Suit Charges Company with Preventing Competition in Digital Equipment Field
Breakup May Be Asked
Action is 3rd Major Antitrust Move in Final Days of the Johnson Administration
By Edwin L. Dale Jr.
The New York Times
Washington — January 17, 1969 — The Justice Department announced today that it had filed suit against the giant International Business Machines Corporation, alleging it monopolizes the $3-billion general purpose digital computer market. It indicated that it would seek at least a partial breakup of the company.
The suit against I.B.M. was the Government’s third major antitrust action in a week and part of an enormous flurry of last-minute activity on the part of officials of the Johnson Administration. These included:
- Recommendation by the Justice Department today that the Government end price-fixing of sales commission charges in stock transactions.
- Release of a report by a Presidential committee proposing changes in the way the Government deals with its employes.
- Announcement that the Interior Department is planning to set aside more land for parks.
- Issuance of regulations by the Department of Transportation requiring that social considerations be taken into account in the location of highways.
- Release of a large number of studies, long in preparation by a number of agencies and committees, on subjects ranging from urban housing to beautification of public utility lines and installations.
The antitrust suit against I. B. M., filed in Federal District Court in New York, followed the filing last week of antitrust suits against major auto manufacturers, charging a conspiracy to delay development of antipollution devices and a legal move against the merger of Atlantic Richfield Oil Company and Sinclair.
The suit alleged that I. B. M. had engaged in a number of selling and marketing practices that were said to prevent “competing manufacturers of general purpose digital computers from having an adequate opportunity effectively to compete for business.”
Sales and leases of general my introduction dealing with intergroup relations, I would I.B.M.’s $5.3-billion gross sales in 1967. The suit said I.B.M. held 74 per cent of the market for this product.
It asked the court to order the company to cease the practices complained of and added a vague request for “relief by way of divorcement, divestiture and reorganization with respect to the business and properties of the defendant as the court may consider necessary or appropriate to dissipate the effects of the defendant’s unlawful activities.”
Presumably, the Justice Department will detail what it has in mind by way of breaking up the company when the case comes to trial.
The suit was filed at the direction of Attorney General Ramsey Clark in the waning hours of the Johnson Administration. Today was the last full business day of the outgoing Administration.
Ironically, Nicholas deB. Katzenbach. Under Secretary of State and a former Attorney General, is to become I.B.M.’s general counsel.
And Burke Marshall, an I.B.M, vice president, was a key Justice Department official during the Kennedy Administration.
Inquiry Began in 1967
I.B.M., however, has been under Justice Department investigation since at least the beginning of 1967. Last month, one competitor and one customer—the Control Data Corporation and the Data Processing Financial and General Corporation—filed antitrust suits against I.B.M.
The Justice Department complaint said that beginning in 1961 I.B.M. “has attempted to monopolize and has monopolized” the general purpose digital computer market. Digital computers, the suit said. represent “over 95 per cent of all computer sales and leases.”
The suit was filed under Section 2 of the Sherman Act, covering monopolization, which is used relatively seldom. Most Sherman Act suits are for price fixing and other conspiracies in restraint of trade, among competitors, under Section 1.
I.B.M. has already indicated that by the middle of this year it will change some of its pricing practices — probably including those complained of in today’s suit. But whether this would be enough to satisfy the Government cannot be known now.
Neither is it known what attitude the new Attorney General, John N. Mitchell, and his still unnamed Antitrust Division chief, will take to the suit. If the case goes to trial it could last for years, including almost inevitable appeals.
The practices complained of today included the following:
The company quotes a single price for the computer itself related “software” and supporting services. The Justice Department said that this device was used to discriminate among customers “by providing certain customers with extensive software and related support in a manner that unreasonably inhibited the entry, or growth of competitors.”
This pricing system was also used, the complaint said, to limit “the development and scope of activities of an independent software and computer support industry.”
The company, according to the complaint, also “used its accumulated software and related support to preclude its competitors from effectively competing for various customer accounts.”
Software is the program, or instructions, that makes the machine perform the desired task.
Next, the company was charged with introducing new models of computers “with unusually low profit expectations, in those segments of the market where competitors had or appeared likely to have unusual competitive success.”
The company was also said to have announced “future production of new models for such markets when it knew that it was unlikely to be able to complete production within the announced time.”
Finally, the company was charged with having “dominated the educational market” for these computers “by granting exceptional discriminatory allowances in favor of universities and other educational institutions.”
The digital computer, the kind that Americans have become familiar with in the last 10 years, basically counts at a fantastic speed through its ability to identify positive and negative electrical charges.
This ability, in addition, enables the machines to make decisions by sensing the simple presence or absence of a charge. These are the machines that send out utility bills, and pay checks, and that played a major role in sending Apollo 8 to the moon.
Analog machines, much simpler affairs, are not exact devices, and show only an analogous relationship between what is to be measured and a reading device, and include such instruments as the slide rule, thermometer, and water meter.
Statement From I.B.M.
I.B.M. said yesterday it would defend itself forcefully against charges by the Justice Department that it was monopolizing the data processing industry.
The company said it believed the Government’s action was “unwarranted and without foundation.”
“This lawsuit is the out-growth of previously reported discussions going on for nearly three years between the Justice Department and various companies in the data processing industry. I.B.M. has cooperated fully in this review.”
“One of the key issues in these discussions has been whether there is sufficient competition in the data processing industry or whether I.B.M. has such monopolistic power that fully effective competition does not exist.
“Evidence of the open and strongly competitive nature of the computer business is abundant. Virtually nonexistent 20 years ago, it has grown into a multi-billion-dollar industry that has attracted more than 60 manufacturers of computer systems and some 4,000 companies dealing in related equipment support and services.
“I.B.M. will defend itself forcefully against this action, which it believes is unwarranted and without foundation. The company believes furthermore that the highly competitive data processing industry will remain a growing and dynamic one.”
c. 1969 New York Times Company