Startup

by S. Jerrold Kaplan

  In an incredible coincidence, my assistant stuck her head in the room as I was pondering the impact of this revelation. “Sorry to interrupt, but there’s a call I think you might want to take. It’s Bill Gates.”

  I thanked the visiting executive for coming and excused myself from the meeting. On the way back to my office to take the call, I collected John Croll so he could listen in. “Be careful what you say,” John said. “It can be used against you later, in court.”

  Gates sounded distraught. “I just want you to know that I’ve seen your comments in the papers. If you think we’ve done anything wrong, I’d be more than happy to provide whatever information you want on Pen Windows. I don’t want to see this thing played out in the press.”

  I was noncommittal. “Bill, I understand your concern about comments in the press, but you know what it’s like. They love to build things up.”

  “I’d be happy to personally come down and go over this with you if you think there is any problem at all.”

  “I appreciate the offer, but let me think about it. What I’ll do is instruct the staff not to comment to reporters. We’re simply considering our options. We aren’t going to go off half cocked and file a lawsuit without looking at the matter very seriously.”

  “I just hope you understand what you could be getting into. You know our ‘look and feel’ dispute with Apple?” Gates was referring to one of the longest-running intellectual-property battles in the history of the industry. Back when Apple had first developed the Macintosh, with its graphical user interface, Microsoft was one of the earliest companies to agree to build badly needed applications. But before the applications were released, it was rumored that Gates had pressured John Sculley into granting him a license to adopt the Macintosh’s graphical look by threatening to withhold the products. Sculley gave in, thinking there was little that Gates could do with the rights. Years later—after Microsoft introduced Windows, which copied many elements of the Macintosh—Sculley realized the seriousness of the threat resulting from this decision and filed suit, claiming that the license covered only an earlier version of Windows. Apple ultimately lost the suit. Now Gates spoke with restrained emphasis. “I’ve spent over four million dollars so far on that one lawsuit!”

  He had couched his argument as friendly advice, but we both knew what he was talking about. There was no way a small startup company like GO could possibly afford the cost of legal action against Microsoft.

  “That much, huh?” I wasn’t going to get into an argument with him, so I changed the subject. “Maybe the first step is for you to allow us to look over a copy of Pen Windows in some detail, if you’re willing.”

  “I’ll have one sent down right away.”

  After we hung up, John narrowed his eyes suspiciously. “He probably got wind that we were about to visit the FTC.”

  I said, “He did seem to be on his best behavior.”

  Over the following weeks, Gates and I exchanged several letters stating our respective views of the interactions between Microsoft and GO. Gates’s first letter emphasized that Microsoft had long been interested in handwriting-recognition software using the pen as the primary interface. He said that during his visit to GO’s office in 1988 we had discussed the fact that Microsoft was working with several companies on systems software for handwriting machines, although I don’t recall such a discussion. Regarding my concerns that Lloyd Frink had been exposed to GO’s confidential information and was subsequently assigned to the Pen Windows project, Gates stated, “GO knew that we were seriously considering putting handwriting recognition into Windows . . . You were careful about what you showed us and told us . . . Lloyd Frink saw no code at all [and] wasn’t permitted to take any documentation, any software, or the early version [of the Penpoint software development kit] out of your offices.”

  When I wrote back to disagree, Gates sent me some “corroborating materials” to support his recollection of the 1988 meeting, including a copy of an e-mail message to his staff in which he directed them to consider applications for Penpoint, “albeit pessimistically.” He added, “Regarding Lloyd Frink’s role, I can understand GO’s confusion about his titular responsibilities . . . Lloyd believes he negotiated in good faith the merits of GO licensing Windows for its operating system while entertaining GO’s arguments why Microsoft should become a GO ISV and that he did not misappropriate any trade secrets in the course of his discussions with GO.”

  As we crossed the Potomac River and the monuments of the capital came into view, I remarked to John Croll how remote the personal computer industry seemed to be from government influence. It was as though we lived in the Wild West, where it was difficult for authorities to enforce the law because of the distances and the lack of a local presence. Today the problem is different, but the result is the same: the government doesn’t understand the territory, and the technology moves faster than the authorities can act. Civilized societies work only because most people willingly obey the law, even if they are unlikely to get caught when they break it. On the frontier this social contract decays, leaving in its place a different rule: Do anything you want, as long as you can get away with it.

  On the way from the hotel to our appointment at 601 Pennsylvania Avenue, we passed a large, well-kept colonial-style house surrounded by a high fence and an expansive lawn. I thought it a bit odd that an old mansion like this could survive the onslaught of government buildings and urban sprawl. “That’s nice—what is it?” I asked the cabby.

  He looked at me skeptically in the rear-view mirror before answering. “That’s the back of the White House.”

  Our meeting took place in a marble and granite building that had recently been completely renovated on the inside. We were met by a young black man named Norris Washington, who was in every way the epitome of an earnest public servant. Despite the spare, modern decor, there were file boxes stacked everywhere, narrowing the generous corridors to a single lane.

  “Are you just moving in?” I asked over his shoulder.

  “No. They just didn’t allocate us sufficient storage space, so we have to keep our records in the hallways.” He led us into a typical law-office conference room. In the center was a polished wood table ringed by shelves holding endless volumes of leather-bound books with inscrutable titles. A staff economist and a technical computer consultant were waiting there for us to arrive.

  Washington began the meeting by stating their objectives and the permitted scope of their investigation, as though reading from a book of rules. “We’re ready to listen to anything you want to say. I want you to know that everything you tell us will be held in complete confidence, both from the press and your competitors. However, you are free to disclose our conversation to whomever you wish. Our ultimate goal is not to find out whether Microsoft is damaging a specific competitor, but whether there is a pattern of abuse indicating that they are damaging competition. If this is the case, it means that the law has broken down, and that’s when the Justice Department is supposed to step in.”

  I began with a demo of Penpoint. It soon became obvious from their questions that they knew a lot about operating systems, the personal computer market, even about GO in particular. “We read the trade press religiously,” Washington explained. Following the demo, John Croll began a chronological review of our dealings with Microsoft. The more detail he provided, the more interested they became. “Let me understand the sequence here,” Washington would say. “This e-mail message was sent two days after the first meeting . . .” We were barely through half of John’s review by one o’clock.

  John and I had skipped breakfast, and were starved. “Would you folks like to take a break for lunch?” I asked. I had assumed that as government workers, they would keep strict nine-to-five hours with a one-hour lunch break, but they wouldn’t hear of it. They waited for us while we bought some candy bars at a nearby vending machine.

  As the afternoon wore on, I began to worry about missing our flight back. I had no idea they would
be so intensely interested in our story, but it was clear that they had pretty much drained us of useful information. “We have to finish up, but if it will help your investigation, we’d be happy to return at another time,” I said by way of conclusion. “But you’re welcome to keep a copy of the materials we brought.” Washington was delighted.

  The three of them walked us to the door. While I waited for John outside the men’s room, the staff economist approached me, and he let down his guard for a moment. Apparently, reviewing our tale was more than he could bear in silence. “It’s incredible that no one has been able to stop Microsoft. This looks like a textbook case of abuse of monopoly power.” He looked around to see if anyone was listening. “The problem is going to be convincing the FTC commissioners to take action.”

  About a week later, Norris Washington called me to thank us for helping them. “When we get to the next stage, we may need to issue a formal subpoena for you to produce these documents.”

  “No problem, we’re happy to be of service.”

  “But right now, I don’t know if we can use what you have.”

  After that long meeting, and their rapt attention, I couldn’t believe it. “Why not?”

  “At the moment, we’re looking into the question of whether Microsoft has used their domination of the operating-systems business to take over the applications business. But in your case, they used their position in the applications business to their advantage in the operating-systems business.”

  I was stumped. He was quite correct—there were so few people in the operating-systems business, it would be virtually impossible to prove the “pattern of abuse” Washington required. To convince the commissioners, he had to stick to situations in which he could present lots of examples.

  “If we widen the scope, I’ll certainly call you again right away,” he said, ending the conversation.

  I broke the news to John. “Looks like Big Brother isn’t going to ride to our rescue. We’re on our own.”

  “There’s never a cop around when you need one,” he said.

  “Sometimes I think the loftier the title, the more foolhardy the executives get,” said Carol Broadbent. She was talking about Charles Exley, NCR’s chairman of the board, but she turned a little red as she said this, remembering that I had just been kicked upstairs to the job of chairman of GO when Bill Campbell joined as CEO. “Exley is apparently insisting that they announce the NCR 3125 on June twenty-fourth, three full months before his product team recommended. And he approved big bucks on this one. They’re going to do a major production at the Hudson Theater, off Times Square. That’s the same week as PC Expo.” The 3125 was the name NCR had selected for its pen computer. By all accounts, it was a dynamite machine—a powerful 386-based design packed into an attractive three-pound package, far lighter than any other product on the horizon—that could run either Penpoint or Pen Windows.

  I felt obliged to explain. “He’s probably up to something and wants to position the company as forward-looking.” We didn’t know it at the time, but it seems likely that the NCR management team was running scared. AT&T was making a hostile bid for NCR, which put their jobs in jeopardy. “Don’t fight them on this,” I said. “Just find out what we can do to look better than Microsoft, and then let’s make it happen.”

  This was easier said than done. Since Microsoft was one of its most critical suppliers, NCR deferred to its wishes at every turn, giving us short shrift. We had taken pains to train NCR’s newly recruited pen-computer sales force on Penpoint, and support them on sales calls. As a result, NCR was finding that its initial customers preferred Penpoint to Pen Windows by more than four to one. Unfortunately, this was the “wrong answer” as far as the executives were concerned. Like everyone else in the industry, they didn’t want to disrupt relations with Microsoft. But salespeople like to sell what the customers want, so there was considerable friction between headquarters in Dayton and sales reps in the field.

  The first conflict came when it was time to plan the stage sets for the NCR announcement. Penpoint was designed to work primarily in portrait orientation, which meant that the screen was supposed to be taller than it was wide, like a painted portrait. Pen Windows, however, was designed for landscape orientation, like a normal computer screen—wider than it was tall. The staging plan called for a giant model of the 3125 to drop down from the ceiling, so that demonstrations could be projected directly onto it.

  Marcia Mason, our marketing communications person assigned to the project, dropped by my office. She was steamed. “I just talked to the A/V company in New York that NCR hired to do the show. It seems that Microsoft is insisting that the model be in landscape.”

  “You explained that Penpoint works in portrait?”

  “Of course. They told me confidentially that their instructions from NCR are that when Microsoft says jump, they’re only supposed to ask how high.”

  Bill Campbell flew to Dayton and took the matter up with the senior executives there. They agreed to build two models: one would drop down horizontally to show Pen Windows, the other would drop down vertically for Penpoint.

  At important announcements, it is customary for participating organizations to issue separate press releases supporting the main event, usually containing a quote from a senior executive at each of the companies. When the time came to draft ours, Marcia asked me to call Alok Mohan, the vice president of NCR’s workstation products division, for a quote.

  “Alok, I’d suggest something like ‘Most of NCR’s customers are selecting Penpoint for their mobile needs.’”

  There was a long silence on the line. “I don’t think I can do that.”

  “But we both know that’s the truth. Why do you want to hide it?” I wasn’t going to let him off the hook that easily. “If the situation were reversed, and it was Microsoft, you’d do it in a heartbeat.”

  “Look, I’m rooting for you guys, but I just don’t think we should extrapolate from a small initial sample,” Mohan said. “How about, ‘Many of NCR’s customers are selecting Penpoint.’?”

  I reluctantly agreed.

  When the time came for us to review NCR’s press release, it was another story entirely. Marcia and Carol pointed out that although Microsoft and GO were mentioned in the same sentence, the text was formatted so that Microsoft’s name appeared on the first page and GO’s fell on the second. “You’re not seriously suggesting that this was intentional,” I said. “Even Microsoft isn’t that petty.” They both looked at me silently with eyebrows raised.

  I called NCR’s publicist and suggested a few wording changes that would have the side effect of moving our name back onto the first page. When the next draft came back, the margins had been altered so that the same thing occurred again. Carol and Marcia thought it was hilarious.

  “I still don’t believe it’s intentional.” I called NCR back to see what I could find out. After some probing, the publicist said sheepishly, “I shouldn’t be telling you this, but I was specifically instructed to format it that way.”

  Carol gave me her best “I told you so” look. As they walked down the hall, Carol shook Marcia’s hand as though she had just won a bet.

  In many fields, there are behind-the-scenes outfits that will quietly provide desperate companies with competent assistance to meet an impossible deadline. The music industry has anonymous studio musicians who can fill out a recording session in a pinch. The Seventh Avenue garment trade relies on quick-turn shops just over the East River that can cut and sew an important order over a weekend. And the computer industry has special engineering houses that can design a circuit board, provide a prefab power supply, or debug low-level software drivers for disks, screens, and other peripherals on short notice. If you look quickly, you may see a cryptic message flashing when you first turn on your PC, with a copyright symbol and the name of a company other than the one that’s on the front of your computer. That means your top-shelf brand-name computer wasn’t all built under one roof. To save time and mon
ey, some of its designs were purchased from one of those faceless companies, rather than built from scratch.

  The bread and butter of these back-door companies is what’s called a clean-room BIOS. This refers not to the tidiness of their offices but to their guarantee that the engineers who wrote the basic input/output system for your IBM-compatible PC did not achieve this compatibility by copying or looking at IBM’s own BIOS. Instead, these firms hired virginal engineers who had never opened up the BIOS book from IBM and shut them in a room where they could see only what an IBM PC did, not how it did it, in order to reproduce the behavior as closely as possible. This way, the manufacturers could not be accused of copyright infringement.

  IBM single-handedly created this absurd industry in 1981 by publicly releasing all of its PC designs but retaining exclusive rights to the lowest-level copyrighted program, which became known as the BIOS. Thus, to build a PC that is compatible with IBM’s, you have to create or buy a clean-room BIOS. The most successful of these BIOS companies are those that have gone the longest without being challenged in court. Foremost among these in the early 1990s was Phoenix Technologies.

  It was clear from its first presentation at the PC Forum in Tucson that Microsoft had a big advantage over us with respect to the amount of additional engineering a hardware company needed to do in order to run Pen Windows. Since Penpoint was a completely new operating system, the manufacturer had to create, in essence, a completely new BIOS, rather than adapting one it already had. This head start was what allowed Microsoft to claim that twenty-one hardware vendors had already signed up to build Pen Windows machines.

  To close this gap, I negotiated with Phoenix Technologies for several weeks following that event to make a special deal: GO would license to Phoenix the designs for the 386-based version of our pen computer hardware—which our engineering staff had been busy developing since completing the 286 version—and Phoenix would create an approved BIOS for this design, which it could offer as a package to get its customers into the Penpoint business quickly. Phoenix was delighted at the prospect of expanding its business beyond clones of IBM PCs. As soon as the ink was dry, we scheduled a joint announcement for June 4 at a hotel near the San Francisco airport.