CCIA Aids DOJ In IBM Mainframe Antitrust Action
It’s a move the CCIA officials believe they had to make in order to prevent IBM from stifling innovation and competition in a part of the IT business that is vital to the many companies that rely on legacy mainframe to run their business, according to Ed Black, president of the CCIA.
IBM was under Federal anti-monopoly scrutiny from 1956 to 2001 via the DOJ's antitrust consent decree, which was put in place in response to complaints that IBM controlled the tabulating machine business and its refusal to allow the resale of its machines. It was also extended to computers.
Various components of the consent decree, which specified that IBM had to sell as well as lease its computers and provide parts and service for used machines, were lifted over the years, with the mainframe portion the last to be lifted.
However, after the DOJ’s consent decree was lifted, IBM started aggressively acquiring or cutting deals with potential competitors who raised antitrust concerns, Black said.
A big part of the current antitrust case is IBM’s public commitment, via public statements or contracts with third-party companies, that it would continue to pursue a policy of open licensing, Black said. This made it possible for several companies to produce IBM mainframe-compatible hardware and/or software which threatened IBM’s market, he said.
“But then IBM reversed that policy after a lot of folks came to rely on IBM’s behavior,” he said. “IBM targets companies whenever they demonstrated they have an impact on IBM. The retribution aspect of the behavior of IBM is significant.”
In materials the CCIA submitted to the DOJ, the organization listed several such third-party companies which Black said depended on IBM licenses for their products but were then force out of the mainframe business when their impact on IBM’s mainframe market became noticeable.
One of those companies, Detroit-based Compuware, in 2004 received a $400 million settlement from IBM after the vendor blocked competition for Compuware’s mainframe tools.
IBM in 2007 entered into an agreement with QSGI, a company that had been refurbishing and reselling used IBM mainframes, to service the company’s customers. QSGI, which had been using tools provided by IBM to refurbish the mainframes, was on the verge of filing an antitrust suit after IBM terminated its pre-existing policy of providing those tools.
IBM in 2008 acquired Platform Solutions, Inc. (PSI), which had developed a mainframe-compatible server based on Intel processors and a licensing deal it had with IBM. IBM cancelled that agreement and filed a patent infringement suit against PSI in 2006 after the possibility was raised that PSI might be acquired by Hewlett-Packard, the CCIA alleged.
Another company, T3 Technologies, Tampa, Fla., early this year filed a complaint against IBM with the European Commission for violating antitrust laws, the CCIA said. T3 developed IBM mainframe-compatible servers using technology from PSI and another company.
T3 joined PSI’s suit against IBM. That complaint was dismissed last month.
Such actions are part of a long history of antitrust complaints against IBM’s mainframe business, a history that has accelerated after 2001, Black said.
“Since then, IBM has accelerated their old bad habits,” he said. “Their anti-competitive moves have become more aggressive. We’ve heard from CCIA members and from others, and so we got involved about a year or a year-and-a-half ago.”
IBM declined to respond to questions about the DOJ action. However, a spokesperson emailed a statement which read, “Just last week, a U.S. District Court dismissed T3's claims against IBM in their entirety.
“We understand the Department of Justice has asked T3 for documents from the litigation. IBM intends to cooperate with any inquiries from the Department of Justice.
“We continue to believe there is no merit to T3's claims, and that IBM is fully entitled to enforce our intellectual property rights and protect the investments that we have made in our technologies.”
According to IBM and analyst firm IDC, IBM’s System z mainframes accounted for 0.03 percent of total server shipments and 9.9 percent of total server market revenue in 2008. The System z mainframe share in the first half of 2009 dropped to 0.02 percent of shipments and 9.5 percent of revenue, IBM and IDC said.
However, IBM reported last month that, in terms of revenue, its System z controls 60.4 percent of the market for servers costing more than $500,000.
The CCIA in the past was most famous for its pursuit of Microsoft during antitrust proceedings related to Windows XP in the US and Europe early during this decade. The CCIA withdrew from the proceedings after Microsoft paid the CCIA nearly $20 million in 2004 to cover legal and other expenses.
Black said that the CCIA’s decision to withdraw came because the organization and its allies won their case against Microsoft, which also settled with AOL for about $1 billion, with Sun for about $2 billion, with Novell for about $500 million, with other companies, and with the DOJ.
Charles King, principle at analyst firm Pund-IT, wrote in a research report that the DOJ’s antitrust stance stems in part from policies of whichever administration is in power in the US.
“DOJ has come to reflect the stated and ulterior motives of sitting administrations,” King wrote. “This is no surprise, given that Attorneys General serve at the pleasure of the President of the United States. But radical shifts in DOJ philosophy and strategy can significantly add to the difficulties that businesses face in operating and competing during what is arguably the most challenging economic environment in a generation.”
King, who supports IBM in the action of T3 and the CCIA, wrote that the broad attitudes toward business and market competition of President Obama’s administration “could portend a very long four or eight years not just for IBM but for many U.S. companies in the technology industry and other sectors.”
Joe Clabby, principle of analyst firm Clabby Analytics, wrote in a research report that IBM essentially has a mainframe monopoly due to its 90-percent share of the mainframe market.
However, Clabby wrote, that monopoly does not automatically mean that IBM is engaging in anti-competitive behavior. Mainframe customers are free to adopt Unix servers or x86-based server clusters, some of which are already starting to dominate the supercomputer market in terms of performance. He also wrote that, since mainframes run Linux, Java, SOA, and open source applications, customers can migrate to other systems.
“If customers can move to other platforms, then they have a ‘choice’ of which platform they can use,” he wrote. “And if a customer has choice, then a lock-in situation does not exist.”