DOJ Investigates IBM’s Mainframe Business

The lawyers at the US Department of Justice must be getting bored around the office. This week, antitrust regulators launched an investigation of IBM‘s business practices. The probe was launched after the Computer and Communications Industry Association (which represents several of IBM’s competitors) filed a complaint against IBM, claiming that it has abused its dominance in the computer mainframe market.

This marks the third time in the last sixty years that IBM has had the antitrust dogs on its trail. In 1956 the government forced the company to begin selling (rather than leasing) its tabulating machines, as well as separate its data processing services into a subsidiary company. Then, in the late 1960s, the company was investigated again for allegedly attempting to monopolize the market for business computing, a charge that was dropped in 1983. Today, IBM is accused of anticompetitive business practices within the mainframe market. T3, a rival company that until recently resold used mainframe computers, filed a civil suit against IBM for refusing to license its newest version of its software to customers using competitors’ hardware.

The problem with government antitrust action in the tech industry is that it’s difficult to forecast the future of computing in the next ten or twenty years. The DOJ’s prior efforts against IBM couldn’t foresee that by the 1990s, IBM would become a company struggling to stay afloat. When computing shifted to a more distributed client/server model, demand for desktop computers took off while demand for mainframes shriveled, and IBM suffered unprecedented financial losses. After some restructuring, the company moved in a new direction in the last decade, focusing on software and business IT consulting. Currently, mainframe computers and service still accounts for about a quarter of their revenue.

Today, parallel processing systems are being adopted by more businesses for their computing needs. While server farms aren’t yet a perfect substitute for the large reliable mainframe computers, they are increasingly becoming a popular alternative. Software designed to emulate mainframe functionality is another option that’s gaining support in the marketplace. Meanwhile, IBM has been the leader in innovation for mainframe technology, having invested a lot of its resources into next-generation chips and software. It seems that the DOJ is less interested in IBM’s competitive practices, and more interested in its market share.