The government has lost a major, perhaps irretrievable, opportunity to break up the "cartelization" of the computer industry, the former chief counsel for the antitrust proceedings against International Business Machines Corp. said yesterday.
The day after the Justice Department dismissed the 13-year-old suit against IBM, Raymond Carlson, the former Justice Department counsel and now a Washington attorney, said the decision to drop the case did not come as a surprise. But Carlson said the ramifications of the decision will not be known for decades.
The government had contended that IBM illegally monopolized the computer industry through pricing and other practices. But after a lengthy review, Assistant Attorney General William F. Baxter called the case "flimsy," concluding that IBM's dominant position had not been obtained illegally.
"Those of us at the Justice Department who worked on the case believed in a noncartelization philosophy," Carlson said. "I'm of that school of economics. Mr. Baxter is not. I prosecuted the case on that belief.
"If I am a company the size of IBM and run it well and put people out of business by predatory pricing, the decision seems to say one can do what the law forbids," Carlson said.
In announcing his decision, Baxter said, "The government's case does not allege that IBM achieved that position market dominance illegally."
In an interview, Carlson disclosed that in 1972, the Nixon administration's Council of Economic Advisers, headed by Paul McCracken, and other ranking administration officials, concluded that the case filed during the waning days of the Johnson administration should be brought to trial. Other reviews of the case by the Ford and Carter administrations were conducted in the Justice Department.
The case went to trial, Carlson said, "not as a matter of politics or ultimately relief, but as a matter of law." Carlson directed the government's case from 1972 until 1977, when he left his post after nearly 30 years of government service.
"I always thought that what we were doing was worth doing," he said. "I think a lot of other people who worked on the case feel a public disservice was done by Baxter's decision . I'm not bitter. I would take the job again. I put in the best case I could."
A number of past and current Justice Department officials contacted about Baxter's action refused to comment. Robert Stahl, the chief counsel for the Justice Department on the case when it was shut down Friday, said he had been told by Baxter not to comment substantively on the dismissal. "I am considering my options," he said.
But one senior government lawyer said the IBM litigation, perhaps the costliest ever undertaken by Justice, was dead three years ago, but could not be buried until now for political reasons. "We're glad to get rid of it," said the official. "It was stinking up the joint."
Aside from saving IBM the millions of dollars it was spending on its legal defense and ridding management of a major irritant, the end of the government's case won't change the way the largest computer firm does business, industry analysts said.
There is no question IBM remains the dominant force in the computer industry. According to the Computer Intelligence Corp., a California consulting firm, IBM's share of computer systems in the 1,000 largest computer installations is up to 77 percent, an increase from 69 percent four years ago.
Other industry sources suggest that the company's share of main-frame computers, the large central data processing systems, is around 70 percent, roughly IBM's share of that phase of the business when the case was brought 13 years ago.
Gideon Gartner, president of The Gartner Group in Stamford, Conn., said his surveys give IBM a 30 percent share of worldwide data processing revenues.
"That is way down, as you'd expect because of the diversity of the industry today and IBM's late start" in certain parts of the business, Gartner said. Nevertheless, because IBM's computers remain at the heart of data processing systems in most of the largest U.S. industrial firms, IBM "exercises a lot of control."
Competitors such as Digital Equipment Corp., Amdahl Corp., and National Advanced Systems, for example, thrive by taking IBM on in specialized niches where they out-perform the industry giant. But Gartner said that since IBM technical specifications are the industry standards, it has latent power to affect competition in any computer business niche it chooses.
Although this control will be a potent weapon in IBM's competition against an unleashed, if shrunken, American Telephone & Telegraph Co., the most serious future threat to IBM continues to come from Japan. Companies there can match IBM's technology and its low prices, advantages that give the Japanese the ability to challenge IBM's position as the leading supplier of central computer systems.