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Thursday, June 3, 1999 Published at 22:00 GMT 23:00 UK

Business: The Company File

Microsoft: Fear and loathing in Redmond

No area of Microsoft has been unaffected by the trial

By BBC News Online's Kevin Anderson in Washington

The US Justice Department fought a 13-year battle with the computer giant. The company spent tens of millions of dollars each year defending itself.

This is not a hypothetical look into the future of the government's antitrust case against Microsoft, but rather a look back at the case against Big Blue, IBM.

It was the largest legal case of any kind ever filed, according to University of Baltimore law professor Robert Lande.

Computer industry analysts have looked at the case against IBM to see how a company fares under the intense pressure of antitrust litigation.

Embattled Big Blue

[ image: IBM battled the government for more than 40 years]
IBM battled the government for more than 40 years
Rob Enderle follows Microsoft for the market analysis firm Giga Information Group. Before becoming an analyst first with Dataquest and now with Giga, he worked for IBM.

In 1969, the government launched its third antitrust case against the computer and software company.

"At IBM, people got afraid to move. They were afraid to take risks," Mr Enderle said.

And Nicholas Katzenbach, the former US Attorney General who led Big Blue's defence, said that during the 1970s, IBM senior executives carried two briefcases, "one for company business and one for the lawsuit".

Four-front battle

But instead of one massive case, Microsoft is presently fighting four court battles including the government's antitrust case and a tax case.

The Internal Revenue Service alleges that Microsoft improperly claimed $16 million in tax deductions in the early 1990s.

Microsoft has a team of 80 outside attorneys working on the four cases, according to Richard Gray, a Silicon Valley attorney who specialises in intellectual property and antitrust law.

In what he termed as a conservative estimate, Mr Gray said that each attorney probably works on average 100 hours a month on one of the four cases and probably charges about $250 an hour.

Based on those estimates, the cases cost Microsoft $2m in legal fees each month.

"This is a tremendous legal burden for any company," he said.

The financial cost is a drop in the bucket for a company that reported it ended its last quarter with $21.8bn in cash reserves, but such cases take their toll on a company.

High-profile failure

"You have to believe when a certain cross section of (Microsoft's) executives are pulled in for testimony as gruelling as it is, it affects how they do their business," Mr Enderle said.

Microsoft executives, as have many of their peers in the business world, approached their appearances in court as they would a business presentation, he said.

"As a result, they failed miserably, ... and there is nothing like failing in front of the entire world to give you a sense of fear," he added.

Wake up call

[ image: Microsoft has become much more image conscious]
Microsoft has become much more image conscious
"I don't think there is anything in the company that has not been affected in some way", he said, but added that the trial has been good in some ways for the company.

"It opened their eyes to the fact that they had a problem in the first place", he said.

Before the trial, Microsoft had "a lot of people who were really good at concealing bad news", he said.

These managers blinded the company to the fact that it "had done so poorly with respect to customer satisfaction," he added.

Those managers are gone because as the company looked for people to testify on the company's behalf, "there weren't a lot of them that would say positive things about (Microsoft)", Mr Enderle said.

The company has worked to rehabilitate its public profile and its relationship to the government, both Mr Enderle and Mr Gray said.

"They are more aware of their need to have lobbyists (in Washington) and build relationships with members of the media," Mr Gray said.

A company on a leash

Microsoft may avoid being broken into separate business units, but it may face a worse fate, in Mr Enderle's opinion.

"If they don't derail this particular train, they are going to be a regulated company," Mr Enderle said.

He worked for IBM during its 40 years of operating under a government consent decree.

"Working for a regulated company is not a great deal of fun," he said, and added that the impact on Big Blue's business continued until only recently.

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