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'The trial is the remedy' to rein in Big Tech

Akiko Fujita
Anchor/Reporter

As Washington prepares to ramp up the pressure on tech giants including Google (GOOGGOOGL) and Facebook (FB), antitrust lawyer Gary Reback offers a lesson from the past: You don’t have to break up Big Tech, to rein in Big Tech.

“The trial is the remedy,” says Reback, an attorney with Carr & Ferrell, speaking to Yahoo Finance. “The damage to the monopolist comes primarily from the airing out, the public scrutiny and what it’s done.”

Reback knows from experience.

The Silicon Valley lawyer famously took on Microsoft (MSFT) 21 years ago in an antitrust case that led to the Justice Department and 20 state attorneys general suing the software giant for allegedly abusing the dominance of its Windows operating system to sideline rival Netscape and its internet browser. That set off years of legal proceedings, and contentious congressional hearings, pitting lawmakers against then-Microsoft CEO Bill Gates.

It all ended in a settlement. Microsoft was never broken up. But, Reback says the public dress-down and unwelcome scrutiny resulted in self-regulation, allowing for upstarts like Google to emerge.

“The only way you could get to Google at the time was to go through the Microsoft browser and type google-dot-com. There’s no technical reason when you did that, they had to send you there. They could have put up the big screen that said ‘access denied,’” Reback said, citing Microsoft’s dominance in the browser market. “That would have killed Google in the cradle. A strong part of the reason [Microsoft didn’t act] was because they were already under scrutiny. They had gone through this terrible trial, they had all these problems. Did they really need other problems?”

Bill Gates then chairman and CEO,Microsoft Corp., during a Senate Judiciary Committee hearing on market power and structural change in the software industry,focusing on competition and antitrust issues. March 3, 1998. (Photo by Douglas Graham/Congressional Quarterly/Getty Images)

By the company’s own admission, the legal distraction stifled innovation, a factor that contributed to the company missing out on search and mobile.

Herbert Hovenkamp, a professor of Legal Studies and Business Ethics at the Wharton School at the University of Pennsylvania, says the Microsoft case sets a template for lawmakers looking to reduce the influence of Big Tech. While the government didn’t succeed in breaking up the firm then, he says the ban on exclusivity agreements in the legal settlement forced Microsoft to open up some of its systems to third-party developers, allowing for more competition in the market.

“Technologies are very, very different today … but there are still exclusive contracts,” he said. “The remedy is to issue an exclusivity provision. That would force the property to deal with a wider range of trading partners.”

Hovenkamp points to Apple’s App Store as one potential target for provisions. The company currently charges app developers a 30% commission fee, while limiting iOS apps to be sold through its own store. That’s invited complaints from companies like Spotify (SPOT), which allege Apple (AAPL) is deliberately acting to “disadvantage” other app developers. Last month, the Supreme Court gave consumers the green light to sue Apple for alleged overcharging.

CEO Tim Cook has insisted Apple is “not a monopoly.”

“If there were to be a remedy against Apple, I would think it would be a remedy that forces Apple to admit more venues for selling apps,” Hovenkamp said. “You could log into multiple sources and buy software through, not just the App Store, but some alternatives and it would be a little more competitive shopping experience.”

Still, Hovenkamp warns there are limits to antitrust and anticompetition statutes. Lawmakers must prove that a company’s dominance unreasonably restricts competition, and harms consumers by resulting in higher prices for products and services.

In 2013, the Federal Trade Commission handed Google a big victory, after it closed a two-year investigation into the company, saying that the evidence did not support allegations that Google’s search display “was a product design change undertaken without a legitimate business justification,” though Google attracted 70% of all search queries at the time.

Antitrust enforcement has fallen dramatically, with Justice Department complaints in 2017, down 61% from 1981 levels, according to data from the Institute for Mergers, Acquisitions, and Alliances, cited by the Wall Street Journal.

Yet, Reback says an investigation of Big Tech today is even more critical, because their reach is much broader economically and societally, compared to Microsoft in the late 1990s.

“That was a case involving a so-called free product,” he says, pointing out that Microsoft wasn’t involved in data collection like Facebook and Google. “Yet, the court had no difficulty saying ‘well of course, there’s consumer injury.’ There are now settled principles from antitrust law from Microsoft, and we seem to have forgotten them and our enforcement discipline.”

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter at @AkikoFujita

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