The Microsoft monopoly actions - 22 May 1998

It's not hard to imagine as the theme of a James Bond movie a man who acquired the power to control, worldwide, the internet. He could, before long, control the world's knowledge bank, economies, food, transport, all the services which, more and more, will be done over the internet. Well such a monster is inconceivable in life, but the United States government is acting as if the lives of nations, as well as you and me, would be disturbingly affected if one man controlled everybody's access to the internet.

This week, the government, not the Clinton administration, but the cavalry division of the government, the Department of Justice, came down like a wolf on the fold of one famous young man, way off there in Seattle, on the Pacific Coast in the far West. The name of the case on the docket is USA versus Microsoft Corporation. And not only the federal government, but riding alongside, were the supporting troops of 29 states, commanded each by its own Attorney General, each bringing its own charge against Mr Gates's corporation of monopoly.

Why should there be so many additional guns brought into action? Why isn't the federal suit enough? The answer is simple, though tedious and maddening, to a company, a corporation, that's being sued. In the United States, a business corporation is set up and licensed, not by the federal government, but by one particular state, that it means to do business in. It may go off and get licensed in another state and another, so on. The original idea was sound. It was to prevent any one company, let alone any one man, getting control of a single product or a national resource – coal, say, or oil or, heaven help us, as heaven did, the railway systems.

Let's remind ourselves what these 21 legal assaults on Mr Gates are all about. I talked about him first when he appeared before a special Senate investigating committee, at the beginning of March. For newcomers or innocents, let it be said that Mr Bill Gates is 42 years old, has a baby face and large, wire-framed glasses. Don't let them fool you. It's generally admitted he is a genius of an innovator with computers, to whom millions owe their livelihood. He is the king of software manufacturers, some say the dictator. One of his struggling competitors said he is the most dangerous and powerful industrialist of our age. However, to cut out the fine writing, and stick with the facts, as I hope everybody knows by now, you navigate through the internet's worldwide web and choose your programme or fount of information on anything and everything, you do this with one essential software tool, a browser.

Now Mr Gates's Microsoft company manufactures a browser known as the Explorer. In theory, the theory of free competitive trade, you should be able to buy one man's computer and somebody else's browser, the one you find most compatible. However the government charges, and so do those 20 state Attorneys General, that Mr Gates's Microsoft company forces makers of personal computers to load his Explorer for browsing, but since Mr Gates integrated Explorer with the Microsoft operating system, if you don't accept Explorer, then you can't use Microsoft's operating system. At Mr Gates's Senate hearing there were several heads of rival computer companies present, very angry men, I can tell you and when Mr Gates was disputing the use of the word "monopoly", one of them swivelled round and put to the astonished audience at the hearing, how many people here own personal computers? About three-quarters of those present. How many have a computer that's not fitted with Microsoft's Explorer? Not a hand raised. That, shouted the rival, is a monopoly.

Well, the burden of the government's complaint is the bruising fact that by forcing rival systems to use his browser and his operating system, he controls about 90 to 95% of the whole personal computer business and exercises a stranglehold on his competitors, which amounts to a sin, precisely defined in the famous anti-trust law, the Sherman Act, which the government has resurrected from the grave: "Every contract, combination in the form of trust or otherwise or conspiracy in restraint of trade of commerce among the several states, is hereby declared to be illegal".

The first big government campaign against monopoly, first and, incidentally, the last, was famously undertaken by President Theodore Roosevelt at the beginning of the century against the so-called robber barons, the handful of men who each collared some single material resource – coal, coke, steel, oil, the railroads – by crushing competition.

A simple, dramatic example is that of one John D Rockefeller, a 22-year-old, a very humble, clerk in Cleveland, Ohio, sent by the produce company he worked for to Pennsylvania to see if there was anything to the rumour of a messy oil that somebody had made gush up from the farmland, land where the farmers for two centuries had complained about their streams being muddied with a kind of black glue. It was oil all right and young, neat Mr Rockefeller saw it might grow from being a smelly lamp oil into oil for heating, for steamships, for power, everywhere. But he went home to Cleveland, and with a straight face, told them there was no future in it. Pretty soon he pooled his small savings with another young man and invested them in a candlemaker who had refined lard oil and was moving on to petroleum.

Well to end your suspense, let me say, within nine years, young Rockefeller owned 90% of all American refineries and all the main pipe lines and oil cars of the Pennsylvania railroads. Then he got secret, low rates from the railroads for the huge business he threw their way and he got a bonus for the regular rates that small oil producers had to pay. Need I say, within a year or two he'd either bought out the small rivals or killed them off. When he was only 33, in one stretch of six weeks, he took over 22 of 26 competitors. One of these unfortunates said, if we didn't sell out, we'd be crushed out. They all belonged to Mr Rockefeller's supreme monopoly, the Standard Oil Company.

When all this came out, there was popular outrage and the case was prosecuted under the Sherman Act. The Supreme Court, hearing the government's case against Standard Oil, broke the monopoly up in 1911. It looked like a whopping success for the Sherman Act, but wait. There's a short phrase in the Act which a non-American may be forgiven for paying little attention to. It's this: "In restraint of trade among the several states". Now three years before the Sherman Act was passed, Congress tried to regulate trade between the states by making price fixing, railroad rate fixing, pooling of companies, illegal. It was called the Inter-State Commerce Act and from then on these sharp practices were to be watched over by a permanent Inter-State Commerce Commission. However, very soon, the Sugar Trust, which controlled 98% of the sugar refining business in the country, appealed against its prosecution under the Sherman Act and the Supreme Court held that that 98% grip on sugar refining did not violate the law because the raw material came from Cuba, because this was not an act of inter-state commerce, it was a single corporation processing a foreign product. I imagine the main purpose of having 20 states bring separate charges against Mr Gate's Microsoft is to foil any attempt to say that the federal suit does not address a problem of inter-state commerce.

Well the Supreme Court's upholding of the Sugar Trust dealt the death blow to the legality of the Sherman Act, but what truly killed it in practice, what soon arrested every attempt to use it, was the ingenious invention of a gentleman named Mr Dodds – I know no more about him – the invention of the holding company. A holding company was a pure financial company formed simply to hold the stock of operating companies. For example, American Electric Power owns or owned eight companies, but it itself did not generate any electricity or mine any coal, it just sat on one side and held the stock of the people who did. Maybe the old cowboy comedian, Will Rogers, had a pithier definition of a holding company: the people you give your money to while you're being searched. So, when Mr Rockefeller's infamous monopoly, the Standard Oil Company, was dissolved under the law, it was dissolved into several theoretically competing units in different states. However, they were still a consolidation of the old oil companies, under the control of a holding company and Mr Rockefeller got richer.

Time alone will show whether the resurrected Sherman Act is more potent today than it was 90 years ago in controlling what Teddy Roosevelt called one of those mighty industrial overlords. In his time, there was popular outrage at the totalitarian control of oil, sugar, railroads, beef by the robber barons but even then, one of the most upright justices of the Supreme Court, and its most formidable intellect, called the Sherman Act an imbecile statute that aims at making everyone fight but forbids anyone to be victorious. The last big-business monopoly case that the government brought spent 17 years in the courts before an outside settlement was reached, so don't expect this mighty case to be done with tomorrow, next week, possibly by 2010. If you're around then, please tell me the result in an email to cooke.com, Valhalla.

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