GOP Aims Attack at Antitrust Actions

Dole and think tankers are testing political waters in bid to chasten an emboldened Department of Justice

Senate Majority Leader Bob Dole recently appended remarks about Microsoft Corp. to the Congressional Record that appear to be an ideological indicator on the issue of antitrust law -- a potential rider to the Contract with America.

Those comments could presage broader legislative action to rein in an increasingly activist Department of Justice antitrust division, headed by the trustbusting Assistant Attorney General Anne Bingaman. Accordingly, conservative think tanks and like-minded legislators are sketching the beginning of an analytical framework for revamping antitrust law to accord with the dictates of the digital era. Microsoft has become the focal point of this effort.

"A company develops a new product -- a product consumers want," said Dole in the June 28 statement about the Redmond, Wash., software company. "But now the government steps in and is, in effect, attempting to dictate the terms of which the product can be marketed and sold. Pinch me -- but I thought we were still in America.''

Indeed, some say the Justice Department's handling of the case is a direct attack on one of the crown jewels of America's third-wave economy, and the time for abolishing the nation's antitrust laws, such as the Sherman Act, which, while not here quite yet, is drawing near.

"Those antitrust laws were written for an era when product life cycles, for steel ingots and such, were 30 years," says David C. Murray, an analyst at the Competitiveness Center of the Hudson Institute, Indianapolis, Ind. "Now, we're lucky if a product has a six-month life cycle. Thus, the whole area of antitrust is rife for reform."

Such policy proposals are only in the nascent stages, as indicated in the rough remarks of Dole. But the conservative think tanks -- such as Hudson -- which provide the ideological underpinnings for the GOP's regulatory revolution, are poised to tackle the issue.

Murray remembers being aghast when hearing of Judge Stanley Sporkin's ruling earlier this year which, at the time, stopped the settlement between the Justice Department and Microsoft. Sporkin misunderstood the term "vaporware," commonly used in the computer industry, and considered it a predatory tactic. Murray requested a copy of Sporkin's opinion to have the ammunition to write a policy paper about what he considers the absurd interpretations of antitrust activities.

Another development generated further attention in the think tank community. That was Bingaman's declaration that the Justice Department was investigating Microsoft for its alleged monopolistic practices, and for any potential future monopolies the company might garner. "They are arguing that the government knows what the competitive situation is going to be in the computer industry in five years," says Murray. "But that is pretty heavy-handed. Just look at the rise and fall of the eminences in the computer industry. Who could have predicted IBM's fall, and its comeback? Who can predict anything in this industry?"

Mary Lou Steptoe, acting director of the Federal Trade Commission's Bureau of Competition, said that the modern trustbusters "are looking at competition in the marketplace of tomorrow. We reality check this. How real are a company's R&D plans? How are they assessed in the marketplace? We're very concerned about preserving the fruits of innovation for consumers. An activity cannot be tolerated if it would deprive consumers of the benefits of competition. We're attempting to keep someone in the research marketplace."

For Murray and others, the bottom line is this: The federal government is attempting to regulate Microsoft -- and by implication, the entire software industry -- as if it was a public utility, such as the regional Bell operating companies. That means competition in the field is to be "managed," with prices and services set by the government. Some have even argued that providers of operating systems software should be regulated as a common carrier, much like AT&T in the early years of this century, when Ma Bell's legendary Theodore Vail cut a deal with the Justice Department to accept regulation in return for a guaranteed monopoly over the phone business.

According to Roger Pilon, an attorney and an authority on antitrust law at the Cato Institute, Washington, such reasoning by officials in the federal government has given him a "jaundiced view of antitrust law. Even in the worse case scenarios, such as price fixing, you don't have a violation of people's rights, so there's no reason for the government to intervene."

Consumers can always choose an alternative to a particular product if they do not like its price or quality, he observes. Moreover, he claims the idea of a producer cornering a market is absurd. Competition, derived from new technologies, always erodes market share. Look at the concrete industry. New materials, such as composites, are constantly eroding the marketshare of proprietors there. And the trend will continue, as new materials continue to be developed. Essentially, the laws of antitrust are invoked by those who find their once dominant position declining -- an argument many would make in the case of Microsoft. According to this thinking, competitors have used antitrust to undercut competition, not enforce it, he says. "The people asking for the investigations are the ones losing ground," Pilon says, and so they have appealed to the Department of Justice to accomplish business goals they could not achieve in the marketplace.

In recent papers filed in the federal court in Manhattan, Microsoft made the same argument, fighting back after years of begrudging acceptance of the antitrust probes. Microsoft called the Justice Department's investigations "unreasonable" and "irresponsible," and said they showed an "insatiable appetite" for investigating any venture that might be successful.

Still, despite conservative concerns, antitrust reform is not at the top of the GOP's regulatory reform agenda right now. There is a simple reason; other reform efforts have more vocal constituencies.

According to Ed Feulner, chairman of the conservative Heritage Foundation, the latest recommendation from his group is to cut budgets at 40 independent federal agencies, which, beginning in fiscal year 1996, could save $2 billion per year. Included are such perennial favorites as the Corporation for Public Broadcasting, Legal Services Corp., National Endowment for the Arts, U.S. Civil Rights Commission and National Endowment for the Humanities. "All of these programs are ready for what Ronald Reagan called the "ash heap of history," he said.

Once the budget slashing is done, antitrust will surge to the front of the line as a leading issue for conservatives. Conservatives, such as Peter K. Pitsch of Hudson, say that the regulatory approach for the emerging digital economy should be modeled on the successful methodology followed by the computer industry during the 1980s. Price changes in the computer industry were "large and sustained" and the ripple effects were powerful, the result of unbridled competition. The 1980s saw the rise of Microsoft, which has consistently dropped prices on its core products, rather than raising them, as one would expect from a predatory, monopolistic company.

"The flourishing of the once-lowly personal computer undermined the mainframe market, devalued billions of dollars in market capitalization, caused company restructuring, and left government antitrust and industrial planning actions in a wake of silicon dust," says Pitsch. "The lesson we draw is that the fast-changing world of digital technologies generally functions best when left to its own devices. The pace of technological change is too fast for any government bureaucracy to adapt or control. The market has shown that it can set its own standards, drive down prices and drive up market penetration if allowed to operate outside the reach of government regulators."

Pilon noted, "Antitrust was one of the first regulatory efforts of big government, along with the Interstate Commerce Commission. So it will probably be one of the last to go. Such regulations as affirmative action and environmental overreaching were enacted about 20 years ago. There is such a body of regulations there that need to be reformed first. Today, the enemy is big government, so that plays into the GOP's hands. Eventually, the country will be ready for antitrust reform."

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