Gates: `Not A Monopoly' -- Rival Brands Microsoft Chief As `Dangerous Industrialist'

WASHINGTON - Bill Gates defended his company today before a skeptical Senate committee and some openly hostile competitors, one of whom, sitting right next to Gates, called the Microsoft chairman "the most dangerous and powerful industrialist of our age."

Gates countered that Microsoft is not a monopoly and that someone could topple him just as he once brought down a "colossus" called IBM.

But senators sharply questioned many of Microsoft's business practices, implying the company seeks to bully competitors out of the marketplace, and some suggested Gates' insistence that his company is not a monopoly does not stand up to basic logic.

"You have nearly 90 percent of the market for operating systems - clearly a monopoly, and probably a legal one - and yet you refuse to concede it," said Sen. Herb Kohl, D-Wisc. "With profit margins of 30 percent or more, you have a huge incentive to maintain and extend that monopoly."

And late in the day, the chairman of the Senate Judiciary Committee, Orrin Hatch, R-Utah, accused the company of practices he said are clearly illegal, such as giving away its Internet Explorer Web browser in an attempt to undercut its chief browser rival, Netscape Communications.

"That sounds like predatory pricing to me," Hatch said, at one point becoming angered with what he characterized as Gates' circuitous answers to questions, including the same question repeated by Hatch more than a half-dozen times.

Gates shot back that it appeared Netscape had fed Hatch questions and negative statements about Microsoft prior to the hearing, and that Hatch was dutifully repeating them.

In a series of testy exchanges, Gates squabbled with two of his chief rivals, Netscape's Jim Barksdale and Sun Microsystems' Scott McNealy, both of whom accused Gates of abusing his market power.

Both CEOs offered a list of abuses, from Microsoft's decision to give away its Internet Web browser, to contracts it signs with Internet providers and computer companies that critics say exclude competition by guiding customers to use more Microsoft software.

"It's predatory and exclusionary," McNealy said. "It's clear that the best product doesn't always win."

McNealy called Gates "the most dangerous and powerful industrialist of our age," and said he was fighting him because nobody else will. He also revealed that Sun Microsystems is considering filing its own antitrust lawsuit against Microsoft.

But Gates fought back, declaring that competition right now is fierce even in the arena of computer operating systems, the very area with which the company enjoys such dominance with its Windows 95.

"If your question is, can any Microsoft product endure future competition, anything we offer today, the answer is absolutely no," Gates defiantly told a skeptical Hatch, who presided over the hearing. "Our company does not get its strength from any particular product."

A case of `sour apples?'

The CEOs engaged in a spirited debate about their high-tech industry, leaving some senators wondering what to make of it all.

"Is this all just sour apples?" Sen. Ted. Kennedy, D-Mass., asked Gates. "How should we evaluate the comments everyone is making?

"What is it? Do they just not measure up? Do they just not hire as many smart people as you do?"

In response, Gates again referred to the well-known story of how he worked out of his college dorm room to start the company that now has such influence in the software world.

"When I decided to create Microsoft, I did not call up IBM and ask, `IBM, is there a place for a company that sells hundreds of thousands of operating systems?' I would suggest anyone who would operate that way is not much of an entrepreneur.

"The people who feared IBM were wrong," Gates said proudly.

As the testimony started 3,000 miles away, the early-morning flow of Microsoft workers began streaming onto a damp Redmond campus. For months, employees have reported to jobs developing software and making deals as Gates, lawyers and the company's media team have taken the company's message beyond the campus.

Today, few of those approached in campus parking lots were willing to share their thoughts about the doings on Capitol Hill.

"I follow it a bit, but I've got a job to do," said one veteran employee who said he caught some of Gates' testimony before heading to work.

The war of words between Gates and his software rivals began escalating yesterday, as Netscape's Barksdale said Gates' constant refrain about Microsoft's need to innovate was "baloney" because the company rips off most of its ideas from elsewhere.

"They copy Netscape, that's what they do. You call that innovation?" raged Barksdale, speaking at a press briefing.

Justice hires expert

Also yesterday, U.S. Justice Department officials revealed they may be a step closer to filing an antitrust suit against the company. They have decided to deputize a nationally renowned attorney to work on a team that has been reviewing whether the software giant is abusing its market power.

New York attorney David Boies, an antitrust expert who has been working as a consultant on the Microsoft case since December, now has been hired as a special assistant attorney general, meaning he could personally represent the government in court and sign legal papers in any future case.

No decision about filing a case has been reached, Boies said yesterday. But a key part of the ongoing investigation will be examining Windows 98, Microsoft's new operating-system program due to be released this summer, Boies said.

The Justice Department already is in litigation against Microsoft over the latest versions of its Windows 95 operating system that integrates the company's Internet Explorer Web browser. The government has alleged that integration amounts to product bundling and is aimed at stifling competition in the Web-browser market where Microsoft is making big inroads against the Netscape Navigator browser. Microsoft controls 85 percent of the market in personal computer operating systems.

Yesterday, 27 states (not Washington state) chimed in against Microsoft, filing a friend-of-the-court legal brief in the D.C. Court of Appeals, backing the gist of the government's investigation.

Public showdown at hearing

While legal maneuvering will continue at all levels, the main event of the week was the public showdown of software business rivals before today's committee, which itself has been investigating some of Microsoft's business practices in recent months.

The hearing was designed for fact-finding only, Hatch said, not to beat up on Microsoft.

In a written statement to the panel, Gates lauded the growth in the computer industry and then denied in the strongest terms yet that his company is a monopoly.

"Let me be very clear on this point - Microsoft does not have monopoly power in the business of developing and licensing computer operating systems," Gates said. "A monopolist, by definition, is a company that has the ability to restrict entry by new firms and unilaterally control prices. Microsoft can do neither."

Barksdale and McNealy said Gates' protestations were laughable. Microsoft, like any monopolist, is able to use its power in the marketplace to force its products on users, they said, as well as to radically manipulate prices to drive competitors out of business.

Both noted that Netscape was able to charge for its primary product, its Internet browser, until Microsoft began giving its Internet Explorer away for free. Now Netscape also is giving its browser away free of charge.

"It's extremely predatory and anti-competitive," Barksdale said. "It's not only illegal, it's unethical."

"You have to admit - the cost of a browser is probably greater than zero dollars," McNealy said.

Are actions illegal?

In an interview, the government's antitrust expert, Boies, said it's clear Microsoft's actions have hurt its competitors, but the question remains whether those actions are illegal.

For his part, Gates told the committee today that it's a myth Microsoft is trying to take control of 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," he said. "It's preposterous to think that any one company could ever control access to the Internet."

In an online diary Gates is writing for the cybermagazine Slate, he said he has to stop himself every time he is asked about the company controlling the Internet because "while I know that people mean well, the idea of Microsoft controlling the Internet is crazy."

Today's hearing, titled "Market Power and Structural Change in the Software Industry," featured Gates; Barksdale; McNealy; Michael Dell, CEO of Dell Computer; Doug Burgum, CEO of Great Plains Software; and Stewart Alsop, a venture partner with New Enterprise Associates in Northern California.

Seattle Times business reporter Thomas Haines contributed to this report.

Danny Westneat: 206-464-2772. E-mail: dwestneat@seattletimes.com

James Grimaldi: 202-662-7455. E-mail: jgrimaldi@seattletimes.com