Microsoft, SCO, and the fall of modern civilization

A commonly used term in today’s media, “Corporate Ethics” is more of an oxymoron than a phrase that should be awarded any weight or intellectual value. This awkward grouping of words can be traced back in history to the first antitrust legislation passed in 1890 in the form of the “Sherman Antitrust Act.” The most interesting thing about this act is that it was, in fact, more destructive to unions and helpful to Trusts than would normally be interpreted from the title. It was poorly worded, and in many places the points were so vague that it could easily be interpreted to be in favor of the trusts that would come to depend on it in the late 1890s. And it did. It was not until 1904, during Roosevelt’s “Trust Busting” campaigns, that the act was used with success to minimize the monopolizing power of Trusts of the time. Then, in 1911, it was again used by Taft against Standard Oil and American Tobacco. In fact, of all the lawsuits brought against companies (you can count them on your left hand assuming all expected digits are present) in the 1910s for horizontal integration, the only conglomerate that survived intact was DuPont. This was truly the beginning of modern federal regulatory laws.

In 1914, the Wilson administration pioneered the Clayton Antitrust Act, which was designed to supplement the Sherman Antitrust Act. Also in 1914, the FTC (Federal Trade Commission) was created and staffed with the goal of curbing the monopolistic behavior that was becoming more and more common within the American economy. All in all, these two developments did not have much of a tangible effect on the market until the 30s, when FDR resumed the antitrust crusade started twenty years earlier. Unions began to gain more and more political and economic influence through the years, reaching their peak with the United Auto Workers union in the mid-1900s. At this point, the union was requesting bi-annual pay raises that were not consistent or even remotely tied to the profits and growth of the companies they worked for. This caused economic unrest and eventually started to have very negative effects for these companies. Many fell into losses and disarray until the issue was resolved. This was truly the end of the power of Unions. Today, there are only several unions that have significant influence: the Teamsters, UAW (the United Auto Workers), and other less powerful unions like the United Food and Commercial Workers union and the Air Line Pilots Association.

The last great antitrust case that ended with a company split and fined was in 1974, when American Telephone and Telegraph, Ma Bell, was split into several different companies. These companies were basically the different divisions of AT&T, and included Pacific Bell, Bell Atlantic (now Verizon), and Midwestern Bell (now Ameritech). AT&T remained, and to this day is still a very viable and powerful player in the telecommunications market. Just recently they sold their Cable ISP service, AT&T Broadband, to cable giant Comcast.

In 1996, there was tension in the computer industry. Caldera, a company with patents on DR-DOS, initiated an anti-competitive lawsuit against Microsoft relating to its use of MS-DOS (and thus Windows 95 and 98…and eventually Me). This lawsuit simply got larger and larger. As the years wore on, the situation looked dire for Microsoft. The government was involved, and Microsoft’s case was not very strong. Over the years Microsoft had bundled many different programs with its operating systems, including Windows Media Player and Internet Explorer. This was considered monopolistic behavior, and the Government’s case was rife with evidence against Microsoft. Possible sanctions to be imposed upon the Redmond-based software giant were being explored, and eventually solid concepts emerged from the proverbial fog: either Microsoft would be split into two companies (one controlling the Windows operating system and the other everything else), or the source code for its Windows platforms would need to be released. Eventually, the court ruled that Microsoft would be required to split up, and Microsoft appealed. The District of Columbia appellate court overturned the ruling, and the case continued on. This process carried on into the next century, with a settlement plan reached almost in concert with the young George W. Bush’s administration taking charge. Microsoft finally required to pay a large settlement and “avoid” bundling its products with its operating systems in the future. Cough.

Obviously, the Bush Administration is a little easier on Big Business than the Clintons were. Worry not, Halliburton belongs in Iraq. Aye, mateys.

In early 2003 a reputable Linux distributor by the name of SCO Group declared that they were the majority holders of the UNIX operating system intellectual property. Thusly, they began to charge for new licenses of Unix (and Linux). This was at $149/cpu. Shortly afterward, they thought it would be pertinent to demand that some large companies, who already employed Linux on their systems and networks, pay the charges as well. Granted, they allowed for discounts, but this was still a ridiculous prospect. Red Hat wasn’t going to stand for it, and began to develop a court case.

With the help of a “Breach of Contract” suit from SCO filed in March, IBM developed an opinion. The Open Source Community now had more than the EFF rooting for it. Much more.

During the summer of 2003, IBM jumped in while SCO had continued threatening to sue other companies who refused to pay their newly-imposed licensing fees. There was suing and countersuing. Early August saw IBM dropping a gigantic lawsuit on SCO for violating IBM’s patents with its UnixWear operating systems. IBM also brought up several other patent violations, including forms of data compression and redundant back-up software. Needless to say SCO could not really compete with IBM on a legal front, and eventually they backed off.

These two lawsuits and the history of antitrust legislation are a testament to the tendencies of our civilization. Our market is far too suited to monopolistic behavior. Economies of scale, price wars…all of these things lend themselves to large corporations. Adam Smith’s Invisible Hand can not truly work without extensive regulation. Granted, it is these same corporations who devote the majority of money to scientific research and development, but profit-mongering is hardly required.

Corporations themselves have the same rights as a person. The concept of a “corporation” was created many years ago in an effort to minimize the liability of the owners of, and to maximize the lifespan of, the organization. There are certain loopholes that are inherent in this type of a legal definition. A corporation has many rights normally accorded to a citizen. These include, but are not limited to: property rights, legal rights, and in many ways a corporation can be considered capable of governing its infrastructure in the same fashion as a State.

This is a dilemma. All of these things slightly benefit those involved in the company, but greatly benefit only a small number of scheming individuals involved in the corporation. Namely, the shareholders. The men and women on the board, the “investors,” are liable only in that they are affected if the price of their stock drops. Thus, if a hypothetical company were to incur tens of billions of dollars in losses, and these losses include cash bonuses for those shareholders so fortunate to be in the right place at the right time, I mean, were so good to stay with the company during hard times, those stockholders incur none of the debt of the company. In fact, while we all know this is highly illegal behavior, it is possible for a corporation to simply lie about its earnings and pay off its stockholders with money that simply isn’t there. But it never happens. We all know that.

That is the loophole. Corporations are beneficial to the economy in that they are able to supply goods at lower-than-average prices and higher-than-average quality than competing smaller companies, so they can stay. But, in effect, they are also a very powerful tool for powerful men to move powerful sums of money from their Company’s coffers directly to their wallets. This has happened again and again. Enron? WorldCom? PG&E? Oh, yeah, almost forgot to mention, these stockholders together also generally hold the majority of the stock of a publicly-traded company, and so if they were to sell their stock at just the right time…well yeah, you get the idea. But no one does insider trading anymore either, you know they’ll catch you. Right.

In 1995, more than half of all incorporated organizations based in the US were audited by the IRS. Last year, that number dropped to a new low of less than 30%. That’s a more than 20% decrease over 9 years and around a 4% decrease year-to-year.

What’s next? The Government giving out newly printed money to corporations in an effort to stem deflation? Actually, that was a policy that the Bush administration was “prepared to take” were it necessary.

Corporate Ethics my ass.