In Silicon Valley, fast firms and slow regulators
By Cecilia Kang,
European regulators last week imposed a $1.1 billion fine on a technology giant that “abused its dominant position.” The company was Microsoft, circa 1998.
U.S. officials weren’t much faster. Last year, it officially closed its 14-year-old antitrust case against the software firm.
As federal regulators launch fresh investigations into Silicon Valley, their history of drawn-out cases has companies on edge.
In taking on an industry that moves at lightening speed, federal officials risk actions that could appear to be too heavy-handed or embarrassingly outdated, some analysts and antitrust experts say. Indeed, in May, U.S. officials said they would step up their policing of Myspace’s privacy policies even though the company has long fallen out of fashion to behemoth Facebook.
Others want the government to aggressively pursue abusive practices but question whether antitrust laws are too dated to rein in firms that are continually redefining themselves and using their dominance in one arena to press into others.
“In tech, market definitions are difficult because companies are changing so fast, and that makes antitrust a blunt tool,” said Ed Black, president of the Computer & Communications Industry Association, a trade group that supported the Justice Department’s case against Microsoft.
Antitrust officials at the Federal Trade Commission and Justice Department say that they are sensitive to the swift changes in tech firms but that they cannot shy away from their enforcement obligations, even dated ones.
“It’s challenging to keep up with rapidly changing markets, but that is part of our job,” said Richard Feinstein, director of the FTC’s bureau of competition.
In recent months, antitrust regulators around the world initiated cases involving Silicon Valley’s new guard — Google, Apple and Amazon.
European and U.S. regulators are investigating whether Google is using its dominance in Web search to promote its own products over competitors’ when listing search results.
The Justice Department, meanwhile, has accused Apple and book publishers of fixing e-book prices to beat back severe discounts offered by Amazon.
The cases have raised questions about the effectiveness of the government’s antitrust tools. Some tech analysts say the government is tackling Google just as mobile apps are raising questions about the usefulness of Web search. Others experts note that a government win against Apple and the book publishers would only ensure Amazon’s dominance over the e-book market.
“Facebook, Twitter and Pinterest didn’t exist a decade ago, so think of what it means for an antitrust enforcement action that could take more than 10 years to wind itself down to its logical conclusion,” said Eric Goldman, a professor of technology law at Santa Clara University.
That’s why the government must choose its cases carefully, some officials said.
“Because of the fast-paced nature of the technology sector, our approach to antitrust issues in this area is highly-focused and carefully tailored, recognizing the likelihood of rapidly changing product markets,” Acting Assistant Attorney General Joseph Wayland said in an e-mailed statement.
“Digital distribution has had an enormous impact across many sectors. We are particularly interested in areas where we have identified bottlenecks by incumbents that can harm innovative new developments and keep new products out of the hands of consumers,” he added.
Google is making an effort to swing a deal with global regulators to avoid Microsoft’s fate.
This week, it submitted a plan to European regulators to address their concerns. It has also bulked up its lobbying and legal staff in Washington and in Europe.
Google denies that it is monopolistic. “Every week there is an announcement about a new product or service. It’s an extremely competitive industry and is only getting more competitive,” Google spokeswoman Mistique Cano said.
What the company most wants to avoid, analysts say, is the burden of a decades-long antitrust case.
Microsoft’s antitrust battle began in 1998, has stretched over three continents and cost the company more than $2 billion in fines.
Justice lawyers had been working on the Microsoft case until last year, when the agency finally ended its enforcement of its 2002 judgement against software giant.
The agency credits the antitrust suit for greater competition in today’s market.
“Microsoft no longer dominates the computer industry as it did when the complaint was filed in 1998,” the Justice Department said in a May 2011 news release announcing the closing of its case. “The final judgement helped create competitive conditions that enabled new kinds of products, such as cloud computing services, and mobile devices, to develop as potential platform threats to the Windows desktop operating system.”
But industry analysts say the computer giant might have been slowed by the antitrust scrutiny. New product and marketing plans had to be vetted by antitrust lawyers — a burden its competitors didn’t face.
The case has forced Microsoft to develop one of the strongest and most cunning lobbying operations in Washington and Europe, observers say. Microsoft said it was disappointed with last week’s ruling in Europe but declined to comment on whether it would appeal the fine.
Perhaps knowing just how damaging a federal probe can be, Microsoft has been one of the companies that have lobbied the FTC to probe Google’s search practices, said Goldman, the technology professor.
“Of course companies also don’t mind using regulators as a weapon against competition, with Microsoft against Google being the example I see most often,” Goldman said.