EC launches formal probes into IBM's mainframe biz
Emulators and maintenance services
Antitrust authorities at the European Commission have been listening to clone mainframe seller T3 Technologies' cries after IBM ate and killed clone mainframe maker Platform Solutions a few years back. Complaints from TurboHercules, a supplier of a mainframe hardware emulator for x64 servers that IBM refuses to license software for, have also come to the EC's notice.
Today, the EC initiated a formal antitrust investigation into IBM for infringing antitrust rules relating to the abuse of a dominant market position, according to a statement. T3 filed a complaint in 2007 and kept it alive after its former partner, Platform Solutions, settled its lawsuits and was eaten by Big Blue, thus killing off a line of clone mainframes.
TurboHercules is a commercial implementation of the open source Hercules mainframe hardware emulator, which lets IBM's mainframe systems software run on x64 and Itanium processors and which was launched in September 2009. TurboHercules, which has been unable to get IBM to agree to sell its mainframe software on top of its eponymous emulator, filed a complaint with the EC antitrust authorities in March of this year.
IBM has plenty of legal headaches in its System z mainframe business. Back in October 2009, the US Department of Justice also opened up an investigation into IBM's mainframe business practices. And Neon Enterprise Software, which makes a tool called zPrime for offloading work from standard mainframe engines to cheaper specialty engines in the box, said last month it would be filing a complaint with the EC. In December 2009, Neon sued IBM in the US District Court for the Western District of Texas for its anticompetitive practices in the mainframe market.
In the investigation announced today, the EC said it was focusing its investigation on IBM's alleged tying of mainframe hardware sales to is mainframe operating systems. (It's actually the other way around. You can buy a mainframe without an operating system - TurboHercules and T3 both want to sell you one - but you cannot buy the mainframe operating system license and put it on a non-IBM mainframe, except in rare cases on ancient Amdahl and Hitachi iron running in some corner of a data center somewhere.)
The EC said that in 2009 approximately €8.5bn worldwide and €3bn in the European economic area were spent on new mainframe hardware and operating systems, so this is not a small potatoes issue.
"IBM is alleged to have engaged in illegal tying of its mainframe hardware products to its dominant mainframe operating system," said the EC statement. "The complaints contend that the tying shuts out providers of emulation technology which could enable the users to run critical applications on non-IBM hardware."
The EC opened up a second investigation into IBM's maintenance services practices. In its statement, the EC said it "has concerns that IBM may have engaged in anti-competitive practices with a view to foreclosing the market for maintenance services (i.e. keeping potential competitors out of the market), in particular by restricting or delaying access to spare parts for which IBM is the only source".
The EC reminded everyone that the probes do not imply that it has proof of infringements, but merely that the antitrust regulators are investigating further.
IBM's public relations machine cranked out a lengthy statement about how it had invested billions of dollars in its mainframe business to reinvigorate the platform and that x64 servers are the dominant server platform. The latter bit is important because the definition of a monopoly depends on the definition of a relevant market. IBM was able to wiggle out of its 1956 consent decree, which settled an antitrust lawsuit brought by the US government in 1952 and which governed Big Blue's behavior for decades, in August 1996. The termination of the decree that IBM's lawyers attained was based on the idea that the mainframe and AS/400 were tiny parts of the server business and no longer needed to be regulated; they were, in the legal sense, irrelevant markets. In July 2000, regulations were lifted on the mainframe, and they were removed from the AS/400 proprietary mini a year later.
Of course, IBM has absolute monopolies for its z/OS and i operating systems, which run on System z mainframes and Power Systems midrange gear. But you'll never hear IBM or one of its lawyers admit this.
"The numbers speak for themselves: mainframe server sales today are a tiny fraction of worldwide servers - representing just 0.02% of servers shipped and less than 10% of total server revenues in 2009, according to IT industry analyst firm IDC - and shrinking from 2008," said IBM in its statement.
"Today, the mainframe server is a small niche in the overall, highly-competitive server landscape, but it remains a source of great value for those IBM clients who value its high levels of security and reliability.
"Yet even with all of its substantial innovations, the migration of certain customers and workloads away from mainframe servers to other systems remains common."
No mention of the €8.5bn (about $10bn) in worldwide mainframe hardware and software sales, a very large portion of which drops right to Big Blue's bottom line and fuels those share buybacks and acquisitions.
But IBM's statement made sure to bring up the mainframe conspiracy theory again.
"Certain IBM competitors which have been unable to win in the marketplace through investments in fundamental innovations now want regulators to create for them a market position that they have not earned. The accusations made against IBM by TurboHercules and T3 are being driven by some of IBM's largest competitors - led by Microsoft - who want to further cement the dominance of Wintel servers by attempting to mimic aspects of IBM mainframes without making the substantial investments IBM has made and continues to make. In doing so, they are violating IBM's intellectual property rights."
The only way we can know if this is "true" or not is for the EC to sue IBM for antitrust violations, for IBM to sue anyone making clone mainframe tools for intellectual property violations, and see where the judgments fall.
"IBM intends to cooperate fully with any inquiries from the European Union," the company's statement finished. "But let there be no confusion whatsoever: there is no merit to the claims being made by Microsoft and its satellite proxies. IBM is fully entitled to enforce its intellectual property rights and protect the investments we have made in our technologies. Competition and intellectual property laws are complementary and designed to promote competition and innovation, and IBM fully supports these policies. But IBM will not allow the fruits of its innovation and investment to be pirated by its competition through baseless allegations." ®