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Antitrust activity "unprecedented"

Amid a flurry of high-tech and communications buyouts, the DOJ and FTC are more active than they have been in more than a decade.

Microsoft isn't the only company keeping trustbusters in Washington busy.

Amid a flurry of high-tech and communications buyouts, the Justice Department and Federal Trade Commission are more active than they have been in more than a decade, experts said. Even states are jumping on board, scrutinizing deals on which they previously might have passed. That's not stopping companies from returning fire, arguing that the interference of government is both stunting economic growth and harming technological innovation.

"The total amount of attention being devoted to high-tech companies, whether it's the review of mergers or [drafting] of enforcement guidelines, today surpasses any previous level of government scrutiny or attention," said William Kovacic, a professor specializing in antitrust law at George Mason University. He called the scrutiny "unprecedented."

Added Mark Schechter, an attorney with Howrey & Simon who formerly worked in the DOJ's antitrust division: "A convergence of factors have combined to generate a great deal of antitrust activity."

Trustbusters focus
on high-tech
Justice Department investigations
 Microsoft
 Primestar-News Corp. combo

FTC investigations
 Autodesk
 Intel

Required review
 SBC-Ameritech merger
 MCI-WorldCom merger
 Compaq-Digital merger

These factors include invigorated antitrust enforcement under the Clinton administration, a newly emerging high-tech market with a growing impact on the U.S. economy, and a mounting appreciation for an economic school of thought that emphasizes so-called network effects (which occur when the investments that companies and consumers make in personal computers, for example, lock them into to using certain types of components or peripherals and prevent them from using others).

Investigations include:

• The FTC is investigating Intel's business practices. The broad-based inquiry into the chip giant's dominance in certain processor markets began last fall. One path of investigation has been Intel's virtual lock over the intellectual property needed to build Pentium II computers.

• The agency also is investigating Autodesk's business practices, the second time in year that the software maker has faced government scrutiny. A dominant player in the Windows-based CAD software market, Autodesk last year settled an antitrust case with the FTC.

Joel Klein
Joel Klein

• Just yesterday, DOJ assistant attorney general Joel Klein filed suit to block the $1.1 billion sale of a television satellite slot by Rupert Murdoch's News Corporation and MCI Communications to cable operators including Tele-Communications Incorporated and Time Warner. The cable TV group Primestar provides direct-satellite-broadcast services, which the trustbusters called "the first real threat" to the cable monopoly.

• Earlier this week, SBC Communications said it would buy Ameritech, creating the second-largest local phone carrier. The deal already has raised concern from consumers, and requires approval from federal regulators. Another deal, the proposed merger of MCI and WorldCom, already is being heavily scrutinized by both U.S. and European regulators.

These investigations come on top of the highly visible legal showdown between Microsoft, the DOJ and state attorneys general, which could come to a head as soon as tomorrow.

The focus on Microsoft and these other companies largely is a result of their increasing economic clout. High-tech stocks are fueling one of the biggest bull markets in years, and technology companies are creating new jobs as other once-powerful "smokestack" industries are in decline. In the past, it was industries such as oil and railroads that received intense regulatory attention

Now, however, high-tech is booming. Venture capitalists such as John Doerr of Kleiner Perkins Caufield & Byers refer to the phenomenon as "the new economy." For example, a recent study by International Data Corporation predicted that the Web population will reach close to 100 million this year. The number of online users is expected to reach 1 billion by the year 2005.

"There is a greater awareness that technological progressiveness is the single greatest source of economic growth," said Kovacic. "The federal agencies are concerned that if the path to technological change and innovation is blockaded, the harm to the economy is unusually great."

The Clinton administration's more aggressive posture toward antitrust enforcement also is a significant factor contributing to the increased scrutiny of deal making among potential 21st-century monopolists.

By contrast, the Reagan and Bush administrations were decidedly "laissez faire" when it came to regulating business, with some notable exceptions, namely investigations of Intel and Microsoft.

Under the Reagan administration, "the general view was that criminal prosecutions for price-fixing were very important," said Schecter. "But, for the most part, mergers were considered more pro-competitive than anti-competitive and [the view was] that rigorous enforcement of the mergers law was not warranted and should be applied very sparingly."

During Reagan's tenure, antitrust resources for both the FTC and the Justice Department were cut sharply. For example, the FTC antitrust division now has roughly half the staff and budget that it did more than 15 years ago, according to Kovacic.

Since then, the DOJ's resources largely have been restored under Clinton. That hasn't stopped the division from beefing up its resources further, however. In December, the DOJ hired New York lawyer David Boies, a highly respected antitrust litigator who successfully defended IBM against the Justice Department in a 13-year legal battle, to help win its antitrust case against Microsoft.

The DOJ's antitrust division is padded with other top-flight antitrust litigators, such as Douglas Melamed and John Nannes, as well as highly regarded economists such as Dan Rubinfeld, a professor at the University of California at Berkeley.

Robert Pitofsky
Robert Pitofsky

The FTC's roster also includes some impressive names, including William Baer, Jonathan Baker, and its chairman, Robert Pitofsky. Baker and Baer hold senior-level positions.

Emerging antitrust theory also is fueling the increased regulatory attention. This includes debate about the "network effect."

"There is an increased awareness and sensitivity among antitrust policy-makers of network effects in high-tech industries," Schechter said. "It becomes very important to determine whether there are restraints that are unreasonably giving a product an advantage over others."