August 9, 1999

Investigator of Microsoft Unrelenting in His Pursuit

By STEVE LOHR

he marquee stars of the government's antitrust assault on the Microsoft Corp. have been David Boies, the trial lawyer who proved a master at catching Microsoft witnesses off-guard, and Joel Klein, the chief of the Justice Department's antitrust division.

Yet the outcome of the government's case -- win or lose -- will largely hinge on whether the federal courts are impressed by the work and judgment of Phillip R. Malone.

	Justin Lane for The New York Times
	Phillip Malone led the Justice Department's investigation of Microsoft.

The 40-year-old senior staff lawyer in the Justice Department's San Francisco office led the agency's investigation of the software powerhouse.

It was Malone and his San Francisco team of "hawks" on the Microsoft issue, according to people involved in case, who strongly urged Washington to file a major antitrust suit against the company. After internal debate and review, Klein eventually agreed with the San Francisco recommendation and the Justice Department sued Microsoft in May 1998, joined by 20 states.

Then, before the start of the trial in October, Malone managed the campaign to add new evidence to the case and crisscrossed the country taking dozens of new depositions. He also coordinated the government's trial preparation, a painstaking effort that paid off repeatedly in the courtroom during the eight months of witness testimony.

"The case that has been presented is Phil Malone's case," Boies observed. "Take Phil and his San Francisco staff, and this case could have progressed without anyone else -- and that includes me. It may not have been quite as dramatic in the courtroom, but the case would have been the same."

The next step in the Microsoft case occurs Tuesday, when each side presents the court with its "proposed findings of fact." These amount to legal storytelling, as each side presents its view of the facts established in the trial citing witness testimony, e-mail or documents. And they will be tomes; though still being edited at the end of last week, the government draft was nearly 800 pages, and Microsoft's was about 250 pages.

The evidence cited will not be new. But these documents are efforts by both sides to organize and present the evidence to Judge Thomas Penfield Jackson, giving him a source book and a lens for viewing the case. The two sides, of course, will present very different views. And there is more to come, with both sides scheduled to submit revised findings of fact next month.

Malone, once again, is at the center of things. He and his San Francisco team found the facts the government is presenting as evidence, while Microsoft is rebutting them as hearsay, irrelevant or inconsequential in an antitrust case. Even Microsoft concedes that its witnesses got roughed up and occasionally embarrassed by Boies during the trial. But with the focus now turning to a cool assessment of the testimony, evidence and law, Microsoft's legal team insists that the advantage is shifting to their side.

In short, they much prefer opposing Malone's case on paper than opposing Boies in the courtroom.

"It was good theater in the courtroom, but the government left vast portions of our direct testimony untouched," said William Neukom, Microsoft's general counsel. "And this is our opportunity to tell our story based on the unchallenged facts in the case."

The Microsoft story is that contrary to the government's allegations, it has not illegally used the market muscle derived from its control of desktop personal computer software to stifle the challenge from Internet software. Consumers, Microsoft said, benefited from its decision to fold Internet browsing software into its industry-standard Windows operating system.

The government's view was perhaps most cogently expressed by a senior Justice Department official in the hallway of the federal court building in June. After a morning of testimony about Microsoft's reported arm-twisting tactics, the official told a colleague, "If that stuff isn't illegal, we should shut down the Justice Department."

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Malone was largely responsible for making that the received wisdom within the Justice Department -- though, of course, the policy decisions are not made by the staff but by the top appointees in the antitrust division, Klein and A. Douglas Melamed, the second in command.

With the case still pending, Malone will not discuss the investigation in detail. But he did say that it was the accumulation of evidence -- and not any single episode or document -- that persuaded him that Microsoft had gone too far. "It was the mountain of evidence, all those Microsoft e-mails keep coming back over and over again to the same theme," Malone said. "Its own documents make it very clear that Microsoft knew what it was doing -- protecting its monopoly."

Malone is regarded within the Justice Department as one of the top staff lawyers in the antitrust division. Colleagues describe him as soft-spoken, focused and driven. He grew up the son of a railway technician in Thoreau, N.M., a rail stop and logging town of 500 people at the time, and then made his way to Harvard University as an undergraduate, before getting his law degree at the University of Arizona and joining the Justice Department.

He seems to thrive on a grueling work regimen. During the course of the Microsoft investigation, Malone would often be called back for one-day meetings at Justice Department headquarters in Washington. His routine, colleagues said, was to work the day in San Francisco, take the overnight flight to Washington, work the day in Washington, take the red-eye that night back to San Francisco and show up early for work the next day. Klein calls Malone the antitrust unit's Cal Ripken, referring to the ironman infielder for the Baltimore Orioles.

Malone, who is single, bought a house in San Francisco last August. But the moving boxes remain mostly unpacked, since he has been back to see it only three times on brief visits, he said, because he has spent the last year in Washington for the trial.

Since he took over the Microsoft inquiry in 1996, Malone has pursued the company with an intensity and stamina others find remarkable.

Christine Varney, a lawyer who worked for Netscape Communications, recalled Malone asking for a briefing from software engineers on how Microsoft melded its browser into the Windows operating system. The Silicon Valley session in the fall of 1997, Ms. Varney recalled, began late in the day and lasted eight hours, with Malone quizzing the programmers with detailed questions.

"I was astounded by his depth of knowledge of the technology and the industry," Ms. Varney said.

The Microsoft legal team is also impressed by Malone as a hard-working investigator. But they said that his knowledge of the industry had been a one-sided tutorial administered by Microsoft's enemies.

There is a genuine cultural divide between the Justice Department's staff lawyers, like Malone, and the Microsoft legal team from Sullivan & Cromwell, an elite law firm. The culture gap -- different worlds of affluence and attitudes -- add a certain edge to their confrontation. Members of the private firm are the ones with the half-million-dollar-a-year partners' salaries, who ride in the front of the plane, wear expensive suits and stay at four-star hotels. Malone is paid about $100,000 a year and while in Washington rents a room with a kitchen. But he said he has never regretted not taking the more lucrative path in the private sector.

"This is what I love doing," he said. "You take a case, investigate it and file it because it is the right thing to do, not because some client paid you."

As the government's walking encyclopedia of the Microsoft case, Malone also plays a key role in the occasional settlement talks between the two sides. "You don't want to have detailed settlement talks without Phil in the room because he's the one who really understands things," one person involved in the case said.

If no settlement emerges and the trial concludes, the appeals process could take two years or more. By then, Klein, a political appointee, and Boies, a renowned litigator hired to present the case against Microsoft, will most likely have moved on, legal experts say.

"Of the whole group, the guy who will still be around in two years or so will probably be Phil Malone," said William Kovacic, a law professor at George Washington University.