Although three rivals of IBM have dropped their complaints that IBM illegally tied its mainframe hardware to its operating system, the computer giant is not out of regulatory woods yet.

Both the U.S. Department of Justice (DOJ) and the European Commission maintain ongoing antitrust investigations – sparked by the complaints – into a possible monopoly IBM holds in the mainframe computer market.

In a filing with the U.S. Securities and Exchange Commission (SEC), IBM stated that two providers of IBM compatible emulator software, Neon Enterprise Software LLC and T3 Technologies Inc., have withdrawn their complaints filed with the European Commission.

Turbo Hercules SAS, a company providing similar products, has also dropped all complaints against IBM.  IBM has stated that the settlements did not involve any monetary compensation.

In addition to dropping their European Commission complaints, Neon and T3 are also dropping their antitrust lawsuits filed against IBM in the U.S.

The three companies that had lodged complaints against IBM were providers of emulator software used on mainframe computers.  This technology allows mainframe operating systems and applications to run Windows, Linux, Mac OS, or Solaris as the host environment, thereby bypassing the need for IBM’s proprietary mainframe software. 

The withdrawal of the complaints has not ended the regulatory scrutiny, however.  Neither the DOJ nor the European Commission has concluded its antitrust investigation of IBM.

These investigations came as the result of numerous complaints filed by mainframe emulator software producers.  While the complaints have been withdrawn, the DOJ has requested the documents pursuant to the settled cases.

Plaintiffs claiming that Cablevision abuses market power in requiring subscribers to rent cable boxes are going to have to think outside the box after being told by the U.S. District Court of New Jersey for the third time that their claims of illegal tying and monopolization are inadequate.

Judge Jose Linares has dismissed the second amended complaint in Marchese v. Cablevision Systems Corp., but given plaintiffs leave to replead their allegations that Cablevision’s requirement that subscribers to advanced interactive services use set-top boxes provided by that cable operator constitutes both an illegal tie under Section 1 of the Sherman Act, and monopolization under Section 2.

According to Judge Linares, plaintiffs’ latest complaint failed to adequately allege that Cablevision had market power over “Two Way Services.”  The judge also faulted the complaint for attempting to treat set-top boxes programmed for use on Cablevision’s system alone as a relevant market.  Plaintiffs’ pleading difficulties in this case illustrate the difficulty of defining relevant antitrust markets in media entertainment industries.

Premium digital cable services often include features that require two-way communication, such as interactive program guides, video-on-demand, and remote recording functions.  To access these features, consumers need to lease a set-top box from the cable operator.  Although most set-top boxes in the U.S. are built by two manufacturers (Motorola and Cisco), only boxes leased from the cable operator are programmed to work with that operator’s systems.

Consumers can access some one-way, non-interactive digital cable channels without a set-top box, using a small device called a CableCARD, which can be plugged into home equipment, to descramble the channels.  CableCARD-reliant devices offered by sellers not affiliated with the cable operator are not licensed to support two-way services.  In Marchese, the plaintiffs claimed that by requiring two-way customers to rent set-top boxes, Cablevision compelled its customers to pay for a product they don’t want – a Section 1 tying claim.

Market power is essential to tying claims.  A plaintiff has to show that the defendant has power in the market for a “tying” product – here, two-way cable services – and used that power to compel customers to pay for a “tied” product – the set-top box.  Plaintiffs’ pleading difficulties began when they originally defined the tying product as digital cable service generally.  The court dismissed that complaint because Cablevision’s subscribers could access some aspects of digital cable – basic one-way service – without a set-top box, and were not compelled to lease a box.  In response, plaintiffs amended their complaint to define the tying product market as two-way service.

This, too, created a pleading problem: to show that Cablevision had market power in two-way services, plaintiffs relied on statistics about Cablevision’s market share and prices for digital cable generally – the broader market definition that they were forced to abandon.  But, said the court, Cablevison’s clout in digital cable service generally didn’t establish that it had power in the narrower market for two-way cable service.  Because of this, the judge dismissed the Section 1 claim, giving plaintiffs one more opportunity to re-plead.

The court also dismissed a claim that Cablevision was monopolizing the market for set-top boxes that can be used on its systems by preventing other set-top boxes from working.  Here, Judge Linares found that set-top boxes programmed for use on Cablevision’s systems could not be a relevant market because the same set-top box hardware was also used for some other cable systems.

Generally speaking, a single company’s product cannot be a relevant market for antitrust purposes.  The court analogized this to “aftermarket” cases such as Kodak v. Image Technical Services, in which the Supreme Court ruled that parts and service for a particular brand of copier cannot be a relevant market unless some special circumstances are present.  Because Cablevision’s set-top boxes were also used on some other cable systems, albeit with different firmware, the court ruled that set-top boxes that run on Cablevision’s systems was not a legally relevant market that could be monopolized.

GSI Technology, a producer of computer memory products, has filed an antitrust complaint charging Cypress Semiconductor with monopolizing the high-tech static random access memory (“SRAM”) market.

Cypress is one of the major players in the market for static random access memory SRAM market, while GSI is a much smaller producer. 

The complaint filed in the U.S. District Court for the Northern District of California claims that Cypress took advantage of the unique features of the SRAM market.  GSI alleges that the computer memory industry relies on standardized products based on customer insistence.  According to GSI, the customer demands that memory modules conform to the same interchangeable structure.

GSI alleges that since 1999 Cypress has violated Section 1 of the Sherman Act by monopolizing the market for SRAM.  GSI claims that Cypress entered into a collusive consortium with certain competitors, including Hitachi and Samsung, in which they shared confidential data such as design simulations and test vectors.  According to GSI, this consortium secretly developed an industry standard for SRAM, to the exclusion of other competitors.  GSI contends that this broke with the previous industry policy of an open marketplace in which competitors had access to the same information at the same time.

According to GSI, the Cypress consortium developed evolutionary product changes confidentially and then released information about these products to customers under non-disclosure agreements.  This meant that competitors could not learn about the new standards until the product was released.  GSI contends that this was a crippling blow in a market where early entry can define success or failure for up to 10 years at a time.

The end of the decade-long federal court supervision of Microsoft’s licensing practices last month provides an opportunity to reflect on the impact that case has had.  A lasting legacy of the U.S. v. Microsoft case is that monopolists in dynamic and rapidly changing high-tech industries do not receive special treatment under the Sherman Act.  There is no presumption that high market shares will be counteracted by the possibility of innovation by competitors, without convincing proof.

In an article for Law360, Constantine Cannon’s Mitch Stoltz reflects on the long-term impact on antitrust in the software industry of the Justice Department’s 1999 monopolization suit against the software giant.

The historic case was resolved in 2001 with a settlement that provided for a decade of government oversight of Microsoft, which ended in May 2011.

The DOJ and state attorneys general had claimed that Microsoft’s use of contracts with PC manufacturers to control which programs could appear on the Windows “desktop” violated Section 2 of the Sherman Act as a form of monopolization or attempted monopolization.  They also claimed that Microsoft’s commingling of the computer code for the Windows operating system and the Internet Explorer browser was a form of tying that illegally excluded other browsers, such as Netscape Communicator, from the market. 

Microsoft and its supporters claimed that its restrictive contracts were not anticompetitive because, despite its very high market share in the PC operating system market, the possibility of rapid innovation by competitors like Netscape effectively checked any Microsoft attempt to wield market power.  They also argued that combining the browser with the operating system was innovative and that to punish it as tying would bring the courts into the business of judging technological merit.

After a bench trial and appeal, the Court of Appeals for the D.C. Circuit ruled that Microsoft possessed and abused monopoly power in violation of Section 2 through its manufacturer contracts.  The court also ruled that the “tying” of two software programs technologically must be evaluated under the rule of reason, taking into account procompetitive and anticompetitive effects, rather than being declared per se illegal.

In other words, the court held that lower courts can and should look into the technological merit of combining two software programs to see if the combination truly benefits consumers rather than simply locking out competitors.

A justice of the British Columbia Supreme Court has ruled that an alleged worldwide diamond cartel led by rough diamond seller De Beers had sufficient anticompetitive impact on Canadian consumers to enable a price-fixing class action to survive a motion to dismiss at the pleading stage.

The plaintiff alleges that De Beers and the other defendants sought to eliminate competition in the sale of gem grade diamonds in British Columbia, Canada, and elsewhere, by fixing the price of gem grade diamonds and allocating the market for gem grade diamonds.

De Beers had argued that the court lacked jurisdiction of the claims in Fairhurst v. Anglo American PLC because only one of the defendants did any business in British Columbia.  And all defendants traded only in rough diamonds, not the gem grade diamonds purchased by consumers like the plaintiff.  De Beers argued that the defendants were far higher in the “diamond pipeline.”  In the words of its expert, “any connection between the Defendant’s sales of rough diamonds on the one hand and the Plaintiff, other Proposed Class Members and any diamond jewelry purchases made in British Columbia on the other hand, is remote in the extreme.”

Madam Justice B.J. Brown, however, concluded that De Beers was not only higher in the “diamond pipeline”– it more or less owned the pipeline.  The court noted that De Beers was long the largest producer of rough diamonds in the world, acted historically as the “diamond industry custodian,” and “possessed a degree of monopoly power in the rough diamond market for over a century.”

Drawing upon jurisdictional authority to hold foreign manufacturers liable for knowingly sending hazardous products into the stream of commerce in Canada, the court ruled that a “tortious conspiracy” such as the alleged worldwide diamond cartel is said to occur wherever damage from the conspiracy is suffered:  “The defendants do not suggest that ‘their’ diamonds were not sold in British Columbia.  The diamonds arrived in British Columbia in the ordinary course of De Beers’ business, and the defendants knew or ought to have known that the product would be sold in British Columbia.”

The court deemed allegations of a diamond cartel whose aim was to “creat[e] an overcharge” that would necessarily harm consumers was sufficient to give the court jurisdiction at this stage in the litigation.