Bill Gates: They’re Trying to Change the Rules

Microsoft chairman Bill Gates talked to TIME managing editor Walter Isaacson last week about his reaction to a federal court’s findings of fact in the government’s antitrust case against his company.

TIME: You ready to settle?

Gates: We’d love to resolve this thing, and we’re going to be pragmatic about it. But at the heart of this case is a principle that’s pretty important: our right to add features to Windows. We have been taking things that people demand, whether it be adding a graphical interface or support for networking, and building it into the operating system. Doing that has been why the PC revolution has done so much for consumers.

TIME: So you won’t agree to a settlement that restricts what new applications you can bundle into Windows?

Gates: If we can’t add functionality to Windows, there is no Windows! Let’s face it. Without innovation, given the intense competition out there, Windows would become irrelevant. Not only would that be a tragedy for the shareholders, it would be a tragedy for consumers.

TIME: But if you can bundle whatever you want into Windows, and not allow consumers to pick and choose features, wouldn’t that stifle competition?

Gates: Should government regulators take away our ability to build what’s called Windows? Should they be able to say, “We kind of like this feature, and we don’t like this one”? Then if you have 50 new features, you’d end up with 2-to-the-50th-power new versions.

TIME: What about giving computer makers the right to tailor the opening screens?

Gates: The idea that when you buy a Windows machine, you’re going to have no idea what you’re going to see and how it’s going to operate–that can’t make sense for consumers. That’s like saying you have a product called TIME magazine, but one distributor gets to rip out ads, and another one rips out some articles and puts in new ones. You’d get uptight. You can’t have a distribution channel that is allowed to make your brand meaningless.

TIME: What about making Windows’ code public?

Gates: The only thing that we know for sure that would be bad for consumers is anything that blocked us from being able to innovate Windows or anything that made it so that when people buy Windows they don’t know what is in it. Beyond those two principles, we’ll be as pragmatic as we can.

TIME: What about breaking up Microsoft so Windows is made by a separate company?

Gates: I can’t go down the path of saying what the settlement would be. All I’d say is that there are those key principles that I just mentioned.

TIME: So it’s not a key principle that Windows be part of the Microsoft corporation?

Gates: In terms of discussing the details of a settlement, I can’t do that. Our behavior has been totally fair. We’re quite confident that the legal process will uphold our view.

TIME: Will you appeal the findings of fact?

Gates: I’m not a lawyer, but I don’t think you can appeal findings of fact easily.

TIME: Now that Microsoft has been declared a monopoly, will you act differently?

Gates: Certainly the worst thing that could happen is for people to be confused and think that we’re not in a hypercompetitive environment. Windows is facing competition from Internet terminal devices, Linux and other things. One of the ironies of this decision is that it says there are these serious competitors coming along, and then it defines the market in such a way that those competitors don’t even exist.

TIME: Yes, but that’s what the court found: you’re a monopoly.

Gates: It’s a shame. It’s a shame. [Laughing.] You’re not supposed to have a court telling you that you have no competition when you have competition! They are trying to change the rules of the game in a way that would be very chilling, very damaging.

TIME: The court also found that you used your monopoly to harm a competitor.

Gates: The case involves one competitor, Netscape, that got the government to act on its behalf. The irony is that Netscape was bought for $10 billion by the dominant online provider [AOL]. Netscape shareholders did super well, consumers did super well, and what we did with Windows is what we should be doing, because people want Internet support in the operating system. It’s a commonsense thing that has been lost in all the rhetoric.

TIME: But you also used your monopoly to bully others, such as Compaq and IBM.

Gates: That doesn’t reflect the reality of what went on. IBM licensed Windows at a very, very competitive price. There were tons of choices for consumers.

TIME: But didn’t you hold up licensing Windows to IBM at one point to pressure them?

Gates: Because they hadn’t paid their royalties. If someone doesn’t pay you, pay their subscription, wouldn’t you hold it up? Of course! IBM hadn’t paid us. Someone who hasn’t paid you doesn’t have the right to get something.

TIME: But the judge found that the back-payments dispute was just an excuse, that you were trying to bully IBM.

Gates: That’s just patently false.

TIME: Why do you think the judge’s finding was so brutal?

Gates: I don’t understand why you’re characterizing it that way.

TIME: You didn’t think so?

Gates: The key thing the ruling says is that Microsoft, by creating better Internet support [i.e., embedding a browser into Windows], made it tougher for the guy [Netscape] who was competing with us. In fact, that’s exactly what we’re supposed to do on behalf of consumers!

TIME: So, in retrospect, wasn’t there something wrong with your legal strategy?

Gates: This question is a little bit of a repeat of what was in front of the courts last year. There was the question in the case of Windows 95 whether it was O.K. for us to add Internet support into that. Judge Jackson entered a preliminary injunction, and the appeals court couldn’t have been more black-and-white in rejecting everything he had done there. [The appeals judges] went out of the way to state the general principle that the courts won’t be involved in software design.

TIME: What are the next innovations you are planning?

Gates: Soon you’ll have not only your PC as an Internet device; you’re also going to have phones with screens, Web TV and digital set-top boxes. So the question is, How do you put all these pieces together so that it’s easy for users, and they don’t have to move all their information around? We call this the personal Web. Instead of you going to a Web page and it deciding what you’re interested in, you’ll be able to pick pieces of information from different websites. You’ll be able to create applications and programs that use that information. That will give you power to assemble news or find the best price for a product. You’ll be in control of that experience. And companies like ours will provide services online such as Microsoft Office or passport authentication.

TIME: So that’s why you have to fight the Justice Department?

Gates: Yes. The new things we’re planning for Windows, whether it’s reading handwriting or natural language [voice recognition], those are exactly the type of things that would be blocked under the logic that says that our putting Internet support into Windows was something we should not have had the freedom to do.