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

by Hesh Wiener

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 businesses. Combined with business decisions IBM made in the context of the Decree, the 1956 agreement contributed substantially to the establishment of the IBM PC as a world standard. From there, the advent of the clone PC business was a small step. Later, again with the help of decisions made by IBM, the PC business 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 termination 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, 2001, 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.

Milestone

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 Whether or not it has long been outdated, as IBM has argued over the years, few would contend that the Decree is as important as it once was.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 world--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.

Sunset for the old IBM, too

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 PC 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 PC, workstation or server who believes that IBM is indispensable.

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 U.S. dropped a 1969 antitrust suit it brought against IBM, the U.S. government has become, by historical standards, quite tolerant of concentrations of economic power. Practices of IBM and many other companies that would, during the first two thirds of this century, have engendered government scrutiny, public ire and possibly enforcement proceedings have been tolerated and at times even encouraged by a body politic more concerned with America's economic power abroad than its equity at home. Disparities between the rich and the poor, the haves and the have-nots that once might have brought pangs of grief to a sensitive public conscience are today viewed as a necessary stimulus to individual and corporate achievement and a concomitant of freedom.

The American public's displeasure with an IBM chafing under the yoke of antitrust laws, expressed more visibly in the electoral process than in the press or individual expression, undoubtedly contributed to the judicial climate under which IBM was released from its bonds.

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. IBM is not being excused from the Consent Decree because the Decree has served its purpose, although that is what a transcript of the court proceedings--and a substantial body of statistical and anecdotal evidence--seems to reveal. Rather, 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 and Intel 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 educated immigrants who have sought not asylum in America, but opportunity for themselves and their children.

Can War Have Rules?

Antitrust policy at its best is the Geneva Convention of economic warfare, with comparable flaws and lapses and insufficiencies. Each is an attempt to recognize that the most numerous and helpless victims of wars both military and economic are not the states engaged in battle nor their leaders, but the foot soldiers and civilians.

In war, human dignity is trampled underfoot, no matter what the cause, no matter who the victor. In economic war, compared to military war, particularly when the battlefield is a wealthy civilization, victims are often harder to identify and savagery more easy to tolerate. It is easier to extol the success of the winners and make them models for conduct, however unheroic and mundane their business activities may be. In military wars, the corpses of the dead, the vacuum left by the missing and the bodies of the wounded cannot be denied. In economic wars, the casualties are far more subtle and the wounds, because they are emotional, are not visible to an observer. Individuals, their families and their friends see what a camera could not detect.

The vigorous 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. It appears to be, and we earnestly hope it turns out that way in the long run. We are not as pleased by the political atmosphere in which it was made, a point of view that appears not so much in the details of the proceedings but in their overall tone and scope, in what was not put forth as much as in what became prominent.

Unintended Impact

We doubt that IBM will become any more nimble now that the scope of the Consent Decree has been so markedly reduced and the remainder of its power given a definite termination. IBM is more constrained by factors other than the Decree--the persistence of legacy software, for instance, and the shift of value from hardware to software and telecommunications--than it is by the rules it has been obliged to follow since 1956. If anything, the relaxation of antitrust policy in the United States, of which the end of the 1952 IBM case is not even a very good example, will in general accelerate the demise of older and more established enterprises, augment the rise of new suppliers and most generously reward not the inventive competitors but the most vicious.

If the antitrust pendulum has swung too far toward the tolerance of undesirable business conduct, as we believe it has, it will eventually swing back. In the meantime, it will test the tolerance of every American as the wheel of fortune turns not only more rapidly, but with shuddering eccentricities that will throw many of us off paths we assumed were wise, worthwhile and secure.

Before long, but probably not until its current leaders have moved on, IBM may find itself back in the courts arguing about antitrust. But the next time, we expect, it will be as a plaintiff rather than a defendant, and it will be looking for help and sympathy from the Justice Department with which it spent more than half this century doing battle. IBM's most prominent potential adversaries are Microsoft and Intel. But the rogue states being established in the communications business pose comparable threats to IBM's future success.

Hesh Wiener is president of New York-based Technology News of America, the original publisher of The Four Hundred.