Nation Topics - Mergers and Antitrust
News and Features
Helping the big get bigger, the strong get stronger.
Americans interested in economic justice used to consider antitrust litigation a top priority. Perhaps soon we will think along these lines again.
A federal court has ruled that Microsoft is a predatory monopolist and, stunningly, that the company should be broken into two parts. But the Microsoft opinion is the handiwork of one federal district court judge. Appeals lie ahead, and at the end of the road is the Supreme Court. The current Supreme Court majority has been reluctant to interfere with business conduct other than price-fixing. If George W. Bush should win the presidential election and appoint one or two Supreme Court Justices, we can expect yet more erosion of the antitrust landscape.
The Supreme Court once championed antitrust laws as valued tools to limit corporate power and to promote the autonomy, diversity and economic rights of people and firms without power. But the message of contemporary opinions is quite the contrary: Trust business, not government. It is fair to worry whether the Rehnquist Court has handed big business the license to do as it will, and if not yet, whether appointments by George W. Bush would complete the handover.
In one notable case, Liggett & Myers challenged the tobacco oligopoly by introducing low-priced generic cigarettes. In response, Brown & Williamson introduced a fighting brand, which it sold below cost to selected distributors for eighteen months for the sole purpose and with the effect of blunting Liggett's competitive challenge. Liggett sued for discriminatory and predatory pricing. A split Supreme Court threw Liggett's suit out. The strategy may have been unfair to Liggett, the Court said, but the antitrust laws have nothing to do with fairness, and price wars are good for consumers.
In the Microsoft case, District Judge Thomas Penfield Jackson declared Microsoft a predatory monopolist whose conduct has forestalled innovation and "trammeled the competitive process." Microsoft appealed from Jackson's judgment and confidently predicts a reversal. That confidence is not without some basis. The case will be heard either directly by the Supreme Court or, at the Supreme Court's choosing, by the Court of Appeals for the Washington, DC, Circuit, which two years ago overturned Judge Jackson's ruling that Microsoft's bundling of its web browser with its operating system probably violated a 1995 consent decree. Judge Jackson's final opinion in the current case documents Microsoft's predations in copious detail: its unremitting course of conduct and use of leverage to eliminate innovation that threatened to destroy Microsoft's operating-system monopoly.
When the Supreme Court hears the case, it is likely to find difficult questions of law: What standard applies to high-tech, fast-moving markets where a competitor's innovation can (in theory) wipe out a monopolist's power with sleight of hand? Indeed, can we even conceive of Microsoft as a monopolist when it faces the constant threat of technological obsolescence? Should courts or inventors/sellers decide whether browsers and operating systems are two products (and subject to the law against tying) or one integrated product and entitled to the deference of the judge? Should antitrust recede in the face of globalization and the unpredictable forces of technology? But note how even the formulation of the question is likely to inform the overall outcome. Is the real question whether Microsoft violated the law by strategies designed (and certain) to block rivals rather than serve computer users? Is the real, overarching problem: Whom should we trust--Microsoft or courts? Microsoft or antitrust law?
To complicate matters, politics has reared its head. The battle has spilled over to the Congressional arena and the race for the presidency. The country that prides itself on the rule of law could fall prey to the rule of money and the race for hegemony in the global economy. George W. Bush has already announced that he is not too fond of the antitrust laws, apart from the law against price-fixing. Microsoft has made huge contributions to both major campaigns, and it promises more to come. And Microsoft has, unsuccessfully, lobbied Congress to cut off the budget of the antitrust division of the Justice Department if it insists upon continuing its litigation against Microsoft.
But most significant is a President's power to appoint Justices to the Supreme Court. On the Court today there are Justices committed to upholding antitrust and Justices committed to chipping away its foundations. Justices John Paul Stevens and Antonin Scalia stand at opposite ends of the spectrum. Justice Stevens has an abiding concern about uncontrolled private power and is determined not to allow further erosion of the laws meant to control it. Justice Scalia has an abiding hostility to economic regulation and a resolve to minimize antitrust to protect "rational" private actors from "the sledgehammer of §2 [the monopoly law]." Scalia fears the power of government and never sees the power of business. Justice Stephen Breyer, a world expert in antitrust and economic regulation who has never been accused of antitrust populism, is the natural future voice for antitrust on the Court, but even Justice Breyer has been relegated to being a voice of dissent. On appeal from a Federal Trade Commission ban on California dentists' rules against discount advertising, Justice Breyer urged his colleagues to respect FTC findings and not to impose new burdens on antitrust plaintiffs, but he failed.
The Court is in delicate balance in matters of business power versus consumers. One or two Supreme Court appointments can make the difference.
This spring the topic of antitrust returned to the headlines after a long absence as the government pursued and won (for the time being) its case against Microsoft and, in a more muted way, as Ti
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When legendary media critic A.J. Liebling issued that warning some
decades ago about the corrosive effect of media monopolies on the First
Amendment, media ownership was a great deal more varied than it is today.
Even then, it was far more concentrated in a few hands than when the
Bill of Rights was written, when "the press" was a low-capital venture,
and newspapers were easily launched by those who had something to say.
The founding fathers hardly anticipated today's media market, in which
journalism is a vehicle for mega-corporate profits, and the diversity of
opinion implied in the First Amendment is threatened less by a king or the
state and far more by the motives of media barons.
Nowadays, media mega-mergers are the rage, and the Bush Administration
is determined to remove legal barriers to media conglomeration that long
have prevented a few giant corporations from controlling all of print and
broadcast journalism. But can we count on the very news organizations
whose owners are zealously pursuing profit from those mergers to also
objectively cover the implications of media concentration for a free
The initial signs aren't promising. When America Online purchased Time
Warner in the biggest media merger in US history, there was
considerable analysis of the deal's business aspects but meager attention
to implications for a representative democracy of having a significant
portion of its media controlled by one corporation.
Previously, one could assume that Time magazine, AOL and CNN, as well
as other parts of the new conglomerate, at least reflected the voices of
different owners, but that's no longer the case. Also, with that merger,
AOL went from being an outsider company demanding open access to cable to
being the second-largest cable operator. Suddenly it muted its open
access demand, leaving the perception that the news outlets now assembled
under the AOL banner might also have had a change of heart as to what's
important in the cable controversy.
Most recently, the new Bush FCC appointees relaxed a long-standing
"dual network rule" barring one television network from buying another.
The result is that Viacom, which owns CBS, will have a large stake in the
UPN network. Will other broadcasters anticipating similar deals permit
their news organizations to voice dissenting opinions, or launch
investigations of the FCC's abandonment of its consumer watchdog role?
Meanwhile, Rupert Murdoch has made clear his intention to purchase
DirecTV from General Motors. If he succeeds, he'll combine the largest
US satellite broadcaster with his existing satellite network, which is
pervasive in much of the rest of the world. Will journalists laboring in
his vast empire dare raise troubling questions about the danger of one
man holding such overwhelming power in the world communications market?
Further, Bush's new FCC chairman, Michael Powell, promises to
eliminate the 1975 prohibition against cross-ownership--a company owning
a TV station and newspaper in the same market. That might prove immensely
profitable to the Tribune Co., which, in purchasing the Times Mirror Co.
last year, acquired newspapers in three markets where Tribune already
owned television stations. But is cross-ownership healthy for independent
journalism in those markets, which include New York and Los Angeles? Will
the news outlets that are subsidiaries in the deal fully examine the
journalistic implications of media concentration? Or will they only
report on the wonders of what the owners celebrate as "convergence" or
The answer suggested by the last election is that media have
difficulty covering themselves fully when the owners' financial interests
are seriously in play. How else can one explain the scant attention paid
to the difference between Al Gore--who opposed cross-ownership--and
George W. Bush on this issue?
Also ignored in the coverage was the stake that media moguls had in
the Democrats not gaining control of Congress. Had that happened, John
Dingell (D-Mich.) would be chairing the House Commerce Committee, which
oversees the work of the FCC. Dingell was on record as opposing the
Tribune purchase of Times Mirror because such mergers lead to a "huge
concentration of power in a small group of hands."
That's why Dingell and others believe that government regulation to
preserve a diverse media market is essential. The rules concerning media
ownership were not carelessly drawn up over the preceding decades to
inconvenience the media industry. Rather, they were designed to save the
media business from its worst instincts.
Regulation is a reminder that there is a public interest in the news
media as in no other industry because corporate concentration threatens
the competition vital to an unfettered press. The free press belongs to
us all and not just to the few who own one.
Despite all the palaver, the denouement came quickly.
Only a few days before the announcement of the AOL-Time Warner merger, Time Warner chief executive Gerald Levin took part in a CNN discussion on the future of the media.
Judge Thomas Penfield Jackson's factual findings in United States v. Microsoft, released November 5, spell the doom of Microsoft as we have known it.
An abbreviated version of this article appeared in the October 4, 1999 issue.