Microsoft Sweats Out Two Elections

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November 09, 2000 (12:00 AM EST)

By Paula Rooney and Darryl K. Taft,

Microsoft is sweating out not one, but two highly contested elections for which final votes are still being tallied.

Gates & Co. are anxiously holding out hope for a George W. Bush victory while also awaiting the results of the U.S. Senate race in the state of Washington, insiders said. In the U.S. Senate race in the state of Washington, Microsoft Corp. (stock: MSFT) backed the incumbent, Republican Slade Gorton, over former RealNetworks Inc. (stock: RNWK) executive Maria Cantwell, a Democrat.

According to a source in Gorton's office, the final vote may not be tallied for several days. Gorton, a fixture in Washington politics, has known the Gates family for decades and has connections to George W. Bush.

Both elections will likely influence the outcome of the company's antitrust case before the U.S. Court of Appeals, or ultimately, the Supreme Court, experts said.

"With Microsoft's case going to the court of appeals, there's no immediate impact [from the presidential election], but it's common knowledge that Microsoft would be better off under a Bush administration," said Jim Harper, a former counsel to the House Judiciary Committee who left in February to found a lobbying and consulting firm, Policycounsel.com. "For Microsoft, it's wait and see."

"Bush would be more receptive to settling the case under terms that are more favorable to Microsoft than prior government proposals," said Hillard Sterling, an antitrust attorney and partner in the Chicago law firm of Gordon & Glickson. "His comments, while vague, suggest skepticism towards allegation that Microsoft has harmed consumers or stifled competition."

Early Wednesday, Microsoft's stock rose on the anticipation of a Bush victory, then fell more than 3 percent during the afternoon -- along with many other high-tech stocks -- as the state of Florida continues recounting its votes through Thursday. That recount will determine whether Bush or Gore becomes the next U.S. president.

Microsoft officials refused to comment on the presidential election, but observers said the mood is tense on the Redmond, Wash., campus.

"We have no comment right now," said Vivek Varma, a Microsoft spokesman. "We are going to wait and see what happens."

Another Microsoft official, who asked not to be identified, said settlement of the case will be unlikely whomever wins the election.

"This case will be decided in the courts; it's pretty silly to think otherwise," the official said.

However, in an interview with CRN last spring, Gorton's spokesman said while Bush wouldn't necessarily drop the antitrust lawsuit against the software giant, he would push hard for a settlement more amenable to Redmond.

"The Clinton/Gore people got a lot of support from Microsoft officials in 1992 and 1996, and they're not likely to get much this time around," Gorton said during a phone conversation with CRN last June. "Microsoft's minimal activities were very substantially on the side of Democrats, but now, because of Clinton persecuting them, they are much more Republican. They're much more active now."

While Microsoft has publicly maintained a bipartisan stance and gave generously to both parties this year, the majority of its political contributions during the 2000 election cycle -- more than 55 percent -- went to Republicans, according to the Center for Responsive Politics.

Microsoft's $3.5 million contributions in individual PACs and soft money contributions in 2000 -- up considerably from the $237,000 given during the 1996 presidential election cycle -- tilted in favor of Bush and Gorton, officials reported.

"A lot of people say Bush will be easier on Microsoft, but Microsoft put a lot of money in the senate race, too," said Steven Weiss, communications director for the center, noting that the software giant isn't exclusively focused on the presidential election.

However, Microsoft, which contributed 45 percent of the $3.7 million to Democrats, has played it safe - unlike other executives such as Sun Microsystems Inc. (stock: SUNW) CEO Scott McNealy and Cisco Systems Inc. (stock: CSCO) CEO John Chambers who publicly announced support for Bush. In a recent interview with CRN, Microsoft president and CEO Steve Ballmer refused to budge on his presidential preference.

Observers said Microsoft's officers are playing it safe for good reason.

"The election will have an effect and a reevaluation of the antitrust case. The fact is, a new administration would have a new attorney general, but I don't think Gates sees this as his salvation," said Thomas Hazlett, a resident scholar at the American Enterprise Institute, noting that Microsoft was wise not to alienate Gore while the company's appeal stands before a higher court. "Gates is used to just giving his money to Democrats and now he's splitting it up more evenly. I don't see a Bush administration coming in and telling [the DOJ that he's] taking this case away; that's too heavy handed. I don't think it's that cut and dried to Gates."

Hazlett and others noted that Microsoft may not want Bush -- or any other politician -- to kill the case. Microsoft may want to continue to litigate, rather than settle, because of the tens of private class-action antitrust suits filed against the company after the U.S. District Court rendered a guilty verdict in the case.

In addition, a settlement would not only have to gain approval of a Bush-appointed U.S. Attorney General, but the state attorneys general that filed the case in conjunction with the Justice Department.

Robert Lande, an antitrust expert and professor at the University of Baltimore Law School, said a Bush victory would mean a less aggressive antitrust enforcement effort overall. Lande suggested a more likely scenario: a Bush administration would settle in and then propose a "wimpy conduct remedy" on Microsoft to "kill" the case.

But then you'd have the state attorneys general, whose leaders have been very aggressive in the case and who might "relish the role" of crusading for consumers against a company a federal judge has identified as a monopolist, he said

Lande said he would expect a Bush administration to reduce the budget for the Justice Department's and Federal Trade Commission's enforcement divisions -- which are already relatively low.

"Cases like Microsoft and Intel, which was even weaker, would very likely not be brought," he said. "I don't believe the Microsoft case would've been brought under Bush."

That said, however, Lande said he believes a Bush administration would find this case "harder to kill" than it appears. For example, any assistant attorney general for antitrust might have a hard time getting Senate confirmation if they took a soft stance on Microsoft.

"Political realities may stop Bush from making headway with a Microsoft deal," Sterling said. "A pro-settlement DOJ appointee would have a tough time winning confirmation before the Senate Judiciary Committee, which probably would oppose a deal and follow the lead of Chairman Hatch who has commented favorably on the government's case."

"It's certainly an open question," said Ken Wasch, president of the Software & Information Industry Association, Washington.

SIIA has written several briefs supporting the government's case against Microsoft. And Wasch points out that one of Bush's principal advisors is C. Boyden Gray, a powerful Washington attorney and Republican insider who formerly served as counsel to Bush's father during his administration. Gray signed a brief supporting Microsoft's agenda in the case.

"If Gray plays a key role in staffing, then we can expect a less aggressive antitrust division," Wasch said.

Lande identified two possible candidates for important antitrust positions in a Bush administration. One is Timothy Muris, a professor at the George Mason University School of Law. Muris was formerly director of the FTC's Bureau of Competition during the Reagan administration. Another possible candidate is Tom Campbell, a conservative California Republican congressman who lost a bid to unseat Sen. Dianne Feinstein Tuesday. Campbell also served as a director of the FTC's competition bureau during the Reagan era.

"There are three things Bush, or even Gore, could do when they got to office: Drop the case as happened with the IBM case -- my guess is that the states wouldn't get very far on their own so that would mostly be it; settle the case using one of the previous drafts from the mediation again most likely preempting the states; or decide not to appeal to the Supreme Court if the court of appeals goes against the government," said Jonathan Zuck, president of the Association for Competitive Technology.

At least two Wall Street analysts griped that the legal and political maneuvering will have little long-term impact on whether Microsoft can retain its leadership in the software market in the Internet era.

"People assume if Bush wins, that puts Microsoft in better position," said Drew Brousseau, an analyst at S.G. Cowen & Co., Boston. "I don't care about the DOJ case."