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Brad Smith: A Long Way to Go

April 4, 2000 at 12:00 AM EDT


GWEN IFILL: We are joined by the company’s deputy general counsel, Brad Smith, in Seattle.

Good evening, Mr. Smith. You heard Joel Klein say that Microsoft has in effect strangled the dynamism of the Internet industry, of the entire Internet industry. What is your response to that?

BRAD SMITH, Deputy General Counsel, Microsoft: Clearly we are working in an incredibly dynamic industry today. There is four times as many software companies in the United States creating software for the desktop as there was in 1990 when Windows first became popular. There is more venture capital flowing into the Internet area, into the software industry than there has ever been before. Our industry has never been as dynamic as it is today. I think anybody who just looks at the financial pages of the newspaper or watches your program every evening can see the tremendous amount of innovation that is taking place.

GWEN IFILL: When Judge Jackson issued his findings of fact last year, a Microsoft spokesman told Margaret Warner on this program that you were now in the third inning of a nine-inning game. Now, that baseball season has begun, I feel I can bring that question to you again. What innings are we at now?

BRAD SMITH: Well, I think we’re probably just finishing up the third inning and we’re probably not even at bat in the fourth. This case still has a long ways to go. As Mr. Klein just mentioned, we still have to go through a remedies phase in the district court and after that there is the appellate process. There is the court of appeals and potentially there’s even the Supreme Court, so this case still has a long ways to go before it comes to an end.

GWEN IFILL: You heard Mr. Klein say, in fact, that he has not ruled out the potential of an interim penalty phase, something that would preclude whatever appeals process you are setting in motion here. Is that something you expect the government to do?

BRAD SMITH: We’ll take things one step at a time and we’ll wait for him to tell us what the government is going to do next.

GWEN IFILL: Well, let’s talk about the appeals process then. How long and at what cost are you prepared to take this appeal?

BRAD SMITH: Well, we really look at this from two perspectives. On the one hand, as we’ve said, we put an enormous amount of time and energy into trying to reach an amicable agreement in the case — in the mediation before Judge Posner. That would still be our preference. As Judge Posner said, it’s in the public interest that everyone reach an agreement on this important issue. At the same time, if we cannot reach an agreement, there is an important principle we are prepared to stand up for and we are prepared to litigate on appeal. And that is the right that we feel that we and every other company needs to have, the right to continue to add new features to products if consumers are going to benefit from the result.

GWEN IFILL: Your boss, Bill Gates, said yesterday that there is still a potential for settlement, or at least you’re always willing to come to the table. But were you, in fact, so far apart that the potential for settlement has now gone away?

BRAD SMITH: I think it’s too early to know. This, as I’ve said, is a long process. Unfortunately, we didn’t reach an agreement last week. Whether that will change and prospects will improve two months or two years from now, we’ll just have to take it one step at a time. Certainly we remain committed to reaching an agreement if that is possible.

GWEN IFILL: Big roller coaster at the stock market today. Were you at all concerned about the Microsoft sell-off?

BRAD SMITH: We look at our business and indeed every aspect of our business from a long-term perspective. We don’t focus on he impact of the financial markets on a day or a week. And, for that matter, what we really focus on is not the financial markets at all but how we need to work to develop better products, to bring to market a new generation of software that is going to take computers into the next stage of this Internet era.

GWEN IFILL: And, in fact, computers are changing so rapidly, is it possible that if you were to take this to the next logical steps of appeal up and up and onward that by the time there was any kind of final decision reached on this that, in fact, technology would have outpaced any kind of remedy?

BRAD SMITH: Well, certainly we’re seeing our industry continuing to change extraordinarily rapidly. And since this case was first filed we’ve seen all of these changes in the marketplace — the rise of new software operating systems such as Linux, changes in terms of AOL first acquiring Netscape and then acquiring Time Warner. The competitive landscape is constantly being reshaped, but I would agree with Mr. Klein that this case remains of great importance because fundamentally what it asks is what the rule of law should be. When should a technology company be able to integrate new features into its products? In our view, a technology company should be able to add a new feature if consumers are going to benefit from the result.

GWEN IFILL: I’m sorry, you and Mr. Klein do agree on the point this is a landmark decision but you agree for different reasons. In your case you think that the government is attempting to stifle innovation?

BRAD SMITH: What I’m suggesting is that we’ve enjoyed in this country over the last three decades a rule of law that has said that a company can always improve its products. It can always add new features into its products if consumers benefit from the result. That is fundamentally what the court of appeals said in June of 1998 in the first case involving Microsoft. That is what we hope ultimately the courts will rule in this case as well, because that is the rule that we think is going to continue to benefit consumers, and that is the rule that is going to enable the technology industry to continue to contribute to the country’s economic growth.

GWEN IFILL: But on the question of innovation, Mr. Klein said there is nothing in this decision — in Judge Jackson’s decision — which would deter Microsoft’s ability to innovate. Do you agree with that?

BRAD SMITH: We respectfully disagree with that point of view. I think it’s important to keep in mind that in the first case we had with the government, the court of appeals articulated a very clear cut rule, namely that a company can innovate if consumers benefit from the result. Yesterday’s decision took a fairly substantial step away from that rule. And we think it’s important to get back to that rule because that is the rule that will best encourage innovation — not a rule that asks courts to take a closer look and get more involved in scrutinizing the way technology products are designed.

GWEN IFILL: In addition to the Department of Justice and 19 attorneys general, are you prepared now for this ruling to result in a spate of private lawsuits?

BRAD SMITH: We’re certainly prepared for whatever litigation results. Indeed, after the findings of fact were issued, we saw a spate of private lawsuits. But fundamentally we believe that those cases don’t have any real merit to them. They are all based on a legal allegation that somehow the price of Microsoft Windows was too high when, in fact, if you look at the price of our products, they’ve been low, they have fallen even more over time and from a broader perspective what we as a company have done is turned a product that previously was sold in very low volume at a high price and turned it into a product that is sold at very high volume at low price. It has made computing accessible to every person in every home. That is something that consumers have benefited from and I think that is something that courts will recognize as they review these private lawsuits.

GWEN IFILL: There seems to be a competition now going on with the government on one side, you on the other side, all competing to say that I am the true voice of the consumer in this. How do you take that? I don’t know whether it’s a public relations strategy or a legal strategy for the next few steps. How do you take that and make that understandable to make your case that way?

BRAD SMITH: Well, first I guess I would point out that at least it’s good that we agree that it’s the consumer’s interest that should come first and foremost. Where we disagree is on how we can do the best job to make this industry work in the consumer’s interest. We think that we have an industry that is remarkably vibrant. It has made computers more powerful and less expensive. It’s made it possible for the large number of people in this country to have a computer in their home. We think that the law, the kind of legal rules that have encouraged this innovation should be allowed to keep encouraging this kind of innovation. We don’t think it makes sense to make a change and to ask the government to intervene in this industry and play a different role from the role that it has played over the last two decades.

GWEN IFILL: You are the company’s deputy general counsel. What kind of case do you think you have now on appeal?

BRAD SMITH: Well, we remain very confident about our case on appeal. We have always believed that all of the innovations we have undertaken have operated to the benefit of consumers. We took this case up on appeal once before. It was a slightly different context, but fundamentally the issues were the same, and when we did, that the court of appeals decided in June of 1998 in our favor. So we continue to have cause for confidence that the judicial system when it looks at all of those issues will conclude that the kind of outcome that we saw in 1998 is the kind of outcome that will best serve consumers in the year 2000 and beyond.

GWEN IFILL: Brad Smith, thank you very much.

BRAD SMITH: Thank you.