icrosoft Corp. is beefing up its relatively small public-policy apparatus in Washington and throughout the states as the company finds itself mired in legal disputes and policy debates with numerous government agencies.
Microsoft's roster of in-house and hired lobbyists has risen from 22 in 1996 to more than 30 by mid-1997, according to documents filed in Congress by Microsoft and its lobbyists. The company is also bolstering its lobbying efforts in the states, especially California, where legislatures are drafting laws for electronic commerce.
And, the company's Washington-based policy office is looking to hire another high-profile lobbyist, industry officials say.
The Redmond, Wash.-based company's added muscle in Washington preceded the Justice Department's announcement Oct. 20 that it was suing Microsoft to stop the company from bundling its Internet Explorer browser software and Windows products on desktop computers sold by other firms.
The value of a significant presence in Washington was underlined by this week's hearing on information technology antitrust issues before the Senate Committee on the Judiciary. Gaveled to order by Republican Sen. Orrin Hatch, whose constituency includes one of Microsoft's rivals, Novell Inc., Provo, Utah, the hearing allowed several witnesses to declare that Microsoft's dominance of the operating systems business is a threat to the development of the nation's high-tech economy. Only one lawyer - Charles Rule from the Washington-based firm, Covington & Burling - repeated Microsoft's legal arguments during the hearing.
| ||1996 Funding* ||1997 Funding*|
(First six months)
|Microsoft ||$1.14 million ||$660,000|
|Oracle Corp. ||$600,000 ||$400,000|
|Netscape Communications Corp. ||$960,000 ||$373,000|
|IBM Corp. ||$4.88 million ||$3.18 million|
|AT&T ||$8.36 million ||$4.12 million|
|* Funds spent by hired lobbyists.|
|Source: U.S. Congress|
This hearing comes as Microsoft fights a court battle with Sun Microsystems Inc., over the right to control the new Java computer language. The battles have been accompanied by increased criticism from Microsoft's industry rivals and by Washington-based consumer groups led by consumer advocate Ralph Nader.
On Nov. 13, an alliance of consumer groups and Microsoft's industry rivals, including Sun and Netscape Communications Corp., will hold a policy conference in Washington to look "at the role that Microsoft plays and what its agenda is for electronic commerce and the software industry," said Jamie Love, who monitors Microsoft for the Washington-based Consumer Project on Technology.
The conference, sponsored by the Washington-based nonprofit group, Essential Information, is intended to promote investigation of Microsoft's business policies, which have long been criticized by Sun and Netscape.
Microsoft officials are reluctant to talk about their plans. Kimberly Ellwanger, Microsoft's senior director for corporate affairs, declined at a Sept. 12 Microsoft press briefing to detail the company's public-policy spending, saying only that she did not expect to add more people to the company's seven-person policy office during the next year. The office was established almost three years ago by Microsoft's lobbyist, Jack Krumholtz.
Neither Krumholtz nor company spokesman Mark Murray would return phone calls seeking comment on the company's public-policy plans.
Although many companies are steering clear of the disputes over Microsoft, numerous high-tech companies have taken sides against Microsoft in various battles: IBM is backing Sun's version of Java, while Netscape is publicly backing the Justice Department's antitrust claim, which is based on statements from executives at several companies, including Compaq Computer Corp., Houston.
"We have a really strong relationship with Microsoft. ... We can't comment on the ongoing government investigation," said Angela Goodwin, a Compaq spokeswoman.
Microsoft has traditionally had a much smaller presence in Washington than companies such as IBM Corp., Armonk, N.Y., or AT&T, Basking Ridge, N.J., or even Intel Corp., Santa Clara, Calif. The lower profile has muted the company's role in high-stakes controversies, despite prominent media coverage of its actions, government and industry officials said.
"It is a skinny effort," said Bruce Hahn, a Washington-based lobbyist for the Computing Technology Industry Association.
But Microsoft has had several notable successes, including the broadening of a new technical standard for next-generation TVs, the recent extension of an export-related tax break to software companies and the defeat of an FBI-backed proposal in Congress that would have restricted the use of encryption technology.
Microsoft's coyness about its widespread public-policy effort is hardly unique in the industry. "We try to maintain as low a profile as possible. ... [Our public-policy effort] is as dispersed as you can get," said an official at Oracle Corp., which employs three Bethesda, Md.-based lobbyists.
One of Microsoft's primary tools is its chief executive, Bill Gates. During at least two Washington controversies, Gates has telephoned key policy players to help swing critical decisions, including the Federal Communications Commission's selection of critical technology for next-generation televisions.
Although many other CEOs lobby Congress, few get the instant press exposure that Gates commands, commented one Microsoft critic. "Whenever Bill Gates speaks, he is influencing public policy," said another industry official.
Also, the company can use its marketplace power to influence other companies, said an industry official, pointing to a decision by Compaq executives to soft-pedal comments made by Compaq executives in recent depositions to Justice Department officials investigating possible antitrust violations by Microsoft officials. "They influence other companies. That's how they can have a tremendous impact," he said.
The extent of Microsoft's public policy spending is hard to gauge, say industry executives, because disclosure laws cover only the expenses incurred during the lobbying of government officials or by the donation of funds to politicians or political parties.
The additional funds that Microsoft - like many high-tech companies - spends via other organizations, such as public relations firms, trade associations or nonprofit groups, generally do not have to be disclosed.
Government documents submitted to Congress in February and August show that Microsoft employed 22 lobbyists and spent at least $1.14 million on lobbying expenses during 1996. During the first six months of 1997, Microsoft employed more than 30 lobbyists and spent at least $660,000 on lobbying, according to the Microsoft data required by the Lobbying Disclosure Act of 1995.
These Microsoft employees lobbied government officials on a wide range of issues: encryption, online taxes, patent reform, digital-copyright rules, immigration policy, research and development tax breaks, rules for next-generation TV technology and antitrust questions, according to the spending documents.
Among the high-profile lobbyists signed up are Vin Weber, a former Republican congressman who is now a partner at the Washington-based lobbying firm of Clark & Weinstock. Microsoft also is a client of former Democratic Representative Tom Downey, who helped craft the 1995 telecommunications reform act while serving on the House telecommunications subcommittee. Downey is now a chairman of Downey, Chandler Inc., a lobbying and consulting firm based in Washington.
Microsoft spends additional funds in legal battles fought via its legal firms such as
Preston, Gates, Ellis, Rouvelas Meeds LLP, or Squire, Sanders, Dominic & Dempsey LLC, both based in Washington.
Microsoft-hired lawyers and lobbyists also work to influence state legislation. For example, the Seattle-based law firm of
Preston, Gates & Ellis LLP, represents Microsoft during multistate negotiations over the basic rules for electronic commerce. "They are playing a very significant role" alongside other companies such as Netscape and Compaq, said Gail Hillebrand, senior attorney for the nonprofit advocacy group, Consumers Union.
Outside the United States, Microsoft employs lawyers and lobbyists in several countries, including in Brussels, Belgium, where it keeps a small team to lobby officials at the European Community's main offices. Covington & Burling supply some of this legal expertise.
The company's influence in Washington also is extended by corporate donations and executives' donations to politicians and parties, which added up to $235,584 during 1995 and 1996. This figure includes $114,089 donated by executives, and makes the company the seventh largest donor from the information technology sector. Ahead of Microsoft are companies such as No. 1 ranked Electronic Data Systems Corp., Plano, Texas, which donated $389,449, and Gateway 2000 of North Sioux City, S.D., which donated $310,750, according to an analysis prepared by the Center for Responsive Politics, a Washington-based nonprofit group formed to track political contributions.
Microsoft has also joined a variety of trade associations, which lobby for goals sought by numerous high-tech companies. For example, Microsoft pays roughly $40,000 per year to the Arlington, Va.-based Information Technology Association of America, ITAA officials said. The ITAA, whose 1997 budget of roughly $3.5 million is paid by a variety of high-tech companies, lobbies against onerous regulation of the information technology industry, said Harris Miller, president of the ITAA.
Similarly, Microsoft is a member of the Washington-based Business Software Alliance, which lobbies Congress on a variety of high-tech issues. "We do absolutely no company-specific lobbying. ... We only lobby on issues that have majority support from the BSA public-policy council," said Robert Holleyman, president of the BSA, which had 1996 revenues of $18.4 million, of which $1.314 million was spent on lobbying and political causes, according to BSA's September 1997 tax report. BSA's other members include Intel and IBM.
"Microsoft's lobbyists represent their corporate interests. ... What they do is work with [us] so that they maximize their resources," said Jeff Richards, executive director of another industry group, the Interactive Services Association, Silver Spring, Md. Microsoft is one of the 300 corporate members of the ISA and paid roughly $15,000 in dues during 1997, he said.
The company also benefits when executives of its allied industry associations supplement their lobbying efforts with press conferences, speeches and policy papers. "Am I trying to get an atmosphere that educates elected officials? Of course I am. The line between public affairs and direct lobbying ... is a seamless web," said one lobbyist who works on behalf of Microsoft.
Microsoft fosters this favorable atmosphere by hiring such PR firms as Edelman Public Relations Worldwide and Waggener Edstrom, and by supporting free-market think tanks and foundations. For example, Microsoft helps to fund the U.S. Internet Council, which will likely raise $1 million from industry throughout 1997 to build support for Internet-boosting policies in state legislatures, said Bill Myers, president of the Washington-based council. Other donors to the council include IBM, Intel and America Online Inc., Dulles, Va.
Also, Microsoft has funded the 10-person Progress & Freedom Foundation, a nonprofit organization that promotes free-market government policies, said Jill Murphy, director of communications at the foundation, which is also supported by IBM and several phone companies.
Whatever the fallout from the Justice Department investigation, Microsoft will continue to enlarge its public-policy and lobbying clout, say industry and government officials. In only a short time, "you will see a very big Microsoft presence," predicted one industry lobbyist.