'Trustbusters' Stagger Under Caseload

Wave of mergers - and decision to take on Microsoft - stretch Justice Department's antitrust team.

You are a hotshot federal antitrust lawyer - young and idealistic. You saw Tom Cruise in "The Firm," and you are better than he was. But good as you are, can you handle the firepower BankAmerica brings to a merger with Nationsbank? Or the legal teams of Chrysler and Daimler-Benz, when they defend their planned merger?

When corporate lawyers from Worldcom and MCI, or Boeing and McDonnell Douglas, sit across the table from you, they know your weaknesses. They know you have a small staff, that you can't afford star witnesses.

But most of all, the opposing lawyers know the Justice Department is reeling from a huge new wave of mergers - and that today's government trustbusters can really handle only a few big cases at a time. Now they know, too, that a major antitrust suit against Microsoft Corp., expected to be filed today, is likely to preoccupy Justice for years, along with a battle this fall over the Northrup-Lockheed merger.

"I am confident our antitrust agencies are stretched beyond the point that is good for the country," says Stephen Calkins, former general counsel for the Federal Trade Commission, who helped block a merger last year between Staples and Office Depot. As a result, he says, many other corporate lawyers "are counting on the government to reach an easy settlement or forego the kind of investigation that would normally take place."

For the Justice Department, the biggest challenge today is not crime, drugs, civil rights, or environmental law, but big business.

"Antitrust has been at the fulcrum of the Justice Department very rarely, but this is one of those times," says Carl Stern, former spokesman for Attorney General Janet Reno. "The biggest challenge is dealing with these mergers in a more complex market. Suddenly, antitrust law is hot."

In the face of complex mergers and consolidations, the antitrust division has moved to beef up its staff over the past four years. It has also partly restored its image as a haven of swashbuckling young lawyers burning the midnight oil to curb corporate greed - an image it lost during the 1980s and deregulation.

But truth be told, improvements in anti-trust agencies have not kept pace with the intensity and scale of the corporate game in an era of global markets and $50 billion mergers.

The current list is long. Citicorp and Travelers announced plans to merge. So have SBC and Ameritech, two of the Baby Bells created in the breakup of AT&T.

During the Reagan administration, federal antitrust lawyers in the Justice Department dropped from roughly 1,000 to 500. Today the figure hovers around 800.

Mergers - and probes - on the rise

Statistics filed by Justice this month show that the number of corporate filings for mergers has increased by one-third during the past 10 years. The Clinton administration, especially, has been aggressive in investigating these mergers. Statistics show that investigations have increased 300 percent since 1992.

"The place is full of verve and enthusiasm right now," says Joseph Sims of the Washington law firm Jones, Day. "They love it. Don't underestimate the psychological rewards of seeing your work on Page 1 in the morning."

"We are working hard, and we have the resources we need," says top Justice antitrust lawyer Doug Melamud. "But I won't say it wouldn't be nice to have more resources."

At the same time, Justice has taken only a few big cases to court, and has won even fewer of them. The reason, say experts, is not only that Justice is hard-pressed to keep up with the rapid pace of mergers and acquisitions. It's also more difficult to determine whether the new consolidations and industry shakeouts are actually bad for competition or consumers.

Before 1970, a trustbuster could spot a bad business merger or practice a mile away. Standard Oil corners the market. US Steel or AT&T gobbles up any new startup. Today the earmarks of illegality are not so simple - and the current action against Microsoft is a good example. It's harder to detect problems of corporate "integration" (the legal theory that forms the basis for an antitrust lawyer's lawsuit).

Microsoft ballyhoo

The dispute in the Microsoft case centers on the fact that personal computer manufacturers agree to ship their products with Windows 98 software. But that same Windows software also includes the ability to access the Internet, and when users start the machine it defaults to Microsoft's own Web browser. That, Justice officials say, would extend Microsoft's monopoly in computer operating systems to another segment of the computer industry - Internet commerce, which could be worth $350 billion by 2001.

Microsoft's practice of requiring manufacturers to install Internet software, together with its default command on Windows 98, constitutes an "integration" that stifles competition by driving other Internet software companies (like Netscape) to the margin, say Justice lawyers.

If the Justice Department's antitrust division is embattled these days, it is the cumulative effect of many mergers of many different stripes, experts say.

There are proposed "strategic mergers" between industry giants (like Staples and Office Depot) that would have the straightforward effect of eliminating competition. In recent years, "horizontal mergers" - those by companies in the same businesses - have been the rage, particularly in the defense industry. In the aircraft industry, seven companies merged into five, which merged into three, and now into two - which may become a single company. A similar question arises as the Baby Bells in the South and Midwest look to recombine in the next year.

Other mergers, while presenting no obvious negative antitrust problems, are so large that they rouse the concerns of economists, lawyers, and many citizens. The merger of banking and insurance firms, such as the one proposed by Citicorp and Travelers, present an entirely new scale of worth.

"Is the sheer concentration of political and economic power so great as to be troubling?" asks Mr. Calkins. "Is too much of a good thing not a good thing? That's the new question here."

When a merger is announced, the companies involved have 60 days to file with Justice and the FTC about why the merger is legal. If federal lawyers have a question, they issue a "second request" for documents. This process can be exhaustive, involving an enormous paper flow. In previous eras, those documents could be easily interpreted. Today, they are not.

"I'm sitting in a room full of paper," says one lawyer, who has just taken on a client whose business opponent has been the subject of a second request. "Whether I can figure out what these papers mean is the question."