Old, Onerous, And Still On The BooksLinda Himelstein
As anniversaries go, Oct. 12 was an odd one for General Electric Co. It was on that day 83 years ago that GE signed an agreement with the government designed to weaken the company's dominance of the lighting industry. Among other measures, the consent decree banned GE from manufacturing private-label or generic lighting products and required the company to disclose its ownership of several lighting businesses that had been thought to be
But that was all during the time of the Model T, the first transcontinental airplane flight, and the great trustbuster William Howard Taft. Today, GE and a growing number of other companies constrained by decades-old consent decrees say it's time to remove the shackles. GE is negotiating with the Justice Dept.'s Antitrust Div. to lift the order, arguing that its provisions are hindering the company's ability to compete in a global economy. "By lifting this order, we would be able to do exactly what our competitors are doing," says company spokesman John J. Betchkal.
GE has plenty of company in its crusade against what many executives believe to be antiquated--and anticompetitive--orders. IBM and Eastman Kodak Co. have joined the fight, too. The argument is simple: How can antitrust agreements written decades ago be relevant in today's economy? "You would have to be a genius to write a decree that would be effective for 50 years," says Stephen Calkins, an antitrust expert at Wayne State University Law School.
What has suddenly spurred these challenges, after years of little or no activity? Part of the answer, say experts, is that global competition has greatly intensified over the past decade. IBM, for instance, has been hit particularly hard and has been frustrated watching competitors flourish under practices it is barred from using.
SLACKING OFF. Another factor has been a change in the government's attitude. It used to be almost impossible to persuade regulators and courts to abandon or modify consent decrees. But in July, the Federal Trade Commission announced that its antitrust decrees would lapse after 20 years. The agency also invited companies to seek reviews of old decrees. The average life span of the Justice Dept.'s antitrust orders is now 10 years. Experts say regulators finally realize that some decrees can impede competition if left unchecked too long. "The problem with these decrees is that they don't learn with society," says Daniel M. Wall, an antitrust lawyer in San Francisco.
GE, for example, wants to begin offering private-label lightbulbs to retailers--a business segment that global competitors such as Philips Lighting and Osram Sylvania Inc. already have. In addition, the company wants to sell generic products to compete in the lower-priced end of the lighting market. The company won't say how much these endeavors would be worth but is concerned that rivals are profiting from its predicament. The government is weighing GE's request.
Experts estimate that more than 100 of these decades-old decrees are still controlling some corporate behavior. Most antitrust agreements entered into today aren't open-ended. For example, the settlement reached recently between the government and Microsoft Corp. is due to expire in just 61/2 years.
RE-LEASE? Yet for all the sentiment that has been expressed in favor of updating outmoded enforcement measures, companies are encountering stiff opposition. Critics say it's because even with the passage of time and a more global marketplace, many companies still retain too much control over their industries to be freed from certain restraints. IBM is butting heads with a number of its competitors over a 1956 consent decree that, among other things, forced it to offer computer services separately from its manufacturing and sales business. It also required IBM, which had previously only leased its equipment, to sell outright its computers and equipment to competitors.
Such provisions created what are now multibillion-dollar aftermarkets composed of independent leasing and service businesses and dealers of used IBM computer equipment. The 265 independent lessors alone earn more than $15 billion. These companies argue that such revenues would plummet without the decree. "If you don't regulate IBM, it will put handcuffs on companies like ours to compete effectively. And that will cause consumers to suffer," argues Philip A. Hewes, a senior vice-president at ComDisco Inc., the largest independent computer-leasing company.
Independent service organizations (ISOs) agree, arguing that the court should draw a distinction between IBM's diminished strength in manufacturing and its continued dominance of the computer-service business. "There is a superficial appeal to IBM's argument that we need to reassess things after 40 years," says Ronald S. Katz, a San Francisco lawyer who represents the ISOs. "But IBM could hobble or get rid of its competition" if the decree were to be lifted. IBM, which has said it must be free to match such competitors as Electronic Data Systems Inc., declines to comment.
IRONIC. Thus far, the Justice Dept. has remained silent on the IBM case, which is pending in federal court. Not so with respect to Kodak, which in May persuaded a court to overturn two consent decrees. Kodak successfully argued that it no longer possessed enough power to control prices or hinder competition. Consequently, Kodak claimed it should be allowed to sell private-label film and to bundle its film and photofinishing businesses. Robert B. Bell, Kodak's antitrust counsel in Washington, says his client would have come out with a number of innovative products if it weren't for the decrees from 1921 and 1954.
The government has appealed the Kodak case, arguing that the company still wields too much market control. The appeal, which is expected to be heard in January, is deemed so important that Assistant Attorney General Anne K. Bingaman is expected to make a rare court appearance to argue the case herself. That Bingaman would be battling the case so hard strikes some critics as ironic. "It's really baffling to companies to have the government fight decrees that are 80 years old when current policy allows them to expire in 10 years," says Bell.
Baffling, maybe. But the Kodak decision could affect dozens of other decrees on the books by creating a new legal standard for overturning them. That's a feat in antitrust law that hasn't been accomplished since 1932--the time of prohibition and the kidnapping of Charles Lindbergh Jr.
TRYING TO UNLOOSEN OLD TETHERS
EASTMAN KODAK Kodak is fighting a 1921 decree that bars it from selling private-label film and a 1954 decree that prohibits it from selling film and photofinishing in one package.
IBM The computer maker wants to overturn a 1956 order that requires IBM to sell its machines outright to customers instead of only leasing them. The decree also forces IBM to provide parts to independent service organizations and to sell its data processing services through a separate subsidiary that treats IBM like any other unaffiliated customer.
GENERAL ELECTRIC GE has asked the Justice Dept. to consider lifting a 1911 order designed to dilute GE's control of the lamp market. Among other provisions, the old decree prohibits GE from manufacturing private-label or generic lighting products.