- More than 22 years ago, Microsoft cofounder Bill Gates faced off against Congress over issues of antitrust, not unlike tech’s biggest CEOs will do on Wednesday.
- The Senate Judiciary Committee questioned Gates, alongside a panel of his industry peers, on Microsoft’s dominance in the software market.
- Microsoft’s business practices ultimately led the Department of Justice to file suit against the company.
- A court initially ruled that Microsoft should be broken up into two separate companies, which Microsoft appealed. In the end, Microsoft settled with the US government, agreeing to changes its ways.
- But the court case had long-lasting impacts on Gates and Microsoft. It directly contributed to Gates’ early retirement, and Gates has said it’s the reason Microsoft’s smartphone ambitions failed.
- Visit Business Insider’s homepage for more stories.
More than 22 years ago, Bill Gates was sitting in the exact same position as Jeff Bezos, Mark Zuckerberg, Tim Cook, and Sundar Pichai: preparing to testify before a congressional committee on matters of antitrust.
In March 1998, Gates was called before Congress to address Microsoft’s market power and whether the company was abusing it. Gates appeared alongside a panel of his industry peers and was questioned on whether Microsoft unfairly took advantage its dominant position in the software market to break into other markets.
It’s hard not to draw parallels between Gates’ testimony and what we can expect to hear on Wednesday, when, for the first time, four of the nation’s most high-profile tech CEOs will testify together (albeit virtually). Even Gates appears to be reminded of his own grilling before lawmakers, telling CNBC’s Andrew Ross Sorkin on Tuesday, “It certainly reminds me of when I went in front of Congress. I wish them well.”
Here’s how Gates’ testimony played out, and what the end result of antitrust scrutiny was for Microsoft.
On March 3, 1998, then-Microsoft CEO Bill Gates came to Capitol Hill to testify before the Senate Judiciary Committee.
The committee, chaired by Sen. Orrin Hatch, convened a four-hour hearing to examine, as Hatch said at the time, "How market power works in the software industry and whether Microsoft is abusing its market power."
In his testimony, Gates promoted Microsoft as being at the forefront of technological advancement in the US, arguing that the question of whether the US would continue advancing at a "breathtaking" pace could only be answered yes "if innovation is not restricted by government."
Gates also downplayed the notion the Microsoft was becoming a monopoly in the software industry.
"In the end, the software industry, which contributed over $100 billion to the national economy last year, is an open economic opportunity for any entrepreneur in America," he said during his testimony.
Gates testified alongside a panel of industry peers, including Dell CEO Michael Dell, Sun Microsystems Chairman Scott McNealy, and Netscape CEO Jim Barksdale.
Gates had two opponents at the hearing, Barksdale and McNealy. Barksdale's Netscape competed with Microsoft when it came to web browsers - Microsoft made Internet Explorer, while Netscape made Navigator, then the top browser.
McNealy's Sun Microsystems had already filed a lawsuit against Microsoft the year before the hearing, alleging that Microsoft violated the company's licensing agreement by making changes to Sun's Java software that made it work differently. (The suit was settled in 2002.)
But during his testimony, McNealy denied that the issue at hand was Microsoft vs. Sun, or Microsoft vs. Netscape - it was a matter of antitrust. Microsoft, its opponents alleged, was expanding into new markets too quickly and needed to be stopped, otherwise it would strong-arm any competition in its path.
"Despite how some have painted the picture, the issue is not about one company versus another, or a personal battle between one CEO and another," McNealy said. "The issue is about protecting consumer choice in the marketplace. It is about protecting innovation. And it is about enforcing the laws of the land."
But on May 18, shortly after the congressional hearing, the Department of Justice and 20 US states filed suit against Microsoft, claiming the company had violated the Sherman Antitrust Act of 1890.
The DOJ alleged that Microsoft had a stranglehold on the software industry, forcing PC manufacturers to make Internet Explorer the default browser on their computers. Microsoft's actions, it alleged, stifled the competition.
When Gates gave his deposition months later, he was called "evasive and nonresponsive," as a CNET report described it at the time, so much so that the federal judge hearing the case laughed aloud in court when listening to Gates' answers.
The court ruled in April 2000 that Microsoft had violated the Sherman Act, and later ordered that Microsoft be broken up into two separate companies.
The judge ruled that Microsoft had actively tried to crush its competitors, including Apple, IBM, Netscape, Sun, and others. Microsoft immediately appealed the ruling.
Microsoft's appeal was successful. By June 2001, a federal appeals court decided to reverse the order to break up Microsoft and in September, the DOJ said it wanted to find a solution to the case instead of breaking up the company. By November, Microsoft and the DOJ reached a settlement.
The settlement imposed a strict set of restrictions on Microsoft, including the inability to force PC-makers to work exclusively with Microsoft. Microsoft was also required to share its APIs with software developers to allow them to make applications that worked with Windows.
What the settlement didn't do, however, was restrict Microsoft from expanding the features it included in its Windows operating system.
While the case ultimately had a better outcome for Microsoft than it could have, it still had long-lasting impacts on the Gates and on Microsoft's business.
Gates told CNBC last year that the case was a "distraction," and one reason why Microsoft's smartphone ambitions ultimately failed.
"There's no doubt the antitrust lawsuit was bad for Microsoft, and we would have been more focused on creating the phone operating system, and so instead of using Android today, you would be using Windows Mobile if it hadn't been for the antitrust case," Gates said at the time.
He went on to say that Microsoft was "so close" with Windows Mobile, but that he "screwed that up" because he was so distracted by the court case.
Gates also told CNBC that the case was a contributing factor in why he decided to step down as CEO in 2000 and let Steve Ballmer take over, and that he disagreed with the court's initial decision.
"I didn't think Microsoft should be broken up, I argued against it, and I wouldn't wish that on anyone," Gates said.