Antitrust lessons for an Internet age

With Intel settlement, high-tech firms and federal watchdogs tallygains, losses.

In the revved-up technology sector, it's a lot harder than it used to be to identify and fix corporate behavior that might harm consumers.

One reason: The industry itself moves so quickly - and the wheels of justice so slowly - that even when the government does pursue high-tech titans such as Microsoft and Intel, any eventual remedy may be irrelevant.

Indeed, the landscapes in which Microsoft and Intel compete have changed considerably since their disputes with the US government began last year, eroding the companies' clout.

Such a rapidly changing environment raises interesting questions for the companies themselves over whether it is in their best interest to settle quickly, as Intel did this week, or to proceed through a protracted trial, as Microsoft chose (although it, too, may now be considering a settlement).

Perhaps more important, it raises the question of whether the courts can order remedies quickly enough in cases of wrongdoing to actually benefit consumers, or whether those remedies are effective by the time they take hold.

Contrasting the pace of the legal system with the economy's technology dynamo, Robert Litan of the Brookings Institution says, "It's like watching a horse-and-buggy operation compared to the speed of the Internet."

In the past, rapid change in a given market has posed challenges to antitrust law, but never to today's degree, says William Kovacic, a law professor at George Washington University in Washington. "It's fair to say that trying to measure market power and predict competitive behavior is harder with the technology industry than any other." But that is exactly what a judge must weigh in determining effective remedies, once a company's past behavior is ruled illegal, says Mr. Kovacic.

Intel's case, less celebrated than Microsoft's but involving broader legal issues, was cut short this week with a settlement between the company and the Federal Trade Commission.

The FTC wanted Intel to stop withholding technical information from three other companies, an action the government says inhibited those competitors from developing new products based on Intel's chips. At issue were fundamental questions about intellectual property rights and what rules govern them in cases where their holders, such as Intel, have dominant market positions.

Though few details of the settlement were immediately available, Intel president Craig Barrett said the agreement "gives us value for our intellectual property rights." The FTC said Intel will continue to be scrutinized and that other issues remain under investigation.

Most analysts say Intel settled, in part, to avoid a long and costly trial like the one against Microsoft. Distracted by a public dissection of its practices in a trial, a company can find its ability to compete sharply limited.

"It's like playing with four fouls," says Kovacic, using a basketball metaphor. "You're tentative and careful" when under litigation, he says, which can prove fatal in the technology field.

Of course, no settlement is preferable to a trial if it threatens practices a company sees as central to its future. That, apparently, is what motivated Microsoft to proceed to court.

FOR Microsoft and Intel, competition has changed noticeably since their legal problems began over a year ago. The changes are more dramatic for Intel, which has seen its market share of microprocessors erode, mostly from competitors supplying chips for the low end of the computer market.

"Competitors are picking up share of market week by week," says Robert Levy of the Cato Institute, a Libertarian think tank opposed to government action against Intel and Microsoft. He says Intel's market share has slid from almost 90 percent to about 76 percent in less than a year.

That kind of change bolsters the argument of antitrust critics who say government meddling is usually less effective in creating competition than is the marketplace itself.

For Microsoft, too, the landscape has changed since the federal government and 19 states first sued it last year, alleging anticompetitive behavior. A series of Internet mergers and the creation of strong "portal" sites for navigating the World Wide Web have diffused somewhat the fear that Microsoft would use its operating system to create a chokehold on the emerging Internet. Also, operating systems like Linux and the rebound of Apple Computer have created a new sense of competition.

But these developments haven't so much altered Microsoft's fundamental dominance as created the potential for erosion further down the road, say a number of analysts.

Although Microsoft has already changed some of its practices, many analysts predict the court will find the company liable and impose remedies.

Among them is Mr. Litan, who was a Justice Department antitrust lawyer before joining Brookings. While Litan doesn't foresee the judge ordering the breakup of Microsoft, he does think it's possible the company will be forced to auction the secret "source code" of its Windows operating system to competitors.

Yet even if Microsoft is found liable, most analysts expect a lengthy appeal process that would mean no remedy would be implemented for at least another year, creating plenty of time for the market to shift further.

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