A MATTER OF ANTITRUST May 18, 1998 The NewsHour with Jim Lehrer Transcript

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The Justice Department and 20 states launched what could be one of the biggest antitrust actions in U.S. history. Microsoft stands accused of trying to extend its monopoly powers into the browser market. After this background report, Jim Lehrer talks to both sides of the debate. Then, join an online forum to discuss the Microsoft antitrust case.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: Join an online forum on Microsoft's legal predicament. May 18, 1998 A background report on the Microsoft case. May 18, 1998 The Microsoft case in historical perspective. April 14, 1998 Is Microsoft using its power to stifle competition? March 3, 1998 Leaders of the computer industry testified against Microsoft. January 13, 1998 Microsoft's antitrust battle with the Department of Justice. October 21, 1997 The Justice Department charges Microsoft with building an illegal monopoly. December 14, 1995 A report on the joint Microsoft/NBC venture, MSNBC. Browse the NewsHour's coverage of cyberspace and business. OUTSIDE LINKS: Bill Gates speaks out on the government's investigation of Microsoft.

JIM LEHRER: Now, the government argument. It comes from Joel Klein, the Assistant Attorney General for Antitrust.

JIM LEHRER: Mr. Klein, welcome.

JOEL KLEIN, Asst. Attorney General, Antitrust: Thank you. Good to be here.

JIM LEHRER: Mr. Gates says essentially you got your facts wrong, that what you're doing is basically un-American.

Does Microsoft have an illegal monopoly?

JOEL KLEIN: Could not be further from the truth. What we're doing is so pro-American consumer, Jim, there's a hundred years of antitrust enforcement designed to ensure one thing: that consumers get real choice; that businesses with monopoly power, people like Microsoft don't force their products on consumers. In this specific case the evidence is overwhelming that Microsoft was unable to compete on the merits and decided in its own words "to leverage its monopoly" in order to "make people" use their browser. We have a different vision, Jim. People ought to choose what browser they want to use. They shouldn't have Microsoft make them use any product.

JIM LEHRER: Now, when you say in their own words, where do those own words come from?

JOEL KLEIN: These are documents that we've subpoenaed during our investigation, which has been ongoing for the past 18 months. These are Microsoft documents, internal documents to be sure, not matters they would share with the public, but we have discovered those, and they are an important part of our lawsuit.

JIM LEHRER: Essentially and in the most simple terms, what is it that they are doing that is illegal, in your opinion?

JOEL KLEIN: What they're doing is basically taking one product where they have power and tying another product to it.

JIM LEHRER: That is, they have the operating system, and they're putting the browser to it?

JOEL KLEIN: Exactly. They already have a choke-hold on the desktop. They control personal computers in the world today. Their operating system is essential. Now what they want to do is use that to leverage control over another choke-hold, that is, access to the Internet, which is a critical facility in terms of America's opportunities, in terms of developing a competitive, if you will, access to the Internet. And what Microsoft is trying to do basically is say we've already got control of one piece; now we'd like to control the next piece as well; and the way we can do it is not by competing on the merits; the way we're going to do it is by leveraging our operating system. And, again, Jim, that is their words, pervasive in their documents.

Is Microsoft an American success story?

JIM LEHRER: Now, what do you say to those who suggest, wait a minute, Microsoft is an American success story; they've been competing on the merits and won; and you are now going after an American success story?

JOEL KLEIN: We welcome them to compete on the merits. That's exactly what this is all about. But everybody else should have a right to compete on the merits as well, shouldn't they? And you know, there are a lot of people out there who are putting their money together, putting their skills and talents together, trying to design the great new piece of software. And all we want to make sure is those people have the same opportunity as Microsoft had to be a great success. And we don't want Microsoft to prevent those people from bringing their product to market. You know, one of Microsoft's senior people was asked this question. They said, well, what would you do if you were a new company and you were trying to get a product to market that Microsoft tied to its operating system? You know what his answer was? His answer was: well, you know, I'd probably stay out of the market, because the odds are against succeeding. That's the fear, Jim, that'll kill innovation; it'll stifle consumer choice; and it'll make things much, much harder in developing real options and real creativity in the Internet.

JIM LEHRER: Now, you were in serious negotiations with Microsoft over the weekend-at the end of last week and over the weekend. How close did you come to making a deal and keeping this out of court?

JOEL KLEIN: Well, I don't think very close. What I found was they would put an offer on the table and then we would start to work on another problem, and then they would remove their first offer. It became clear to me that they don't understand the magnitude of the competitive problem or what it would take to solve it. This is not a problem that can be fixed by band-aids. These are serious, anti-competitive practices that will need a serious remedy.

The Justice Department demands that Microsoft compete on the merits of separate products.

JIM LEHRER: What is that serious remedy? What do you want Microsoft to do?

JOEL KLEIN: Well, first and foremost, what we would have preferred that they did is compete on the merits on these separate products, but they didn't do that. They tied up every possible distribution channel with all sorts of contractual restrictions to tie people's hands. They were able to get away with that.

JIM LEHRER: Meaning with computer makers they got them to require-in other words, people were going to have our operating system, you also have to have all our other things too, is that what they did?

JOEL KLEIN: They did that, and then they went after all the big online services, and they said if you want a place on our desktop, you've got to carry our browser, you can't even mention Netscape to anybody else. So what they did was-

JIM LEHRER: Netscape is their competitor?

JOEL KLEIN: They are a competitor.

JIM LEHRER: A browser competitor?

JOEL KLEIN: Exactly. A competitor, Jim, that, in Mr. Gates's own words, was a real threat to their operating system monopoly. You see, the thing about browsers that's different from a lot of software is this is potentially an alternative platform, and Microsoft knew right from the beginning that Netscape was a real threat. And what Microsoft did was went about locking down all the opportunities for people to gain access to the alternative.

JIM LEHRER: And you want them to cease and desist doing that, right?

JOEL KLEIN: Exactly. So that people can have a choice, so that computer makers can design a computer that in a way says these are the products we favor, these are the products we support; this is the way we want to design our computer. Right now, Microsoft, again, through contractual restrictions, controls that first screen, what I think in your start-up piece they refer to as the most precious piece of real estate in America.

JIM LEHRER: Do you agree with that?

The "Windows Paradise."

JOEL KLEIN: I do agree with that. And you noticed when you saw that, all those products on there, they were Microsoft products. They were directing people right to the Microsoft vision. One of their documents calls this the Windows Paradise, which means it's all in the family.

JIM LEHRER: So if you have your way, what would come up there when you turn on the screen?

JOEL KLEIN: What would come up is what each of the many computer manufacturers that design computers, what they prefer and what products they want. Some of them will prefer one product; some will prefer another. But then consumers will get the benefit of choice, and that's really what this is all about. And, again, the computer manufacturers have made clear they want the opportunity. The reason they don't and the reason on their own computer they cannot put up a first screen with alternative products is because they need Microsoft's operating system.

JIM LEHRER: And you are prepared, obviously, to go to court and prove this, right?

JOEL KLEIN: Absolutely. The evidence that we have collected is reflected in the papers we filed today, including extensive, extensive testimony and documents that support our allegations.

Historical comparisons to monopolies past.

JIM LEHRER: There have been comparisons with what you did today to the breakup of AT&T, even back to the antitrust lawsuits against Standard Oil years ago. What kind of historical comparison would you make?

JOEL KLEIN: Well, I do think it's a comparison to some of the most powerful and durable monopolies that have used monopoly power to protect themselves against competition. I think that any kind of simple comparison can really not capture the nuance and the complexity of what we've investigated here and turned up here. What I think is going on and what is certainly relevant to antitrust enforcement is they have enormous power over a bottleneck, which they can readily leverage and hurt competition and hurt consumers and really can drive up innovation because people are not going to bring new products to market; people are not going to invest the money it takes if they think along can come Microsoft, put a heavy thumb on the scale, and make it impossible to compete.

JIM LEHRER: Mr. Klein, antitrust cases tend to go on a while. How long do you anticipate this one will go on?

JOEL KLEIN: Well, first of all, we have moved for a preliminary injunction, and-

JIM LEHRER: That's to stop them from doing what they're doing now, I mean, through Windows 98, et cetera, right?

JOEL KLEIN: Well, not stopping them from releasing Windows 98, but from all these contractual limitations and all of the impositions they put on everybody else. That, I think, will be resolved in a reasonably short time. After that, we are prepared to go forward on full scale litigation. It could take several years. But this is an industry that's the future of America, and we are certainly prepared to stay the duration, to move the case as quickly as is humanly and reasonably possible. But, in the end, the most important thing is to make sure that people understand that there will be options, that the federal government will protect entrepreneurs, will protect innovation, and will protect competition. And we welcome the opportunity to bring our evidence to court and to prove our case.

JIM LEHRER: All right. Mr. Klein, thank you very much.

JOEL KLEIN: Thank you.

The Microsoft side.

JIM LEHRER: Now, a response from Microsoft. Jeff Raikes is group vice president for sales and marketing. Mr. Raikes, welcome. You heard what Mr. Klein said what you're doing is illegal and anti-competitive.

JEFF RAIKES, Microsoft: Well, certainly, one of the things I think is going to be proven in the courts is how important what Microsoft is doing in delivering the kind of capabilities that customers expect. In fact, we are not eliminating choices, as Mr. Klein as suggested. In fact, he glossed over the fact that hardware manufacturers today include Netscape Navigator on their systems if they so choose. That's just an example of how in our industry it's very possible for hardware manufacturers to configure the systems for their customers. And I think one of the things that also was not addressed by Mr. Klein is the importance of continuing to innovate and integrate those innovations to enhance the experience for computer users. See, that's really at the heart of the issue here, is what is it that's going to really help advance the cause of computing, and that's something that Microsoft's played a very strong role in for the last 25 years, and certainly that's the focus of our software development and what we're delivering to customers.

JIM LEHRER: Let's go to the specifics here, go back through what Mr. Klein just said. You turn on a computer now and your operating system comes up with options that he says restrict primarily to software that is Microsoft-oriented. You disagree with that as a basic premise?

"The hardware manufacturers define the experience of their products for the customer."

JEFF RAIKES: Yes. I think there are two important points there. First of all, the hardware manufacturers are able to customize the first screen. In fact, today in our press conference we showed five different computer systems that were purchased this past weekend, and we showed how each of those computer manufacturers did customize the desktop, customize the screen, the first screen for their users. And so that, in fact, is possible today. In addition, one of the things that I think is very important for all companies, not just companies in the technology industry, that they have the ability to define the experience of their products for the customer. For example, when you go into McDonald's anywhere in the world, you have a sense of what that customer experience is going to be like. When you buy an automobile, you have a sense of what that experience is going to be like-the steering wheel, the dashboard. It's very important that Microsoft focus in on the key elements of computing and make sure that customers have a consistent user experience. It's been proven over time in our industry that that's what customers are really looking for.

JIM LEHRER: Mr. Klein says that he has in the words of your own company executives the intent to monopolize, the intent to dominate, the intent to eliminate competition. Is he just making that up?

JEFF RAIKES: Well, certainly one of the things that Mr. Klein has done is he's taken just clips out of documents, and one of the things that we would agree with Mr. Klein on is the importance of the opportunity to present this evidence in a court of law, where the appropriate rules of evidence will be applied, as opposed to taking comments from documents out of context.

"We certainly think that the action by the Department of Justice and the state attorney generals is very unfortunate."

JIM LEHRER: Do you think you're being treated unfairly-Microsoft?

JEFF RAIKES: We certainly think that the action by the Department of Justice and the state attorney generals is very unfortunate, but, in particular, it's unfortunate if customers are affected by this action. Again, I would emphasize that what we really have to do is to continue to innovate in our software, integrate those innovations into the software. And that's what our focus is on. And we certainly hope that this unfortunate action on the part of the Department of Justice, this unfortunate action for American consumers of computing capabilities, and also taxpayers, because there's going to be a lot of money wasted by this action, we hope that it ends quickly.

JIM LEHRER: How unfortunate is it going to be for Microsoft?

JEFF RAIKES: I'm sorry.

JIM LEHRER: How unfortunate-well, you said it would be unfortunate for taxpayers and for computer users. How about for your company, how badly is it going to be hurt by this action

JEFF RAIKES: Well, of course, that will all depend on how this plays out, but certainly one of the things that we think is very important about what we do is how we integrate these innovations in for customers, and we certainly wouldn't want to see our ability to do that harmed. It would be very bad for the users of our products.

Punished for realizing the American dream?

JIM LEHRER: Do you think you're being punished for being successful?

JEFF RAIKES: We certainly think that it's ironic that in America, where freedom and the opportunity to focus in on building better products for customers is resulting in an action by regulators, who are basically saying that Windows should be less functional. In an era when Windows and the Internet is exploding, in particular the Internet is exploding, basically they're saying, make it harder for customers to get to the Internet, make it harder for customers to take advantage of Internet technologies, make it harder for software developers to take advantage of those Internet technologies as a part of the operating environment. Those are the kinds of issues that go at the heart of this case and why we feel very strongly that ultimately when we have our day in court, we will prove out that what we're doing is best for the customer.

JIM LEHRER: Well, you heard Mr. Klein, what he says, all he wants you all to do is to compete on the merits.

JEFF RAIKES: Yes. Once again, Mr. Klein has ignored the facts. The market share of Internet Explorer, our browser technology, grew dramatically when the industry, the independent industry reviews judged that our browsing technology had become the best in the industry. Up until that point in time we really hadn't gained much market share of usage of our Internet technologies. But when we produced the best Internet technologies-and I would point to this industry reviews as an example of the judgment of our technologies-that's when we really began to gain market share. Yet, even though we generally are viewed as having the best Internet technology, at this point in time we still don't have the highest market share. So we're going to continue to work harder to understand what customers want and continue to improve.

JIM LEHRER: But you deny that you are putting heat on computer makers to force them to put your browser in there and get Netscape out of there?

JEFF RAIKES: One of the things that we do not only for the computer makers but for the software developers and the users is to define Windows as an integrated set of technologies, and yes, because of the importance of the Internet, because customers want to simplify the Internet experience, we have defined Windows as including those Internet technologies. Mr. Klein objects to that, but that is an example of where, if we are forced to take those technologies out, it serves no real customer purpose. Earlier this year Mr. Klein asked the court to have us make an option available where we hide those Internet technologies. But the net result is no hardware manufacturers have chosen that option. And the answer to the question of why is because customers want to make it easier to have-to get to the Internet. And that's exactly what we're delivering.

The historical significance of the case.

JIM LEHRER: How do you folks at Microsoft see the historical importance of this, the question I asked Mr. Klein about comparing it to Standard Oil, the breakup of AT&T, you heard his answer, what is yours?

JEFF RAIKES: Well, it's interesting that Mr. Klein chose AT&T and Standard Oil to respond on, and he didn't choose the IBM case, which is widely viewed as an antitrust action that took 13 years, wasted millions of dollars of taxpayers' money, as well as millions of dollars of IBM's money, and served no useful purpose for the computing industry. The computing industry was judged to be competitive at that point in time. It's even more competitive today, and certainly we think that will be proven in court. I'm afraid for Mr. Klein that what he will find is that this action will be just about as successful as the IBM action, however, hopefully, it won't be as wasteful of taxpayer dollars as that action.

JIM LEHRER: What makes you so confident you're going to win, sir?

JEFF RAIKES: The main reason we're very confident is because we have spent 25 years really understanding what computer users want, what application developers, computer manufacturers want in the operating environment, and every day that is what our focus is. So we have a very strong understanding of how we're enabling much more the way of choice. We are helping the pace of innovation of this industry, and that's good for the customer; it's good for the American economy; and it's good for our leadership of the computer industry in this global economy.

JIM LEHRER: All right. Mr. Raikes, thank you very much.

JEFF RAIKES: Great. Thank you.

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