Five years on [LWN.net]

Five years on

Posted Sep 30, 2010 17:56 UTC (Thu) by FlorianMueller (guest, #32048)
In reply to: Five years on by pboddie
Parent article: Red Hat Responds to U.S. Patent and Trademark Office Request for Guidance on Bilski

IBM's behaviour might have been just as acceptable to you at that point in time.

If I had been asked to comment specifically on mainframe at that time, I wouldn't have had enough knowledge about that market to be able to understand the implications of IBM's conduct.

What we're talking about are two principles that must be weighed against each other: the concept of intellectual property, and the need for undistorted, effective competition. By default, it's all about intellectual property, and the bnetd case was just about intellectual property. In some cases, competition considerations (antitrust etc.) come into play, and then the result can be a different one than under IP law itself. However, if competition law sort of overrules IP, there must still be a reasonable compensation of the right holder, so IP is still respected.

But Blizzard dominated the market for services supporting its own games. Why is it different that IBM dominates the market for hardware that can run its own operating system?

One can define all sorts of markets, but that doesn't necessarily make them "relevant product markets" under competition law.

The mainframe market has been considered a relevant product market on prior occasions. It's definitely not just part of a larger server market. IBM's price discrimination makes the execution of legacy workloads about 10 times as expensive as new workloads, by selling the same hardware but with minor microcode modifications that prevent the execution of legacy workloads on those lower-priced components. Just looking at that behavior, it's clear that mainframe legacy workloads belong into a market that's separate from the overall server market. In Blizzard's case, there isn't anything similar.

I personally would like all operating system providers to have an obligation to provide reasonably priced licenses to their software regardless of hardware. But so far that's not a legal requirement for all of them to meet. Only antitrust law can currently impose this on a vendor.

help the rest of us who have to unbundle Microsoft Windows every time we want to buy hardware from mainstream retail vendors? That's a far more important battle that never seems to end.

If a PC vendor sells his machine only with Windows and doesn't offer it with Linux (or simply without any operating system), then that means you are required to buy Windows if you want to buy that particular machine. That's the opposite of the IBM mainframe situation. IBM requires you to buy its extremely expensive hardware if you want to run its operating system. The hypothetical equivalent for Windows would be if Microsoft stopped supplying hardware companies with OEM licenses and instead became a hardware vendor itself, forcing you to buy their hardware if you want to run Windows at all. You can be sure there would be an outcry, and antitrust intervention, if that happened.

The PC hardware market is competitive enough and there are vendors who offer you devices with Linux pre-installed. If there's choice, then bundling isn't the kind of problem that it is if there's a dominant vendor, let alone a monopolist.

The idea of illegal tying is that you do business (such as buying a product) with someone who's in a dominant (at worst, monopolistic) position and requires you to accept unfair conditions or he won't do any business with you at all. No single PC manufacturer is in such a position that you couldn't just go to another vendor if you prefer Windows-less PCs. But with IBM, customers currently have no choice if they want to run those legacy applications.

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Five years on

Posted Oct 1, 2010 13:01 UTC (Fri) by pboddie (guest, #50784) [Link] (6 responses)

If a PC vendor sells his machine only with Windows and doesn't offer it with Linux (or simply without any operating system), then that means you are required to buy Windows if you want to buy that particular machine. That's the opposite of the IBM mainframe situation.

How is it "the opposite"? I want one thing but if every separate product I inspect involves me having to take another thing with it, then effectively I have to take both of those things.

IBM requires you to buy its extremely expensive hardware if you want to run its operating system. The hypothetical equivalent for Windows would be if Microsoft stopped supplying hardware companies with OEM licenses and instead became a hardware vendor itself, forcing you to buy their hardware if you want to run Windows at all. You can be sure there would be an outcry, and antitrust intervention, if that happened.

Well, I grant you that at this point you've reproduced the IBM situation, but then there would be no illusion about who is forcing customers to take whose products, although there's always that argument that mainframes and operating systems written for them are all part of a single product. Meanwhile, PC vendors and Microsoft can point the finger at each other, while in practice almost everybody has to acquire Microsoft products when they buy a computer.

The PC hardware market is competitive enough and there are vendors who offer you devices with Linux pre-installed. If there's choice, then bundling isn't the kind of problem that it is if there's a dominant vendor, let alone a monopolist.

Yes, but we're talking about effective choice here, not whether alternatives exist. It's a bit like large retail chains getting into trouble when they secretly agree on prices whereas a bunch of "man plus dog" vendors probably won't see anything like those levels of scrutiny. Why is that? Because the large chains' collusion will affect the vast majority of consumers.

No single PC manufacturer is in such a position that you couldn't just go to another vendor if you prefer Windows-less PCs.

True, but the matter of effective choice arises again. If 99% of retailers force purchasers to acquire Windows and those purchasers don't know about the other 1%, they effectively have to acquire Windows with every purchase.

But with IBM, customers currently have no choice if they want to run those legacy applications.

I guess that from a bundling or tying perspective we have all been told often enough by now that the IBM mainframe case is extreme, if you regard the market for hardware solutions running IBM's proprietary software as a genuinely open market, but my point was that there are indisputably genuinely open markets that need not exhibit such extremes (and by not doing so actually demonstrate obvious open market credentials) that could more usefully do with some proper regulation that would benefit many more people.

Five years on

Posted Oct 1, 2010 17:49 UTC (Fri) by FlorianMueller (guest, #32048) [Link] (5 responses)

There isn't a competition issue with what you describe.

You can buy Linux computers from major vendors like Dell and HP. Someone who wants Linux can get machines without Windows. The reason they're less aggressively promoted is that there's less demand on the desktop for Linux than for Windows, but antitrust law is meant to ensure that demand and supply can drive a market as opposed to abuse distorting it.

The mainframe operating system was actually also available independently from the machine for about three decades -- the time when plug compatible mainframes were available from other manufacturers. Due to the so-called Consent Decree by the US DoJ, IBM was forced to make components available separately.

In the PC market, there's no need to force anyone because you can buy Windows separately, and you can buy every hardware component separately.

You say that the two situations (mainframe and PCs shipped with Windows) are the same. They are not the same because a case of illegal tying is characterized by customers being forced to take something they don't want in order to buy something they need from a dominant vendor. No single PC vendor is dominant, and I mentioned above that Dell, HP and others sell you what you want, without Windows if you want. By contrast, mainframe customers need z/OS to run those legacy applications worth $5 trillion (yes, trillion) and are forced to buy IBM hardware.

You complain that maybe some customers buy desktops with Windows simply because they aren't aware of the possibility of buying Linux desktops, especially since in many retail stores those have less presence. Again, that's a supply-and-demand thing. By contrast, mainframe customers know very well what they want and can't get it, due to an abuse of a dominant position in the form of illegal tying.

Regulators can't and won't intervene if it's just an awareness problem that can be solved with marketing. If the likes of Red Hat (which is the actual context of this discussion) or Ubuntu believe that end users should be made aware of the possibility of buying Linux-powered rather than Windows-powered PCs, it's their job to generate awareness. They could also do so in partnership with retail chains. If there's an unexploited or, more realistically, perhaps a bit underexploited market potential, market dynamics will result in some retailers cooperating with some vendors and seizing that opportunity. There's nothing preventing anyone from doing that in connection with Linux. Hence, there's no antitrust problem.

You ask for regulation but you have no antitrust issue. You'd like the market to be different, and I can assure you that I, too, think it's essential that customers are fully aware of Linux as an alternative and that they have easy access to it -- but the market can take care of itself in that regard, while the mainframe market shows clear symptoms of total market failure due to abuse.

Five years on

Posted Oct 2, 2010 23:40 UTC (Sat) by pboddie (guest, #50784) [Link] (4 responses)

You can buy Linux computers from major vendors like Dell and HP.

If you can find them without playing "beware of the leopard". Likewise with machines without any operating system whatsoever.

Someone who wants Linux can get machines without Windows.

Yes, that's true: I'm using exactly such a machine. However, ignoring most of the machines built from components, virtually all of the machines sold on the Web site where I bought mine are bundled with Windows, including the "build your own" machines where you don't even get to do that without a copy of Windows magically appearing together with that mainboard, CPU, RAM, and so on. Now observe the same phenomenon throughout the breadth of the retail channel directed at "the consumer".

The reason they're less aggressively promoted is that there's less demand on the desktop for Linux than for Windows, but antitrust law is meant to ensure that demand and supply can drive a market as opposed to abuse distorting it.

Which brings us to the interesting case of the Web browser, does it not? After all, can't people who want Firefox or Opera install it themselves?

In the PC market, there's no need to force anyone because you can buy Windows separately, and you can buy every hardware component separately.

It's not just about being able to buy Windows separately; it's about being able to buy the hardware separately as well. (Besides, the only people needing to buy Windows separately are those who want to upgrade the version thrust upon them when they bought their existing hardware.)

You say that the two situations (mainframe and PCs shipped with Windows) are the same. They are not the same because a case of illegal tying is characterized by customers being forced to take something they don't want in order to buy something they need from a dominant vendor. No single PC vendor is dominant

Yes, but the operating system vendor is dominant. And doesn't competition regulation have anything to say about a bunch of companies getting together and stifling competition? If it were all about a single company doing something, all the cases involving collusion between, say, oil companies would fall apart when someone points out that it's not one single gigantic oil vendor involved.

Anyway, my point was that there's a genuinely open market for personal computers and operating systems that gets undermined by the vast majority of computers somehow needing to have a particular vendor's product installed on them. (Talk about supply and demand all you like, and I don't entirely disagree that such things are an influence, but why it appears almost impossible to drop a supposedly separate product from a purchase remains a mystery.) You assert that there's a genuinely open market for solutions that can run a particular proprietary mainframe operating system.

Since I'm a believer in interoperability, I support the idea that you should be able to run whatever you want on anything you can - that you shouldn't have to take the hardware if you just want the software - but not only do I not think that it has to be a completely extreme situation before the regulators need to get involved, I also think that such an extreme situation risks being perceived as something other than a market needing regulation. And then, if that judgement doesn't go your way, by your own criteria you've just put the regulators out of work.

So I hope the regulators feel that they have a role to play, even though history suggests that in the EU, at least, they would rather mess around with things like media players and Web browsers than get to grips with the underlying causes.

Five years on

Posted Oct 3, 2010 0:32 UTC (Sun) by dlang (guest, #313) [Link] (1 responses)

back when IBM was investigated for their mainframe monopoly, the mainframe basically _was_ the computer market (there was a smaller market in mini computers, but microcomputers/PCs were not a noticable factor)

today the entire mainframe market is happily ignored by almost all businesses using computers.

At this point, saying that IBM has a monopoly on the mainframe market and should be forced to separate their hardware from their software is very similar to saying that Apple has a monopoly on their market (they are the only ones who make the hardware, and they forbid anyone from using their software with anyone else's hardware)

It would be nice to have both open, but the law doesn't require it, and in the Apple vs Pystar lawsuit recently, Apple got the court to rule in their favor in a big way (namely that copyright forbade pystar from installing OSX on their computers, even though they had purchased the appropriate number of legal copies)

In many ways, apple's control of their market is much more significant to consumers than IBMs control of the mainframe market.

Five years on

Posted Oct 3, 2010 4:54 UTC (Sun) by FlorianMueller (guest, #32048) [Link]

today the entire mainframe market is happily ignored by almost all businesses using computers.

This statement is true only if you base it on the number of companies but disregard size. In terms of economic weight, we talk about legacy program code worth $5 trillion ($5,000 billion) still in use, and about 80% of the world's business data still being processed by mainframes. IBM itself said a couple of months ago that Western civilization runs on the mainframe. You can read more about it here.

At this point, saying that IBM has a monopoly on the mainframe market and should be forced to separate their hardware from their software is very similar to saying that Apple has a monopoly on their market

From a competition point of view, those cases are different. In order to counter the claim that they dominate what competition law calls a relevant product market, both companies would have to argue for a broader market definition including all sorts of competitors. Apple would have a much better basis to do so than IBM. Apple's products are generally more expensive than those of their competitors, but the difference is limited enough that one can argue they are exposed to competitive pressure from others operating in the same relevant market. By contrast, if you look at IBM's price discrimination in the mainframe market, you can easily see that mainframes and other servers aren't the same market. Otherwise IBM wouldn't charge you about ten times as much -- for identical hardware -- for the execution of mainframe legacy workloads as for new applications operating in a more competitive market. Also, mainframe memory costs about 60 times as much as memory for other servers. Sure, mean time between failures is very high, but still that's the kind of price difference that shows it's not the same market.

It would be nice to have both open, but the law doesn't require it,

In IBM's case it can certainly be imposed, like it was in the past, and I'm confident that this will be the outcome of the ongoing investigations in the EU.

Five years on

Posted Oct 3, 2010 4:45 UTC (Sun) by FlorianMueller (guest, #32048) [Link] (1 responses)

Which brings us to the interesting case of the Web browser, does it not? After all, can't people who want Firefox or Opera install it themselves?

At first sight one may believe there's an important parallel, but there isn't under competition law.

If bundling is abused by a dominant vendor in one market to gain an unfair unadvantage in another market (which was the argument in the Media Player context, used by complainants as a precedent for the Internet Explorer discussion), then there's a competition problem. But note the "dominant vendor" requirement. There's no dominant PC company, and instead major players like Dell and HP do offer Windowsless Linux configurations.

Yes, but the operating system vendor is dominant.

It was found dominant. But being dominant isn't illegal. It's the combination of dominance and abuse that's illegal.

And doesn't competition regulation have anything to say about a bunch of companies getting together and stifling competition?

Sure, that would be called a cartel: a form of cooperation with the object of illegally restricting competition. There's no indication that Dell, HP and others have conspired against Linux. On the contrary, some vendors are known for a very pro-Linux attitude, but they all have to respond to what the market (in the context you care about: the consumer market) wants at this stage.

even though history suggests that in the EU, at least, they would rather mess around with things like media players and Web browsers than get to grips with the underlying causes.

It's interesting that you say this because five years ago I criticized the European Commission in a similar way. I said that on the one hand they were pursuing Microsoft with antitrust law but on the other hand supporting the very software patents Microsoft wants. I would have preferred a focus on software patents, especially since I was mostly concerned about patents on codecs in terms of the ability of others to compete with the Media Player.

But as far as interoperability is concerned, the European Commission is indeed looking at what might ultimately become a legislative solution that would affect all "significant market players" in order to establish general rules rather than only pursue individual cases,

Five years on

Posted Oct 4, 2010 11:37 UTC (Mon) by pboddie (guest, #50784) [Link]

Rewinding to bring in the context...

They are not the same because a case of illegal tying is characterized by customers being forced to take something they don't want in order to buy something they need from a dominant vendor. No single PC vendor is dominant
Yes, but the operating system vendor is dominant.
It was found dominant. But being dominant isn't illegal. It's the combination of dominance and abuse that's illegal.

Which is what you already said before you trimmed away the context. Yes, you can get alternatives to Windows on hardware purchased through mainstream retail channels, if you managed to navigate to the disused lavatory where those alternatives are "on display", and you might even be able to ask for no operating system at all, but most "consumers" get told that Windows is "part of the product" and that they have to take their complaints to the vendor (the classic lazy retailer excuse, contrary to consumer regulation in various countries), who in turn often tell the customer the same thing or that their deal with Microsoft precludes any kind of refund. At which point, most people determined enough to pursue the matter that far (and few people are) are likely to give up and write off their loss, which is the gain of the "dominant vendor", of course.

Now maybe this isn't a "big R" regulatory matter that involves finger-wagging from the European Commission - although it is baffling that they entertain the dog and pony show that is the Web browser parade with all its back-and-forth between the EU and Microsoft, but not something effective like this - but it certainly is a matter that requires some kind of "small R" regulatory intervention, at least from the perspective of anyone whose idea of buying stuff isn't having extra stuff thrown into one's shopping basket and being made to pay for it. But I accept that our perspectives may differ on such matters.