How antitrust laws can save Silicon Valley — without breaking up the tech giants

by Margaret O'Mara

Margaret O’Mara is professor of history at the University of Washington and author of the new book, "The Code: Silicon Valley and the Remaking of America."

...

Ma Bell’s antitrust saga is nearly as old as antitrust legislation itself. In 1913, an agreement between the federal government and AT&T turned the company into a regulated telephone monopoly. The reasoning had to do with the nature of telephony: Only a single network, lawmakers recognized, could provide seamless, universal service. Protected in its market position and flush with government contracts during and after World War II, the phone company became an extraordinary seedbed of technological innovation. This included the device that made the information revolution possible: the electronic transistor.

Riding high on this technological triumph that became foundational to all modern electronics, the company made increasingly bold moves into the computer market. The feds would have none of it. Having witnessed how massive corporations had been critical contributors to the rise of European fascism, America’s postwar mood had turned sharply anti-monopolist. The Department of Justice sued for antitrust violations in 1949, a mere two years after the transistor’s creation.

The breakup threat prompted AT&T to drop the licensing prices for its patents, creating opportunity for other market entrants, including several from the Bell Labs transistor team who decamped to other companies, or struck out on their own. One, William Shockley, went to Palo Alto, Calif., sparking the silicon semiconductor industry that gave the Valley its name.

This was only the start. When the lawsuit was settled seven years later, AT&T didn’t have to break up or divest any of its major businesses. Nor did it have to stop its research operations. Instead, it had to share them. The government mandated AT&T had to license its existing patents — including the transistor — free. Future inventions had to be licensed for a modest fee.

Opponents of the deal howled that the phone monopoly had gotten off with a slap on the wrist. AT&T’s leaders had to agree. “The loss of royalties,” a company spokesman declared, “will not have a significant effect on the company’s future revenues.”

These revenues did matter for the future of Silicon Valley, however.

Read entire article at Washington Post