jackson into a blind
rage. "No, no! Stop!" Jackson roared, as Muglia attempted for the
umpteenth time to explain that a Gates email didn't mean what it said.
"There is no question pending!" the judge concluded, stalking out of
court for a 10-minute recess.

Jackson's disdain for Microsoft's defense, never exactly a secret,
became more and more evident as the trial wore on. One February
afternoon, before gaveling court into session, he offered some words
of wisdom he claimed were directed at no one in particular, but whose
target in fact could hardly have been clearer. "The code of tribal
wisdom says that when you discover you are riding a dead horse, the
best strategy is to dismount," Jackson said. But lawyers "often try
other strategies with dead horses, including the following: buying a
stronger whip; changing riders; saying things like, 'This is the way
we've always ridden this horse'; appointing a committee to study the
horse; ... declaring the horse is better, faster, and cheaper dead;
and, finally, harnessing several dead horses together for increased
speed." Jackson smiled and then turned to Boies. "That said, the
witness is yours."

On February 26, after Microsoft's last witness, the judge recessed the
trial for six weeks (in the end, it would be 13) before the start of
rebuttals. "Use this time wisely," he told the lawyers for both sides,
who were in no way confused about what that meant. For some time,
Jackson had been quietly encouraging the parties to reopen settlement
talks. Now he took steps to prod them in that direction. At a routine
status conference on March 31, Jackson informed Microsoft and the
government that he was imposing another novel procedure: After
rebuttals were finished, he would divide the conclusion of the case
into two phases. The first would be devoted to "findings of fact" and
the second to "conclusions of law." By separating the facts from the
law, Jackson was, in effect, ratcheting up the pressure on Microsoft
to settle. Even a one-eyed tea-leaf reader could divine that he was
going to come down hard on Microsoft when it came to the facts; that,
for a start, he was almost certain to declare the company a monopoly,
which could on its own inflict a fair degree of what Microsoft's
lawyers called "collateral damage." If Microsoft was going to cut a
deal, the time to do it was now, before Jackson had shown any of his
cards.

Settlement talks took place sporadically that spring. They went
nowhere. Though Microsoft was willing to contemplate some of the
behavioral changes it had rejected in May 1998 - giving OEMs a real
measure of control over the first screen, for instance - that was no
longer enough for the DOJ and the states. Indeed, it was during these
off-and-on talks that Klein first told Neukom the government was
considering a structural remedy, perhaps even a breakup. Microsoft
refused to address the subject, which seemed, Neukom said later,
"ridiculous." In the last round of talks that spring, in June, Klein
put forward a proposal for a broad set of conduct remedies, touching
on everything from the pricing of Windows to opening up its APIs. In
Microsoft's opinion, even that proposal was far too draconian to merit
discussion. Yet the fact that the remedies were still only behavioral
reinforced in Neukom the impression that Klein's earlier threat of
structural relief was mere posturing.

Neukom had no idea how wrong he was. Since the fall, Rubinfeld and his
economic team had been digging into the question of remedies, and the
more they dug, the more attractive the idea of doing something
structural became. Rubinfeld told me he was "very intrigued" by the
notion of compelling Microsoft to auction off the Windows source code
to its rivals - thus creating competition between, say, IBM Windows,
Oracle Windows, Sun Windows, and so on. Many of the state AGs were
keen on this idea, too.

And then there was Klein. Each time we met, he seemed to be moving a
tiny bit closer to dropping the Big One. He had first suggested to me
that a structural remedy was within the realm of practical possibility
back in November 1998. By the spring, the word "divestiture" was
popping up in our talks with increasing frequency. Klein had started
down the path of suing Microsoft with extreme reluctance, yet here he
was, entertaining a solution so hawkish it would make Kissinger blush.
At one of our Saturday morning meetings, I asked him how he explained
his conversion.

There was no mystery to it, Klein replied. "The nature of the problem
and the pervasiveness of the practices in their corporate culture are
far worse than I thought," he said. When the case began, all he could
see was the tip of the iceberg; it was only after the evidence had
piled up, first in discovery and then during the trial, that the full
dimensions of the thing were clear. "That's what happens when you try
a case," Klein explained. "You have instincts, you have views, then
you go out and just rip it apart. And only then do you finally
understand it."

He got up from his chair and walked over to his desk. "You wanna know
how you try a case?" he said, picking up a small pewter mug that sat
next to a paperweight. "This is how you try a case."

Taped to the side of the mug was a piece of scuffed white paper with a
quote from T. S. Eliot's "Little Gidding":  We shall not cease from
exploration And the end of all our exploring Will be to arrive where
we started And know the place for the first time.  I handed the mug
back to him. "So, if you win the case ..." I started to say.

"If we win?" Klein laughed. "Get outta here!"

The spring settlement talks broke down in June, just as the trial's
rebuttal phase was coming to an end. The rebuttals - highlights
included another IBM exec, who had a diary full of details of threats
Microsoft had allegedly made against Big Blue, and a command
performance by AOL's David Colburn, who was as snarky as ever in
answering Microsoft's questions about the AOL-Netscape-Sun alliance -
were moderately entertaining, but did little to alter the trial's
dynamics. By the time the rebuttals concluded on June 24, Jackson was
openly using the dreaded M-word, monopolist, in reference to the
beleaguered defendant.

A few weeks later, a new law clerk, fresh out of Harvard Law School,
reported for work in Jackson's chambers. His name was Tim Ehrlich, and
his first assignment was a daunting one: to write the initial draft of
the findings of fact, and, in so doing, throw the book at Microsoft.
Jackson made clear to Ehrlich that he wanted the findings to be
unremittingly harsh. And so they were. Of the 400-plus paragraphs that
composed the 207-page epistle, only one or two were remotely favorable
to Microsoft, while the remainder of the document could have been
written by the DOJ. Released on November 5, it was, Klein said to me,
"the most damning document in the entire case."

The findings of fact reflected Jackson's assessment of the evidence
he'd heard. But they were also designed to serve a tactical goal: to
create the most powerful incentive yet for Microsoft to settle. On
November 18, Jackson summoned the lawyers to his chambers and
surprised them all by announcing his appointment of Judge Posner from
the US Court of Appeals as a mediator.

In March, as the mediation Posner oversaw hurtled to its conclusion,
the state attorneys general began to fret. Locked out of the
negotiations taking place in Chicago, they feared the DOJ would sign
on to a settlement based on conduct remedies that were weak,
unenforceable, and riddled with loopholes. To assess the true impact
of the proposals being swapped back and forth, they turned to Silicon
Valley. In particular, they turned to Eric Hahn, a former Netscape
executive who sat on the boards of several startups, including Marc
Andreessen's new company, Loudcloud. Enlisted in March by California's
attorney general, Bill Lockyer, Hahn would serve in secret as the
states' unofficial technical adviser. It was Hahn who helped them
devise the set of demands they sent to Posner in the final week of
mediation. And after negotiations collapsed and Jackson issued his
verdict, it was Hahn who helped them tackle the question of remedies,
serving in the process as a crucial conduit to the Valley.

All along, the states had been more hardline about remedies - or at
least more publicly so - than the DOJ was. A year earlier, in March
1999, at their annual convention in Washington, the AGs had presented
a plan to force Microsoft to auction the Windows source code to rival
firms. But when Hahn began looking into the feasibility of such a
scheme, he quickly realized it would never get off the ground. The
Windows code was constantly evolving, so what precisely would the
licensee get? Making sense of the code would require Microsoft's
assistance; how likely was that under the circumstances? Plus, whoever
bought the code would be in competition with the firm whose
programmers wrote it in the first place - not a tremendously appealing
proposition. "I spent a week calling around, trying to find someone
who'd want to bid on Windows," Hahn told me. "And I couldn't find a
single company."

Given what they knew of the mediation, the states believed the Justice
Department would never ask for a breakup. Like Neukom, they'd
misjudged the DOJ. For months, Dan Rubinfeld, who'd left his post at
the department but still worked as a consultant, had been advocating
that Microsoft be chopped into two companies: one containing Windows,
the other containing its applications and Internet businesses. Before
the mediation died, Klein agreed in principle; now he agreed in
practice. In a conference call on April 20, he informed the AGs of the
DOJ's plan. Surprised and pleased in equal measure, 17 of the states
signed on. (Only Ohio and Illinois dissented, asking exclusively for
conduct remedies.) A week later, the government presented the breakup
proposal, along with a list of conduct remedies to be implemented in
the meantime, to Judge Jackson.

Microsoft's response was apoplectic. In the days leading up to the
government's proposal, the company's honchos had adopted a defiant
stance. In an interview with the editorial board of The Washington
Post, Steve Ballmer said, "I do not think we broke the law in any way,
shape, or form. I feel deeply that we behaved in every instance with
super integrity." On television, Gates declared, "Microsoft is very
clear that it has done absolutely nothing wrong." Now, with the
breakup officially on the table, Gates decried it as "unprecedented,"
"extreme," "radical," and "out of bounds." Then came the ultimate
insult: "This was not developed by anyone who knows anything about the
software business."

One month later, on May 24, the lawyers from Microsoft and the DOJ
gathered once more in Courtroom 2. It was brilliant spring day -
bright, sunny, unseasonably hot. All along, Jackson had indicated
that, if the government prevailed, there would be a separate process
to deal with remedies. This was the hearing to begin that process.
Everyone wondered what Jackson had in store. Microsoft asserted, given
the severity of the government's proposal, that somewhere between
several and many months were required to depose more witnesses, gather
more evidence, hold more hearings. The DOJ disagreed, but assumed that
the process would last at least a few weeks. But Jackson was
determined to put this case on its path to appeal as quickly as
possible. He'd decided that holding more hearings, in which eminent
experts would offer conflicting predictions about the future of an
industry that was inherently unpredictable, was a waste of time. And
he was fed up with Microsoft: with the disingenuousness of its
witnesses; with its failure to settle the case; and with the recent
public comments of Gates and Ballmer, whose lack of contrition was so
bald, so galling, that it would play no small part in his decision a
few weeks later to cast aside his qualms and affirm the government's
call for a breakup.

So when John Warden asked at the end of the day what the next step in
the remedy process might be, the courtroom fairly gasped when Jackson
said, without missing a beat, "I'm not contemplating any further
process, Mr. Warden."

Five minutes later, the Microsoft trial was over.

IX. WHISTLING IN THE DARK

Early in August, eight weeks after Judge Jackson decreed that
Microsoft be rent asunder, I went back to Redmond to see Gates again.
In the software heartland of the great northwest, the spring and
summer had been two mean seasons, and not simply because of the
judge's rulings. The long-awaited launch of Windows 2000 in February
had proved lackluster. The company's revenue growth was flagging,
especially in its core OS business. Analysts had slashed their
forecasts for the coming year by $1 billion or more - another reason
the stock was taking a drubbing. In June, Microsoft unfurled its
master plan for the age of the Net with the blaring of trumpets and
the rolling of drums. Dubbed .NET, the initiative was, Gates said, a
"platform for the next-generation Internet." But while everyone agreed
that .NET was bold and ambitious, they also concurred that it was not
fully baked. For the press, .NET was a one-day story; for much of the
industry, a one-day shrug.

On Microsoft's campus, frustration had turned to a sense of defeat.
"At the club, in the steam room, people who used to talk about the
great things we were doing, all they want to do now is give you
opinions about the trial," senior executive Craig Mundie told me.
"Even family members are like that. It's discouraging." After talking
for an hour about the challenges of taking on AOL with young marketeer
Yusuf Mehdi, who'd switched over from Windows to work on the MSN
portal, I asked him if the trial had affected morale. "There's been
disruption, for sure," he said, "but there's also been a
circle-the-wagons mentality, which is good, in a way." Mehdi paused.
"My mom asks me, though, 'Yusuf, is Bill really that bad?'"

Then there was the exodus: For the first time in Microsoft's history,
the company was hemorrhaging talent. The bleeding went from top to
bottom, from high-profile pashas like Nathan Myhrvold, Greg Maffei,
Brad Silverberg, and Tod Nielsen, to browser warriors like John Ludwig
and Ben Slivka. In several cases, executives who had testified in the
trial - Eric Engstrom, say, or Nathan's brother, Cameron Myhrvold -
left the company almost the instant they stepped down from the stand.
By Microsoft's count, around 50 employees were peeling out every week,
but by some estimates the number was three times that high. Some left
in search of dotcom riches, others for the thrill of running their own
show. Some had grown weary of Microsoft's size and proliferating
bureaucracy. When Paul Maritz announced his resignation three months
after my visit, it drove home vividly the brutal truth: Microsoft was
no longer the place to be.

Microsoft's reaction to the departures was stunning. In an industry
spurred by the sparking of synapses, Gates had long recognized that
the most precious raw material was gray matter, and Microsoft prided
itself on acquiring only the best. But now I kept being told that many
if not all of the big names who had left - men who'd run large swathes
of Microsoft when the company was at its zenith - were in fact dead
wood; that Ballmer had merrily chucked them out the door. When I asked
the new CEO if this was true, he shrugged and smiled. "We've lost
senior people who I wish hadn't left, and we've lost senior people
where I'm fine, I'm happy, it's OK," Ballmer said. "We've got both
categories, and we may have more of the latter than the former."
Microsoft's marketing chief, Mich Mathews, remarked to me, "We could
lose 40 percent of the IQ in this company and still be the smartest."
She said, "All we really need are three smart guys."

When the smartest of the smart guys announced in January that he was
handing the CEO reins to his best friend and taking up the title of
"chief software architect," some observers wondered how meaningful it
was; surely the buck would still stop with Bill. Yet Gates
relinquished more control over the company than even many Redmondites
expected. In short order, Ballmer began instituting new processes and
disciplines on Microsoft's operations. And he began systematically
replacing Gates' team of top managers with his own posse. "Bill and
Steve have different attitudes about people," an ex-Microsoft exec
says. "Bill likes smart people - plain smart. Steve likes people who
get shit done."

Officially, the rationale for Gates' decision was twofold: First, the
company had become too unwieldy for one person to be both chair and
CEO; and second, Gates yearned to get back to the role he'd played in
the company's early days, when he was intimately involved in the
design and development of its key products. Yet many of Gates' friends
and colleagues believe that the antitrust suit played a part here,
too; that it had worn him out, beat him down, and induced him to seek
a less strenuous role. "It's all been very hard on Bill - I mean
physically; it literally made him sick," Greg Maffei says. "I think
the reason he's no longer CEO is directly attributable to this
experience with the courts and the government."

Gates had given no published interviews since Jackson's breakup order,
so I had little idea what to expect when I came trundling into
Building 8 this summer. Outside, the soft morning sun sent a stream of
pale-gold light through Gates' picture window. The first thing I
noticed was that he looked as if he'd been spending some time
outdoors; his skin tone was closer to ecru than its customary
eggshell. He seemed thinner. His greeting was warm and full of good
humor. As we settled into our chairs for our hour together - which
would wind up being closer to two - it soon became clear that whatever
had drained the juice out of Gates before our last meeting, his tank
had been refilled during the 18 months since.

Gates was clearly relishing his new role as chief software architect.
In abundant detail and with avid enthusiasm, he described the genesis
of .NET, its technical underpinnings, and his role in its concoction.
He sang the praises of XML, of distributed computing; he lectured me
with verve about "probabilistic input APIs" and "loosely coupled
message-based programming." Back in 1995, Microsoft had embraced the
Internet, he said, but only as a feature. "It was the most important
feature - but it was still a feature," he explained. Now everything
would be different. With .NET, the embrace was total; the Net was all.
 

When I'd mentioned Sun in our previous interview, Gates' response had
been as banal as it was disingenuous: "Every comment I've made about
Sun has been positive - Sun's a good company." Now I raised the
subject again, pointing out that Sun's software wizards, who'd
invented Java and Jini, had been talking for years about many of the
ideas Gates was discussing today; they contended that .NET was, at
bottom, an endorsement of their corporate motto: "The network is the
computer."

Gates, who'd been pitching back and forth in his chair, like a
hummingbird at a feeder, dug his heels into the carpet, propelled
himself bolt upright, and flapped his arms. "The most nonsense I've
ever heard!" he exclaimed. "But it's not unexpected. The business
model of Sun is to sell overpriced hardware." When it came to solving
the complex software problems that .NET was addressing, he said,
"Sun's not involved in that. Sun has never had anything to do with
that."

At the launch event for .NET, Gates had called the initiative a
"bet-the-company thing." Didn't it worry him to be undertaking such an
ambitious project at precisely the moment when so many of his best and
brightest were flying the coop? "Look at the top of this company,"
Gates shot back. "We've had more continuity of management leadership
than any technology company ever." Maybe so, I said. But doesn't it
hurt to lose a Nathan Myhrvold? To lose a Brad Silverberg? "It doesn't
diminish our ability to do .NET, absolutely not," he said. "We have a
team here that is the best software development team in the world. It
just shows the embarrassment of riches Microsoft has had, that even
without those two guys, we can go and do phenomenal things. But those
are great guys. If they want to come back and work here, I'll take
them in a second."

But not many of the others, apparently. Did Gates, like Ballmer,
regard some of the senior people who'd left as dead wood? "I won't
name their names, but certainly," Gates said. "Come on, give me a
break. This is not simple stuff."

I mentioned that Craig Mundie told me, "The trial has significantly
diminished our ability to attract and retain people of the highest
caliber." Between the shadows cast by the DOJ and the allure of
Internet startups, did Gates think it would be increasingly difficult
for Microsoft to replenish its pool of human capital?

"It's a very competitive environment for getting smart people," he
replied. "People think, 'I'll go do an IPO and be rich tomorrow.' I
don't promise them anything like that. I promise them more impact."
Gates went on: "So many startups are doing the same things and
terribly short-term things. B2C? That fad is gone. B2B? That's in the
fad stage right now." Yet for those with limited interest in fads,
Gates said, Microsoft retained a powerful allure. "The things we care
about are long-term things, tough things. We can afford expensive
things. We build 747s. We don't build Cessnas."

After a while, we turned to the trial. To many observers, the most
inexplicable of all of Gates' and Ballmer's actions had been the
unrepentant poses they'd struck in public in the period after Judge
Jackson issued his verdict but before the DOJ or the states submitted
their proposed remedies. In private, they were even more strident,
with Gates telling a gathering of Microsoft employees that the company
was a victim of a "travesty of justice," that "we are absolutely
confident we will win on appeal," and that they would "never allow"
Microsoft to be broken up. In the aftermath, a number of state AGs had
cited Gates' and Ballmer's public comments as a "slap in the face" and
said that they'd figured in the decision to ask for a breakup. Judge
Jackson himself told The New York Times the comments "astounded" him
and helped make a breakup "inevitable."

With employee morale dismal and the stock price plummeting, Gates and
Ballmer must have figured that anything less than an adamant stance
would have sent a terrible message to the troops. Still, I asked Gates
if, on reflection, he thought those remarks were a tactical blunder.

"You can accuse us of having put Internet support into Windows," he
answered. "You can fault us for contributing significantly to the PC
market and what that's meant for the software industry and prices and
all of those things. We believe that what we've done is absolutely
pro-competitive, and it's our right to stick up for that."

I understand you have the right, I said. What I'm asking here is a
tactical question. It was a moment of great political sensitivity.
Wouldn't it have been better to keep your mouths shut?

Gates shot me a look of contempt. "We are defending principles of
great importance," he said. "Our right of appeal. Our right to
innovate. Our right to have an appeals court sit and judge that." Even
to mention tactics, he seemed to be suggesting, would sully those
principles with the grubbiness of politics.

Another thing Jackson told The New York Times was that he didn't think
Microsoft had taken the case seriously enough. Had they? "Hey, you
should see our legal bill - are you kidding?" Gates quipped. "Of
course we took this seriously."

The conventional wisdom was that Microsoft and its lawyers had made
hash of the case from start to finish. They had failed to settle
before the trial started and after it was over. In between, they had
waltzed into a federal court and tried repeatedly to claim that day
was night and night was day, that up was down and down was up, that
words with clear meanings were somehow ambiguous - or even meant the
opposite of what they plainly said. They had defended a position -
that Microsoft was not a monopoly - even pro-Microsoft economists
regarded as untenable.

With the benefit of hindsight, are there things that you regret? I
asked. Where you look back and think, We made a mistake?

"Understand," Gates said, "that this is an attack on our ability to
add new features to Windows, so it's not the kind of thing where you
can say, 'Oh, oh, that? Oh, sure. We'll give that up.'" In the end, he
believed, the law was on their side. "Every action we took that's been
attacked in this case is Microsoft working on behalf of consumers,
working in exactly the way we should work."

There was not much more to say. In the face of overwhelming evidence
to the contrary, this was Gates' bottom line: They'd done nothing
wrong. They'd made no mistakes. In the end, they'd be exonerated. And
everything at Microsoft was A-OK. There was no hint of artifice in any
of his statements. I believed he believed every word he was saying. It
was one of those moments where you question yourself. Is this man
hallucinating? Or does he glimpse a reality that I'm too blind to see?
 

Either way, it raised another question: Given what you believe about
yourself and Microsoft, how does it feel to have the US government
calling your company crooked and calling you a lawbreaker?

Gates stared out the window and thought about the question a good long
time. Still gazing at the trees, he began, "There's a certain irony to
being in a situation where we literally have to bet the company on an
unknown business framework and a new set of technologies just to stay
in any type of position at all, that we have to do that, that this is
the most competitive market the world has ever seen. The notion that
somebody could come in and say (a) we're a monopoly, (b) we shouldn't
be able to add features to our product, and (c) throw a little mud in
the process - the irony is deep. Very, very deep."

Has the whole thing left you cynical about the legal process?

"No," Gates said simply.

I said I found that hard to believe.

"The law is interesting," he mused. "The US judicial system, like, 98
percent of the time works extremely well." For the first time in a
while, Gates looked me in the eye. "This case, in the final analysis,
will be part of that 98 percent."

X. THE VERDICT

As the old economy gives way to the new, some of the most profound
questions in public policy revolve around how a legal regime conceived
and enacted in the industrial era applies to the information age - if,
indeed, it applies at all. Whatever the ultimate outcome of United
States v. Microsoft, the case promises to yield a historic precedent,
one which will shape fundamentally the terms of competition in the
dynamic high tech markets at the center of our emerging postindustrial
order. "I cannot imagine a more important case for the future of
antitrust," Dan Rubinfeld says. "If our victory is upheld, it will set
the rules of the road for years to come. If it gets overturned, almost
anything goes."

In June, the government asked the Supreme Court to bypass the federal
Appeals Court and take the case as soon as possible. Microsoft opposed
the request, arguing that the company is entitled to pursue the full
appeals process through its normal course. There is no mystery about
either side's motives. In light of the Appeals Court ruling in the
consent-decree case, the DOJ wanted badly to avoid that venue, while
Microsoft wanted just the opposite. When this article went to press,
the path to a final verdict remained uncertain. But whether or not the
Supreme Court decides to take the case now, most experts assume that
the matter will wind up there eventually. Although some pundits have
speculated that a new presidential administration, particularly one
headed by George W. Bush, might drop the case, that would be highly
unusual. It would probably also be irrelevant, for the states would be
likely to pursue the lawsuit to the bitter end.

Microsoft's arguments on appeal will be many and varied. In its
filings to the Supreme Court, the company accuses Judge Jackson of "an
array of serious procedural and substantive errors." On the substance,
Microsoft's strongest arguments involve tying, where the law is fuzzy
- especially when it comes to software - and the weight of precedent
favors defendants. On the procedure, the most glaringly questionable
of Jackson's actions was his handling of the remedy phase. Even among
antitrust scholars who believe the government clearly proved its case,
there is widespread incredulity that Jackson devoted only one day to
the complex question of chopping Microsoft in two. "I have nothing
good to say about it," comments William Kovacic, a law professor and
antitrust specialist at George Washington University. "It was a
tremendously glib way to handle a very serious process."

Glib or not, Jackson's refusal to entertain further testimony or
examine further evidence was rooted, at least, in one home truth:
Nobody really has a clue what a breakup would mean. In Silicon Valley,
there are plenty of sensible, intelligent executives who think the
government is right; that halving Microsoft would unleash competition
and let innovation reign. But there are also plenty who believe the
opposite; that they'd simply be saddled with two Microsoft monopolies
instead of one. There are those who argue that the applications
company would flourish while the OS company withered; and there are
those who say that both would be doomed. Would consumers benefit from
a breakup or would they suffer? Would shareholders prosper or would
they get hammered? For every two questions, there are at least five
theories. Putting aside prognostication, only one thing is certain: A
breakup would mean the end of Microsoft as we know it.

Yet all the speculation about the effects of a breakup obscures a
simple but staggering fact: We are already witnessing the end of
Microsoft as we know it. For the past three years, Gates and his
company have been caught in a pincers. Pressing in from one side has
been a technological shift more sweeping than any since the rise of
the PC: the Internet. And pressing in from the other has been a menace
more threatening than anything Microsoft ever encountered in the world
of business: the United States government. For a lesser company,
either of these forces alone might have spelled ruin. But it took
both, working in devilish harmony, to put Microsoft on the path to a
new identity.

On Microsoft's campus they can sense the transformation, but they
struggle for the words to describe it with precision. When I visited
in June, the people I spoke to were more apprehensive about the future
than I had ever seen them. With the company on the verge of turning 25
years old, middle age was encroaching; could Microsoft stay vital?
"The question is: Do we recede or do we maintain our leadership?"
asked Craig Mundie. "Or are we superseded by another company that
rises up and takes leadership? People say .NET is a 'bet the company'
thing. But companies don't roll over and die. The question is whether
we become just another company."

When Nathan Myhrvold still worked at the company, he had an expression
for just such occasions - "putting a name to the nameless dread."
After talking for a while with Mundie, though, it began to come clear
that the dread Microsoft was feeling had a name after all. "Either
Microsoft will stay Microsoft or it will become IBM," he said. "That's
just my opinion. But I think those are the stakes involved in this
transition."

At the dawn of the PC era, when Big Blue's power was as yet
unchallenged, the new technology had presented the company with a
choice: Resist it, ignore it, or get with the program. IBM opted to
get with it - or at least to make the effort - and for several years
it dominated the market. But the forces of change unleashed by the PC
were too swift, democratic, and decentralizing to contain. Today, IBM
is still the biggest manufacturer of mainframes in the world. It has a
stock market value of more than $200 billion. It has happy
shareholders, happy customers, happy employees. Yet few people fear
it, or follow it; nobody considers Big Blue a leader anymore.

Microsoft today is on an eerily similar trajectory. Just as IBM
embraced the PC, so Redmond embraced the Internet. Yet with the dotcom
boom, Microsoft's position seems, if not tenuous, then increasingly
peripheral. The real estate it controls, the PC desktop, remains the
most valuable territory on the digital map. But, as everyone can see,
with the rise of the Net, the universe of computing is expanding and
exploding, while the desktop seems only to be shrinking in strategic
importance.

Andy Grove finds the parallel compelling. "For a long time in the
1980s, IBM was everything to Intel," he told me. "We thought about
them constantly, lived and died by their whim. Then around 1990, I
woke up one day and it wasn't so anymore. It wasn't some momentous
event. And now it was Microsoft who we thought about all the time.
Maybe this is happening again - only this time, instead of Microsoft
being replaced by another company, it's being replaced by the
Internet, by a whole bunch of things happening all at once."

Creeping giantism has begun to take hold at Microsoft, too.
Microsoft's goal has long been to retain its agility even as it grew -
to be "the smallest big company around," as MSN executive Brad Chase
puts it. Yet Microsoft has become a very big company, with 40,000
employees worldwide. Though that 40,000 includes the largest
concentration of skilled coders anywhere on the planet, the culture of
the company has lately begun to smell as much of marketing and sales
as it does of technology - a distinctly IBM-ish aroma. At the same
time, the sheer scale of the software endeavors into which Gates has
plunged Microsoft's programmers has a certain whiff of old IBM as
well. The Gates who boasted to me about how Microsoft "builds 747s" is
the same man who, in the 1980s, used to mock Big Blue's programmers by
saying that IBM's motto was: "Building the world's heaviest airplane."
 

Meanwhile, Microsoft's well-known insularity has taken on a new
dimension. In their heyday, Gates and Ballmer were relentlessly in
touch with the industry they sought to rule. On the floors of trade
shows, in the hotel ballrooms at high tech conferences, they picked
brains, probed for clues, and tested their assumptions against the
prevailing wisdom. No longer. Hemmed in by his wealth and fame, Gates
attends few industry events these days, and when he does, his
appearances are scripted; spontaneous exchanges are strictly verboten.
And even among his fellow info-tycoons at Herb Allen's annual
schmoozefest in Sun Valley, Gates is known to keep largely to himself.
(Kay Graham and Warren Buffett are the only guests with whom he
routinely socializes.) As for Ballmer, when the new CEO was invited
this summer to speak at one of the Internet industry's preeminent
conferences, the organizers were rebuffed with a message from his
handlers: "Steve says he doesn't speak at conferences where he doesn't
have any customers."

There is one other parallel between Microsoft and IBM, and the irony
here is thick. IBM's entanglement with the government had paralyzed
the company. By doing everything in his power to avoid such paralysis,
Gates brought the government slamming down on Microsoft. The
demoralized employees, the slumping stock price, the cloud of
uncertainty hanging over Redmond - in a way, all of it was due to
Gates' IBM phobia. By trying to avoid Big Blue's fate, Gates had
instead done much to guarantee it.

Not surprisingly, the suggestion that Microsoft might wind up as the
new IBM is something that Gates and Ballmer aren't willing to
countenance. When I asked Ballmer if it would be a bad fate to be
perceived that way in five or ten years - as successful and solid but
no longer dominant - he nodded his head in violent agreement. "Yes,"
he said. "Terrible? No. Bad? Yes." When I asked Gates the question, he
answered as emphatically: "Absolutely."

Gates imagines for himself a rosier future. Though he told me he could
envision a day - in his fifties - when he would no longer be
Microsoft's chair, he was "excited," he said, that "in these next
couple years, I'll get to do some of my most interesting work." To the
extent he admits his reputation has been muddied, he assumes, like
John D. Rockefeller, the plutocrat with whom he is so often compared,
that he will be vindicated. But, where Rockefeller believed his
vindication would be dispensed by history and in heaven, Gates expects
to receive his very shortly - and here on Earth. According to polls,
he remains one of the most admired figures in the world of business.
And his $21 billion charitable foundation has made him a hero in the
world of philanthropy. The only thing missing is the higher court
reversal he so manifestly considers his due.

Yet even if that reversal comes, it might provide Gates with less
satisfaction than he hopes. "Vindication will be bittersweet," a
Microsoft official told me. "The company has suffered too much.
Before, people thought the world of us. That we were great innovators.
That we were this great engine of the new economy. Now, either the
decision stands, in which case people think we're criminals, or the
decision is overturned, and people think we somehow got away with
something. No vindication will erase that stain."

Truer words were never spoken. Before the Microsoft trial began, Gates
was more than a high tech hero; he was the pristine embodiment of the
high tech myth. At an impossibly young age, he'd come out of nowhere,
consumed with ideas and a pure burning passion. He had launched a
company that unleashed an industry, and then led that industry as it
transformed an economy. For a long time, Gates represented everything
that was inspiring about this protean phenomenon taking shape in our
midst - its freshness and its ambition, its sense of possibility and
its connection to the future. But like a figure lifted from classical
tragedy, Gates sowed the seeds of his own undoing. He created a
company that reflected his image and fostered a culture that fed his
sense of omnipotence. He mastered a business that rewarded
farsightedness, but failed to develop his peripheral vision. In his
arrogance he lost whatever perspective he once had, and in his
monomania he was unwise to the ways of the world. He began his journey
as an aspiring god, an illusion his universe nurtured and sustained.
When his reckoning came, it was shocking and final - and it seemed
somehow ordained by the ages. For the wreckage of the trial revealed
that Gates was mortal.
----------------------------------------------------------------------

Contributing writer John Heilemann, who wrote "Fear and Trembling in
Silicon Valley" in Wired 8.03, is working on a book about the Valley.
 

Copyright (C) 1993-99 The Conde Nast Publications Inc. All rights reserved.