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Justice Dept. Launches IBM Mainframe Probe

The U.S. Justice Department has opened an antitrust inquiry into IBM's mainframe business practices, following on allegations that Big Blue has systemically squeezed out any potential competitors to its relatively small but lucrative mainframe business.

While not a big dollar maker for IBM when compared to its overall services business, mainframes nonetheless are very profitable, as are the services and software built around them.

IBM (NYSE: IBM) operated under a consent decree with the Justice Department from 1956 until 2001, when it was lifted under the Bush administration. Just to show how times change, the 1956 decree discusses the use of punch cards.

Only one company has been publicly identified as filing a complaint with the DoJ, a Florida firm called T3 Technologies. It makes x86-based systems capable of running IBM mainframe software, giving customers the option of a low-cost alternative or a migration path to x86.

Another party involved is the Computer & Communications Industry Association, a Washington group that advocates against single vendor lock-in and monopolistic practices. Heather Greenfield, a spokesperson for the CCIA, said there are many more companies involved, though not identified, that would like to compete in the mainframe market but are locked out by IBM.

"What we argue is there are people who would like to be competitors -- some big companies -- that would like to come in and offer either software, hardware, middleware or services, and they don't dare do it," Greenfield told InternetNews.com.

"IBM was more careful when it was under the consent decree," she added.

Restoring the 1956 decree

T3 is a member of CCIA, along with Microsoft, Oracle and AMD. T3 filed a complaint with the European Commission in January (details here in PDF format) along with its complaint with the DoJ.

In a white paper critical of IBM's behavior since the consent decree was lifted, CCIA argued that IBM was "exploiting its market power to protect its mainframe monopolies" through a variety of practices, such as revoking licenses issues to "disloyal customers," and squelching upstart technologies that threatened its mainframe and hardware businesses.

"Intervention is necessary to stop IBM's exclusionary behavior," CCIA said.

CCIA specifically mentioned IBM's acquisition of Platform Solution Inc. (PSI), a firm started by former Amdahl executives to provide mainframes based on Intel's Itanium processor. IBM purchased PSI in 2008 and has since shelved its product.

Asked for comment, an IBM spokesman said in an e-mail to InternetNews.com, "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."

IBM has won at least one victory against T3. Last month, U.S. District Judge Lewis Kaplan granted IBM's motion to dismiss T3's claims. The company's CEO, Steven Friedman, told the Wall Street Journal T3 "absolutely" intends to appeal that ruling.

Fallout for Apple?

A company has a right to protect its user experience, and that includes IBM and its mainframes, argued Charles King, president of Pund-IT Research. So he doesn't think the case against IBM is a strong one.

"There has been any number of mainframe migration technologies that have come down the pike over the last 10 years," King told InternetNews.com. "Where I don't see how they've got a case is, to my mind, IBM is not alone in protecting the proprietary nature of some of its technologies. Apple has gone after companies hammer and tong. I don't see the DoJ going after Apple for coming down on Psystar like a ton of bricks or bricking jailbroken iPhones."

While CCIA has no position on Apple, generally, Greenfield said, "We don't like any instance where people try to lock in their customers and clamp down on competition. We don't think it's a crime to be big, but when you try to lock in customers, we say something, for what it's worth."