Billy Sends In The MicroSoft Troops


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Bill Sends In The Troops

By James V. Grimaldi
Washington Post Staff Writer
Wednesday, May 17, 2000
Page A01

As Microsoft Corp. engages in the fight of its life against the government's plan to split it in two, the software giant is cranking up a well-financed, sophisticated and fierce campaign behind the scenes to generate public support.

In the past two years, Microsoft has contributed more than $750,000 to tax-exempt trade groups, think tanks and foundations that in turn have attacked the antitrust case brought by the Justice Department and 19 states. The total includes more than $215,000 to the National Taxpayers Union, which has lambasted state attorneys general who support a breakup and attacked a key witness in the trial.

Microsoft already has disclosed in public documents that it has tripled its spending on formal Washington lobbying in the past four years and that campaign contributions are just over $2 million this election season. But the company also has played key roles in creating lobbying groups with names such as the Association for Competitive Technology and Americans for Technology Leadership--organizations that do not fully disclose the company's funding and support.

At the same time, corporate contributions to causes such as the Congressional Black Caucus Foundation and minority scholarships have been followed by support from unexpected political quarters.

"This shows the maturation of Microsoft and Bill Gates in Washington," said James Thurber, a political science professor at American University who studies interest groups. He said obscuring the money trail that leads back to the vested interest is a well-worn and troublesome Washington tactic. "They are going full blast in all dimensions of lobbying--coalition building, grass-roots, top-roots, contributions to charitable organizations," Thurber said. "It doesn't surprise me. It surprises me it took this long."

The lobbying has grown more intense as the court case has progressed. U.S. District Judge Thomas Penfield Jackson, who ruled that Microsoft broke antitrust law by illegally wielding its monopoly power in the software industry, is to convene a hearing in one week on remedies. The government today is to file final documents defending its breakup plan.

Microsoft also is keeping a hand in the presidential campaign, planning to donate an additional $2 million, mostly in software and technology, to the Democratic and Republican conventions. The direction of the government's case could change when the White House has a new occupant. Republican George W. Bush has expressed antipathy for breaking up Microsoft, while Vice President Al Gore, the Democratic candidate, has generally supported the Justice Department.

Microsoft spokesman Rick Miller said the company has "an obligation" to counter its rivals. "Our competitors are actively involved in the Hill for years and are currently up on the Hill talking to members, holding dinners and trying to define Microsoft," he said.

Last week, Microsoft's rivals hired Ken Duberstein, chief of staff in the Reagan White House, and the public-affairs firm Porter, Novelli to make their case.

But the pro-government forces in the software industry say Microsoft was first to crank up the lobbying and they were merely responding--and in a way fundamentally different from the behind-the-scenes funding arrangements.

"They are trying to intimidate and freeze the law enforcement climate here," said Mike Pettit, a lobbyist who runs a group called ProComp, which spent $1.7 million in 1998 on behalf of companies such as Sun Microsystems.

Microsoft's quiet campaign has yielded some powerful results. Last week, for example, Craig Smith, former Gore campaign manager and political director for the White House and the Democratic National Committee, sent a memo to his former colleagues warning parties not to push for the breakup of Microsoft on the campaign trail.

"Any talk about breaking up Microsoft or any talk that positions us as trying to regulate the tech industry could make us vulnerable to attack in the general election," Smith wrote in the memo to Joe Andrew, chairman of the DNC. "While the traditional Democratic response to anything big and powerful may have made good sense and good politics in Rockefeller's day of Standard Oil, it makes no sense in the New Economy."

Smith said he wrote the memo as a loyal Democrat and as an advisory board member of Americans for Technology Leadership. What he didn't tell Andrew or DNC staff was that he was not just an adviser, but a paid consultant, and that the group was funded by Microsoft and its allies. Smith said he didn't realize that he should have shared this with Andrew.

"I wasn't trying to withhold critical information from him," Smith said. "This is not a world I have a lot of experience in. . . . I talk to my friends all the time about things that I work on." According to an internal document from the group obtained by The Washington Post, Microsoft gave the National Taxpayers Union $151,238 last year, $50,000 so far this year and nearly $14,000 in software. The group recently began an attack on the state attorneys general suing Microsoft. The anti-tax group estimates that, because Microsoft stock has plunged since the judge issued his verdict and the government proposed breaking up the company, public pension funds in eight of the states have lost $38.6 billion.

National Taxpayers Union President John Berthoud acknowledges that a gloomy Microsoft earnings forecast and other factors might have affected the stock price, but he said his group believes the main cause is the antitrust lawsuit.

Another effort on behalf of the National Taxpayers Union was launched in Los Angeles at a meeting of state delegates to the Republican National Convention. Delegates were given a letter that struck at the role of Netscape Communications Corp., a Microsoft rival in the court case. It purported to be a $30 million bill, addressed to ex-Netscape executive James Barksdale, "for legal services rendered on behalf of Netscape by the Department of Justice, paid for by U.S. taxpayers." (The Justice Department said the legal costs are about $13 million.) Company critics saw the letter as an attempt to embarrass Barksdale, who was the lead government witness and now is a close adviser to the Bush campaign.

Other groups that have attacked the government's case have benefited from Microsoft's largess: Citizens for a Sound Economy got $380,000 and the Independent Institute netted more than $95,000.

Microsoft also is a "significant member" of the Association for Competitive Technology and Americans for Technology Leadership. Jonathan Zuck, who runs the groups, said he is under no obligation to identify his contributors, though a spokeswoman acknowledged that Microsoft has given at least $100,000 in dues.

Americans for Technology Leadership was created last fall by the Association for Competitive Technology with the help of the DCI/New Media Group, a firm whose Web site says it "specializes in using cutting-edge technology to move public opinion." Separately, Microsoft has hired DCI/New Media to do grass-roots lobbying.

Josh Mathis, the group's executive director and an ex-staffer to former representative Rick White (R-Wash.), who represented Microsoft's home base of Redmond, said he works both as a contractor for Americans for Technology Leadership and as an employee of DCI/New Media. The close connections to Microsoft aren't always revealed. During the primary season, Americans for Technology Leadership commissioned pollsters Zogby and Mason-Dixon to conduct six surveys on the Microsoft case in key states. The results favored Microsoft, but the group never mentioned the Microsoft connection in news releases. Mathis said the information was available on the group's Web site.

In recent weeks, Microsoft has gained support among members of the Congressional Black Caucus. The backing comes at a time when the company and Gates increased support for the caucus and some of its favorite causes.

"Instead of focusing on bringing down Bill Gates, we need to invest in resources to create more Bill Gateses," said Rep. Eddie Bernice Johnson (D-Tex.), first vice chairwoman of the caucus and chairwoman of the caucus's Science and Technology Braintrust. Rep. James E. Clyburn (D-S.C.), chairman of the caucus, also questions the breakup plan.

Microsoft donated $50,000 last fall to the Congressional Black Caucus Foundation, and Gates has been invited to speak at the group's National Town Hall Forum.

Johnson denied any quid pro quo: "Microsoft has never asked me to make a single statement."

Many in the caucus also were cheered by the Bill and Melinda Gates Foundation's staggering $1 billion donation for minority scholarships, an important priority among the black caucus, many of whose districts include historically black universities. Separately, Microsoft Corp. gave $50 million to the United Negro College Fund in March. The United Negro College Fund, which is administering the scholarship program, is now run by former congressman Bill Gray of Pennsylvania, who remains close to current members of the caucus.

Gray has briefed members of Congress about the scholarships but said he never discussed the antitrust case with them. Nevertheless, he said he is baffled by the government's lawsuit. He fervently defended the Gates foundation's donations as a sincere effort to help poor, high-achieving minorities.

"The idea that Bill and Melinda Gates's giving is tied to a domestic strategy around Microsoft is absolutely ludicrous when you look at where they are giving their money and who they are giving it to," Gray said. "It is clear that they are not giving it to areas that would have impact on the corporate judicial problems." But former appeals court judge Robert Bork, who has been a paid consultant for Microsoft's rivals, said the myriad links between Microsoft money and think-tank scholars has reached an unprecedented level. "I think it bends the rule of law all out of shape," he said. The company is trying through public opinion to pressure lawmakers or judges "to reverse or modify what's happened in the courts."

© 2000 The Washington Post Company
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