Oracle-MS flap -- how it happened

Summary:In 1999, pro-Microsoft ads from an 'independent' group spurred Oracle to take matters into its own hands. Then it snowballed.

In June of 1999, Washington lobbyists for software giant Oracle Corp. grew dismayed by the skill with which Oracle's bitterest rival, Microsoft Corp., seemed to be manipulating public opinion. As Microsoft faced the antitrust fight of its life, a group called the Independent Institute bought full-page newspaper ads citing 240 academics who criticized the government's antitrust attack on Microsoft.

Oracle Corp. (orcl) suspected the institute wasn't so independent, and decided to find out. It hired a Washington detective firm called Investigative Group International Inc. The ensuing cat fight, pitting two companies run by billionaires with a history of bitter animosity, exposed the glamorous software industry's seamiest side. Among its bizarre elements were accusations of stolen laptop computers and suspicious characters lurking outside the offices of Microsoft Corp. (msft) allies. And, in a curious twist for an industry that celebrates high-tech wizardry, spies for Oracle ended up relying mainly on low-tech paper trash.

At the time, Microsoft was making headway in its arguments against the government, causing tension among the small group of Silicon Valley firms that had instigated the government's case. Particularly unhappy were Oracle founder Lawrence Ellison and his executives, who carried an abiding anger over Microsoft's efforts to -- as one Microsoft executive had put it in an internal e-mail -- "kill ... Oracle." Oracle, concerned about the effectiveness of the anti-Microsoft coalition, decided to go it alone.

Oracle took with it a bare-knuckles Washington public-relations firm called Chlopak, Leonard, Schechter & Associates. And then, after the pro-Microsoft newspaper ads started running, Oracle added the other weapon in its arsenal, IGI, a firm that had previously helped the tobacco industry and the Clinton administration in their travails and was led by a former Watergate investigator.

Suspecting that Microsoft itself was behind the pro-Microsoft campaign, Oracle gave IGI its assignment: get the Independent Institute's funding figures. There was a discussion of tactics, including so-called Dumpster diving -- sifting through trash. IGI was told to do what was legal.

It wasn't long before IGI produced results: Internal documents showing that Microsoft had paid Independent Institute, based in Oakland, Calif., $153,000. Independent Institute President David Theroux suspects that information was stolen. People familiar with the operation, however, intimate that it was obtained by rifling through trash, a practice that isn't illegal. IGI Chairman Terry Lenzner said Wednesday that his firm "abides by a rigorous code of ethics and conducts all of its investigations in a lawful manner," and that its work for Oracle "was conducted in strict accordance with these standards."

In any case, the information found its way into a Sept. 18 New York Times article, embarrassing to both Microsoft and the Independent Institute. According to people with knowledge of IGI's activities, the operation was deemed highly successful within the firm.

Oracle next turned its sights on the Microsoft-backed Association for Competitive Technology, which in January announced it would file a friend-of-the-court brief on Microsoft's behalf, using a team of prestigious former government lawyers. Oracle's Washington team viewed the move as outrageous, given the probability that the brief would be paid for with money from Microsoft itself. In April, Oracle told IGI to look into ACT.

Soon yet another player surfaced: the National Taxpayers Union. It had long been publicly criticizing a suit against Microsoft by state attorneys general as "government-led larceny of Microsoft's intellectual property." In mid-May, as the group renewed its attacks on the government, Oracle again suspected the hidden hand of its software foe. Once again, it dispatched IGI, which promptly went trash-hunting. IGI discovered that the National Taxpayers Union had received more than $200,000 from Microsoft. That information surfaced in The Wall Street Journal and the Washington Post in May.

Taxpayers Union President John Berthoud has said that a succession of visitors had appeared at the group's Arlington, Va., offices pretending to be people they weren't. And another Microsoft ally, the Washington-based Citizens for a Sound Economy, said thieves stole three laptops from its downtown offices between November 1999 and January. Information about the group's financial backing from Microsoft, contained on the laptops, appeared subsequently in the Washington Post. Although there has been no evidence linking the latter incident to Oracle or IGI, Ellison said Wednesday, "Am I supposed to feel bad that we've exposed Microsoft as hiring the Citizens for a Sound Economy to say that anything that is bad for Microsoft is bad for America?"

It was trash-hunting at ACT, however, that ultimately brought Oracle's entanglement to light. For that, Oracle can thank Robert M. Walters and a conscientious cleaning crew.

In May, Walters, an amiable former journalist who was IGI's chief anti-Microsoft detective, leased an office near ACT's Washington offices. He used his own name but identified himself as an official of "Upstream Technologies."

According to someone familiar with the matter, Walters was involved in arranging for a woman, Blanca Lopez, to offer $1,200 in cash to the cleaning crew at ACT's quarters to look for office trash and bring it to the nearby offices of Upstream. Ms. Lopez told the Journal she was never aware of who was ultimately behind the trash-buying effort. The cleaning crew declined the money and reported the incident. Asked whether anyone at IGI offered money to a cleaning crew, the detective agency declines to comment.

Walters gave the leasing agent the names of three other "Upstream employees," all of whom were easily traceable back to IGI once efforts to buy ACT's trash were exposed. Walters, who declined numerous requests for comment, resigned from IGI last week.

Walters also paid $4,445 to lease the office space near ACT using a check drawn on his personal bank account, according to records obtained by the Journal. And he used the telephone in the Upstream office to call his home and his wife at her office. Those calls later were easily traced because they were routed through the building's computerized phone system. Together, these steps bore the mark of a detective who appeared not particularly worried about covering his true identity. In June of 1999, Washington lobbyists for software giant Oracle Corp. grew dismayed by the skill with which Oracle's bitterest rival, Microsoft Corp., seemed to be manipulating public opinion. As Microsoft faced the antitrust fight of its life, a group called the Independent Institute bought full-page newspaper ads citing 240 academics who criticized the government's antitrust attack on Microsoft.

Oracle Corp. (orcl) suspected the institute wasn't so independent, and decided to find out. It hired a Washington detective firm called Investigative Group International Inc. The ensuing cat fight, pitting two companies run by billionaires with a history of bitter animosity, exposed the glamorous software industry's seamiest side. Among its bizarre elements were accusations of stolen laptop computers and suspicious characters lurking outside the offices of Microsoft Corp. (msft) allies. And, in a curious twist for an industry that celebrates high-tech wizardry, spies for Oracle ended up relying mainly on low-tech paper trash.

At the time, Microsoft was making headway in its arguments against the government, causing tension among the small group of Silicon Valley firms that had instigated the government's case. Particularly unhappy were Oracle founder Lawrence Ellison and his executives, who carried an abiding anger over Microsoft's efforts to -- as one Microsoft executive had put it in an internal e-mail -- "kill ... Oracle." Oracle, concerned about the effectiveness of the anti-Microsoft coalition, decided to go it alone.

Oracle took with it a bare-knuckles Washington public-relations firm called Chlopak, Leonard, Schechter & Associates. And then, after the pro-Microsoft newspaper ads started running, Oracle added the other weapon in its arsenal, IGI, a firm that had previously helped the tobacco industry and the Clinton administration in their travails and was led by a former Watergate investigator.

Suspecting that Microsoft itself was behind the pro-Microsoft campaign, Oracle gave IGI its assignment: get the Independent Institute's funding figures. There was a discussion of tactics, including so-called Dumpster diving -- sifting through trash. IGI was told to do what was legal.

It wasn't long before IGI produced results: Internal documents showing that Microsoft had paid Independent Institute, based in Oakland, Calif., $153,000. Independent Institute President David Theroux suspects that information was stolen. People familiar with the operation, however, intimate that it was obtained by rifling through trash, a practice that isn't illegal. IGI Chairman Terry Lenzner said Wednesday that his firm "abides by a rigorous code of ethics and conducts all of its investigations in a lawful manner," and that its work for Oracle "was conducted in strict accordance with these standards."

In any case, the information found its way into a Sept. 18 New York Times article, embarrassing to both Microsoft and the Independent Institute. According to people with knowledge of IGI's activities, the operation was deemed highly successful within the firm.

Oracle next turned its sights on the Microsoft-backed Association for Competitive Technology, which in January announced it would file a friend-of-the-court brief on Microsoft's behalf, using a team of prestigious former government lawyers. Oracle's Washington team viewed the move as outrageous, given the probability that the brief would be paid for with money from Microsoft itself. In April, Oracle told IGI to look into ACT.

Soon yet another player surfaced: the National Taxpayers Union. It had long been publicly criticizing a suit against Microsoft by state attorneys general as "government-led larceny of Microsoft's intellectual property." In mid-May, as the group renewed its attacks on the government, Oracle again suspected the hidden hand of its software foe. Once again, it dispatched IGI, which promptly went trash-hunting. IGI discovered that the National Taxpayers Union had received more than $200,000 from Microsoft. That information surfaced in The Wall Street Journal and the Washington Post in May.

Taxpayers Union President John Berthoud has said that a succession of visitors had appeared at the group's Arlington, Va., offices pretending to be people they weren't. And another Microsoft ally, the Washington-based Citizens for a Sound Economy, said thieves stole three laptops from its downtown offices between November 1999 and January. Information about the group's financial backing from Microsoft, contained on the laptops, appeared subsequently in the Washington Post. Although there has been no evidence linking the latter incident to Oracle or IGI, Ellison said Wednesday, "Am I supposed to feel bad that we've exposed Microsoft as hiring the Citizens for a Sound Economy to say that anything that is bad for Microsoft is bad for America?"

It was trash-hunting at ACT, however, that ultimately brought Oracle's entanglement to light. For that, Oracle can thank Robert M. Walters and a conscientious cleaning crew.

In May, Walters, an amiable former journalist who was IGI's chief anti-Microsoft detective, leased an office near ACT's Washington offices. He used his own name but identified himself as an official of "Upstream Technologies."

According to someone familiar with the matter, Walters was involved in arranging for a woman, Blanca Lopez, to offer $1,200 in cash to the cleaning crew at ACT's quarters to look for office trash and bring it to the nearby offices of Upstream. Ms. Lopez told the Journal she was never aware of who was ultimately behind the trash-buying effort. The cleaning crew declined the money and reported the incident. Asked whether anyone at IGI offered money to a cleaning crew, the detective agency declines to comment.

Walters gave the leasing agent the names of three other "Upstream employees," all of whom were easily traceable back to IGI once efforts to buy ACT's trash were exposed. Walters, who declined numerous requests for comment, resigned from IGI last week.

Walters also paid $4,445 to lease the office space near ACT using a check drawn on his personal bank account, according to records obtained by the Journal. And he used the telephone in the Upstream office to call his home and his wife at her office. Those calls later were easily traced because they were routed through the building's computerized phone system. Together, these steps bore the mark of a detective who appeared not particularly worried about covering his true identity. Oracle's Ellison Wednesday took responsibility for the probe of Microsoft allies, though he said he didn't know that his company had hired IGI until Tuesday, nor that the effort included rummaging through trash. "It was my watch," he said during a news conference at company offices in Redwood Shores, Calif. "I authorized the budget, but I didn't know the details of the activities."

He acknowledged that "some of the things our investigator did may have been unsavory. Certainly from a personal hygiene point, they were. I mean, garbage ... yuck." Asked how he would respond to news that a competitor like Microsoft was rifling through Oracle's trash, he deadpanned: "We'll ship them our garbage. We'll send them all our garbage."

The PR firm Chlopak, Leonard & Schechter took a role in distributing information critical of Microsoft, although it said Wednesday that it "did not retain or direct the activities of IGI." The PR firm also said that only a "tiny fraction" of its work relating to Microsoft involved the software giant's allies, "all of which was factual, all of which was legal and none of which has been disputed."

Oracle isn't the only high-tech company getting into the business of corporate espionage these days. America Online Inc., for instance, acknowledged Wednesday that it, too, hired IGI to help in a political fight. AOL initially said, when queried last week, that it didn't believe it had done any business with IGI. Later, shown contrary information, spokesman Andrew Weinstein said the company had hired IGI in an effort to ferret out its foes in its fight in California over "open access" to cable lines. "The project lasted less than a week and basically involved research using Lexis-Nexis and public documents" -- and no trash searches -- he said.

Microsoft itself acknowledges that it once pulled an important document from the trash of another company. The incident occurred in February 1993 during a police raid of Supercom Inc., a California company accused of reproducing Microsoft software.

According to court documents, an investigator hired by Microsoft, Stephen H. Lawrence, accompanied police on the raid and rummaged through the company's trash. He found a two-page document crucial to the piracy allegations, along with 325 other pages that Microsoft later produced as part of the court case in a box labeled "documents found in trash." A Microsoft spokesman, Vivek Varma, argued Wednesday that circumstances of the 1993 police raid and Oracle's activities were different.

Corporate America long ago discovered the utility of paying private detectives to investigate enemies and allies. But the most prominent investigation firms, including IGI, maintain that they consider so-called "trash cover" operations to be disreputable, even as they occasionally dispatch detectives to discreetly collect a target's refuse.

IGI Chairman Terry Lenzner, for example, has said that the firm never uses such a technique without the express approval of the client. Other executives at detective firms say they discourage trash searches even if a client requests one, arguing that they can be costly and risk exposure, and that the source of any documents thus obtained and later used in court must be identified. One doesn't want to uncover explosive evidence in such a way that judges or juries focus on the method used to get it, one executive says.

Collecting someone's garbage is typically legal, as U.S. courtroom precedent dictates there isn't a presumption of privacy afforded to discarded items. But detective firms point to a plethora of other potential legal entanglements. In some jurisdictions, it could be considered trespass or even burglary to enter property with the intention to take trash. Paying money to cleaners or city employees for garbage could be deemed commercial or official bribery. IGI avoided the trespass issue by leasing office space near ACT.

District of Columbia police who investigated the attempts to buy ACT's trash took the case earlier this month for review to the U.S. attorney's office, where it was determined that despite the suspicious offer, no crime took place. Authorities in Arlington, where IGI rummaged the trash of the National Taxpayers Union, also indicated they weren't currently investigating any crime associated with the effort.

On a business level, competition between Microsoft and Oracle has always been fierce, particularly after Microsoft introduced its SQL Server 7 database, which competes directly with Oracle, about a year and a half ago. Oracle has also recently been touting its success powering the systems of e-business firms, a market Microsoft is eager to crack.

The rivalry extends beyond the computer industry into such areas as charitable donations. In June 1997, Gates pledged $400 million to bring computers and Internet access to public libraries. The next day, Ellison said Oracle would donate $100 million to help schools install inexpensive computing devices. Gates is bankrolling a vaccine scheme for poor countries; Ellison is putting money into cancer research.

On the charity front, Gates is winning so far, having donated some $22 billion to his charitable foundation. Comparing Ellison's effort "is like comparing a canoe to an aircraft carrier," scoffs Trevor Neilson, a spokesman for the Bill & Melinda Gates Foundation.

Wednesday, Microsoft issued a blistering statement calling Oracle's trash hunt "disingenuous and hypocritical." Oracle "apparently believes its business goals are more important than the free speech and privacy rights of others," it said.

At a briefing Wednesday, Oracle had hoped to talk about the exciting news behind its Application Server 8i: how it had been endorsed by more than 40 companies, and how it was "taking the middleware market by storm." But everyone else wanted to talk trash.

The room was jammed with reporters, far more than usually show up for a tech briefing, including TV camera crews. Oracle stuck to its schedule, though, and Gary Bloom, the company's executive vice president, spent an hour going through his slides explaining the firm's latest technology. "That's awesome," he said at one point, looking at a slide showing the performance of one of Oracle's "data caching" products.

The crowd was getting itchy. When a Compaq Computer official was brought on stage to endorse Oracle's plan -- a standard technology event -- one of the cameramen at the back of the room exclaimed, "Geez, this is ridiculous."

Finally, Ellison came on stage, and the room snapped to attention. The first question to him: "Larry, we hear you have been looking at Bill Gates' garbage. Is that true?"

--Lee Gomes and Don Clark contributed to this article. Oracle's Ellison Wednesday took responsibility for the probe of Microsoft allies, though he said he didn't know that his company had hired IGI until Tuesday, nor that the effort included rummaging through trash. "It was my watch," he said during a news conference at company offices in Redwood Shores, Calif. "I authorized the budget, but I didn't know the details of the activities."

He acknowledged that "some of the things our investigator did may have been unsavory. Certainly from a personal hygiene point, they were. I mean, garbage ... yuck." Asked how he would respond to news that a competitor like Microsoft was rifling through Oracle's trash, he deadpanned: "We'll ship them our garbage. We'll send them all our garbage."

The PR firm Chlopak, Leonard & Schechter took a role in distributing information critical of Microsoft, although it said Wednesday that it "did not retain or direct the activities of IGI." The PR firm also said that only a "tiny fraction" of its work relating to Microsoft involved the software giant's allies, "all of which was factual, all of which was legal and none of which has been disputed."

Oracle isn't the only high-tech company getting into the business of corporate espionage these days. America Online Inc., for instance, acknowledged Wednesday that it, too, hired IGI to help in a political fight. AOL initially said, when queried last week, that it didn't believe it had done any business with IGI. Later, shown contrary information, spokesman Andrew Weinstein said the company had hired IGI in an effort to ferret out its foes in its fight in California over "open access" to cable lines. "The project lasted less than a week and basically involved research using Lexis-Nexis and public documents" -- and no trash searches -- he said.

Microsoft itself acknowledges that it once pulled an important document from the trash of another company. The incident occurred in February 1993 during a police raid of Supercom Inc., a California company accused of reproducing Microsoft software.

According to court documents, an investigator hired by Microsoft, Stephen H. Lawrence, accompanied police on the raid and rummaged through the company's trash. He found a two-page document crucial to the piracy allegations, along with 325 other pages that Microsoft later produced as part of the court case in a box labeled "documents found in trash." A Microsoft spokesman, Vivek Varma, argued Wednesday that circumstances of the 1993 police raid and Oracle's activities were different.

Corporate America long ago discovered the utility of paying private detectives to investigate enemies and allies. But the most prominent investigation firms, including IGI, maintain that they consider so-called "trash cover" operations to be disreputable, even as they occasionally dispatch detectives to discreetly collect a target's refuse.

IGI Chairman Terry Lenzner, for example, has said that the firm never uses such a technique without the express approval of the client. Other executives at detective firms say they discourage trash searches even if a client requests one, arguing that they can be costly and risk exposure, and that the source of any documents thus obtained and later used in court must be identified. One doesn't want to uncover explosive evidence in such a way that judges or juries focus on the method used to get it, one executive says.

Collecting someone's garbage is typically legal, as U.S. courtroom precedent dictates there isn't a presumption of privacy afforded to discarded items. But detective firms point to a plethora of other potential legal entanglements. In some jurisdictions, it could be considered trespass or even burglary to enter property with the intention to take trash. Paying money to cleaners or city employees for garbage could be deemed commercial or official bribery. IGI avoided the trespass issue by leasing office space near ACT.

District of Columbia police who investigated the attempts to buy ACT's trash took the case earlier this month for review to the U.S. attorney's office, where it was determined that despite the suspicious offer, no crime took place. Authorities in Arlington, where IGI rummaged the trash of the National Taxpayers Union, also indicated they weren't currently investigating any crime associated with the effort.

On a business level, competition between Microsoft and Oracle has always been fierce, particularly after Microsoft introduced its SQL Server 7 database, which competes directly with Oracle, about a year and a half ago. Oracle has also recently been touting its success powering the systems of e-business firms, a market Microsoft is eager to crack.

The rivalry extends beyond the computer industry into such areas as charitable donations. In June 1997, Gates pledged $400 million to bring computers and Internet access to public libraries. The next day, Ellison said Oracle would donate $100 million to help schools install inexpensive computing devices. Gates is bankrolling a vaccine scheme for poor countries; Ellison is putting money into cancer research.

On the charity front, Gates is winning so far, having donated some $22 billion to his charitable foundation. Comparing Ellison's effort "is like comparing a canoe to an aircraft carrier," scoffs Trevor Neilson, a spokesman for the Bill & Melinda Gates Foundation.

Wednesday, Microsoft issued a blistering statement calling Oracle's trash hunt "disingenuous and hypocritical." Oracle "apparently believes its business goals are more important than the free speech and privacy rights of others," it said.

At a briefing Wednesday, Oracle had hoped to talk about the exciting news behind its Application Server 8i: how it had been endorsed by more than 40 companies, and how it was "taking the middleware market by storm." But everyone else wanted to talk trash.

The room was jammed with reporters, far more than usually show up for a tech briefing, including TV camera crews. Oracle stuck to its schedule, though, and Gary Bloom, the company's executive vice president, spent an hour going through his slides explaining the firm's latest technology. "That's awesome," he said at one point, looking at a slide showing the performance of one of Oracle's "data caching" products.

The crowd was getting itchy. When a Compaq Computer official was brought on stage to endorse Oracle's plan -- a standard technology event -- one of the cameramen at the back of the room exclaimed, "Geez, this is ridiculous."

Finally, Ellison came on stage, and the room snapped to attention. The first question to him: "Larry, we hear you have been looking at Bill Gates' garbage. Is that true?"

--Lee Gomes and Don Clark contributed to this article.

Topics: Oracle, Government, Microsoft

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