IBM, Microsoft Admit FTC Probe on Software : Investigation: The two computer firms have been questioned about a 1989 plan that could have been anti-competitive.
International Business Machines and Microsoft Corp., whose products have dominated the personal computer industry since its inception a decade ago, acknowledged Tuesday that they have been questioned by federal regulators probing potential anti-competitive practices.
The firms said separately that Federal Trade Commission investigators last year questioned both companies’ officials about a joint software strategy announced at a computer trade show in late 1989.
“We think they are interested in whether our partnership entered into an agreement that had an anti-competitive effect,” said William Neukom, Microsoft’s vice president for law and corporate affairs.
Neukom said the FTC had requested a series of documents from the company relating to the agreement, and that Microsoft was complying with the ongoing investigation. IBM declined to reveal the nature of the FTC’s questions and refused to say whether it was still under investigation. FTC officials would not comment.
At the heart of the issue, according to the two companies, is a five-page, double-spaced press release issued Nov. 13, 1989, during the Comdex personal computer trade show in Las Vegas. Titled “IBM and Microsoft expand partnership; set future DOS and OS/2 directions,” the release detailed the companies’ effort to “develop a consistent, full range of systems software” for the 1990s.
At the time, the partnership--which has since all but fallen apart--detailed how it would serve the millions of personal computer customers using IBM machines and Microsoft’s software.
Customers with high-powered machines and sophisticated needs were directed toward software known as OS/2, which Microsoft and IBM were still jointly updating at the time. Users of less-powerful machines were steered toward Microsoft’s Windows software.
At the time, the companies said this “statement of direction,” as it was termed, was designed “to assist customers in choosing the software solution appropriate to their requirements.” However, Neukom said, it apparently smacked of anti-competitive collusion to the FTC.
“We thought we were bringing information and guidance” to our customers, he said. “The FTC apparently looked at it and thought it manifested some sort of agreement that is somehow other than a free and open market.”
Neukom said Microsoft, which has been at odds for several months with IBM over the direction of PC software, has long since dropped the strategy laid out in the announcement. “We quickly changed our minds,” he said.
Neukom said the FTC initially contacted Microsoft last June and followed up two months later with requests for certain documents, which he declined to reveal. IBM said it was first contacted by the FTC “about a year ago” and declined to reveal any additional details.
News of the FTC probe was greeted with some measure of delight within the personal computer industry, where Microsoft in particular is regarded as a potent and often ruthless competitor.
Critics of the Redmond, Wash.-based company, the world’s largest software publisher, have repeatedly claimed that it has used its dominance and relationship with IBM to crush tiny competitors and outmaneuver larger rivals.
Particularly upsetting to many smaller software publishers is Microsoft’s unique strategy of providing both system software, which controls the computer’s basic operations, as well as application programs, such as word-processing and spreadsheet packages.
Critics argue that because Microsoft controls the system software, it has an unfair advantage in developing application programs that must operate with the system software.
Initial reports of the FTC probe indicated that regulators were focused on this aspect of Microsoft’s operations, but Neukom said they were only looking at the software partnership with IBM detailed in November, 1989.
