Trustbusters Go Gunning For High Tech

When President Clinton took office, he promised to promote America's high-tech industries. Companies welcomed the New Democrat's probusiness talk--so much so that leaders of high-tech businesses, such as former Apple Computer Inc. Chief Executive John Sculley and Silicon Graphics Inc. CEO and President Edward R. McCracken, publicly aligned themselves with Clinton. But as the Administration hammers out policies to spur innovation, the industry may find them more of a hindrance than a help.

Justice Dept. trustbusters are readying an attack on a cornerstone of the technology industries--protections for intellectual property. At a speech to be delivered in Phoenix Feb. 25, Assistant Attorney General Anne K. Bingaman will reveal an enforcement agenda that represents a 180-degree turn from the antitrust policy that has reigned for the past 15 years. Bingaman will explain how antitrust can boost innovation by breaking down overly broad patent, copyright, and trade-secret agreements. Her potential targets: companies that use legal monopolies unfairly to block newer busi- nesses from developing technologies. "We believe there is a need to look at this area given the importance of intellectual property in the economy," says Bingaman.

What's Bingaman looking for? Consider the fight between Borland International Inc. and Lotus Development Corp., in which Lotus accuses Borland of infringing on its copyrighted menu commands for its spreadsheet software. Borland argues that Lotus' copyright is too broad because it prevents rivals from using the menu commands to invent Lotus-compatible programs. When the case went on appeal, after Lotus won in U.S. District Court, government insiders say Bingaman wanted to file a brief supporting Borland's position but was stymied by differences among Clinton's economic advisers.

GANG WARFARE. Bingaman is also scrutinizing conduct in the high-tech field that many experts deem commonplace--but that she may view as anticompetitive. In the semiconductor industry, heavyweights such as IBM and Texas Instruments Inc. routinely grant each other licenses without requiring royalty payments. But when new players enter the market with no patents to barter, they pay costly royalties--a practice that the IBMs of the world argue is just, since they pay for research and development. "They all gang up on companies like Cyrix," grumbles Cyrix Corp. CEO Jerry Rogers, who has been fighting these practices, and on Feb. 2 won a $5 million settlement from Intel Corp. on related claims.

Other targets for Bingaman's enforcement army could include cases in which patent holders set prices for products sold by licensees or when patent holders require licensees to market their products in restricted geographical markets to dilute competition.

It's all part of Justice's effort to recast trustbusting from its origins in the era of steel and railroad giants to serve America's new economy. "What was fine for spare tires just isn't sensible for computer programming or semiconductor memories," says Los Angeles antitrust attorney Patrick Lynch. Justice's high-profile inquiry into whether Microsoft Corp.'s business practices impede competition is an opening salvo. And probes into allegedly abusive patent-licensing practices are a next step.

Bingaman's initiative is heresy to the Reagan-Bush-era credo that inventors have more incentive to innovate when strong intellectual-property protections hold out the promise of fat profits. And after more than a decade of antitrust inaction, many doubt she will be able to implement her aggressive agenda with much success. Conservative courts have repeatedly upheld the rights of patent holders, and most politicians would rather strengthen U.S. industry against foreign competitors than trim back any edge American companies might have. "A campaign designed to limit intellectual-property rights is not going to be a big winner," says Washington lawyer Donald I. Baker, the Ford Administration's top trustbuster.

FOREIGN TARGETS. Although U.S. industry is troubled by Bingaman's enforcement agenda at home, it is enthusiastic about Justice turning its guns on foreign patent practices. The government is currently questioning the policies of the European Telecommunications Standards Institute, according to ETSI Deputy Director Fred A. Ask. U.S. companies accuse ETSI of a collective boycott that may keep American companies out of the lucrative European telecom market.

ETSI membership is a virtual requirement to sell in Europe. But according to a complaint filed with the European Commission last June by the Washington-based Computer & Business Equipment Manufacturers Assn., ETSI excludes companies that don't cooperate with its onerous patent-licensing requirements. The group compels businesses to license their patented technologies to one another at low rates, according to CBEMA. "ETSI is basically a private club," fumes one U.S. company official. ETSI maintains that its policy is fair and that there are no penalties for refusing to cross-license. "It is not a collective boycott," says ETSI's Ask. "This is utter nonsense."

While it's unclear whether Justice will succeed in its planned assault, it will have to walk a narrow path. It must crack down on abuses that stifle high-tech competition while avoiding overzealous enforcement that takes away incentives from high-risk businesses. Striking that balance will be a crucial test for the New Democrats as they strive to reinvent antitrust policy--and keep their influential friends happy.