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IBM Remains On U.S. Antitrust Watch

Jul 30, 2010 (06:07 AM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=226400032


As it embarks on a campaign to bring the mainframe back to the mainstream, emboldened by the introduction this month of its most powerful data-center class machine ever, IBM is finding that regulatory authorities on both sides of the Atlantic are keeping a watchful eye on its activities in a market it's come to utterly dominate.

The company is still the subject of a Justice Department antitrust probe into its mainframe licensing policies, and EU authorities this week launched their own investigation.

The DOJ began its probe last October, and a regulatory filing by IBM this week indicated it's still active nine months later. "IBM has been notified that the U.S. Department of Justice (DOJ) is investigating possible antitrust violations by IBM, and the DOJ has requested certain information," IBM said in a second-quarter report filed Tuesday with the SEC.

IBM first disclosed that its mainframe business was under DOJ scrutiny in its third-quarter 2009 report. IBM and Justice Department officials reached Thursday declined to comment on the status of the investigation.

The DOJ's probe arose from complaints against IBM by mainframe cloner T3 Technologies, which sued Big Blue in 2008. T3, of Tampa, Fla., claimed IBM was illegally refusing to license mainframe software to third parties. A federal court dismissed T3's case last September, and it's now under appeal.

In testimony before the House Small Business Committee last week, T3 president Steven Friedman likened IBM's dominance in mainframes to Microsoft's control of the PC market. "Imagine if Microsoft one day announced they were building their own PCs and that Windows would only be sold on those machines," said Friedman.

Friedman said IBM's refusal to license its mainframe operating system, known as zOS, killed his cloning business. "Without the coveted operating system, our hardware was nothing better than an expensive coffee table," Friedman said. IBM was previously forced to license mainframe technology to third parties under a DOJ Consent Decree that stemmed from a previous antitrust investigation, but the decree expired in 2003.

IBM on Friday accused T3 of using the courts and Congress to compensate for its own lack of innovation. "The misleading Congressional testimony by T3 is just more of the same whining by a company that is unable to compete without infringing on someone else's intellectual property," an IBM spokesman said in a statement.

"In this case, the intellectual property belongs to IBM, which has spent billions of dollars developing its innovative mainframe technology in New York State. IBM has always acted lawfully in deciding whether and how our technology can be licensed," the spokesman said. He also called T3 "a stalking horse" for Microsoft, which is a T3 investor and technology partner. Microsoft has previously denied it's behind T3's lawsuit against IBM.

IBM's disclosure this week that it's still under DOJ scrutiny came just a day after EU officials announced their own investigation into the company's mainframe policies.

The European Commission, the EU's competition watchdog, said Monday that IBM's refusal to license z0S for use on generic hardware offered by T3 and another cloner, Turbo Hercules, may be a violation of European rules. In a separate charge, the EU said IBM may be illegally shutting out competitors in the mainframe services arena by maintaining a monopoly over spare parts.




The first part of the probe came in response to formal complaints from T3 and Turbo Hercules, while the EU launched the latter investigation on its own. The probe's existence does not necessarily mean IBM will face actual antitrust charges.

"The initiation of proceedings does not imply that the Commission has proof of infringements. It only signifies that the Commission will further investigate the cases as a matter of priority," the EU said in a statement.

IBM now stands virtually alone in the mainframe sector, as most competitors have left the field in recent years. But the company said that viewing mainframes as discrete from the overall server market is misguided. If lumped in with Windows, Unix, and Linux-based servers, IBM mainframes represent just .02% of all servers shipped in 2009. "Today, the mainframe is a small niche in the overall, highly-competitive server landscape," an IBM spokesman said in response to the EU's claims.

IBM also said it's got a right to protect its investments in mainframe technology, given that it spent billions of dollars resurrecting such systems at a time when the IT market was moving to distributed computing setups for corporate data centers. "These investments reinvigorated the mainframe server as a vital competitor in a highly dynamic marketplace," IBM said.

Still, IBM said it plans "to cooperate fully" with EU investigators.

All this comes as IBM looks to move the mainframe beyond traditional niches like Wall Street trading floors and research institutions. The company last week rolled out a new mainframe designed to dramatically cut data center costs and complexity. The zEnterprise server, which supercedes the z10 in IBM's heavy metal lineup, can absorb a broad range of tasks and platforms that are more typically handled by smaller, cheaper servers strung together in clusters.

The zEnterprise 196, the first in the new line, ships later in the current quarter with prices starting at $1 million. IBM is calling the system a "data center in a box," and the specs appear to justify that. With 96 industry-fastest 5.2 GHz processors on board, the raw speed is there for real-time and in-line transaction processing, and the system can support up to 100,000 virtual images.

IBM's conundrum: Antitrust watchdogs in the U.S. and Europe may pounce with formal charges if its efforts to mainstream the mainframe are too successful.