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Editor's note: This is the first in a series of articles that will examine the impact of Microsoft's epic antitrust battle nearly a decade after it began, and as the software company's settlement with the federal government and nine state attorneys general is set to expire.
Antitrust
Lawmakers: Microsoft Has Been More Responsible
by Andrew Noyes
Five years ago, Microsoft settled its antitrust case with the Justice Department. Since then, the company has won favor with some lawmakers who say the company has faithfully implemented the terms of its consent decree and is acting more responsibly in the software marketplace.
While the high-tech giant maintains its dominance in the market for computer-operating systems, Microsoft "appears to be cognizant of its obligations to adhere to the mandates of antitrust law," said Wisconsin Democrat Herb Kohl, chairman of the Senate Judiciary Antitrust Subcommittee.
Microsoft is "more sensitive to concerns of industry and government regulators" and is more sophisticated about "how their competitors use regulation against them," added Democratic Rep. Jay Inslee, whose Washington state district is home to the company.
While the antitrust case is important, the fact that the company has grown and matured in the last decade "probably has had an even greater impact," he added. Microsoft has shown the ability to "adapt and evolve with remarkable success," Inslee said.
Part of the reason is that Microsoft "loves to compete" and can "change on a dime" to take advantage of a new opportunity, he said. "They are keenly aware that if someone builds a better mousetrap, their dominant position will be threatened."
From Kohl's perspective, the most significant step Microsoft has taken was unveiling a set of guiding principles for developing its Windows system. That framework "can ensure a vibrant and competitive computer software market for years to come," he said.
In a July 2006 announcement, the company pledged to let personal computer manufacturers and consumers add any software they wish to run on Windows and promised not to retaliate against any PC makers that support non-Microsoft software.
Kohl, who recently announced his opposition to the proposed $14 billion merger of satellite radio providers Sirius and XM, said each antitrust case that comes before his panel is evaluated on its own merits, but the Microsoft lesson is a meaningful backdrop.
Kohl, who headed his family's successful department store chain before it was sold in 1979, said the Microsoft case showed the criticality of guarding antitrust laws from "those who wish to water them down by carving out exemptions or creating 'new rules' for the so-called 'new economy.'" Even in the innovation-driven age, he said, "antitrust is the best tool ever devised to ensure that markets remain competitive."
Today, Internet-based applications are "much more important" than a decade ago, when fears about a Microsoft power grab began, Kohl said. In the online space, Microsoft is a large player among several others, including Google, Yahoo and America Online.
At least one of those rivals could be the next big antitrust target, especially abroad, Inslee said. A recent ruling against Microsoft by a European Union court made clear that "any company with more than 30 percent market share" could be scrutinized.
Inslee said Google has dominance in search engines; Apple fits the bill in the sphere of digital music players; and IBM has control in mainframe computing. Plus Intel, Rambus and Qualcomm already are being investigated by the European Union, he said.
While Kohl would not comment specifically on Microsoft's international experience, he said global antitrust enforcement is "a very important topic. ... Companies must comply with burdensome and expensive filing requirements in dozens of different nations."
In a perfect world, there would be harmony between the United States and leading foreign regulators, he said. That way, U.S. firms would know "if a merger or acquisition passed muster here, it will pass muster at the [European Commission] and vice versa."
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Telecom
Panel To Probe Martin's Leadership At The FCC
by Dan Friedman, CongressDaily
The House Energy and Commerce Committee on Tuesday announced a bipartisan investigation into charges that FCC Chairman Kevin Martin has short-circuited the commission's regulatory procedures and made the process less transparent to advance various initiatives.
In a letter to Martin, Energy and Commerce Chairman John Dingell, D-Mich., and ranking Republican Joe Barton of Texas said they have formalized an unofficial inquiry outlined in a previous letter Dingell sent to the regulatory chief.
On Dec. 3, Dingell wrote that Martin appeared to have bypassed procedures designed to ensure transparency in FCC decisions, suggesting "a larger breakdown at the agency." Dingell pointed to the commission's failure to post proposed rules in time to allow public comment or to give commissioners likely to dissent time to review the drafts.
The participation of committee Republicans indicates increasing bipartisan discontent with Martin, who has been under fire from commission Democrats and from Congress for his effort to relax media-ownership rules and for pushing through a 3-2 vote Dec. 18 on the issue.
Reps. Jay Inslee, D-Wash., and Dave Reichert, R-Wash., and Sen. Byron Dorgan, D-N.D., and former Sen. Trent Lott, R-Miss., last month introduced companion bills to void the change, which permits newspapers to combine with television or radio stations in the country's top 20 markets.
Critics also have attacked Martin for announcing plans through the media and for providing little information to fellow commissioners to back proposed rule changes.
The Energy and Commerce probe is being conducted jointly by the full committee and its Oversight and Investigations Subcommittee, chaired by Bart Stupak, D-Mich.
The Dingell-Barton letter said the committee will issue "a comprehensive document request in the near future" and will hold a hearing this year. The letter said the probe "will also address a growing number of allegations received by the committee relating to management practices that may adversely affect the agency's operation."
The letter did not elaborate on the allegations. But it instructs Martin to notify all FCC employees of their right to communicate with Congress and warns the agency not to retaliate against whistleblowers. It asked Martin to preserve all electronic records related to committee work.
An FCC spokesman declined to comment on the investigation but pointed to Martin's written response to Dingell's Dec. 3 letter. In that letter, Martin defended his tenure, saying he has given commissioners enough time and information to review proposals. "I already provide my fellow commissioners all of the relevant data and analysis upon which a proposed order or rule is based," Martin wrote.
But he acknowledged one instance in which he regretted not giving commissioners enough information to justify his position on a rule change affecting the cable industry.
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Television
Martin: DTV Education Should Be Close To Deadline
by David Hatch
LAS VEGAS -- FCC Chairman Kevin Martin argued Tuesday against too much early consumer education about the nation's shift to digital television, reasoning instead that the bulk of the outreach should happen closer to the Feb. 17, 2009, transition.
"Most of the education needs to occur as we get closer to the digital transition date," Martin said during a question-and-answer session with Consumer Electronics Association President and CEO Gary Shapiro on the second full day of the Consumer Electronics Show here.
"You don't want to be putting too much of an emphasis on that too early," Martin said. He added, "I think the industry's doing well [educating people], but we all need to be doing more."
The chairman's views are at odds with many powerful congressmen who have warned that the government is relying too heavily on advertisements crafted by industry stakeholders who sometimes skew their messages to serve their corporate interests. Democratic lawmakers, fueled by a Government Accountability Office report concluding that no federal official is running the transition, are expected to boost their DTV oversight in 2008.
Interviewed here after Martin spoke, Democratic Commissioner Michael Copps said that with 300 million Americans to educate, outreach needs to be a bigger priority. Why take a chance and "roll the dice?" he asked rhetorically.
Copps has been urging his colleagues to conduct small-scale tests of the transition to gauge its impact, but he is not certain whether the agency will adopt the idea.
The Commerce Department has reported brisk requests for $40 coupons that consumers can use toward converter boxes to prevent analog sets dependent on over-the-air signals from going dark when the switchover occurs. Nearly 2 million vouchers were requested during the first week of January, when the program launched.
Martin also discussed the forthcoming auction of spectrum in the 700-megahertz band that will be relinquished by broadcasters as part of the transition.
He conceded that the agency took a "chance" by imposing conditions mandating open platforms that could devalue the frequencies. Assuming the FCC can meet its benchmarks for opening bids, "I think that rule would be a success," he said.
Martin said he considers the DTV deadline immovable. "I think it's actually critical for us to go forward on that without any movement," he said, noting that it would be difficult to change the deadline with entities being asked to pay billions of dollars for TV airwaves at auction. "We couldn't do anything more that would disincent people from thinking about how they're going to be using that spectrum," he said.
Asked about his continued efforts to have cable systems adopt per-channel pricing, he said with a chuckle: "I'm doing everything I can. That's what's causing all the darts." The comment was a reference to Shapiro's observation that Martin's detractors have been throwing darts at him.
Regarding the FCC's 2008 agenda, January and February will be dominated by the auction, with emphasis also to be placed on spurring deployment of high-speed Internet service and investigating concerns that some broadband providers have blocked or degraded content carried over their lines.
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Trade
Official Backs Reduced Tariffs For Tech Products
by David Hatch
LAS VEGAS -- The Consumer Electronics Association has a key ally in its effort to reduce foreign tariffs on technology products: U.S. Trade Representative Susan Schwab.
"If there were ever an industry where you see the very, very clear convergence of the benefits of free trade, of free markets and of the protection of intellectual property, this is it," she told reporters during a Monday teleconference held in conjunction with the Consumer Electronics Show here. Schwab is scheduled to deliver a keynote Tuesday afternoon.
Trade agreements involving Colombia, Panama and South Korea are pending before Congress, and there is discussion about a trade pact for electronics goods under the current round of global trade negotiations via the World Trade Organization. Schwab warned of "threats on the horizon" to roll back some of the benefits of the WTO's Information Technology Agreement, which lifts duties on high-tech goods.
The Information Technology Industry Council has complained that some countries are removing tech products from duty-free coverage, resulting in a back-door "tax" on innovation.
Schwab said U.S. imports and exports worth $800 billion involving the three countries would be impacted by the pending trade agreements in a market sector valued at more than $3 trillion. "You're talking about a big chunk of change here," she said.
Trade issues have emerged as the association's key policy priority here as CEA seeks to reduce all tariffs on tech products. During the call, Schwab and CEA President and CEO Gary Shapiro downplayed concerns that free-trade alliances make it easier for domestic companies to move manufacturing offshore to lower labor costs and then ship products to the U.S. and other markets.
Schwab responded that many U.S. companies use trade agreements "to enhance their competitive position vis-a-vis China," sometimes shifting manufacturing to third countries but also boosting U.S.-based production to accommodate increased exports spurred by the deals.
She also emphasized that Colombia, Panama and Peru, which entered into a trade pact with the United States in December, have had virtually unlimited access to the U.S. market since 1991. The pending Colombia and Panama agreements would further open those countries to U.S. exports -- an arrangement that domestic tech firms eagerly embrace, she said.
"This is real money for real people in the United States," Schwab added.
Shapiro noted that electronics exports have risen in the last six years to Colombia, Panama, Peru and South Korea. "If we implement these agreements, the tariffs in those [countries] go down and the exports go up, as do the imports," he explained. "You can only protect yourself in the short term. You can't protect yourself in the long term."
Shapiro, who is backing Mitt Romney in the presidential race, praised the trade stances of the former Massachusetts governor and two of his GOP rivals, Rudy Giuliani and John McCain.
CEA has allied with the Motion Picture Association of America and Recording Industry Association of America, groups it has battled on other matters, to urge Congress to approve trade deals. "While we disagree sometimes on the specifics of intellectual property, we agree on this point," Shapiro said.
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Intellectual Property
Digital Media Group Seeks Final Word On Web Radio
by Andrew Noyes
LAS VEGAS -- A trade group for America Online, Apple Inc., Napster, Yahoo and other digital media firms on Monday asked the Copyright Office to decide whether Internet radio or digital streams should fall under a statute that has historically pertained to compact discs and downloads.
The announcement from the Digital Media Association, which coincided with the Consumer Electronics Show here, cited a decade of disagreement over the copyright conundrum that the organization argues has impeded innovation.
The group believes digital streams are like radio and should only require a performance license. But music publishers have argued that "on demand" or "interactive" offerings are subject to both a performance right and a "mechanical" right.
DiMA Executive Director Jonathan Potter told a CES panel that his members first raised the issue with Congress in June 1998, and recording labels and music publishers submitted the question to the Copyright Office in March 2001. "It's time for this finally to be settled," he said.
Legislation introduced in the 109th Congress by Texas Republican Lamar Smith, who chaired the House Judiciary Courts, the Internet and Intellectual Property Subcommittee, stalled and the new Democratic-led Congress has not pursued such a bill.
The Copyright Office told lawmakers in 2006 that the existing mandate "does not comport with the realities of the digital environment." The office also held a roundtable on the topic last June.
Stakeholders further tried to resolve the issue in connection with a royalty proceeding pending before the Copyright Royalty Board. The three-judge panel soon will set rates for digital mechanical rights utilized by music services from 2001 to 2012, and DiMA said clarifying whether it should apply to Web radio is a must.
David Israelite of the National Music Publishers' Association told conference attendees that DiMA "tried to screw the songwriters today." For seven years, the music industry has extended a rate-less license to digital song streamers, he said. DiMA's action is "a slap in the face of the music community."
Israelite told Technology Daily that his group will issue a formal response to the Copyright Office in the next couple of days and warned that Potter's group could wind up in federal court in the near term if it continues to push for the fee exemption.
"We were and remain very comfortable reaching an accommodation with music publishers to identify rights that assure adequate compensation so long as there are associated limitations on those rights that ensure innovation," Potter said. "We have to figure out where the contours of the current law are."
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Intellectual Property
Share And Share Alike -- The Music And The Money
by Andrew Noyes
LAS VEGAS -- Striking the right balance between delivering entertainment through nontraditional distribution channels while respecting the rights of content creators was the topic du jour at the Consumer Electronics Show on Monday afternoon.
Several panels addressed the topic, which has been a prominent one in Washington recently. As the creation of new audio and video tools accelerates, pressure has increased for all of those in the value chain to get an equitable piece of the pie.
At one panel, several independent artists gave their views on "fair use" of copyrighted content and described ways that they use Internet-based applications to make music and communicate with listeners.
Lady Kier, whose dance group Deee-Lite is best known for the single "Groove Is In The Heart," said she "stopped counting" after 100 musicians sampled her up-tempo tracks. But when one of her songs appeared in a BMW commercial, she got angry.
"If someone is sampling for a creative purpose, great, but as soon as it shows up in an advertisement, that's a whole different thing," she said. "When someone starts to make money off it, it's the right thing to pass it along. It's the right thing to share the wealth."
Folk singer Jonathan Coulton said he is "on the fence" with respect to sampling because there are "many gray areas" surrounding how music is appropriated. Using a "tiny chunk that is transformed a great deal" is different than using a larger clip that is not remixed, he said.
Industry fears about changes in how music reaches consumers are overblown and "there is a lot of hand-wringing over nothing," Coulton said. "Music is still going to happen and there will always be people making it. The important thing is for artists to realize they can go out and do it. You don't need to wait for anyone's approval."
Nettwerk Music Group CEO Terry McBride added that recording labels "have to understand how to monetize the behavior of the fan" rather than trying to control it. "You can't legislate or litigate their behavior," he said. Those approaches "have no meaning to the average consumer."
Elsewhere at CES, experts spoke about how the increasingly digital home promises more consumer choice, content and personalization -- and new challenges for Hollywood. Officials from AT&T, LucasFilm, Starz Entertainment and Sony discussed how TV and movie studios are dealing with consumers' on-demand, integrated entertainment world.
Digital media executives from Disney, Fox Entertainment Group, Warner Bros. and Paramount Pictures convened at a separate session to talk about how technological advances are impacting Hollywood decision-making. Topics included high-definition content delivery, the proliferation of handheld devices, and ever-growing bandwidth.
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Politics
Chamber Plans To Be Active In 2008 Hill Races
by Heather Greenfield
As New Hampshire voters helped steer the nation toward presidential nominees, the U.S. Chamber of Commerce on Tuesday vowed to get more involved in congressional elections in 2008 than ever before.
Chamber CEO Tom Donohue said the business organization with 3 million members is building grassroots teams of business activists in 144 pivotal districts.
"We'll be very, very engaged in this election," Donohue said. He estimated the chamber spent $22 million during the 2006 election and said it likely will spend more this year to target races and promote candidates "who understand how fundamentally important a growing economy is to everything we value in our society."
As the nation works through its economic challenges, Donohue told reporters ahead of a meeting with members Tuesday that it is more critical than ever that policymakers enact good economic measures. He and his chief lobbyist outlined their goals for the next legislative session.
Donahue said the priorities impacting business are failing schools, crumbling roads, rising health and energy costs, trade and tax issues, and intellectual property protection.
Donohue said crime, including robbery, results in annual economic losses of $16 billion to 17 billion, but stolen intellectual property costs the nation "a quarter of a trillion dollars." He said in addition to discouraging innovation, the failure to enforce IP protections costs state and federal tax revenue and 750,000 American jobs.
Donohue and lobbyist Bruce Josten expressed optimism that Congress would approve pending trade agreements with Colombia and South Korea by this time next year, ahead of the new president taking office. Donohue said he would imagine with all the other issues addressed in the campaign, most leading candidates would rather that was taken care of ahead of their arrival.
He also is optimistic about some type of immigration legislation to let businesses hire more highly skilled foreign workers. Donohue said the legislation may need to be couched in other terminology to avoid the controversy over anything to do with immigration, but he doesn't believe it is possible to go forward without more tourism, agricultural and technology workers.
With current oil prices, he said the nation needs to look at other economically viable energy innovations. "Our [energy] policy has in some ways been a cross between hypocrisy and stupidity," Donohue said.
He also said that despite populist rhetoric on the presidential primary trail from all of the Democratic candidates and Republican Mike Huckabee calling for a pause in trade, he is not worried about the next president taking a strong anti-trade stance.
Even though the chamber does not endorse candidates in presidential elections, it will get involved as Democratic and Republican winners emerge to advocate issues perceived as critical.
"Whether it's [Hillary] Clinton, [Barack] Obama, Huckabee or [John] McCain, what's not going to change is the issues they're going to focus on domestically and internationally," Donohue said. "The president wants what we want -- a growing, prosperous economy."
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Security
The Color Of Terror: Is It Time To Rethink It?
by Chris Strohm
House Homeland Security Committee Chairman Bennie Thompson has reopened a debate about whether the nation's color-coded terrorist-threat advisory system should be overhauled or whether it should be scrapped altogether.
The system, which uses five colors to define threats, was created in March 2002 before the Homeland Security Department came into existence.
"With minor exceptions, the system has remained virtually unaltered since its inception," Thompson wrote in a letter last week to Homeland Security Secretary Michael Chertoff. "While the system may have been sufficient initially, with the formation of the department and the many developments in the area of domestic homeland security that occurred since 2002, it may be prudent to re-examine the current sufficiency of this color-coded advisory system."
The national threat level is currently at yellow, which means elevated. But the threat level for all domestic and international flights is at orange, or high, according to the department's Web site. "While there continues to be no credible information at this time warning of an imminent threat to the homeland, the department's strategic threat perspective is that we are in a period of increased risk," the Web site states.
Thompson noted problems he sees with the system. "First, the system assigns a threat condition representing the apparent risk of a terrorist act but provides no information on actions that should be taken by the public in response to the risk," he wrote. He added that the lowest threat conditions -- green and blue -- have never been used.
State and local officials also have criticized the department in the past for using the system as a blunt instrument and for not providing clear guidelines about what should be done when alert levels are raised. Since 2004, however, the department has not raised the national threat level. Instead, the department has raised threat levels for small periods of time for specific sectors, such as aviation, mass transit and certain financial institutions.
Thompson stopped short of calling to scrap the system. "While some may question whether the system has outlived its usefulness, I believe that the current system can be improved to provide the American people with the kind of information they need to effectively respond to the level of risk that the color codes are intended to relay," he wrote.
Instead, he asked Chertoff to explain the rationale for keeping the system and what circumstances would have to be met for threat levels to be lowered to green or blue. Thompson also asked Chertoff to list actions the department recommended the public take when the alert system was raised to red, or severe, for commercial flights coming from the United Kingdom in 2006.
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Today's Feature:
People Column
Two long-time technology lobbyists have a new startup. Josh Ackil, most recently the chief Democratic lobbyist for the Information Technology Industry Council, and Matt Tanielian, formerly of Cisco Systems, have launched the Franklin Square Group.
Every Tuesday, read the People Column by Heather Greenfield.
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