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T3 Sues IBM To Break its Mainframe Monopoly

Its 47-page suit filed in district court in New York the other day says IBM has been squeezing out any competition

T3 Technologies Inc., once the world's second-largest mainframe systems integrator, has sued IBM for destroying its business, charging it, for starters, with tying, monopoly maintenance and leveraging, denying access to an essential facility and restraint of trade.

It has asked the court for permission to join the massive, very similar antitrust suit that mainframe wannabe Platform Solution Inc. (PSI) filed against IBM earlier this year.

T3, a PSI reseller, wants a jury trial, treble damages, IBM's anticompetitive practices permanently enjoined and the court to order IBM to license its mainframe patents, which it says are an essential facility, on reasonable and non-discriminatory terms.

Its 47-page suit filed in district court in New York the other day says that since IBM's consent decree with the United States government was phased out in 2001 IBM has been systemically squeezing out any competition to its mainframe monopoly and that it has reneged on its undertaking to the government to keep its mainframe operating system available on RAND licensing terms after the decree expired.

It accuses IBM of conning the market into standardizing on IBM mainframe architecture by freely and broadly disseminating its hardware and software specifications and then pulling the rug out from under it by refusing previously guaranteed licenses.

"IBM's policy of RAND licensing and system openness was integral to its success, public image and reputation," it says. "Consumers have been deceived into purchasing IBM's products based on its reputation and representations of openness and fairness."

T3 is particularly incensed that "IBM postures itself as a champion of 'open systems and standards,'" demanding that competitors like Microsoft provide reasonable and non-discriminatory access to interoperability information but won't do it itself. It's a fraud and a hypocrite, it says.

And T3 points out that the market is completely captive to IBM. There are no reasonable PCM substitutes; the TCO of an IBM z/990 is 30%-60% cheaper than combining 30 Sun or Linux boxes to do the same task. And upwards of a trillion dollars worth of mainframe software, mostly written in COBOL, can't be rewritten and run on other machines.

Its suit reminds the court that when the DOJ agreed to dissolve IBM's consent decree the DOJ warned that "should IBM engage in anticompetitive tying - be it to parts or operating system - the United States could bring an action for injunction relief…" and that "IBM would be liable to a host of potential private treble damage actions."

QSGI, a buyer, refurbisher and reseller of IBM zSeries mainframes, also said IBM is forcing it out of business during its Q3 conference call with Wall Street a few weeks ago.

It blamed IBM's use of "actionable anticompetitive business practices" that "have impacted the entire industry for remarketing of these zSeries mainframe systems."

T3 says money is behind IBM's monopoly protection. "If the downward trend in price per MIPS between 1960 and 2000 had continued from 2000 to 2006, the price per MIPS should now be approximately $165 - but today it is more than six times that amount at approximately $1,000." As a result, the largest systems today cost closer to $18 million rather than $3 million.

According to the story T3 told the court, it used to resell low-end sub-50 MIPS IBM mainframes mostly to SMBs and state and local governments while IBM concentrated on the Fortune 500, that is it did until IBM eliminated all its sub-60 MIPS products in 1999. T3 claims the move forced small users to buy bigger, pricier machines than they needed.

So without that IBM product to sell, T3 started selling its own Intel-based tServer in 2000.

With software from Fundamental Software Inc. (FSI) the tServer could run IBM's 31-bit mainframe operating system. It was a cheaper sub-80MIPS stand-in for IBM mainframes - and since Amdahl and Hitachi had just exited the mainframe market - T3 was the only alternative to IBM's larger machines.

The FSI software was created under a patent license from IBM and IBM's PC unit even created a product out of it that T3 was going to resell until IBM discontinued the product six months later.

Anyway, T3 sold 600 of its tServers worldwide to accounts like the US Air Force for AWAC and nuclear weapons control applications.

Then the consent decree was dissolved and less than a year later, the suit says, IBM VP of North American mainframe channel sales Richard Cummings and IBM VP of US mainframe channel sales told T3 president Steven Friedman that IBM didn't like T3 selling those tServers even if IBM didn't offer products with similar power or pricing.

And if T3 didn't stop selling them, they allegedly said, IBM would prohibit T3 from selling its mainframes. T3 refused and IBM canceled its sales contract at the end of 2002.

But T3's tServer business was good and revenues increased. It was selling 100-150 machines a year and FSI's technology improved so it could scale to 100 MIPS.

Then, in 2004, IBM discontinued the 31-bit OS on which the tServer was based and contrary to its usual practice ceased to support all its older mainframe operating systems. The z/OS became its only mainframe operating system.

IBM also announced that z/OS would only be supported on 64-bit hardware and it refused to license FSI the IP underneath z/OS so FSI could make its software compatible and run it on alternate 64-bit hardware.

Left without a product again, T3 tried selling PSI servers, which run z/OS, z/VSE, OS/390 and VSE in 31- or 64-bit technologies - as well as Windows, Linux and Unix - and scale up to 260 MIPS.

IBM ran hot and cold in license discussions with PSI for a few years and it ultimately refused to license the start-up its older OS/390-related patents or z/OS discontinuing a decades-long practice. IBM even took down the web site where it represented that it licenses its patents on a non-discriminatory basis.

It refused to license z/OS to users unless they bought IBM hardware and it refused to provide PSI with the critical interface information that IBM used to provide, stuff that's needed to develop a compatible mainframe operating system. It also demanded proprietary information from PSI without promising not to use it as a precondition to further negotiations.

And then when they started marketing the systems anyway IBM allegedly told T3 customers that using the PSI Liberty Servers would result in a loss of reliability, availability and serviceability (RAS) and that IBM is "committed to putting PSI out of business."

T3 calculates the market-wide cost of IBM's "exclusionary campaign" in the billions of dollars passed on to the consumer. It wants damages based on lost profits and loss business opportunities.

It repeats IDC calculation that the market for systems up to 350 MIPS approaches 1,000 systems a year worth $500 million in sales.

For more information about Kidaro's virtualization solutions, please contact Nazli Ekim at SS PR, (646) 278 6014 -office (917) 355 9650 -cell nekim@sspr.com.


More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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Kevin Kinney 12/01/07 12:21:45 PM EST

Another puppy on the tit turns into a leech on the ass.

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