The morons on this thread who ridiculed the notion that anti-trust was wrong (or maybe they only ridiculed the messenger- I forget which) might like to read this from today's WSJ. Now, thanks to the likes of Albert and his soulmates Bill & Hillary, we may have the feds deciding what an operating system is. And to think we are forced to pay for this kind of service". Heck, Albert could've stayed home for that.
WASHINGTON -- The combat-boot business felt the sting of the Clinton administration's activist antitrust policy in April, when the Justice Department demanded that several boot makers provide seven years' worth of documents in a price-fixing probe.
A dozen gastroenterologists in Allentown, Pa., felt it too, when the Justice Department blocked their merger. And in June, Lamar Advertising Co. was forced by the government to sell 170 billboards in Mississippi and Louisiana before it could merge with Hedrick Outdoor.
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Fairly or not, the Clinton administration's antitrust enforcers have gotten a reputation for frying the little fish, while letting the big ones get away.
On Monday, they took a stance that they hope will change that reputation, attacking one of the biggest fish in the sea -- software monolith Microsoft Corp. -- for violating the consent decree it signed with the department in 1995. If they can make that charge stick before a federal judge -- still an open question -- they could go a long way toward changing their reputation and establishing the thrust of antitrust laws in the new economy.
The Microsoft case, many experts say, will be the first big test of antitrust law in an economy where dominance of software and cyberspace could be as important as the lock a few monopolists held on the railroads in the last century. On-line commerce, they say, demands new ways of thinking about where markets begin and end, and what is fair competition.
"Justice is taking a stand here, and it will be a watershed event no matter which way it goes," said Scott Winkler, an industry analyst at Gartner Group, of Stamford, Conn. If the government prevails, he says, the case could set new rules of competition in the information age and hinder Microsoft's strategy of swallowing more and more of the software industry into its ubiquitous Windows PC operating system. But if the feds can't make the charge stick, it gives Microsoft "a free hand to move even more aggressively," he says.
Overt Plea
Nearly as important, the lawsuit is an overt plea to Microsoft customers and competitors for information that would help the department pursue several other investigations of the software maker's business practices. Since the government settled its case with Microsoft two years ago, Silicon Valley has grown increasingly skeptical about the government's willingness to take on the software giant. Customers who could provide damaging information have been further discouraged by Microsoft nondisclosure agreements that effectively prevent them from volunteering information to the government without telling Microsoft first, the department's lawsuit says.
If the court strikes down those agreements, as the government has requested, it could free companies to provide more information. Joel Klein, Justice's antitrust chief, made it clear at his news conference Monday that these companies shouldn't feel restricted from volunteering information as the government pursues its investigations, including its review of Microsoft's recent $150 million investment in Apple Computer Inc.
"The potential political implications of this are huge," said Kevin Arquit, a former Federal Trade Commission official who investigated Microsoft in the early 1990s. "It changes the calculus in favor of the companies making their complaints."
Microsoft insists it is abiding by the consent decree and has done nothing wrong. William Neukom, the company's general counsel, said the nondisclosure agreements are merely designed to protect its proprietary know-how, and "are quite standard in this industry and others."
Coming up behind Microsoft are a potential string of antitrust cases that will help shape the economy of the next century. They include deals being contemplated by the world's communications giants -- each requiring Justice Department approval -- beginning with the pending buyout for as much as $30 billion of MCI Communications Corp., by either GTE Corp., WorldCom Inc. or British Telecommunications PLC. Waiting in the wings are potential deals in the works by AT&T Corp. and the five remaining Bell monopolies.
Electronic Transfers
And there is more. The Justice Department is preparing to challenge Visa USA and MasterCard International over their dominance of electronic transfers of money. One remedy under review, according to people close to the case, would force the separation of the two card associations, which now have interlocking memberships. That would permit real competition between their electronic networks and two smaller national networks run by American Express Co. and Discover, a unit of Morgan Stanley, Dean Witter Discover & Co. Visa and MasterCard have said their structure doesn't violate antitrust law.
How the Justice Department will deal with all of this remains to be seen. To date, the department has been perceived as fairly timid in its response to megamergers. The FTC, which shares responsibility for antitrust enforcement, has been more aggressive, going after Staples Inc.'s buyout of Office Depot Inc., for instance, and recently launching a challenge of Intel Corp.'s dominance of personal-computer hardware. The American Lawyer magazine put five of the FTC's top lawyers in tough-guy poses on its cover -- while a New York Times editorial derided Mr. Klein, the antitrust chief, as weak and politically compromised.
But the soft-spoken and conservative Mr. Klein, 50 years old, now appears eager to even the score.
In emerging technologies such as the Internet, he said in a phone interview from Paris Tuesday, "price competition is being replaced by competition in innovation." That's a new frontier for antitrust enforcement, forcing the feds to look ahead into markets that don't exist, a controversial approach that could be reversed by skeptical federal courts. But "the way the economy is moving right now requires us to look at some novel and precedent-setting issues, and we've got to stay ahead of them," he said.
GOP Support
Mr. Klein's approach has won him some early supporters. Conservatives who were critical of the Justice Department's earlier suit against Microsoft, for example, are coming to Mr. Klein's defense. Orrin Hatch, the Utah Republican who chairs the Senate Judiciary Committee, recently began a review of Microsoft's tactics after getting a slew of complaints from the computer industry. Two other Senate Republicans, Ted Stevens of Alaska and Conrad Burns of Montana, have demanded government action; Mr. Hatch said Monday that "vigilant enforcement of antitrust law will be imperative to prevent a situation which would prompt calls for government regulation of the Internet."
Mr. Klein, an appellate lawyer, came to the Justice Department after two years as deputy counsel to the president, a job he took after his predecessor, Vincent Foster, committed suicide. But he has since put some distance between himself and the White House, which has sought to maintain good relations with Microsoft's Bill Gates. An administration official said the White House wasn't told of the decision to take the company to court until it was announced Monday afternoon.
For all the difficulties ahead, even critics of the administration's antitrust policy say Mr. Klein could have some success where past efforts to rein in Microsoft have failed. "Knowing Joel Klein, I would say that Microsoft is in for a fight," says Joe Sims, a former FTC attorney and frequent critic of the government's antitrust policy. "His approach to life and to this job is that he doesn't shoot from the hip -- he builds a case from the facts."
At issue in the Microsoft case is whether Microsoft's Windows operating system and the company's browser, Internet Explorer, are two distinct products or one integrated product. The Justice Department asked the court to stop Microsoft from forcing PC makers to take the Internet browser as a condition of installing Windows 95, and to fine the company $1 million a day until it complies. The government's view that they are separate products rests heavily on Microsoft's own marketing and advertising and internal company memos.
Government Referee
That is important because it challenges Microsoft's longstanding tactic of pulling more and more functions into Windows -- functions that once were other products on retail shelves. The feds say the market is mature enough for Internet browsers to be a separate product; Microsoft insists they are simply another function of Windows.
But this also makes the government a referee in one of history's fastest-changing industries and breaks new ground where the Justice Department team in 1995 was reluctant to tread. "We should be on the lookout for predatory conduct by Microsoft, but it's a useless exercise to try to draw the line between what is the operating system and what is an application," says Robert Hall, a Stanford University economist who worked on the case three years ago. "We shouldn't be trying to stop Microsoft from putting more function into Windows -- and you don't want to punish success."
The Justice Department's petition Monday says Microsoft isn't complying with the settlement that ended the 1995 case, which clipped some of the company's power over computer makers. Among other things, the settlement prohibits Microsoft from tying other products to its dominant Windows operating system. But the settlement also has what could be a crucial loophole allowing Microsoft to make "integrated" products -- bringing new functions into Windows.
It is that loophole that Microsoft is hanging its case on. Mr. Neukom, the company's general counsel, says the decree explicitly states that it may bring new features to Windows. "All software vendors are entitled to improve their products," he says. If Microsoft can make that argument convincingly in court, the government could lose its gambit. Microsoft is expected to press the case with massive resources and is likely to appeal any adverse ruling.
Tough Judging
The Justice Department also faces a skeptical federal bench. The Washington appeals court with jurisdiction in the case overruled the district judge, Stanley Sporkin, in 1995 after he questioned whether the government's proposed settlement was tough enough on Microsoft. It replaced Judge Sporkin on the case with Thomas Penfield Jackson, who has a record of being rough on federal regulators -- in the 1980s, he rebuffed the government's effort to force General Motors Corp. to recall a new car line for allegedly faulty brakes.
Even if the government wins its day in court, Microsoft could still strike back in the marketplace, shifting its strategy to remain within the letter of the law while pressing its competitive assault on the Internet and on Netscape Communications Corp., which has the best-selling browser. Mr. Klein insists he won't have to make newfangled legal arguments at this point in the case. The only issue, he says, is whether Microsoft honored the terms of the 1995 consent decree fashioned by his outspoken predecessor, Anne Bingaman.
Ms. Bingaman made a splash when she first came into office, making it known that after years of reluctant GOP enforcement, the Clinton administration planned to actively enforce the antitrust law. Her biggest case was Microsoft.
But when Ms. Bingaman settled the Microsoft case with a consent decree, many in the industry denounced it as too lenient and unenforceable. Ms. Bingaman gamely defended the deal, saying it gave the department the right to keep an eye on the software maker.
Flood of Mergers
When the Internet case was brought to the Justice Department's attention last year, the decision to act was made not by Ms. Bingaman, but by Mr. Klein, then her top deputy and acting successor-to-be.
The flood of mergers that has since swamped the department has pressed its staff to the limit. "In addition to the telephone and huge defense mergers, and the Microsoft investigations, we are now going from Big Six accounting firms to the Big Four, plus our many investigations of price-fixing cartels -- we are being stretched pretty thin," Mr. Klein says. But he adds "we're a money-making organization," bringing in $205 million in criminal fines last year on a $100 million budget.
It may be in the Microsoft business for a while. At an industry conference in Phoenix this week, audience members were asked through an electronic-polling system to guess how long it would be before Justice would successfully prosecute Microsoft on antitrust grounds. The consensus view: 4.6 years. But that was before the news of the Justice Department's latest move.
--Don Clark contributed to this article.
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