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Gates agrees to pay $800,000 penalty for Icos investment

By Drew DeSilver
Seattle Times business reporter

Bill Gates

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Bill Gates has agreed to pay $800,000 for violating federal antitrust rules — and no, the case had nothing to do with browsers, media players or software of any kind.

Rather, the Microsoft chairman and world's richest man was cited for not promptly disclosing a big investment two years ago in Icos, the Bothell-based pharmaceutical company that developed Cialis.

Yesterday, the Federal Trade Commission and the Justice Department simultaneously filed a civil suit against Gates and a proposed settlement of the charges in federal court in Washington, D.C.

The case involves the Hart-Scott-Rodino (H-S-R) law of 1976, one of the nation's core antitrust laws. Besides its more familiar function of giving the federal government power to approve or challenge proposed mergers, the H-S-R law requires advance notice of certain large stock transactions.

The idea, FTC spokesman Mitchell Katz said, is to give the agency a chance to review, and if necessary block, deals that would create monopolies or otherwise restrict competition and harm consumers.

The Gates-Icos deal didn't have that potential, but it was Gates' second violation of H-S-R reporting requirements in less than a year.

"Our hope is that, because this is such a high-profile case, it will get some attention and help people in a position to makes these types of investments become more aware of what the rules are," Katz said. "Compliance is the goal here."

Mark Beatty, general counsel for Cascade Investment, Gates' personal investment vehicle, said in a statement that the Icos transaction involved an option that was close to expiring, that Gates had not been personally involved, and that Cascade had cooperated fully with the FTC.

"In addition, a series of procedures has been implemented to avoid this type of oversight in the future," Beatty said.

Through Cascade Investment, Gates has more than $3 billion invested in 19 companies, ranging from Atlanta-based Cox Communications ($842.8 million as of Dec. 31) to Seattle Genetics ($30.2 million).
 
In November 2001, according to the complaint, Gates added 500,000 shares to his already sizable stake in Republic Services, a Florida-based waste hauler. That purchase gave him more than 10 percent ownership of Republic, meaning that under H-S-R, Gates should have given the government advance notice of his planned purchase and an opportunity to object.

Cascade quickly discovered the oversight and gave the required notice two weeks later. In December 2001, the FTC told Cascade that it wouldn't seek any penalties but reminded it to be more careful about complying with H-S-R.

But in May 2002, Gates bought 328,000 shares of Icos, a company on whose board of directors he sits. That purchase triggered another H-S-R advance-notice requirement, but Gates didn't provide the required notice for another six weeks; the mandatory review period didn't expire until Aug. 26.

All in all, according to the complaint, Gates was out of compliance for 80 days. With the maximum penalty at $11,000 for each day he was out of compliance, Gates could have been fined $880,000.

Barry Nigro, deputy director of the FTC's Bureau of Competition, said in a statement that the government agreed to the lesser penalty "because Mr. Gates cooperated with the (agency's) investigation and agreed to settle the matter quickly."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com