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Bill Gates Holds News Conference on Judge's Decision to Break up Microsoft

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JUDY WOODRUFF, CNN ANCHOR: You've just heard the reaction of the U.S. Justice Department by the judge's ruling, breaking up Microsoft. Here are comments now from Microsoft itself, Redmond, Washington.

UNIDENTIFIED MALE: Bill Gates makes some remarks as well as entertains questions.

Now, our president and CEO, Steve Ballmer, has been in Europe all week visiting with customers on a long-planned trip. We've been in communication, and he will participate actively in terms of our internal communications and external interaction over the next day or two in regard to the activities of today.

Let's begin, first, with Bill, but before I do, I should mention that those on the teleconference can remain on the phone after this. Bill Neukom and I will entertain questions. So you can stay on the line, and we'll move to an audio format after this event.

With that, I'll turn it over to Bill Gates -- Bill.

BILL GATES, CHAIRMAN, MICROSOFT CORPORATION: Thanks, Bob.

Well, I'm reminded of the old saying that today is the first day of the rest of your life. I believe very strongly that today is the first day of the rest of this case.

The central issue here is a disagreement between ourselves and the Department of Justice over whether we should have been allowed to support the Internet inside Microsoft Windows.

Our inclusion of that support in an integrated way did nothing to exclude Netscape or any other competitor from distributing and improving their technology. In fact, as the court found, Netscape distributed over 160 million copies of its browser in 1998 alone.

The government's position here on the specific of the browser and on the general question of improving products, really flies in the face of the kind of improvements that have benefited consumers from innovation coming out of the technology industry.

So today's ruling really represents an unwarranted and unjustified intrusion into the software marketplace, a marketplace that has been an engine of economic growth for America. This ruling would provide that the Internet support in Windows could never be enhanced. It could never be updated to new standards, whether they relate to privacy or XML or any other consumer need.

This ruling says to creators of intellectual property that the government can take away what you've created if it turns out to be too popular.

We will be exercising our right to appeal this decision. And we're confident the judicial system will overturn today's ruling. We will also seek a stay of this order so the appeal can move forward without any unnecessary harm to Microsoft and to consumers through the delay or interference with our work on new products.

I want to make it clear that the Microsoft team worked very hard to try and settle the issues in this case without the need for additional litigation. I also want to make sure that people understand that during the appeal, we'll continue to do what we do best, which is building new software.

We have many reasons to be confident in our appeal. For example, the ruling is directly inconsistent, as the district court acknowledges, with the appeals court ruling on exactly this topic that was made earlier.

Also, it's an unreasonable thing to call the breakup Microsoft and create these regulatory provisions about how software should be defined.

I also think if you just step back from this and look at the paradigm shifts taking place today and the very intense competition in our business, what's being said today flies in the face of the innovation and low prices that consumers are seeing every day; low prices that really arise out of the PC industry, and the values that we brought as one of the companies that really fostered the entire PC phenomena.

So we have strong legal, factual and procedural arguments. The court adopted the government's plan to break up and regulate Microsoft without a single day of testimony. Microsoft asked for a reasonable opportunity to respond to the government's unprecedented plan, but we were denied that right.

Here at Microsoft, we've assembled a world-class team. For 25 years, that team has brought widespread benefits to the economy and to consumers. We have very exciting plans for that team, including things like a breakthrough user interface that involves handwriting and speech recognition. These are efforts that can only be done by a large company with a total focus on taking its R&D and moving those into products. Keeping our team together as one Microsoft is critical to our efforts.

The values that have guided our efforts throughout our entire history include competing hard, but competing fairly; listening to customers and innovating to meet their needs; and partnering with literally thousands of companies in the hardware, software and services businesses to make our vision of low-cost computing a reality, and a reality that has moved forward faster than any sector of the economy.

We've got a lot of great new ideas and great new products we're working on for the months and years ahead. In particular, we're very excited about the vision of a next generation of services delivered through the Internet. The Internet, as powerful as it is today, can be made easier and far more effective for both consumers and businesses.

We recognize that as an industry leader, we have grave responsibilities in working inside our business. And we accept that. While we disagree with the government on this specific issue, I want to make clear that we respect the role of government in our legal and economic system, and we will, of course, abide by any final judgments reached in this case.

We continue to work on a very positive basis with federal and state officials. In fact, just yesterday I was in Washington, D.C., discussing with a great number of legislators issues like improving technology and education, bridging the digital divide, and important legislation like the upcoming digital signature bill.

So in conclusion, today is the start of a new phase of this case, a phase where we'll get review by a higher court. We're confident that the courts will overturn what's happened at the district level. And as the legal team works to resolve this, we're going to focus our energy on building great software for all our customers.

Thank you.

QUESTION: Mr. Gates, do you have any personal thoughts at all regarding the breakup order now of something you spent a lifetime creating?

GATES: Well, certainly this is really quite unprecedented. You know, Microsoft is a unitary company. We've got one research group, one sales force, one development group, and there's never been anything like this in judicial history. The idea that somebody would say that that breakup is a reasonable thing comes as quite a surprise to us, and we're quite confident it won't be something that whatever comes into effect.

QUESTION: Bill, you said in your filing yesterday that employees might leave. Could you comment on the mood of your employees, and have employees left as a result of the trial already?

GATES: Well, Microsoft will be doing a lot of things with its employees today and tomorrow, making sure that they understand exactly what's gone on, and what are the next steps in the process.

We've been communicating on a very regular basis. And, in fact, I think to the employees today's ruling, given what happened on May 24 and the explanation that we shared about what the judge said during that hearing, today's development is not a surprise to our employees. I think they'll want to know what the schedule looks like going forward, and they'll want to understand the commitment I'm make here to the public at large, that all the great work they're doing will not be interfered with, that the way we're going to move forward will be exactly as the company has for 25 years in terms of building integrated products that do great things for customers.

QUESTION: I wonder if there is any conduct that resulted in this order that you would regret today or that you are sorry for?

GATES: Well, as I've said, the core of the case is whether it was appropriate for Microsoft to put Internet support into Microsoft Windows. And I think even more now than when this case first started, the world at large can look and say that it's really common sense that our operating systems and every other operating system would seek to do a great job of supporting the Internet. It's a primary scenario. The benefits of it are quite incredible.

Likewise, people can look and say that the rules about doing that type of integrated software have always been clear. This case is an attempt to change those rules, but those rules are beneficial because they allow companies to innovate and add new things to products, which is the history of software not only on the personal computer, but in technology in general.

And we're always looking carefully at everything we do, making sure the way we work with partners is absolutely beneficial to them, making sure the way we communicate, you know, makes clear the opportunities we create for partners. And we're very proud of the PC industry and the thousands of companies that have grown up around the open phenomena of the PC industry.

The irony of having it be mostly our higher priced competitors that have been behind this lawsuit, I don't think has escaped a lot of observers of what's gone on here.

If we look at some of the things that the judge said today, it's clear that the whole story of Microsoft, the whole story of the PC was missed here.

And so, if I look back at anything, I think, you know, perhaps I should have taken the opportunity to go in person and talk about this industry; you know, what it's meant in terms of empowering people; what it's meant in terms of a business model that works more effectively for consumers than the totally vertically integrated models that existed before Microsoft came along and was doing operating systems that integrated new features.

QUESTION: Bill, you talked about the next-generation Windows services. The ruling talks about interim conduct remedies that would preclude you from -- or would force you to keep the operating system business and the applications business separate and distinct. Will that prevent you from launching the whole next-generation Windows services that you want to do?

GATES: Well, if you look at the definitions in there, the definitions are very vague, because they actually take substantial parts of what's the operating system and define those in one piece and the other parts of the operating system in another piece.

And you will see in this -- these latest exchanges, we asked the government to define some of the words. We asked them to define what do they mean Internet Explorer? What do they mean by the various things they list that are shipped with the operating system? Unfortunately, they didn't choose to clarify some of those things.

For that reason and for the fact a lot of things in here would cause damage, we will be seeking a stay of this order. And so for the next 90 days, there will be, on the legal front, the motions for the stay, and on the company's part, continuing full speed ahead with NGWS.

UNIDENTIFIED MALE: We're going to get into the legal issues in a bit more detail in a moment.

QUESTION: When you're dealing with your customers and your partners, they may be concerned that you won't be able to do the integrated products that you've done before. What are you going to tell them?

GATES: Well, I have to say that the support we've had from our customers and partners on this has really been quite overwhelming. We were really, you know, glad to see that, you know, they feel they had benefited from the whole approach that we've taken that has gone on in the PC industry. And you know, they are just anxious that we get this up in front of a higher court and get this behind us so we continue -- can continue to do what we've done throughout our history.

QUESTION: What about an expedited decision by the Supreme Court? Would you be in favor of that, skipping the court of appeals?

GATES: I think that's probably best -- a question that is best kept for Bill Neukom. There's quite a few steps in the legal process. Whichever higher court looks at this thing we're confident that we'll succeed on the appeal.

QUESTION: The judge blasted you for not being prepared for what was a possibility. That being said, have you thought about what the second company would be called or how it would be ordered?

GATES: Well, I think if you look at what the judge put out today, you know, it's clear that he had some notions from a previous case that was in front of him. The fact is that, in looking at the appropriate remedy, even given what he found earlier, we felt that we deserved to have a chance to have testimony, to have witnesses talk about what it would mean to have this type of regulation.

You know, the fundamental goal here is to help consumers. And you know, we raised a lot of things about what was proposed by the government that, in fact, would have effects that would just be purely damaging on what consumers receive in terms of software. And so the judge and the normal process created an expectation that we would get a day in court on the remedy, and so we were certainly surprised -- I think almost all observers were surprised when that didn't happen.

The benefit of that is that it does start the clock earlier for getting up in front of the courts that will make the final decision.

QUESTION: I understand your confidence in the appeal process but there is always that chance that the company will have to live with some form of the breakup order. As you go through this process what do you do to prepare for that possibility?

GATES: Well, I think the key thing we do is we continue to work on software the way we have historically.

The rules that have been set are there because the kind of improvements we make are beneficial to consumers. If the rules are completely changed, of course, we'll abide by whatever those changes are. But you know, looking at the appeals court, looking at the rules that exist, everything we're doing is absolutely what we're encouraged to do.

QUESTION: Mr. Gates, whether the -- whether the company is broken up, do you have any plans to move any part of the company or companies either out of state or maybe out of the country?

GATES: Well, certainly nothing in this lawsuit is affecting our decisions about what's the most effective place for us to get work done. We do about 90 percent of our R&D here in the United States. There's no plans to change that. We do have some overseas development centers in a couple of different locations that do excellent work. That's a good thing. But the heart and soul of R&D is going to remain exactly where it is today.

WOODRUFF: Microsoft founder and chairman Bill Gates talking with reporters in Redmond, Washington, responding to the judge's ruling today ordering the break up of Microsoft into two companies, Bill Gates said -- he called the decision "unprecedented," he said "it's an unwarranted and unjustified intrusion into the marketplace." He said "the ruling says in so many words that the government can take away what you have done, what you have created if it's popular."

He went on to say that he -- that Microsoft is appealing, that he's confident that the judge's ruling will be overturned no matter how high the court -- they have to go in the courts. And he pointed out that in addition to that they will seek a stay of the judge's order, the district judge, Thomas Penfield Jackson. And finally, Bill Gates said on several -- at several points during this discussion that the company will continue to do what it does to build "new integrated software," in his words.

And this final programming note: Today at 6:30 p.m. Eastern, Bill Gates will be a guest on CNN's "MONEYLINE NEWS HOUR."

INSIDE POLITICS will be back in just a moment.

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