DOJ takes on an age-old foe: IBM

Industry complaint makes clear IBM's mainframe isn't dead; in fact, it's still huge

WASHINGTON -- The decision by the U.S. Department of Justice to begin an antitrust inquiry into IBM's mainframe business could reignite a legal battle that started 40 years ago.

Whatever the DOJ does or doesn't do with IBM in the months ahead, its action will take place against the backdrop of the government's 1969 antitrust case against the company. It was the longest, and perhaps most brutal, antitrust case ever fought -- a battle royale that finally ended in a dismissal in 1982 after a six-year trial.

The Justice Department has issued civil investigative demands (CID) -- the equivalent of subpoenas -- to probe competitor claims that IBM is thwarting competition in the mainframe market. That "means they're really serious," said Robert Lande, a professor of law at the University of Baltimore in Maryland. "To say that it is historic is an understatement -- it's not something they would do lightly, he said.

IBM's business opponents say they have assembled evidence that supports allegations that the company is using its power in the mainframe market to stymie competition. "We think we have a lot of smoking guns here showing really punitive behavior, threatening behavior, aimed at stopping companies and business models that had a chance to interfere with their monopoly position," said Ed Black, president and CEO of the Computer and Communications Industry Association (CCIA).

The CCIA is confirming that the CIDs have been issued. The IBM-mainframe-compatible market all but died nearly a decade ago, once IBM moved to a 64-bit system. Today, IBM owns this mainframe market. But there are, nonetheless, avenues for competition that Black contends are being closed off by the company.

One company, Platform Solutions Inc., had developed technology that could have allowed IBM's z/OS and OS/390 operating systems and applications to run on Itanium-based systems. IBM sued the company in 2006 for patent infringement and then later bought the firm.

It's not clear how well IBM's mainframe operating system would run on alternative hardware platforms today. "The whole idea behind the mainframe is all the pieces fit together as an integrated system, so even if you can take the OS and run it somewhere else, how well would it run?" said Jean Bozman, an analyst at IDC.

That IBM has resisted efforts to run its software on alternative platforms comes as no shock to anyone in the tech industry. And it's not alone. Take Apple Inc., for instance. "Apple has done everything that they can to basically squash the Mac clone industry," said Charles King, an analyst at Pund-IT Inc. in Hayward, Calif.

The mainframe market does have competition from high-end Unix systems that can run workloads similar to mainframe workloads, and even from x86 vendors that have mounted their own mainframe migration campaigns. But while mainframe systems are costly and generally only used by midsize and large companies and government agencies, IBM's mainframe revenue is impressive.

According to IDC, in the category of high-end servers -- systems that cost $500,000 or more -- IBM's System z last year generated $5.084 billion in revenue worldwide. By way of comparison, high-end Unix server systems, including systems from Hewlett-Packard, Sun Microsystems and yes, IBM, produced $5.257 billion.

In other words, IBM System z generated about as much revenue as the combination of Unix servers from IBM and its rivals, said Bozman.

It's that kind of revenue that makes this a high-stakes matter for IBM rivals. Black said there are potential competitors who can offer services and technologies, such as methods for processing some workloads off the mainframe, that could reduce costs for users. But they fear retaliatory actions by IBM.

IBM, in a statement, said that "customers that purchase a mainframe do so because of its unique characteristics -- security, reliability, availability. IBM has invested billions of dollars in IP [intellectual property] for these attributes. We have a right to protect our multi-billion investment.

"While the rest of the industry abandoned the mainframe in the late 1990s, IBM made substantial investments to innovate and remain competitive," the company's statement said.

IBM pledged to cooperate with the DOJ probe.

Antitrust attorney Hillard Sterling, at Freeborn & Peters LLP, said the government's move is "part of a new governmental aggressiveness in the antitrust arena, and the DOJ is bringing that approach to high-tech markets."

"IBM is a logical target for the DOJ, given IBM's clear monopoly power in the mainframe markets," said Sterling. "The DOJ still must prove that IBM is abusing that power, though it shouldn't be hard to amass supporting evidence. IBM apparently hasn't been shy about using its substantial leverage to maintain its dominance.

"It's likely that the DOJ will find lots of support from cooperating witnesses and helpful documents, including IBM's own e-mails, which typically are where the smoking guns reside," Sterling added.

Copyright © 2009 IDG Communications, Inc.

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