Red Hat CEO Tells Senate Judiciary Committee At Microsoft Hearing "Monopolist Has Seriously Warped The Technology Industry"

Presenting Testimony at Hearing to Review Antitrust Consent Decree, Szulik says "settlement of this case must deny the monopolist the fruits of its past actions and impose remedial measures on the monopolist for its violations of the law."

WASHINGTON, D.C.—December 13, 2001—Red Hat, Inc. (Nasdaq:RHAT) CEO Matthew Szulik presented testimony to the Senate Judiciary Committee on December 12, 2001 in the matter of the consent decree in the federal antitrust case against Microsoft Corporation (Nasdaq::MSFT). In a hearing titled "The Microsoft Settlement: A look to the Future" Szulik's opening statement asserted that Microsoft's illegal, anti-competitive practices had "seriously warped" the technology industry, "stifling innovation" to the detriment of the technology industry and to society as a whole. He called for strong sanctions against Microsoft. "Given the monopolist's history of skating up to the edge, or over the edge, in not fully complying with prior settlements, it will take very strong measures to change their behavior," said Szulik. "I believe the current consent decree is not strong enough. They will circumvent it."

In his testimony, Szulik quoted Massachusetts Attorney General Thomas F. Reilly as saying of the consent decree: "'Five minutes after any agreement is signed with Microsoft, they'll be thinking of how to violate the agreement. They're predators. They crush their competition. They crush new ideas. They stifle innovation. That's what they do.''' The remedy, said Szulik, can come only from the government, "Our competitor's illegal monopolistic actions have significantly reduced the open market in information technology," he said. "I believe that in extreme cases like this, it is the role of the government to step in and restore balance."

Szulik also told the committee that Microsoft's licensing, forced upgrade programs and other business practices have created a cycle in which schools must allocate 30 to 40 percent of their IT budgets to cover the costs of software and hardware upgrades. This situation seriously degrades poorer schools' ability to provide an adequate technical education for students. This cycle, caused largely by Microsoft's monopoly power, is widening the "Digital Divide," said Szulik, extending the gap in information technology between the "haves and have nots" in our society.

About the Hearings
The Senate Judiciary Committee convened hearings on the Microsoft case at 10:00 a.m. EST on December 12, 2001 in room 106 of the Senate Dirksen Office Building in Washington, D.C. Testimony was halted after two hours by a procedural matter and the statements of those on the panel were entered into the record. Chaired by Senator Patrick J. Leahy (D, Vermont), the committee includes:

DEMOCRATS -- Edward M. Kennedy, (Massachusetts), Joseph R. Biden, Jr., (Delaware), Herb Kohl, (Wisconsin), Dianne Feinstein, (California), Russell D. Feingold, (Wisconsin), Charles Schumer, (New York), Richard Durbin (Illinois), Maria Cantwell, Washington, John Edwards, (North Carolina),

REPUBLICANS --Orrin G. Hatch, Ranking Minority (Utah), Strom Thurmond, (South Carolina), Charles E. Grassley, (Iowa), Arlen Specter, (Pennsylvania), Jon Kyl, (Arizona), Mike DeWine, (Ohio), Jeff Sessions, (Alabama), Sam Brownback, (Kansas), Mitch McConnell, (Kentucky),

Red Hat CEO Matthew J. Szulik was part of a panel of witnesses that included noted legal experts and technology industry leaders. Participants from the technology industry included Jonathan Zuck, President of the Association of Competitive Technology; Mitchell E. Kertzman, President and CEO of Liberate Technologies. Microsoft was represented by Charles F. Rule of the law firm of Fried, Frank, Harris, Shriver & Jacobson, Counsel to Microsoft Corporation. Also testifying was Professor Lawrence Lessig of the Stanford Law School, and Mark N. Cooper, Ph.D., Director of Research for the Consumer Federation of America, and Justice Department Antitrust Division officials. The Committee also received written testimony from James Barksdale, former CEO of NetScape and now a board member of AOL.

About Red Hat, Inc.
Red Hat is the global leader in Linux and open source solutions. Red Hat is headquartered in Research Triangle Park, N.C. and has offices worldwide. For investor inquiries, contact Gabriel Szulik at Red Hat, (919) 547-0012, x439.More information about Red Hat is available at http://www.redhat.com/index.html.

Forward-Looking Statements
Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov/.

LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.

Matthew Szulik testifies before Senate on behalf of open source

Capitol Hill, December 12, 2001

Good morning.

I appear before you today as Winston Churchill said, "only to fight while there is a chance, so we don't have to fight when there is none." I am here to affirm that, in the computer software marketplace, competition, free from monopolistic practices, will deliver customer choice and access to affordable alternatives. Members of the committee, through your actions, you can affect a remedy that many members of the growing, global technical community hope will restore balance and inspire competitiveness in a networked society free of monopolistic practices.

It is with deep regret, that contrary to the statements of the US Department of Justice in its impact statement discussing the Consent Decree, the remedies settlement embodied in the Consent Decree fails to achieve the ends mandated by the Court for the following reasons:

• it fails to deny Microsoft the fruits of its statuatory violations,
• it fails to ensure that competition is likely to result,
• it was an agreement reached for the purpose of expediency, not for ensuring an adequate remedy and,
• it establishes an untenable precedent for future antitrust cases.

I stand before you today as a representative of the open source community and as the CEO of Red Hat, Inc., generally regarded as the most successful company selling and supporting open source software. The Red Hat Linux operating system software we provide is created by a global community of volunteers--volunteers who share their creation of intellectual property. The basis for their work is an open license that requires improvements to the technology be shared with others in return for broad rights of use, copying, and modifying the copyrighted work they receive. Programmers submit their software code, their creations, to the scrutiny of a very critical community of peers. The best code wins and is included in the next version of the software.

This open communication strikes me as so perfectly American. I envision the early leaders of this country drawing up the tenets of our constitution in much the same way--in the open, in pursuit of a solution that is fair and of benefit to all. Some have called this the technology equivalent of a barn-raising. Through this approach Linux software has grown, improved and become one of the most stable, cost-effective operating systems in the world. It continues to improve every day.

The values and practices of Red Hat are in most ways antithetical to those of the monopolist I am here to reference. Much testimony has been provided on the practices of that monopolist, which in my view has placed a technical and financial stranglehold on the technology industry. Mr. McNealy and Mr. Barksdale and others that have come before me have done a good job of addressing those monopolistic practices to this committee. I support their conclusions that the software industry needs government intervention. I support their requests for strong enforcement of antitrust laws if consumers in this country are to be returned to choice in their selection and use of software. I reaffirm their case, that innovation will occur when there is a competitive environment free of monopolistic practices.

Open source software arose because of a lack of alternatives that allowed the individual to choose the best tool for the job. Over the past 5 years, projects created by Red Hat and the open source community have become solutions of choice in areas of standards-based Internet software development, areas that the monopolist does not yet control. The growth and adoption of the Linux operating system now holds a 28% marketshare of the server operating system according to IDC. The Apache web server now holds 60% of the web server marketplace. Both are technologies developed by the open source community and available alternatives to Microsoft products.

Microsoft is deeply concerned about open source software and has already made overtures on how it will use dominance rather than technical expertise to crush it. The CEO of the monopolist said, quote, "Linux is a cancer that attaches itself in an intellectual property sense to everything it touches." The head of the monopolist's Windows Platform Group has similar beliefs. He said publicly, quote, "Open source is an intellectual property destroyer. I can't imagine something that could be worse than this for the software business." He goes on to say, "I'm an American, I believe in the American way. I worry if the government encourages open source, and I don't think we've done enough education of policy-makers to understand the threat." This same company has identified open source software as the single biggest threat to their business.

I am deeply troubled by the Consent Decree in this case because it runs counter to things that are fundamental to our identity as Americans. We value fair play, ethical competition, abiding by the rules and fostering innovation. But the same monopolist which has brought us here today continues to want to set the rules, including the rules governing the remedy that the Department of Justice claims will level the playing field. The monopolist cleverly carves out exceptions in that proposed remedy for security compromises it identifies and for standards it sets for determining what enterprise is an authentic and viable business. Moreover, the monopolist gets a substantial say in selecting the very body that is to monitor its practices. Since when does a parolee get to select his own probation officer?

It is clear to me even without a law degree that the Consent Decree was reached for the purpose of expediency rather than a sustainable result. When the result of the antitrust litigation has been upheld by the highest court in the nation, why is a lower court and, more specifically, the Justice Department willing to accept a less favorable settlement to consumers than the Microsoft proposed settlement when the finding of guilt was still at issue. I find it inconceivable that a firm with 96% marketshare, which has routinely annihilated competitors in its path, be offered improved terms after guilt has been established.

We have all heard of the Digital Divide. It's the gap in information and computing access between the haves and have nots in our society. I believe for the past 7 years , Microsoft has seen education as a marketplace, not as a responsibility. I believe that Microsoft, through its restrictions, high prices and monopoly power, is in part responsible. I'm involved with North Carolina Central University, one of the fine historically black universities in our country. It finds that it cannot afford Microsoft's restrictive licenses and forced upgrades. I see this sad experience in schools throughout our country. I have walked the halls of some of our poorest schools. The last thing these schools need is technology with strings attached.

Let us recognize who we are dealing with in this matter. In the words of Massachusetts Attorney General Thomas F. Reilly, commenting on the consent decree: "Five minutes after any agreement is signed with Microsoft, they'll be thinking of how to violate the agreement. They're predators. They crush their competition. They crush new ideas. They stifle innovation. That's what they do.''

The Chinese government understands this. The French and German governments as well. They have stated that proprietary software will not be used to develop government and educational infrastructure.

But the monopolist has more than 90% of the desktop operating system market and more than 70% of the Internet browser market. What choices do our schools have? What choices do our citizens have? As the monopolist extends its monopoly into additional markets, largely unfettered by the legal system and apparently immune to the consequences of their actions, the Digital Divide widens.

Biologists know that an unbalanced ecosystem, one dominated by a single species, is more vulnerable to collapse. I think we're seeing this today. Unchecked under the Consent Decree, it will continue and probably get worse. But it is not too late. Alternatives are still available. Action can still be taken. I call on you, our national representatives, to address this issue. Consider the fine work done by the nine litigating states in drafting an alternative set of remedial measures. Bring your considerable influence to bear on this matter. Stand up for your constituents.

In America, history has taught us that there is no mechanism more logical and efficient than a free and open market. Our competitor's illegal monopolistic actions have significantly reduced the open market in information technology. I believe that in extreme cases like this, it is the role of government--this government--to step in and restore balance.

Thank you.