Hatch hearings: Now what?
Published: 04 Mar 1998 09:51 GMT
Tuesday's hearing before the Senate Judiciary committee could be just the beginning of a series of similar events, as Washington lawmakers clamor for publicity and trustbusters expand their investigation into Microsoft's business practices.
Senator Orrin Hatch (R-Utah) called the hearing to examine competitive practices in the software industry, inviting Microsoft Chairman Bill Gates, his competitors and his allies to testify. It's the second hearing on the issue, and more are planned.
The speakers lined up as expected. Sun Microsystems CEO Scott McNealy and Netscape Communications Chairman Jim Barksdale accused Microsoft of predatory practices. Dell Computer founder Michael Dell sided with Gates to defend Microsoft's market position.
McNealy called Gates the most "dangerous and powerful industrialist of our age." Gates told the panel one company could not possibly dominate the Internet. But some industry watchers said Gates'repeated denials and ducking of questions could spark further steps against the company.
"You can count on there being some additional action," John Fithian, a technology law attorney with Washington, D.C.-based Patton Boggs. "They're not impressed with Gates' denials, and they're not done yet," Fithian said of Judiciary Committee members.
During the hearing, Gates denied his company holds a monopoly of the desktop software market, even though Microsoft's market penetration exceeds 90 percent.
Having a monopoly is not, in itself, illegal. However, monopolies are subject to more strict regulation than non-monopolies to prevent them from predatory pricing and other anticompetitive practices.
Several senators joined McNealy and Barksdale in referring to Microsoft as a "monopoly." At one point, Barksdale asked attendees to raise their hands if they did not use a Microsoft operating system. No one did. "That's a monopoly," Barksdale told the panel.
Many senators didn't buy Gates' explanation that the software industry is different than all other industries because it moves so quickly that rivals can easily topple market leaders. "The leaders can be replaced more rapidly than any other business," Gates told the panel.
McNealy then chimed in: "I've never met a monopolist who didn't think that."
Hatch said his staffers had been told by Dell salesmen that they couldn't distribute Netscape. When the staffers asked why, one salesman said, "You know, I'm not quite sure. It has something to do with Microsoft."
There were also moments of high drama. In one sharp exchange, Hatch repeatedly asked Gates whether Microsoft's licensing agreements prohibited partners from advertising or promoting competing technology. Gates seemed to dance around a direct answer, couching his comments with phrases like "you're using legal terms that I'm not familiar with" and "not that I'm aware of."
Peter Sullivan, an attorney specialising in intellectual property and antitrust at Dunn & Crutcher, said Gates had to use such language to avoid being locked into one position. "Under oath, before Congress, he's stuck with it," Sullivan said. "If he changes his comments, he could be guilty of perjury." Sullivan said any direct statements on market share or other issues could be used against the company in later investigations.
Zona Research analyst Jim Balderston said the committee's focus on Microsoft puts additional pressure on the Department of Justice to possibly expand its investigation of the company's business practices. Currently, the DOJ is investigating only a 1995 consent decree preventing Microsoft from bundling Windows with IE.
"If there are a series of hearings, there will be actions in other parts of the government," Balderston said. He also thinks more and more lawmakers will jump on the issue after publicity generated by today's hearing. "The lesson Washington learned today is 'we can get headlines here by pushing these guys around,' " Balderston said.
But the approach could backfire. Although Barksdale, McNealy and Gates agreed on one issue - that regulation through legislation would stifle the industry - Sun and Netscape are asking for an expanded DOJ investigation.
"If the government can regulate Microsoft, there's nothing to say they can't regulate other players," Balderston said. "Who's next? Is Intel? Is Sun? Is Cisco?"
Alex Wellen of ZDTV contributed to this report
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