On Wednesday I spoke with antitrust attorney Gary Reback, the man who spearheaded the push to break up Microsoft in the nineties. The event was hosted by HBSTech at the Computer History Museum in Silicon Valley.
If anyone in the world can make antitrust law interesting, it’s Reback.
Much of the hour plus conversation focused on the history of antitrust law and Reback’s experience in big antitrust cases from his new book, Free the Market!: Why Only Government Can Keep the Marketplace Competitive (buy it here). But we also spoke about current events and his concerns that lax antitrust enforcement has led to less competition today in tech than is optimal.
We spent a lot of time on Google. His chief concern is Google Books (jump to the 30 minute mark), and he argues that a DOJ investigation is appropriate. I’m more concerned with competition in search and search marketing, and we spoke about this as well.
One interesting insight from the conversation: I ask Reback if he thinks we’d be in a better world if Microsoft had in fact been broken up into two or more companies as was originally ordered. His response – “no.” The investigation and lawsuits themselves, he said, did enough to force Microsoft’s hand and allow browsers like Firefox, Chrome and others to blossom.
We’re giving away 15 autographed copies of Reback’s book. We’ll determine the winners in the same way we did with Sarah Lacy’s book – retweet this post using the green button below. We’ll select the winners randomly from retweets that occur by midnight California time on July 3rd.
Update: Here’s the list of winners:
@lewispb
@geoffcheung
@sitesource101
@danbaileyuk
@JulienPerreard
@prajwalrao
@freddue_b
@maux97
@modenapsu
@shahdi
@chrisacoyne
@ec2boy
@d2k
@Coxymoney
@Dakshinamurti
Update: Full transcript of the interview via the Simulscribe API:
HOST: What we’re doing tonight is the continuation of a series of somewhat highly focused slices of business, where business and technologies intersect. We had a big panel back in March on the future of the book which is about the future of the book and about newspapers and about anything that is digital and can be published. We’re going to continue that series later on in the summer and tonight fits squarely within that theme because the headliner of the show tonight, Gary Reback, has spent the better part of 20 years as an antitrust lawyer and antitrust litigator, a thinker, a writer and he is here to talk about the way that antitrust used to shape the industry, you know, there used to be days when IBM and AT&T and ITT and Intel other companies sort of had that clout of antitrust prosecution hanging over them or some sort of antitrust litigation. And Gary’s argument is that, all of that went away at one point and he is a real veteran of the wars, Lotus, Borland, Microsoft and others. And his central thesis, I think, is that maybe that isn’t such a good thing and that maybe competitive forces and market forces alone are just not enough to do the job. He has been called the protector of the market, the one person who is going to help define antitrust law for the 21st century and in the New Yorker, he was called a zealot and a quote machine, so we will see about that tonight. He has written a new book, “Free the Market” which he will talk about tonight and that he examines what he believes is a very disturbing in any competitive trend which is the gradual recovery – recovery by major companies of the ability to dominate their markets and to herd entrepreneurs and innovation and to damage consumers. And so to say that he believes the government should be playing a much more active role in this area, now in this area of technology and entrepreneurship is definitely an understatement. We’re delighted to have Gary in conversation tonight with one of the leading journalists, not just in Silicon Valley but in the world, Michael Arrington, who is the founder and co-editor of TechCrunch. How many read TechCrunch on a regular basis in here – a lot, almost everybody. While, of course, Michael, I’m glad you read it too. TechCrunch.com has nearly six million unique visitors a month and the LA Times has described Michael Arrington as the undisputed king maker of Silicon Valley Internet startups. So it’s going be a great conversation. You have question cards in your chairs. Write the question down as they come to you. We’ll have the Q&A session after they’ve had a chance to talk a little bit. So please join me in welcoming to the stage, Gary Reback and Michael Arrington. Come on up guys.
(Soundbite of applause)
Mr. MICHAEL ARRINGTON: Here.
Mr. GARY REBACK: Thank you.
Mr. ARRINGTON: So I’ve got your book.
(Soundbite of laughter)
Mr. ARRINGTON: Are you, do you have copies here tonight, for people who will buy it?
Mr. REBACK: I don’t know if they’re selling them here, but they are going to do a promotion with TechCrunch as I understand it.
Mr. ARRINGTON: Yeah, I think so. I was actually hoping you’d sign it and I was actually, you’ll sign it now before we do this because you may not want to sign it.
Mr. REBACK: Yeah. I think I’ll hang on.
(Soundbite of laughter)
Mr. REBACK: It will (unintelligible) is what I say.
Mr. ARRINGTON: OK, well. I’ll wait on it. So, most people don’t know, I’m sure, you know, we overlapped a bit. When you were practicing at Wilson Sonsini, I was there for part of the time. You started practicing law, was it ‘74? You’ve been practicing law for two decades, almost three.
Mr. REBACK: More than that.
Mr. ARRINGTON: So I started there in 1996, so I was a junior associate at the time. We didn’t interact a whole lot because you were a senior, senior partner. But I think, it’s safe to say, and you probably read – I probably taught you everything you know about antitrust law.
(Soundbite of laughter)
Mr. REBACK: You’ve taught me a lot of things but that wouldn’t be one of them.
Mr. ARRINGTON: I – Oh, I want to read a quote and then I’m going to let you talk a bit because this is actually about you and not me tonight. But I think it is a quote in the book that – has anyone here read the book? One, two. OK, so you thought new readers would come on this. So it’s a quote in the book that I think really summarizes sort of everything that you stand for in the book and that’s this. Consumers can’t depend on the good offices or kindly demeanor of any particular company to protect them from exploitation by businesses. Competition is what protects consumers. Competition begets innovation while monopoly begets sloth, as innovation – and innovation helps consumers in ways far more important than increasing product output. We talked a little bit obviously I think you believe that since you wrote it.
Mr. REBACK: I did.
Mr. ARRINGTON: So, I want to ask you, but you talked a little bit about why we had the antitrust laws, what the history that sort of led to these laws and how they protect consumers.
Mr. REBACK: Yeah, I thought I made actually some notes and maybe I could set the context a little bit and talk for three or four minutes. You know, our country has been through a lot, powerful new technologies have transformed the way we live. There have interlinked separate markets and individuals as never before producing cycles of boom and bust and roiling the financial markets. Our nation has seen thousands of people out of work and the rise of powerful financiers, many of whom are clearly corrupt. People have come to believe that our legislatures are swayed if not controlled by the power of big business, people chafed under the control that big oil exerts over our economy. People bemoan the control that big business has over our life that there seems to be nothing they can do about it. And by the way, the period of time I’m talking about is the 1870s, not the past decade. And the technologies I’m talking about are the telephone and the telegraph and the railroads. And the financiers were people like JP Morgan, not Bernie Madoff and whoever that guy was who ran AIG into the ground. So we’ve seen these problems. The problems we have before as today we’ve seen them before. Our country survived. Our economy survived. How did we do it? When these problems first came up in the 1870s, people were confused just the way they are today. They did not really understand how business works. But people quickly came to understand that as business grew bigger and more powerful, that they had to have some protection against the excesses of capitalism. So they wanted the government to grow, to be a foil, to be a counterweight, but, that left a question. What exactly should the government do? What role should the government have? And as unemployment increased in the 1880s and got perilously high, a lot of people called on the government to regulate business in a very intrusive way that set prices to determine output so there wouldn’t be product shortages. But there were other people – journalists, people we now call muckrakers, who took a different viewpoint. They looked directly to the free market for a capitalist solution to the excesses of capitalism. People believed that by forcing companies to compete with each other, that they could curb the power of dominant business interest without curbing the economic growth. And so they started passing laws to prevent monopolization and to prevent companies from conspiring with their competitors and they called this way of thinking antitrust because just about all of the industries at that time had been organized around trustees who ran cartels as disciplined monopolies. So our first law, antitrust law, the Sherman Act was passed in 1890 and it was, you know, enforced by fits and starts over the next hundred years. Bu the thing to keep in mind about antitrust is that it sets the rules of the road. It tells companies how they should compete with each other and then, and this is the important part, and then the government steps aside and lets the companies duke it out in free market competition. Regulation on the other hand as I said, intervenes deeply in business. We certainly need regulation in some places to protect our food supply for example and to keep bankers having enough reserves, so that they don’t bankrupt our entire system. But overall, Americans have come to believe that antitrust and free market competition is the better way to go. It’s better generally speaking than regulation. It’s better than nationalizing our industries that you hear some economies talking about today. Antitrust has turned out to be one of those great American ideas. The Europeans have seen our success and acted their own antitrust laws, the same kind of legal commitment to competition, to protecting competition that we have here. And the powerhouses of Asia, Japan and Korea enacted their own antitrust laws and last year, the Peoples Republic of China has centrally planned communist economy on the road to liberalization and acted a comprehensive set of its own antitrust laws to keep its markets competitive and robust. Now, just one point and I’ll let you have floor, Mike. But in my book, in writing my book, I learned a lot and one of the things I learned is about how much in Silicon Valley it turns out we owe to the government. You know, all of the technologies in this museum were seeded, I would say virtually all at one time or another by the federal government. In the book, I say that Silicon Valley in many respects is one large public welfare project. People don’t like to hear that.
Mr. ARRINGTON: We’ll talk a little bit more about it. Go on.
Mr. REBACK: People don’t like to hear that. It turns out that the federal government even seeded the first venture capital funds including some funds that are still with us today and making important and robust investments. But the most important thing I learned was how much Silicon Valley owes to antitrust enforcement. Our biggest industries, software and semiconductors, came directly, and I mean directly from government lawsuits in the antitrust area. A Justice Department lawsuit against AT&T way back in 1956 required the company to license its key innovations for nominal amounts. So there was some guy named, Shockley who got a license for $25,000 to the transistor and that’s where we all come from. That’s why we’re all sitting here today. That’s why this museum exists, of course, he set up his own company. His employees didn’t like him. That he fled and started Fairchild. Fairchild begot Intel and most of the other semiconductor companies you see around here. And a few years later, in the mid 1990s, IBM started selling software separately from its computers in order to avoid an antitrust law suit from the government. The government sued them anyway. But before that time, software and computers were bundled together by IBM. There was no separate market for software, few companies specialized in making software. Separating software from hardware under threat of an antitrust suit was a key element in the creation of the software industry. That’s just not my view. That’s what the people at IBM said about their decision. So we’re here today largely because of antitrust enforcement. I personally think we’ll prosper in the future because of antitrust enforcement. And with that, as a framework, Mike…
Mr. ARRINGTON: I disagree with everything you said and I’d like to go on a point by point note. Just kidding.
(Soundbite of laughter)
Mr. ARRINGTON: One of the things I love about the book, just to sort of throw a softball, I know you’re a softball, just a pure marketing pitch is – I’m a bit of a history buff especially of Silicon Valley history and you talked a little bit there about some of the history of Silicon Valley. This reads like, if you look at sort of the spectrum of quality reading from, sort of you know, good fiction on down to say antitrust books on the other end, this is dry and boring. I mean, this actually is a pretty interesting book – from just sort of talking about the history of Silicon Valley and that’s why I went through it so quickly when I read it. So it’s a really good read.
Mr. REBACK: Can I make a comment there because I wish you had talked to my publisher. When I was telling my publisher, you know, I want to write a book about entrepreneurs in Silicon Valley and he said nobody would be interested in such a book. I said fine, it would be an antitrust book. They said fine, we’ll publish it. I mean, can you imagine that?
Mr. ARRINGTON: Yes.
Mr. REBACK: But the book – the book is very much what you say because, you know, we’re all about entrepreneurship here and I saw some really important entrepreneurs and I saw how they suffered through litigation and through all kinds of problems and that’s part of what I wanted to explain.
Mr. ARRINGTON: Yeah. OK. But that’s where I’m going to a draw a line – we’ll get to this later but, you talked about how great it is to be an entrepreneur but you also talked in your book about – and you talked through it about how you need to rip these guys apart once they are successful. I mean, once you ultimately won and you’ve dominated your industry and there’s no one else, you know, sort of there before you, then you come in and rip them apart. I mean how fun is that? It’s just, you know….
Mr. REBACK: Well…
Mr. ARRINGTON: You ripped Microsoft apart. They just never got to the point of ripping it apart, right? So…
Mr. REBACK: Well, yeah. It – in fairness there was a lot of people beyond me. But, I haven’t been yet in the book where I talked about what my antitrust professor explained to me. My anti-trust professor was the head of antitrust during the Reagan administration.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And he broke up AT&T. And when he was telling us about dominant companies, he told the story of how he thought the system ought to work. This is a Reagan Republican. And he said you know, once your company, as Mike said, dominates a market so that there are no other competitors around even on the horizon, the president of the United States invites the CEO to dinner at the White House – state dinner, wonderful food, a toast by the Secretary of Commerce and the head of the FED. That night the CEO sleeps in the Lincoln bedroom. The next morning, he flies on Air Force One to New York where he has a ticker-tape parade down at Wall Street and at the end of the parade, the president says, “Fantastic, you’ve won, we’re breaking up your company into 12 pieces which one do you want to run?” Now, I don’t know that that’s a night you point but I could remember that day in class, for 35 years, and I could remember because the professor explained what – that the nerve center of our capital system is competition. Whereas we like to say in California, the journey is the destination, you know. That’s – it is competition that makes the system work. But, to answer your direct question – no, I just wouldn’t tear somebody apart because they succeed. I don’t think anybody else would either.
Mr. ARRINGTON: Unless they were your client or their client was on the other side.
Mr. REBACK: If you paid me to do it, I might do it but otherwise, no.
(Soundbite of laughter)
Mr. ARRINGTON: I want to talk about Microsoft for a bit here in the middle because the bulk of your book, a large part of your book is about the Microsoft litigation that went on for a long time. And you were at the sort of there at the beginning and all the way through. It’s also fascinating sort of a historical topic at this point. Let’s start with maybe, if you could just give us an overview of when you’d started looking at Microsoft for the first time as Netscape’s counsel, is that right?
Mr. REBACK: No, it was way, way before that. The first time, Microsoft got into trouble was in the Federal Trade Commission.
Mr. ARRINGTON: Right.
Mr. REBACK: Way back in what the late 80’s maybe, something like that.
Mr. ARRINGTON: And you were involved then?
Mr. REBACK: Yeah, but what was really interesting about that is that people had a lot of complaints but you couldn’t get them on the same page and as a result it was very difficult to explain technology in Silicon Valley to the government and the government people just spent all their time yelling at each other.
Mr. ARRINGTON: Yeah. Well, in ’96, ’97, you started working with Netscape and the issue then particularly was around the browser. Could you sort of frame that discussion because that ultimately led to a lot of the antitrust investigations that…
Mr. REBACK: Yeah, so.
Mr. ARRINGTON: …that they got in trouble more.
Mr. REBACK: We normally think of antitrust law and economics in this area is being about you know, pricing output, right? In other words, the little clip you read, the little excerpt you read from my book, antitrust lawyers think about the purpose of antitrust as keeping the output high and prices low. But that’s not how we think about in Silicon Valley. We think about antitrust as keeping the marketplace open for entrepreneurs. And I guess my feeling is always been that if you are a founder and you raise money, and you hire management, and you produce product that you’re entitled to a fair shot at the market; that customers might not want your product and that’s your problem but no entrenched company should be able to cut you off from getting to the market. And that’s really what the Netscape was all about. The theory of case was that this start up in Silicon Valley had invented some technology that would in time, or was at least intended to displace the dominant company. And the dominant company fought back in ways that denied market access to the new technology.
Mr. ARRINGTON: And eventually won, right, in the sense that Microsoft was ordered to be broken up but that never happened. And the browser – even by the time they were ordered to be broken up, their browser dominance was at 60, 70, 80 percent at that point.
Mr. REBACK: Microsoft’s was…
Mr. ARRINGTON: Mm hmm.
Mr. REBACK: Yes.
Mr. ARRINGTON: Yeah. And so, Netscape was sort of history, although they did have a nice $10 billion exit to AOL. Actually it was the last deal I worked on AOL. But there’s something that I don’t quite get.
Mr. REBACK: OK.
Mr. ARRINGTON: So prepare for a missile. Yeah.
Mr. REBACK: This is the bad part of having your book read back to you. But my editor wrote the part that you’re – you’re going to read to me.
(Soundbite of laughter)
Mr. REBACK: And I told them, you know.
Mr. ARRINGTON: You’re ready? No. No, I just – you have to explain this to me.
Mr. REBACK: OK.
Mr. ARRINGTON: So, I’ll just read a brief quote. “By the time of the court’s decision” – I’m not sure what year this was, ’90 now. I’m sorry, 2000, or anyway. “Microsoft commanded an 86 percent share of the browser market. Network effects alone, could sustain that position against competitors and not to mention Microsoft’s physical integration of its browser into its operating system, which further protected the companies’ browser position from challenge.” So you talked there about – there’s sort of too little too late. A lot of this is about the government just, it was way too late by the time the government acted to save your client. Putting that aside, you’re arguing here that they had 86 percent market share and the network effect would sort perpetuate that. But Microsoft wasn’t broken up and today we have a situation where Firefox an open source project has a significant 20ish percent share of the market. So when you long, when you’re editor wrote this and saying that they were actually sort of needed to be ripped apart because there could be no competition in the browser market. Given the benefit of hindsight there seems like there’s lots of competition in the browser market.
Mr. REBACK: Well they’re certainly is. But this – this comment of mine is about what the court said about the attempted monopolization claim. In other words, there were some monopolization claim against Microsoft and the monopoly maintenance claim.
Mr. ARRINGTON: Yeah.
Mr. REBACK: But the claim for browsers was that Microsoft was attempting to monopolize.
Mr. ARRINGTON: Right.
Mr. REBACK: And the court said, no, they were not even guilty of attempted monopolization and I’m saying you know their share there – their share there is so overwhelming. Now later in the book, I talked to a great about what’s happened in the browser market.
Mr. ARRINGTON: Well, I didn’t read the whole thing.
Mr. REBACK: Oh, well. And I talked about how Google sponsored Firefox.
Mr. ARRINGTON: Yep.
Mr. REBACK: And how that – and how Microsoft lost control of the space because they were mired into litigation basically. And they decided to focus on the operating system instead of focusing on the internet.
Mr. ARRINGTON: So that’s actually a great segue into my next question which you did talked about how even the threat of litigation can keep a company maybe from acting further badly. And sort of maybe defocusing on, you know, this is a good thing. So it’s not as even the chilling effect in a good way of that of the litigation or just that there’s something going on with the government. And just now, you said that maybe that’s what helped them defocus enough that you know, the others were able to enter to the market. However, so I have a counter point that I’d love for you to explore. When you talk about the original antitrust provisions, we’re looking back at oil and railways, and like real stuff, right? Especially when you sort have all this physical infrastructure that you’ve created. When you look at the internet, a lot of times the incumbents, the ones in the position of market power, almost seemed to be at a huge disadvantage. And we see this time and time again where new start-ups come in and just rip the incumbents apart not – and even though there’s market power on the incumbent side, just because they’re nimble and they have better technology and they’re not weighted down by their own infrastructure, don’t you think that that is a much better way to regulate the market, just the reality of the situation than having to involve antitrust laws that are sort of hundreds – over a hundred years old now and sort of pointless?
Mr. REBACK: Well, first I don’t know that they are pointless. I remember a discussion I had with Eric Schmidt when he was explaining to me that, how he thought the internet, the best analogy for the internet was the railroads. So I think there’s more similarity there than you would suggest. But your basic point, wouldn’t it be better if new technology overtook old technology.
Mr. ARRINGTON: Yeah.
Mr. REBACK: Absolutely it would. But you can’t expect a dominant monopolist to just sit there. And the question is, what can they do?
Mr. ARRINGTON: Yeah.
Mr. REBACK: How can they protect their market position without doing stuff that we would consider anti-competitive that actually, or to speak of – now in the examples that you’re giving, in my view of what work out the right way. The new technology displaced the old technology. That’s not what happened at least for 10 years.
Mr. ARRINGTON: Right.
Mr. REBACK: In the case of Microsoft.
Mr. ARRINGTON: Right. And they took a competitor out.
Mr. REBACK: That’s right. That’s right. Now you know, these days – I mean, we’ll get to this – we’ll get to this probably sooner rather than later. There are other dominant companies in the market and there are dominant companies in different markets. And people have used a variety of techniques to maintain their competitive position. Oracle, for example, did a hostile tender offer, took over, used the legal and financial process to take out its key competitor.
Mr. ARRINGTON: Yeah.
Mr. REBACK: OK. That – that to me is not in the public interest to tell you the truth.
Mr. ARRINGTON: Yeah. Who were – sort of Oracle. Let’s talk about your top 10 hit list when it comes to bad guys today.
Mr. REBACK: Well, I don’t – this sounds like an interview I had to do on Fox where the guy was saying to me, you know, who is it you want to kill tomorrow?
Mr. ARRINGTON: Did you strike fear in the hearts of companies?
Mr. REBACK: No, my God.
Mr. ARRINGTON: No, no, you do.
Mr. REBACK: Not remotely.
Mr. ARRINGTON: I told you this in the Green Room that I’ve had this book, I got it in Mach and I’ve had it on my desk. And every time a Microsoft exec, which is about once a week, comes into my office, to brief us on some of the new thing that they’re doing they see this book. They always see it. They got, “Oh, you have Gary Reback’s book.” And I’m like, “Yeah, I’m interviewing him about this.” And they’re like, “Uh-huh.” And so I mean, you know, like that guy.
Mr. REBACK: I don’t know that that view was universally for them (unintelligible). But what are the kinds of antitrust issues today that – that are really getting attention? You know, some of them, I mean…
Mr. ARRINGTON: Before we go there.
Mr. REBACK: Yeah.
Mr. ARRINGTON: Because that’s sort of the next big topic.
Mr. REBACK: OK.
Mr. ARRINGTON: I have a question.
Mr. REBACK: Yeah.
Mr. ARRINGTON: You talked in this book – you actually quote a lot of discussions you have with clients. And just, as a lawyer, how did you get – did you get their permission in all cases or that’s so old now that it doesn’t matter? Because there’s some really good stuff in here.
Mr. REBACK: There’s good stuff…
Mr. ARRINGTON: Yes.
Mr. REBACK: But none of that was confidential. In other words, the – there was no situation in which it was – and I had to go through this with the publisher as well.
Mr. ARRINGTON: Yeah.
Mr. REBACK: To give you an example, there is – there are some discussions that I used to talk about a situation involving Hasbro, the toy company.
Mr. ARRINGTON: That was exactly…
Mr. REBACK: The toy company.
Mr. ARRINGTON: Yeah. Yeah.
Mr. REBACK: The toy company. All those…
Mr. ARRINGTON: Your – where the CEO had done something and you’re like, “oh, undo that, don’t do that.”
Mr. REBACK: Yeah. So that was a great discussion. The reason I was able to put that in is because he had to testify about that in the court.
Mr. ARRINGTON: OK, OK.
Mr. REBACK: So it’s all in the public record. It’s all fully documented.
Mr. ARRINGTON: OK.
Mr. REBACK: And so there are a lot of nice stories in here but none of them are first impression. They’ve all been around in one place or another.
Mr. ARRINGTON: So let’s talk about what you just brought up, which is sort of the looking forward. What are your concerns? Where do you think anti-trust can help improve competition in the Silicon Valley marketplace in particular?
Mr. REBACK: Yeah, part of – well, let’s talk more broadly for a second first. I mean, some of the biggest problems are actually in pharmaceuticals.
Mr. ARRINGTON: Yeah.
Mr. REBACK: Now, pharmaceuticals are big for us here and certainly biotech is very important. And if the big pharma companies back East were buying are biotech startups who really need buying, then that would be great in my view. But instead, they’re buying other big companies back East and killing the R and D of both companies and that’s producing high cost pharmaceuticals, very little innovation, a lot of problems. There are two big pharma mergers that are pending. And I think those mergers are going to have problems getting through.
Mr. ARRINGTON: Are you going after them?
Mr. REBACK: No, I’m not involved. I’ve done some pharma earlier this year but it was on a good deal and a deal that got through.
Mr. ARRINGTON: Do big – I mean, are big pharma companies better at making drugs in general? I mean, do you think that…
Mr. REBACK: The argument is that they are much worse at least recently that you can’t just take two R and D teams. You know, if you have 40 people on an R and D project and the company you’re acquiring has 40 people on a project, you can’t put them together and have an 80-person R and D team. You can have too many smart people working on the same project.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And I think that’s something that’s intuitive to us out here because our companies are generally smaller and more nimble. And as I say, there is an acquisition path, which makes a lot of sense to me, which is these big companies with sales forces and so forth buying up the companies who want to be bought up here – out here, these biotech companies, but they’re not doing that. And instead, the biotech companies are suffering from cash and the big companies back East are doing anticompetitive deals. So pharma is a big issue, I think, and I think the government will think it’s a big issue. There’s another big merger that’s spending that young people care about and that’s the merger between Ticketmaster, the largest ticket seller and Live Nation, the largest concert promoter. That’s an important anti-trust issue because the two companies really don’t compete with each other. They make complimentary products, complimentary services. But I think that one is dead on arrival, too. I think it’s an anticompetitive merger and I expect any day now, you’ll see the Justice Department say no dice to that one. That has ramifications in the Valley because of how many times we do merges between companies that make complimentary products.
Mr. ARRINGTON: This will particularly know the IPO Windows…
Mr. REBACK: Yeah, we have to.
Mr. ARRINGTON: (unintelligible) Windows.
Mr. REBACK: We have to.
Mr. ARRINGTON: It’s going to weigh out, yeah.
Mr. REBACK: Right, right. But in this case…
Mr. ARRINGTON: And you want to ruin that for everybody.
Mr. REBACK: Yeah, yeah, hopefully not. Hopefully, I want to make it a great opportunity for everybody.
Mr. ARRINGTON: You will not raise a debate on anything, will you?
Mr. REBACK: No.
(Soundbite of laughter)
Mr. REBACK: Well, I think it’s important because there are issues that are very concerning and I think that if I talk about those I can talk about them sincerely, and I don’t want to get dismissed on some of these other stuff where I really don’t think there’s much difference between you and me, for example.
Mr. ARRINGTON: No. But I’m looking for the soundbite that I can turn this into a post so….
Mr. REBACK: So let me give you – so let me give you another – let me give you another issue that I think is very important, and that’s this Google Books thing. There has not been a nearly enough coverage in Silicon Valley about this. I think TechCrunch has actually written about it, what, two or three times now.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And the New York Times has covered it and a little bit in The Journal, but this is really a serious issue, a set of serious issues. I thought about how I would explain this in soundbite quality.
Mr. ARRINGTON: Well, I told you how to explain it.
Mr. REBACK: Which is?
Mr. ARRINGTON: We need to rip Google apart.
(Soundbite of laughter)
Mr. ARRINGTON: So, if you can just say that.
Mr. REBACK: Yeah, I don’t think so.
Mr. ARRINGTON: No. Could you explain the Google Books, sort of just frame them?
Mr. REBACK: Yeah. I actually made a set of notes to try to do this. But, you know, trying to explain this without putting people to sleep is very difficult. So, Google started several years ago. They made the announcement they were going to create a library card catalogue, a universal library card catalogue. They were going to index every book ever written in the United States. And most people like me said, “Oh that is great! Can’t wait to see that card catalogue.” And of course the publishers didn’t like it because they want to be – get paid for having their book indexed and even – and so they sued Google. Now litigation went on for three years and during this time most of us thought that the companies were litigating against each other, but in fact they were in the back doing a venture. I don’t think what to call it, a joint venture. And late last year, Google announced not a card catalogue but a library, a library that is going to contain all the books ever written in the history of the United States from the founding of our republic to the beginning of this year. Many of those books under the terms of a deal worked out with the publishers go exclusively to Google, exclusively. So, somebody like me, and I would suggest even you, you can do soundbites here too, we rely on competition to please the market. How in the world are we going to have competition and it’s not just a matter of somebody is going to be paying too much to see books online. It’s that Google will have the opportunity to take the information they get and use it to improve their search engine. And they can use it and they do use it to improve their network, their social network software to the disadvantage of the Facebooks and the MySpaces. And we’re going to end up in a situation where poor kids who go to public schools will end up paying money to the billionaires at Google just to look at books online. It’s to me a crazy situation. So, that’s under investigation by the Department of Justice. I don’t know what’s going to happen there.
Mr. ARRINGTON: Did you just work in, like, but what about the children? I know, as far as I know it’s free and it’s ad-driven. Is that right? And so – and 63 percent of the revenue goes towards – goes to the authors.
Mr. REBACK: Sixty-three percent. No, 63 percent of the revenue goes to the publishers…
Mr. ARRINGTON: OK.
Mr. REBACK: And they were the ones who sort of formed this consortium back. This is not just some of the publishers, Mike. It’s all of the publishers.
Mr. ARRINGTON: Great.
Mr. REBACK: All of the publishers. It’s like – it’s as if Steve Jobs, instead of doing what he did with iTunes, he got all the record companies in the room and the record companies said, keep your prices high, Steve and we will only deal with you. And of course, Steve did exactly the opposite. And that worked out great.
Mr. ARRINGTON: Yes.
Mr. REBACK: But that’s not what’s going on in New York. And that’s the part that…
Mr. ARRINGTON: So, your concern – your concern is the deal they cut not the fact. Because Google showed real innovation in taking these huge machines that take the books and hyper scan them really fast, I mean, they have significant expense to do that and we can’t – we can’t – we need to reward companies that take that kind of – of being approved.
Mr. REBACK: Well, and ordinarily – ordinarily that would be true.
Mr. ARRINGTON: Yeah.
Mr. REBACK: I would certainly agree with you ordinarily. But here, Google is asking the court to change the copyright laws – literally – for its benefit. It’s asking the court to give it permission to put books in its library that we don’t – the author is dead for but there is still a copyright. It’s asking for an exception. And if it comes back asking for an exception, then it seems to me we got to look and make sure there is competition because if there’s not competition, they are going to be real problems in this phase.
Mr. ARRINGTON: OK. So, this one solution did sort of eminent domain the database and give it to – access to everybody and let them do whatever they want?
Mr. REBACK: Well, you would want – I mean, that is part of the solution. The authors and publisher should get paid – instead of getting paid a monopoly rate which is what they have set up they should get paid a competitive rate for their books. If you and I both write books on entrepreneurship, we’re supposed to compete with each other.
Mr. ARRINGTON: Right.
Mr. REBACK: That’s how our system works. That’s not the way this is set up. So, you would have to do a little bit more than that and of course you would have to compensate Google, you know, in a fair way.
Mr. ARRINGTON: Right.
Mr. REBACK: In a fair way. But again, if they are going to ask for exceptions to our normal system, then something like what you’ve proposed is certainly worth thinking about.
Mr. ARRINGTON: It is this – I’d like to talk about Google search a little bit, too.
Mr. REBACK: Sure.
Mr. ARRINGTON: Is this their Achilles heel? Is this the issue like sort of what Microsoft with the browser that could potentially bring them down or is it search? Like what do you think is the more important issue from an antitrust point of view?
Mr. REBACK: When you say search, you mean the fact that they have such a large share in search?
Mr. ARRINGTON. Yeah. Their search market share is about what Microsoft browser share was when you ripped them apart and…
Mr. REBACK: How do you rip them apart?
(Soundbite of laughter)
Mr. ARRINGTON: So, I’d say that again to myself(ph).
Mr. REBACK: Yeah, right. The two issues are related because you remember the most troubling part of Google Books is that they get to use this vast corpus of books to improve their search. So, if you’re now already concerned about their search, let’s say you’re concerned about it but you don’t want to rip them apart.
Mr. ARRINGTON: Right.
Mr. REBACK: You’d like to try to see what the free market would do.
Mr. ARRINGTON: Yeah.
Mr. REBACK: You know, you’d like for Carol Bartz to succeed. You’d like for even Microsoft to do better since they’re plowing all this money into the space because you want there to be competition. In that situation, you would be very concerned that they not get any unfair advantage some place else that would help search.
Mr. ARRINGTON: Right.
Mr. REBACK: Given their large share.
Mr. ARRINGTON: Right.
Mr. REBACK: So, it seems to me if you’re worried about search and look at things like Google Books, I don’t think anybody’s going to just start off going at them because of their search share because generally speaking in this country, we are troubled by things you do, not by your success.
Mr. ARRINGTON: Right.
Mr. REBACK: We’re troubled by things that you do to get an unfair advantage, not things that you do to get a large market share and to make money and stuff like that. So, what I see – I see their tension points as being places like this where they start doing things that are a little different, you know, for example Eric Schmidt sitting on Apple’s board.
Mr. ARRINGTON: Right.
Mr. REBACK: Now, why is he sitting on Apple’s board? I mean, is it plausible to suggest that two companies don’t meaningfully compete with each other? Shouldn’t they compete with each other?
Mr. ARRINGTON: They do compete with each other.
Mr. REBACK: And shouldn’t they? I mean, we are all counting on great competition in phone space and on online video and all those other kinds of things. I can’t even understand why they are fighting that. I just – it’s mysterious to me. I don’t understand why they wouldn’t, you know, they are just sort of…
Mr. ARRINGTON: So, Apple is on the list, too. I’ve got Oracle and Google and Apple.
Mr. REBACK: No, Apple is not on the list. Apple is not on the list.
Mr. ARRINGTON: What phone do you have by the way? You have a BlackBerry, right?
Mr. REBACK: Yeah.
Mr. ARRINGTON: Yeah. Lawyer. Yeah.
Mr. REBACK: Right.
Mr. ARRINGTON: Do you think – I want to talk more about search because we are not diving into it deep enough. Do you think – let me frame it differently. You talk about just winning isn’t enough, it’s winning and then doing other things to keep your win, your lead sort of long. But if you look at search, search is sort of like OK whatever, but search marketing is like half the advertising revenue from the internet. And the internet is taking on bigger and bigger share of overall advertising in the world. So, we are talking about – we are talk of search, we are talking about tens of billions of dollars in revenue. I’m concerned, and I was concerned last summer when Yahoo and Google entered a new agreement to sort of merge their search and work together on that and I wrote and took a lot of hits for this. I just wrote, this is wrong because we need competition in search. Was that sort of something that you would describe that deal as something wrong? Like maybe it potentially was something where they are trying to take an unfair lead? Or what other things do you see happening?
Mr. REBACK: No. I think that – I think I remember reading that piece that you did and I – it was – what you had to say as a matter-of-fact was very similar to what that little snippet that you read in my book at the beginning.
Mr. ARRINGTON: Yeah.
Mr. REBACK: The only thing I would add is we need competition in search and we need competition in all the other markets as well, but particularly in search because it’s seminal, because it drives revenue, because of all the reasons you can think of and what you’ve laid out in that TechCrunch piece. That was a problematic deal, wasn’t it? I mean, that was – that was concerning for the reasons that you suggest but I think what ultimately killed the deal was that advertisers were worried – they couldn’t quite understand how the advertising engine works…
Mr. ARRINGTON: Yes.
Mr. REBACK: Because Google really won’t tell you…
Mr. ARRINGTON: It’s a black box.
Mr. REBACK: It’s a black box. So, they figured that if one company had so much control that they could get disadvantaged without even knowing it.
Mr. ARRINGTON: Right.
Mr. REBACK: And that’s what – that’s the reason eventually the government came down for this.
Mr. ARRINGTON: And then there’s the Senate(ph) to disadvantage because it’s a black box.
Mr. REBACK: Indeed.
Mr. ARRINGTON: You have to trust completely that Google is doing the right thing.
Mr. REBACK: And that’s what’s – you know, how different is that from trading in derivatives, right? I mean, in other words it’s a little scary when we sit here looking at the search market because it’s so important to all of us and unlike even operating systems it is not transparent to us. We don’t really know how it works. We don’t know what a company could do to manipulate it if they wanted to. Really, our only protection is what you suggest, to have several robust competitors in the space and then hope and trust that they will offset each other’s economic power.
Mr. ARRINGTON: Yeah.
Mr. REBACK: So, long story short, that Yahoo situation was exactly the kind of additional thing…
Mr. ARRINGTON: Yeah.
Mr. REBACK: Which I think the government really has got to put brakes on particularly in this market…
Mr. ARRINGTON: Which they did.
Mr. REBACK: Which they did. Even the Bush administration that had – that had not brought a single case in eight years against the dominant company and only three merger cases in their years said that one was wrong.
Mr. ARRINGTON: OK. Do you think – do you think if you – looking back at Microsoft, do you think that it would be a better world if Microsoft had been broken up into multiple companies at the time that, you know, sort of when the order through?
Mr. REBACK: No. I really don’t. And what’s interesting about this is I think you will look in vain – my job at the time was to get the government to file suit.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And as I explained in the book, generally speaking that’s enough. Because once the company gets encumbered in that suit and everything else other companies can come to the fore and can compete.
Mr. ARRINGTON: Yeah.
Mr. REBACK: They lose the kind of preclusive domination that’s bad.
Mr. ARRINGTON: Just because the government gets in their head.
Mr. REBACK: Well, that’s what happened in that case and, you know, I quote a guy from IBM who was talking to me about it and saying, you know, the same thing happened to us. You know, we swore, we swore we wouldn’t get diverted from our attention to the market and of course we do.
Mr. ARRINGTON: And look what happened. It’s like whose idea, yeah.
Mr. REBACK: So, I never, that I can recall, took a position on what the correct remedy was because frankly I didn’t care. It wasn’t necessary to me to complete, you know, my side of the project.
Mr. ARRINGTON: Well, OK, you say you don’t care and I can make a quip about, well that’s because, you know, your client stopped paying you. But I’m also going to make that quick because you do care. I mean, anybody that reads the book, I mean, there’s a lot of passion in this. I mean, more passion than you’d expect when talking about antitrust and you really believed in what you were doing.
Mr. REBACK: Oh yeah. But – but – and I believe that the market had to open up for startups. And I believe we have to keep the internet open. You know, we didn’t know search at the time for example.
Mr. ARRINGTON: Right.
Mr. REBACK: I mean we knew there were search companies, but we didn’t know it would be a platform in the way it is. But we could all imagine that there would be new technologies that if the market were sufficiently freed up, those technologies could take hold and, you know, and blossom and mature and so forth. So yeah, I felt strongly about that. It’s just that, you know, the exact remedy you needed to get that resolved wasn’t part of my mix.
Mr. ARRINGTON: OK. So, it was enough to get in their head and everything kind of worked out fine.
Mr. REBACK: Well, there is a portion in the book where I talk about how they reacted. And it’s not really my work, I mean, some of the work was done in the book by a Wall Street Journal writer named David Bank, and there’s this famous Halloween memoranda where – that suggest that Microsoft was thinking about doing things, similar things, on the server side and on the internet side, but because of dependency the case didn’t do it.
Mr. ARRINGTON: OK.
Mr. REBACK: And, you know, that to me is a resolution of the problem basically.
Mr. ARRINGTON: Let me talk about Europe for a second, just curious. When I look at what happens in the world, the U.S. comes in and it regulates monopolies and brings cases, and then Europe and, apologies to the Europeans in the audience, but it seems like they just sort of come in later and then, you know, play the bully role. And I’ve written a couple of posts about how they see Microsoft as an ATM machine. It’s like every couple of years they withdraw a couple of billion dollars just because they have a budget shortfall. I’m exaggerating the point, but do they really do anything other than take money from U.S. companies?
Mr. REBACK: Well, yeah. I can’t bite on that but I will say that – that…
Mr. ARRINGTON: So you would agree that it – they’re pointless.
Mr. REBACK: No, I wouldn’t agree with that point.
(Soundbite of laughter)
Mr. REBACK: But to give an example that you will – well, I got a call from, you know, a writer from one of the London-based, big financial newspapers and he’s saying, you know, don’t you think it’s a little bit – to con – don’t you think it’s a little bit silly that the Europeans want Microsoft to carry Google’s browser? You know?
Mr. ARRINGTON: Yeah.
Mr. REBACK: And must carry on Google’s browser? Yeah, it is a little silly, isn’t it? So that does strike me as a little out there. However, they have done a lot of good work within Europe on their public utilities, on reducing monopoly costs in the public utilities and merging their various desperate markets. They’ve been very, very successful in Europe at a time that we weren’t and unfortunately, that got them out ahead of us and, and unfortunately during the Bush period of time, communications weren’t good with them. So this is true.
Mr. ARRINGTON: Them being Europe.
Mr. REBACK: Them being…
Mr. ARRINGTON: Yeah.
Mr. REBACK: The European enforcers.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And as a consequence, I don’t think that we could have the kind of dialog which would have turned off some things that maybe you think should have been turned off.
Mr. ARRINGTON: Yeah.
Mr. REBACK: Because the perception of the Europeans were that – that we weren’t doing anything.
Mr. ARRINGTON: Right.
Mr. REBACK: And they needed to do something.
Mr. ARRINGTON: Right, because they have budget shortfalls.
Mr. REBACK: Oh, I don’t think that’s true but…
(Soundbite of laughter)
Mr. REBACK: But they needed – they felt they needed to protect their own consumers.
Mr. ARRINGTON: Sure. Sure.
Mr. REBACK: And they felt that we weren’t doing anything. Had we been doing more and had we been able to constructively can say to them, the right way to do this we think is X, not the right way to do this is not to do anything.
Mr. ARRINGTON: Right.
Mr. REBACK: Then I think we would have had a more constructive dialog and things would have worked out better.
Mr. ARRINGTON: OK. There’s just one other topic I want to cover before we go to questions. The idea – this is not covered in your book but it’s an interesting topic. The idea of too big to fail is very relevant in our economy right now and I’d love to get your thoughts on that in the sense that through this – through constant stream of government bailouts of industries and companies that we cannot live without, what are your feelings on this from a competitive standpoint in the health of the marketplace?
Mr. REBACK: Yeah, I’m going to publicly embarrass you by agreeing with you. I – doesn’t too big to fail…
Mr. ARRINGTON: Because I think some companies are too big to fail.
Mr. REBACK: Well, they are too big…
Mr. ARRINGTON: Right.
Mr. REBACK: In the sense that they’ll ruin the world for the rest of us. But the question is, how do they get too big?
Mr. ARRINGTON: Right.
Mr. REBACK: I mean, what in the world were we doing…
Mr. ARRINGTON: What were you doing?
(Soundbite of laughter)
Mr. REBACK: Well, I was writing the book.
(Soundbite of laughter)
Mr. REBACK: But you know, what were we doing when we let AIG take over this market and get so interconnected that when…
Mr. ARRINGTON: Yeah.
Mr. REBACK: They fail, all the rest of us fail? You know the right kind of market for me is you have four or five competitors, if one screws up, it’s his problem.
Mr. ARRINGTON: Yeah.
Mr. REBACK: But in a market with one company, if it screws up, it’s my problem.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And so, to me and I think to the new head of Antitrust who has made a speech into this effect, what we’re seeing now represents a failure of our competition policy. And what’s worse is that we keep letting these companies get bigger, right?
Mr. ARRINGTON: Yeah.
Mr. REBACK: I mean, the solution we seem to think is to let them acquire the next company over and then we bail out that and then acquire the next company over and there doesn’t seem to be any kind of exit strategy.
Mr. ARRINGTON: Yeah.
Mr. REBACK: And even the Wall Street Journal editorial page was saying maybe the solution for Citigroup is to break up Citigroup, you know, and I think the journal would prefer that they break them up themselves and have yet to see ECE and CEO other than the guy – AT&T guy who would break up his own company.
Mr. ARRINGTON: Yeah.
Mr. REBACK: Nevertheless, wouldn’t we be better off with competitions where we can have it as opposed to – to thinking that we can regulate these vast international behemoths in markets like black markets like derivatives that we really don’t even understand?
Mr. ARRINGTON: Right.
Mr. REBACK: You know, so I guess I’m with you on that one. It strikes me as a difficult policy. I can understand why the administration would do it in the short term because they got this terrible problem and you do whatever you can to keep the economy afloat. But as a longer term strategy, man, that’s – that’s kind of scary.
Mr. ARRINGTON: Ready for questions?
Mr. REBACK: I just like to make one other point, you know, where does too big to fail take us? Where does it take us in the software market, for example? A question I post to you is, is Oracle too big to fail? I mean, suppose Oracle literally failed and it brought down the back office and you know, the Fortune 2000 companies. That to me would be catastrophic. It would be awful. So, you know, what should we do about that if anything? Well, the answer is probably nothing but it’s something worth mentioning.
Mr. ARRINGTON: So by listening any more of these questions are – really good.
Mr. REBACK: Yeah, they go on in the back, in the front, God.
Mr. ARRINGTON: I need this quote though. Will you just say – just say it, just say, for the sake of the children we need to break Google apart.
(Soundbite of laughter)
Mr. ARRINGTON: Just say it.
Mr. REBACK: For the sake of the children, I will say for the sake of the children, we need to look at Google books really hard.
Mr. ARRINGTON: OK, that’s fine. Now, say we need to break Google apart and I could splice that together later.
(Soundbite of laughter)
Mr. ARRINGTON: So questions. I get to pick them.
Mr. REBACK: Yeah. That’s the tough part.
Mr. ARRINGTON: And I’m going to find one so they’re on my side.
Mr. REBACK: You got another pile over here.
Mr. ARRINGTON: OK, here’s one. How would you compare the role of an Antitrust system with that of referees in sports?
Mr. REBACK: Well, the theory – the theory is the same. I mean, you’re not supposed to influence the outcome of the game, right? If you’re a referee, you’re supposed to enforce the rules but the better play is supposed to prevail. And that’s the way it is with Antitrust. I never thought of that now, gee, I would have put it in my book.
(Soundbite of laughter)
Mr. REBACK: You know, but it is an – it is kind of an interesting analogy. You’re doing more than calling balls and strikes. You’re really like a basketball referee. You’re affecting the flow of the game. But you’re trying to effect the flow of the game to keep players from doing things that keep – that stop the better team from winning and I know that’s a sentence with triple negatives but I think you get my point. That is what an anti-trust enforcer is supposed to do. So it’s an interesting idea and if somebody didn’t sign that or copyright to them, I’m going to use it in my next book.
Mr. ARRINGTON: Raise your hand if you wrote that question and you can get credit. Here’s one. I didn’t know this. The EU or EC I guess, one of the – just point Intel, 1.5 billion for anti-competitive crisis, is that correct?
Mr. REBACK: Oh yeah. You just missed that one? That was about a month ago.
Mr. ARRINGTON: So that’s just – you know, we talked a little bit about that. But that’s more of the ATM machine stuff. So that person agrees.
Mr. REBACK: Yup.
Mr. ARRINGTON: Here’s a really good one. Who protects us from a government’s quest to control more and more of the American economy? How does finance, health care, et cetera? Who breaks up, you know, the government when they get in – too much involved in this?
Mr. REBACK: No, you know…
(Soundbite of applause)
Mr. REBACK: We have Libertarians in the audience.
Mr. ARRINGTON: Yeah.
Mr. REBACK: As I’ve said, I do agree with the part of this question that – that focuses on regulation to the exclusion of fostering competition. I think, I really do think that that’s a mistake. Now, some of these other stuff, I mean, I’m not – I may subscribe or to the notion of effective government which frankly, the government has a problem being effective and smaller government, better targeted to take care of problems might do actually a much better job. Getting from this fall to something more effective given entranced interest and you know, all the campaign contributions, that’s a very, very difficult problem and happily it’s beyond the problems of my book or my knowledge.
Mr. ARRINGTON: There’s some exceptionally atrocious handwriting in this and then there’s some that’s really, really good actually. This one – I don’t get this one. You’ve not mentioned the world’s largest computer company. Do you know who that is? Who?
Mr. REBACK: I – OK, I give up.
Mr. ARRINGTON: What’s…
Mr. REBACK: Huh?
Mr. ARRINGTON: I feel like it’s a trick question.
Mr. REBACK: Oh yeah.
Mr. ARRINGTON: You want to rip them apart? Are they on the top five list?
Mr. REBACK: No and as a matter of fact, they’re – an interesting example, you know, think about rich people, powerful people, influential people for whom there are no Antitrust complaints like say, Warren Buffett. I mean, why is that? Well, for example, he bought the third largest insurance company and invested heavily in it and promotes competition in those markets and makes a great return. Hewlett Packard, the same. Now they dominated printers for a while but you know, Hewlett Packard was an institution, is an institution in Silicon Valley and they’re generally thought of in a very different way and frankly, they just don’t seem to spark these kinds of things, if they have the kind of market power that people are concerned about which I don’t know if they do but, people don’t seem to (unintelligible) in any respect.
Mr. ARRINGTON: Oh, here’s a good question. Actually we had talked about this as a possible topic. I didn’t get to it. Gary, hasn’t the system, in this case, the courts undermined another foundation of competition in entrepreneurship patents in the last few years? And he said – well, he said something, something versus SanDisk, maybe through their…
Mr. REBACK: Well there’s a – yeah, there’s an important SanDisk (unintelligible), to go and SanDisk et cetera. Patents are an interesting question. And part of my book is – I don’t – I deal with patents. Deal with it is not quite the right word but I talk about patents in one chapter but I have three chapters leading up to that chapter where I talk about copyright because it’s the same kind of problem. There are people, probably people in this audience who do start ups who think that they have to have patents. Otherwise, they’ll get run over by these bigger companies and that is likely true. There are other people in the same audience with the same kind of companies who say that big companies who have patents are rolling all over them everyday and why doesn’t somebody stop the government from issuing all these bad patents? And you know what? They’re probably right, too. Trying to unpack the patent system is difficult. We have way too many patents that are lousy. Bad patents should never have been issued. They’re sitting out there. They are used against people because of the sheer mass and weight of them. The clog the channels for entrepreneurs and they make an increasing – you know, when I started out here, when I started out here, the last thing the VC needed to know about which were patent portfolio because frankly, they didn’t care.
Mr. ARRINGTON: Right.
Mr. REBACK: It didn’t make any difference to your success and I think that was frankly a good period of time. I think that people understood what they needed to do to succeed. Now we can’t operate without patents, of course. But we’re – I think we are, we are overboard. We don’t have enough support for the good patents and we have way too much support for the lousy patents. Antitrust I think is going to try to start limiting this. I mean, the pat – the Supreme Court tried to cut back on this in a case or two, we’re going to see the Antitrust authorities come in to some of these patent settlements and try to shutdown what they think are anti-competitive patent licensing deals that are done as part of patent settlements. Let me just give one example. When I talk about this, people don’t believe it. But in the pharma area, it is now common for a brand named company to attract generic competition and when the brand named company attracts the generic competition, if their patent hasn’t expired, they sue on the patent even though it might be a flimsy patent and then they say to the generic manufacturer – and by the way, how about if I just give you a couple of hundred million dollars and you just go away and I’ll continue to sell it in my high price and you don’t come into my market for the next four years? It sounds unbelievable and yet, that is now happening everyday. Even the Bush administration tried to get at the Supreme Court. The Supreme Court most recently, last week declined to hear a case where the FTC was challenging that kind of behavior. I expect – that behavior, that kind of behavior affects our health care system, it takes money out of our economy, it is being criticized by people from the right like Orrin hatch and from the left like Henry Blacksman and yet we can’t seem to fix it. So I expect to see Antitrust coming down hard on that stuff.
Mr. ARRINGTON: I was going to say something about the health – the trying health care and then the whole thing and I realized it was relevant because of the internet drugs but, I thought we – first, we have the children. Now, we have health care. There’s a guest – I think we were done with this but it’s interesting. There was a guest post on Tech Crunch that compared Google’s current consolidation of access to advertisers with the Saber Reservation System to consolidation of access to travel agencies and consumers, it says Michael but we’ll ask you. Do you agree with this analogy and should Google be broken apart? I think you may have answered the second part with the affirmative so the question is…
Mr. REBACK: Wait a minute. This question was directed to you.
Mr. ARRINGTON: Right.
Mr. REBACK: Right? So you keep asking me to bite off the issue whether Google should be broken apart. This asked you, do you think Google should be broken apart.
Mr. ARRINGTON: Absolutely not. But I would love it if you said that, of course.
(Soundbite of laughter)
Mr. ARRINGTON: But I’ll tell you, I actually didn’t read this post. So I actually am not even sure – I don’t know if I even agree – I don’t know a thing about Saber. Yeah.
Mr. REBACK: Saber was a reservation system originally set up by American Airlines.
Mr. ARRINGTON: Yes. Wonder what it is. Yeah.
Mr. REBACK: But it wasn’t even in its day, it controlled airplane seats, right?
Mr. ARRINGTON: Yup.
Mr. REBACK: Think of everything that search controls, they controls as you pointed out a lot of the money that floats through the text sector or every sector, all of advertising for that matter.
Mr. ARRINGTON: Yeah. What about – this is for the Libertarians. What about the fact that the state is the ultimate monopoly, should we break up the state? We have had that question but let’s, I mean, it’s great. You’re saying no to that. Don’t what?
Mr. REBACK: Revolution is not on my agenda.
(Soundbite of laughter)
Mr. REBACK: You should deal with that one in Iran.
Mr. ARRINGTON: I’m not going to talk with that. I think it’s a good one to end on. (Unintelligible) a little bit. You mentioned Antitrust laws are several decades old, given your acknowledgment of similarities in the old industry where all roads et cetera, to the new economy in high tech, what and how should we ensure – how should Antitrust laws be changed to adapt?
Mr. REBACK: Yeah. I – you know, there was this big commission that was set up, a taxpayer expense a couple of years ago to study this question. And I had advocated that they do nothing and after a couple of years of study and thousands of hours of hearing, they did literally nothing. Of course, it cost the taxpayers a ton of money. Antitrust laws basically made on a case by case basis through the courts. If you go back to the Bedrock Principles that we’ve talked about here, the protection of competition, the need for competition, competition is a sustaining force in our economy. If you apply those basic principles to each new technology or industry that comes along, you’ll do fine regardless of what the language of the law is because the language of these laws is sort of vague in general anyway.
Mr. ARRINGTON: So – thank you. When I asked in the beginning how many people have read the book, two people raised their hand. How many people are now going to go out and buy this book?
Mr. REBACK: We’re up to a 30 percent increase there.
Mr. ARRINGTON: I counted 50 people and I should get 10 percent of an engagement. So…
Mr. REBACK: I’ll talk to my publisher.
Mr. ARRINGTON: So, thank you and also thanks…