Opens with graphic treatment with sound bites embedded in graphics
Consumers don't know too much about the anti-trust laws. They're highly technical and complicated and they don't even know they're being had.
The average person has to realize that while these antitrust concepts may be amorphous legal principles, in practical application they have benefits for everyday consumers.
We've had antitrust laws in this country for 115 years. Their purpose is to make the playing field fair for buyers and sellers – to set rules that allow full competition to flower.
TITLE UP: Fair Fight in the Marketplace
Montage of 1950's film sequences of competitive events: tug-of-war, wrestling, high jump, boxing match
"Friendly competition. A desire to win. An enthusiasm that knows no bounds. That's the spirit. The spirit of young America.
Competition—it just seems to be part of who we are as Americans. We love a good contest among rivals. A fight, fair and square, that's decided according to the rules of the game.
A fast-paced, modern montage representing a day in the life of the American economic engine: bustling shopping malls, commodities trading, mega-merger headlines, assembly lines, day trading, farm production, manufacturing, grocery line check-outs, overnight delivery...
Our economic system is driven by competition - giving us new products, new services, even entire new industries. This has resulted in creating one of the most productive and dynamic economies in the world. But like any contest, the system works according to the rules that govern it. When firms collude to set prices, or use their market position to restrain trade, consumers pay the price. Which is why antitrust laws were created: to make the fight in the marketplace a fair one.
The American economy is by and large very competitive. In industry after industry, you see large numbers of companies battling hard to keep their market shares, to make customers happy, to produce high quality products at lower and lower prices over time. However, there are some industries where prices can be controlled, not through an open bidding process, not through an open competitive fight, but through the decisions of a small number of decision makers who are driven by the hope of exorbitant monopoly profits.
Host on camera
Our antitrust laws were originally created at the end of the 19th century in response to the excesses of corporations that controlled oil, steel, railroads, and other industries. President Benjamin Harrison called them "dangerous conspiracies against the public good." Since then, antitrust law has set the ground rules for the pursuit of profits within our economy. Although antitrust laws arose during the time of horse and buggies, the grievances that prompted their creation remain today.
Period photos, illustrations, political cartoons, and footage
Pictures (including caricatures and political cartoons) depict the US business landscape near the turn of the 19th century. Copy of Sherman Antitrust Act.
RUDY PERITZ, Professor of Law, NY Law School
In the 1890s there was a concern about the corrupting influence of great concentrations of power of corporations and individuals who could use their wealth to buy the kinds of legislation that they wanted. And so firms got larger. Competitors banded together rather than competing. And every industry from the railroads to makers of matchsticks and crepe paper were either forming cartels or merging.
Ohio Senator John Sherman feared this concentration of wealth and power in the hands of a few large business interests, which back then were known as "trusts." Congress eventually agreed, and in 1890, passed the Sherman Act to establish rules of competitive behavior in the marketplace. The new statute became known as the Sherman "anti-trust" act.
GENE CREW, Attorney, Microsoft case
The wisdom behind the Sherman is incredible. Two sentences. One says let there be competition, the other one says let it be fair. And that's the balance we have and those are the rules.
Historic pictures of John D. Rockefeller, the early oil and automobile industry, and Standard Oil
It wasn't until 1906, during Teddy Roosevelt's administration, that the Sherman Act was put to the test when the Federal government took on the poster-child of monopolies, the Standard Oil Company.
John D. Rockefeller's Standard Oil Company was driving small competitors out of business, imposing contracts on railroads. And not only that, but Rockefeller got a piece of every shipping charge that was paid to the railroads by his competitors!
Ultimately, the U.S. Supreme Court determined Standard Oil's tactics to be monopolistic and in restraint of trade. Rockefeller's billion-dollar company was then broken into 34 smaller entities that restored competition to the marketplace. Just imagine what it would be like today if there was only one oil company and every gas station had the same owner.
The Bell System cracked today. The American Telephone and Telegraph Company agreed to split up its communications empire into at least two smaller companies.
Early AT&T footage
Seventy years later, the antitrust laws forced the breakup of another powerful monopoly: the American Telephone and Telegraph Company. At the time, AT&T had a stranglehold on all aspects of the telephone business, from long-distance service to the telephones themselves.
MCI commercial sound-up
With AT&T's breakup, new competitors entered the market; long-distance costs dropped dramatically; and new products appeared. Many believe the arrival of technologies like cell phones and high-speed modems was sped up because multiple telecommunications companies were competing for customer dollars.
Contemporary cell phone technology
In the 1960s, the United States had by far the most vigorous antitrust enforcement system in the world. By the 1980s we probably had the least vigorous antitrust system in the world -close to it. Antitrust was almost asleep in the 1980s. Since then, the effort has been to try and find a middle ground.
Host on camera
So, is there still a role for antitrust law in today's fast-paced global economy? Are the laws still relevant more than a century after their creation? Or are they just an obstruction to creating success in a free market? We'll look at three recent high-profile cases involving major corporations that reveal the schemes and methods of offenders - and see just what's at stake for consumers.
Two businessmen on phone
Sam: "Susdy old boy, I've got a great idea. Between us, we control 70% of the country's soap sales. Let's raise and fix our prices. Controlling 70% of the marketplace, why we'll clean up!"
Sudsy's devilish side: "Terrific. We'll make millions."
Sudsy's angelic side: "I smell trouble!"
Sudsy [to angel] "Quiet!" OK, Sam, it's a deal!"
Sudsy's angelic side: "You'll be sorry!"
Sudsy's devilish side squirts angelic side with ink, laughs
Archer Daniels Midland
Collusion to Fix Prices
SCOTT HAMMOND, DoJ Attorney
These are very very difficult crimes to detect.
JIM GRIFFIN, DoJ Attorney
Victims don't know that they'd been victimized. That can happen for years, and victims don't know.
Probably less than one-third are discovered by the authorities. And it's those kinds of percentages that continue to draw businessmen into the game of price fixing.
Archer Daniels Midland, or ADM, is a giant in the agricultural products processing industry. In the early 90s, ADM developed a new division to make the amino acid Lysine -- a feed additive used by ranchers for livestock and poultry. It was a lucrative business for the handful of lysine manufacturers, but ADM executives hatched a plan for a price-fixing conspiracy to boost corporate profits even higher.
The world's major lysine producers had gotten together and basically divided the world market. They determined how much they would produce, how much each producer would sell, and at what price.
In a conspiracy of this type, they essentially divided up the customers among themselves, and stopped competing for those markets.
Hard-core antitrust offenses such as price fixing, bid rigging -- is simply theft by well-dressed thieves. It's fraud, plain and simple.
Victims of such price-fixing schemes are people like California egg farmer Paul Bahan, whose business is vulnerable to even small price changes.
Paul Bahan in front of chicken sheds
PAUL BAHAN, Egg Farmer
The amino acids are very important as part of the feed to the chickens. They're the most expensive part of the feed ration, and we're in a business where a penny is huge. And I'm talking about a penny a dozen, not a penny an egg. To give you an idea, if my costs of production is a penny greater than it needs to be, in a small farm like this, to me that's $160,000 a year. It's one significant component in the end of what I do, in this going away.
Initially the harm certainly is felt by the initial purchaser – farmers. But ultimately, at some level, every one of us felt the pinch of this cartel, in slightly higher prices for the end product.
I've still got to buy amino acids. They're still only four or five people or whatever producing this stuff. I don't think your average consumer cares, quite frankly. I don't know if they care or not. They should because they're getting ripped off. You know, when my costs go up, I have little choice but to exert pressure on the marketplace that I sell into.
ADM stock price
At the end of three years, when they had raised prices over that period, they made an estimated 200 to 250 million dollars of additional profits. Of course it's a very profitable way to do business -- in the United States it's a felony. It's illegal.
FBI surveillance tapes of Lysine conspirators joking about FBI, and then going on to discuss the world price for Lysine.
Unbeknownst to the conspirators, one of the meeting participants, ADM executive Mark Whitacre, was working with the FBI. He had set up a hidden camera and microphone, which gave investigators in the room next door a ringside seat to the criminal dealings.
Sound up of FBI tapes joking about FBI and FTC
You can see five gentlemen sitting around a smoke-filled hotel room, where they literally fixed the price of this lysine product around the world down to the penny, effective the very next day. They understood perfectly that what they were doing was illegal -- that's very clear. And they also never thought they'd get caught. And so they laughed about the FBI, and they laughed about their customers, and they joked about how they were able to get away with their crime.
The officers of those companies -- and this is on tape -- very frequently repeated a kind of mantra. They said, "our customers are our enemy, and our rivals are our friend."
Exec in FBI footage
"They are not my friends. You're my friend. I wanna be closer to you than I am to any customer cause you can make us money.
My initial reaction when I heard about them and was reading some briefing books was [disbelievingly] "nobody really said that." And then I watched the tapes.
Exec in FBI footage
"Let's put the prices on the board. Let's all agree that's what we're gonna do and then walk out of here and do it."
With a mass of damning evidence, the government was able to mount an aggressive case that led to the conviction of three ADM executives, who collectively spent 99 months in jail. ADM's fine was 100 million dollars.
Press conference footage
This $100 million criminal fine should send a message worldwide, that if you engage in collusive behavior that robs United States consumers there will be vigorous investigation and tough, tough penalties.
This was our first fine above ten million dollars. We've now fined over forty companies above ten million dollars. But even more so, I don't know that we appreciated at that time, or could have imagined at that time what effect it would have had on our partners abroad.
Many other countries are changing their laws now and making price fixing not just a civil violation, but a criminal offense with serious fines and serious prison sentences.
If they think they're going to go to jail and essentially be outed for the crooks that they are—I think that's a deterrent. I'd like to think it's a deterrent. I don't know what else we're gonna do.
[Labor union film from 50s, two people discussing prices]
Man 1: You're wrong.
Man 2: No, you're wrong.
Man 1: Look, it's simple. The more you produce, the more you buy. Production goes up, prices come down.
Man 2: Yeah, but what if the manufacturer doesn't let the prices come down?
Man 1: He's got to.
Man 2: [disbelievingly] He's got to, my foot!
Man 1: All right, you wait and see.
Man 2: You wait and see.
Conspiring to Restrict Supply
The net effect on consumers was that they had to make choices between whether to spend money this month on groceries or to buy their drugs.
I can't fathom how these type of people can even sleep at night knowing how they are price-gouging the consumer.
On-camera with host
Mylan Pharmaceuticals is one of the nation's largest generic drug manufacturers. In 1998, individual states joined with the Federal Trade Commission in charging Mylan with conspiring to withhold essential ingredients used to make a generic drug for the treatment of severe anxiety. Generic drugs typically sell for significantly less than branded drugs, and are one of the consumer's main protections against the high prices of medication. At least, that's the way it's supposed to work.
Footage of pharmacy and prescription drugs
JEFF DOWNEY, Plaintiff Attorney
This case was an antitrust case that alleged that Mylan Pharmaceuticals had attempted to cut off supplies to their competitors for two popular anti-anxiety drugs. Essentially, the case alleged that by cutting off essential ingredients to those products, Mylan was able to raise prices some to 2 to 3 thousand percent.
Lifestyle shots with elderly and medications
KATHLEEN FOOTE, Attorney, California state AG office
These two drugs in particular were very often given to older people. They had a particular utility that wasn't shared by other kinds of anti-anxiety medications on the market.
Like growing numbers of Americans, Judy Subzinski suffered panic attacks that made it difficult for her just to get through the day. Under her doctor's care, she came to rely on Mylan's reasonably-priced anti-anxiety medication in order to live a normal life.
JUDY SOBZINSKI, Patient
If I didn't have that medication I would have terrible anxiety and panic attacks. I wouldn't be able to function properly. I would be on edge constantly.
CRAIG STERN, Pharmaceutical Consultant
When Mylan foreclosed the market by cornering the raw materials, they took products that cost two to three or four cents a tablet, and increased them to where they were costing 50, 60, 65 cents a tablet.
I probably paid a couple thousand dollars extra from what I would have had to pay over the time of when the price rise was in effect.
MEREDYTH ANDRUS, Attorney, Maryland state AG
You're talking about people who are already anxious, depressed, upset – when they couldn't buy the medication that allows them to feel better, it exacerbated their problem. We had witnesses contact us who told us they were forced to make choices between buying their pharmaceuticals and buying food, paying rent.
Footage of Judy writing letter
It got to a point where I wrote a letter to Mylan the CEO sent me a letter three or four weeks later, to tell me that he was very sorry but the reason that the price had gone up was because the raw materials had gone up so drastically that there was nothing they could do, they had to raise their prices. And that was that.
Various complaints were relayed to one of Mylan's top executives, who was a vice president, whose response was, "F-- those customers, they don't set prices."
When I found out that what that CEO wrote to me was total baloney, had no truth to it whatsoever, that they were the cause of this price increase, I was very angry. Very, very angry.
The nature of Mylan's violations motivated the Federal Trade Commission to pursue significant penalties on behalf of consumers.
The real question in the case was what the remedy ought to be. Mylan had probably profited in a little over a year to the tune of over a hundred million dollars.
In this particular case there was a multi-state settlement, other states were involved in addition to California, and there was a hundred million dollar settlement. That went to reimburse consumers, and it also went to reimburse state agencies, ours and others, that had been affected by the over-charges.
Now I know not to trust. To be more inquisitive, to dig more to try to find out what's really going on.
[50s film of bully sitting on smaller kid]
Buly: Are you gonna be on my side if I let you up?
Kid: Sure, I'm on your side – just let me up. I'll do anything you say.
Bully: Ok, you're on my side."
Violation: Illegal Maintenance of Monopoly
Microsoft's conduct stifled innovation, eliminated competition, denied consumers choice, and this for the foreseeable future.
RICK RULE, Microsoft Attorney
Look, if they bring a better product to the consumer and consumers like it and they're buying it because they like it better than what else is out there in the marketplace, Microsoft shouldn't be stopped from doing that. Everybody's better off.
Host on camera
It was the defining antitrust case of a generation. United States vs. Microsoft. The case alleged that the giant software company based in Redmond, Washington, crippled competitors' abilities to bring product to market, instead of winning in the marketplace through innovation. On the surface, it was a struggle for dominance over the internet browser between rivals Microsoft and Netscape. But in fact, the stakes were much higher.
KEN AULETTA, Author
It took one of Bill Gates' assistants to go to Cornell University in, I think it was 95 or six, and discover -- my God, everyone is on this thing called the internet. And we're not! And this company Netscape is providing a browser that's a window to the internet, and we don't own it! And it could become an operating system to compete with Microsoft's operating system, and that's menace.
"The management of every business has a continuing problem: to improve their product to stay ahead of their competition or else!"
JEFF BLATTNER, Former US Deputy Assistant AG
Beginning in the mid-1990s, Microsoft embarked on a deliberate campaign to eliminate Netscape and Sun Microsystems as competitive threats to the Windows operating system. And the scheme involved both going to distributors, such as Internet service providers and PC manufacturers, and effectively preventing them from doing business with Netscape or with Sun for it's Java platform, and putting Microsoft's version of the browser inextricably in the operating system, so that the operating system used Microsoft's browser, regardless of what the consumer actually wanted.
The government had staked out a position that what Microsoft had done had violated the law, and Microsoft defended it, on the ground that what they were doing was innovation.
MARTINA LAUCHENGCO JONES, former Microsoft & Netscape employee
They have an absolutely intense focus on the competition, more so than any other company I have ever seen. That initially can be a good thing, because it drives a tremendous amount of feature innovation, with the products at Microsoft. But it ultimately, at the business level, becomes something very poisonous. And at the executive level, it's not about whether or not we innovated our products and they became great. It becomes about whether or not that competitor is dead.
There are two ways for someone like Microsoft to compete. One is on the merits -- innovation, lower prices, better products -- or not competition on the merits. Which is, eliminate your competitor. Block your competitor from getting access to resources they need, or blocking them to access to outlets that they need. This is not competition on the merits. None of those acts benefit consumers.
JONATHAN KRIM, Journalist
Should the browser be the only browser that works in Windows, and more to the point, should the browser that Microsoft makes be so tightly woven into the operating system that any other browser that might be in the operating system doesn't work as well? And that was what the case was really all about.
The case, which was seen as a test of antitrust law in the age of technology, was heard by Judge Thomas Penfield Jackson of the US District Court in Washington, D.C.
THOMAS PENFIELD JACKSON, U.S. District Court Judge (retired)
I didn't see any reason why conventional antitrust analysis couldn't be used to approach the problems represented here. We're talking about markets, we're talking about consumers, we're talking about consumer choice, we're talking about the pricing of commodities.
Part of Microsoft's defense hinged on whether it could prove to the judge that its browser, Internet Explorer, was not a separate product competing with Netscape's, but merely an extension of its Windows operating system.
There was a lot of evidence. We had a trial that went on for six or eight months. Ultimately, it was proven to me that they were indeed separable products.
In the end, Judge Jackson ruled that Microsoft had illegally maintained their monopoly and blocked competing Internet browsers from reaching consumers. Microsoft engaged in a pattern of interference and intimidation, using its monopoly power in the operating system market to punish any computer maker that tried to install a rival browser. As a remedy, Judge Jackson recommended that Microsoft be broken into two separate companies, one for the operating system and the other for applications such as the browser.
The case made by the government convinced me that nothing less than a division of the company into two parts would resolve the problem of the anti-competitive effect of Microsoft's business activities.
Although Judge Jackson's remedy was not implemented, the ruling itself was upheld unanimously by a court of appeals. The ruling also paved the way for claims resulting in billions of dollars in private damages. But despite the findings by the courts, the federal government and some of the states that brought the suit decided to settle the case after the 2000 presidential election.
Press conference footage
JOHN ASHCROFT, former US Attorney General
Today we're announcing a strong, historic settlement reached by the Department of Justice and the Microsoft Corporation that will put an end to Microsoft's unlawful conduct.
The final settlement, rendered by the Court of Appeals, left Microsoft intact, while imposing various types of competitive restraints and requirements. While some thought the remedy was well-balanced, others were frustrated that it didn't go far enough.
At the end of the process, after the court of appeals' decision, it was kind of a validation that yes the antitrust laws have a role to play, yes they indicate conduct that crosses the line versus that that doesn't. But they're also sufficiently flexible to allow companies to compete and innovate and benefit consumers.
I think it's fair to say that the judgment has had very little, if any effect on the marketplace. It has not spurred innovation, it has not spurred competition, it has not significantly changed the browser market or personal computing.
We do know, that but for Microsoft's conduct, there would have been more innovation, better products, lower prices. Because that's what naturally results from competition.
One of the central issues of the Microsoft case was to confirm the role of antitrust protection in allowing innovations to get to the market so that consumers can choose the products they prefer.
Every time I go out to interview as a journalist the Bill Gates' and Rupert Murdochs of this world, one of the things that encourages me is how frightened they are. As powerful as they are, they are frightened. And what are they frightened about? They're frightened of someone they've never heard of, who's out there inventing some new product that will menace their domination.
Archival cartoon of boy inventing rocket-pack in his garage
You have an idea in this country, and what's at the base of our culture is you can make it, you can bring it to market, you can sell it, you can get rich maybe. That's an American dream that antitrust has a role in protecting. And it also protects average consumers who don't want to have to pay exorbitant prices for products because there' s only one.
Archival movie of car salesman lowering price to make a sale to a picky customer
The Sherman Act of 1890 and the antitrust laws are one of the great American inventions. And it is an American invention. And it's also one of the most successful American exports. There was no antitrust law before there was one in the United States. And now there are antitrust laws in at least 100 countries.
Although not enshrined in the Bill of Rights or the Constitution, antitrust laws are clearly fundamental to our country's system of free enterprise. They may seem remote and complicated, yet they effect our everyday lives. They preserve competition, in the way products and services are delivered, and the prices we pay. They ensure the very dynamism of our economy. In the final analysis, antitrust law gives consumers assurance that the fight in the marketplace can be a fair one.
Credits & Music