Wednesday, July 28, 2010

In the IBM antitrust case, Microsoft matters only as a precedent

In a reaction to Monday’s announcement of two parallel antitrust probes of IBM’s conduct in the mainframe market by the European Commission, IBM blamed it all on Microsoft and its “satellite proxies”.

IBM also referred to accusations “being driven by some of IBM's largest competitors -- led by Microsoft”. Other than diversionary tactics and some typical patent holder rhetoric, IBM had nothing special to say.

In fact, since IBM’s public response to the complaint TurboHercules lodged in March, it’s been the same kind of message again and again. Now that the European Commission has launched two formal investigations, IBM’s mantra is less credible than ever.

Regulators have to protect the public interest

There’s an important difference between litigation and regulation.
  • If you sue someone, the court will have to take up your case unless it’s outrageously absurd at first sight. Access to justice for everyone.

  • By contrast, regulatory authorities follow up on only a minority of the complaints they receive. They don’t have the resources to deal with everything, but they have more flexibility to reject. Quite often, the European Commission explains the rejection of a complaint simply with a “lack of Community interest.”
T3 Technologies filed its complaint last year, TurboHercules four months ago. There will have been a fair amount of research by the Commission, as well as back-and-forth correspondence and meetings between the regulator and IBM (knowing the Commission’s modus operandi). There must already be some strong indications of wrongdoing on the table. Monday’s announcement wouldn’t have happened otherwise.

I can’t see how Microsoft would be in the position to use the Commission for any purpose. It’s the record holder in terms of the total of fines levied by the Commission on a single company (1.7 billion euros). Microsoft was pursued by the Commission over three different issues (two of which formed part of the same case) in recent years.

The European Commission started one of the two investigations at its own initiative

We’re talking about two separate, parallel cases brought by the Commission against IBM. The Commission’s press release explains this:
Both cases are related to IBM's conduct on the market for mainframe computers. The first case follows complaints by emulator software vendors T3 and Turbo Hercules, and focuses on IBM's alleged tying of mainframe hardware to its mainframe operating system. The second is an investigation begun on the Commission's own initiative of IBM's alleged discriminatory behaviour towards competing suppliers of mainframe maintenance services.
So the first case -- the “tying” case -- resulted from two complaints (the one by T3 and the one by TurboHercules). But the second case -- the “maintenance” case -- relates to an issue that the Commission found out about without even getting a complaint from anyone.

Diversion is not a defense -- especially if it doesn’t make sense

At the heart of both cases is IBM’s suspected abuse of a dominant market position (actually it’s a monopoly).

Whatever IBM does in the mainframe market, if it’s against the law, it’s against the law and hurts consumers. IBM’s diversionary tactics don’t change the facts.

This isn’t the first time for IBM to face a mainframe antitrust issue. There’s a tradition of probes of that kind going back to the 1950’s and the famous Consent Decree. The European Commission reached a settlement with IBM in 1984. And by the way, the US Department of Justice launched a preliminary investigation last October. The DoJ is similarly unsuspicious of being in Microsoft’s pocket as the EC. It nearly broke up Microsoft into two or three pieces.

The Wall Street Journal makes some good points

The Wall Street Journal asked whether what’s good for the goose is good for the gander. It recalled that IBM ”was a principal antagonist of Microsoft during the software giant’s epic wars with Brussels.”

So IBM accuses Microsoft now of something that it actually did itself: supporting antitrust action against a competitor. But the more important thing is this:
Now it’s time to print off a few more copies of that [Microsoft] ruling. It’ll be used against IBM for sure.
The WSJ explains the parallels between both cases very well. Highly recommended reading.

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