Gates: Microsoft no monopoly

WASHINGTON--Bill Gates pointed to his company's ability to leapfrog IBM, once considered a monopoly itself, as a reason why Microsoft should not be held to antitrust laws applicable specifically to companies that overwhelmingly dominate their industries.

"People who feared IBM were wrong," the CEO said today at a packed Senate Judiciary Committee hearing on competition in the computer industry. "Technology is ever-changing."

His rivals, however, disagreed. Chief executives Jim Barksdale of Netscape Communications and Scott McNealy of Sun Microsystems said Microsoft must be held to a different standard because of its market dominance. (See related story)

Gates, McNealy, and Barksdale on the congressional hot seat. (AP)

Today's hearing, dubbed "Market Power and Structural Change in the Software Industry," turned out to be more of a national platform for Microsoft and its political opponents than a broad examination of the high-tech industry. The hearing was called by Sen. Orrin Hatch (R-Utah), chairman of the Judiciary Committee, who in the past has been critical of the software giant's business practices. (See related story)

Gates, who sat next to McNealy on the panel, appeared relaxed and earnest during much of the testimony, despite the subject matter of the hearing. The chairman of the world's most powerful software company agreed to make the extraordinary congressional appearance to defend his empire.

"Microsoft does not have monopoly power in the business of developing and licensing computer operating software," he said during five minutes of prepared remarks before the committee. "As you know, a monopolist by definition is a company that has the ability to restrict entry by new firms and unilaterally control price. Microsoft can do neither."

He called it preposterous to think that a single company, even one as dominant as Microsoft, could control access to the Internet: "I can say without hesitation that it is not, nor has it ever been, the intention of my company to turn the information superhighway into a toll road."

Responding to questions later in the hearing, Gates said it is impossible for Microsoft to hold a monopoly in a market where products are conceived, marketed, and buried "in the span of a senator's" term. "This is a market where no one can restrict output," Gates added. "No company owns the factory for ideas."

Few participants, however, appeared to agree. Speaking to reporters after the hearing, Hatch said, "We heard that Microsoft is clearly a monopoly." While Gates dodged the issue, Hatch added, the company "will have to learn to live by the rules that govern monopolies."

Even panelist Stewart Alsop, a venture capitalist who defended Microsoft on a number of key issues, said Microsoft holds a monopoly on PC operating system software. Expressing an opinion that contrasted sharply with most of the other panelists and committee members--who stressed that current antitrust laws were adequate to rein in Microsoft--Alsop added: "I suspect that we may need some new precedent in the law."

Today's hearing marked Gates's first appearance before Congress. His remarks are being scrutinized closely as Microsoft continues to battle the perception that it has been arrogant and disrespectful in responding to the antitrust investigation headed by the Justice Department and supported by some two-dozen state attorneys general.

Those characterizations were not apparent at first. But, once the question-and-answer session started, Gates became more defiant.

In one of the most heated moments of the hearing, Hatch told Gates he was hard to nail down on one specific question relating to content partners for Microsoft's active channels--a push technology that delivers information automatically to users' desktops.

"Do you put any limitations on content providers that limit them, not from using Microsoft technology, but from advertising or promoting Netscape?" Hatch asked.

A number of other committee members had asked the same question, but were clearly not satisfied Gates was giving a straightforward answer. Gates's answers stated that the partners--many who create Web pages that can be viewed only by using Microsoft's browser--were free to develop content using competing technology.

Hatch spent five minutes asking the same question a number of different ways, only to get similar side-stepping responses, when at last the answer was drawn out.

Microsoft's channel partners are restricted from advertising Netscape products on the first screen that comes up on the computer after clicking on a content partner's icon, Gates said, sounding slightly less composed than earlier. He added that Netscape products can be advertised or promoted on subsequent screens.

But while issues over exclusionary partnerships, predatory pricing were tossed around, questions about whether or not Microsoft held a monopoly appeared to be the main focus. The question is crucial, because under the Sherman act--which forms the cornerstone of U.S. antitrust law--monopolies are held to a different standard.

At one point, Hatch asked Gates point-blank whether his company held a monopoly, but the CEO again failed to give a direct answer. Instead, Gates discussed competition in the marketplace that could displace the software giant's market position in the future.

"Outside of this room and even members of this panel, you will hear how their products will replace Windows, how Java will supersede Windows, how the browser will turn into an operating system...You'll hear from IBM on its plans for operating systems, so there is competition," Gates said. "If your question is, 'Can any Microsoft product endure future competition, anything we offer today?' the answer is absolutely no."

Hatch then asked: "So your testimony is that Microsoft, with more than 90 percent of the market for personal computer operating systems, does not have a monopoly on the market and that the established [antitrust] rules do not apply?"

"I'm not going to say anything about legal issues," the billionaire executive responded. "I'm not an expert."

Citing from various publications that had quoted Microsoft executives--including Gates--Hatch asked the software giant's CEO if discussions of "cutting off Netscape's air supply" by giving the browser away for free was mere talk aimed at putting down the competition or an actual strategy in discussion.

"There's a lot of that [talk] in the competitive framework," Gates said. "At the end of the day, all we [in the industry] care about is doing great software."

Hatch retorted with, "They can't if there is predatory pricing."

Before entering the congressional chamber, Gates posed for photographs with Sen. Slade Gorton of Washington state, where the company's headquarters are based in the Seattle suburb of Redmond. Then, during his remarks, Gates reminded reporters that he was a congressional page as a teenager. He said he decided that the political life wasn't for him and founded Microsoft instead.

The Justice Department has charged that Microsoft holds a monopoly in

Sen. Mike DeWine (R-Ohio) greets Gates on Capitol Hill. (AP)

the market for PC operating systems and has accused the company of violating a 1995 court order that was aimed at increasing competition in the software industry. Microsoft has steadfastly denied any wrongdoing.

Hatch asked whether there is a danger of a monopoly power that could stifle the unprecedented growth of the computer industry, which has driven much of the world's economy: "Is there a danger that monopoly power could be used to stifle innovation in the U.S. software industry today, and perhaps more importantly, looking forward?"

Sen. Patrick Leahy (D-Vermont) said Congress should look at existing antitrust laws in reviewing the industry's business practices. The committee member said Congress's role is to "follow principles first, not impulses."

Sen. Mike DeWine (R-Ohio), chairman of the Senate Judiciary antitrust subcommittee, said he wants to ensure that every competitor has an equal chance to bring a product to market.

"The promise of the Internet is breathtaking," he added. "The question is how to keep the door open to everyone."

Dan Goodin reported from Washington and Dawn Yoshitake from San Francisco. Reuters contributed to this report.