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John M. Broder and Joel Brinkley, "How Microsoft Sought Friends in Washington," New York Times, November 7, 1999, p. 1.
Twenty months ago, Representative Billy Tauzin walked into the office of William H. Gates 3rd, chairman of Microsoft, bearing a 10 inch by 10 inch white box and a warning.
Mr. Tauzin, Republican of Louisiana and the chairman of a subcommittee that oversees the telecommunications industry, placed the box on Mr. Gates's desk. Inside was a lemon meringue pie, a reminder of another pie that had been thrown in Mr. Gates's face several weeks earlier by a Microsoft critic. The message to Mr. Gates, the richest man on earth and the leader of the digital world, was blunt: You need to make friends in Washington.
At the time of Mr. Tauzin's visit in early 1998, the Justice Department was contemplating filing its antitrust suit against Microsoft.
''I told him he was being demonized,'' Mr. Tauzin said in an interview. ''I said he had to win the antitrust case in court, but there was also the court of public opinion.''
Mr. Gates apparently took Mr. Tauzin's message to heart -- with a vengeance. While Microsoft and its executives contributed a relatively modest $60,000 to Republican Party committees in 1997, those contributions shot up to $470,000 as part of the company's overall political contribution of $1.3 million in 1998. The 1998 figure included donations to political candidates, with the bulk of the money going to Republicans. This year, the company's contributions of nearly $600,000 have been more evenly divided between Republicans and Democrats, according to Federal Election Commission records.
Microsoft's lobbying, focused on swaying Congress and creating a generally friendlier climate in Washington, has had little if any effect on the current antitrust litigation in Federal District Court, where the company was dealt a major setback on Friday by Judge Thomas Penfield Jackson's initial findings that it had used monopoly power to stifle competition.
Rather, the lobbying campaign is a long-term strategic push intended to alter the political terrain where future power struggles will be fought.
Campaign donations were just one element of Microsoft's multimillion-dollar effort to win allies in Washington. The company also poured millions of dollars into an aggressive public relations and political offensive, hiring an armada of well-connected lobbyists and underwriting the work of research groups, academics and consultants who have made arguments sympathetic to Microsoft's defense in the antitrust case.
The company's lobbying budget nearly doubled in 1998 from the previous year, to $3.74 million, according to the company's lobbying disclosure reports, and is on pace this year to significantly surpass that figure. Mr. Gates and his top lieutenants have made dozens of trips to Washington, cultivating powerful figures in both parties and hiring some of the city's priciest lobbyists. Microsoft has retained Haley Barbour, former chairman of the Republican National
Committee; Vic Fazio, a former Democratic congressman from California; Vin Weber, a former Republican congressman from Minnesota; Tom Downey, a former Democratic congressman from New York and a close friend of Vice President Al Gore; Mark Fabiani, former special counsel to the Clinton White House; and Kerry Knott, former chief of staff to Representative Dick Armey of Texas, the House majority leader.
Microsoft has also given hundreds of thousands of dollars to research groups, trade groups, polling operations, public relations concerns and grass-roots organizations. It has financed op-ed pieces and full-page newspaper advertisements, and mounted a lobbying effort against an increase in the Justice Department's antitrust enforcement budget.
In June, Mr. Gates met for lunch with the Republican leaders of the House in the small whip's room off the House chamber. They discussed Microsoft's public policy agenda, ranging from exports of encryption software to Internet privacy to antitrust actions, said several participants at the meeting. Mr. Knott, now a top official in Microsoft's Washington office, attended the session.
Eight days later, Mr. Armey introduced what he called his ''e-Contract,'' a list of Republican legislative initiatives that pointedly adopted Microsoft's view of the role of government antitrust actions, like the one that now threatens to dismantle Microsoft.
''When federal agencies use heavy-handed tactics to target specific companies,'' the Republican document states in language that echoes Microsoft's own, ''the real message they send to the market place is this: You could be next.''
Mr. Armey's aides insist the release of the document was just a coincidence and that Republicans had long opposed aggressive enforcement of antitrust laws. Microsoft officials also denied that they influenced Mr. Armey's priorities or his language. The package of Republican proposals is still before Congress.
Another Microsoft move on Capitol Hill drew criticism for heavy-handedness. Its lobbying to trim the antitrust division's budget brought a flurry of editorial condemnation. The Washington Post said Microsoft's actions were ''a comical caricature'' of a company trying to bully its way through Washington.''
One Justice Department official said, ''Even the mob doesn't try to whack a prosecutor during a trial.''
Microsoft officials acknowledge they came late to Washington. Mr. Gates long disdained the capital as an analog anachronism in a digital age and refused to devote time or resources to courting government leaders. That has now changed, in a big way.
''This is an industry that grew up in an unregulated environment and didn't pay much attention to Washington,'' said Jack Krumholtz, the 38-year-old director of Microsoft's Washington lobbying operation. He said that the rapid growth of the Internet raised many regulatory issues, from privacy to taxation to antitrust concerns. The government's growing
interest in Microsoft's business forced the company to increase its presence in the capital, Mr. Krumholtz said.
''The second reason we felt we had to ramp up was that it became apparent that there was a cabal, a handful of our competitors, that were really very aggressively engaged in a concerted campaign to lobby Congress, the Department of Justice, state governments to take action against Microsoft,'' Mr. Krumholtz said. ''They understood they couldn't beat Microsoft in the marketplace so they've chosen to turn to government to hamstring us. We were slow at first to appreciate that.''
Mr. Krumholtz defended the company's effort to trim the Justice Department's antitrust budget, which so far has been unsucessful.
The company has come up to speed very fast, recruiting a rapid response team of academics and trade organizations to serve as public spokesmen for the company. Microsoft gives money to the Brookings Institution, the Cato Institute, the Progressive Policy Institute and numerous other research organizations that publish papers and provide quotable experts on antitrust matters.
Microsoft has hired as consultant-spokesmen two former heads of the Justice Department's antitrust division and a dozen or more prominent academics and writers, who publish articles and give interviews advocating Microsoft's position.
Among them are Charles Rule, director of the Justice Department's antitrust division in the Bush administration, and Paul Rothstein, a professor of law at Georgetown University and frequent network and cable-television commentator.
Microsoft's opponents also hire prominent spokesmen. As an example, Robert H. Bork, the former federal judge, has served as a lobbyist for the Netscape Communications Corporation.
Netscape, Sun Microsystems and Oracle, three of Microsoft's biggest competitors, spend heavily on lobbying and campaign contributions and finance a group called the Project to Promote Competition and Innovation in the Digital Age to try to counter Microsoft's political and market power.
But Microsoft has an additional strategy. The company does its best to turn around or undermine some of the trade groups that have taken positions against it.
''Microsoft is continually trying to get my members to withdraw,'' said Ed Black, president of the Computer and Communications Industry Association, a trade group that has taken the government's side in the antitrust suit.
''Two big companies told me explicitly that they had to drop out because Microsoft made it clear'' there would be retributions if they did not, he said. And with only 30 members, Mr. Black noted, the defection of two is not an insignificant matter.
Mr. Black would not name the companies, and Rick Miller, a Microsoft spokesman, declined to comment on the charge. Oracle and Sun Microsystems are among the association's remaining members.
At the same time, Microsoft is a longstanding member of the Software and Information Industry Association, the nation's largest software-industry trade group, with 1,400 members.
Nonetheless, in February, the group's board of directors voted 12 to 2 to publish a 57-page document that seemed to advocate breaking up Microsoft, if the company was found to have violated antitrust laws.
Shortly after that, Microsoft invited the group's president, Ken Wasch, out to Microsoft's Redmond, Wash., campus for two days of discussion and ''worked very hard to change my mind,'' Mr. Wasch said.
When that did not work, Robert Herbold, Microsoft's chief operating officer, put himself up for election to the association's board of directors and won a seat last spring. One board member said Mr. Herbold also set out to have Mr. Wasch replaced as president, but ''he counted the noses and saw he didn't have the votes.''
Mr. Krumholtz said the association ''has been fairly vocal, and its leadership has been co-opted by competitors in an anti-Microsoft way.
''We may be one of biggest members,'' he added, ''and we feel strongly that an activity like that is not appropriate for an industry association.''
Microsoft has also set out to hire platoons of academics and former government officials to write op-ed columns and serve as spokesmen.
Ronald A. Cass, dean of Boston University's law school, is among them, and last week, a couple of days before the judge's findings of fact were to be published, he remarked, half-joking: ''I haven't received my marching orders yet. I guess I'll say that it's a travesty of justice or a great decision, depending on what comes out.''
Microsoft's paid spokesmen are so numerous and prolific that quite often they wind up quoting each other's work to support their arguments. For example, Mr. Barbour, whose lobbying concern earned $600,000 from Microsoft last year, wrote an opinion article for The Chronicle of Augusta, Ga., last December that offered the opinion that the American public opposed the government's suit. To support that, he cited the findings of a national survey published by two other Microsoft-financed groups: Citizens Against Government Waste and the Technology Access Action Coalition.
One Washington lawyer hired to advise Microsoft last year said that the company made a mistake years ago by not cultivating friends in government, academia and the media, and now appears too brazen in trying to buy favor.
''It's hard to do when you're in the middle of a problem,'' this lawyer said. ''I've told them they have to make friends before you need them, rather than after. They have taken a blunt ax approach to things in Washington.''
''They definitely didn't get it early on,'' he added. ''They still might not get it.''

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