THURSDAY 20 APRIL 2000

DR MICHAEL I SHAMOS

  720. The other one first but run into mine please.

  A. Yes, if you could remind me what the question was!

  721. This is almost the horizontal integration of purchasing consortia.

  A. The e-markets, yes. What has happened is that there are a number of consortia that are not happy with the prospect of Ariba being in centralised control of procurement so what they have done is create market bases of their own. In the electrical power industry in the United States—and this was announced within the past ten days—several of the largest producers of power have gotten together to create a power exchange so they can sell off excess power to each other and exchange and control through an electronic market place. They will not go through any other channel. In the United States we constantly have to be worried about anti-trust arrangements so the smart ones creating these new markets are very careful and scrupulously fair in allowing all companies of all sizes to opt in and participate on an equal basis. They can even subsidise the costs to smaller companies to ensure they have their participation in these exchanges. What is going to happen, I believe, in each industry is that various groups will be scrambling to create a critical mass. Once they have a critical mass it will act as such a powerful gravitational attracter that it will be impractical for anyone to compete with them. To keep it anti-monopolistic they have to have fair practices that will pass muster with the Justice Department. The industries are falling one by one. The chemical industry has not yet fallen. One can purchase chemicals on a vertical market basis. It looks as though the electrical power market has fallen. When I say "fallen", not in a bad way but such that it is impractical for anyone else to set up a power exchange because the five largest producers of power in the country will not participate in it. This is without conspiracy. They have no contractual obligation not to trade on another exchange, they just will not do it. Bandwidths and exchange arrangements. This is not a dominant player in that right now but there are six or seven bandwidth exchanges I know of. They are very rapidly moving things. I am aware of efforts by some companies to at least dream of having an exchange which they do not want to control for the purpose of stifling competition. It is just that they do not want someone else outside the industry benefiting from what they ought to be benefiting from. If some outsider shows up and creates a telecommunications exchange, why is the profit going to him and why are the transaction fees going to him? Why are they not going to us? They have the power to do that. I have not seen any ill-effects from that yet.

  722. Is there anything we can do about monster global corporations?

  A. If we can delineate the evils maybe we can deal with the evils one by one. The chief evil of course is monopoly and the way the United States deals with that, as you can see from Mr Gates' present difficulty (and many people will write books on what he did wrong there to allow that to happen) is that as long as the enterprise is perceived as a benefit and is not preventing others from either being initiated or getting their fair share of business. I am not sure we need to do anything about these huge global companies. If visible difficulties appear then we will do something about it.

  Chairman: We rather sense that there may not be that much done about Microsoft in the States. A little bit maybe but not too much because the harm is not so great at the moment.

  723. Also by the time we get round to doing it the whole target will have passed on.

  A. It is difficult for me to speculate. It was an issue of great interest to see how the anti-trust suit had gone. The judge made it clear early on that he was going to rule against Microsoft and from the strident words of his early opinions I believe when it is left up to him there will be some very severe provisions that Microsoft would rather have avoided. I do not believe he will order the break up of Microsoft. However, he will cause it to refrain from engaging in all kinds of practices that the industry has been complaining about for a long time which likely are monopolist.

  724. Dr Shamos, it has been a fascinating exchange for us. I hope you have enjoyed it as well.

  A. I certainly have.

  725. Are there any final points you want to leave with us?

  A. There is one point while we are still on the record. I said before that the Internet is a great medium for exchange of information so in order to promote e-commerce and other objectives and e-Europe, including use by students and educators, we need to be able to move information not available on to the Internet freely on to the Internet. One area that causes great difficulty is the area of copyright. We have a project at Carnegie Mellon University called the Universal Library where we take all the published works of man, put them on the Internet and make them freely available to the public. Whether this requires the payment of royalties to copyright owners is a separate question. It needs to be free to the public. How it is paid for needs to be something else. In many cases we are stymied because even though we have a sincere desire to pay royalties to the copyright holder, in most countries the copyright holder is free to refuse to allow it to be digitised and put on the Internet. He controls his work. In Japan they have an extensive scheme of compulsory licences, which is absent in the United States and most western countries, in which if I have an educational purpose for a particular author's material the author cannot prevent me from using it and putting it on the Internet but the office of the Japanese Government will set a fair royalty I am required to pay to the author for that usage whether the author wants it or not. He does not have to take the money but he cannot refuse the licence. The only way we are going to have the world make effective use of digitised information is through compulsory licences which means those who want to digitise them and make them available are able to do so, especially with the lengthening of the term of copyright. In the United States the maximum copyright term is 120 years. That is a precious long time when you consider the timescale of e-commerce.

  726. That is an interesting point and we will have a look at that in our considerations. It is interesting that whilst you have been talking to us, down below in the Chamber (to which I will be taking you) we have a debate taking place on the Freedom of Information Bill to extend individuals' rights to access to governmental documents. There is a big debate taking place about the extent to which that freedom should be given to us.

  A. That will be interesting, thank you.

  727. In some quarters it is known as the Freedom of Secrecy Bill!

  A. Another issue we did not have a chance to touch on but there is a lot there too.

  Chairman: Thank you very much indeed.