IBM Again the Focus of U.S. Antitrust Probe

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

However the current investigation plays out, it will be compared to an antitrust lawsuit the DOJ filed against IBM in 1969 -- starting perhaps the longest, most brutal antitrust case ever fought. That battle royale finally ended in 1982 when the case was dismissed after a six-year trial.

In the latest case, the DOJ has issued civil investigative demands (CID) -- the equivalent of subpoenas -- as part of a probe into competitors' claims that IBM is thwarting competition in the mainframe market. Issuing the CIDs "means they're really serious," said Robert Lande, a law professor at the University of Baltimore. "It's not something they would do lightly."

Hillard Sterling, an antitrust attorney at Chicago-based law firm Freeborn & Peters LLP, called the DOJ probe "part of a new governmental aggressiveness in the antitrust arena. IBM is a logical target for the DOJ, given IBM's clear monopoly power in the mainframe markets.

"The DOJ still must prove that IBM is abusing that power, though it shouldn't be hard to amass supporting evidence," Sterling added. "IBM apparently hasn't been shy about using its substantial leverage to maintain its dominance."

A DOJ spokeswoman wouldn't comment on the inquiry, which was disclosed this month by the Computer & Communications Industry Association (CCIA), a technology trade group that filed the complaint against IBM.

"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 CCIA CEO Ed Black.

Black said there are potential competitors that could offer services and technologies that might cut costs for users. But many won't sell such products because they fear IBM would retaliate, he noted.

The CCIA alleges that IBM has refused to issue licenses for its mainframe operating system to competitors as required under previous DOJ rulings. In some cases, IBM has yanked licenses from users trying to switch from an IBM mainframe to a competitor's, Black contended.

In a statement, IBM said that it has "invested billions of dollars" in intellectual property and added, "We have a right to protect our... investment."

IBM pledged to cooperate with the DOJ.

Jean Bozman, an analyst at IDC, said it's not clear how well IBM's mainframe operating system would run on non-IBM 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?"

According to IDC, in the category of high-end servers -- systems that cost $500,000 or more -- IBM's System z last year generated $5.1 billion worldwide.

It's that kind of revenue that makes this a high-stakes matter for IBM rivals.

Grant Gross of the IDG News Service contributed to this story.

Copyright © 2009 IDG Communications, Inc.

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