Busting The Trustbusters

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* Data General Corp. developed a computer it called NOVA and a copyrighted operating system, or basic software, to run it. The software, it turns out, was sought by owners of computers similar to the NOVA, but Data General refused to license the software except in combination with the hardware. A jury found that the software could not be produced by other software companies, and that Data General's insistence on "tying" or "bundling" its software with its hardware led buyers that might not have bought its hardware or might have bought it for less from someone else to purchase it from Data General. The suit was brought by competitors Digidyne Corp. and Fairchild Camera & Instrument Corp. Damages have yet to be awarded.

* Eli Lilly & Co., the drugmaker, had three antibiotics it was selling: two exclusively, under patent protection, and a third that was in competition with an interchangeable drug sold by SmithKline Corp. By offering large discounts to hospitals that bought the three drugs in combination, Lilly had effectively foiled SmithKline's marketing of the competitive drug. SmithKline, in response, was forced to offer discounts of up to 35% on this one product -- discounts that made it impossible to recover the $20 million it had invested in research and market development for its competitive alternative. An appeals court upheld the finding against Lilly, saying that "price, supply, and demand" for the competing antibiotics "would have been determined by the economic laws of the competitive market" if it were not for Lilly's "monopolistic practices." The award: $9.9 million.

The argument against allowing these kinds of cases is that the marketplace will eventually "correct" for such anticompetitive behavior if it is bad for the consumer. But that argument assumes precisely what it proposes to prove -- namely that there is a truly free marketplace at work. For a free marketplace, by definition, is one in which new entry is not only theoretically possible, but practically possible as well. Yet in these and dozens of similar cases, the effect of the anticompetitive activity was to raise the threshold for market entry artificially -- so much so that even larger companies like SmithKline and Fairchild Camera could not compete.

Would the computer industry, for example, ever have spawned an entrepreneurial explosion of IBM had not been forced, under pressure of antitrust enforcement, from bundling its products and services, as Data General later tried to do?

Would you invest $20 million in developing and marketing a new antibiotic if your competitor could tie its sales of an antibiotic to another patent-protected drug for which it was the only supplier?

Beyond entry, there is the question of how free the marketplace really is once you're in it. Consider these two cases involving smaller businesses:

* Columbia Metal Culvert Co., a small manufacturer of aluminum pipe, claimed it was forced out of business by the giant Kaiser Aluminum & Chemical Corp., which was a supplier of Columbia's basic manufacturing material, in the form of aluminum coil. A jury found that when Columbia began shopping around for a better price for some of its aluminum coil, Kaiser made good on a threat of its executive by forcing Columbia out of business through a "price squeeze?: refusing to sell any coil to Columbia; using its power as a price leader to force a rise in the price of the coil industrywide; opening its own pipe-manufacturing plant 40 miles down the road from Columbia; and, the final straw, selling finished pipe for the same price as it was charging simply for the aluminum coil needed to make it. The award: $9.5 million.

* Two Mobil service station operators in Washington State were forced out of business when they refused to buy sufficient quantities of motor oil, tires, and batteries directly from Mobil Oil Corp., and refused to abide by the suggested retail price for gasoline. Mobil argued, as it has traditionally done in such cases, that vertical restraints like those are necessary to mount and finance a national marketing campaign that benefits all its dealers. But the jury took all that with a grain of salt when it heard evidence that Mobil motor oil was being sold in Washington supermarkets at a price below what Mobil was charging its own dealer. The antitrust awards totaled nearly $600,000.

The logic behind these cases is that the marketplace is not truly free if customers in oligopolistic industries are not free to shop around as best they can for supply and price and customers. Wall Street's complaint is that the benefits to the economy from Mobil or Kaiser implementing their long-term marketing strategies outweigh the costs of driving an efficient pipe company and service station out of business. But that is not the view from Main Street, where most of the innovation is taking place in the American economy, where all of the new jobs are currently being created, and where businesspeople know the real meaning of the word competition. For nearly a century, now, the antitrust laws have helped to create that kind of economic vitality and encouraged that kind of economic pluralism. The Reagan theorists consider these values romantic and softheaded.

Yes, some minor reforms in the antitrust law may be needed. Perhaps judges could be empowered to waive the full effect of treble damages when the violation is not willful or the case law applicable to a particular activity is cloudy. Maybe the law should make a clearer distinction between breach-of-contract cases, which don't deserve treble damage penalties, and bona fide antitrust cases, which do. Companies that bring blackmail suits of no legal merit should be made to pay the legal fees of both sides.

But the Reaganauts are not really interested in perfecting antitrust law. They are out to eliminate it -- and any number of independent businesses in the process. Ironically, these cheerleaders for capitalism are not the first to try to restructure a national economy according to theoretical models. The same argument was used to justify the highly planned and centralized economy of the Soviet Union, where most of the businesses are quite big, but, at last report, not very efficient.

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