Monopolist Xerox?

When it comes to image building, few big corporations outshine Xerox. A firm that started small (as the Haloid Co.) and grew gigantic on the success of its office copiers, Xerox is known as the builder of a brilliant research team, an enlightened employer, and a responsible corporate citizen. Last year it began a unique sabbatical program in which 20 of its employees each year are paid to work full time on outside social projects. The company regularly sponsors some of TV's best programming, and the price record of its stock is something of a Wall Street legend. But last week the Federal Trade Commission accused Xerox of having another, darker side. In a complaint charging that the company has illegally monopolized the $1.7 billion copier industry, the FTC said that Xerox has, among other things, ruthlessly stamped out smaller competitors, used its ill-gained market clout to suck in outsize profits from customers, and sought to perpetuate its priceless patents by reregistering slightly different versions of those about to expire.

Faithful Copies. The case is unusual on several important counts. It marks only the second time in recent years that the FTC has sought to break up an alleged monopoly--normally a job left to the Justice Department. Further, the commission did not base its case on either of the two standard antimonopoly statutes--the Sherman and the Clayton antitrust laws. It leaned instead on a broad and seldom used section in the basic FTC act outlawing "unfair methods of competition in commerce."

Xerox, says the complaint, controls 60% of the overall copier market and fully 95% of the business in "plain paper" copiers, which reproduce on stock that does not need to be chemically treated. To redress such dominance, the FTC proposed a series of sweeping measures that might allow other firms to copy Xerox's ubiquitous machines almost as faithfully as the machines copy whatever is put inside them. Xerox, the FTC said, should sell off its controlling interests in British and Japanese copier companies. Also, the Government wants Xerox customers to have the option of buying all Xerox equipment, rather than being forced to lease it, as the company sometimes demands. By far the most radical proposal was that Xerox should offer all its patents, royalty free, to licensees--in effect throwing open one of the most tightly protected patent systems in the world.

In promising to fight "every aspect" of the FTC's case, Xerox Chairman C. Peter McColough saved his heaviest fire for the patent-giveaway idea. Said he: "What is being challenged here is the very basis of the patent system--the concept that an inventor should be awarded exclusive rights to his invention for a period of time." The Government has, in fact, challenged that idea a few times before. In the interest of promoting competition, General Electric was forced to pass out patented electrical know-how to competitors in the early '50s. But rarely if ever has a court ordered a company to make available such technologically sophisticated information as Xerox owns. As for their marketing methods, Xerox officials claimed that they insist on lease deals only during a two-year period after a new product is introduced, primarily to determine marketing and unit manufacturing costs.

Like IBM, which has been fighting a major antitrust action for four years, Xerox presented an inviting target simply because of its size and profitability. The company's annual earnings have averaged 20% or more of the amount of equity held by shareowners--an unheard-of return for most outfits that face stiff competition. Xerox does face rivalry from IBM, 3M, SCM and other firms, but it dominates its field as few other companies do. If either the FTC or Xerox chooses to do so, it can probably drag the case through successive FTC hearings and court arguments for years--creating endless piles of Xeroxed documents.

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