The NewsHour with Jim Lehrer

ELIZABETH FARNSWORTH: Good evening. I'm Elizabeth Farnsworth. Jim Lehrer is away. On the NewsHour tonight an update on the Starr investigation from Dan Balz of the Washington Post; the power of Microsoft as seen in Senate hearings and a report by Paul Solman; and an interview with Ejup Ganic, president of the Federation of Bosnia- Herzegovina. It all follows our summary of the news this Tuesday. NEWS SUMMARY

ELIZABETH FARNSWORTH: Washington lawyer Vernon Jordan said he testified truthfully and completely before a federal grand jury today. It is investigating President Clinton and former White House intern Monica Lewinsky. In a brief statement following his testimony Jordan said his friendship with the President would endure. Jordan has acknowledged helping Lewinsky find a job in New York. He also steered her to a lawyer when she was subpoenaed in the Paula Jones sexual harassment suit against Mr. Clinton. Jordan is scheduled to return to the courthouse on Thursday. We'll have more on his testimony, including a report from the Washington Post newsroom right after the News Summary. Iraq's Deputy Prime Minister Tariq Aziz said today his country would honor the arms inspection agreement worked out with U.N. Secretary- General Kofi Annan. That agreement was adopted in a Security Council resolution last night. At the White House today President Clinton said the resolution gave the U.S. the authority to act.

PRESIDENT CLINTON: The government of Iraq should be under no illusion Iraq's complete fulfillment of these obligations is the one and only aim of the agreement. No promise of peace and no policy of patience can be without its limits. Iraq's words must be matched by deeds. The world is watching.

ELIZABETH FARNSWORTH: We have more on last night's U.N. action from Charles Krause.

CHARLES KRAUSE: The resolution approved unanimously requires Iraq to open all suspected weapons sites to U.N. inspection teams, including eight presidential palaces that had been off limits. The 15-member body also warned Baghdad that if it defied the U.N. again, it would face the severest consequences. Annan said the measure sends Iraq a clear message.

KOFI ANNAN, U.N. Secretary-General: The government of Iraq fully understands that if this effort to ensure compliance through negotiation is obstructed by evasion or deception as to previous efforts diplomacy may not have a second chance.

CHARLES KRAUSE: U.S. Ambassador to the U.N. Bill Richardson had this comment after the vote.

BILL RICHARDSON, U.S. Ambassador to the U.N.: Any-- repeat--any--attempt by Iraq to provide less than immediate, unrestricted, unconditional access to any site will, as this resolution states, result in the severest consequences for Iraq.

CHARLES KRAUSE: But, France, Russia, and China said that did not mean an immediate military strike.

QIN HUASUN, Chinese Ambassador to the U.N.: [speaking through interpreter] I wish to stress here that the passing of this resolution in no way means that the Security Council' automatically authorizes any state to use force against Iraq.

CHARLES KRAUSE: The U.S. has maintained it has the authority to use force under resolutions enacted since 1991.

ELIZABETH FARNSWORTH: Defense Secretary Cohen said today 36,000 U.S. troops in the Persian Gulf would be vaccinated against anthrax, beginning this month. They will get a series of six shots over eighteen months. Cohen called the action "safe and prudent." The U.S. has accused Iraq of developing anthrax as a biological weapon. When inhaled, it can cause death in five days from pneumonia and a breakdown of blood vessels. Microsoft CEO Bill Gates defended his company's business practices at a Senate Judiciary Committee hearing today. He appeared with his rival counterparts from Sun Microsystems, Netscape, and other computer companies. The Justice Department has charged Microsoft with attempting to monopolize the market on Internet browsers. Gates denied the charge. His competitors told the Senate hearing they did not appreciate Microsoft's business tactics, but they were against government controls on the industry. We'll have more on Microsoft later in the program. President Clinton today urged states to set tougher drunk driving laws. States who do not do so should lose some federal highway funds, he said. Mr. Clinton also took steps to lower the legal blood alcohol level to .08 percent for drivers on federal property, such as national parks, and military bases. Most states now have a limit of .1 percent. Attorney General Reno spoke at a White House event.

JANET RENO, Attorney General: By reducing the legal blood alcohol limit from .10 percent to .08 percent, we would save hundreds of lives a year. Fifteen states already have .08 laws. Many industrial nations have .08 laws. What are we waiting for?

ELIZABETH FARNSWORTH: Federal Reserve Chairman Greenspan and Treasury Secretary Rubin today urged Congress to quickly approve $18 million in supplementary funding for the International Monetary Fund. The money will be used to help ease Asia's financial crisis. The IMF has already assembled more than $100 billion to help bail out several countries in the region. The U.S. money would help replenish IMF resources. Medical researchers say they have discovered the first physical clue that may explain why people with dyslexia have trouble reading. An article published today by Yale researchers said tests show dyslexics have decreased activity in one of the language centers of their brains. As a result, researchers said dyslexics have problems linking printed letters with their corresponding sounds. And that's it for the News Summary tonight. Now it's on to Vernon Jordan and the Starr investigation, Microsoft the powerful, and the president of the Federation of Bosnia-Herzegovina. UPDATE - STARR INVESTIGATION

ELIZABETH FARNSWORTH: Margaret Warner has the Starr investigation update.

MARGARET WARNER: Today, Vernon Jordan, one of the President's closest friends in Washington, came before the federal grand jury investigating the Monica Lewinsky matter. A former civil rights activist, Jordan is today one of Washington's most influential lawyers, deal makers, and Democratic Party insiders. Jordan was born in Atlanta, Georgia, 62 years ago, the son of a postal worker. He earned a college degree from DePauw University, and his law degree from Howard University. He served as Georgia field director for the NAACP in the early 60's, executive director of the United Negro College Fund in 1970 and '71, and president of the National Urban League from 1972 to 1981. In 1982, Jordan joined the Washington office of a powerhouse Texas law firm, Akin, Gump, Strauss, Hauer, and Feld. Today he's a senior partner of the firm and also serves on 11 corporate boards. Jordan and the president have known each other for more than 20 years. After his election in 1992, Mr. Clinton asked Jordan to be co-chairman of his transition team. That same month, Jordan and his wife Ann held a dinner party at their Georgetown home to introduce the Clintons to leading members of the city's social and political elite. Jordan has not held any official position in the Clinton administration. But over the past six years, Mr. Clinton has turned to his friend frequently for advice and counsel, particularly at times of crisis. The two men also spend a great deal of time together outside the White House in golf games at courses around Washington and during summertime visits to Martha's Vineyard in Massachusetts. Jordan's name was associated with the Monica Lewinsky saga almost from the beginning. On January 22nd, just days after the story broke, Jordan publicly acknowledged that he had tried to help the former White House intern after she left government.

VERNON JORDAN: I did two things for Ms. Monica Lewinsky: I assisted her in trying to find employment in the private sector in New York City. Secondly, when she was served with the subpoena and, at her request, I recommended a very competent Washington lawyer, Mr. Frank Carter. I actually took her to Mr. Carter's office, I introduced them, and I returned to my office. I want to say to you, absolutely and unequivocally that Ms. Lewinsky told me in no uncertain terms that she did not have a sexual relationship with the President. At no time did I ever say, suggest, or intimate to her that she should lie.

MARGARET WARNER: Late this afternoon, after a full day of testimony, Jordan spoke briefly to reporters.

VERNON JORDAN: I answered all of their questions truthfully and completely to the best of my ability. I shall return on Thursday for more questions. As to those of you who cast doubt on my friendship with President Clinton. Let me reassure you that ours is an enduring friendship, an enduring friendship based on mutual respect, trust, and admiration. That was true yesterday. That is true today, and it will be true tomorrow.

MARGARET WARNER: For more on this aspect of the Starr investigation we return once again to the Washington Post's newsroom. Joining is Dan Balz, a correspondent on the Post's national staff.Dan, what is the importance of Vernon Jordan to the case that Ken Starr is trying to build?

DAN BALZ, Washington Post: Margaret, Vernon Jordan is obviously a central figure in this case. And one could say in many ways he was "the" central figure at the beginning of this case. If you recall the history of how this whole investigation started when Ken Starr went to the Justice Department and asked for expanded authority to investigate this whole matter, he was focused much more on Vernon Jordan at that time than the president. The request that he provided that the Justice Department look at talked more about Vernon Jordan's role. And at that time it was a basic question of whether Vernon Jordan had participated in obstructing justice in the Paula Jones case.

MARGARET WARNER: Why was Ken Starr particularly interested in Vernon Jordan that early on?

DAN BALZ: At the time he had tapes--as you know--the tapes that involved Monica Lewinsky and Linda Tripp indicated that Vernon Jordan had asked Monica Lewinsky to lie in the Paula Jones deposition that she was about to give.

MARGARET WARNER: That is, Monica Lewinsky supposedly has said that on the tape.

DAN BALZ: That's correct. That's according to people who were familiar with those tapes. They believe that that's what she was saying.

MARGARET WARNER: And also, though, explain the--explain why Ken Starr was already quite familiar with Vernon Jordan from the larger Whitewater investigation.

DAN BALZ: Well, there's been a history of involving Mr. Jordan that Ken Starr has been interested in. In the Whitewater investigation Ken Starr has been investigating whether Vernon Jordan, among others, had helped Web Hubble, a former Justice Department official at the beginning of the Clinton administration, whether he had helped Mr. Hubble obtain some lucrative contracts as a way to buy his silence in the Whitewater investigation. So what he had here was a second example in his own mind of a possibility of Vernon Jordan participating in and in some way or another obstructing justice, both with the Whitewater investigation and now with the Paula Jones case.

MARGARET WARNER: And how had he supposedly--what was Ken Starr looking at that Vernon Jordan had done on behalf of Web Hubble?

DAN BALZ: He had done a similar thing. He had helped him find a consulting contract with the Revlon Company, the same company that he helped Monica Lewinsky find a job in January.

MARGARET WARNER: Now, is Vernon Jordan an official target of this Monica Lewinsky part of the investigation? While I'm asking you that, maybe explain what's the significance of being a target.

DAN BALZ: Well, to be a target is simply to be informed by a prosecutor that you are in jeopardy of being indicted and if you have not been before a grand jury, I think you have the right to go in and tell your version of events, if you prefer to. At this point, from the best we can tell, Vernon Jordan has not been officially informed that he is a target in this investigation. He has not received a formal letter suggesting to him that he his a target. I think he would have to say that among the handful of people who might be targets in here that Vernon Jordan certainly would be one. But he's not been officially informed of that.

MARGARET WARNER: So, what is it--I mean, Vernon Jordan was in there a very long time today. What is it that Ken Starr most needs to know from Vernon Jordan?

DAN BALZ: I think that Ken Starr basically wants to know everything he can find out about what Vernon Jordan did on behalf of Monica Lewinsky and why. As you recall, when he gave his statement on January 22nd, he said he'd been asked to help Monica Lewinsky by Betty Currie, who is the president's personal secretary. Later, it was suggested through friends of Vernon Jordan that he interpreted that to be a request directly from the president. And so Ken Starr's prosecutors no doubt were taking Vernon Jordan step by step through everything he did from that point forward until the middle of January when he had actually succeeded in getting her a job with the Revlon Corporation, although that job was later rescinded.

MARGARET WARNER: So, in other words, he's-- Vernon Jordan is in a position to, one, let the grand jury know whether or not he was part of any sort of attempt to buy Monica Lewinsky's silence, and/or also whether the President was.

DAN BALZ: Well, he's one of just a small handful of people who actually knows what happened. And he's had conversations with the other two principal people--Monica Lewinsky and the President. And so his knowledge of events is more detailed and more significant than almost anybody else Ken Starr could get them from. And it's attempted, in essence, to triangulate this story to find out who is or who isn't telling the truth, depending on the other evidence that Ken Starr has been able to obtain so far.

MARGARET WARNER: Now, under the rules of the grand jury, could Ken Starr also ask Vernon Jordan about other conversations he's had with the president about other allegations or other alleged relationships, or anything that really he wants to?

DAN BALZ: Well, as far as I know, that's certainly within bounds in a grand jury. As you know, there's not a judge present. The prosecutors really are in control, along with the grand jury. Almost anything is within bounds. The rules of evidence are far different than in a courtroom, so it would certainly be within their right to ask him about his conversations with the president. And unlike the president's senior officials and senior advisers, I don't believe he could attempt to invoke executive privilege; it would not be privileged conversations. He was not acting as the president's attorney in this case, and he's not a member of the senior staff.

MARGARET WARNER: Mr. Jordan hasn't said anything publicly about the facts of the case since that January 22nd statement that we ran, but what do you, from your reporting, what do you at the Post know about Vernon Jordan's version of events?

DAN BALZ: We learned a good deal more subsequent to Mr. Jordan's statement in January. We know that there were four meetings between him and Monica Lewinsky. We know that there were a number of phone calls, anywhere from seven to ten phone calls. We know also that at the time he was first asked by Betty Currie to help Monica Lewinsky that he did not know that her name had shown up on a witness list to be a witness in the Paula Jones case. According to a version of events that was put out by someone who is familiar with his story, he did not know that until later at the point when she was subpoenaed to testify in that case. At that point, according to those who know his story, he went to both the president and to Monica Lewinsky and asked them specifically about a sexual relationship. And, again, according to these sources, he was told by both people, no, there was no sexual relationship. And only on that basis did he continue to help Monica Lewinsky find a job.

MARGARET WARNER: And so if that's the case, ergo--

DAN BALZ: Well, the conclusion from that is that everything he was doing was on the up and up, that in no way was he asking her to do something that would get her to try to lie because to the best of his knowledge, there was nothing she needed to lie about. So his role was purely as help to the President for Monica Lewinsky but not in any way to obstruct justice.

MARGARET WARNER: Now, this afternoon he also said a curious thing. He contradicted what he said, those who--among you who have cast doubt on my friendship with President Clinton--what was he referring to there?

DAN BALZ: A couple of things, Margaret. I think one is that about two weeks ago a version of events that I just went through was put out by people familiar with his story. That version of events was seen by some people as an indication that he felt he had been used by the President in this case and in other words, that the President had gotten him involved in this without forewarning him that there was a problem related to the Paula Jones case, and that he was perhaps angry at the President and might do something in the testimony that would put the President at risk. And in some of those same stories, including one in the Washington Post, he was quoted through a friend as saying, "I'm a loyal friend of the President, but I'm not a fool." And other people, again, felt that that might be an indication that he was not going to take the fall on this case, that the President was going to be on his own. Today's statement suggests that their friendship, as he said, is going to be enduring, and that the testimony he provided perhaps did not put the President at risk in any way.

MARGARET WARNER: So, on balance, how much would you say hinges on what Vernon Jordan was saying to that grand jury and what he'll come back and talk about Thursday?

DAN BALZ: Well, obviously, a lot hinges on it. As I say, he's most the significant figure who has testified so far. He's the first of the central figures who knows the story who has testified under oath. His version of events will now be used to compare with what Monica Lewinsky says when and if she testifies, and if the President is asked to testify exactly how the President characterizes it. So his version of events now becomes central in determining where this story goes.

MARGARET WARNER: All right. Dan, thanks very much again.

DAN BALZ: Thank you.

ELIZABETH FARNSWORTH: A reminder: the Washington Post's full coverage is available after 10:30 PM Eastern Time on their web site and on ours. Still to come on the NewsHour tonight, the power of Microsoft and the president of the federation of Bosnia-Herzegovina. FOCUS - MICROSOFT - WINNING MONOPOLY?

ELIZABETH FARNSWORTH: Kwame Holman begins our Microsoft report.

KWAME HOLMAN: This morning, a packed Capitol Hill hearing room was the setting for a high profile gathering of political and business power. Titans of the computer industry came to testify before concerned members of the Senate Judiciary Committee. At center stage was Bill Gates, chief of industry leader Microsoft and target of charges his company has become a too powerful monopoly that unfairly destroys other computer companies and stifles competitive technology. Republican Chairman Orrin Hatch of Utah laid out the committee's concerns about Microsoft.

SEN. ORRIN HATCH, Chairman, Judiciary Committee: I think there is a single basic question underlying our inquiry. Is there a danger that monopoly power is or could be used to stifle innovation in the U.S. software industry today and perhaps, more importantly, looking forward?

BILL GATES, CEO, Microsoft: My basic message this morning is this: The technological future of this country is incredibly bright. The breakthroughs Americans are working on are nothing less than astonishing. I am proud to be part of the PC industry, which is taking a low-cost, high-volume approach to computing. This is very different than the rest of the computer industry, and it's led to having hundreds of millions of people enjoy the benefits of computing.

KWAME HOLMAN: Flanking Gates were leaders of Microsoft's biggest competitors and critics. Scott McNeely heads Sun Microsystems.

SCOTT McNEELY, CEO, Sun Microsystems: This is not one company versus another, or another CEO versus another. This is about protecting consumer choice in the marketplace. So we're not here asking for new regulations. Let's state that: No new regulations, no new laws. What we want today is enforcement of the laws that are already on the books and in this case the anti-trust laws. Microsoft has a monopoly in PC operating systems controlling over 85 percent of the world's PC's and over 95 percent of all PC's being shipped today. That's fundamentally clear. There is no competition. There is no choice in PC operating systems.

KWAME HOLMAN: James Barksdale is CEO of Netscape, maker of the Internet browser Navigator, the popular software used to search the Internet.

JAMES BARKSDALE, CEO, Netscape: I want to--if you don't mind--can I ask the audience one question and get a little quick poll here. How many--I would like a show of hands--how many people in this audience, all right, use PC's, not Macintoshes? Now, that's only about 3 percent of the shipments. How many of you use Intel-based PC's in this audience? Raise your hands. All right. Of that group--no, keep your hands up-- do what I tell you to do--of that group who use PC's, how many of use a PC without Microsoft's operating system? Gentlemen, that's a monopoly. That's a lot.

KWAME HOLMAN: Chairman Hatch then began questioning Bill Gates.

SEN. ORRIN HATCH: With over 90 percent market share, do you seriously dispute the proposition that Microsoft Windows has monopoly power--at least the PC operating system--or desktop market?

BILL GATES: The products that Microsoft makes have a very short lifetime in terms of their attractiveness to customers. In the span of the term of a Senator we create a product; it becomes a very popular product; and then that product has no demand whatsoever. Outside of this room you'll hear from even members of this panel about how their products will replace Windows. So there is competition.

KWAME HOLMAN: Microsoft also has come in for criticism for the licensing agreements it forges with companies that provide Internet services. Critics say Microsoft forces such companies to provide computer users only with Microsoft's Explorer software to search the Internet, excluding other Internet browsers. The companies are known as Internet service providers, or ISP's.

SEN. ORRIN HATCH: One ISP has told us, for example, that the terms of its license with Microsoft had a very direct and significant impact in excluding alternative browsers. And today's Wall Street Journal reports that Internet firms say these contract terms "have prompted a sharp drop in their distribution of Netscape software."

BILL GATES: When we came out with our first Internet browser support, that was part of Windows 95. And nobody chose to use that browser. It was only with the Version 3 of this work where we won the majority of the reviews that then people started to switch to our browser. As far as the ISP's go, let's be very clear about that. Somebody who uses these ISP's has the ability in five seconds to switch their browser whenever they want.

JAMES BARKSDALE: I would say that basically what Mr. Gates is saying there is just not the way it works. The fact is they work very hard to get exclusive licenses. Microsoft, because other positions in their business, were able to force some people to do things that are not necessarily in their best interest.

BILL GATES: The licenses are not exclusive. I mean, let's be very clear about that.

JAMES BARKSDALE: They're exclusionary.

SEN. EDWARD KENNEDY, [D] Massachusetts: Do you think that there is any legitimacy in terms of a role to oversee your company in terms of how it works within the markets to find out whether it is, in any event, stifling competition, or involved in any predatory practices?

BILL GATES: Microsoft is in complete agreement, I think, with Mr. McNeely and Mr. Barksdale that the laws shouldn't be changed; they shouldn't be changed to be different in any way. And they certainly, in our view, do apply to our industry. And Microsoft is very careful in what it does to make sure our success comes from great products. We have no disagreement with people who say the anti-trust rules apply to us and to our industry in a broad way.

KWAME HOLMAN: Bill Gates attracted the attention of the Judiciary Committee in part because his company is under investigation by the Justice Department for alleged anti-competitive practices. Adjourning this afternoon, Committee members left open the possibility they will have more questions for Microsoft's Gates.

ELIZABETH FARNSWORTH: Our business correspondent, Paul Solman of WGBH-Boston, has been looking into some of the issues raised in today's hearing. Here is his report.

JAY LENO: This is a man, a man so successful his chauffeur is Ross Perot, ladies and gentlemen. Please welcome Bill Gates.

PAUL SOLMAN: The wealthiest man in the world. College dropout turned billionaire. Magazine cover boy. Subject of gushy profiles by the likes of Barbara Walters.

ANNOUNCER: The richest man alive has plans for you.

PAUL SOLMAN: But because of his wealth and power, Bill Gates also has his detractors. And in the cyber world Gates' Microsoft helped popularize, anti-Gates web sites proliferate. Our quick search turned up 59,000 hits, with Gates as the devil incarnate, the Borg, a Star Trek character who kills by assimilation. Here's a Gates look-alike at a trade show hawking Winblows 98, a parody of Microsoft's most famous product.

SPOKESPERSON: Welcome to Microshaft, my personal tribute to the mega software company that is both ruining my life and fair business in the global marketplace today.

PAUL SOLMAN: But it's no joke when Janet Reno's Justice Department accuses the firm of anti-competitive practices.

JANET RENO, Attorney General: Today we have asked a federal court to hold Microsoft in civil contempt.

PAUL SOLMAN: Or when right-leaning Senator Orrin Hatch has the same worry as left-leaning Ralph Nader: that Microsoft threatens free market capitalism.

RALPH NADER, Consumer Advocate: History has never witnessed a more ambitious and ruthless and anti-competitive monopoly.

PAUL SOLMAN: So, is Microsoft bad for the economy? Does it stifle innovation and competition? To explore these charges, we came to a hotel just outside Palm Springs, California. At Demo 98, a few dozen of the country's most innovative high-tech firms were debuting new products: a voice recognition program--you tell the computer what to do, in this case, making corrections; an interactive video game. Hundreds have paid the price of admission: $2300--to see what these innovative entrepreneurs have to offer. Yet, on nearly everyone's mind: How to deal with Microsoft.

MAN: Why would I buy this? Can't I get something like this from Microsoft?

SPOKESMAN: No, not now, not at this time.

PAUL SOLMAN: Not now. But maybe soon. Critics charge that if and when it wants to, Microsoft can dominate literally any part of the software industry and put a firm like this out of business. Already, Microsoft has 92 percent of the operating system market for desktop computers; 90 percent of word processing; 87 percent of spreadsheets, having crushed seemingly invincible Lotus; 80 percent of CD-ROM encyclopedias. We were at Demo '98, of course, to see if this dominance is the result of anti-competitive behavior. Though people were eager to talk about Microsoft squelching competition and scaring venture capital from funding them, most wouldn't go on camera, because they said Microsoft might not like it. Chris Shipley, who produces this event, sympathizes.

CHRIS SHIPLEY, Executive Producer, Demo '98: Every day they're doing business with Microsoft. Do you want to bite the hand that feeds you? I don't think so. Will they line up at the door of the Justice Department or at their attorney general to say this is happening? No, because they need Microsoft.

PAUL SOLMAN: They need Microsoft so their program can work with the latest version of the Windows operating system, which runs almost all new computers. Any program has to work with the operating system to run at all. Firms also fear Microsoft coming out with its own version of what they're doing and including the technology for free in the increasingly large pack of programs that Microsoft bundles or integrates with Windows. And if you get a free feature from Microsoft, why buy it from the competition? Is bundling okay? Well, some say yes. But not if the bundled technology belongs to someone else, like John Ticer, here demoing a new data-saving program.

JOHN TICER, President, Stac: Looks like I survived another critical mission. What about my computer?

PAUL SOLMAN: Five years ago, Ticer's firm, Stac, sued Microsoft for patent infringement--stealing its proprietary technology for compressing data--and then bundling the technology into Windows.

JOHN TICER: And our product, Stacker, went from $30 million a year to $2 million a year in sales, almost instantaneously.

PAUL SOLMAN: Microsoft settled the case for $120 million. Microsoft is now a major Stac stockholder. And so, it would seem to skeptics that folks here really have four choices; get crushed by micro, sue, play ball, or, if you're lucky, says Ticer, get bought out.

JOHN TICER: I think that 100 percent of the companies in a conference like this would love to be acquired by Microsoft because the deal would just give them all of their future value of the company right up front, and they'd be rich today, instead of having to wait three or five years.

PAUL SOLMAN: But, while the entrepreneurs may strike it rich, innovation in the U.S. economy may suffer because Microsoft is suspected of sometimes buying new technology just to bury it.

CHRIS SHIPLEY: There are lots of companies who have been purchased by Microsoft in order to be shelved so that they don't compete with Microsoft. Microsoft uses the power of its size and influence and bank account to do what's right for the Microsoft business.

PAUL SOLMAN: And even when Microsoft adopts the technology of others, say critics, it often sets back innovation: by creating clunky, over-complicated versions of what it acquires.

JULENE HUNTER, Founder, Chroma Graphics: You can't argue that Microsoft has the best technology. They don't.

PAUL SOLMAN: They do, however, make it hard to compete. Entrepreneur Julene Hunter was demoing a program that can search for images. Firms like hers need venture capital. But if they go up against Microsoft, no matter how good their technology is, they may scare off the venture capitalists.

JULENE HUNTER: Don't come to them with a new word processor or a new spreadsheet. You won't get funded.

PAUL SOLMAN: Even if it's a brilliant new innovation?

JULENE HUNTER: Where's the market? Go talk to Microsoft, or grow in a space where possibly Microsoft might want to acquire you. That's absolutely the advice that you'll get.

PAUL SOLMAN: Heard enough charges yet? Well, you still haven't heard about vaporware. A competitor announces a new product. Microsoft says it's got something better in the wings. Consumers wait for Microsoft. The competitor dies. Microsoft's product never materializes, vanishing in the vapor. Bob Metcalfe is an industry pundit.

BOB METCALFE, InfoWorld Columnist: Microsoft does vaporware repeatedly, grossly, constantly, and sometimes anti-competitively, I mean, deliberately anti- competitively.

PAUL SOLMAN: Okay. What do all these charges add up to? Enter Silicon Valley anti-trust lawyer Gary Reback, who's been called the one man Bill Gates fears. Reback started fighting Microsoft 15 years ago. He's represented nearly all of its major rivals since. We asked him to join us at the Demo '98 and summarize the case against Microsoft.

GARY REBACK, Attorney: You'll find little companies all over the place doing their best to innovate around the fringes. What you won't see are the big challenges to Microsoft because they're gone.

PAUL SOLMAN: We sat down in the atrium of Demo's hotel and asked Reback to elaborate.

GARY REBACK: People want choice. Even if they choose not to avail themselves of the alternative, they want to know that there's a choice.

PAUL SOLMAN: To economists, Reback points out, choice is the driving force of a free market system because if there's only one choice, consumers ultimately won't get the best products, or the cheapest ones, since it's competition that drives up quality, forces down price. At this point, I had an objection. But I've got a million choices. I mean, I can now--

GARY REBACK: No, you don't. Tell me what your operating system choice is.

PAUL SOLMAN: No. There I was forced to go with Microsoft--with Windows.

GARY REBACK: Okay. Now stop for a second. Do you know everything that's in the operating system that used to exist as independent product, where there was choice? Microsoft has told the federal government that they have the right to bundle a ham and cheese sandwich, if they want to, in the operating system. They can take any product they want, bundle it into the operating system, and put competition out of business.

PAUL SOLMAN: Well, but at least I'll get a free ham and cheese sandwich.

GARY REBACK: It isn't free; they'll raise the price of the operating system.

PAUL SOLMAN: In fact, says Reback, while the price of computer hardware has been plummeting for decades, the price of the Windows operating system software has risen, or at best, remained the same, and then only if a computer maker does what Microsoft wants. Now, as Reback talked on, a few people had stopped to listen. We wondered what they thought.

PAUL SOLMAN: Just a show of hands, how many people are sympathetic to the arguments he's making? All of you. See that buddy.

PAUL SOLMAN: When the crowd grew bigger, we asked the question again. We had to obscure one man's face for reasons that will be clear in a moment. You're covering your name tag.

MAN: He's covered.

PAUL SOLMAN: Oh, you're covering your names.

MAN: Absolutely. If they ever found out, they'd come after us.

PAUL SOLMAN: Okay. Thank you.

SPOKESMAN: That's a touchy subject. I mean, people--small companies get muscled around by power and leverage.

PAUL SOLMAN: Later, this man approached us and pleaded that his face be blotted out for fear of retaliation by Microsoft against his fledgling software company.

GARY REBACK: I don't think that people outside the technology community really understand what's at stake. I think they want the power, the power to control consumer choice. That's what they want. And it will be over my dead body.

PAUL SOLMAN: Of , if Reback fails, over the bodies of Microsoft's would-be competitors. It was with this portfolio of charges then that we traveled to Redmond, Washington, to get Microsoft's response. Okay. We asked their chief legal counsel, Brad Smith, does Microsoft stifle innovation?

BRAD SMITH, Chief Legal Counsel, Microsoft: I think a lot of what Microsoft does helps innovation throughout the computing industry--not just software but hardware. We create a common platform that makes it a lot easier for other people to then write applications that run on top of ours. An obvious example is Windows.

PAUL SOLMAN: That is, says Microsoft, it's created a platform or industry standard as basic as VHS for home video, track size for railroad trains. Thirty-eight year old Nathan Myhrvold is Bill Gates' chief technology officer and right-hand man. He helped create the Windows standard, which cost more than $2 billion to develop. We asked him about the charge that bundling new technology into Windows kills competition.

NATHAN MYHRVOLD, Chief Technology Officer, Microsoft: I don't know what you mean by bundling. The history of our whole industry, every product, whether it's a word processor or it's an operating system, adds new features over time. New features are integrated. That's what our customers pay us to do.

MORRIS BETON, Director of Developer Relations, Microsoft: This is a place where we take our software companies that we work with.

PAUL SOLMAN: Morris Beton responded to the charge that Microsoft crushes rival software firms. He runs a multimillion dollar lab where competitors are invited in to fine tune their software products so they'll work better with Windows.

MORRIS BETON: The reality of it is that some of what we do is counter-strategic. It makes their product more competitive. But that's actually good because we want their product to run extremely well on our platform. And we're willing to give them all the information they need to get that done. We give them the same information that we give to our internal groups.

PAUL SOLMAN: Beton's responding here to a charge we haven't mentioned yet; that Microsoft's own software writers--of its word processor or web browser, say--have a leg up on competitors, since they know the latest details of windows. Beton insists it's a level playing field for all the 40,000 some odd software vendors out there. And, indeed there were several would-be competitors at the lab. Jeff Smith was tinkering with his program for altering photos.

PAUL SOLMAN: How happy were you when Microsoft said, yes, you can come in here and work with us on this?

JEFF SMITH, Chief Architect, MGI Software Corp.: Guardedly ecstatic.

PAUL SOLMAN: In fact, only a tiny fraction of all software firms come through here every year; the ones with cutting edge technology that sparks Microsoft's interest.

PAUL SOLMAN: Do you ever worry that you're partnering here with the biggest of the big?

JEFF SMITH: Well, I'm not connected to the network. So, since I have source code here-- I'm being cautious. And it's not because I'm concerned abut the company doing anything on an official level, but the group that develops the software that is competing with us is made of ambitious human beings who may in a moment of weakness surf into the wrong net, so I'm being careful.

PAUL SOLMAN: Now, Microsoft says it's set up safeguards to prevent just this sort of poaching by its own employees. But we were reminded of the fear we'd witnessed at Demo 98.

PAUL SOLMAN: When I interviewed Gary Reback at Demo 98, a bunch of people gathered around and I asked them if they were sympathetic to Reback's argument and every one of them said yes, and one guy afterward said he had to hide his face because they'll retaliate against him.

NATHAN MYRHVOLD: [laughing] Once you get something hyped to this level, people can say all kinds of ridiculous stuff. It's ridiculous to think people have to hide their faces.

PAUL SOLMAN: No, but he really was scared, honest.

NATHAN MYRHVOLD: Because our company that's making all of these billions really has nothing better to do than to go squash his little company?

PAUL SOLMAN: Nathan Myrhvold blames a lynch mob mentality for circulating ridiculous charges like misappropriating technology, vaporizing competitors. Well, we asked Microsoft's lawyer, has the company never crossed the line?

BRAD SMITH: I can't think of an instance where we have crossed the line. We ask ourselves as lawyers every day, you know, where is the line, and as technology and the law evolve together, it sometimes takes a fair amount of effort to discern exactly where courts in the United States or overseas would draw the line.

PAUL SOLMAN: So, you sort of feel victimized by all this?

NATHAN MYRHVOLD: Well, you tell me how to feel if you know you haven't done anything wrong and everybody's dumping on you.

PAUL SOLMAN: But what about the charge that Microsoft never innovates, only imitates? Well, that annoyed Craig Mundie, who showed us a range of new products that, he says, a miniature version of Windows makes possible.

CRAIG MUNDIE: We make the operating system. All of these devices have in common the fact that they run Windows CE, which is our new operating system that we've designed to go into these intelligent, digital appliances. So I can talk to it, I can handwrite on it. I can type on it.

PAUL SOLMAN: But, say critics, such devices are already on the market, like the stunningly successful Palm Pilot, and they work on a non-Microsoft platform. Is Microsoft innovating or imitating in order to squash the innovator? Another new technology is Web TV.

CRAIG MUNDIE, Senior Vice President, Microsoft: I can navigate here with a remote control, so I'm sitting on my couch. And if I wanted to read my mail, for example, I would just say, show me my mail, and it would go off and say here's the pieces of mail that you want.

PAUL SOLMAN: This program allows you to browse the web with your TV, or watch the tube itself.

CRAIG MUNDIE: Here it tells me it's Three's Company, I have ten minutes left in the show.

PAUL SOLMAN: Jack checks into a hospital to have an embarrassing tattoo removed.

CRAIG MUNDIE: That's right.

PAUL SOLMAN: To critics, though, Web TV is an example of Microsoft the malevolent because Web TV was bought and now runs on Windows when they say it could have been a contender, an alternative to the Windows standard itself. Mundie's response.

CRAIG MUNDIE: It's incredibly hard to speculate. Web TV's business was not that business. They had spent no money, time, or energy, all right, developing that.

PAUL SOLMAN: But was there no possibility that Web TV could be itself used as a platform?

CRAIG MUNDIE: Well, at some level, you could say it could have been used as a platform. The problem is they did not make and had no plan to make the investment.

PAUL SOLMAN: So, says Microsoft in summation, we invested billions to create a great standard and continue to spend billions to create great new technology. What's not to like? Your power, says critics, to kill competition so your products, which are actually inferior, will prevail. In the end then, Congress, the Justice Department, and the American public are faced with two radically different world views. Both of them may be credible, but taken as a pair, they are fundamentally incompatible.

ELIZABETH FARNSWORTH: Paul Solman is preparing a second report on Microsoft focusing on the Justice Department's anti-trust case. NEWSMAKER

ELIZABETH FARNSWORTH: Now, a Newsmaker interview with Ejup Ganic, the president of the Federation of Bosnia and Herzegovina. The 1995 Dayton Accords set up a unitary Bosnia but gave much power to two entities within it: the Muslim Croat Federation, which Ganic heads, and the Serb Republic. I talked with President Ganic this afternoon.

ELIZABETH FARNSWORTH: Thank you very much for being with us, Mr. President.

PRESIDENT EJUP GANIC, Bosnia-Herzegovina: Thank you.

ELIZABETH FARNSWORTH: What brings you to Washington?

PRESIDENT EJUP GANIC: Well, I came here to remind everybody in Washington that we need decision on Brcko, because that city has been under arbitration, and the project is, so to speak, in American hands.

ELIZABETH FARNSWORTH: Remind us of the background of Brcko, for those who don't remember.

PRESIDENT EJUP GANIC: Well, it was a city with a strategic location, and at the beginning of the war Syrian paramilitary troops came and ethnically cleansed the city, committed genocide, and expelled the people. Since then, they controlled the city, and that city is the main gate for us to go to Europe. So at Dayton they made arrangements to stop the war, but they didn't decide the future of the city, so they say we'll have an arbitration, and an American lawyer is in charge of that arbitration process. So a decision on that was postponed twice. And that pretty much slowed down the process, so I am now asking them to come up with a decision so we can make progress.

ELIZABETH FARNSWORTH: And it was--the decision was slowed down because there were still large problems in Brcko?

PRESIDENT EJUP GANIC: Well, it is a strategic location. It's a gate, so everybody wants to see that solution in order to make move in all directions. So postponing Brcko means postponing Dayton, and that's--you know, that slows down the process. And, by the way, we have American troops there that are helping us, so we want to have everything resolved, all decisions made until troops are there because every year we have to justify their presence there. So they should keep healthy solutions, not the ones that are not resolved.

ELIZABETH FARNSWORTH: Has the situation there and elsewhere improved since the election of Mr. Dodic, the new Bosnian-Serb entity's prime minster? The press here has made quite a lot about him being more moderate, for example, than the former leaders of the Bosnian-Serbs during the war. Has that improved the situation in Bosnia from your point of view?

PRESIDENT EJUP GANIC: Well, that's a hope for improvement. The man has been elected and, more or less, refugees from the Republic of Srbska. That means those who have been expelled voted for him. He made promises that he will allow the refugees to come back; that he will accept cooperation of international community. So we hope. We wait and see.

ELIZABETH FARNSWORTH: What about refugees overall, have many refugees come back to places where they would be in the minority? As of the end of last year I believe the figure was fairly low.

PRESIDENT EJUP GANIC: Well, we have reasonably good progress in the federation. That's the one entity.

ELIZABETH FARNSWORTH: The Muslim-Croat Federation that you head.

PRESIDENT EJUP GANIC: Yes. Exactly. Now, in the Republic of Srbska, so far only Serbs, nothing more. And Mr. Dodic promised that he will make change, and in the Republic of Srbska we still have indicted war criminals, but the U.S. decided to give them money because the U.S. policy was that they will never give money in the area where there are indicted war criminals. So until they are removed, the money will not come; however, the U.S. changed that policy so they are now helping the Republic of Srbska. And we hope that the indicted war criminals will be removed in the meantime.

ELIZABETH FARNSWORTH: You said that refugees are coming back to your entity, your part of Bosnia. There has been criticism here in the U.S. press that in Sarajevo your government is making it difficult for Serbs to return, is that true?

PRESIDENT EJUP GANIC: Well, you know, in Sarajevo, all those people from Srebrenica and other places have been squeezed.

ELIZABETH FARNSWORTH: People have come from those outlying cities?

PRESIDENT EJUP GANIC: Yes. They were ethnically cleansed, and they are now in Sarajevo. And, of course, we invite Serbs to come back to Sarajevo. On the other hand, you know, two men cannot wear the same shoes at the same time. So we have to open the door so you have two ways to return. On the other hand, we are prepared to make progress to start always to be the first to lead, and we have many apartment buildings that could be fixed with a small amount of money so the Serbs could come back, and those who want come back, of course, and we would like to make it more multi- ethnic than it is now. It used to be very multi-ethnic. Still it is, but not enough. So we started this process first. You know, we have been surrounded during the war, and now we invited everyone to come back.

ELIZABETH FARNSWORTH: Have there been changes in the laws? Because there was a law right at the end of 1995 that said you had two weeks to claim your apartment, and if you didn't, it would be turned over to somebody else, it would be considered empty.

PRESIDENT EJUP GANIC: Yes. Well, let me just tell you, it's a management case. You have to--you cannot keep people on the streets. So the best--we don't have a law for whole country which provides that everyone goes back to his house. We succeeded in the federation to come up with those laws. But in order to have completely done job we have to have the same law in the Republic of Srbska. Otherwise, you know, someone will be allowed to keep his house and the house that he occupied and doesn't belong to them. So that's why we want to be the first. We started first. We don't want to disappoint American government. We took advice to go ahead and then they will exercise pressure on Serbs to follow.

ELIZABETH FARNSWORTH: Mr. President, do you see any place in Bosnia, which is truly multi- ethnic in the way that it was before? Do you see any place that you feel has achieved what you want to achieve?

PRESIDENT EJUP GANIC: Well, for example, if you take Sarajevo and if you take Tuzla, for example, all the religious objects that belong to every ethnic group are intact or functioning. We just want more people. We manage to keep those cities that we controlled during the war multi-ethnic. We preserve everything that belongs to every ethnic group. But now we just want to make more multi-ethnic, and it takes help from the international community to help us. It's--you know, you have to pretty much have--provide opportunity for everyone to go back to his house. Right now, people in the federation don't have a chance to go in the Republic of Srbska. In the meantime, we are inviting Serbs who left Sarajevo to come back, hoping that in the meantime we'll create transit center apartments so that somehow we can manage the crisis.

ELIZABETH FARNSWORTH: So you believe that a multi-ethnic Bosnia is real--a realistic goal? As you know, there are Senators here--Kay Bailey Hutchison, for example, Senator from Texas, who doesn't think it's a realistic goal.

PRESIDENT EJUP GANIC: Well, you know, I don't believe ethnic cleansing should be verified. You know, if you allow that to happen, if you allow ethnic cleansing to be sort of accepted, then, of course, I don't think--many, many other small countries will not survive as a multi-ethnic. So you have to simply punish those who are pushing ethnic cleansing, and we should never accept results of ethnic cleansing. That's why Brcko is very important, you know. Terrible crime has been done there. People have been expelled I think. So now we had two years to analyze this case and to make proper decision on Brcko. We both need that city, so to speak. It's a gate for us to go to Europe. Serbs like to travel comfortably to Serbia. So we are very reasonable in terms of appropriate solution for the city. But it should be given to those who live there, more or less. And it should have international supervision to install the functioning of everything. That's why it is important to make decision now. You know, imagine if someone comes to your house and expels you from your house, and you-- and there is an arbitration in the court, and that decision is postponed one year, second year, third year. You cannot regain the title of your house. That's very painful, I think.

ELIZABETH FARNSWORTH: Mr. President, how long do you think U.S. troops, NATO troops, including U.S. troops, will have to stay in Bosnia in order to keep the peace?

PRESIDENT EJUP GANIC: Well--

ELIZABETH FARNSWORTH: As you know, the President has said they must stay, or they should stay past the June deadline for this--the SFOR troops, the stabilization force troops. What do you think? Do you think it could be years, many years?

PRESIDENT EJUP GANIC: Well, they were welcome at helping us. We should resolve issue of Brcko now because that's the remaining part to be resolved. Otherwise, it smells like Cyprus--postpone, postpone, postpone. That will be then difficult. Then troops will stay for a long, long time. Every day we have to make decisions when we have the U.S. troops on the ground. They're an expensive enterprise, and we care about them. So they might stay a few more years in a reduced form, if all decisions are made quickly, because we don't want those troops to keep unresolved cases. And, by the way, it's still partition of Bosnia is played by our neighbors, because that city of Brcko has to do also with partition of Bosnia-Herzegovina. If it is used by both, by Serbs--I mean, the Republic of Srbska and by Federation, it comes as a hook that keeps country together. Right now, Serbs have and they sort of use that to pretty much keep partition of country as an option. And that is also exercised by Croats.

ELIZABETH FARNSWORTH: Okay. Well, thank you very much for being with us.

PRESIDENT EJUP GANIC: Thank you. RECAP

ELIZABETH FARNSWORTH: Again, the major stories of this Tuesday, President Clinton's friend and confidante, Vernon Jordan, said he testified truthfully before the grand jury investigating the President and a former White House intern. Iraq said it would honor the arms inspection agreement worked out with U.N. Secretary-General Kofi Annan, and President Clinton urged states to lower the blood alcohol level at which a driver is declared legally drunk. We'll be with you on-line and again here tomorrow evening. I'm Elizabeth Farnsworth. Thank you and good night.