Antitrust Reviews Tilt Playing Field to Competitors—When Agencies Care

The Bush administration’s DoJ at least has been “transparent” with its views on the threshold for antitrust scrutiny, said Sean Gates, a former deputy assistant director at the FTC and the only Bush veteran in the discussion. He was referring to the agency’s Section 2 report, released this month and criticized by a majority of the FTC commissioners. (See separate report in this issue.) The problem is that “people don’t think they're willing to go to court,” and that encourages companies to act anticompetitively, he said. The FTC, by contrast, “has the guts to litigate.” Bob Rosenfeld, a Microsoft lawyer since the 1990s antitrust case, said DoJ failed “to be an effective evangelist” to other countries for the U.S. model of antitrust enforcement. That let the more- intrusive European model take hold in Asia, starting the ball rolling on antitrust reviews of Intel, he said.

DoJ’s approval of the XM-Sirius merger may have set a precedent for judging anticompetitive behavior, Gates said. It referred to the “potential entry of new technologies” after 2012 -- not the usual “two-year horizon” -- as a protection against the combined company’s dominance of satellite radio, he said. Jeff Blattner, a former deputy assistant attorney general for the antitrust division not involved in the proceeding, said DoJ likely was persuaded by the low rates of satellite-radio penetration and “diversion” -- customers switching between satellite-radio providers. “Things were moving extremely quickly” in the digital-music sector, and DoJ probably worried that “the market would make them look silly” if the department took XM and Sirius to trial, Blattner said, noting he was an XM executive at the time. No one could have predicted the iPhone would be a more convenient and cheaper method for in-car digital radio, he added.

The FTC let competitors to Google “hijack the process” of reviewing the DoubleClick merger, said Dana Wagner, Google’s competition counsel. Microsoft was integrating aQuantive, and Yahoo was carrying out its ad partnership with WPP Group, all the while raising a “theory of the week” to keep holding up the DoubleClick merger, he said. “Any delay was advantageous,” and ironically, anticompetitive. Rosenfeld interpreted that to mean Microsoft’s concern about combining the vast troves of customer data held by the companies. But Wagner said the FTC’s separation of its competition review from privacy questions, taken up later at a workshop, was the right approach. Later he warned the media against “Microsoft fatigue” -- seeing the company as harmless.

Rosenfeld sharply disagreed with others on the value of the Microsoft antitrust settlement. The more important result was “deterrence” against future anticompetitive behavior from Microsoft, said Blattner, who led DoJ’s negotiations with Microsoft. The department’s action “contributed” to the development of Google and its challenge to Microsoft Office with Google Apps, he added. Microsoft was hit with “prophylactic” rules on communications protocols in the settlement, which had nothing to do with the original accusations that it discriminated against Netscape and Java, Rosenfeld said. The European investigation into IBM’s mainframe monopoly may finally reveal whether the rules imposed on Microsoft will be applied broadly, and fairly, across the technology industries, he said.

Whether the FCC or antitrust review is the proper setting for net neutrality was disputed. “There are lots of innovations that are potentially lost” if application providers can’t pay network owners for better service, similar to “express mail,” said Jon Orszag, economic policy adviser to President Bill Clinton. Wagner said Google didn’t oppose such service, but said the FCC was the place to hear disputes. Gates called antitrust review a more targeted way to prevent network discrimination, until it’s shown that the problem is “systemic” and requires broad regulation. -- Greg Piper

CCIA Conference Notebook…

Efforts at antitrust enforcement may be more difficult to pursue amid the economic downturn and skepticism at the Justice Department and Supreme Court about whether monopolistic behavior harms consumers, speakers told a Computer and Communications Industry Association antitrust conference Friday. European and Asian antitrust regulators are giving mixed signals, they said. Former Federal Reserve Board Chairman Alan Greenspan’s recent acknowledgment of under-regulation on his watch presages government willingness to challenge anticompetitive behavior, speakers agreed. But the correct approach is “case-by-case” targeted enforcement, as with Microsoft, rather than “backward-looking” regulation, said Jonathan Sallet, a former Commerce Department director of the Office of Policy and Strategic Planning. Government and academy have failed “to build a constituency for competition” with the public, said Mozelle Thompson, a former FTC commissioner. People don’t think enforcement will give them a more diverse market delivering better, cheaper products, he said. Financial-services market consolidation will apply “tremendous contrary pressures” to the push for beefed-up antitrust laws and prosecutions, with the public accepting mergers for the sake of stability, said Jon Jacobson, a member of the Antitrust Modernization Commission. It wrapped up work last year. Microsoft and Intel essentially retain their monopolies despite antitrust actions in the U.S. and abroad, and IBM is “reasserting itself” in the mainframe market, which suggests tech monopolies “reassemble themselves” by nature, said CCIA President Ed Black. DoJ came in too late to thwart Microsoft’s monopolistic ambitions, and a recent agency report on Sherman Act enforcement “would largely give a pass” to Microsoft’s earlier behavior and so-called loyalty discounts deployed by Intel to block AMD, Jacobson said. The current Supreme Court shows “fundamentally a hostility to antitrust,” he added. Approval of the Google-Yahoo search ad deal largely depends on whether regulators decide the companies have an “embedded advantage,” Sallet said. Net neutrality shouldn’t be deemed an antitrust issue of too few providers if broadband markets are judged to bring lower prices and better service, he said. The FCC may be the real problem, doing a poor job of investigative fact-finding and setting itself up for failure at the appeals-court level when Comcast and other companies challenge its actions, Sallet said. Antitrust policy is seen as converging between regulators in the U.S. and abroad, in response to global markets, but there’s still value in having different approaches around the world, said Phil Malone, lead Justice prosecutor in the Microsoft antitrust case. Some convergence is good, Jacobson said, citing a “small but annoying number of cases” in which antitrust is used as trade policy, such as Russia’s blocking a “trivial merger” between Google and Russian ad agency Begun. Data-protection policies also see use to stifle trade, Thompson said. The challenge is helping countries historically fond of government intervention shift to a fair antitrust policy, which must include more U.S.-led discussion of implementing a transparent review process in matters such as Europe’s Intel-AMD proceedings, he said. -- GP

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History validates the patent system, said Scott Kieff, a professor at Washington University School of Law, at the conference. When the U.S. “totally obliterated” software patents between 1972 and 1996, Microsoft sprung up as a monopoly, he said. Patents are important, but they don’t play the same role in software as in biotech or pharmaceuticals, said Susan DeSanti, a former FTC attorney. When the FTC studied patents in the software arena, most interested parties said they need patents as bargaining chips to make trades with other patent holders, she said. Software developers might need access to hundreds or thousands of patents, leading to a system of extensive cross-licensing quite unlike that in biotech, she said. There are serious questions about how patents work in software, DeSanti said. But most companies don’t want to raise those questions because they're invested in the current system, she said. Jonathan Gleklen, editorial chair of the Antitrust Law Journal, said it would be unfair and dangerous to make retroactive changes to intellectual property rights. Gleklen worries about FTC action on unfair or deceptive practices, based on section 5 of the federal law that empowers the commission, he said. Decisions seem to have moved beyond looking at actual violations and now “if what you're doing is mean, then it’s a violation of section 5,” he said. That trend is “dangerous and it doesn’t give people clear guidelines,” he said. He invoked the N-Data case as an example (WID Jan 24 p2). But DeSanti said the N-Data case marks no change in the patent system, because companies that buy patents should know they're buying any of the patent’s liabilities -- in this case, an incredibly low royalty rate. The FTC recently held a workshop on section 5 and has been soliciting public comments.