Microsoft Lawyer Holds Court

By eweek  |  Posted 2002-05-16

Microsoft Lawyer Holds Court

William Neukom, Microsoft Corp.s outgoing general counsel, has marshaled the software company through many legal storms, always sticking to his guns and adhering to the tenets of what he calls "old-fashioned lawyering." Neukom has been heading up Microsofts legal affairs for more than 20 years and will be leaving the company this summer after the current court hearing in Washington is completed.

The media-wary Neukom took the rare opportunity to sit down with eWEEK Senior Writer Darryl K. Taft for an on-the-record interview. While Neukom would not talk about such issues as the ongoing cases on the record or about sitting judges, he gave insight into Microsofts legal strategies and what makes the company tick from a legal perspective.

eWEEK:After the IBM antitrust case, [IBM] seemed to be extra cautious. In court, you guys have talked about the training thats going on to get the developers up to speed on antitrust issues. Do you see that as hampering innovation in any way?

Neukom:I think not fundamentally. Theres a challenge there. We are going to have to continue to devote resources to compliance with the decree. And to smart education and training of people to be sure that we do everything we can to avoid having these kinds of controversies in the future. But management of the company is very clear about taking our legal advice but maintaining a technology culture and not getting overly distracted—paying attention to, being compliant with the spirit and the letter of whatever decrees come into our lives, but not getting distracted from the first job of the company, and that is to create technology.

During the darkest days of this controversy, during the dark days of the some of the Apple [Computer Inc.] litigation when there were real threats that might have required us to take Windows off the market altogether, I think management was clear that they had to delegate that responsibility to law and corporate affairs and not take their eye off the ball.

eWEEK:Of all the cases Microsoft has had to engage in, which one was the biggest challenge?

Neukom:I guess youd say this [ongoing antitrust case] in the liability phase was. But at the time we were defending the Apple litigation, we were a smaller company. This was back in the mid-80s. The industry was even younger, and the stakes relative to who we were, were huge, because Apple was seeking to have us enjoined from continuing to improve and market Windows. And when you think of what Windows meant to Microsoft in the mid-80s, you realize what a jugular threat that was. And it was at a time when there werent very many cases that had sort of clarified how the law of copyright would apply to computer software.

So we were in a newer area of the law in some ways. Theres aspects of this case that involve, obviously, that are somewhat novel in terms of how does the Sherman Act [antitrust statute] apply to the technology business. But in some ways there was more pioneering involved in [the Apple] one because courts just werent as familiar with computer software. And we were gratified to find that in the course of taking the time to explain the technology and apply pretty conventional copyright law analysis to the facts, that both the District Court judge and then the Ninth Circuit by unanimous affirmation of the district judge, that we were fully vindicated.

eWEEK:It seems like all of a sudden youve got these restraints that you have to consider.

Neukom: No question, its a part of our docket of responsibilities. Not just complying, but also being sure that we do whatever we can to avoid getting into a controversy. We cant control that. Lawyers always tell their clients: "I cant tell you you wont be investigated or you wont be sued. What I can tell you is that as I read the law and give you this advice, at the end of an investigation or litigation you should not be held liable."


-Fashioned Lawyering">

Old-Fashioned Lawyering

eWEEK:Lets get into that. You mentioned old-fashioned lawyering. You took a lot of criticism in the liability phase of this case because you stuck to that principle of old-fashioned lawyering. Do you feel vindicated?

Neukom:I do think that there is a material difference between the result at the conclusion of the trial and the result in the wake of the Court of Appeals decision. Six causes of action were brought against us in the spring of 1998. All that survived the Court of Appeals was one cause of action. And that cause of action has two parts. The first part is, do you have a monopoly, do you enjoy monopoly power in the defined market?

The second question is, have you engaged in any conduct which, according to the Sherman Act, is anti-competitive to maintain that monopoly? And we argued zealously that we didnt think we had the monopoly power that the Sherman Act requires. And we argued at length about what the relevant market was, where our market power should be measured. And at the end of all of this we accept the Court of Appeals conclusion that we have monopoly power. In and of itself, A, thats not illegal, and B, thats not bad. That is what all companies want to have. And all the evidence is we got it the old-fashioned way, we got it by better technology, by hard work and, frankly, by some luck.

So weve achieved a monopoly position according to the Court of Appeals. We accept that. Then, having done that, though, the wisdom of the law is that if youve got that monopoly position, then youve got to be more careful how you do business. And there are those 12 acts. Out of the Court of Appeals decision comes their finding that there were 12 activities the company engaged in which constituted anti-competitive conduct and were enough to support a conclusion that we had engaged in maintenance of an otherwise legal monopoly.

All of the states and the federal government decided not to pursue the tying claim. And they all decided not to pursue the breakup relief. So if you look at where the company stood in May of 1998 when the lawsuit was filed and where it stood in the fall of 2001 in the wake of the Court of Appeals decision, [theres] a very material difference.

eWEEK: How much, if at all, do you think Judge [Thomas Penfield] Jacksons commentshelped you?

Neukom:I think that the single most important event in the liability phase was the decision not to afford Microsoft any further proceedings on the question of relief. And I think when that decision was made, apparently with the full support of the plaintiffs, that was the first time I felt as though this case was starting to turn in a more rational direction.

eWEEK:How did you react to comments a few years ago when people said Microsoft was not Washington savvy? Was it true?

Neukom:I think thats a fair comment. I think we were under-resourced in the sense that we were not a regulated industry and we were hard at work in a very competitive business. And I think we did some things or didnt do some things or didnt say some things that left the power structure here thinking that we were being dismissive or even arrogant. And so I think that the observation that we didnt show ourselves to be savvy about how Washington, D.C., worked, I think thats a fair criticism to some extent going back to the early 90s. And I think we try to learn from smart people, and we have made very substantial efforts starting five or six years ago to build a team of people in our Washington, D.C., government affairs office.

Our approach has been that we are engaged in an information campaign. I always say to my government affairs people, "What I want you to do is to deliver accurate and timely information to the government." Theres a whole range of special interest in the government. And we dont want to be a special interest. We want to be viewed as brokers of honest information.

eWEEK:Can we talk about the Sun case? Whats new in the new case?

Neukom:I dont think I should comment on the current case because it is a current case. But I will say as to the first Sun case, it was another one of those situations where there were some very strong allegations made against my client. And it took a long time, working with the court, working with the other side, to try to get down to what the real differences were and what the real facts were. And at the end of that process, there was a reasonable conclusion to that litigation. A markedly different place from where that litigation started.

eWEEK:The whole open source issue, do you think thats a legally sound approach to creating, and more importantly, licensing software? The GPL in particular.

Neukom:Our view is that if some folks want to pursue an open source approach, thats fine so long as the rights and responsibilities of the GPL and other devices are clear and well-understood. What we dont want is for the government to take sides.

And we are perfectly willing to continue to compete on the merits. They have an interesting way of creating technology, we have a different way of creating it. And well see what the marketplace wants, but in the course of all of that, people need to be clear about it. They know how our licenses work, and they should understand how the GPL works and what the consequences are. Most importantly, the government shouldnt be weighing in saying were only going to buy open source stuff.

eWEEK:Did [Microsoft Chairman and Chief Software Architect Bill] Gates deliver on the points that Microsoft wanted to get across to the judge?

Neukom: I think he did. I think he did, certainly in the written [direct testimony], which has so much less impact because its not delivered live. But also, I think, on the stand.

The Early Years

The Early Years

eWEEK:How did you start with the company?

Neukom:I started doing work for the company in 1979. The company moved up to Bellevue [Wash.]. Thats where the first offices were, in January of 1979. I was with the firm then called Shidler, McBroom, Gates—Bills dad—and Baldwin. And there were 13 [Microsoft] employees when the company came up from Albuquerque [N.M]. And Bills dad came into my office one day and said, "My son is bringing his computer software company up to Seattle, and we have the first opportunity to represent them. Would you be willing to do that?" Thats how it started.

By about 83 or 84, there was a team of us at the Shidler firm. There were probably seven or eight of us who were doing work for Microsoft, and I remember very clearly in late 84 early 85 I had this wonderful case that had been referred to me by a lawyer from another very good firm in Seattle. It was a classic trade secret case with a wonderful client, interesting issues and worthy opponents on the other side. And like most lawyers, I think, you always run nervous about whether youre devoting enough time to your clients work. I was particularly nervous about that case, and I finally realized some time in 85 that the reason I was nervous that I wasnt spending enough time on that case was because always in the back of my mind were these Microsoft matters, where I shouldve been spending more time.

Some matters I hadnt even yet opened files for, but I wanted to learn more about because they probably needed some lawyering.

eWEEK:What kinds of matters?

Neukom:These were licensing, piracy cases. The company was still a private company, so we didnt have public company sorts of issues. But it was a growing company and its crown jewels were its intellectual property, and that meant it was a legally intensive business.

And so in 85 I went to see Bills dad and said, "Look, I think we ought to have a discussion with Bill Gates and Jon Shirley [former Microsoft president] over at Microsoft to talk to them about whether theres a better way for them to manage their legal challenges and opportunities. I think its probably time for them to think about a law department." I went over and had a meeting with them, and I told them, "Youre big enough, youre a very legally intensive company, and youre going to continue to grow. I think you should consider whether you couldnt do a better job with more of a lawyering presence inside the company." They thought about it overnight and said, "Youre right." Then they made a mistake and said, "Since youve been heading up a team of outside lawyers for us, would you come inside and organize this group?" And I said I would.

eWEEK:How successful was Microsoft at that point?

Neukom:Its always been a profitable company, because Bill and Paul were always very frugal. They still are. We fly coach. And because were in the intellectual property business and from the first product—that Basic programming language product—the companys always had technology that was in demand. So by 85 we wouldve had Windows out, MS-DOS had had a successful profitable run already. Then in the spring of 86 we went public.

So the company enjoyed good profitability really from the outset, largely because Bill has this instinct about being very frugal and efficient and economical about how we do things, about getting smart people to follow his guidance as to where theres going to be a demand for technology and then building it. So from the get-go those themes: that its the technology that matters, we think theres a demand for this, were going to make it, well relentlessly improve it until we get it good enough so that it wins the reviews and the word of mouth and people really start to use it.

eWEEK:So, in that culture you were able to thrive? Microsoft is perceived to have this really driven culture.

Neukom:Some of thats true. There are two things. When youre inside the company, it feels like a first-generation company. It feels small, it feels scared, in terms of, "are we going to get the product out, is the other guy going to eat our lunch with a better product?" Its very much a first-generation company. Everything matters. You take things seriously. So to this day Im somewhat amused when I read about Microsoft the software giant, Microsoft the technology behemoth. Im not saying its inaccurate, Im just saying when youre inside the organization day to day, it just feels so different to me.

The other thing is that certainly for the technology people, the developer community inside the company, who create the intellectual property that drives the whole enterprise, that is the fountainhead. And nobody knows that better than Bill, but we all understand that. But even outside of that community within Microsoft, I think all of us feel a part of this technology culture.

eWEEK:How does it feel to be one of the old guys at Microsoft?

Neukom:I really dont think too much about that. I probably should. Maybe its my vanity, it wont let me realize how old and tired Im getting to be. But the positive energy level is pretty much a constant, and it tends to keep you young and engaged.

Theres one aspect to that that relates to the principles guiding our practice. One of the things where we think were helpful in LCA [law and corporate affairs], recognizing that people who are making very important, very complicated decisions at Microsoft are doing it at a much younger age than their parents. You can get people fresh out of graduate school, business school or computer science. And within a few years, because its a meritocracy over there, they can be in positions of real importance.

I say to people that Im hiring, "Youre going to like it here if you like lawyering, if you like technology and if theres a little bit of a teacher in you because youre going to have people in their 20s who have a lot of responsibility around this company who will come to you for guidance and they wont understand anything about the legal process, to say nothing about intellectual property rights law, or how you negotiate a contract or what a choice of law provision means or what its like to be in federal court. They havent had a divorce, they havent bought a house, probably havent had many traffic tickets. They dont know anything about the legal process, and its your job to help them understand how you can be helpful and that the responsibility we have jointly with those people is to see to it that we get legal rights built around the intellectual property." So one of the messages is we deal with a lot of amazingly smart, very well-educated people who just are very under-exposed to the legal processes.

eWEEK:What are you going to do going forward?

Neukom:In terms of lawyer work? In terms of my professional work Im going to take a sabbatical. I promised myself six months decompression, no new entanglements, just relax a little bit. In terms of community stuff, that will continue going forward. Im being an absentee chair of the Greater Seattle Chamber of Commerce right now. Im on the board of my alma mater at Dartmouth and they meet four or five times a year, and Im going to keep doing that. Im on the YMCA board in Seattle, Ill keep doing that. We have a family foundation.

eWEEK:Will you miss it?

Neukom: Ill miss a lot of it. Ill miss that virtuous cycle. I do count my blessings in the sense that I was just doing what a client needed to have done, which got me over to the company. Had no clue how important the company could become. I have friends that are better lawyers than me, better managers than me, better leaders than me, and they dont have nearly the job that Ive had. We dont pollute the environment, we dont abuse workers, we build communities, and we provide opportunity, a chance for people to achieve their potential.

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