The U.S. Department of Justice began preliminary inquiries in 1964 into possible antitrust violations on the part of IBM. The complaint filed in January 1969, led to the longest and most complex of the antitrust suits brought against IBM. Earlier actions, filed by the Justice Department against `Big Blue,' included a 1932 indictment for illegal tying-in agreements, a form of contract which required customers to purchase supplies used with leased equipment from the lessor, in this case, tabulating cards. In January 1952 a charge of monopolizing and attempting to monopolize the tabulating machine industry, infringements of Sections 1 and 2 of the Sherman Act, was filed.

IBM had achieved, prior to the Second World War, a dominant position in the market for electro-mechanical punched-card tabulating equipment and office machines, through the adroit and aggressive management of Thomas J. Watson. The firm entered the electronic data processing market, under Thomas J. Watson, Jr.'s equally determined and skillful management, and rapidly attained a large market share. Like other early entrants in the electronic data processing (EDP) field, IBM relied heavily on government contracts for its early research and development. Its connections with the National Security Agency (NSA) and the Atomic Energy Commission (AEC) were the strongest, but other federal agencies and the defense establishment were also crucial. It has been estimated that, as late as 1963, IBM drew 35% of their financing of R&D costs from government sources. The development of the SAGE system for the Air Force, and the STRETCH systems for the AEC and NSA, in addition to allowing the participating firms to recoup a substantial portion of their initial R&D expenditures, enabled the early manufacturers of electronic digital computers to establish a sound foundation of technical personnel, programming techniques, manufacturing technologies and other know-how that made entry into the commercial market most promising. The design of a number of components, such as high-performance micro alloy diffused transistors (MADTs) and core memories, and the Standard Modular Systems (SMS) printed circuit card assembly technologies were among the innovations developed in the STRETCH program that were fully incorporated in IBM's commercial products, such as the 7080 transistorized business computer and the 1401 small business computer.

Neither these technological innovations, nor the advantages accruing to government contractors in early EDP development, were the determining factors of IBM's success. Many observers of the computer industry in the 1950s would have evaluated Sperry Rand's position in these areas as superior to IBM's. Maintaining exclusive control over the technology or the technicians in a rapidly growing industry was clearly impossible for IBM. If fact, the 1956 Consent Decree, which settled the antitrust suit of 1952. mandated that IBM adopt a rather liberal policy of licensing technologies to other manufacturers. Technological expertise in the form of engineering and technical personnel, also frequently moved from one manufacturer to another, but, unlike licensing agreements, these offered no compensation to firms like IBM, who had entered the EDP field in the 1950s and had assembled staffs of qualified engineers, programmers, and sales and service personnel. It has been recognized, therefore, that the combination of IBM's R&D ventures in EDP with its well-established marketing and service expertise, its dominance in the tabulating machines market, and its overall financial health, all contributed to its tremendous success in commercial production and promotion of computers. With the introduction of the IBM's integrated System 360 product line in 1964, the industry giant's success and its reputation for monopolization of its markets, gave both the government and IBM's competition cause for alarm. The economies of scale available to IBM, both because of its market share and of the manufacturing innovations developed for earlier systems, made rival firms, particularly Original Equipment Manufacturers (OEMs). Plug-Compatible Manufacturers (PCMs) and peripherals manufacturers, virtually dependant on accepting `Big Blue's' standards, particularly after the introduction of the integrated System 360. The other manufacturers of full systems of EDP equipment, such as Burroughs, Sperry Rand. Digital Equipment, Xerox, Honeywell. NCR and Control Data found specialization in specific market niches their best strategy.

Because IBM's success in the computer industry was attributable to so many diverse factors, the antitrust actions in which it was involved reflect this complexity. Not only were the advantages of IBM's early government contracts and connections examined in great detail, but its marketing practices, product development and support, sales and lease arrangements and service contracts, and other business policies, were also scrutinized for monopolistic practices.

The principal case documented by this collection was filed in the U.S. District Court, Southern District of New York on 17 January 1969. The Justice Department alleged that IBM was again in violation of the Sherman Act in the general purpose digital computer systems market. The case went to trial in May, 1975, and if measured on the volume of material generated, the case may be considered a landmark. The litigation itself, however, has had remarkably little direct impact on the competitive atmosphere of the computer industry, for on 8 January 1982. Assistant Attorney General William F. Baxter concluded that the case against IBM was without merit and signed a Stipulation of Dismissal. Had the case ended with a judgement, or had the court adopted any of the Relief Proposals of the Computer and Communications Industry Association (CCIA), the Association of Data Processing Service Organizations (ADAPSO), or other firms in the industry, this would certainly not have been true. The arrangements and solutions discussed in the 1970s, included various schemes for the dismemberment and division of the computer industry giant, much as was done with AT&T. What effect the suit has had on the IBM's activities in the marketplace, therefore, has been more akin to moral suasion. Clearly, corporate decision making, not only at IBM, but for all firms with large market shares, will adjust to the prevailing atmosphere at the Department of Justice.

Concurrent with the government's case, numerous civil suits were brought against IBM by others in the industry. The majority of the private legal proceedings, filed against IBM in the 1970s, charged the firm with antitrust violations, either under provisions of the Clayton Act or the Sherman Act. These civil suits entitled the plaintiff to claim treble damages and typically alleged that IBM's behavior in the leasing, peripherals and components, or software markets, was exclusionary, predatory, demonstrated intent to monopolize or some other anticompetitive attribute. These cases include: Advanced Memory Systems, Inc.; ITEL Memory Equipment Corporation; ITEL Computer Leasing Corporation v. IBM, Applied Data Research, Inc. v. IBM. Vernon M. Bugg v. IBM and AT&T, California Computer Products, Inc. and Century Data Systems, Inc. v. IBM, Control Data Corporation v. IBM. Data Processing Financial & General v. IBM, Data Research Corporation, International Data Terminals, Inc. and Western Union Computer Utilities Corporation v. IBM, Eaton Allen Corporation v. IBM. Forro Precision Inc. v. IBM. and counterclaim suit IBM v. Forro Precision Inc., Greyhound Computer v. IBM, Hudson General Corporation v. IBM. Levin Computer Company v. IBM. The William Marion Co. v. IBM, Marshall Industries v. IBM. Memorex Corporation and ILC v. IBM. Memorex Corporation v. IBM and counterclaim suit IBM v. Memorex Corporation, Memorex S.A. v. IBM. Memory Technology, Inc. v. IBM. Mira-Pak. Inc. v. IBM. Reynolds Computer Corporation v. IBM. Sanders Associates Inc. v. IBM. Symbolic Controls Corporation v. IBM, The Telex Corporation and Telex Computer Products Corp. v. IBM, and Transamerica Computer Company v. IBM. Many of these suits were eventually dismissed by the court or withdrawn by the plaintiff “with prejudice,” precluding appeals or refiling of the suit against IBM. A portion of the plaintiff's legal costs were often paid by IBM, when an out of court settlement was reached.

As will often happen, even the attempt to settle litigation can spawn further court actions. The 1973 settlement with Control Data Corporation (CDC), for example, provoked Albert R. Weiss and William A. Robinson v. IBM, and Marihelen Jones, et. al. v. IBM. These cases were brought on the grounds that IBM's subsidiary, Service Bureau Corporation (SBC), although a separate legal entity, was a mere framework to allow IBM to comply with the 1956 Consent decree. The employees of SBC were, for all intents and purposes, employed by IBM and the transfer of the subsidiary to Control Data amounted to a breach of employment contract with the plaintiffs. The SBC employees pointed particularly to the clause in the agreement with CDC which specified that former SBC employees could not be rehired by IBM for a period of six years.

Other efforts, on the part of IBM to seek redress of its losses, occasioned countersuits. The 1973 Grand Jury investigation for conspiracy in the theft of trade secrets from IBM's San Jose disk drive facility, provoked another sort of complaint against IBM. In Wolfgang Arnold v. IBM, the plaintiff claimed a violation of his civil rights in obtaining a search warrant of his home leading to his arrest and indictment for the theft of trade secrets. Charges against Arnold had been dismissed on 3 April 1974.

Even IBM's routine collection suits in the 1970s, such as IBM v. Catamore Enterprises, Inc., IBM v. VIP Systems Corporation, often resulted in counterclaim suits with charges including fraud, breach of contract, and the ever-popular monopolization and antitrust violations.

In a countersuit emerging from Telex v. IBM. Information Storage Systems, Inc. (ISS), a subsidiary of Sperry Rand Corporation was charged as a co-defendant in a complaint charging non-payment of royalties and patent infringement of disk drive ISS was supplying to Telex. A five-year cross-licensing agreement was concluded between Sperry Rand and IBM in 1974 and IBM dropped charges against ISS.

Other patent infringement suits include: Norfin, Inc. v. IBM, Sycor. Inc. v. IBM, and William H. Wolowitz and Frallen Inc. v. U.S., in which IBM was named as a third-party defendant. Ampex Corporation, although no suit was filed, negotiated a settlement with IBM in return for not pursuing its allegations of patent infringement and antitrust violations by IBM. Xerox Corporation and IBM carried on eight years of litigation involving patents for office copying and electronic typewriting machines, ending in August 1978 with the mutual exchange of patent rights and payment of $25 million by IBM.

Some of the litigation in which IBM was involved, however, was quite unusual. The alleged failure of IBM to warn or protect shareholders from fraudulent use of IBM computers was charged in Equity Funding Shareholders v. IBM. Royal Data v. IBM charged that IBM sales staff spread false rumors that the plaintiff was connected with the Mafia, thereby driving the Las Vegas firm out of business in early 1973. Royal Data originally sought $50,000 in punitive damages and $4,000/day for each day it was out of business but later raised ante to a total of $6.5 million.

Throughout the 1970s, probably the most litigious decade of the computer industry's short existence, IBM's overall average was successful. Nearly all of the suits were either dismissed, settled out of court, or if decided against IBM, reversed on appeal. Despite some substantial financial settlements, no admission of wrongdoing ever emanated from IBM's corporate headquarters in Armonk, New York.

The impact of these antitrust actions extends beyond the computer or data processing industries. This litigation has generated much debate about points raised by monopoly charges -- the definitions of market scope and share, the distinctions between competitive and predatory behavior, and the burdens associated with prosecuting the charge of “intent” to monopolize trade. As these issues are likely to be the focus of important discussions among jurists, economists, and many in business, the documentary evidence contained in this collection will be a valuable resource for those interested in this important aspect of American business. This chapter of the development of the data processing industries has raised more questions than it has answered about our understanding of competitive markets and free enterprise in dynamic growth industries.

The Computer Industry Association is a non-profit trade association, formed in 1972 by the presidents of seven companies in the computer industry. The organization was created to provide a forum for these companies to express their opinions, needs, and problems to those outside of the industry. The goal was to put together an association that would speak for all segments of the computer industry with specific reference to the problems of competition and monopoly. Its purpose is “to bring about the establishment and preservation of a sound and viable U.S. computer industry, based upon the unrestricted exploitation of technology and free and open competition.” Establishing standards in the computer industry and lobbying for favorable legislation were also seen as concerns of the Computer Industry Association. In 1977, the association's name was changed to Computer and Communications Industry Association (CCIA).

The collection accessioned by Hagley was created by the Computer and Communications Association and consists largely of documents that became part of the public record as a consequence of the antitrust litigation against IBM. Since the potential for a complete restructuring of the computer industry was likely, were the government's case successful, most firms in the computer and electronic data processing (EDP) businesses were very interested in the proceedings of these lawsuits. CCIA obtained permission to reproduce documents from the courts' records, which were then made available to the association's membership, for a fee.

This collection owes much of its character and content to the influences of its various `collectors.' First, as documents in legal proceedings, those items entered as evidence have been separated from their context and cannot document, as fully as corporate records might, the actions associated with their original creation. In addition to the selection process imposed by the needs of legal argument and defense, the Computer and Communications Industry Association, in it's role as a collector of these records, also culled and arranged the documents. And, finally, the collection at the Hagely Museum and Library is one of two incomplete sets of the antitrust suit records. The Charles Babbage Institute Collection of Computer and Communications Industry Association United States v. IBM Records was also obtained from the CCIA. The fact that neither repository has a complete set of the records, has itself affected both the arrangement description of these collections.

Given the nature of the relationships and roles of antitrust litigants, it is not surprising that the documents offer the greatest degree of detail for IBM. IBM divisions involved in the design, development, research, manufacturing, testing, marketing or maintenance of EDP equipment are well represented in this series. Nearly seventy corporate executives responsible for planning and policy decisions were deposed at length. A great many reports, minutes, and memoranda were culled from IBM's files, and presented by the government, as well as by the defense, both differing from and duplicating one another's evidence.

IBM adopted a standard antitrust defense strategy, that the firm's “superior skill, foresight, and industry” were responsible for its position in and share of the EDP market. Apropos of this position, much of the evidence presented by the defense documents those IBM practices, policies, and decisions that demonstrate the company's contributions to advanced research, commitment to pure research (through university grants and support programs), attention to customer relations issues, and so on. The documents also illustrate the hard-fought corporate struggles over particular responses to market pressures. The System/360 model 44 `scientific' computer is a good example of the battles within IBM's upper-management over the timing of product releases, the amount of programming support to offer customers, and, in general, how the firm could best respond to the demands of the marketplace and the needs of its customers. A notable aspect of these management decisions, is the extent to which Thomas J. Watson, Jr., Frank Cary, and T. V. Learson, i.e. the chairman of the board, actively participated in technical and engineering planning decisions. In an industry where technological innovation occurs rapidly, and product improvements respond to advances in scientific understanding, the extent of a firm's “foresight” may be found in management's planning decisions.

The Hagley Museum and Library's Collection of IBM Antitrust Suits Records has been divided into seven series, corresponding to the antitrust lawsuits represented by these documents. The Department of Justice's case. United States v. International Business Machines Corporation, because of its size and importance, is Series I. The private civil lawsuits consist of four cases which named IBM as a defendant, Series II. Control Data Corporation v. International Business Machines Corporation and Commercial Credit Company. Series III. Greyhound Computer Corporation. Inc. v. International Business Machines Corporation, Series IV. The Telex Corporation and Telex Computer Products, Inc. v. International Business Machines Corporation, and Series V. California Computer Products. Inc. v. International Business Machines Corporation. Two lawsuits, Series VI. International Business Machines Corporation v. United States and IBM and Cravath, Swaine & Moore v. U.S. and Series VII. International Business Machines Corporation v. Catamore Enterprises. Inc., in which IBM was the plaintiff, complete the collection. These series are organized in chronological order according to the filing date of the complaint.

The types of documents in a particular series often comprise several distinct forms, such as trial transcripts, exhibits and depositions, and non-evidentiary court documents like motions, stipulations, court orders, memoranda, and other legal filings. Wherever possible, these records have been arranged into subseries, according to their form; individual files and documents are either in chronological or sequential order according to the court-assigned docket or exhibit numbers. In some instances, principally in Series I, U.S. v. IBM. physical arrangement into the subseries that would have logically emerged from these documents, i.e., depositions, motions, defense and plaintiff exhibits, was not possible. The photocopy and microform reproductions of the court record produced by CCIA were often bound together in volumes which reflect a filing arrangement created by the Association. This organization roughly follows the order in which such documents were entered as docket items in the District Court. To some extent, therefore, legal documents, motions and memoranda, for example, are arranged according to the date of their creation. Some occasional attempt appears to have been made by CCIA, however, to group together materials of like subject matter. Thus, `Materials Relating to the Production of Documents' are contained in CCIA volume 1, although they are not the earliest created documents in the case, and, in fact, were generated some four years after the original complaint was filed. Likewise, CCIA volumes containing exhibit materials and those comprised of non-evidentiary court documents are often intermixed in the sequential number system imposed by CCIA.

The Collection of IBM Antitrust Suits Records at the Hagley Museum and Library is not a complete copy of the court records for any of the antitrust litigation involving IBM. There are significant and notable gaps in each of the series. In some cases, these deficiencies simply indicate clerical omissions or oversight. In other instances, however, the items not reproduced by the Computer and Communications Industry Association reflect the association's estimation of the material's value or interest for its membership. This is particularly so in the case of the records for Telex v. IBM, where the association copied very few of the defense exhibits. The litigants and the court itself also imposed restrictions on some of materials which are part of the court record. As CCIA was required to obtain the approval of the court for the duplication of the exhibits, sensitive materials, i.e., those containing proprietary information and documents protected by claims of privilege, were not available to CCIA and, therefore, did not become part of this collection.

The researcher may also find these materials difficult to use due to the unreliable quality of the reproductions. In spite of these limitations, the collection provides a remarkable resource, if only because it brings together so much information from such a large number of firms in the domestic EDP industry for the crucial decades of the 1950s through the 1970s.

Copyright restrictions may apply.

Gift of Computer and Communications Industry Association

1988

Processed by Gail P. Dunleavy

The Computer and Communications Industry Association also gave a collection of I.B.M. antitrust suit records to the Charles Babbage Institute at the University of Minnesota. Hagley also has another collection of I.B.M. antitrust suit records in Accession 1980.