Nevada Needs Antitrust Reform

In the summer of 1997, Microsoft representatives were busy in Reno, publicly laying the groundwork for the company’s new Nevada-based, 160-employee international licensing operation.

Over the state line in Palo Alto at the same time, lawyers and agents for a handful of the company’s competitors were also busy, but in secret. They were conducting what Wired magazine would later call “a kind of anti-Microsoft three-ring circus.”

Gathered in a conference room, lawyers for Netscape, Sun Microsystems and others were dreaming up a sweeping national political campaign against the Redmond, Washington firm. When implemented that fall, legions of lobbyists—all singing the same anti-Microsoft song—descended upon Capitol Hill, state capitals and the media.

In the same building, down the hall, taxpayer-paid lawyers dispatched by U.S. Senator Orrin Hatch, chairman of the Senate Judiciary Committee, were collecting allegations of Microsoft misdeeds from executives of those same disgruntled Silicon Valley firms. Hatch’s state, Utah, is home to two bitter companies often bested by Microsoft—Novell and Caldera (which share financial backers)—and the senator had been an early co-conspirator in the anti-Redmond coalition. Now he was hip-deep in behind-the-scenes political machinations to advance the anti-Microsoft agenda. Need someone enlisted in the cause? The senior senator from Utah would be happy to get him on the phone. Want a public-relations flogging of Bill Gates? Why, the senator would be glad to schedule Judiciary Committee hearings, alert the media and tee the Redmond CEO right up. Hope to prod the Janet Reno Department of Justice into filing suit against Microsoft? Helpful Orrin would send his staffers over to lobby the DOJ’s antitrust division.

Amid all the intrigues of the anti-Microsoft cabal, the riskiest of all was a three-month-long séance of $600-to-$700-an-hour antitrust lawyers and economists secretly bankrolled by Sun Microsystems. Code-named “Project Sherman,” the group’s mission was to craft a legal case that the Clinton Department of Justice could adopt to, in the words of Netscape’s Marc Andreessen, “kill the Beast from Redmond.”

As Wired would note, “The political sensitivity of the project was, needless to say, extremely high, for here was one of Microsoft's most ardent competitors bankrolling a costly endeavor to influence the DOJ—an endeavor undertaken with the department's encouragement. And so it was done in utmost secret.”

The Best Bludgeon

Sun Microsystems paid $3 million for Project Sherman, but as the project name reveals, the nucleus of the case had never been in doubt. The Sherman Antitrust Act had always been recognized as the best bludgeon with which to bloody Microsoft.

That, however, says less about the alleged transgressions of Microsoft than the fundamentally shameful history of American antitrust law. Though the stated purpose of the 1890 Sherman Act was to protect consumers, that—as the New York Times of the day noted—was mere pretense. The fact was, contemporary consumers had been benefiting from the lower prices that the new, fast-growing and more innovative companies introduced.

Alarmed, the less-efficient but established special interests went to a pliably corrupt Congress. They wanted legal weaponry against the innovators—legislation that would sound good to the uninformed, but allow their companies to evade the discipline of a truly free market and keep exploiting consumers.

The Sherman Act was the result. Section 2—simplistically deceptive—did the dirty deed:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony….

Under this paragraph any successful business can be found guilty. All that prosecutors and compliant judges need do is define the company’s particular niche as the relevant “part of trade or commerce.” Indeed, under the text of the Sherman Act, any individual artist or writer can be deemed a “monopolist,” since each is a “monopoly” provider of his or her own unique services to “any part of the trade or commerce among the several States….” 

By 1897 the U.S. Supreme Court was interpreting the Sherman act to explicitly ignore the welfare of most consumers and punish companies for market success, e.g., “market power.” “[I]t is not material that the price of an article may be lowered,” announced Justice Rufus Peckham, in a decision that year. “It is in the power of the [monopolist] to raise it.”

What has ensued has been a century of judicially sanctioned malevolence. Companies have commonly been punished, not for any alleged harm, but simply for having the intelligence and ability to remain successful in their industries.

A classic ruling was in the famous case against ALCOA in 1945. Judge Learned Hand wrote that even though the company had never excluded competitors from the marketplace, “we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections, and the elite of personnel.”

Excellence: A Crime

Thus, ALCOA’s very excellence was held to be a crime against the state—the fact that it produced, from raw ore, aluminum of such high quality and low prices that customers had no incentive to walk away and patronize new would-be competitors. In order to nail ALCOA, prosecutors and judges arbitrarily ignored the wider aluminum materials marketplace, in which ALCOA had a 30 percent market share. Instead they defined the company’s particular niche, newly refined aluminum, where it had a 70 percent share, as the relevant “part of trade or commerce.”

Forty years later, similar travesties had become routine. In 1985, the high court found one Aspen ski resort, Ski Corp., guilty of an antitrust violation because it had stopped helping a neighboring competitor. That competitor, Highlands, wanted Ski Corp. to give Highlands skiers access to the Ski Corp. ski runs. Taking the implicitly destructive provisions of the Sherman act to its logical conclusions, the court held that Ski Corp. had a “duty under antitrust law to help a competitor.”

U.S. antitrust laws, by their essential nature, are always enforced arbitrarily. They violate basic principles of due process by always producing ex post facto rulings, keep prices for consumers high and weaken American industries—including, now, an important Nevada industry that is employing more and more people.

From the original passage of the Sherman act to today’s prosecution of Microsoft, the antitrust laws have virtually always been the tool of envious whiners. The latter, having failed to win the voluntary support of consumers, always seek instead to use the coercive powers of the state against those very same consumers.

That’s why American antitrust law is a linchpin of political corruption—damaging to all states, not just Nevada—and why it is long past time it was removed from the legal system.

Steven Miller is the editor of Nevada Journal, magazine of the Nevada Policy Research Institute. He can be contacted at sm@npri.org.