Testifying in Washington last month, Facebook CEO Mark Zuckerberg answered wryly when a senator asked whether his company has a monopoly.
“It certainly doesn't feel like that to me,” Zuckerberg replied, to general amusement.
Flash back to 1998. That spring, then-Microsoft CEO Bill Gates found himself in a Senate hearing room facing similar concerns.
“Microsoft does not have monopoly power in the business of developing and licensing computer operating systems,” Gates told the senators.
Gates did not prove persuasive. Twenty years ago this month, the US Department of Justice – joined by California and 19 other states – filed a landmark lawsuit against Microsoft in a federal court, alleging that the software giant had abused monopoly power in its operating systems in ways that harmed competitors.
Silicon Valley, seeing innovation choked off by Microsoft's grip over Windows, largely cheered, with software companies marshalled by lawyer Gary Reback, then at Palo Alto firm Wilson Sonsini Goodrich & Rosati, helping make the case to split Microsoft up.
The suit set off a dramatic chain of events that culminated in a months-long trial, featuring an awkward videotaped deposition from Gates and endless expert testimony. The presiding federal judge ordered the breakup of Microsoft – a fate the company ultimately avoided on appeal.
Although Microsoft escaped mostly intact, its animal spirits seemed broken, with the stock languishing under long-time CEO Steve Ballmer, who took over from Gates and ruled over what Vanity Fair called the company's “lost decade”. Its shares did not bounce back to 1990s levels until after Ballmer was replaced by Satya Nadella in 2014. In the meantime, it missed out on the mobile, social and cloud revolutions, and is still playing catch-up.
It's this type of scenario – a major federal lawsuit or regulatory action that slows a company down and scares away top talent – that Zuckerberg and fellow CEOs at other tech giants, which are also subject to present-day grumblings about monopoly power, want desperately to avoid.
So far, they have succeeded magnificently. Some tech majors are close to the same age as Microsoft (founded in 1975) was in 1998 – Google is 20, Amazon 24, Facebook 14, but the US Department of Justice to date has shown few signs of looking into harms from monopoly power, even though the companies rule vast sectors of our online lives.
Certainly some practices that seemed monopolistic then cause barely a blink today. Details are different. Microsoft was accused, among other things, of using Windows' dominance over computer operating systems (Apple being a bit player back then) to block the popular upstart web browser Netscape Navigator. Microsoft had built its own browser, Internet Explorer, and “bundled” it into Windows, with contracts restricting computer manufacturers from putting in Netscape.
Concerns about bundling can seem quaint these days. The cloud, for one thing, has changed everything. Now, it's generally easy to download your desired browser to a desktop, even if another browser is preloaded. And a rival website – as Google has argued – is just a click away.
The questions facing the tech giants today largely (though not exclusively) revolve around data collection and protection. Facebook, of course, has recently been in the government's crosshairs, with US lawmakers fussing over the Cambridge Analytica scandal, in which tens of millions of Facebook users' personal data were unwittingly scooped up by a political consulting firm. Other companies also collect vast troves of data.
But if data is the issue du jour, it's doubtful that traditional antitrust laws can provide the full remedy. Whereas the issues facing Microsoft fit the antitrust mould of using dominance in one area to extend into new ones, “today when you look at big tech companies and their ability to wield power, for lack of a better word, (by) using information and data from their customers, it's more difficult to put in an antitrust bucket”, says Stuart Plunkett, a lawyer in San Francisco with the firm Baker Botts, whose clients include tech companies.
The fact that services are provided for free, in exchange for data that lead to advertising, makes things more complicated, because it may be harder to show that consumers are hurt.
Outside of antitrust, “a new law and a new agency” would be one route to data regulation, says Fiona Scott Morton, an economist at the Yale School of Management.
The feds haven't been entirely hands-off. Most notably, Google has been in the sights of the Federal Trade Commission, which scrutinized whether its search results promoted its own sites at the expense of competitors. But that investigation ended in 2013 without legal action against the company; Google agreed to make some changes. (Reback, Microsoft's foe in the 1990s, has more recently been representing antitrust plaintiffs against Google.)
A more forceful voice seems to have emerged: the European Union. Last year, European antitrust officials – who also went after Microsoft years ago – fined Google US$2.7 billion after an investigation – not dissimilar to the FTC's – found that Google favoured its own shopping products in searches over those of competitors. Google has appealed.
The EU is also investigating a more Microsoft-like charge: that Google has pressured phone makers to incorporate Google search tools such as its Chrome browser, using access to its Play store as leverage.
And EU antitrust regulators have also gone after Amazon, last year getting the company to drop its enforcement of contract clauses with e-book publishers aimed at ensuring that Amazon got a deal as good or better than competitors.
“In Europe, it's easier to prove abuse of dominance,” said Michael Carrier, a law professor and antitrust expert at Rutgers University.
Some national governments are taking a stand, too. In Germany, antitrust regulators are tackling data issues, saying in December that Facebook's social networking dominance essentially forces users into yielding data. Separately and more significantly, the EU also has a huge data privacy initiative that takes effect Friday and is reshaping how tech companies large and small do business in Europe.
What explains why Europe has plunged ahead, while the US has stayed quieter? One reason, says Morton of Yale, is that antitrust regulators have not kept up with the economic research of the past few decades.
“Enforcement of trains and planes and automobiles and office supplies – these are familiar product markets where the agencies have experience,” she said. Tech companies in particular are constantly pioneering new models – the enormous scale of social networks, for example, is a recent development – and that may require more out-of-the-box thinking.
Even if regulators do catch up with the changing times, consumers may want to keep their expectations in check.
“Antitrust law does not bar monopoly,” said Randal Picker, a professor at the University of Chicago Law School. The important question, he added, “is what do you do with monopoly power.”
So we may be stuck with the tech giants and their free but addictive services for a while. Microsoft is bigger than ever, and has regained some of its competitive mojo. But it now faces opponents collectively worth trillions of dollars. Until regulators see a misstep that gives them an opening, big tech may be the only power that can check itself. — The San Francisco Chronicle/Tribune News Service
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