Gates Finds Few Friends At Hearing Senators, Rivals Skewer Microsoft

Microsoft Corp. Chairman Bill Gates was assailed Tuesday by business rivals and lawmakers at a packed Senate hearing for squelching competition in the computer industry. When it was over, the panel’s chairman branded the software giant a monopoly and warned that Microsoft “will have to learn to live by the rules that govern monopolies.”

The contentious four-hour Senate Judiciary Committee hearing - equal parts political circus, technology tutorial and legal interrogation - signaled a new, more public scrutiny of the software giant’s role in the economy, with supporters lauding its innovations and critics warning of a business juggernaut that could thwart new ideas.

Microsoft, whose Windows operating system software runs more than 85 percent of personal computers, has a “monopoly (that) has led to fewer choices, raised costs and stifled innovation,” charged Scott McNealy, chief executive of Microsoft rival Sun Microsystems Inc.

McNealy and James Barksdale, chief executive of another Microsoft competitor, Netscape Communications Corp., called for a more vigorous application of antitrust laws against Microsoft, which they accused of using its market power to control commerce and content on the Internet and to dominate software for interactive television, hand-held computers and powerful back-office machines.

Gates delivered a spirited defense, saying government intervention, not his actions, threatens technological innovation.

“The software industry’s success has not been driven by government regulation but by freedom and the basic human desire to learn, innovate and excel,” Gates said, sitting to the front of his seat, his voice shaking slightly. “Will the success of this industry continue? I believe the question can be answered resoundingly ‘yes’ - if innovation is not restructured by government.”

The hearing comes as the Justice Department and 11 state attorneys general are examining new legal moves against the company. The Justice Department last fall filed a limited lawsuit over Microsoft’s tactics in distributing its Internet-browsing software, but now is considering bringing a broader anti-trust case that would accuse the company of monopolistic conduct that violates the Sherman Act, sources close to the investigation have said.

Gates scoffed at the notion that any one company could control the Internet, saying the medium is too large and diverse to be corraled.

“They are now a monopoly,” Committee Chairman Orrin G. Hatch, R-Utah, said after the hearing. Asked if the Justice Department should expand its case, he said, “It looks like they probably should.”

Microsoft said Tuesday night it will drop a feature from new versions of its Internet-browsing software that allows users to quickly connect to World Wide Web sites selected by Microsoft.

The feature, called “Active Channels,” is being investigated by the Justice Department because of allegations that Microsoft is using the technology - which is installed on every new Windows-equipped computer - to unfairly favor certain Internet content providers.

The company last week decided to allow about 40 Internet service providers listed on a menu in Windows 95 to promote browsers made by companies other than Microsoft, specifically Netscape’s Navigator.

Hatch, who counts among his constituents Novell and other Microsoft competitors, has emerged as one of Gates’ most outspoken critics on Capitol Hill. Although Hatch insisted Microsoft was not the sole focus of the hearing, Gates and his Redmond, Wash.-based company clearly were.

Gates, who was escorted to the hearing room by Washington state’s two senators, Patty Murray and Slade Gorton, found himself on the defensive for the whole proceeding, deflecting questions not just from committee members but from competitors, who were given license to spar with each other. “Mr. Gates was clearly on the hot seat,” Hatch said.

Hatch repeatedly asked Gates if Microsoft’s large market share of operating system software means the company has monopoly power. Gates refused to concede the point, telling Hatch that the products he makes “have a short life” and could be replaced with new technologies in a few years.

Although Gates was pilloried inside the hearing room, the world’s richest man showed off his star power as he walked through the marble lobby of the Hart Senate Office Building. A throng of teenage girls on a school visit squealed and waved to him, autograph seekers descended and a horde of camera crews followed.

At other times, the questioning had laserlike precision. Hatch zeroed in on Michael Dell, founder of Dell Computer Corp. and a Gates ally, asking why his company does not offer Netscape’s Navigator browser to consumers buying a computer.

“Does this have anything to do with your Microsoft license?” Hatch asked Dell. When Dell said it did not, Hatch asked: “Could you explain why, when committee staff called Dell’s 1-800 number, five different sales representatives - George, Brad, Jason, Bobby and Jeff - told them that Dell could not distribute Netscape because of Dell’s licensing agreement with Microsoft?”

Dell said he offers the Netscape browser to “large customers who demand it,” but not to individual consumers because it is “widely and freely available on the Internet” and because the company does not believe there is enough demand for the product. At that, Hatch shot back, “How do you know what customers want if you don’t offer choice in the first place?”