November 21, 2001 2:00 PM PST

Microsoft's lead lawyer retires

William Neukom, Microsoft's general counsel and head of government affairs, will retire after 22 years with the software giant, Microsoft announced Wednesday.

Neukom, 60, in recent years emerged as one of the key players in Microsoft's antitrust battle with the Justice Department and numerous states. Brad Smith, Microsoft's deputy general counsel, will succeed Neukom. Smith had been in the deputy position for five years.

Neukom said he felt comfortable leaving "this amazing client" now because of the strength of the legal team in place. In terms of the timing of the announcement, "We're in the midst of a strong product cycle, and we have made good progress in other strategic areas," he said in an interview with CNET News.com. "The planning for the new fiscal year starts in about two months, and I thought to do it in the most professional and productive way requires some lead time."

"Bill Neukom has been an extraordinary part of Microsoft's success and development for nearly a quarter of a century," Microsoft CEO Steve Ballmer said in a statement. "He has created one of the most respected and capable legal and corporate affairs departments anywhere in the world."

Smith, 42, will assume his duties early next year after a transition period. Neukom will remain in Microsoft's employ until July 2002.

In an interview with CNET News.com, Smith said Microsoft's legal team would begin reporting to him at the beginning of the year, and he will continue to report Neukom until he departs. After that, Smith will report directly to Ballmer.

"One of the things I bring to this job is broad experience working with government agencies around the world," Smith said. "I spent seven years in Europe, started my career in Washington, D.C., and really spent my professional career working with people who are in government."

Smith's transition period could be important, as Microsoft continues to fight legal battles on multiple fronts.

Earlier this month, Neukom's legal team negotiated a settlement with the Justice Department and nine of the 18 states involved in the antitrust suit. But that settlement still must be approved by U.S. District Judge Colleen Kollar-Kotelly, after a 60-day public comment period and 30 days for a response from the Justice Department.

At the same time, the nine other states and the District of Columbia are pushing forward with the case. They are expected to deliver a proposed remedy for Microsoft's antitrust behavior by Dec. 7. Microsoft has until Dec. 12 to respond. A formal hearing is scheduled to begin in March.

More immediately, Microsoft and lawyers representing about 100 private antitrust cases are scheduled to meet Tuesday with a federal judge in Baltimore to discuss a settlement announced early this week. If U.S. District Judge J. Frederick Motz approves the deal, Microsoft will commit more than $1 billion in cash, software, training and services to 14,000 schools over the next five years.

Across the Atlantic, Microsoft must prepare for hearings Dec. 22 to 23 before the European Union's Competition Commission. The European Commission is investigating whether Microsoft used its monopoly in desktop operating systems to gain ground in the market for server software. In late August, the EC expanded the case to include media player software.

Top of his game
Neukom started handling Microsoft's legal affairs in 1979, when he was a partner at the law firm headed by Microsoft Chairman Bill Gates' father. Neukom joined Microsoft in 1985, later amassing a team of nearly 200 lawyers.

During his tenure as Microsoft's chief legal counsel, Neukom beat Apple Computer in a seven-year case that alleged the software giant copied the look and feel of the Mac operating system's graphical user interface for Windows. In 1994, Neukom's legal team successfully negotiated a consent decree with the Justice Department and European regulators over alleged antitrust violations.

But in recent years, legal setbacks have haunted Neukom and Microsoft. During the high-profile antitrust trial with the Justice Department and state attorneys general, Microsoft faced increasing challenges to its credibility and business practices. Videotaped testimony by Gates and a later gaffe that made it appear Microsoft doctored videotaped evidence were two of the many low points of the trial.

"Most lawyers would say after seeing Mr. Gates' deposition testimony that Mr. Neukom has had a demanding, if not extremely difficult, client over the past few years," said Rich Gray, a Silicon Valley-based antitrust lawyer closely following the Microsoft antitrust case.

In his two-part ruling, U.S. District Judge Thomas Penfield Jackson found that Microsoft violated two sections of the 1890 Sherman Antitrust Act. He later ordered Microsoft broken into separate operating system and software application companies. Later, in a unanimous seven-judge decision, one of the most conservative appeals courts upheld eight separate antitrust claims against Microsoft. Still, the court threw out the breakup order.

In recent months, Neukom's legal team has snatched a series of victories at the settlement table. Earlier this year the company settled long-standing private lawsuits with Sun Microsystems and Bristol Technology.

"I think we are becoming much more proficient at finding common ground and settling differences without having to litigate all of them to the bitter end," Neukom said.

In July, Microsoft independently settled with New Mexico, notching down the number of states in the larger antitrust case to 18. Settlements with the Justice Department and nine states as well as the 100 private consumer cases concluded on terms favorable to Microsoft.

"I think the developments over the past few weeks, including the proposed, very tentative settlement of the private lawsuits, is an unbroken string of victories for Microsoft," Gray said. "Although they're not yet finalized, and there's a lot of hard work yet to be done, to get them to that stage--this is more akin to Michael Jordan retiring at the top of his game rather than someone leaving the battlefield in disgrace."

Neukom hasn't finalized his post-Microsoft plans yet, but he said he plans to remain active in the American Bar Association, to continue his role "as chair of the greater Seattle Chamber of Commerce," and to get in a little fly-fishing. "And I'm still a baseball nut," he added. "I love that game."

Forging ahead
Microsoft's biggest immediate challenge ahead could be Smith's legacy with the company. Smith said he will be very focused on making sure that Microsoft adheres to the consent decree hammered out between federal and state trustbusters. Kollar-Kotelly could approve the agreement, which would place a three-person oversight committee at Microsoft, by the end of February.

"It's obviously of enormous importance to the company to make this work well," Smith said. "It will require a lot of work to educate our employees. It will require good collaborative work with the people in the government agencies."

Microsoft also wants to "demonstrate through our actions people can have confidence in the work we're going to do to implement this consent decree," he said.

While Smith faces challenges ahead, the most important tasks will entail focusing on strategies already under way, Neukom said.

"Most of what the department has been doing will continue: establishing legal rights in the intellectual property created by our developers--copyrights, patents and licenses--and finding a way to get the technology out there at a reasonable return of our investment," he said.

"The offshore stuff is going to continue to be terribly important," he added. "That's where most of our revenue comes from; that's been Brad's best area of concentration. You also have the anti-piracy, anti-counterfeiting campaigns that, I think, are producing very good results for us."

Since joining Microsoft in 1996, Smith has worked with the company's sales and marketing groups, along with the software behemoth's subsidiaries in 81 countries. He has also worked with the Business Software Alliance (BSA) to curtail software piracy and counterfeiting. Smith currently is chairman of the anti-piracy group's board of directors.

"Brad Smith has a broad industry understanding, having worked in private practice and eight years or so at Microsoft," BSA Chief Executive Robert Holleyman said. Before joining Microsoft, Smith was a partner with Washington, D.C.-based law firm Covington & Burling.

"Right from the very start, he was a real talent, a real star," Jon Blake, chairman of Covington & Burling's management committee, said of Smith. "We were real sorry to lose him to Microsoft."

Before leaving the law firm, Smith worked on intellectual property and antitrust issues, lastly in London with BSA.

"He has worked internationally, not only with his company, but BSA and his prior clients with a broad cross section of companies in our industry," Holleyman said. "For Microsoft, it's good to get somebody with that level of experience."

Smith will also be charged with helping Microsoft move from a convicted monopolist to more convivial a role of working better with other companies and communities.

"This company is making a very serious investment in finding ways to be a leader and to encourage growth of the industry itself and our understanding between the customers, competitors and all of that as the industry matures," Neukom said.

Smith agreed, saying that along with complying with the consent decree, this is a top priority.

"The other top priority is to really strengthen our ties with the rest of the industry," he said. "One of the things we learned in the last few years is the importance of having stronger partner relationships in our industry and pursuing opportunities that makes it possible not only for Microsoft to succeed but lots of other companies as well."

 

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