TCS Daily

2002 A.M.C.

By Sonia Arrison - November 14, 2002 12:00 AM

Now that the government's antitrust suit against Microsoft is settled, one might wonder if things will get back to normal for the technology sector or if the trial and ensuing saga marked the beginning of a new phase of competition by regulation/litigation.

The best-case scenario for technology firms is a return to entrepreneurship as usual with competition based on how well a firm's products and prices fit consumer demands. The Microsoft antitrust suit was an attempt to use government to short-circuit this regular process. Looking back, it's hard to see how the case resulted in anything but a loss for all parties.

Microsoft loses because it is now one of the most heavily regulated technology firms. It was also forced to spend millions of potential research and development dollars on lawyers and lobbyists, which in turn harmed consumers because they will forego the benefits that would have accrued from Microsoft's additional efforts. Many consumers also lost money when the Microsoft case contributed to the declining value of technology stocks.

Indeed, research by University of Kansas professor of finance George Bittlingmayer and former FCC chief economist and Manhattan Institute scholar Thomas Hazlett shows that government action against Microsoft inflicted "capital losses on the computer sector as a whole." Clearly then, Microsoft's competitors also suffered losses from antitrust litigation.

While Oracle, Sun Microsystems, AOL Time Warner, and others supportive of the Microsoft case are facing tough times, Sun and AOL refuse to give up on the litigation. Both companies have vowed to continue private antitrust litigation against Microsoft even though the trial has extracted a heavy toll on their sector and individual enterprises. While one can question the wisdom of these decisions, at least the destructive course they are pursuing is funded with private, not taxpayer, cash.

California's Attorney General (AG) Bill Lockyer spent heaps of taxpayer money trying to derail Microsoft, as did other AGs around the country. And now that the state AGs have tried their hand at meddling in federal antitrust law, many appear eager to continue the pursuit. For instance, California's Lockyer and 22 other states recently announced their involvement in an antitrust suit against the Echostar-Hughes electronics satellite merger. At a time when many hope to see faster rollout of broadband services, this is a wrong turn for the state AGs.

Some state attorneys general clearly see the end of the Microsoft trial as the beginning of a new mandate to micromanage the economy with litigation, but what about the federal government? With a stronger Republican presence in Washington, DC, Congress might slow its creep into the technology industry, but this is probably wishful thinking. More than 400 bills affecting technology companies were introduced in the current session of Congress. If history is any guide, government interest in regulating will increase, not decline.

This leads one to consider the mindset of America's technology leaders. In this environment, there are two general strategies they can take. They could continue down a destructive path of competition by regulation/litigation where players are forced to spend millions on lobbying efforts aimed at harming rivals with restrictive government rules. Or, they could choose to fight off government intervention on any part of the sector, even in those areas where regulation would give them a short-term advantage.

Both strategies rely on keeping an eye on government. Silicon Valley insider John Gable, who worked at both Microsoft and Netscape, says that the Valley learned at least one valuable lesson from the Microsoft saga: "Government is here to stay and it is not a panacea for problems."

But what tech leaders will choose to do with that lesson remains to be seen. It's possible that in pursuing short-term interests, the longer-term goal of a freer market may be at risk. Keith Lyon, a former Oracle executive and Libertarian party candidate, doesn't have much hope. He laments that "Silicon Valley folks (TJ Rogers excepted) seem to have abandoned principle for accommodation."

In the world after the Microsoft antitrust case, technology executives have an opportunity to curtail their involvement in the useless squabbling that goes on in government offices and courtrooms. It's time for technology leaders to clearly voice this preference or face a future filled with more bureaucrats than innovations.

Sonia Arrison is director of the Center for Technology Studies at the California-based Pacific Research Institute.



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