Did Microsoft Lie to the Department of Justice?

October 7, 2004


The Chris Phillips Deal
Did Microsoft Lie to the Department of Justice? Maybe So

By Robert X. Cringely
Source - (The links for this article: Click here or here for the relevant material)

My son Channing would make a great lawyer. At two-and-a-half, he effortlessly parses the logic of every exchange, responding in a manner that isn't exactly yes or no, and is intended to keep him on the preferred side of bath time, play time, meal time, or a toy or a diaper. He doesn't lie, but dissembles. Every exchange is a negotiation, and he always seems to have the advantage. The kid is as smart as his mother and twice as smart as me. Heck, he could work for Microsoft tomorrow if they'd just handle the potty stuff.

And Microsoft could use the help since it continues to have the daylights beat out of it in court by little Burst.com. As you may recall from earlier columns, Burst, a two-person dot-com survivor from Santa Rosa, Calif., where I used to live, has been suing Microsoft for two years for anti-trust, breach of contract, restraint of trade, and patent infringement. In the great panoply of Microsoft civil anti-trust lawsuits, Burst's might be the last, and for Microsoft, it has to be the worst because Redmond looks so bad. This week, the news from recently unsealed court documents is that Microsoft may have deliberately lied not only to Burst, but also to the other anti-trust litigants right up to and including the U.S. Department of Justice.

You will find the two relevant unsealed documents in their entirety in this week's list of links. I'm going to characterize them here, but please read the documents for yourself. One thing to keep in mind here is that documents are unsealed when the judge decides that it is more important for the public to know what is in them than to not know, so Judge Motz, too, thinks this is worth your time. By the way, this is probably the first time these documents have been broadly released, so if you read them, your friends won't know what you are talking about. That may change if some big news organization gets smart and picks up the story.

One huge issue in Burst v. Microsoft is missing e-mails that should have appeared in the discovery portion of the case, but didn't. Burst knows there are lost messages because many of them were to and from Burst, itself, so they have their copies. But not only are the known messages lost from Microsoft's e-mail archive, so are any messages on the same subject that may have been sent between the Microsoft people, themselves, and not shared with Burst -- messages that Burst only believes to exist, but it's a pretty fair assumption that some such mail did happen. I have written about this before, and it plays back to a haphazard corporate e-mail retention policy at Microsoft that seems to conveniently lose any damning evidence.

So this week, we have a legal brief from Burst based on extensive depositions of Microsoft employees that lays out their theory of what the heck's going on at Microsoft with all this lost e-mail, and how they believe the current system came to exist. Admittedly, this is Burst's position, and Microsoft and its lawyers see things very differently, but I still think it is worth a read, even at 35 pages in length.

Discovery is a phase of any civil law suit where each side gathers information from the other, asking for things like, "Copies of all e-mails concerning Burst.com between these two dates." Each party is supposed to search the files and voluntarily give the stuff up, but what they aren't required to do is be nice about it or to help the other side if its requests aren't explicit or are poorly aimed.

Once a civil case is ongoing, one or more parties may also be ordered by the court to specifically retain communication and other documents no matter what their corporate records policy is. In order to reduce the onus of this retention, each party is asked to identify the most involved people, and only their documents are retained thereafter.

If it sounds like this all requires a huge assumption that each party is honest and will do the right thing, you are correct. What supposedly puts the oomph behind this assumption is that decisions along the way are made or vetted by inside and outside attorneys, and of course, an attorney would never do something unethical like lie.

Yeah, right.

If you read the Burst brief, you'll see that they lay out a complex, multi-part records retention policy that they claim has been invented by Microsoft to ensure that any damning e-mails are destroyed. This involves how and where messages are stored, and is too much to go into here, but for anyone who has ever designed an e-mail system (I have), it feels like all the required parts are there, just tweaked for this perverted aim. If true, it is brilliant.

But what I'm writing about here is a different part of the case -- how Burst claims Microsoft avoids damning documents being discovered when a record retention rule is in place. The short version of this Burst argument is that Microsoft deliberately identifies the wrong people so that retained records are useless, and records that probably should have been retained are destroyed.

It is Burst's further contention that this policy of deliberate evasion on Microsoft's part has affected other cases beyond Burst v. Microsoft, up to and including the big Department of Justice antitrust case against Microsoft that was settled a couple years ago. In fact, the major example of the technique provided in the Burst brief is from the DoJ case.

The Department of Justice in 1997 asked Microsoft to identify those employees involved in a contract between Real Networks (then called Progressive Networks) and Microsoft. The deal, which involved a Microsoft investment in Real and certain agreements about how they'd mutually participate in the streaming media market, was with a group within Microsoft headed by Eric Engstrom. Engstrom in turn assigned negotiation of the deal to Chris Phillips, who reported to him. Over the course of several months in early 1997, Chris Phillips met with Real COO Bruce Jacobson, and both Phillips and Jacobson have said they negotiated the "core deal" and "agreed on major business issues." Phillips briefed his superiors at Microsoft, who came to refer to the deal with Real as "the Chris Phillips deal." Even the Microsoft attorney who drew up the contract papers referred to the deal by that name. Engstrom was also involved in the discussions and reported back to Microsoft, but Phillips was the guy whose name came to be associated with the deal and who was asked to explain it to others inside Microsoft. There is a lot of e-mail evidence covering this with 35 messages alone involving Phillips sending the deal legal draft around the company, soliciting comments.

Yet when the DoJ asked Microsoft to identify the employees involved in negotiating the deal with Real Networks, Microsoft identified neither Phillips nor Engstrom, claiming that the two men "played little or no role" in the negotiation. Instead, Microsoft identified as the point person an inside lawyer who came in over the last two weeks to write the actual contract. And as a Microsoft attorney, his communication was protected by attorney-client privilege.

Microsoft's response to this charge, by the way, is that the actual deal was negotiated by this inside lawyer, and whatever Chris Phillips and Bruce Jacobson thought they were negotiating over several months was completely immaterial. So Jacobson, while he may have THOUGHT he was coming to terms with Phillips, actually wasn't, and the fact that the same terms became embodied in a final contract was purely coincidental.

Similarly, when Burst asked Microsoft to produce all the documents the DoJ had requested concerning Sun's Java Media Format (JMF) that had been co-developed with Intel, Microsoft's response was that the DoJ had expressed no interest in the JMF. Yet there is plenty of evidence to the contrary, that the DoJ asked Microsoft again and again for such documents, but Microsoft for the most part simply didn't produce them. The result? No document retention orders could be issued since no involved parties were identified.

Burst says that Microsoft ignores, forgets, dissembles, and if nothing else works, it just plain lies. Of course, only a jury can decide guilt or innocence, but the evidence appears strong. I wonder how those 17 state attorneys-general feel about this, having settled the case for little or no money, only to be now told there is a good possibility that Microsoft lied to them and took actions that could only have resulted in the destruction of evidence? I wonder how Sun and AOL, and Be feel about it? Could they have gotten better deals from Microsoft? And what happens if this all goes to a jury and Burst is upheld? Better put a hold on that $30 billion special dividend because those old settlements might be subject to renegotiation.

They certainly would be if Channing was on the case. He's one advocate who knows how to keep his adversary off-balance.

"Good night, sweetie," I said last night turning off his light. "I love you."

"I love Mama," he replied.