Throughout the history of the U.S. technology industry, tech giants have squashed competitors, and investors have avoided the markets they dominate. For example, venture funding for social media startups plummeted from $3.9 billion in 2011 to $400 million in 2018. Recent efforts to enforce antitrust and reform patent laws will not end the monopolization. The best chance is to shorten the lifetimes of intellectual property (IP), both copyright and patents.
The Trump administration and Congress are investigating whether antitrust laws are being violated by Tech’s Big Four: Apple, Alphabet (Google), Amazon and Facebook. Many legal experts are skeptical the Big Four are even monopolies and whether current antitrust law can be used to break them up. Although the Big Four are almost certainly legal monopolies, antitrust actions have historically only created new monopolies.
Each of the Big Four dominates a major U.S. market, like does Microsoft, which was ruled by the courts to have a monopoly over operating systems software for IBM-compatible personal computers. Apple dominates over high-quality smartphones, Google over Internet search engines, Amazon over e-commerce, and Facebook over online social media. Their market shares, valuations, profits and patents suggest they are monopolies:
However, the perceived need for antitrust is typically based on the assumption that monopolies are created by market failures, such as network effects, economies-of-scale and branding. The most significant tech monopolies were established with the help of the U.S. government, before benefiting from so-called market failures.
Tech monopolies have been created with government IP protections from competition. Copyright, which is awarded for the life of the author plus 70 years, blocks even obvious solutions by others. Patents, granted for 20 years, are often general and trivial, and block even largely unrelated inventions. Tech monopolies often use monopoly power and profits to expand into related markets.
Big Tech companies hire large legal staffs to accumulate broad IP protections and sue competitors for violating them. They also take technology from smaller businesses that can’t afford to defend patents by invalidating them in court and administrative hearings, pressuring sale of their company or technology, and copying them if they won’t sell.
Post-war regulators realized the AT&T monopoly was stifling competition and innovation with patents. However, their decision to use antitrust enforcement, instead of reforming patent laws, likely led to today’s tech monopolies created with IP.
In 1877, Bell Telephone was founded on the basis of their master telephone patent filed just hours before a similar application. Their telephone company AT&T became a monopoly until the patent expired in 1894. By the early 1900s, 3,000 competitors captured about half of the market. In 1913, the U.S. Department of Justice agreed to grant the nation’s telephone monopoly to AT&T. However, a 1956 antitrust decree barred AT&T from entering the computer business and required Bell Labs to make its patents publicly available.
IBM, and likely also Silicon Valley companies, used AT&T’s transistor technology and government-funded computer research to create new monopolies. In 1964, IBM introduced computers designed and manufactured for the full range of applications. Most competitors were blocked by their patents. From 1969 to 1982, the government investigated IBM for antitrust violations and eventually prevented them from bundling software with its mainframe. IBM was relegated to dominating computer business applications, and also patents.
In 1980, Microsoft used the opening to license their MS-DOS operating system to IBM for use in its PCs. Competitors haven’t developed competing or generic products because Microsoft still holds copyright protections. Microsoft used the monopoly to favor its other software products. From 1998 to 2001, U.S. antitrust prosecution of Microsoft found they were illegally using their monopoly to eliminate competitors. The government discouraged Microsoft from entering new markets, which opened opportunities for today’s Big Four.
Since the 1970s, Apple has sold personal computers. In 2007, they modified their computer’s operating system to develop a smartphone that worked better. The basic technologies were developed by the U.S. government, the smartphone was invented by IBM in 1992 and the product was improved by many companies. In 2006, CEO Steven Jobs said they were “going to patent it all.” Apple has blocked the competition for better smartphones by conducting patent wars against Samsung, HTC and Motorola. Today, their iPhone enjoys 87% of global smartphone profits.
During the 1990s, Google entrepreneurs developed their core Internet search engine while working on government public surveillance research grants awarded to Stanford and managed by the CIA and NSA. Stanford licensed the important but trivial PageRank technology to them. From there, they mostly just required additional algorithms that could be formulated in someone’s garage. Other algorithms have broad, general and trivial patent and copyright protections. They have been using IP to block the competition from developing better search engines.
In 1994, Amazon started selling books online and later expanded to dominate 50% of e-commerce. Amazon used its trivial “1-Click patent” against competitor Barnes & Noble’s book website, and has become one of the most criticized companies for using IP to hinder competition. Amazon also has many patents covering its now more profitable cloud computing technology, which was developed with government funding from the CIA.
In 2004, Facebook founded their online social networking website and now dominates about 60% of social media. After initially procuring some patents of their own and buying patents from IBM and Microsoft, they used them as leverage to take much of their IP from smaller businesses through hostile acquisitions and copying.
Obama promised patent reform, but the Leahy–Smith America Invents Act of 2011 created an administrative patent review process employing politically-appointed judges favoring Big Tech (i.e., Patent Trial and Appeal Board). During the past three years, Congressional hearings have been held to consider the STRONGER Patents Act, but it would largely just undo the 2011 act. Since IP has proved too difficult to regulate, the obvious solution is to shorten the lifetimes.
Mike Holly has a MBA from the University of Minnesota and founded Americans Against Monopolies in 2016 to catalog the preferential government policies favoring monopolies in major U.S. markets. @napmikehol