Answer Man

Here’s why you don’t have to worry about ‘Unicorp’ running everything

Microsoft founder Bill Gates learned the laws were still in force in 1998 after he started bundling his Internet Explorer web browser into his Windows operating system.
Microsoft founder Bill Gates learned the laws were still in force in 1998 after he started bundling his Internet Explorer web browser into his Windows operating system. AP

Q: Is the Sherman Antitrust Act still in force? If so, when was it last invoked? I see all of these mergers going on and I know it may sound silly, but by the year 2050 we might have something called Unicorp running everything.

Fred Ehrstein, of Belleville

A: Although it may not be invoked as much as you think appropriate, yes, the Sherman and Clayton antitrust acts remain in force today. And if you don’t trust me, just ask Bill Gates — or what’s left of Ma Bell.

In case you’re too young to remember, the Bell Telephone Co., which was renamed AT&T in 1885, had a stranglehold on the phone industry throughout much of the 20th century. Not only did its various operating companies (e.g., Illinois Bell and Southwestern Bell) provide local exchange services, but the conglomerate also included the Western Electric Co., which made the equipment; AT&T Long Lines, which provided long-distance service; and Bell Labs, which did research and development.

This, of course, was great for AT&T. Theodore Newton Vail, an early company president, touted the superiority of a single system, which led to the slogan of “One Policy, One System, Universal Service.” Even so, it did receive occasional calls from the U.S. government saying the firm might be growing a tad too powerful.

At first, only baby steps were taken to limit its clout. Facing an antitrust suit in 1913, for example, AT&T agreed to sell its stake in Western Union, allow independent companies to interconnect with its system and not acquire those companies without a government OK. In 1949, the government filed suit again, resulting (seven years later) in AT&T agreeing to limit its control of the U.S. phone network to 85 percent and to sell its interests in Canada and the Caribbean.

But it took another 30 years for the government to drive a stake through Ma’s heart. By 1974, the Department of Justice suspected AT&T was using profits from its Western Electric subsidiary to help subsidize the costs of its networks, which was contrary to antitrust policy. This and other illegal practices led to what some called “The Deal of the Century” — the breakup of the company into what became known as the regional Baby Bells and a new, far smaller AT&T.

That was Congress’ idea in 1890 when it passed the Sherman Act as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” It’s divided into two main sections. The first defines practices — such as price-fixing and bid-rigging — that the courts could find illegal. The other section deals with monopolies.

But by 1914, Congress thought the original act needed more teeth. While Sherman covered both monopolies (e.g., Ma Bell) and independent companies that acted together to form cartels, the government noticed already between 1895 and 1905 that one-time business competitors were starting to merge into growing behemoths. So to allay the anxiety of your ancestors, Congress in 1914 passed the Clayton Act to prevent mergers that could “substantially lessen competition.”

Not everybody agrees with these laws, which are partly enforced by both the Federal Trade Commission and the Department of Justice. In an essay titled “Antitrust,” former Federal Reserve System Chairman Alan Greenspan called such laws irrational and ignorant, writing: “No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born.” Even after the Bell breakup, I seem to remember complaints that phone bills went up.

As for your criticism, you also should remember that it’s not only the FTC and DOJ that can invoke such laws. State attorneys general can bring federal suits on behalf of individual residents or the state as a whole. In fact, the FTC says most antitrust suits are brought not by government, but by businesses and individuals. Moreover, not every antitrust suit grabs national headlines, and the standards as to what would “substantially lessen competition” have to be interpreted case by case. To see a few dozen that have been filed over the years, try “United States antitrust law” on Wikipedia.

As I mentioned before, Microsoft founder Bill Gates learned the laws were still in force in 1998 after he started bundling his Internet Explorer web browser into his Windows operating system. The DOJ and 18 states filed suit, alleging that such a marriage unfairly restricted the market for other browsers, such as Opera and Netscape. Although Gates argued that he always had the consumer first at heart and that splitting the company would slow software development, he finally agreed in 2001 to share Microsoft’s app interfaces with third-party companies. The DOJ dropped its efforts to split up the company, and an appeal by nine states that argued the settlement was a slap on the wrist was finally rejected on June 30, 2004.

Today’s trivia

Which well-known company is thought to have been involved in the longest antitrust case ever?

Answer to Friday’s trivia: Henry Wadsworth Longfellow is the only strictly American poet memorialized in the Westminster Abbey’s Poets’ Corner in London. (St. Louis-born T.S. Eliot renounced his U.S. citizenship to become a Brit in 1927. W.H. Auden was born in York, England, before becoming an American citizen in 1946.)

Roger Schlueter: 618-239-2465, @RogerAnswer

  Comments