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7/30/2010
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IBM Remains On U.S. Antitrust Watch

DOJ investigation into Big Blue 's mainframe licensing policies ongoing even as European authorities ramp up their own probe.

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.

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