Bill Gates Blinks

Say what you will about Bill Gates--the man knows when to swallow hard and cut a deal. At first blush, the abrupt announcement last week that Microsoft had settled one round of its continuing dispute with the Federal Government--by agreeing to let PC makers remove the icon for the company's Web browser, Internet Explorer, from their machines' desktops--looked like abject capitulation. But as usual, the closer you look, the craftier the CEO's reasoning seems.

At issue was whether forcing PC vendors that license Microsoft's Windows95 to take Explorer as well constitutes product "tying"--a violation of the consent decree signed by Microsoft in 1995. After Joel Klein, the Justice Department's antitrust chief, reopened Justice's dormant suit against Microsoft, U.S. District Judge Thomas Penfield Jackson issued a preliminary injunction forbidding Microsoft to engage in Explorer strong-arming. This in turn produced Microsoft's infamously petulant response: offering to sell versions of Windows that didn't have Explorer but didn't work either. After showing in court that it took less than 90 seconds to disable Explorer using Windows' "Add/Remove" program, Jackson testily asked the company to explain why it was not in contempt.

Judge Jackson is a soft-spoken man, but when he talks he has the force of the federal bench behind him, so even Bill Gates listened--perhaps this time a bit too closely. In hearings two weeks ago, the combatants conducted an intricate dissection of the injunction's language. Jackson's prose demanded that Microsoft stop forcing vendors to include "any Microsoft Internet browser software (including Internet Explorer 3.0, 4.0, or any successor versions thereof)" on their Windows machines. O.K., Microsoft lawyers asked Justice, pointing to a long, obscure list of .DLL and .EXE program files, then which ones belong to Explorer and which to Windows95?

At that point, what had seemed like foolhardy grandstanding suddenly looked like a clever legal maneuver. The program called Explorer, Microsoft lawyers explained, no longer exists as an independent entity. Microsoft engineers have woven ever larger chunks of Explorer code into the fabric of the Windows operating system in the form of those .DLL files--miniprograms that link PC applications to the Net. The more intertwined Explorer and Windows become, the more fluidly Windows will adapt to the Web--which is why rivals are so eager to stop Microsoft from tying the two together.

But they may not get what they want. Jackson's vaguely phrased order merely told Microsoft to let PC makers remove Explorer's visible manifestation--that big blue e--from their desktops, not to erase all traces of Internet-related code from Windows, which by now may be impossible. Microsoft knew this and could have just asked Jackson to clarify his order.

But that is not Bill Gates' style. Better, he figured, to take Jackson at his sloppy word, appeal his order and let the results illustrate the court's ignorance. "It seemed absolutely clear to you," Jackson asked Microsoft V.P. David Cole in court, "that I entered an order that required that you distribute a product that would not work. That's what you're telling me?" Cole's stone-faced reply: "In plain English, yes."