Microsoft, IBM Slapped with Antitrust Lawsuits

by Timothy Prickett Morgan

The Sun lawsuit against Microsoft relies heavily on the rulings of the district and appeals courts in the United States vs. Microsoft case, and Sun is expected to seek damages in excess of $1 billion.

This is not the first time that these two parties have met in court to fight about how Microsoft has misappropriated Sun's Java technology and used anticompetitive business practices to beat Sun in the application-development and runtime market. Sun is now in the midst of an antitrust lawsuit in the courts of the European Union, where Sun is alleging that Microsoft has illegally used its monopoly over desktop operating systems to take over the market for server operating systems. This is undeniably true, but then there is a question of whether or not it is illegal. That is something that European Commissioner for Competition Mario Monti is sorting through right now. Monti has the ability to impose fines on Microsoft equal to 10 percent of its worldwide revenues if it is found to have broken European antitrust laws, so it comes as no surprise that last week Microsoft offered to open up its Common Internet File System protocol and Kerebos security protocol to make it easier for non-Microsoft operating systems to interoperate with Windows desktops and servers.

More to the point, Microsoft and Sun have been in and out of court in the past five years concerning a breach of contract in Microsoft's licensing of Java technologies. Sun accused Microsoft of adding proprietary extensions to Java that essentially undermine the application portability of Java, and Sun prevailed in that case to get Microsoft to stop altering Java. Of course, the ultimate result was that Microsoft decided to rip Java out of its Windows operating systems late last year, beginning with the Windows XP release of its desktop operating system. Perhaps more significantly, Sun claims that Microsoft has hijacked many of the ideas behind Java and JVMs to create its .NET frame work, its C# programming language, and its Common Language Runtime.

To Sun's way of thinking, Microsoft has removed support for Java and stolen all of the ideas behind Java to create an incompatible, Microsoft-centric version of Java that we all call .NET. This is not what Sun's complaint says in plain English, of course, but this is truly the heart of the matter that has forced Sun to resort to legal action rather than market competition to fight Microsoft. The fact of the matter is that Java is not an open standard, but one controlled by Sun through its Java Community Process, and in many ways Microsoft's CLR is a more interesting and pliable runtime environment than a JVM, in that it supports many different languages. If Java were an open standard, certified and voted on by standards bodies that included rivals like Microsoft as well as allies like IBM, then Microsoft and other vendors could have suggested opening up Java and adding CLR-like features to it. Sun once wanted to put Java through the standards process and make it a truly open standard, but it pulled back on that two years ago, when Pat Sueltz jumped from her job as IBM's Java czar to running the software business at Sun. The world would be a different place if stubborn vendors like Sun would let go of standards like Java and Microsoft could participate in their evolution through a truly open process. Sun makes a few hundred million dollars a year licensing Java and its related technologies, and it has gotten a tremendous amount of PR out of controlling Java. Sun simply doesn't want to give this up, and this behavior is as unacceptable as Microsoft's attempts to undermine Java over the past five years.

Mike Morris, Sun's general counsel, will be handling the Microsoft lawsuit, and he said in a conference call last Friday that Sun's top brass would not be distracted by the case, which was entirely in his hands. "We believe we have a compelling case, and we look forward to our day in court," he said. "We believe that Microsoft's goal is to establish choke points on Internet access using only Microsoft technologies." Sun contends that Microsoft deliberately fragmented the Java platform, flooded the market with incompatible JVMs, forced other (unspecified) companies to distribute or use products that are incompatible with Java, significantly limited Sun's distribution channels for Java applications and middleware, intentionally interfered with the development of Java applications, infringed on Sun's copyrights by distributing an unlicensed implementation of Java, and intentionally created incompatibilities between Microsoft software and competing technologies (namely Java), thereby raising the cost of moving applications around and reducing consumer choice. (This latter item is always a big thing in these antitrust cases.) Sun admits that many of these actions took place in the past, but their effect has jeopardized the careers of millions of developers who have learned Java technologies and has stifled competition in the market for tools and applications. "What is at stake here is the future of an open software industry and an open Internet," said Morris.

Sun is seeking treble damages and attorneys' fees, which is standard in U.S. and California antitrust law. Sun is also seeking a preliminary injunction to force Microsoft to put Java back into Windows XP and Internet Explorer and to stop forcing its customers to add a JVM to these environments through a separate download. Sun, in a mood to ask for the moon and the stars, has also sought a permanent injunction to require Microsoft to disclose and license its Windows interfaces and to unbundle Internet Explorer, Internet Information Server, and the .NET Framework from Windows. Sun thinks it has a pretty good shot at the preliminary injunction and hopes to have a hearing on it within a year.

The ramifications of Sun's case might limit any operating system vendor's ability to make modifications to Java tools and JVMs on their platforms. If Sun prevails against Microsoft, it will presumably be able to prevail against any other company that has tweaked Java in any way that is not to Sun's liking. Let's take a hypothetical case here to show you what I mean. The software engineers in Rochester, Minnesota, are a pretty clever group. They could license Microsoft's CLR, and have already licensed Java, and because the OS/400 platform (as well as IBM's other platforms) have to live in both current Java and future .NET worlds, IBM could make its own virtual machine that could cope with .NET and Java at the same time, in a way that is actually beneficial to IBM's customers. If Sun didn't approve of the modifications that IBM made to JVMs to accomplish this, Sun could claim that IBM is shipping non-standard Java. (This is a bit of a joke, of course, since Java is not an open standard any more than Microsoft's Windows is. Both are merely pervasive and have not gone through a truly open standards process for ratification, and they have not been developed using open-source approaches that would allow anyone to contribute a good idea that can be either accepted or rejected by the development community.) Having claimed that IBM is shipping non-standard Java, Sun could sue IBM and ask for an injunction to prevent IBM from shipping this .NET/Java software in OS/400; it could ask for damages as well. The way that IBM and Sun fight, I would not be surprised if such a scenario eventually happened.

Back in the Courts for Big Blue

It's been more than five years since IBM successfully wiggled out of a consent decree that the company signed in 1956 to settle an antitrust lawsuit that was brought against Big Blue in 1952, just as the computer age was beginning to dawn. For the next 40 years, that consent decree, which was modified many times after several other antitrust lawsuits were filed against IBM, governed IBM's behavior, forcing it to publish list prices, allow third-party equipment to attach to its machines, and operate an arm's-length services subsidiary, among many other things. One of the obvious triumphs of the Gerstner age at IBM was the overturning of this consent decree, in January 1996, which allowed IBM to absorb its Integrated Solutions Services Corp. and to create IBM Global Services, the main engine of revenue and profit growth for Big Blue in the past five years. That is not a coincidence, and new IBM CEO Palmisano knows it every time he takes a bow for building Global Services. The absence of the consent decree made that possible, because only an integrated IBM hardware-software-services unit can make the sales pitch and win deals against smaller services rivals in the Fortune 500 and Global 2000 accounts that bring in so much of IBM's revenue. Having the services unit inside IBM has undoubtedly let Big Blue play all kinds of bookkeeping games. For instance, I would love to see how many of the mainframe MIPS that IBM sold last year went to IBM Global Services. But I digress.

Anyone who has been in the computer business longer than the dot-com boom knows that IBM has, historically speaking, been a much rougher player than Microsoft can even dream of being. (Microsoft has been more shrewd, perhaps, but less rough in its business tactics.) Judging from its lawsuit filed last week, Compuware seems to believe that the kinder and gentler IBM that was able to get out of its consent decree- -it was made null and void for the AS/400 in July 2001 and for the mainframe in July 2000--has been replaced by a much more aggressive IBM that is more like the one many remember from the past.

Compuware, one of IBM's partners in the mainframe tools business, filed an antitrust lawsuit in the U.S. District Court for the Eastern District of Michigan, alleging that IBM has misappropriated Compuware's intellectual property in its own mainframe tools. The suit also contends that IBM has illegally used its monopoly power in mainframe hardware and software to compete unfairly in those markets, and invokes the Sherman Antitrust Act, alleging that IBM has engaged in unlawful tying of its mainframe tools and operating systems.

Specifically, Compuware says IBM has illegally used portions of its debugging and fault diagnosis software to create its mainframe File Manager and Fault Analyzer tools. Compuware says the feature sets of its programs and equivalent IBM programs are very similar, and that the products have the same sets of limitations and bugs, providing a strong indication that IBM copied source code from Compuware to create these products. IBM's manuals for its mainframe tools also apparently contain passages that are nearly identical to those of Compuware's. Compuware also says that before IBM got into the mainframe tools business, it and other independent software vendors received prerelease copies of IBM's software so they could tweak their programs to work with it. Since IBM entered the mainframe tools business, says Compuware, IBM has cut back on the prereleases and the flow of information describing new products. Compuware says IBM has also tied the purchase of its mainframe tools to the purchase of critical IBM software products--presumably operating systems and databases--and that this has effectively shut out Compuware and other third parties from the mainframe tools market.

Neither Microsoft nor IBM has commented on these two cases yet.

For an interesting flashback on the IBM consent decree, read the following two stories from the July 1996 and August 1996 issues of The Four Hundred, which was a monthly newsletter back then. I think you'll find our original comments entertaining, especially since they predate the dot-com boom and Microsoft's rise to power and antitrust woes.

TFH Flashback: Decree Settlement Delayed but Possibly Broadened.

TFH Flashback: After 40 Years, the Consent Decree Is Lifted.