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INNOVATION / MICHAEL SCHRAGE

This Whole Thing Rings a Bell

February 16, 1995|MICHAEL SCHRAGE | Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology

Do you think Judge Stanley Sporkin might be talking with Judge Harold Greene?

Sporkin's harsh dismissal of the Justice Department's antitrust consent decree with Microsoft can't help but recall Greene's activist role in the historic 1982 consent decree that broke up the Bell system. Back then, Greene's prodding, chivying and hardball consultation made him a co-architect of the telecommunications industry's restructuring. You can find evidence of his handiwork every time you open a telephone bill. To this day, the Modified Final Judgment arguably remains the most important document in telecommunications law and Judge Greene its most powerful arbiter.

Microsoft is not Bell Telephone. Bill Gates did not build a multibillion-dollar monopoly protected by government regulation or nurtured by guaranteed rates of return. Then again, Microsoft exerts such power and influence in software markets that many describe the company as a de facto monopolist unfairly undermining competition and innovation. As Gates is painfully aware, being called the John D. Rockefeller of the Information Age is not necessarily a compliment. Sporkin's blistering 45-page rejection of the Microsoft consent decree leaves no doubt that he sees the software juggernaut as an eminently suitable candidate for radical antitrust surgery.

"The picture that emerges from these proceedings is that the U.S. government is either incapable or unwilling to deal effectively with a potential threat to this nation's economic well-being," the judge wrote. Should he approve the agreement, he observed, "the message will be that Microsoft is so powerful that neither the market nor the government is capable of dealing with all of its monopolistic practices."

A humiliated Justice Department will appeal Sporkin's ruling, and legal experts say there is an excellent chance the appellate court would overturn the judge's rejection. However, the specter of a renegotiated consent decree--or even a trial--can't be dismissed. Microsoft has got to wonder whether it is dealing with its very own Judge Greene: a jurist who feels compelled by circumstance and law to play an activist role in defining the public interest in the software marketplace.

Conversely, legal observers may wonder if Microsoft now has its very own Judge David Edelstein: an Ahab-like figure who was formally rebuked for his relentless pursuit of the Great White Whale known as the IBM antitrust suit years after the Justice Department had dropped it. At this moment, the courts hold far more sway over Microsoft's future than any customer, competitor or technical innovation.

This swirl of antitrust activity begs the question of whether software--as telecommunications--turns into an industry governed as much by consent decrees as by entrepreneurs and market forces. Before the 1982 Consent Decree, the Bell system was shackled by a 1956 decree prohibiting it from offering any unregulated product or service. That decree was used by companies such as IBM to help keep AT&T out of the computer industry.

Similarly, IBM at one time was forced to divest itself of its computer services companies as part of an antitrust action. Indeed, IBM--at one time the biggest and most profitable computer company in the world--was enmeshed in dozens of antitrust actions. The history of American telecommunications and computing through the 1970s is very much a tale of antitrust.

It is indeed sobering to realize that on the same day Ronald Reagan's Justice Department announced that it would push for the breakup of the Bell system, it dropped the 14-year antitrust action against IBM. Few people would argue that the breakup of the Bell system hasn't been one of the most successful examples of "industrial policy" in the postwar era. Similarly, few would argue that market forces did in IBM in ways that antitrust could not. To this day, there are economists and industrialists who strongly believe IBM would have gained from being broken up as the Bell system was.

And yet, the notion of a single judge wielding enormous influence over a vital and vibrant industry such as software is clearly problematic. What do market forces and economic competition mean when a judge has to approve a proposed pricing scheme or a corporate acquisition? Judge Greene has been alternately praised and excoriated as a "telecommunications czar" whose impact on telecommunications is still more forceful than that of AT&T Chairman Robert Allen or Tele-Communications Inc. boss John Malone. Is this an appropriate model for tomorrow's software industry? Or will we see legislation rewriting the rules of software competition much as we now see efforts to rewrite the telecommunications laws to remove Greene's influence from the marketplace?

While a breakup of Microsoft analogous to the breakup of the Bell system hardly seems imminent, the idea that Microsoft can continue with "business as usual," independent of antitrust proceedings, is becoming less credible. Even in an era when market forces are cherished over activist judges and government regulations, it is a cultural fact that the American public distrusts the evils of monopoly, real or perceived.

If Judge Sporkin succeeds in provoking a public outcry against Microsoft--or even congressional legislation--he may not need to become the Judge Greene of software after all.

Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times. He can be reached at schrage@latimes.com by electronic mail via the Internet.

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