Silicon money: How do tech firms buy influence in Washington?

Companies shift strategy, take the offensive

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But T.J. Rodgers, the Ayn Rand-quoting chief executive of Cypress Semiconductor in San Jose, Calif., issued a stern admonishment of involvement in Washington politics in a 1998 speech (click here for PDF): "Silicon Valley is not very good at the pork barrel game. Statist companies have refined their lobbying skills for decades. We cannot, and do not want to, win at their game."

Tim Draper, a venture capitalist who's the managing director of Draper Fisher Jurvetson, offered similar advice at the time in a Wall Street Journal article titled "Silicon Valley to Washington: Ignore Us, Please." He wrote, "We ought to count our blessings that most of our industry is 2,500 miles from Washington and that most bureaucrats either fear, don't care about or don't understand technology."

The apotheosis of this leave-us-alone attitude came with the creation of Americans for Computer Privacy in 1998. The coalition was an effort to oppose federal restrictions on the overseas sales of encryption software and hardware, which had bedeviled tech firms for the better part of the decade.

In a rare political moment not seen since, America Online, Compaq Computer, Cisco, Intel, Microsoft, Oracle, Sun and some 90 other companies joined with advocacy groups such as the National Rifle Association and Phyllis Schlafly's conservative Eagle Forum. The script for one of the group's television ads featured a husband and wife wondering, "Should we trust Washington bureaucrats with the key to our private lives?"

The answer might not be as obvious today.

"The way you get businesses continually coming to you and begging favors from you is to constantly rejigger the rules. Chaos is a great way to extract money."
Fred Smith, president, Competitive Enterprise Institute

It's not entirely clear what caused the change in attitude over the last decade. One reason for heightened interest in Washington is, of course, practical: the proliferation of homeland security contracts in the last five years, a lucrative business that the "new" Bill Gates said "we're proud to be involved in" during remarks made on a 2003 visit to the nation's capital.

Oracle CEO Larry Ellison, for example, called for a national ID card soon after the Sept. 11, 2001, attacks. In meetings with Sen. Dianne Feinstein (D-Calif.), Attorney General John Ashcroft and CIA officials, Ellison offered to donate the database (and presumably make money on support).

"I can definitely see how the technology industry is taking part of the slot machine culture of Washington," said Jim Harper, an analyst at the free-market Cato Institute who serves on a Department of Homeland Security advisory panel. "Put a little money in, get a lot of money out."

Another reason for a different perspective on Washington was the Microsoft antitrust trial, which taught companies like Oracle, Sun and Netscape Communications (since purchased by America Online) that they could use lobbyists for offense as well as defense.

The case was inspired and even partially orchestrated by Microsoft's rivals: Testimony from the trial revealed that then-Netscape CEO Jim Barksdale met with Assistant Attorney General Joel Klein for breakfast at Barksdale's home, one of about a dozen meetings that the executive had with government attorneys.

Netscape hired Gary Reback, at the time a partner at the storied Silicon Valley law firm Wilson Sonsini Goodrich & Rosati, to drum up support for the antitrust suit inside the Department of Justice. Once the case was under way, Sun and Oracle went so far as to set up a special group, called ProComp, on Washington's lobbyist-laden K Street solely to target Microsoft.

"Most of the high-tech community thought, 'Washington is 3,000 miles away. What do we care?'" said Larry Noble, executive director of the Center for Responsive Politics, a nonprofit group that tracks political spending. "All of the sudden, you see them ramp up their lobbying dramatically--and their contributions to campaigns."

"(Tech companies are) aggressively and pre-emptively asking for prophylactic regulations from the FCC. No matter how you cut it, it's an offensive effort."
Adam Thierer, senior fellow, Progress & Freedom Foundation

Microsoft would not comment on specifics involving its lobbying practices or expenditures. Spokeswoman Ginny Terzano said the company, which has run a Washington office for about a decade, "is focused on a number of key high-tech issues that can positively impact the industry, U.S. competitiveness and consumers." As examples, she cited business immigration issues, telecommunications and patent reform, and data security and privacy.

Yet one favorite Microsoft lobbying firm has been forced to shut its doors because of the scandal involving former House majority leader Tom DeLay. The Alexander Strategy Group, founded by former DeLay aides, including his chief of staff, counted nine lobbyists on Microsoft's payroll as of 2003 and an undisclosed number last year, according to public records. In addition, the group's Tony Rudy, a former DeLay aide listed in public records as a Microsoft lobbyist, has become a focus of the Abramoff investigation.

No one has accused the software company of any improprieties in its relationship with the lobbying firm. But given Washington's penchant for scandals, it is understandable that many have recommended avoiding the federal government altogether.

In 1970, Milton Friedman, the economist and Nobel laureate, wrote an article for The New York Times that called such offensive lobbying a "suicidal impulse" on the part of businesses. In a follow-up article written during the time of the Microsoft antitrust trial, Friedman warned that technology executives "will rue the day when you called in the government." Now, he said, the industry "will experience a continuous increase in government regulation." 

CNET News.com's Anne Broache contributed to this report.