Overdrive, page 25
If Microsoft’s lawyers had wanted to confirm that description, they could have looked in the Almanac of the Federal Judiciary, in which lawyers anonymously give their opinions about judges. The almanac described Sporkin as “quixotic,” with a harsh and crusty courtroom style. “It’s a real carnival in his courtroom,” the almanac read.
Sporkin was the son of a federal judge in Philadelphia. He graduated from Yale Law School, and in 1973 he became the enforcement chief of the Securities and Exchange Commission, the watchdog agency of Wall Street. During his tenure there, the crusading Sporkin was nicknamed “Attila the Hun” in reference to his aggressive efforts to prosecute companies accused of offering bribes to foreign governments. He pioneered the use of consent decrees to force corporations to admit to the bribes.
During the biggest scandal of that decade—Watergate— the White House had pressured Sporkin to delay an investigation of financier Robert Vesco, who had secretly contributed $200,000 to the Nixon campaign. Sporkin refused. On the Watergate tapes, when Richard Nixon was heard complaining to John Dean about those “Jew boys” at the SEC, he had Sporkin, among others, in mind.
Sporkin’s boss at the SEC at that time was William Casey, and when Casey was named CIA director, he brought Sporkin along as the agency’s general counsel. President Reagan named Sporkin to the federal bench in 1984, but the nomination approval process dragged out for 18 months because of the reputation Sporkin had earned of being tough on business. Conservatives did not like him. Once he was on the bench, though, nhe became known as a judge who did not mind mixing it up with either prosecutors or defense attorneys, a sometimes loose cannon with an independent and iconoclastic judicial philosophy.
Sporkin presided over the Charles Keating lawsuit to overturn the government takeover of Keating’s Lincoln Savings & Loan, during which he told defense lawyers, “You’re not going to strong-arm this court.” He eventually took control of the case, grilling Keating for five hours, and accusing him of “looting” Lincoln funds.
On a cable TV monopoly case, Sporkin shot down lawyers for the cable companies with this remark: “Find out why we have to pay $5 a month for a remote control when we can buy one for $15. If that isn’t a monopoly, then I don’t know what one is.”
Despite his iconoclastic image, however, Sporkin’s judicial record did not show him to be a loose cannon. By 1992, the Legal Times, reporting on more than 350 opinions, found that Sporkin had been reversed 21 percent of the time on appeal, a figure only slightly higher than the 17 percent average for judges in the district.
When the consent decree against Microsoft landed in his lap, Sporkin was semi-computer literate—he had learned how to use a personal computer so he could play chess—but he knew next to nothing about Microsoft or the computer industry. On the advice of his son-in-law, who worked for Money magazine, Sporkin read a book about Microsoft while he was on vacation that summer. The book was Hard Drive: Bill Gates and the Making of the Microsoft Empire, by James Wallace and Jim Erickson, published in 1992 by John Wiley & Sons.
Sporkin held the first hearing on the Microsoft consent decree on September 29. It proved to be vintage Sporkin. “Maybe it wasn’t someone’s lucky day when I got this assignment, but I think I have a little experience in consent decrees,” Sporkin told Anne Bingaman. Although the hearing was open to the public, no reporters showed up, either because they didn’t know about it or because they assumed that the consent decree would get the usual quick-and-dirty approval.
But as Sporkin talked, it became clear that this case would be anything but the norm. Peering out over his glasses, the judge said he had boned up about Microsoft by reading Hard Drive. He said he wanted answers to troubling questions the book raised about the way Microsoft did business, which Sporkin said had not been addressed in the consent decree. He also noted: “I... thought it would be a good idea to know as much about Microsoft as they’re going to know about me.”
Addressing Bingaman, the judge said: “As I read the book, it doesn’t seem to be one that’s trying to be unfair. I mean, it seemed somewhat balanced. They [the authors] seemed to think that the company had done a lot of good things. But there are a number of practices ... things like putting out announcements that are misleading or not true to freeze the competition, and something called vaporware.. I don’t know what’s true or not. But if they are doing that, I think you ought to look into it.”
In addition to the issue of vaporware (products that don’t exist but are preannounced to forestall competitors), Sporkin said that he was concerned about another issue raised in Hard Drive: complaints by Microsoft rivals that the company’s applications developers had gotten inside information from the operating system developers, which gave Microsoft an unfair advantage. Sporkin told Bingaman he wanted these issues fully explored during the settlement hearings.
Vaporware would be a key issue for Sporkin in the months ahead. Vaporware was first brought to wide attention by Ann Winblad in 1982, long before she started dating the man whose company would become most closely identified with the practice. Then, Winblad had her own software company, and she had visited Microsoft to find out if it still planned to develop a version of the UNIX operating system, on which software produced by Winblad’s company ran. “Basically, it’s vaporware,” a programmer whispered to Winblad during her visit. She began spreading the word around the industry.
By 1985, Gates’s use of vaporware was so well known that he accepted the first Golden Vaporware award at the Alexis Hotel in Las Vegas, to the strains of the song “The Impossible Dream.” The mock award was presented for Windows, which had been announced two years earlier and still had not been released.
The practice of preannouncing products was widespread in the industry, though Microsoft seemed to do it more often than others, and when industry giant Microsoft preannounced a product, there was a chilling effect on the competition.
At the second hearing on November 2, Sporkin again focused on the Microsoft business practices that he had read about in Hard Drive. “ [The authors] cite chapter and verse,” the judge told Bingaman. “I want to be satisfied ... that, in fact, the person was writing fiction,” said Sporkin.
Bingaman’s staff was aggressively examining Microsoft’s proposed purchase of Intuit, in part by soliciting responses to the merger from banks and the computer industry. Among those contacted was Silicon Valley technology lawyer Gary Re- back. He was known to Bingaman’s staff because of briefs he had filed with the FTC, urging it to take action against Microsoft.
What separated Reback, 45, a native of Knoxville, Tennessee, from other attorneys in the case was his technical background. He had worked his way through Yale as a computer programmer, received his law degree from Stanford, and later joined the Palo Alto firm of Wilson, Sonsini, Goodrich & Rosati, one of the biggest in the Silicon Valley, with more than 300 lawyers. Its founder, Larry Sonsini, was an influential member of Novell’s board.
At the time Microsoft announced it was buying Intuit, Re- back was defending Borland in the copyright suit that had been brought against the company by Lotus. When Bingaman’s staff asked Reback if he wanted to weigh in on the Intuit merger, he agreed, and began by asking some of Microsoft’s competitors if they wanted to finance a white paper opposing the merger, which was filed with the Justice Department in November.
There was widespread speculation in the industry press at the time that Sybase helped fund Reback’s white paper, though the company denied it. Sybase, which produced database software for tracking corporate information, was starting to lose market share to Microsoft and saw the Intuit merger as a giant nail in its coffin. “Sybase freaked out when Microsoft announced it would buy Intuit, and secretly paid Gary,” said a well-known industry executive who had firsthand knowledge of the payment.
As part of the Intuit deal, Microsoft announced that Novell would buy Money, Microsoft’s finance software program that trailed in market share far behind Intuit’s Quicken. Microsoft knew the merger with Intuit would never pass legal muster if it held on to both products. Gates convinced Novell CEO Bob Frankenberg to take Money off Microsoft’s hands. Frankenberg, who had replaced Ray Noorda when he resigned after his 70th birthday, had met secretly with Gates in the summer of 1994 to patch up differences between the two companies. Gates guaranteed Frankenberg that Microsoft would pay Novell millions of dollars if Money bombed. Once the Intuit merger was announced, however, Novell was roundly criticized for taking Money. Frankenberg looked like a patsy.
“What the hell did Novell think it was doing?” asked Philippe Kahn. “It was absolutely amazing. What Novell did was legitimize the Intuit deal, which should never have been legitimized.”
In late 1994, Novell’s legal counsel visited with Bingaman’s staff and quietly urged them not to approve the Intuit merger. But if they did, the lawyer said, Novell wanted Money.
Kahn saw the Intuit deal as another example of Microsoft’s hegemony, and of Gates’s ambition to control the industry. “At the time, I felt the only thing that was going to stop the guy was his ego,” Kahn said of Gates. “He’s got a shitload of it. You sit down and you listen to this little prick going on about how he’s going to put everybody out of business. ... It’s not right, for the industry, for the customers In an industry that is growing as fast as ours, why is nobody making money but Microsoft? Something very bizarre is going on at the top.”
After writing his white paper opposing the Intuit merger, Reback went to Lake Tahoe with his family for the Christmas holidays. While there, he was contacted by a journalist who asked him about the two hearings Sporkin had held on the consent decree. At the time, Reback did not know what had taken place at the hearings, so the journalist faxed him transcripts. Reback immediately realized that the consent decree was in the hands of a judge who might actually reject it, so he cut short his Tahoe trip and rushed back to his Palo Alto office and faxed copies of the transcripts to several companies, asking if they wanted him to prepare a brief urging Sporkin to reject the settlement. Although three companies signed on, they told Reback that they feared retaliation by Microsoft and did not want to be named.
Fortune reported that the three companies were Apple, Sybase, and Sun Microsystems. But the same industry executive who had reported that Sybase had underwritten Reback’s white paper on Intuit said that Novell, not Sun, paid Reback. Executives of Apple, Sybase, and Sun would neither confirm nor deny that they were involved. Novell also denied paying Reback.
Under the Tunney Act, the public could comment on the consent decree for 60 days, in this case, until October 18, 1994. By that date, only five comments had been received, none of them of any significance. But when Sporkin delayed the third hearing, which was scheduled for December, to January 20, Reback won the time to file his brief, which he did on January 10.
In obtaining documentation for his brief, Reback got help from Borland. In 1987, Microsoft had filed suit against Borland when one of its executives went to work for Kahn. Microsoft was worried that the executive would reveal trade secrets and wanted the court to restrict the executive’s new duties at Borland. The court papers filed by Microsoft contained the “stick it to Philippe” note along with another one that revealed that Microsoft had preannounced a vaporware product to hold off buyers of Borland’s Turbo Pascal. Obviously in 1987, Microsoft had no idea that those papers would come back to haunt it big time.
On Friday, January 20, Sporkin held the third and final hearing on the consent decree. It was exceedingly acrimonious. All of the frustration and anger that Anne Bingaman had felt since the first hearing in September boiled over. She and the judge clashed repeatedly during what turned out to be an eight-hour shouting match in a courtroom packed with lawyers, many representing Microsoft’s competitors, who had come to watch the action.
Bingaman started the hearing by asking Sporkin to approve the consent decree, to which Sporkin quipped, “Will the government give me a pen to sign or can I use my own? I’ve got to have some role here.”
She then urged Sporkin not to substitute his judgment for that of the Justice Department, which had spent considerable time investigating allegations against Microsoft. “Unfortunately,” said Sporkin, “I took this role very seriously, and I got involved in this case. And that’s my problem: I got too involved in this case perhaps. But there are certain things that are gnawing at me.” Sporkin demanded to know why the Justice Department had not taken a tougher stand against Microsoft and more thoroughly investigated the numerous allegations.
A lot of finger pointing and table banging ensued. “I don’t think this decree is in the public interest,” said Sporkin, waving his finger at Binguman. "I'm the prosecutor, you’re the judge," Bingaman responded, pounding the table. “I decide what makes out a winning case, and if I don’t want to file it, nobody can make me!” Sporkin accused Bingaman of “stonewalling” the court. “I’m not!” she fired back.
Much of the hearing focused on the vaporware documents that Reback had recently submitted with his brief. Sporkin felt that Microsoft had misled the court by claiming it did not have any documents regarding vaporware.
Sporkin referred to Microsoft’s lawyers as LLFLS—lawyers looking for loopholes. “You can stand on your head. I cannot accept your word anymore. You have lost your credibility” Sporkin told Microsoft lawyer Richard Urowsky.
Sporkin also said that the note, which Reback had entered into evidence, about Microsoft trying to block Borland’s Turbo product with vaporware was “as close to a smoking gun as you can get.” To which Urowsky retorted that the practice of promoting products before they were ready for market was common in the industry. “If these documents are supposed to be a smoking gun, then there is no conceivable case to be made here.” Urowsky also argued that the documents did not prove illegal conduct.
Sporkin would not let the point pass. He called the documents “conspiratorial.” Replied Urowsky: “Your honor, it’s called competition. It’s the very heart of a free market economy.” “I cannot accept your word,” Sporkin shot back. “This is a trusting judge ... but you’ve lost your credibility.”
Before the hearing adjourned, Bingaman urged Sporkin not to accept any more submissions in the case from other parties. Answered Sporkin: “If somebody throws over the transom ... some more documents like those that Reback gave me, I’m not going to just say ‘Hey, I can’t see them,’ and throw them away. It would be like a police officer who gets a report of a crime and says ‘I’m off duty. Go and see somebody else.’ ”
More submissions did come in. Andrew Schulman, the programmer and writer who had complained to the FTC about Microsoft’s hidden features in Windows that developers for other companies were not told about, faxed a letter to Sporkin’s chambers saying he was opposed to the decree and that he had asked his publisher to send the judge a copy of his latest book, Unauthorized Windows.
On February 13, Sporkin received a startling three-page letter from Apple’s general counsel, Edward Stead, claiming that Gates, that very day, had had a meeting with Apple CEO Michael Spindler during which Gates said that Microsoft might stop developing applications for the Macintosh computer if Apple continued to develop a product called Open- Doc. “Since Microsoft is the largest supplier of software applications for the Macintosh, this threat was a serious one,” Stead wrote. The letter also claimed that in 1994 Microsoft had threatened to withhold a beta version of Windows 95 from Apple unless it dropped its copyright suit against Microsoft.
Stead would later tell Fortune how helpless he had felt when he read what Gates had to say about the settlement with the Justice Department. “Bill Gates had stated publicly that the settlement wouldn’t require Microsoft to change its basic ways of operating,” said Stead. “And a few days after that, he was on the evening news, golfing with President Clinton on Martha’s Vineyard. What were we supposed to think?”
The day after Sporkin received the Apple letter, he issued a 45-page opinion that the consent decree was not in the public interest. The federal judiciary had not handed down such a ruling since Judge Harold Green in 1982 refused to approve the consent decree breaking up AT&T until it was modified to help the Baby Bells.
“Simply telling a defendant to go forth and sin no more does little or nothing to address the unfair advantage it has already gained,” Sporkin wrote. If he had approved the decree, Sporkin said, “the message would be that Microsoft is so powerfull that neither the market nor the government is capable of dealing with all its monopolistic practices.”
Sporkin again criticized the Justice Department for not conducting a more thorough investigation before it settled the case. “The picture that emerges from these proceedings is that the U.S. government is either incapable or unwilling to deal effectively with a potential threat to this nation’s economic well-being,” Sporkin wrote.
Further, the judge said, Microsoft needed to grow up. “Microsoft has done extremely well in its business in a relatively short period of time, which is a tribute both to its talented personnel and to this nation’s great ethic that affords every citizen the ability to rise to the top. Microsoft, a rather new corporation, may not have matured to the position where it understands how it should act with respect to the public interest and the ethics of the marketplace.”
In the aftermath of his Valentine’s Day massacre of Microsoft’s consent decree, Stanley Sporkin became something of a judicial folk hero to Microsoft competitors, big and small, that over the years had yearned for someone to stand up to Bill Gates and take him down a notch or two. Although most antitrust experts predicted that Microsoft and the government would prevail on appeal because Sporkin had overstepped his authority by trying to get Anne Bingaman to bring additional charges against Microsoft, for the moment, Microsoft had suffered a resounding legal setback that was reverberating through the industry and giving hope to all those who lived in the shadow of the Silicon Forest giant.
