European Commission Investigating IBM’s Mainframe Business

IBM’s mainframe business is now under scrutiny from European regulators, who have opened two antitrust investigations involving Big Blue’s business practices around its Big Iron portfolio.

The European Commission, the antitrust body of the European Union, announced the investigations on 26 July. The development is the latest legal headache for IBM in connection with its System z mainframe business.

It also comes less than a week after IBM unveiled its new zEnterprise mainframe, designed to enable businesses to manage workloads across systems, with the new mainframe as the central managing point.

European Commission

Already IBM faces lawsuits and reportedly an investigation by the U.S. Department of Justice. In a statement, the EC said one of its investigations stem from complaints from emulator software vendors T3T and TurboHercules. The other was initiated by the commission itself.

The first investigation echoes complaints heard in the United States. European regulators are investigating allegations that by illegally tying its mainframe hardware products to z/OS, its mainframe operating system, IBM has effectively shut out competition from the likes of T3T and TurboHercules.

The second claims that IBM is hindering competition in the mainframe maintenance services market by restricting or delaying access to spare parts that are only available from IBM.

Both essentially focus on IBM’s dominance in a business that, while a small portion of the overall server space, still generates millions of dollars for IBM.

IBM officials have strongly denied previous allegations brought forth by such companies as T3T, TurboHercules and Neon Enterprise Software, which already is suing

IBM in the United States and last month said it would file a similar complaint with European regulators. IBM officials have said that such companies are trying to make money not only by violating IBM patents, but also by inducing mainframe users to violate their terms of their licenses with IBM.

The announcement of the EC’s investigations drew a similar response from the technology giant. “Certain IBM competitors which have been unable to win in the marketplace through investments in fundamental innovations now want regulators to create for them a market position that they have not earned,” IBM officials said in a statement.

In addition, they pointed a finger at larger rivals, particularly Microsoft, which they said are looking to expand the dominance of servers based on the x86 architecture and running Microsoft software by enabling emulators to bring mainframe workloads onto these smaller systems.

“In doing so, they are violating IBM’s intellectual property rights,” IBM said in the statement. “IBM intends to cooperate fully with any inquiries from the European Union. But let there be no confusion whatsoever: There is no merit to the claims being made by Microsoft and its satellite proxies. IBM is fully entitled to enforce its intellectual property rights and protect the investments we have made in our technologies. Competition and intellectual property laws are complementary and designed to promote competition and innovation, and IBM fully supports these policies. But IBM will not allow the fruits of its innovation and investment to be pirated by its competition through baseless allegations.”

Ed Black, president and CEO of the Computer & Communications Industry Association, said the move by the European regulators makes sense.
“Although we are pleased the European Commission is taking a serious look into IBM’s actions, it comes as no surprise to us as the evidence of anticompetitive behavior is strong,” Black said in a prepared statement. “We believe competition authorities around the world, as they learn about and focus on this vital market, will take similar actions.”

Vendors like Neon, T3T and TurboHercules claim that their products enable System z users to save money on their mainframe workloads by giving those users a legitimate alternative to an all-IBM environment.

Unfair Business Tactics

Neon’s software product, zPrime, enables IBM mainframe customers to avoid paying some licensing fees by moving workloads off the System z’s central processor to less expensive specialty processors, such as zAAP and zIIP, from IBM. Big Blue officials claim doing so violates a customer’s licensing agreement with IBM, though Neon officials disagree. Neon filed suit against IBM in December, saying that IBM’s business tactics were unfairly driving customers away.

IBM in January filed its own suit against Neon.

Products from emulators such as T3T and TurboHercules enable System z customers to run their mainframe workloads on non-IBM, non-mainframe systems. T3T executives applauded the EC’s decision to investigate.

“We’ve felt all along that through a prism of just the facts of our case, the commission and others would find enough compelling documentation on IBM market abuses to warrant a complete investigation into IBM’s practices over the past decade,” T3T President Steven Friedman said in a statement. “We’re hopeful that other judicial agencies will come to the same conclusion.”

T3T’s lawsuit, filed in New York, was dismissed in September 2009. The company is appealing the decision.