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  1. Technology
August 15, 1996


By CBR Staff Writer

By Hesh Wiener

On July 2, IBM and the US Department of Justice agreed to a plan for the termination over the next five years of the remaining applicable portions of the 1956 Consent Decree (CI No 2,951). The Decree settled an antitrust suit brought by the US Government in 1952. In signing the Decree, IBM agreed (among other things) to end its rental only policy and sell machines at prices that were reasonable in comparison to rental rates; to allow others to buy parts to repair or upgrade its machines; and to maintain machines reconfigured by customers or third parties. IBM also promised to operate any services business it owned as arm’s length subsidiaries. The Decree led to the establishment of the independent IBM equipment leasing and trading businesses, the third party IBM equipment maintenance business and the plug-compatible processor and peripherals industries. Combined with business decisions IBM made in the context of the Decree, the 1956 agreement contributed substantially to the establishment of the IBM Personal Computer as a world standard. From there, the advent of the clone industry was a small step. Later, again with the help of decisions made by IBM, the personal computer market grew too large and unruly for IBM to exercise control.


The procedure for termination of the Decree hammered out in the Manhattan courtroom of Federal Judge Allen G Schwartz specifies a 60 day period for public comment. After that process, which is not expected to result in any changes to the proposed te rmination plan, the Judge may decide to sign the order jointly approved by IBM and the Justice Department. Basically, the extant pertinent provisions of the Decree will be kept in force until July 2, 2000, for the AS/400 series and until July 2, 200 1, for mainframes. This so-called sunset period is designed to allow users of IBM equipment and companies whose existence depends on the IBM policies and practices mandated by the Decree to adjust. The portions of the Decree restricting IBM’s conduct in other market segments and its participation in the computer services business were ended on January 17 under a pact agreed to by IBM and the Justice Department and approved by Judge Schwartz. The January 2 agreement is a monumentally important milestone in the evolution of the computer industry, marking the end of a 40-year period in which the power of IBM to control the information processing business was considered a grave threat to the American public in general and the development of high technology industries in particular. Whether or not it has long been outdated, as IBM has argued over the years, few would contend that the Decree is as important as it once was. Even the companies directly affected by the termination seem to accept that the end of this era was inevitable.

Many of the people whose careers were shaped by the Decree are unaware of its role. They take the conditions it brought about for granted. They are similarly ignorant of the impact on their lives of New York Federal Judge David N Edelstein, who presided over the 1952 case and who administered the Decree until IBM won its battle for his recusal on January 17 1995, exactly a year before much of the decree was nullified. But the course of history – not only in the United States, but around the wo rld – was undeniably altered by the chain of events begun 44 years ago in Judge Edelstein’s courtroom and by the dwindling legacy of the case Judge Schwartz inherited and, now, will preserve for five more years. The myriad developments stemming from the imposition of the Decree have considerably affected IBM, which became and remained the world’s largest computer company even under the Decree’s restraints. It is more than somewhat ironic that IBM’s attorneys have finally won their battle now. In recent years there have been indications that IBM’s empire has passed its zenith. IBM does not have the hegemony over desktop computers or Unix servers or the Internet that it had and still has in the mainframe market and AS/400 base. Even in those segments, where IBM provides the systems software and defines central processor architecture, the IBM logo no longer appears on as many peripheral devices. End users may more often work at personal computer terminals that say Compaq than IBM. And afield from the corporate empires in which IBM remains solidly entrenched, it is exceptional to find an IBM computer and nearly impossible to find a user of an IBM personal computer, workstation or server who believes that IBM is indispensible. If that was the intention of the 1956 Consent Decree, it certainly worked. Yet it is possible to give the Decree excessive credit. Since well before 1982, when the US dropped a 1969 antitrust suit it brought against IBM, the American government has become, by historical standards, quite tolerant of concentrations of economic power. The termination of the 1956 Consent Decree may thus be viewed as an expression of American democracy and a reflection of public opinion. Ironically, it is this same sea change in the culture of the United States that poses the greatest threat to IBM. It stems not from an approval of IBM’s right to an unfettered economic destiny but from a deep ignorance of history and a cynicism arisen out of moral decay.

Vigorous application

IBM is being allowed to pursue its interests unencumbered by the Decree because the very notion of setting a limit on economic power has become abhorrent. In the computer industry, the main beneficiaries of this climate may be Microsoft Corp and Intel Corp rather than IBM. And the principal victims of the corruption that is inherent in vast accumulations of wealth may not be a handful of computer leasing companies or mainframe users, but instead the venture capitalists, the inventors and the e ducated immigrants who have sought not asylum in America, but opportunity for themselves and their children. Antitrust policy at its best is the Geneva Convention of economic warfare, with comparable flaws and lapses and insufficiencies. The vigorou s application of antitrust law does not heal those wounded in economic battles nor provide an absolute defense against casualties. It cannot and should not. Excess business regulation on the part of government can be just as harmful to a society as a lack of restraint. Progress and conflict are inseparable, and in times and places where the status quo has become a primary goal the resultant tragedies are equal to those created by anarchy. In antitrust, as in any aspect of social organization, balance, elusive as it may be, is the only sensible goal. And, as social conditions change, the balance point must be adjusted to match the circumstances. Only time will tell whether the agreement reached in Judge Schwartz’s courtroom by IBM and the Justice Department is equitable in the broadest sense.

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From Infoperspectives, August 1996 (C) 1996 Technology News of America

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