Monday, June 11, 2007

Welcome to the Real World of Corporate Power - Vol. 3 Issue 67

While Bill Gates basks in the glow of becoming America’s biggest philanthropist, his company, Microsoft, continues to maraude and out maneuver all other high-tech companies. If you want to know how really smart people—people like Steve Ballmer (Microsoft’s CEO) and Bill Gates—who run multinational companies like Microsoft manipulate the government to their economic advantage; there is no better example of Microsoft’s strategy over the last 5-6 years. The company has brilliantly employed a highly effective two-prong approach to getting the government to do what is best for Microsoft rather than what is best for the high tech market and our economy. Microsoft may be diabolical, but it also has incredible management and an awesome strategy.

During the second Clinton administration Gates came to understand that the Department of Justice was extremely hostile to Microsoft. Even when “Antitrust” was a dirty word during the first Bush administration, the DOJ realized that Microsoft’s strategy was at its core monopolistic. Government interest in Microsoft’s affairs began in 1991 with an investigation by the Federal Trade Commission over whether Microsoft was abusing its monopoly on the PC operating system market. The commissioners deadlocked with a 2-2 vote in 1993 and closed the investigation, but the Department of Justice opened its own investigation later that year, resulting in a settlement in 1994 in which Microsoft consented not to tie other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In the years that followed, Microsoft insisted that Internet Explorer (which first appeared in something called “Plus Part” sold separately from Windows 95) was not a product, but a feature, which it was allowed to add to Windows, although the DOJ did not agree with this definition. With the arrival of the Clinton administration in 1993, the pendulum moved back toward the center and appropriate regulation was the new policy. By 1998 the Department of Justice had targeted Microsoft for its monopolistic and anti-competitive behavior in the market place. The essence of the U.S.’s position in United States v. Microsoft, 87 FF. Supp. 2d 30 ( D.D.C. 2000) was whether Microsoft should be allowed to bundle its flagship internet product, the Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft’s victory in the browser market as every Windows user had a copy of Internet Explorer. It was further alleged that this unfairly restricted the market for competing web browsers (such as Netscape Navigator) that were slow to download over a modem or had to be purchased at a store. Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interface (APIs) to favor Internet Explorer over third party web browsers, Microsoft’s conduct in forming restrictive licensing agreements with OEM computer manufacturers, and Microsoft’s intent in its course of conduct. Eventually that case was settled with the caveat that the DOJ would continue to monitor Microsoft’s behavior in the market place. Wikipedia

Microsoft (Gates) finally realized that the way to protect his operating system monopoly and be able to compete on the Internet was to buy government tolerance, if not protection. Starting in the late 90’s Microsoft began a massive lobbying effort costing tens of millions of dollars. The Bush administration has reversed the prior position of the government.  In the most striking recent example of the policy shift, the top antitrust official at the Justice Department last month urged state prosecutors to reject a confidential antitrust complaint filed by Google that is tied to a consent decree that monitors Microsoft’s behavior. Google has accused Microsoft of designing its latest operating system, Vista, to discourage the use of Google’s desktop search program. The official, Thomas O. Barnett, an assistant attorney general, had until 2004 been a top antitrust partner at the law firm that has represented Microsoft in several antitrust disputes. At the firm, Justice Department officials said, he never worked on Microsoft matters. Still, for more than a year after arriving at the department, he removed himself from the case because of conflict of interest issues. Justice Department ethics lawyers ultimately cleared his involvement.

Does anyone think for a minute that Mr. Barnett is objective? Google has filed several complaints against Microsoft for anti-competitive behavior. What a surprise that the Bush Justice Department has dismissed those complaints. Microsoft was saved from being split in half by a federal appeals court decision handed down early in the Bush administration. The ruling, in 2001, found that the company had repeatedly abused its monopoly power in the software business, but it reversed a lower court order sought by the Clinton administration to split up the company. Gates learned his lesson: the more money you spend on lobbyists and lawyers in Washington, D.C. the more clout you acquire. Anyway, Mr. Barnett apparently made enough money as vice chairman of the anti-trust department at Covington & Burling that he could afford to take a million dollar pay cut. Who represented Microsoft in the federal anti-trust action? Thomas O. Barnett of Covington & Burling. One thing is for sure; Microsoft, which spent more than $55 million on lobbying activities in Washington from 2000 to 2006 and substantially more on lawyers, understands the reality of Washington (money talks, bullshit walks).

Wishing I had bought more MSFT, I remain

Savant