Antitrust Inquiry for IBM

The Justice Department has started a preliminary investigation into whether I.B.M. has abused its monopoly position in the market for mainframe computers, which remain vital to many of the world’s largest businesses. This month, antitrust regulators at the Justice Department began seeking information about I.B.M.’s business practices from companies that compete with I.B.M. in the market for large computer hardware and software, people who had been contacted in the inquiry said.

The requests for information followed a complaint filed by the Computer and Communications Industry Association, a trade group with a history of involvement in antitrust disputes. The organization, which is backed by I.B.M. competitors like Microsoft and Oracle, contends that I.B.M. stymied competition in the mainframe market and blocked efforts by competitors and potential partners to license I.B.M.’s software.

The complaint follows similar legal action taken by T3 Technologies against I.B.M.

T3, a small company that resold mainframelike computers, filed an antitrust complaint against I.B.M. in January in Europe. T3 also filed a civil suit against I.B.M. in the United States. Last week a federal district judge in New York dismissed that case. T3 said it planned to appeal.

Steven Friedman, the president of T3, said he had received a formal request for information from the Justice Department about I.B.M.’s actions in the mainframe market. “They asked for a very broad set of documents and information,” he said.

Edward J. Black, the chief executive of the Computer and Communications Industry Association, confirmed that it had filed a complaint against I.B.M. with the Justice Department and that investigators had contacted some members.

A Justice Department spokeswoman declined to comment.

The inquiry is the early stages and may not result in charges against I.B.M. The last time federal regulators pursued an antitrust suit against I.B.M. in the mainframe market, the result was a humbling setback for the department when the Reagan administration dropped the case in 1982, after 13 years.

In a statement on Wednesday, I.B.M. cited the judge’s ruling last week against T3 and said, “We continue to believe there is no merit to T3’s claims.”

“We understand the Department of Justice has asked T3 for documents from the litigation,” I.B.M. said. “I.B.M. intends to cooperate with any inquiries from the Department of Justice.”

While sometimes called the dinosaurs of computing, mainframes continue to play a vital role in business. The systems are estimated to handle 50 billion transactions a day in such areas as automated teller machines, health records and accounting.

Mainframes are also important to I.B.M. About 25 percent of its $104 billion in annual revenue comes from the sale of mainframes and associated products like storage systems, software and services, said A. M. Sacconaghi, a securities analyst with Sanford C. Bernstein.

Historically, I.B.M. has faced off against competitors in the mainframe market. Past rivals, including Amdahl, Hitachi and Fujitsu, built computers that could run I.B.M. software, which was a standard for mainframes.

Most rivals abandoned their mainframe systems when I.B.M. developed more advanced chips for its machines, in part because of the cost of moving to the new chips.

More recently, smaller companies and even individuals have worked to create software to mimic mainframe functions on lower-cost, mainstream computer servers.

One start-up called Platform Solutions had modest success with this approach earlier this decade and drew the interest of Hewlett-Packard, which held discussions about buying the company.

I.B.M., however, declined to license its mainframe software to Platform and sued the company. Last year, I.B.M. acquired Platform for $150 million and discontinued the company’s computer systems.

I.B.M.’s decision not to license its mainframe software has been at the heart of the antitrust complaints against it. In addition, competitors have argued that I.B.M. has stepped up aggressive tactics to block them from selling products that can lower the cost of mainframe technology.

But I.B.M.’s opposition to licensing its technology to outsiders is not enough to build a successful government antitrust case, said Andrew I. Gavil, a law professor at Howard University. More likely, Professor Gavil said, the Justice Department is investigating to see if I.B.M. is engaged in other tactics that might be anticompetitive.

In the ruling in the private case last week, Judge Lewis A. Kaplan of Federal District Court in Manhattan found that I.B.M. had invested heavily in its modern mainframe technology and its decision not to license it “does not constitute anticompetitive conduct.”

The technology industry has undergone an accelerating wave of consolidation as companies like Hewlett-Packard, Oracle, EMC and Dell have made large acquisitions. The deals reflect a desire by large technology companies to offer a wider range of hardware, software and services so that customers see them as one-stop shops.

Analysts contend that I.B.M.’s dominance in the mainframe market gives it a major advantage because it deals with its customers’ most confidential information. They also say that I.B.M.’s practices have resulted in higher costs for customers.

By ASHLEE VANCE and STEVE LOHR
Source: New York Times