- Historic Sites
The Antitrust Monster
In theory it works fine; in practice it has often made situations much worse
May/June 1998 | Volume 49, Issue 3
While RCA had to share its patents with domestic companies for free, it was permitted to sell them abroad.
By 1930 a most remarkable man named David Sarnoff was in charge of RCA, and research to go beyond radio and transmit sight as well as sound was well under way. An impoverished immigrant from Russia, Sarnoff had gained worldwide fame the old-fashioned way: being in the right place at the right time. In 1912, as a twenty-one-year-old operator for American Marconi station in Manhattan’s Wanamaker store, Sarnoff picked up faint signals on his headset and heard a terrible story come crackling through the ether: The liner Titanic had sunk. As reports trickled in and the scope of the disaster became increasingly clear, anxious New Yorkers pressed into Wanamaker’s to get what news they could of relatives who had been aboard, and Sarnoff stayed at his post, a link between the most famous disaster of the twentieth century and an American public that could not (and still can’t) get enough of it.
When American Marconi became part of RCA, Sarnoff was on his way. By 1921 he was general manager, by 1930 he was president. That year the Antitrust Division demanded that the cozy arrangement among the electronic powerhouses that had brought RCA into existence be terminated. That, of course, suited David Sarnoff just fine. By the time the dust settled in late 1932, RCA was an independent company. Moreover, with two networks, manufacturing facilities, and up-to-the-minute research laboratories, it was the dominant company in a broadcast industry of seemingly limitless potential.
By this time it was clear that television was going to be a major part of that potential. Rapid developments in the next decade, many pioneered by RCA, made commercial television possible, and Franklin Roosevelt would be the first President to appear on television when he opened the New York World’s Fair in 1939. That year, too, RCA began selling television sets, with five-inch and nine-inch screens and prices ranging from $199.50 to $600.
Needless to say, the outbreak of World War II in September of that year brought the development and spread of television to a dead halt as RCA and other electronic companies, such as Philco, Emerson, and Sylvania, began to devote their efforts to military technology, especially radar. During the war RCA shared patents with these companies to help the war effort.
As soon as the war was over, television began to take off and immediately had a profound effect on American life. To give just one example, in 1948 both the Democrats and the Republicans held their conventions in Philadelphia. It was not a coincidence. Philadelphia lay in the middle of AT&T’s coaxial cable from New York to Washington. Thus the conventions could be telecast through fourteen stations that covered a substantial portion of the country’s population. The following year television sets made their first appearance in the Sears, Roebuck catalogue.
RCA, of course, was in the best position to exploit the situation. That’s when antitrust kicked in. In 1946 the companies that RCA had shared patents with during the war brought suit under the antitrust laws asking that RCA be forced to continue sharing those patents. In other words, Macy’s wanted the U.S. government to require Gimbel’s to tell it everything. The eventual consent decree forced RCA to do just that, but it contained a curious proviso. While RCA had to share its patents with domestic companies for free, it was permitted to license the patents to foreign companies for the usual royalty arrangement. Naturally, RCA, being a profit-seeking company and no longer able to keep its immensely valuable technology to itself, sought to maximize its profits by licensing abroad as much as possible.
The result was not long in coming. In 1960, when David Sarnoff visited Japan, he was awarded the Order of the Rising Sun for his contributions to the Japanese electronics industry. By the 1970s the domestic manufacture of consumer electronics goods had virtually ceased. By 1990 RCA had lost its corporate independence and was once more merely an appendage of the General Electric Company. To protect an American industry from the dominance of one company, antitrust had killed off the entire industry.
That’s a bit like using a guillotine to cure a headache.