As the stock market continues its free-fall toward a bottom that seems ever more distant, while an endless progression of mighty corporations seize the headlines with their confessions of fudged numbers and faked profits, an increasingly jittery nation is looking to the CEO in chief for reassurance.
So far, neither the markets nor individual Americans are hearing what they want. President Bush’s poll numbers are softening, and his stern remonstrations against corporate criminals do not appear to have instilled any backbone in investors. With each day, the bear market becomes more fully entrenched, the retirement nest eggs of millions of Americans wither away a little further and the sense that corporate America is a playground for corrupt delinquents strengthens.
It is true that the stock market is not the economy. It is also obvious that much of the corporate malfeasance that is currently being laid bare before a disgusted public began occurring long before Bush became president. But such caveats are becoming less and less helpful to the current administration, as each new revelation of accounting fraud and each new slump in the Dow slam into their predecessors like so many freight cars piling up against a suddenly stalled locomotive. At some point, one has to stop blaming the train wreck on the previous conductor.
But what can President Bush do? Should he make examples of some of his Cabinet members and agency heads, such as the bizarrely ineffectual treasury secretary, Paul O’Neill, or the woefully compromised SEC chief, Harvey Pitt? Should he try to seize the moral high ground back from Congress, and demand tougher regulations and accounting rules? Does he dare address the nation publicly again, when his last outing provoked renewed outbursts of despair on Wall Street?
There are no easy answers — but then again, no one ever said being the CEO was supposed to be kid’s play. Salon rounded up a gaggle of experts on economics and politics and asked them the pertinent question: If you were George W. Bush, what would you do to stop the bleeding?
Paul Tiffany, professor of business and public policy at the University of California at Berkeley
Bush needs to take dramatic and symbolic steps to let the nation know that he is aware of the depth of the problem and is taking action to rectify the situation. So far, all of his speeches, responses to media questions, radio addresses, etc., have been nonstarters. This is because he has essentially said nothing, other than that executives should behave ethically, etc. — no news there. His call for a tougher accounting standards board is, I believe, being perceived as a weak bureaucratic response to a problem that requires national leadership.
There is an interesting analogy here to the fear gripping the nation after the 1929 market crash. The sitting president, Herbert Hoover, effectively said there was nothing to do but sit tight, wait it out, and in the long run better times would return. This prompted John Maynard Keynes’ famous retort that “in the long run we are all dead.”
Also note that when Hoover was replaced by Franklin Roosevelt in the 1932 election, one of the first actions the new president took was to go to the airwaves and start his so-called fireside chats, radio addresses to the nation that were meant to reassure the public that their president was aware of the issues and was fighting them hard.
Bush, so far, has been utterly incapable of taking this leadership role.
Potential actions include: 1) replace Pitt at the SEC, install a new chair who is above reproach — a Warren Buffett kind of individual; 2) order the SEC to open all the records on his prior Harken Energy transactions and show the public that there is nothing to hide, he is clean as a whistle; 3) replace either or both Larry Lindsey at the Council of Economic Advisers and Paul O’Neill at Treasury, then install known figures of indisputable integrity and knowledge of markets and financial policy/economic policy.
These actions are, as noted, symbolic. However, with emotions running rampant I believe that such a dramatic and symbolic step is necessary to grab the attention of the public.
While I hold out little hope that Bush would actually do this, it nevertheless does strike me that the true heart of this matter is the continuing problem with political campaign financing and how politicians are essentially beholden to special interests (primarily — but not only — business) in order to generate the funds necessary to mount a serious political campaign today. As such, Congress (and state-level governments as well) has seriously weakened the regulatory and bureaucratic controls that have in the past tended to minimize the potential for problems, such as the current ones we are witnessing with the accounting profession. Were Bush to call for serious campaign finance reform, similar to what McCain has advocated for several years, it could do wonders to restore credibility to Bush’s promises to crack down on financial market behavior by business and executives.
Allen Sanderson, associate chairman of the University of Chicago economics department
Whoever is in office, Republican or Democrat, tends to get the credit when things go well, and is on the receiving end of blame when they don’t. That’s natural, part of the job description. But it’s important to keep in mind that a $10 trillion economy takes on a life of its own. One cannot influence it very much with fiscal policy. There are even limits to what the Fed can do. The psychological impact and emotional appeals are short-lived: Giuliani did well in the weeks after Sept. 11, but it wore off. Church attendance was up in October, a month after the attacks, but by November it had gone back to where it was. Similarly, anything the administration might do will have a very short-term impact.
So if you ask what should the president do — Should he buy stocks? Does he go on TV and assure people? — the answer isn’t clear. I think in terms of stability, he should give the air of confidence, but not arrogance, not panic. I’ve often thought that we should have a constitutional amendment saying that the president and Congress can’t push legislation in times of crisis because there’s such a tendency to overreact and do things that have long-term consequences. Cooler heads need to prevail.
Now, should Bush go on a month vacation to the Caribbean, and be seen swimming every day? No. But should he be seen doing shuttle diplomacy between Washington, D.C., and New York in some kind of hands-on attempt to manage the economy? He shouldn’t be doing that either.
If one could average Bush and Clinton, that wouldn’t be bad. Clinton looked like he was engaged all the time — with the economy, the Middle East. He was a workaholic. And Bush is very different. So some average of the two would be best. But it’s the proverbial rock and a hard place — you need to be engaged and concerned, but not panicked. My own sense is that [Bush] should be going to Crawford for a couple of weeks, not for a month. Postpone the other two weeks off to show concern.
Jeff Madrick, economist and author of “The End of Affluence”
After the Enron scandal, Bush’s advisors literally implied that this was how the economy should work, that when a company gets out of hand the market should punish it. That’s utter nonsense, in retrospect.
Because it was clear that the rules had to change. It was clear that the market did not adjust for Enron, because Enron fooled the market for many years, and a lot of wasted capital went in that direction. And many other companies are participating in the same deceit and possible fraud.
Without accurate information markets don’t work. But markets alone do not provide the incentives for corporations to provide the most accurate information needed for decisions. I would propose serious regulations to make sure that information was accurate and correct, including serious oversight of accounting issues, demands that audit committees report to the board of directors, not to the CEO, and new rules about conflict of interest in investment banks and brokerage firms.
Second, I would rescind future tax cuts. This nation has a public agenda and it must be met. The U.S. is dangerously heading toward federal deficits it cannot control. Some deficit is required at this time, but these deficits can easily get out of control, and are currently contributing to lack of confidence about economic leadership. It is extraordinary that after the time of the greatest accrual of private wealth in our nation’s history, we’re going to give rich people the biggest tax cut of the last 100 years.
Third, we should reinvestigate Social Security to see whether privatization really makes sense. And we will be sure to be as sincere and honest about our new proposals for Social Security as this environment warrants.
It’s bad enough that the president has offered no reforms on how to account for stock options. But Congress seems to be refusing, in the light of extraordinary lobbying, to propose meaningful reforms as well. We need some version of expensing stock options against profits.
Martin Anderson, Ronald Reagan’s domestic and economic policy advisor from 1980 to 1982
I think there’s one thing that trumps everything else. Although Congress is frantic to pass new laws, I think it’s real simple. Do you know what would happen if you or I stole something? We’d be arrested, indicted and put in prison. The simplest thing to do with these economic problems is to find the people who have committed crimes, indict them and put them in prison.
It’s mass theft, it’s fraud. When you take the books of a corporation and you inflate the profits and you induce people to invest their life savings in your company and then you cash in on it — and then if you get caught, you just hire a bunch of smart lawyers who get you off — people lose confidence. It’s about accountability. They need to enforce the existing laws; they need to indict people, and if someone is found guilty, they need to go to Pelican Bay [one of the nation's toughest prisons]. This would have a salutary effect on the entire system.
It would seem to me that the Justice Department goes after big crooks in the Mafia. Well, these executives are even bigger crooks. So where’s the Justice Department? They need to go after these guys. There are all kinds of laws against fraud; this is not rocket science. The one thing the government should spend some money on is personnel — police, district attorneys and investigators who actually know a little about finance. Pay them a little extra money. It’s like when we went to Afghanistan, we found people who speak the language. It’s the same situation here. We need to find people who can do the job. But if someone walked into Reagan’s office when he was president and said there are these executives who are lying about profits, cashing out and hurting people who wanted to save money for their retirement, I know what he’d say: Find out who’s doing it and indict them.
Doug Dowd, author of “Understanding Capitalism”
What the Bush administration should do is get an entirely different group of economic advisors, including Alan Greenspan, because the ones they have now are out of the 1920s in their attitudes toward economic policy.
There’s been a real lurch backward, which began in the late ’70s. I think it’s hopeless to expect the Bush administration any more than the Hoover administration to do the things that are wise and desirable and necessary.
What should be done as a first step is begin to think in terms of stimulating the economy by running a budget deficit.
James K. Galbraith, professor of economics, public affairs and government at the University of Texas, Austin. (His July 21 editorial in the Washington Post outlined a series of potential reforms; we asked for his top three)
1) Revenue sharing — a block grant to prevent spending cuts by states and localities. At least $100 billion is needed urgently.
2) A temporary (say, three-year) cut in payroll tax rates, offset by repeal of out-year 2001 tax cuts and crediting of corporate and estate-tax revenues to the trust funds. The idea here is to get money into the hands of working people and at the same time to make sure that the size of budget deficits over the longer term is kept under control. You do that by getting rid of the nonsense of estate-tax repeal and by closing loopholes and whatever else you can do.
3) Very wide-ranging monetary and financial reforms, domestic and international. The gist is to lock in low interest rates and stable but not excessive growth of credit, as well as relief of past debts, before the entire U.S. household sector joins the corporate sector in running to the bankruptcy laws. Presently people are being held up by their willingness to borrow against their home equity. That’s not going to last; there’s a limit to what people can borrow.
There is no way that Bush can pursue this agenda, from which I conclude that things will get worse until the American voter takes a hand in this matter, first in 2002 and then in 2004. We’re at a moment when all of this talk about the fundamentals being good is predicated on a positive financial condition. That’s the thing that scares me most down the road. It’s clearly a historical pattern going back to the 1920s: When politicians have nothing constructive to propose, they put a positive spin on the situation. Then a new group comes in with actual ideas and the old group is swept out of office. That’s likely what will happen here.
Alan Reynolds, senior fellow with the Cato Institute
I’m somewhat sympathetic to Sen. Biden’s remark. “If every time you give a speech the stock market goes down, why don’t you stop giving speeches?”
If you’re going off in one direction and the market responds badly, maybe you should think about going in the other direction.
The government should be going in the direction of enforcing existing laws, instead of making symbolic gestures, demonizing business in general and creating new agencies when they haven’t even staffed up the SEC yet. The SEC has the authority to do everything they’re talking about doing. So, they’re really talking about creating a competing agency. Technically it would report to the SEC, but it has the same responsibilities.
Investors don’t like regulation, but they don’t mind criminal enforcement. I say this with some private interest. I used to be a large investor, but nobody is a large investor anymore. I lost about $7 million on paper, but I’m still bullish. One of the things that’s caused the bear market is that folks forgot to rebalance their portfolios, and they didn’t have enough cash. I think the market is cheap. The best times to have bought stock were times like 1933, 1982, 1987. It looked terrible out there.
I don’t think that we’re in a recession or going to go back into a recession, but the recovery has yet to reach the troubled sectors, which are related to computers, Internet and telecom. So, I would say if people don’t want to buy stock, they should go out and buy a computer. It’s their patriotic duty.
Dean Baker, co-director of the Center for Economic and Policy Research
This administration should do nothing to try to keep the stock market up. There is no reason to. The stock market is approaching a reasonable level at the moment. I think it’s at reasonable levels.
We’ll be better off running deficits in the near-term future. The fact was we were stimulating the economy by massive overconsumption. People were not saving. When we go back to people saving at a normal rate, we have to find a new source of demand to make up for the loss of consumption.
Part of that has to come from the government in the next few years. I’m not in favor of tax cuts for rich people. I’d rather see them focus on spending that’s going to help the population at large, and build up an infrastructure for the future.
Ellen Frank, professor of economics at Emmanuel College in Boston and author of the forthcoming book “Money Illusions”
I think what the government has done in this country for the last decade has been completely wrong. The role of the government in financial markets is primarily to protect the public. The stock market is a casino-like market, where speculation is rampant. By running surpluses and reducing the federal deficit, the federal government has been depriving the small investor of the safest investment around — bonds.
Tax breaks for 401K’s and IRA have been encouraging people to invest in the stock market with money that they will need. But the stock market was never a place to put money that they needed. The stock market was a game for rich people when they have money to play with. And it is not a place where people should put their life savings.
What the U.S. government should be doing is developing retirement programs that are safe, secure, stable and not dependent on stock returns. The decline is of course a compelling argument against Social Security privatization. The real issue here is not that Bush and Cheney are dirty on this, or that they have engaged in practices that are suspicious. The real problem is that they have not backed down from their support for Social Security privatization.
William Greider, author of “Secrets of the Temple: How the Federal Reserve Runs the Country”
There’s not much of anything they can do about the stock market. [The stock market is not moving because of] presidential statements, it’s moving like it is because of fundamental fears that are coming true.
For the longer focus, the Bush administration has to be very adroit in its timing. It shouldn’t do this in response to this week or next month’s public mood but rather to the real economy and where it’s going. But in order to reverse the slide, they have to reverse some of their own ideological assumptions. I don’t know if they’re capable of doing that. But at a certain point, they have to say that we’re going to err on the side of growth, employment, stimulus so that we don’t slide into this swamp that Japan has fallen into with 10 years of stagnation.
If they’re going to do that, they need to start at the other end of the economy — instead of cutting taxes for rich people, they need to pump money into the bottom rung of the economy, either with tax cuts for the working classes or with public spending.
Then, the thing they have to do, which is more difficult, is deal with the debt of the private sector. Their predilection would be to deal with the top end, bailouts for the top hogs. But while businesses can’t start investing until they get this debt off their shoulders, to go for a stimulus it would be better to offer relief for the masses of households near the bottom. That’s trickier to do, but the first thing they should do is announce that they will not pass the bankruptcy bill because we need to go in the opposite direction. I could write the speech for him: “You all know my conservative view on things, but this is a special case that deserves special remedies.”
What we need to do is run much bigger fiscal deficits than those that are in place; and you can do that in ways that offer stimulants. We could bail out state governments, for example, to keep states from cutting back their budgets. Or, think big and start some railroads. I would just declare that we’ll build it from Pittsburgh to Philadelphia, or wherever. I’m suspicious of broadband expansion because it bails out the same guys who got us into this mess, but there are other options.
And it’s not just Bush. The Democrats still have their heads up their asses, with a [Calvin] Coolidge-like obsession with balancing the budget. That’s over, just over. The sooner they come to realize that, the better we’ll be. Most of the Democrats have forgotten the tools of management of the economy; they don’t have a clue. The greatest burden facing us is that the political system has so few people in it at the top levels who understand the mechanics of how government can act in an emergency. Even if you put these ideas on the table, you’re looking at six months of debate.
My friends at the Fed are part of the problem — they need to err on the side of excess too, that is, on the side of stimulus. They’re in a dangerous place of their own making right now because interest rates are so low. It’s gong to dawn on people soon that the Fed is impotent because of this policy. The big point is that the Fed should attack deflation anywhere it pops up. That’s the danger now. It should be pro-inflation for however long that takes — to make sure we don’t slide into a slump like Japan.
Bush should get rid of Pitt, too. I feel confident that he’ll go eventually, but as long as he’s there, he’s a liability. Bush should also dump the Enron guy [Thomas White] at the Army. There are a lot things he can do. But at this point, it’s not a matter of sentiment; a lot of people know at this point that the government doesn’t have control of what’s going on. So I wouldn’t say to make the big policy speech right now. I hope that the markets are near a bottom, but maybe the Dow should be at 6,000 not 10,000. Until he knows that and things have stabilized, Bush is just wasting his breath trying to make pronouncements. But when the time comes, he needs to say the economy is growing but it’s slowing down. He needs to be bold. If you do little dribs and drabs that don’t provide enough stimulus, then you risk running up to a deflationary seize-up.
Lawrence Lessig, professor at Stanford Law School, who served as the court’s “special master” in the Microsoft case:
Microsoft lost on every hard question; they won on every easy question. The court has found them liable for monopoly maintenance. That’s the essence of the government’s case. The court has also found that it did not decide in 1998 that tying software would be decided under a different standard. That was the essence of Microsoft’s defense. The court has crafted a smart and innovative rule about the special problem of tying software. But even if Microsoft won in the application of that rule on remand, the core of the case is that Microsoft has lost. They violated the antitrust laws, and the real issue is now remedy.
Richard McKenzie, author of “Trust on Trial: How the Microsoft Case is Reframing the Rules of Competition”:
On the one hand, Microsoft might be able to celebrate because the court’s eliminated the threat of a breakup, at least immediately. But there are a lot of things in there that look like bad news. I’m keeping list of points for Microsoft and against, and right now — I’m only on Page 60 — the list against is far longer than the list for.
The main problem, it seems, is that the court has affirmed that Microsoft is a monopoly and has stood ready to use its monopoly power to squash its competitors. This represents a threat to Microsoft because of the private lawsuits. They’ll come looking for damages, and Microsoft will spend all of its time in court.
The best part for Microsoft is [Judge Jackson's] comments. That seems to be the main reason that they set aside the remedy. They don’t seem to have set it aside because they believe it was undeserved. Rather, it was the comments of the judge and because he failed to give them a hearing.
Stephen Margolis, author (with Stanley J. Liebowitz) of “Winners, Losers & Microsoft: Competition and Antitrust in High Technology” and professor of economics at North Carolina State University:
The court reaffirms its previous position that if the tying [between the operating system and the browser] offers a plausible benefit to consumers of combining the two goods that can’t be achieved by offering them separately, then the technical tie does not violate the law.
I think that the liability finding that is being maintained by this court is not sufficient to justify a breakup.
This new administration has a more laissez-faire attitude [and will likely] be more amenable to negotiation. The Microsoft case didn’t separate cleanly on Republican/Democrat lines, and there’s no reason to think that the current administration is uniformly pro-Microsoft. It’s less of an interventionist administration.
I think that at least some part of the Jackson findings would be changed and that would give the government the opportunity to pursue something more moderate. I’m fairly confident they’ll avoid the breakup.
What I have read is very well reasoned. It’s also very nicely written. Non-lawyers can read this and understand.
The court leans on Netscape’s usage share, saying that Microsoft’s actions to reduce Netscape’s usage share would protect Microsoft’s monopoly. In fact, all that’s required for Netscape’s ability to succeed as middleware is its ability to distribute itself. Netscape was widely distributed. In short, I think relying on usage share is incorrect.
You could quibble here and there, but the monopoly maintenance was the government’s strongest part of the case. The tying issue (of the browser to the operating system) is, for an economist, the most interesting. The weakest part was the monopolization of the browser, which they’ve thrown out.
Bob Levy, senior fellow in constitutional studies at the Cato Institute in Washington:
It’s certainly good for Microsoft to get Judge Jackson off the case. His reputation is now tarnished. His career was done anyway just because of his seniority status, although this certainly is no way to go out. He deserves what he got. The court seemed to focus on his behavior from the remedy hearings on, that he engaged in improper contacts with the media, criticizing Bill Gates and Microsoft attorneys, and making statements the court found impolitic and not displaying proper legal temperament.
Legally, one of Jackson’s problems was he didn’t give one minute’s worth of hearings on remedy. He didn’t allow Microsoft one minute in the courtroom to argue his solution was Draconian. Legally, his remedy wouldn’t have survived in any event.
Bill Gates’ reputation is still in limbo. This entire case hasn’t helped him. This is a victory for Microsoft but certainly a partial one at best. The appellate court did reverse part of the District Court’s handling of the case, which helps Bill Gates’ image. But on the gut matter, whether Microsoft is violating antitrust laws, there’s not much change. So it depends on your baseline.
Eben Moglen, professor at Columbia Law School and counsel to the Free Software Foundation:
It’s not very nice news for Judge Jackson, who is treated very roughly in this decision. But if it’s bad news for Jackson, it’s much worse for Microsoft. This is now the case that never ends. They have to go to the Supreme Court. They cannot accept this remand and accept the finding that they had a monopoly and illegally maintained it. That turns the findings of fact into collateral for anyone who wants to sue. They have to seek review.
And unless they succeed in convincing the Supreme Court that the appeals court misread antitrust law — and again that won’t be easy; this is a court that’s favored Microsoft in the past — they’re back in the district court arguing about remedies. And while the remedy may not include breakup, which is possible because it may look quite worse in two years, breakup will still be on the table.
The real point of course is that while Microsoft is fighting the ruling, time is going by. And what are they working on? .Net, which is an attempt to use the operating system to lock up even more features. That’s a hard business strategy to be pursuing when an appeals court has already ruled that you’ve illegally held onto your monopoly.
Then there’s the war on free software, which looks a lot like anticompetitive practices. So the gist is that Microsoft doesn’t have the freedom of action, and they need that. They need .Net to work and they’ll have a hard time doing it now. This decision changes the way Microsoft works.
Eric Raymond, author of “The Jargon File” and evangelist for open-source software:
Governments just don’t move as fast as markets, even if you believe that government intervention is justified, and I don’t. They [Microsoft] already got what they came for. What’s Netscape Navigator’s market share now?
I think hackers in general have always suspected that what the government did would turn out to be irrelevant. But it’s also worth noting the way that the initial media reaction to this is missing a few key points.
One is that the appeals court actually affirmed the findings of fact, the finding that Microsoft has abused its monopoly power. The only thing that got returned was the specific remedy. The obvious consequence is that we’re simply going to have another judge reasoning from the same findings of fact to develop a remedy. The un-obvious consequence, and the reason you don’t see the Microsoft executives jumping for joy, is that anybody who wants to mount a private antitrust lawsuit against Microsoft now has an open-and-shut case.
Now this is something that knowledgeable commentators pointed out six months ago, which is that even if the appeals court overturned Jackson’s findings of law, it would be very difficult, procedurally, for them to overturn his findings of fact. In effect, what the appeals court has said is “Well, we accept Jackson’s findings of fact; what we don’t accept is his specific remedy.”
The real problems that Microsoft faces are problems that are basically irrelevant to how a government court rules. Prominent among these problems is the fact that Microsoft’s entire business model is sustained by fat margins in the hardware market. As those margins erode what’s happening is it’s becoming more and more difficult for OEMs [original equipment manufacturers] to justify paying [for Microsoft's OS]. It makes sense if you’re buying a machine and your price is 2,500 bucks, then, OK, fine. Paying 80 bucks to Microsoft for the right to install Windows, well then fine. But when the prices get down to $500-$600, which is where the aggressive prices for machines are nowadays, $80 is beginning to look significant. and when you get down below $350, you just can’t make any money on the Microsoft tax anymore.
The hardware market is changing in such a way that Microsoft’s model is looking less and less attractive. And Microsoft is demonstrating in its behavior that it knows this. The recent moves about .Net and all this stuff about talking up cross-platform operability and so forth, these don’t make any sense unless Microsoft believes that its packaged software business is not long for this world.
James V. DeLong, senior fellow, Project on Technology and Innovation at the Competitive Enterprise Institute:
Overall, the court’s decision in the Microsoft case is a victory for the company and the high-tech industry as a whole. In rejecting Judge Jackson’s quick-trigger-finger decision to break up Microsoft, the appeals court emphasized that the remedy of a breakup should be a rare beast in antitrust, and that the usual response should be an injunction against illegal conduct, not vivisection without benefit of anesthetic. Today’s decision is a win for the entire industry because it says courts should not meddle at random with business structure.
Ken Wasch, president, Software and Information Industry Association:
I don’t understand how they can say that this is a victory for Microsoft. [Microsoft] didn’t get the death penalty, but the conviction was upheld.
Judge Jackson made a mistake in not holding a hearing in the remedies phase. I think he should have done it; I think most people think he should have done it, and now it’s going to be ordered. But I don’t think a breakup is off the table by any means.
The court of appeals affirmed Judge Jackson on a range of findings of fact and on monopoly maintenance and it’s up to a new judge to determine what remedy will correct these violations. It’s by no means clear that conduct remedies alone will ever work.
Stephen Houck, former lead trial counsel for plaintiff states suing Microsoft, and a partner at Reboul, MacMurray, Hewitt, Maynard & Kristol:
It’s a very significant victory for the government. The judges held up the monopolization claims, which were really the meat of the case.
As for the state attorney generals, they’ve always been in the forefront of the effort to get some practical relief that will impede Microsoft’s actions. This will strengthen them in that motivation. This gives them plenty of ammunition. Of course, if Microsoft settles [with the Department of Justice], the states will continue to be a party [to the settlement]. It’s possible that the settlement — and this is all speculation — could offer relief that will be acceptable to both to the states and the federal government. But the states will continue to impact the resolution and this decision does support them if they determine that the federal relief is not adequate.
Tim O’Reilly, founder of computer book publisher O’Reilly & Associates:
The decision will buy Microsoft some time. It will likely embolden them to turn the screws on a few critical competitors — and for those competitors, it may be the difference between life and death. For the long term, though, I’m still placing my bet on the market and the deep technological changes that are happening right now to take away Microsoft’s monopoly. I don’t believe that they will enjoy the stranglehold on the “Internet operating system” that’s now being built that they have enjoyed in the desktop operating system. .Net is a bold move, but there’s enough suspicion of Microsoft that it will need to be more open than Microsoft operating systems have been in the past, or it won’t get enough traction. Meanwhile, Linux and Apache continue to put a lid on Microsoft’s penetration on the server side.
The other point I’d make is that the industry has moved on from the events that were the focus of the case. The damage has been done, and all the king’s horses … Netscape is no more.
And while it’s true that the same kind of monopolistic behavior — bundling apps with the OS to cut the legs off competitors — that led to the demise of Netscape is still going on (e.g. Windows Media Player vs. RealPlayer), the basic shape of the industry has changed. We’re no longer talking about a world in which the desktop is everything that matters. Current applications are network-centric, involving a web between servers and clients not only on desktops but also on non-PC machines such as handhelds, cellphones, game machines, etc. And Microsoft has monopoly market share only on the PC client, with significant competition in servers (where Linux/UNIX are increasingly strong) and non-PC devices. In short, while Microsoft does have some strong advantages, but I’m no longer sure that they are in a monopoly position, which is what mandated a higher level of care on their part (and scrutiny).
The real question is not whether Microsoft is hyper-competitive or not. It’s clear that they are, and that sometimes their desire for total world domination is counterproductive for the whole industry. But this hyper-competitiveness goes over the line into illegality only if they do in fact have a monopoly.
I guess they still do have a monopoly on desktop clients — and as a result, it would be great to see some restrictions on their ability to use that monopoly in anticompetitive ways — but we have to remember that the desktop is less of a power base than it was a few years ago.
Stephen Manes, Forbes columnist and coauthor of “Gates: How Microsoft’s Mogul Reinvented an Industry — And Made Himself the Richest Man in America”:
From a very brief reading of the decision, it looks as though the appellate court has said that the judge in the case was a bozo and that the defendant was still a crook. That sounds about right to me.
Microsoft is clearly engaged in behavior that the law says is illegal and the judge is clearly engaging in behavior that was not conducive to having his actions upheld on appeal.
I would say that this could be just the beginning. Microsoft clearly has a monopoly on the application market which has not been dealt with. The fact that their monopoly position is established [in this ruling] might make it easier for someone in the future to make the case that they have a monopoly in the application market as well — not only in Windows, but on the Mac platform.
And their attempts to charge more for their applications in the corporate arena might be further evidence of that monopoly. They might be subject to private antitrust suits.
John Heileman, author of “Pride Before the Fall,” an account of the Microsoft antitrust trial:
I’m being cautious because, having seen the TV coverage, it sounds to me like everyone is talking through their hat. It sounds like everyone is saying it’s a victory for Microsoft because the breakup was remanded.
The big question is on the substance of the ruling. And of the three rulings, the one that was most important was section II — the attempt at monopoly maintenance — and it sounds like the appeals court has upheld that opinion. And that’s a huge victory for the government.
Jamie Love, director of the Consumer Project on Technology:
It’s sort of surprising. It’s a bad day for Jackson and Microsoft. They’re nailing Microsoft for everything! Microsoft’s copyright defense [the idea that Microsoft has the right to self-determination because of copyright law] — they completely reject that. The commingling of code? That’s gone too.
This decision will breathe a lot of life into the notion of antitrust law applying to the Net. The judges have taken on a lot of tough issues, and they’ve upheld the law. What this means is that a competitor or the government can challenge Microsoft. Microsoft does have some victories in here, like they reverse the court on Java, for example.
It’s not a 100 percent victory, but I’d have to say it’s more of a defeat for Microsoft than anyone expected. Everyone thought that Jackson put the whole case in jeopardy but [the court of appeals] salvaged his heavy lifting, his finding of fact, and they’ve basically just said “redo the remedies phase.” The case is in much better shape than anyone thought it would be — and since the state attorney generals are in the case, the Bush administration has limited powers to go the other way.
Bob Crandall, a senior fellow at the Brookings Institute and former consultant to the antitrust division of the Justice Department:
I don’t think it surprised many people. I think everyone assumed that it would come back because of the lack of due process in the phase of ordering the breakup.
Obviously none of us have read the decision yet, but it look as if the decision reversed on the remedy, but not on the violation of section II [of the Sherman Antitrust Act, which prohibits the abuse of monopoly power] I think that Microsoft might have expected even more. They might have expected to win on some of the findings on section II. Apparently, the appeals court did not overturn that, it simply overturned the procedure and the ordering of the breakup.
It’s not clear yet what’s going to happen because it’s still possible that both sides will appeal to the Supreme Court — the government might appeal the finding on the decree and Microsoft could well appeal the finding on the rest of the case. There’s still a possibility that it goes to the Supreme Court and then it comes down to the appropriate proceeding in a district [court].
The speculation is that there could be settlement discussions right now in which the government and Microsoft could agree on a settlement. We don’t yet have much indication of the new administration’s antitrust policies, but I think it’s safe to say they would be much less activist than the antitrust division of Joel Klein under Clinton. It might be that the administration would like to settle it out and get it out of the way, but I don’t know that.
Napster is still alive — but just barely. A three-judge panel from the 9th Circuit Court of Appeals ruled for the recording industry on virtually every point of law at issue. Napster users, said the court, are infringing on recording industry copyrights, Napster has a responsiblity to halt that infringement and a preliminary injunction shutting down Napster is not just “warranted but required.”
However, the court also ruled that the injunction must be modified before it is fully upheld by the appellate court. Specifically, the court is requiring that Napster be notified in advance that it is in violation of copyright in particular cases, and if Napster refuses to bar transmission of the songs across the Napster network, it will then be in violation — and will be shut down.
The request for a modified injunction may offer Napster a small opening for survival, suggested several lawyers who have been following the case. Since District Court Judge Marilyn Patel delivered the original injunction, Napster has forged an alliance with the German media conglomerate Bertelsmann. Napster’s new commercial profile might encourage Judge Patel to broker an agreement between the recording industry and Napster that allows the music-trading service to continue operating, said one lawyer.
But the consensus opinion on the ruling is that the appellate court decision constitutes a major blow to Napster. Representatives of the recording industry were jubilant.
“The court confirmed our case on every count,” said Hilary Rosen, president of the Recording Industry Association of America, at a press conference. “We feel that Napster’s business model is morally and legally wrong and we’re very glad that the 9th Circuit Court agreed with us 100 percent … It is time for Napster to stand down and build their business the old-fashioned way. By seeking permission first.”
A corresponding statement from Napster CEO Hank Barry, in contrast, acknowledged a major setback.
“We are disappointed in today’s ruling,” read the statement. “Under this decision Napster could be shut down — even before a trial on the merits. The Court today ruled on the basis of what it recognized was an incomplete record before it. We look forward to getting more facts into the record. While we respect the Court’s decision, we believe, contrary to the Court’s ruling today, that Napster users are not copyright infringers and we will pursue every legal avenue to keep Napster operating.”
Napster’s outlook appears grim. The court brushed away the various defense strategies of Napster’s lawyers in language that leaves the file-trading service very little room left to maneuver. Napster users do not, said the court, engage in “fair use” of the copyrighted materials — a conclusion that several lawyers questioned as overly restrictive. Napster is likely to have a “deleterious effect on the present and future digital download market,” as well as on current CD sales, ruled the court. And use of Napster is not covered by the Audio Home Recording Act — i.e., downloading of MP3 files to computer hard drives is not the same as taping something on your VCR. The court also dismissed the theory that a Napster shutdown would cause great harm to Napster — arguing instead that the harm being caused by Napster to the recording industry was apparent, while the harm that might be caused to Napster was “speculative.”
“We disagree with the holding that if Napster is enjoined the harm is speculative,” said David Boies, chief counsel for Napster. “We think the harm to Napster and its users would be very real and substantial.”
The central ruling of the 19-page opinion laid out the bad news for Napster’s fans succinctly.
“The district court correctly recognized that a preliminary injunction against Napster’s participation in copyright infringement is not only warranted but required,” reads the opinion. “We believe, however, that the scope of the injunction needs modification in light of our opinion. Specifically, we reiterate that contributory liability may potentially be imposed only to the extent that Napster: (1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works. The mere existence of the Napster system, absent actual notice and Napster’s demonstrated failure to remove the offending material, is insufficient to impose contributory liability.”
Contributory liability is the central issue. One of the main goals of Napster’s defense was to argue that it was not responsible for what its users did — in other words, even if users were knowingly violating copyright by downloading a Metallica tune, Napster was just a conduit.
The court dismissed this defense, asserting that Napster had both a right and a responsibility to supervise its users’ actions. However, the one point on which the Court of Appeals disagreed with the District Court’s ruling was in the arena of “specific knowledge.” The District Court had argued that the law did not require specific knowledge of “specific acts of infringement.” The Court of Appeals, on the other hand, decreed that “evidence of actual knowledge of specific acts of infringement is required to hold a computer system operator liable for contributory copyright infringement.”
Therefore, the court ordered that the District Court rewrite its injunction to incorporate the requirement that Napster first be alerted of actual copyright infringements. If Napster fails to act upon that knowledge, then the injunction will shut Napster down.
What next? There is little doubt that a flood of alerts from the record studios warning Napster of infringement will soon descend on the beleaguered service. But Napster’s lawyers’ first priority will be to haggle over a new injunction with the District Court, hoping that the company’s new Bertelsmann backing will give the service more credibility as a legitimate commercial concern.
Other options include calling for an “en banc” review by the entire appellate court, instead of the three-judge panel that released Monday’s ruling. If the appellate court refused to hear the case again, then Napster could appeal all the way to the U.S. Supreme Court.
Although the Napster music-trading service is still breathing for now, most observers declare that the latest court decision spells imminent doom for the company. Now the question becomes, What next? Will Napster users flee to other file-trading networks? Or has the recording industry established its dominance over the new online world of music distribution once and for all? We asked our favorite suspects in the worlds of law, music and software for their opinions. Here’s what they had to say.
Eben Moglen, professor of law, Columbia Law School
The record industry is about to discover that this was a terribly bad idea. The consequence of shutting down Napster — whenever the injunction happens — is that they will be on the cover of every major newsmagazine and 60 million people will again find out that you can share music online. They will also find out that Napster’s servers have been replaced by the OpenNap — a program that allows any computer anywhere to be a Napster server and help people share music.
In peer-to-peer file sharing, when the customer moves, the inventory moves with him. The entire Napster-using public is going to figure out that they don’t need Napster to share files. The consequence is that the music industry will then discover that the lawsuit was the stupidest part of five years of stupidity.
It will discover that this lawsuit fully popularized, publicized, promoted and spurred the development of the very alternative distribution system that it was trying to eliminate. This is how the industry will have turned out to have participated in bringing about its own highly satisfactory and complete death.
Industry members will have created a situation that they can only control by going to war with their own customers. They’ve attempted to murder Napster, and they’ve actually shot themselves in the head. Self-murder or suicide, they’re dead either way — it’s an untenable business strategy in the long run to be at war with your own customers. But shutting down Napster will give them no one to sue but the listeners. This is one of those rare, but nonetheless important, situations in which victory in a lawsuit is defeat in the world.
Whitney Broussard, attorney at Selverne, Mandelbaum & Mintz
It’s an interesting decision. Ultimately what it says is that Napster has to disable access to files that it has specific notice of. That makes sense; it’s about right. It’s pretty much what the Digital Millennium Copyright Act says when it talks about safe harbors for online service providers. That seems to be what Napster has been doing with all the Metallica users — if it is presented with a list of allegedly infringing files, as far as I know it’s been blocking users.
What’s more troubling are some of the statements about fair use. The decision makes rather broad statements about the consumer’s lack of a right to make copies. It says that consumer use is commercial use because it’s exploitative; that doesn’t seem right to me. They also seem to imply that a user who is engaged in sampling — downloading something to see if he wants to buy it and then deleting it thereafter — isn’t [engaging in] fair use, which I think a lot of scholars would disagree with. And they seem to be making the general assertion that consumers making copies of music for their own private noncommercial use is an infringement; they aren’t talking about the fair-use aspects of that.
What happens next? I think it depends on what the U.S. Court of Appeals says, if it wants to take it on. If the Court of Appeals decides to take it “en banc” (i.e., instead of just three judges, they use the entire court of judges — it’s not common but it is for very serious cases), then we go back to where we were a few days ago, where probably the injunction will get stayed on some level and it will be Round 3 and they’ll be going down all these arguments again.
If the Court of Appeals doesn’t agree to take the case, I suppose they could appeal to the Supreme Court, which might or might not take it. But no matter what the court does it will be an unstable solution. It’s difficult for courts to decide something like this; it probably needs to go to Congress.
Gene Hoffman, CEO of eMusic
The only place where the Court of Appeals disagreed with the U.S. District Court was the scope of the injunction itself. It denied all the defenses Napster put forth; the only thing it did say is instead of putting 100 percent of the burden on Napster, the plaintiffs need to share the burden by helping Napster identify the files.
What the Appeals Court is saying is that it’s clear that Napster can make sure that surf results don’t return for obvious infringing files, and all that the plaintiffs have to do is point out the infringing files and Napster has to make it happen. That’s what we’re planning to do. It’s everything but an absolute slam-dunk. It changes the value of my company; it really invigorates and opens up an opportunity to serve all the customers that will be cut loose by Napster.
Jim McCoy, founder of Mojo Nation, a peer-to-peer file-sharing service
This was inevitable. Napster was lucky in that the injunction wasn’t completely upheld.
What’s interesting is what the court said about how Napster relates to the First Amendment; it shot holes in the slashdot cypherpunk argument that Napster constitutes speech.
The judges also changed how the DMCA will be applied. The District Court injunction held that Napster had to preemptively prevent illegal stuff from getting on the system. But now, with the present decision, it’s a shared burden. Napster has to remove files if it knows that they’re infringing, but the copyright holder has to notify Napster first. So Napster can’t hide its head in the sand, but on the other hand, when someone connects up and uploads files, Napster doesn’t have to make sure they’re legal. So the court allowed for a safe harbor; it argued that it does apply but not quite as broadly as Napster wanted it. We think that’s significant. It has confirmed the basic wisdom that if someone puts up a file, on a cache system, a Web page or Napster, the service doesn’t have to nuke it until it knows about it.
For us, it’s a little less of a direct application. The Napster play is not our story. But at the very least, the decision clears the field and removes the cloud of suspicion. People in and around P2P had been waiting for the other shoe to drop. And if this decision had been overly broad, we would have all been in trouble. That was getting a little scary. But [the decision] didn’t attack the technology. So I’m glad they said that there’s nothing radical about what the technology does; Napster just has to follow the same DMCA rules like everyone else.
Mark Cuban, founder of Broadcast.com
Just another example of the recording industry doing its best to shoot itself in the head. It finally has a single destination Web site where 40 million plus digitally ready music fans go to celebrate their PERSONAL interests in music. Napster has become the ultimate music community. Rather than taking the easy road by offering those 40 million plus people the option of buying virus free, guaranteed quality and multi-format choices of hassle free downloaded music at realistic prices, they take probably what will go down in history as the stupidest business move every made, and shut the doors on the largest congregation of music buyers in the history of the world.
What the music industry will be left with is their ongoing fantasy of trying to drive music consumers to industry owned Web sites in enough volume to generate any material amounts of digitally delivered music revenue. The music industry has already spent and lost more money trying to create viable Web sites for digital commerce then they could ever possibly lose to downloaded music for personal use via Napster. With Napster gone, the cumulative total that the labels will spend trying to recreate their own personal crapsters will exceed a billion dollars easily and get absolutely no results.
They paved paradise and put up a parking lot.
Mike Godwin, lawyer and chief correspondent for IP WorldWide
It’s easy to get lost in the details here. What we’re going to have at the trial court now is a negotiation over the scope of the injunction. Both sides are going to say what each thinks; we know that the original scope of the injunction that put all the burden on Napster was too broad. I don’t think it’s a slam-dunk that the record companies can just provide lists of their catalogs and say that anything on it is infringement. But maybe they can.
What is true is they will go back to court and talk about the scope of the injunction, and that gives Napster another chance to rehabilitate its image in Judge Patel’s court. Since that injunction was issued Napster has partnered with one of the plaintiffs. The kind of presumption that Patel brought to the case, and all her factual findings, were that Napster is just out to infringe. Now as we come back, Patel knows new things — that Napster is partnering with a big-time copyright holder, BMG, and so the presumption that Patel brought to all the evidence is something she has to call into question now. I think she is not going to create an injunction that effectively shuts down Napster altogether.
Patel just sort of assumed that Napster was illegitimate, but now that this negotiation is taking place, she has parties on both sides that qualify as legitimate businesses, and if Napster’s legitimate business is squashed by this injunction it can also claim undue hardship.
Raymond Kurzweil, author of “The Age of Intelligent Machines”
The recording industry has been behind the power curve on developing a viable business model in an era of ever more powerful file sharing and streaming. The model of charging almost $20 for a packaged album hasn’t changed since I was a kid in the 1950s and earlier. Ultimately, these issues will affect all intellectual property, including software. I don’t think shutting the Napster barn door will get the horses back in the barn.
Jimmy Greer, a manager at Revolver, which represents the band Everclear
I don’t know how big of a ruling it’s going to be; Napster’s still going to be around, some way or another. If it’s not Napster, you’ll find someone else to do it. But hopefully, yeah, they’re going to be able to do something about it.
[Napster is] a big problem. It’s basically stealing. But I don’t think shutting down Napster is going to solve it. Unless they come up with some kind of crazy encryption. But the people who can hack that kind of thing are always one step ahead.
The whole Napster community could be used as a great promotional tool. The thing that hurts is when you put out a record that you’ve spent months and months on and then, two weeks before the release date, it’s available on Napster. That really hurts sales. Especially for acts like Everclear, where the demographic is young people, 18-25. But it depends on the genre; you aren’t going to see James Taylor’s record sales affected because of Napster. But at the end of the day, people are still going to want to go to the store and buy the CD, to get the liner notes, art, etc.
The Internet is never going to be a viable outlet for sales, or significantly hurt sales.
Glenn Reynolds, lead singer of techno group Mobius Dick and law professor at the University of Tennessee
Well, based on my oh-so-thorough reading of the opinion over the last 15 minutes, it looks as if most of Napster’s legal arguments have bitten the dust, meaning that it’ll have to win on the facts. (I am, to put it mildly, astonished that the court made such short work of the Audio Home Recording Act issue. To argue in this day and age that music on a hard drive isn’t music is just silly.)
Napster’s best hope, it seems to me, is to see a lot of stuff on its network that is clearly noninfringing. The court clearly left open the possibility that the technology might evolve toward noninfringing uses and that notions of Napster’s culpability shouldn’t be based on a snapshot of what was going on at a very early stage. The more that Napster’s content moves toward independent artists and major groups that grant permission for Napsterization of their tunes, the stronger its position at trial.
Speaking personally, I’ve bought more CDs since getting music off the Web (not via Napster, which I don’t use for security reasons), but they’ve mostly been from independent artists whom I never would have heard from previously. I still think that this is the record companies’ biggest fear: not that people will trade copies of Britney Spears, but that they’ll bypass the record companies entirely.
Ian Clarke, project coordinator for the Freenet project
I’m not a lawyer, but it looks like the decision affirmed most of what the Recording Industry Association of America was claiming — that it is against the law, that Napster should be shut down, that it is just a matter of time now. I think that the decision was certainly consistent with the law, but I don’t agree with copyright law.
I don’t think the decision comes as a surprise to anyone; the fact that Napster the network relies on Napster the company inevitably is a weakness in the system. It offers a clear way that you can attack a system like this, and it has been attacked.
Freenet is specifically designed so that there is no one person or any one thing to be shut down. It doesn’t rely on anyone or any person. Even I couldn’t shut it down if I wanted to. The RIAA might come after me, but it wouldn’t do any good; it would be ridiculous. Even if they put a gun to my head I couldn’t shut Freenet down. It wouldn’t make any more sense to come after me for Freenet than it would to go after the creators of the Internet.
Gene Kan, CEO of Gonesilent.com, lead developer on Gnutella
The decision seems to be paving the way to make it easier to make complaints similar to that of Dr. Dre and Metallica to be handled, to be acted upon. The whole basis is faster takedown, right?
That’s one approach. I’m not sure what the implementation of the takedown policy will be, whether it will be based on names of files or on users who are infringing or in the same way the Metallica and Dre complaints were handled. It’s hard to measure the impact of that. If the tool is to be so blunt as to allow the recording industry to effectively remove all users from the Napster system, then I guess that shuts down Napster.
And the more annoying Napster is to use, the more popular alternative systems will become. The Napster music swapping and everything like that are only one segment of P2P technologies. It won’t affect this new technology broadly but it might affect the music-swapping segment.
It seems to me that Napster really is the biggest friend of the recording industry in the sense that Napster has a ridiculous majority of the number of music-swapping users on its system, and they didn’t leave in droves when it was proposed that Napster would be a subscription model; so it seems it’s a gold mine that should be tapped. I guess almost 50 million users think that Napster is the next way to get music, and since that’s the case it seems really shortsighted to try to put a stop to it.
Terry McBride, manager of Barenaked Ladies and Sarah McLachlan
I’m actually pleased. My issue with Napster wasn’t with the actual software itself or the philosophy behind it. It was the fact that an IPO was being built off the back of copyrighted master recordings that artists did not give permission to be used.
If you want to use an artist’s copyrighted work, you should give him or her some kind of fee for it. Napster could take the approach that MP3.com did, if it’s so concerned about getting new music out there. But artists who don’t want their stuff up on Napster should be afforded that right.
I’m pleased and happy and hopeful that now people can do this inside the rules, which is how it should have been dealt with from Day 1.
A lot of my artists really don’t like Napster because it takes away their living. Napster’s been out there saying CD sales are up again. Record sales have been up for the last 10 to 15 years, with this year being the slowest. In an industry where one out of a 100 pieces of music we release is actually successful, we need to maximize that one, because the other 99 are released on artistic, not commercial, merit.
Kelly Truelove, CEO of Clip2, which analyzes the Gnutella and P2P services
I think that we’ll see an increase in Gnutella usage; we’ve seen increases in Gnutella usage when Napster was in the news in the past. I’m looking at numbers comparing right now with a day ago, and we’re seeing a 17 percent increase compared to yesterday. But the news just came out, and we haven’t had much time to see the impact yet. We did not see a substantial surge over the weekend. But Gnutella has been going through a continuous growth phase for some time that continued right through the weekend. Every day for Gnutella is a record day. Over the last 30-day period, the average daily growth has been 7 percent. As of today, we average between 75,000 and 125,000 unique users per day. Napster was seeing something like 8.5 million users per day. Gnutella is quite a ways from that.
But Gnutella does not scale very well, although some of the newer software out there does work better than the old ones. Things have improved relative to where they were last July and August, but some of the fundamental issues remain.
[If a million Napster users switch to Gnutella] users shouldn’t expect to be able to access the content on all those 1 million drives, essentially — they’ll only be able to share with some subset of the users who come over. That’s kind of the way Gnutella scales — sublinear scaling. The big alternative is OpenNap, a really huge service and one that’s not discussed as much in the media as Gnutella. OpenNap scales more like Napster, by adding more and more servers. And in general it’s easier to use and a better experience than Gnutella.
Jack Valenti, president and CEO, Motion Picture Association of America
The biggest beneficiary from today’s decision will be the consumer because it will encourage content owners to put their creative works online knowing that the courts have confirmed what everybody knows: You cannot take for free what belongs to someone else. The fruits of this ruling will be seen in the film industry within six months as studios start to put movies online and offer consumers an exciting new high-quality and legal opportunity to choose what they want to watch.
Vacuous venture capitalists, pompous marketing executives, egocentric programmers, lemminglike day traders — one needn’t look far when searching for dot-com downturn villains. From start to finish, the past few years of speculative new-economy bubble-headedness will no doubt go down in history as a gruesome case study in inept capitalist behavior.
Back in the day when IPOs for the likes of TheGlobe.com were sending stock prices to obscene heights, it was clear to plenty of cynical observers that hype had replaced substance in the Internet economy. But few people could have imagined just how ugly and stupid the end of all the fun and games would be.
Here at Salon, where we are both part of the dot-com mix and obliged to report on it, we have been reviewing an endless stream of story pitches from newly laid off dot-com employees lamenting their harsh new “emperor has no stock options” reality. Judged individually, these stories, most of which are drenched in a cloying cloud of ironic self-pity, don’t tell us much more than how it feels to be a liberal arts major who got a groovy job just out of college and then lost it all of a sudden and gosh doesn’t that really suck. But judged collectively, these “last days of my dot-com” stories start to add up — as yet another datum of evidence proving that the entire dot-com explosion was just one massively botched-up amateur hour.
Never mind start-up entrepreneurs’ well-known inability to control costs or produce products that people actually wanted — these jokers couldn’t even be trusted to get rid of their employees in a halfway civilized manner. We’ll concede that laying off people is never easy; there is no painless or perfect way to get it done. But a survey of our recently unemployed friends and colleagues reveals a stunning variety of ham-handed exercises in corporate doofusness. In the spirit of sharing, we offer you a few choice nuggets.
Freezing at Snowball.com
“Here’s how the layoffs began,” recalled one former employee of Snowball.com. “The human resources director sends a list of the people that are to be canned within the next few weeks to the CEO. All e-mails to the CEO first go through his personal assistant. The personal assistant’s name happens to be on the list of layoffs (a small, yet crucial fact that the HR director happened to overlook). The assistant starts e-mailing the other people on the list, letting them know of their impending doom.
“The next morning, HR is forced to move quickly and do all the layoffs before they had planned to. My phone rings and I have a feeling I know what’s coming. ‘Due to market conditions, we’re unfortunately having to lay some of our employees off. Please try to keep this to yourselves, as we’re trying to control the flow of information.’ Do they not realize how close we all sit to each other? Come on, everyone could probably hear her on the phone, laying me off. She’s only a few cubicles away.
“I hang up my phone. My co-worker’s phone, which sits merely inches from mine, begins to ring. She ignores it, knowing what’s coming. One by one, all the phones in my area ring, letting us know (at least those of us who actually picked up the phone) that our project has been terminated, thereby rendering us expendable.
“Ah, the Internet. At least I have some good stories to tell.”
All the news that’s fit to print — oops!
“We had the unique and possibly unprecedented experience of reading about our layoffs in the very publication that was laying us off, before management bothered to inform anybody,” reports a staffer at the New York Times on the Web. “Sure, all the classic signs were there. Rumors, hearsay, admonitions delivered over e-mail: ‘Supply orders are on hold till further notice or until our resources are exhausted,’ read one particularly evocative message.
“Management quickly spun into damage control mode and called a meeting early the next week. Martin Nisenholtz, the CEO of New York Times Digital, reassured the newly anxious remaining employees that nobody had done anything wrong. The downsizing was purely a result of ‘deteriorating market conditions.’
“He stood in the middle of our just-finished new office space. An enormous two-floored, Starbucks-inspired, 1997-era dot-com Arcadia, the space — and the untold millions it took to create it — was apparently not a mistake. (It’s now maybe half full.) Also apparently not a mistake was the multimillion-dollar purchase of Abuzz, a ‘knowledge-sharing’ software company that has been an unmitigated failure on every level.
“Funny how layoffs work. The axed employees apparently amount to $6 million in saved payroll. Probably just enough to squander on yet another ill-fated ‘visionary’ Internet venture.”
Tone-deaf at Listen.com
Hire, hire, hire — whoops, time to start firing. At Listen.com layoffs came right on the heels of steady expansion. “They kept hiring people in editorial as late as November,” says one former employee. “Plus, managers were really tough about allowing people to take vacation time over the Christmas holidays. Management said, ‘Look, we can’t have everyone going off — we’re really gonna need you.’”
But by the Tuesday after New Year’s, Listen.com execs were singing a different tune. Staffers received voice-mail messages instructing them to be at the office by 10 a.m. sharp, at which time they would receive an e-mail directing them to one of two rooms for a mandatory meeting.
“At that point,” said our informant, “the jig was up.” The next morning, he received an e-mail telling him to report to an inauspicious locale: the small conference room on the office’s lower floor.
The news was delivered with a heavy dose of euphemistic jargon. “We were told: ‘As you know, there’s been a restructuring, and you have been affected by the restructuring.’” And just in case staffers hadn’t quite gotten the gist, “they said, basically, ‘You have 45 minutes to get out of the building.’ They had boxes ready for us to pack our stuff up in.”
Some staffers who were late getting back from vacation — or just plain late — arrived at the office to find that they couldn’t get in; their key cards had been disabled. Once they got in, they discovered, along with the rest of the laid-off staffers, that their e-mail had been cut off.
The final insult came later, as the newly laid-off Listen.com staffers congregated at a bar next door. The company’s CFO and CEO joined the crowd and tried to commiserate with the workers they had just laid off.
“It was the most tone-deaf move I’ve ever experienced. At the very least, they should have left an open tab and walked out.”
You won’t find this entry at Britannica.com
The week before 75 employees were laid off at Britannica.com, rumors about impending cuts were so heated that two senior vice presidents accused each other’s assistants of leaking information. They hadn’t.
Corporate officers tried to take control: “They decided they needed to own the rumor mill,” says one editor. In a Friday afternoon meeting, a senior vice president convened staffers to dispel the rumors. He informed them that there would be some layoffs, and that they’d know by the following Thursday just how many people would be cut and who would be let go.
After dropping this bombshell, the executive turned to more pressing matters: site traffic and overall page views. Some staffers found it hard to care. “If you don’t know if you’re going to be there next Thursday, you don’t really give a shit,” said the editor.
At 4:45 p.m. on Wednesday, the editor got an e-mail announcing a 5 p.m. meeting. “We all filed downstairs and the door to the conference room was locked. We’re standing outside the meeting room — it was like a cattle call.”
When the door was unlocked, 27 people filed into the room — all, it turned out, soon-to-be laid-off employees and their supervisors. But once the meeting got underway, it took the executive in charge 12 minutes of discussing the future of the company to get to the point.
“That made me furious. I thought, either he’s an idiot or he’s the most insensitive person. ‘Oh, I can’t wait to throw myself on the funeral pyre — at least the brand will go on!’”
Eventually, he broke the news, sort of. “Some of you will be leaving this Friday, and some of you will be leaving on Dec. 1, and you’ll know when you get your package from the director of HR, who will be up here momentarily.” But the human resources person was nowhere to be seen.
The executive produced a list of everyone who had been axed and proceeded to read it, with feeling, pausing between each name for somber effect. “He goes through the names and tries to look up to where the people are, but he doesn’t know who’s who, and he mispronounces names. It becomes really weird. You just feel like a real asshole sitting there.”
By the end of the meeting, staffers still didn’t know which day was to be their last. “He reads off all the names, and then we sit around there for about another five or 10 minutes for the HR person, who never comes.” So some of the axed went home to their families with no idea whether they’d be at work for two and a half weeks or two days, and without a clue as to what kind of severance they’d be receiving.
As for the editor we spoke with, she spent her last two and half weeks at work looking for a new gig, with the blessing of her former bosses: “All editorial production stopped then. [Management told us:] ‘Use the resources here to look for a job. We’re really sorry. Finish up whatever you can. We’re not expecting you to be really productive.’ That was really nice.”
ComedyWorld.com
The San Francisco staffers of this doomed dot-com knew something was coming the week before, when they were summoned to a mandatory all-hands meeting. But the real tip-off that restructuring was imminent came when staffers arrived at the office and ran into a group of thugs — security guards hired to make sure no one lost his marbles or tried to steal office supplies.
The meeting began at 10 a.m. and lasted about 45 minutes, during which time nearly the entire staff was let go. Ex-employees were given exactly half an hour to gather their belongings and files before the building was shut at 11:15. As employees left via the elevator, the security guards checked bags and interrogated staff members about headphones and laptops and other paraphernalia.
Business card confetti at the Industry Standard
There’s nothing worse than finding out about your company’s layoffs by reading about them in the news — which is how staff at the Industry Standard discovered the ax was about to fall. After a Jan. 5 article in Inside.com reported that the Industry Standard was about to tighten its belt, staffers went home for a weekend of speculation about whether their days at the company were numbered.
On Monday, when the news was finally handed down, tensions ran high. And so it seemed appropriate for staff in an information services office overlooking San Francisco’s financial district to fling their business cards over the balcony, down 14 floors to the street below. The sky rained red-and-white business cards, said observers, and people below stopped to stare up at the confetti drifting down to the street.
“I found out who was being laid off when I went to lunch and found their business cards out on the street,” said one staff member who was spared. “Until I saw the cards, I didn’t know they’d been laid off.”
Sorry about that, Bob!
What’s worse than getting a pink slip? How about getting a pink slip that you weren’t supposed to get? “Bob,” after toiling several years at a large dot-com, knew that layoffs were imminent but never suspected that he would be one of the unlucky many. Nor, for that matter, did upper management.
On the day of the layoffs, Bob was dismissed by a midlevel manager he had never worked with directly. He collected his last paycheck, signed his dismissal papers and jumped in a cab to go home and fume. Only the next day did he get a phone call from the boss with whom he had worked closely in the past; it turned out that his sacking was the result of an administrative foul-up. The management was as surprised by Bob’s dismissal as Bob was. Whoops.
After an effusive apology, Bob is now back at his job — for the time being, at least.
