Online Extra: A Mellower Microsoft in Court?

New General Counsel Bradford L. Smith says it's seeking settlements as partnerships play a bigger role now for the giant

For most of its 29 years, Microsoft (MSFT ) has burnished its reputation as a bully in the marketplace and a pitbull in the courts. But in the last two years, its courtroom image has begun to mellow. The company has aggressively sought to settle pending litigation, shelling out more than $5 billion in the process.

The man who's making that happen is Microsoft General Counsel Bradford L. Smith. Given a mandate by CEO Steven A. Ballmer and Chairman William H. Gates III to make peace with an industry that approaches the Colossus of Redmond with great trepidation, the affable Smith has convinced some of Microsoft's bitterest rivals, including Time Warner (TWX ) and Sun Microsystems (SUNW ), to accept the olive branch.

Smith recently sat down with BusinessWeek Seattle Bureau Chief Jay Greene to discuss those settlements, pending cases, and his strategy for improving relations between government and techdom. Here are edited excerpts of their conversation:

Q: Why are you the right person for this job?


We're no longer a startup industry, just as we're no longer a startup company. Software has become part of the critical infrastructure of society. It's a natural part of the evolution that as you get to this point, the dynamics change. It's natural, it's inevitable, that governments are going to have more questions, there's going to be more scrutiny. There's going to be a need to work more collaboratively with people in government.

I also think that as an industry gets to this point in its life, there's a greater need to work across the industry. Partnerships play a bigger role in the life of every company.

I benefit from some of the work I did before I joined Microsoft. Having started practicing law in Washington, D.C., is a benefit. Having spent seven years in Europe -- four years in London, three years in Paris -- gave me a broad perspective of both the way Europeans think about issues and the way companies can work with governments and others globally. Frankly, some of the work I did for others in the industry before I joined Microsoft gives me a perspective that I wouldn't have had if I had just grown up inside Microsoft.

Q: Do you bring a different approach to dealing with Microsoft's legal challenges than your predecessor, Bill Neukom?


I'm always hesitant to do explicit comparisons with Bill. What I can tell you is when it comes to my approach, there are a few themes I try to emphasize. Don't allow something to become personal if it's not. Always maintain an open and direct channel of communication. Try to focus as much on listening as on speaking. So at the end of the day, if you disagree it's because you have a disagreement and not because you failed to have good communication.

The other part of my approach is to focus on win-win opportunities, to try to have all of us think creatively where we can. If you're looking at a single issue, it can be hard to bridge differences. But if you can expand people's horizons so that we're looking at three or four issues, we sometimes create opportunities to fashion a win-win that wasn't there before."

Q: Tell me about the process of getting this job.


I spent an hour with Steve [Ballmer], an hour with Bill [Gates], [and] met with four other senior executives, so they could all have an opportunity to voice their thoughts. One of the things that was very useful in that process was that it gave me an opportunity to think what would I do if I got this job. I was pretty focused, I guess. I put together a one-page PowerPoint slide that said this is what I would do if I got the job. And I sketched out the top priorities.

A particular focus was on seeking to build more collaborative ties with government agencies and seeking to have our department more externally faced so we could have better partnerships in the industry. It gave me an opportunity to talk about these things.

When I got the job, I felt like I not only got the job, I got something of a mandate. I was able to take the job knowing that I had the strong support of Steve and Bill. And I think that made a big difference.

Q: It sounds like the change in legal strategy was clear to you. Was it a revelation to others?


Different people had thought about it to differing degrees. That fact that the settlement negotiations [with the Justice Dept. in the antitrust case] were reaching their conclusion at the time was of paramount importance in being able to make the shift. It reflects the fact that within the company there had been a growing interest in trying to find a path. And in all fairness to Bill Neukom, he was out there in D.C. trying to forge a settlement.

You know, the first step is always the hardest. Taking the step with the Justice Dept. is the step that made everything else a lot easier than it otherwise would have been.

Q: Was it hard, particularly in the settlement with Sun, to convince others at the company who had fought for so long with these rivals, to find a resolution?


One of the challenges for any of these cases is moving beyond the past. The key to building trust is being direct, by saying: Here's what we can do, and here's what we cannot do. If you shoot straight, you get to a point where you can win people's trust that you're somebody they can do business with. That's certainly one of the things we've strived to do with each of these. If you can put emotion aside, it helps you move faster and see more clearly.

Q: What are some of the biggest revelations you've had since taking the job?


If you look at our issues with the government and our issues with other companies, they were really one knot. The government ended up intervening in no small part because we were unable to work things out with these other companies. It's hard to put the government issues to rest without putting other company issues to rest.

Second, I'd say a lot of it goes back to basics. Even if you're talking about the most powerful governments on the planet or some of the largest companies, the little things matter. The little ways in which people interact with each other do contribute enormously to those processes. I think our whole industry grew up with something of a single-minded focus on products. We didn't necessarily invest the kind of energy in developing the relationships at other companies, nor did we necessarily focus on instilling relationship-oriented skills [in employees]. We've worked hard to focus more on that broader perspective.

Q: What have you done personally to improve relations with the industry?


One of the things I've tried to do -- with people in Silicon Valley in particular -- is just go down and spend a day every couple of months and go see four or five people [at tech companies]. I started doing that just after I got the job, saying I wanted to come by and just introduce myself. And initially, people thought, "Why's he coming?" But when issues do arise, you can sometimes solve a problem in a half-hour that might have taken you a couple of months if you didn't have that relationship.

Q: You came close to settling the case with the European Commission, only to fail in the 11th hour. How frustrating was that?


It was definitely disappointing for us, disappointing because we had come so close. There are a lot of times that you don't settle because it's not the right equation for the two sides. What was different about this was that there seemed to be a path toward agreement, and then it just sort of fell away as we approached the end of the path.

But to me, part of the exercise of having good dialog with people is failing gracefully. We have learned some important things. We understand their point of view better. They understand our point of view better. We're going to go forward with litigation, and we'll see what the future brings because if there's an opportunity to resume the dialog at a later date, it's a hugely different situation if you're not starting back at square one. You've got to think long-term.

Q: Have you resumed negotiations?


No. There are no negotiations with them. I don't think there will be an opportunity for negotiations until the Court of First Instance [an appeals court in Luxembourg] rules on whether the remedies will be stayed. After that, who knows? It's a long litigation process. Anything can happen.

Q: One criticism of Microsoft's new legal strategy is that the company is simply buying off critics with money generated from its monopolies, and that it has agreed to little that will alter its conduct. Is that a fair criticism?


One of the things we have to do is do a good job of listening to the criticism and think it through. I've always said, it's a work in progress. Nobody's going to be able to evaluate how successful we are until we're several years out and people can look back at how we've done things.

If you look at the negotiations with Time Warner and with Sun, obviously money played a part. You can't deny that. But I've always said that resolving the disputes from the past was the least important thing that we did in those agreements. It's much more important that we really focused on creating a win-win relationship. It's a much higher priority.

Q: You've paid out about $5 billion in settlements. Does that invite other litigation?


We've put a high priority on resolving agreements wherever it was reasonably possible. That doesn't mean that we're willing to do things that are unreasonable simply to settle lawsuits. I certainly do focus on wanting to ensure that we don't send the wrong message.

There are two data points about this fiscal year that are interesting. We have settled more cases than in any other year in our history. And we have taken more cases to trial than in any other year in our history. What does that reflect? Well, among other things it shows how the litigation load grew over the years. But it's also of some importance for people to appreciate that we won't hesitate to take cases to trial if we feel we can't get a reasonable agreement. This is a company that has worked hard to settle cases. It places a high priority on that. That's its preference. But it's also prepared to litigate when it has to.

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