Justice Department investigating IBM for antitrust violations in mainframes

ibmThe Justice Department has started an investigation into whether IBM broke antitrust laws by abusing its monopoly power in the mainframe computer market.

Lawyers for the federal agency have sent queries related to antitrust matters to IBM and its rivals in recent weeks, the New York Times reported.

The new antitrust case is one more example that shows the Obama administration will strongly enforce antitrust laws, in sharp contrast to the Bush administration. Other cases are focused on high-tech companies such as AT&T, Apple, Google and Intel. Government regulators are also looking closely at antitrust issues related to acquisitions.

IBM faced a Justice Department inquiry in mainframe computers early in the computer industry’s history, but the investigation was shut down after 13 years in 1982 by the Reagan administration. Now IBM continues to dominate mainframes, which are used to hold together the mission critical operations of big companies. Mainframes are the fool-proof machines that keep automated teller machines running and hospital operations up.

One of the startups involved in the investigation is Platform Solutions. That company tried to license mainframe software from IBM, but IBM refused. Platform sued and then IBM acquired platform for $150 million in 2008. It then shut down Platform’s operations. David Balto, an antitrust expert at the think tank Center for American Progress, said that case was an egregious example of monopoly abuse. He said that vigorous antitrust enforcement is going to be critical to the recovery of the economy because it preserves competition, which leads to new business and job growth.

“This is a really important step in trying to restore sound antitrust enforcement in the high-tech industry,” said Balto, who is former policy director at the Federal Trade Commission. “The conduct IBM has been engaging in is similar to the egregious practices that Microsoft was engaged in that brought about its antitrust case. And yes, the enforcement level is up because it’s easy to go up from zero enforcement.”

Another case involves T3, a startup which is in private antitrust litigation with IBM. T3, a mainframe reseller, sued IBM in federal court but a judge tossed out the case last week. T3 is appealing. The IBM investigation began after a complaint filed by the Computer and Communications Industry Association, a trade group backed by IBM’s rivals which alleges that Big Blue blocks attempts to license its software.

IBM has not yet responded to a request for comment.