The Trials of Microsoft - lessons from the past (Part 2)

Imagine a company that dominates the computer market. It has a presence in all corners of the industry and stands untouched by its rivals. Sound familiar? No, it's not Microsoft but a much older computing monopoly - IBM.

During the 1970s, IBM went through 20 anti-trust cases brought by its competitors and a 13-year federal anti-trust suit, which ended in 1982. None of its accusers won outright, but the legal hoops the company was forced to jump through left a lasting impression.

In January 1969, attorney general Ramsey Clark filed an anti-trust suit against IBM for abusing its monopoly position. The case was eventually dropped for being "without merit" but after 13 years of investigation IBM's legal bills alone amounted to $2m a year in 1970's currency.

The company had also set up a litigation department to catalogue and produce documents for the case, employing 500 people. In the boardroom former CEO Thomas Watson said that every executive decision - even routine ones - were made with "one eye on how it might affect the lawsuit".

But this was not the only restriction imposed on the company. In 1956 the US Department of Justice (DoJ) won an anti-trust suit preventing IBM from becoming a monopoly in the punch-card tabulating and electronic data-processing machine market, resulting in a consent decree lasting for over 40 years.

The decree forced IBM to separate its computer services operations into a subsidiary company; to sell its computers as well as lease them; and to service and sell parts for computers that IBM no longer owned. It also had to pay full list price for hardware and software it bought from any of its subsidiaries.

But is there anything Microsoft can learn from IBM's experiences?

Ashim Pal, senior research analyst at the Meta Group, thinks there is: "The two cases are similar in that they will run and run. In reality the Microsoft case will take years to play out because the issues are extremely complicated - the competing vendors, the government and Microsoft all have their own agendas."

The legal proceedings meant that IBM was distracted from its primary focus of selling and developing products, Pal explained. The same could now happen to Microsoft.

However, Pal believes the similarities end there. "IBM was more bloated and cumbersome than Microsoft is. It had more people, more bureaucracy and was less cohesive in terms of its direction.

"Microsoft on the other hand is a very lean and focused company, it's inherently more aggressive and dynamic, with a cohesive product direction." He believes this is the critical point of difference in the ability of the two companies to withstand the DoJ's onslaught. Microsoft will be forced to slow down a little, but with NT on the horizon, it can only get bigger over the next three years.

Pal added that it would be very difficult for the government to split up Microsoft in the way it succeeded with IBM in the 1950s. "If it does split, it will be voluntary," he said. And although that might appease the DoJ, Microsoft would still be able to run the two companies as one.

Another difference between the two cases is the issue under investigation. With IBM it was a straightforward case of monopolistic pricing of its core business, but with Microsoft the key issue is browser bundling. According to Pal the government has "chosen the wrong rock to look under, there are other, better issues to challenge Microsoft on".

It's significant that the investigations of the 1970s led to no action being taken against IBM. Professor Marios Angelides, director for the centre of multimedia at Southbank University, said: "Microsoft has a recent case from which to draw comparison. The DoJ, on the other hand, has never been successful in a case of this magnitude so they are effectively trying to make legal history. That gives Microsoft the edge."

So IBM got away with it last time round - and Microsoft is looking well set to do so now. But as with IBM, the real question will not be answered in court, but in the business world.

IBM let its attention wander and is no longer the dominant force it once was - Microsoft will need to stay on its toes.