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Silicon money: Companies shift strategy, take the offensive

Technology industry lobbying has become increasingly aggressive, raising questions about its tactics. Chart: Federal lobbying expenditures Chart: Political contributions

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Declan_McCullagh2.jpg
Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
11 min read

Silicon money: How do tech firms buy influence in Washington?

Companies shift strategy, take the offensive

By Declan McCullagh
Staff Writer, CNET News.com
March 27, 2006 4:00 AM PST

In 1997, Microsoft was so disdainful of federal bureaucrats that it created a Web site specifically to keep regulators at bay.

At the time, future CEO Steve Ballmer quipped "to heck with Janet Reno," and a press release by co-founder Bill Gates accused the government of "trying to slow Microsoft down."

Since then, however, the company's approach toward Washington has evolved from confrontation to cooperation: At $46 million over seven years, Microsoft by far outspends any other technology company on lobbyists. And Gates' incendiary press release has since vanished from Microsoft's Web site.

What a difference a decade makes. In the last few years, technology firms have not just opened lobbying shops, but they've also begun to use their growing political muscle for offense. Instead of merely fending off new regulations and taxes, many companies have begun to join in the classic Washington game of pushing for them--as long as someone else is the target.

A CNET News.com analysis shows that spending on lobbyists by large information technology firms more than doubled between 1998 and 2004, the period for which complete records are available. During those years, the total amount of influence purchasing by 37 prominent computer and Internet firms on registered lobbyists totaled $227.5 million, according to federal disclosure records. The total rises to $430.1 million if it includes the work of lobbyists hired by telecommunications companies such as Verizon Communications and AT&T.

The trend is a major shift in strategy for technology companies. Where the industry once assailed Beltway bureaucrats for their interference, it now routinely hires lobbyists--causing some to speculate that technology firms may have become a little too cozy with Washington for their own good.

"Most of the high-tech community thought, 'Washington is 3,000 miles away. What do we care?' All of the sudden, you see them ramp up their lobbying dramatically--and their contributions to campaigns."
Larry Noble, executive director, Center for Responsive Politics

"Business just goes there, plays a sucker's game and finds itself being treated with disdain," said Fred Smith, president of the Competitive Enterprise Institute, who has written extensively on relationships between businesses and politicians. "The way you get businesses continually coming to you and begging favors from you is to constantly rejigger the rules. Chaos is a great way to extract money."

The influence-buying practices of all industries have fallen under increasing scrutiny in recent months because of a federal investigation centering on lobbyist Jack Abramoff, who pleaded guilty in January to fraud, tax evasion and conspiracy to bribe public officials. His plea agreement (click here for PDF) says an unnamed aide identified only as "Staffer A" received illegal bribes for "stopping legislation regarding Internet gambling."

No technology companies have been publicly accused in any of the recent lobbying scandals, and their spending from 1998 to 2004 was still far behind that of counterparts in other industries, such as Boeing ($57.6 million); General Electric ($94.1 million); and Northrop Grumman ($62.2 million). But lobbying among tech companies is clearly on the rise, and the numbers disclosed in federal records actually underestimate total spending.

Faux 'grassroots' campaigns
Under the 1995 Lobbying Disclosure Act, it's legal for companies to lobby through membership in coalitions or by funding faux "grassroots" campaigns. And many industry representatives who act as lobbyists are not registered as such: Neither CEO Mitch Bainwol nor President Cary Sherman of the Recording Industry Association of America were listed in a government database of lobbyists in 2005.

Growth in lobbyist spending was inevitable because "we have been in a period in which it's widely recognized that the technology sector is potentially subject to regulations," said Roger Cochetti, group director of U.S. public policy for the Computing Technology Industry Association, which counts board members from Ingram Micro, Symantec, Lenovo and Xerox. "And in this environment, most major technology companies support a government relations program of their own."

Spending by political-action committees, or PACs, affiliated with technology and telecommunications companies also has risen. During the 2000 election, those PACs gave $7.1 million to politicians, a total that rose to $8.6 million by the next presidential-election cycle, four years later.

In 1998, only 12 companies in this category--including Hewlett-Packard, Microsoft, Intel and Oracle, along with the telecommunications and cable companies--had created PACs. Since that time, PACs have been formed by Amazon.com, Dell, Yahoo, Cisco Systems, Electronic Arts, Sun Microsystems and RSA Security.

The new lobbying efforts have already paid off on some high-profile issues, such as the argument that Internet providers should not open a "fast lane" that would favor some Web sites over others. E-commerce and Internet companies such as Amazon, eBay, Google and Microsoft have been lobbying to give the Federal Communications Commission power to enforce such "Net neutrality."

"Google's mission is to organize the world's information, and our mission in Washington is to keep the Internet a free and open place for our users to get information," said Alan Davidson, Google's first staff lobbyist. "So everything kind of flows from that."

"I can definitely see how the technology industry is taking part of the slot machine culture of Washington. Put a little money in, get a lot of money out."
Jim Harper, director of information policy studies, Cato Institute

Sen. Ron Wyden, an Oregon Democrat, introduced a bill on March 2 that would grant the FCC this authority. Wyden and his corporate allies say the measure is necessary because executives at Verizon, BellSouth and the newly merged AT&T and SBC Communications have talked about the desirability of a two-tiered Internet.

"They're going on the offensive in a major way," said Adam Thierer, an analyst at the Progress & Freedom Foundation and the author of a book on telecommunications regulation. "They're aggressively and pre-emptively asking for prophylactic regulations from the FCC. No matter how you cut it, it's an offensive effort."

The beginnings of another offensive took place in 2004, when Intel, Sun, Gateway, Royal Philips Electronics and other tech firms announced their support for a bill that antagonized the recording industry. The measure would have let the Federal Trade Commission punish record labels for selling music CDs with copy protection technology that violated government regulations.

Historically, Silicon Valley's attempts to influence politicians have been defensive in nature--almost libertarian-leaning--and aimed at opposing laws or regulations viewed as intrusive.

America Online and Microsoft bankrolled part of the lawsuit to defeat the 1996 Communications Decency Act. Also that year, California tech firms joined together to oppose a state ballot measure, Proposition 211, that was designed to make it easier for shareholder lawsuits to succeed, even if there was no evidence of corporate fraud.

Next page: Microsoft trial's legacy 

Two presidential elections ago, Google consisted of a mere three employees toiling in a friend's garage. Today it's aggressively lobbying the federal government.

Like a growing number of technology companies that are seeking to fight offensive and defensive battles in the political arena, Google subscribes to "an incremental approach," says Alan Davidson, a Washington lawyer hired by the company last year to be its first staff lobbyist.

"As the company has grown, we've gotten more engaged and more involved in trying to promote our users' interest in the policy space," said Davidson, a computer science graduate of the Massachusetts Institute of Technology who previously worked for the Clinton administration and the Center for Democracy and Technology.

Google is not alone as a relative latecomer. Others include Linux maker Red Hat, which didn't record lobbying expenditures until 2004, and RSA Security, a 20-year-old company headquartered in Bedford, Mass. Shannon Kellogg, RSA's only registered lobbyist, attributed the company's late-2003 opening of a policy office to the "evolution of the market" and the rapid growth of the security industry.

Many corporate strategies aren't just about lobbying--they're also about campaign donations through political-action committees, or PACs. It's an important part of Cisco Systems' political efforts, said spokesman John Earnhardt, because when politicians support issues raised by a company, "you want to support them in their election efforts."

But PACs are not a universal strategy. IBM has operated a government affairs shop in Washington since 1975, making it the most experienced political hand among its peers. But a PAC has never been an option, said spokesman Clint Roswell, citing "a longstanding IBM policy not to make political-campaign contributions or expenditures of any kind, including money, employee time, goods or services." (Company employees or their family members did, however, donate nearly $730,000 to federal candidates in 2004, putting IBM near the top of the list of company contributors.)

Software giant Adobe Systems, which has had a Washington presence for a decade, also has refrained from creating a PAC. Michael Engelhardt, the company's senior director of public policy, said individual employees making contributions of their own free will is "equally effective."

--Anne Broache

Silicon money: How do tech firms buy influence in Washington?

Companies shift strategy, take the offensive

By Declan McCullagh
Staff Writer, CNET News.com
March 27, 2006 4:00 AM PST

In 1997, Microsoft was so disdainful of federal bureaucrats that it created a Web site specifically to keep regulators at bay.

At the time, future CEO Steve Ballmer quipped "to heck with Janet Reno," and a press release by co-founder Bill Gates accused the government of "trying to slow Microsoft down."

Since then, however, the company's approach toward Washington has evolved from confrontation to cooperation: At $46 million over seven years, Microsoft by far outspends any other technology company on lobbyists. And Gates' incendiary press release has since vanished from Microsoft's Web site.

What a difference a decade makes. In the last few years, technology firms have not just opened lobbying shops, but they've also begun to use their growing political muscle for offense. Instead of merely fending off new regulations and taxes, many companies have begun to join in the classic Washington game of pushing for them--as long as someone else is the target.

A CNET News.com analysis shows that spending on lobbyists by large information technology firms more than doubled between 1998 and 2004, the period for which complete records are available. During those years, the total amount of influence purchasing by 37 prominent computer and Internet firms on registered lobbyists totaled $227.5 million, according to federal disclosure records. The total rises to $430.1 million if it includes the work of lobbyists hired by telecommunications companies such as Verizon Communications and AT&T.

The trend is a major shift in strategy for technology companies. Where the industry once assailed Beltway bureaucrats for their interference, it now routinely hires lobbyists--causing some to speculate that technology firms may have become a little too cozy with Washington for their own good.

"Most of the high-tech community thought, 'Washington is 3,000 miles away. What do we care?' All of the sudden, you see them ramp up their lobbying dramatically--and their contributions to campaigns."
Larry Noble, executive director, Center for Responsive Politics

"Business just goes there, plays a sucker's game and finds itself being treated with disdain," said Fred Smith, president of the Competitive Enterprise Institute, who has written extensively on relationships between businesses and politicians. "The way you get businesses continually coming to you and begging favors from you is to constantly rejigger the rules. Chaos is a great way to extract money."

The influence-buying practices of all industries have fallen under increasing scrutiny in recent months because of a federal investigation centering on lobbyist Jack Abramoff, who pleaded guilty in January to fraud, tax evasion and conspiracy to bribe public officials. His plea agreement (click here for PDF) says an unnamed aide identified only as "Staffer A" received illegal bribes for "stopping legislation regarding Internet gambling."

No technology companies have been publicly accused in any of the recent lobbying scandals, and their spending from 1998 to 2004 was still far behind that of counterparts in other industries, such as Boeing ($57.6 million); General Electric ($94.1 million); and Northrop Grumman ($62.2 million). But lobbying among tech companies is clearly on the rise, and the numbers disclosed in federal records actually underestimate total spending.

Faux 'grassroots' campaigns
Under the 1995 Lobbying Disclosure Act, it's legal for companies to lobby through membership in coalitions or by funding faux "grassroots" campaigns. And many industry representatives who act as lobbyists are not registered as such: Neither CEO Mitch Bainwol nor President Cary Sherman of the Recording Industry Association of America were listed in a government database of lobbyists in 2005.

Growth in lobbyist spending was inevitable because "we have been in a period in which it's widely recognized that the technology sector is potentially subject to regulations," said Roger Cochetti, group director of U.S. public policy for the Computing Technology Industry Association, which counts board members from Ingram Micro, Symantec, Lenovo and Xerox. "And in this environment, most major technology companies support a government relations program of their own."

Spending by political-action committees, or PACs, affiliated with technology and telecommunications companies also has risen. During the 2000 election, those PACs gave $7.1 million to politicians, a total that rose to $8.6 million by the next presidential-election cycle, four years later.

In 1998, only 12 companies in this category--including Hewlett-Packard, Microsoft, Intel and Oracle, along with the telecommunications and cable companies--had created PACs. Since that time, PACs have been formed by Amazon.com, Dell, Yahoo, Cisco Systems, Electronic Arts, Sun Microsystems and RSA Security.

The new lobbying efforts have already paid off on some high-profile issues, such as the argument that Internet providers should not open a "fast lane" that would favor some Web sites over others. E-commerce and Internet companies such as Amazon, eBay, Google and Microsoft have been lobbying to give the Federal Communications Commission power to enforce such "Net neutrality."

"Google's mission is to organize the world's information, and our mission in Washington is to keep the Internet a free and open place for our users to get information," said Alan Davidson, Google's first staff lobbyist. "So everything kind of flows from that."

"I can definitely see how the technology industry is taking part of the slot machine culture of Washington. Put a little money in, get a lot of money out."
Jim Harper, director of information policy studies, Cato Institute

Sen. Ron Wyden, an Oregon Democrat, introduced a bill on March 2 that would grant the FCC this authority. Wyden and his corporate allies say the measure is necessary because executives at Verizon, BellSouth and the newly merged AT&T and SBC Communications have talked about the desirability of a two-tiered Internet.

"They're going on the offensive in a major way," said Adam Thierer, an analyst at the Progress & Freedom Foundation and the author of a book on telecommunications regulation. "They're aggressively and pre-emptively asking for prophylactic regulations from the FCC. No matter how you cut it, it's an offensive effort."

The beginnings of another offensive took place in 2004, when Intel, Sun, Gateway, Royal Philips Electronics and other tech firms announced their support for a bill that antagonized the recording industry. The measure would have let the Federal Trade Commission punish record labels for selling music CDs with copy protection technology that violated government regulations.

Historically, Silicon Valley's attempts to influence politicians have been defensive in nature--almost libertarian-leaning--and aimed at opposing laws or regulations viewed as intrusive.

America Online and Microsoft bankrolled part of the lawsuit to defeat the 1996 Communications Decency Act. Also that year, California tech firms joined together to oppose a state ballot measure, Proposition 211, that was designed to make it easier for shareholder lawsuits to succeed, even if there was no evidence of corporate fraud.

Next page: Microsoft trial's legacy 

Two presidential elections ago, Google consisted of a mere three employees toiling in a friend's garage. Today it's aggressively lobbying the federal government.

Like a growing number of technology companies that are seeking to fight offensive and defensive battles in the political arena, Google subscribes to "an incremental approach," says Alan Davidson, a Washington lawyer hired by the company last year to be its first staff lobbyist.

"As the company has grown, we've gotten more engaged and more involved in trying to promote our users' interest in the policy space," said Davidson, a computer science graduate of the Massachusetts Institute of Technology who previously worked for the Clinton administration and the Center for Democracy and Technology.

Google is not alone as a relative latecomer. Others include Linux maker Red Hat, which didn't record lobbying expenditures until 2004, and RSA Security, a 20-year-old company headquartered in Bedford, Mass. Shannon Kellogg, RSA's only registered lobbyist, attributed the company's late-2003 opening of a policy office to the "evolution of the market" and the rapid growth of the security industry.

Many corporate strategies aren't just about lobbying--they're also about campaign donations through political-action committees, or PACs. It's an important part of Cisco Systems' political efforts, said spokesman John Earnhardt, because when politicians support issues raised by a company, "you want to support them in their election efforts."

But PACs are not a universal strategy. IBM has operated a government affairs shop in Washington since 1975, making it the most experienced political hand among its peers. But a PAC has never been an option, said spokesman Clint Roswell, citing "a longstanding IBM policy not to make political-campaign contributions or expenditures of any kind, including money, employee time, goods or services." (Company employees or their family members did, however, donate nearly $730,000 to federal candidates in 2004, putting IBM near the top of the list of company contributors.)

Software giant Adobe Systems, which has had a Washington presence for a decade, also has refrained from creating a PAC. Michael Engelhardt, the company's senior director of public policy, said individual employees making contributions of their own free will is "equally effective."

--Anne Broache

Silicon money: How do tech firms buy influence in Washington?

Companies shift strategy, take the offensive

 Previous page

But T.J. Rodgers, the Ayn Rand-quoting chief executive of Cypress Semiconductor in San Jose, Calif., issued a stern admonishment of involvement in Washington politics in a 1998 speech (click here for PDF): "Silicon Valley is not very good at the pork barrel game. Statist companies have refined their lobbying skills for decades. We cannot, and do not want to, win at their game."

Tim Draper, a venture capitalist who's the managing director of Draper Fisher Jurvetson, offered similar advice at the time in a Wall Street Journal article titled "Silicon Valley to Washington: Ignore Us, Please." He wrote, "We ought to count our blessings that most of our industry is 2,500 miles from Washington and that most bureaucrats either fear, don't care about or don't understand technology."

The apotheosis of this leave-us-alone attitude came with the creation of Americans for Computer Privacy in 1998. The coalition was an effort to oppose federal restrictions on the overseas sales of encryption software and hardware, which had bedeviled tech firms for the better part of the decade.

In a rare political moment not seen since, America Online, Compaq Computer, Cisco, Intel, Microsoft, Oracle, Sun and some 90 other companies joined with advocacy groups such as the National Rifle Association and Phyllis Schlafly's conservative Eagle Forum. The script for one of the group's television ads featured a husband and wife wondering, "Should we trust Washington bureaucrats with the key to our private lives?"

The answer might not be as obvious today.

"The way you get businesses continually coming to you and begging favors from you is to constantly rejigger the rules. Chaos is a great way to extract money."
Fred Smith, president, Competitive Enterprise Institute

It's not entirely clear what caused the change in attitude over the last decade. One reason for heightened interest in Washington is, of course, practical: the proliferation of homeland security contracts in the last five years, a lucrative business that the "new" Bill Gates said "we're proud to be involved in" during remarks made on a 2003 visit to the nation's capital.

Oracle CEO Larry Ellison, for example, called for a national ID card soon after the Sept. 11, 2001, attacks. In meetings with Sen. Dianne Feinstein (D-Calif.), Attorney General John Ashcroft and CIA officials, Ellison offered to donate the database (and presumably make money on support).

"I can definitely see how the technology industry is taking part of the slot machine culture of Washington," said Jim Harper, an analyst at the free-market Cato Institute who serves on a Department of Homeland Security advisory panel. "Put a little money in, get a lot of money out."

Another reason for a different perspective on Washington was the Microsoft antitrust trial, which taught companies like Oracle, Sun and Netscape Communications (since purchased by America Online) that they could use lobbyists for offense as well as defense.

The case was inspired and even partially orchestrated by Microsoft's rivals: Testimony from the trial revealed that then-Netscape CEO Jim Barksdale met with Assistant Attorney General Joel Klein for breakfast at Barksdale's home, one of about a dozen meetings that the executive had with government attorneys.

Netscape hired Gary Reback, at the time a partner at the storied Silicon Valley law firm Wilson Sonsini Goodrich & Rosati, to drum up support for the antitrust suit inside the Department of Justice. Once the case was under way, Sun and Oracle went so far as to set up a special group, called ProComp, on Washington's lobbyist-laden K Street solely to target Microsoft.

"Most of the high-tech community thought, 'Washington is 3,000 miles away. What do we care?'" said Larry Noble, executive director of the Center for Responsive Politics, a nonprofit group that tracks political spending. "All of the sudden, you see them ramp up their lobbying dramatically--and their contributions to campaigns."

"(Tech companies are) aggressively and pre-emptively asking for prophylactic regulations from the FCC. No matter how you cut it, it's an offensive effort."
Adam Thierer, senior fellow, Progress & Freedom Foundation

Microsoft would not comment on specifics involving its lobbying practices or expenditures. Spokeswoman Ginny Terzano said the company, which has run a Washington office for about a decade, "is focused on a number of key high-tech issues that can positively impact the industry, U.S. competitiveness and consumers." As examples, she cited business immigration issues, telecommunications and patent reform, and data security and privacy.

Yet one favorite Microsoft lobbying firm has been forced to shut its doors because of the scandal involving former House majority leader Tom DeLay. The Alexander Strategy Group, founded by former DeLay aides, including his chief of staff, counted nine lobbyists on Microsoft's payroll as of 2003 and an undisclosed number last year, according to public records. In addition, the group's Tony Rudy, a former DeLay aide listed in public records as a Microsoft lobbyist, has become a focus of the Abramoff investigation.

No one has accused the software company of any improprieties in its relationship with the lobbying firm. But given Washington's penchant for scandals, it is understandable that many have recommended avoiding the federal government altogether.

In 1970, Milton Friedman, the economist and Nobel laureate, wrote an article for The New York Times that called such offensive lobbying a "suicidal impulse" on the part of businesses. In a follow-up article written during the time of the Microsoft antitrust trial, Friedman warned that technology executives "will rue the day when you called in the government." Now, he said, the industry "will experience a continuous increase in government regulation." 

CNET News.com's Anne Broache contributed to this report.