Originally created 05/17/98

Microsoft, Justice talks stymied



WASHINGTON -- High-stakes antitrust negotiations among Microsoft Corp. and government lawyers collapsed Saturday, putting the Justice Department and at least 20 states back on a collision course with the world's most powerful software company.

The Justice Department said talks were not expected to resume.

After Microsoft delayed shipping Windows 98 to computer makers last week, a coalition of state attorneys general and the Justice Department also delayed filing antitrust lawsuits.

Coming into this weekend's high-stakes negotiations with government lawyers, Microsoft Corp. launched an unprecedented campaign to sway public opinion and pressure states and the Justice Department against an antitrust case.

Newspaper ads, public appeals by its allies, even a Bill Gates-led pep rally in Manhattan were harnessed toward one message: such a case would stifle innovation in America's booming high-tech industry to the point that delays in a software upgrade could hurt the nation's economy.

Results were a decidedly mixed bag.

And while some economists complained Microsoft's statements were wildly exaggerated, the company's toughest critics said its own claims proved their point -- that if action against Microsoft could truly devastate the economy, then the company clearly has too much power and influence.

But at least two states that had considered suing Microsoft -- Texas and Indiana -- backed out of the lawsuits last week or promised in those final days at least to delay any formal decision. In announcing the delay, the Texas attorney general's office pointedly noted the pressure from his state's computer industry at Microsoft's behest.

"The point of a lawsuit would be to protect the industry and ultimately the consumers," Ron Dusek, a spokesman for Texas Attorney General Dan Morales, said last week. "That would be to stimulate competition, or at least make sure there is competition.... But if the industry in Texas is telling us that they don't need or want our help, that they are able to compete, then what is the point of us filing a lawsuit?

Score one for Microsoft's relatively young public-relations machine.

Microsoft, based in Redmond, Wash., just outside Seattle, is learning to play the political game in Washington, too.

"Microsoft, very late in the game, realized that it's had to play in the capital," said Bradley Johnson, the technology editor for Advertising Age magazine in Los Angeles. "It's now trying to learn what most large companies learned long ago ... and Microsoft has had to learn this in Internet time."

The Washington-based Center for Responsive Politics last week reported that Microsoft was the No. 1 computer-company campaign contributor to federal candidates and parties in the 1997-98 election cycle, giving at least $298,000 -- not including $100,000 more given to Republicans in April.

The group said that represents a dramatic increase over Microsoft's contributions from earlier years. It ranked 16th among computer companies for the 1991-92 election cycle.

"Certainly, Microsoft for too many years thought there was only one Washington, the one where Redmond is," Johnson said, "not the one where the District is."

The pressure that Microsoft mustered during April and May clearly was felt most directly by the states, where elected attorneys general must be politically sensitive. In Texas, constituents include some of the nation's largest computer companies, such as Compaq Computer Corp., Dell Computer Corp. and CompUSA Inc. So far, the industry there has remained relatively inactive politically.

"In terms of direct influence, politically the sense is, they could really be players if they decided to get involved," said Bill Miller of Austin, Texas, a political consultant. "So, you have to be careful. The dog is asleep, and you want it to stay that way."

Indiana University had just signed a $6 million deal with Microsoft to make the company's software available free to all students, faculty and staff on eight of its campuses. Attorney General Jeff Modisett said his decision not to join the antitrust lawsuit against Microsoft was unrelated, that he was satisfied with the company's earlier decision to relax some of its sales agreements.

"I don't think it's fair to say we were 100 percent in and now we are 100 percent out," Modisett said last week. "It's a very serious issue, and it warrants extraordinary attention and investigation."