Antitrust Enters Cyber Era

To some it's a sporting bout between two great heavyweights. To others, it is nothing less than a cosmic struggle of light and dark over the future of cyberspace and computer technology.

Either way, by taking on billionaire Bill Gates and his expanding Microsoft empire this week, the Justice Department's antitrust division has shown a new blend of sophistication and aggressiveness in dealing with an industry whose most valuable assets are not so much factories or products as innovations and original thought.

Gone are the days of heroic challenges to the railroad and steel barons of yore, and even to huge utility monopolies like AT&T, where unfair advantages and anticompetitive actions were easy to prove. In today's high-tech industry, where changes are light speed and exponential, the lines of harmful practice are blurrier and harder to chart.

To a growing number of industry analysts and lawyers, this move is the first shot in a revolutionary challenge - one that could define new rules at the heart of one of the most creative and powerful industries in the US.

In some ways, the new sophistication adopted by Justice is in the area of "integration." This is the practice, usually committed by a large company, of identifying emerging technologies developed by smaller companies and incorporating them into the structure of its own business or technology. The integration of Microsoft's operating system with the software used to browse the Web is a prime example.

Very often, such integration is effective in developing new products and useful approaches. Yet it can also drive small businesses and other potentially useful technologies out of the market.

In the Microsoft case, Justice is not arguing against product development or aggressive sales. Rather, it is saying that Microsoft cannot use its monopoly position to harm emerging technologies.

"I think the Justice Department is getting smarter," says Eric Brown of Forrester Research in Cambridge, Mass., a software strategy firm. "They now realize that the practice of 'integration' can be monopolistic, and they are for the first time taking steps to regulate it. Before, it looked like the industry could just push them around."

Man with a plan

Some of the new approach is due to Joel Klein, assistant attorney general in charge of the anti-trust division. He is not a blazing-guns-style trustbuster. His reputation is one of caution, care, and balance, say insiders. For example, Mr. Klein did not attempt to challenge the recent Bell Atlantic-NYNEX merger, though he could have made headlines by doing so.

"He could have held a press conference and gotten a superficial agreement," says one Justice source. "But I think he genuinely didn't see a case there."

Klein's approach to Microsoft has reportedly been plodding and methodical, coming after an exhaustive study of the facts and after numerous complaints by Silicon Valley firms.

Other informed sources say there was a political motivation as well. "It's no secret that there are more voters in New York, the home of IBM, and California, than there are in Washington State, the home of Microsoft," says one analyst. "When [Vice President] Al Gore, the information superhighway man, goes on the campaign trail looking for money, what is he going to say when the head of Intel or Netscape asks him about antitrust?"

How antitrust has changed

Antitrust efforts carried a certain aura or lan for much of the century. They were seen as efforts to help the underdog and curb powerful interests (like Standard Oil or US Steel) that ignored what are now viewed as fair trade practices. By the 1980s, however, trustbusting was seen as excessive and intrusive by a Reagan administration that sought to halt the "big government" legacy of the New Deal. During the '80s, antitrust lawyers dropped from roughly 1,000 to 500. Under the Clinton administration, that figure has increased to between 700 and 800 - though few major victories have been logged.

On the surface, this dispute seems relatively minor. The Justice Department says Microsoft cannot force companies that distribute its operating software (Windows 95) to include Microsoft's own Internet "browser" program, Internet Explorer.

But behind that dispute lies a looming question: Will the government next attempt to define limits on the underlying software that drives and controls the computer hardware?

Such a step would be a direct challenge to Microsoft's proposed Windows 98, an operating system that integrates Internet Explorer more closely - and thus locks out the other major browser competitor, Netscape. It would also create a kind of "fight to the death," as one analyst put it, between Microsoft and the government.

Justice Department officials would not comment on whether they will challenge Windows 98. But Gary Reback, a Silicon Valley lawyer described recently by Wired magazine as "the only man Bill Gates fears," told the Monitor that the legal strategy adopted by Klein "is exactly what I would do if I were planning a larger assault on anticompetitive practices."