A gold rush for big iron?

The European Commission's recent decision to launch two parallel antitrust probes of IBM's suspected abuse of the mainframe monopoly raises hopes that this huge market may open up in the not too distant future.

The mainframe business is a gigantic opportunity. For now, no one in that area can compete effectively with IBM, which leverages its mainframe monopoly to sell not only hardware but especially software and services.

The numbers and the strategic implications

IBM owns about 40% of the $24.5 billion market for mainframe software, which is roughly twice the size of the market for Linux-based software. In the total of hardware, software and services, IBM generates approximately 25% of its revenues and more than 40% of its corporate-wide profits in the "big iron" business. That's a profit figure somewhere north of $5 billion (easily), and it's anything but a business in decline.

Companies formerly foreclosed by IBM’s conduct will now want a piece of the action.

Those numbers reflect merely a part of the overall opportunity. Just the largest 10% of mainframe customers have collective annual revenues of $21 trillion, exceeding the GDP of the European Union and the United States.

Mainframes are only a part of their IT budgets. Those top 10% of mainframe customers have an estimated total annual IT budget between $800 billion and $1 trillion based on typical percentages in the relevant industries. If only half of that goes to external vendors and service providers (now or in the "cloudy" future), that's a $400-500 billion opportunity for the industry, or roughly 30% of global IT spending.

IBM does a lot of cross-selling (of Power CPU and Intel-based systems) to many of those customers, benefiting from the privilege position it owes to the mainframe monopoly. If and when the market opens up, IBM will lose its exclusive mainframe gatekeeper status and other vendors will compete more effectively for those accounts.

I've seen the slides of an IBM-internal presentation. "Account control" (in terms of controlling customers) is central to IBM's strategy, and the mainframe monopoly is the key to it. The 40%+ figure of IBM's corporate-wide profits doesn't even include the effects of that. That percentage relates just to sales of mainframe hardware, software and services, irrespective of upselling.

This is all the more important as the IT sector is undergoing a major transformation toward the cloud computing model. There hasn't been a similar need and (especially) opportunity to stake the claims in IT for quite some time.
In this recent posting I described how IBM's new mainframe generation -- the zEnterprise -- is designed from the ground up to "assimilate" (as a journalist put it) Intel-based platforms in the corporate data center. So what I previously called "upselling" (of non-mainframe offerings) is now about to become part of the "data center in a box", or "system of systems", that IBM calls its new mainframe.

Potential strategic investors

It's a given that various IT industry giants will rush to secure a piece of the action, if they think that IBM’s abusive conduct to protect its monopoly will come to an end. They need the regulators to open up the market, but they won't wait until the end of the process. In anticipation of positive things to happen, everyone will try to secure the pole position through strategic investments.

The fact that the regulatory process has only just begun will, of course, be factored in when determining company valuations.

These types of situations and processes aren't unfamiliar to me. I co-founded one of the first online gaming startups in Europe, and we had strategic partnering inquiries from different telecommunications and media companies. One of those talks resulted in the acquisition of our company by Telefónica in early 2000. Subsequently I became involved with MySQL AB as an adviser to the CEO and early-stage shareholder in the company, and later saw the likes of Intel and SAP come in -- and finally, MySQL's acquisition by Sun.

I'd just like to describe from my vantage point after 25 years in the IT industry which players I would imagine to consider investment opportunities in connection with a future competitive mainframe market. The list below is ordered alphabetically. I'd like to clarify that at the time of publication of this posting, I do not own stock (or related derivatives) of any of the companies mentioned.

BMC: This $2 billion company does a large part of its business on the mainframe. When the cards get reshuffled, it won't want to be left behind.

Dell: This computer maker is more diversified than most people know and recently experienced an increase in profitability due to strong sales of enterprise hardware (server, storage and networking products).

Intel: Previously invested in mainframe emulation company Platform Solutions, Inc. (PSI). Can supply high-performance CPUs to power software emulators and could also play a role in hardware emulation.

HP: A natural IBM competitor with a strong foothold in the enterprise market.

Micro Focus: This company is also publicly traded and offers Visual COBOL, a .NET-based implementation of the programming language in which most mainframe legacy software is written. Emulators could run legacy programs on the same servers as Visual COBOL programs, making a gradual migration of workloads a more viable option for customers than it is today.

Microsoft: Invested in PSI (like Intel) and in T3 Technologies. For Microsoft's enterprise software division, improved interoperability with mainframe legacy workloads is essential. I'm not worried for free and open source software: if Linux couldn't compete in such a server-based context, it would never be able to compete with Windows. Customers should have all options. Compared to IBM's monopoly, competitive pressure from Microsoft and its partners would definitely be an improvement. By definition, there can never be two monopolies in the same markets.

Oracle: In its core business (relational database management systems), Oracle misses most of the mainframe opportunity due to IBM's stranglehold on the market. The standard mainframe database is IBM DB2. In a more competitive market, Oracle would be able to sell 11g and its enterprise software to a larger number of IBM's customers. Furthermore, Oracle's hardware division (formerly named Sun Microsystems) could play a key role in connection with emulation (similar to what I wrote above about Intel).

SAP: While not nearly as disadvantaged by IBM's practices as Oracle and others, SAP would also benefit from an open market. Its recent acquisition of Sybase is a cornerstone of its enterprise cloud computing strategy. The integration of mainframe legacy workloads with mobile and other cloud-related technologies will create new opportunities for SAP.

Obvious economic motivations

All of the companies I mentioned, and presumably a number I didn't even think of in this context, know that there is a lot of pent-up demand in the market for more competitively priced solutions for the execution of mainframe legacy workloads.

I wouldn't be surprised to see significant activity in the wake of the launch of antitrust probes. In my experience, such deals are often negotiated in a matter of weeks. Some take longer. But I can't see how the industry would forgo such an opportunity.

It's unhelpful that IBM always tries to use actual or suspected activities of other companies to deflect attention from the serious issues that need to be addressed in the course of the regulatory process. There's no denying the jugular importance of the mainframe to the world economy. IBM maintains its absolute control over this strategic platform with threats, intimidation, FUD and generally anticompetitive behavior, all of which stifles innovation.

Those are the problems. More competition is the solution.

So when the deals happen, let's let IBM cry. Its customers -- who are locked in and get overcharged -- have suffered long enough.

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IBM's cloud grab: the next generation of the mainframe monopoly

In July, the European Commission launched its antitrust probes of IBM's conduct in the mainframe market only four days after IBM's presentation of its new mainframe generation, the zEnterprise.

The Commission took its decision four months after French open source startup TurboHercules had lodged its complaint. That time span is the Commission's goal under its best practice guidelines.

So the EU didn't mean to spoil the party, but there is an important factual connection between the two events: the zEnterprise is an overtly aggressive move by IBM to leverage, expand and extend its mainframe monopoly with a view to enterprise cloud computing. It is high time for intervention to avert abuse that would otherwise cause irreversible damage to the emerging cloud computing market.

In its report on the zEnterprise launch, V3.co.uk picked just the right headline:

"IBM zEnterprise mainframe
assimilates Unix and Linux servers
Brings Power 7 and [x86] servers under its control"

The word "assimilates" alludes to Star Trek, but it is appropriate. IBM calls the zEnterprise a "system of systems" and a "datacenter in a box". Indeed, the objective is to absorb x86 (Intel and compatible) servers. "One box to rule them all", one might say.

If this only meant more competition on the x86 side and if customers really had alternative options, I would welcome it. However, the way IBM leverages its mainframe monopoly is abusive and anticompetitive. Let me explain.

Enterprise cloud computing: clarifying the term

Wikipedia defines cloud computing as "Internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand".

There are different ways in which enterprises can operate cloud-based services. They may operate their own cloud (meaning they have the infrastructure in house) or use services provided by third parties. In many cases they'll do a combination of both.

Another distinction is that those cloud-based services may be available only to a company's employees (private cloud, like an "Intranet"), to select business partners (public cloud, like an "Extranet"), to the general public, or a combination (public-private cloud).

Mainframe-managed data: the lifeblood of large enterprise clouds

In every one of those setups, the mainframe legacy comes into play. In most cases -- especially in the most important cases -- new enterprise cloud services are not stand-alone creations totally detached from other business operations.

Other business data (and the applications managing them) are the lifeblood of enterprise clouds. For an example, whatever an airline might do in cloud computing, it will usually have to be connected to the reservation system and/or operations management system. Whatever a bank does in the cloud, it will usually need access to account management and the related transaction processing. Whatever an insurance company does in cloud terms, it will usually need access to all of the essential records.

Where do those essential data (and the applications managing them) reside? In most cases, on mainframes. In this recent blog posting I already mentioned that 80% of the world's business data reside on mainframes. That's the percentage across all industries. In the ones I particularly mentioned -- banks, insurance companies, travel reservations -- the number is even closer to 100%.

So to make an enterprise cloud fly, it still has to be tethered to a mainframe in many cases. That metaphor may sound paradoxical. It's just the sad reality of a lock-in of enormous proportions.

A senior IBM executive noted that IT projects don't start on a "green field" these days:

"We ought to look at these things the way we look at a city -- a city is a living, breathing thing, and you don't literally rebuild New York every year: you add to it. And more often than not, you're renovating what's already there -- you're improving what already exists, you're not replacing what exists."

IBM's all-absorbing zEnterprise cloud machine

The zEnterprise (latest mainframe generation) was designed from the ground up to connect mainframe legacy workloads with new cloud computing technologies.

It doesn't really add much new on the original mainframe (System z) side. CPU clock speed went up only from slightly below to slightly above 5 GHz, and the number of processors from 64 to 80 (in each case, 16 are reserved for internal purposes). But the key new element is that the zEnterprise is a "system of systems", integrating x86 (meaning Intel or Intel-compatible) blades to a greater extent.

I've seen and used the integration of different computer architectures in the same system a long time ago. The Commodore 128 had a CP/M component with a separate CPU, and my first PC was a plug-in card for the Amiga. That was fascinating, but those devices were toys.

What IBM now wants to achieve with the zEnterprise is that companies consolidate their entire data centers on the basis of IBM's technology, putting tons of IBM's x86 components under the control of a mainframe. IBM calls it a "data center in a box". I consider it a very dangerous expansion and extension of the mainframe monopoly. Let me explain what's wrong with this.

The need for integration

There are technical reasons for which it does make sense to run a mainframe legacy application on the same system -- not just in the same network -- as new cloud applications that require access to those data and the applications managing them.

One very important aspect is administration. If you run a large IT operation, you need an efficient way to keep track of all the systems, all the time. IBM's Tivoli systems management software can be used to administrate both System z (mainframe legacy) and x86 resources on a zEnterprise. Tivoli is proprietary software and there's no indication that competing vendors of Intel-based hardware would have access to its interfaces.

The need to integrate mainframe legacy workloads and new enterprise cloud applications distorts competition. For the mainframe, IBM has a monopoly. Consequently, Big Blue also has a monopoly for a "system of systems" including the mainframe. This expands, extends and exacerbates the monopoly. The original monopoly (mainframe) is leveraged to create an even broader cloud-related monopoly. It's like one monopoly "spawning" another.

IBM denies its customers an important choice

Customers should have the choice between two different paths to a "datacenter in a box":

1. the zEnterprise path: bringing x86 hardware under the control of a mainframe

2. the virtualization path: executing mainframe legacy workloads on Intel-based servers

The second choice is the one IBM denies its customers, and it's a very important one. It would allow many customers to make their purchasing decisions based on new cloud computing needs and to achieve similar performance at a potentially much lower cost.

IBM allows customers only to put the old cart (the mainframe legacy) before the new horse (cloud computing). As long as customer don't have an alternative to the zEnterprise approach, they are going to be overcharged and the lock-in that already exists today will only exacerbate in the future, resulting in ever-increasing costs and less innovation.

There are no technical reasons for not offering the second choice. The Hercules open source mainframe emulator is a reliable and innovative solution. It's a mature piece of software whose development started in 1999, and today's Intel-based hardware is powerful enough for many legacy workloads. The only problem is that IBM doesn't allow customers to run the proprietary z/OS operating system (which is key to execute legacy workloads) in emulation. That restriction must come to an end.

Even those who decide otherwise would benefit from the second choice because it would put pressure on IBM and result in more competitive pricing.

Regulatory intervention can open up the market, restore competition and safeguard innovation. In order to do so, it must be timely and decisive. Now is the time.

If you'd like to be updated on patent issues affecting free software and open source (including but not limited to the antitrust investigations against IBM), please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents.

The two faces of the mainframe: different economics for legacy and new workloads

Until I learned about the mainframe business, I always thought that if I have a computer program (whether purchased or homemade), the cost of running it on a given machine depends exclusively on how resource-hungry the software is: how much memory it allocates, how much CPU power it consumes, how much it writes on storage media, and so forth. But I never thought that age could make a huge difference if all other factors are equal.

Then I found out that IBM's mainframe business is kind of schizophrenic. There isn't just one mainframe price matrix based on performance. There are two sets of rules: one for old ("legacy") workloads and another for the new workloads. The price points for identical levels of performance are worlds apart.

What's even more paradoxical is that contrary to conventional IT wisdom, "old" costs far more than "new". I can see why that would be the case for vintage cars, art or wine. But it flies in the face of all I thought I knew about IT economics. The explanation: negative forces are in play and override healthy market dynamics.

For several decades, the mainframe was the only platform for heavy duty computing

When most of the world economy became computerized, starting in the 1950s, the only platform capable of crunching large amounts of business data was the mainframe.

For a few decades there were smaller players competing with IBM (which was only made possible by antitrust intervention), offering plug-compatible mainframes. So it wasn't always just a single-vendor platform like today's mainframe business, or the iPhone. But for the important first several decades of the age of computing, the mainframe category as a whole was the only game in town if you meant big business (or government).

As a result, most of the world's governments, banks, insurance companies and reservation systems developed (internally or with the help of subcontractors) custom software on the mainframe for the most critical parts of their IT operations.

Computerization progressed, so they added ever more functionality to existing programs and created ever more new ones. Circumstances (such as legal parameters or business models) changed, so they kept those custom programs up to date. They had to.

Much later, the PC revolution set in and in accordance with Moore's Law, Intel CPUs became ever more powerful and narrowed the gap. IBM just presented its new zEnterprise mainframe, breaking through the 5 gigahertz barrier for the first time in mainframe history. Today's Intel CPUs reach about 3.5 GHz. Still a difference, but not a huge one.

With programming techniques that enable a whole "farm" of servers to work together and share the load, distributed computing became an intriguing, cost-efficient alternative to the mainframe. New businesses such as Google and Facebook started and scaled out impressively on that technological foundation.

But all the existing operations, most of whom existed long before Google's and Facebook's founders were even born, didn't have the luxury to start from scratch. They had to keep going and going, updating and updating, from one incremental, evolutionary cycle to the next. They were -- and still are -- chained to their mainframes.

The collective value of all mainframe legacy code: $5,000,000,000,000

Theoretically, migration is an option. Any existing piece of software can be ported to another platform. But in practical terms this is difficult for an organization's most mission-critical IT infrastructure, and it's economically a tough choice if the existing program code represents an extremely expensive business asset.

IBM itself estimates that the total value of applications residing on today's IBM mainframe systems amounts to approximately $5 trillion. $5,000,000,000,000. That's about the annual GDP of Japan. In most parts of the world, $500,000 will buy you a home, and for $5 trillion you could buy 10 million such homes.

The number is mind-boggling but realistic. I mentioned in my previous posting on mainframe economics that there are about 200-300 billion lines of mainframe program code still in use. So if you multiply that number of lines with a development cost per line in the $20 range, you arrive at $5 trillion. Those mission-critical business applications are expensive development projects requiring a lot of planning and testing, limiting the output of programmers. The average cost per line of dynamic web page code in PHP or Visual Basic is presumably much lower.

Another consideration that makes the number realistic: the collective revenues of all mainframe customers are unbelievably massive. Each of the top 585 corporations that use mainframes generates, on average, annual revenues of $36 billion. Multiplying the two numbers results in collective revenues of $21 trillion. That is substantially more than the GDP of the European Union ($16.4 trillion) or the United States ($14.3 trillion). And that's just, roughly, the top 10% of mainframe customers and only one year's revenues. So it's not too hard to imagine that over the years all of them created mainframe code worth $5 trillion.

IBM's monopoly: the only platform capable of executing legacy mainframe code

The staggering numbers I just mentioned show what an enormous leverage IBM has as the only player in the market to offer platforms (in terms of hardware and operating systems) on which that legacy code can be executed.

In mainframe lingo, the distinction is made between "legacy workloads" and "new workloads". The term "workload" stems from the multi-tenancy concept of mainframes: multiple processes running in parallel on the same system. With today's multi-core CPUs and virtualization software, an analogy exists even for Intel-based PCs.

It's laughable that IBM claims the mainframe is just a "niche" of the overall server market and denies antitrust implications by claiming fierce competition from other server platforms, especially from distributed solutions. Alternative platforms can't run those mainframe legacy programs. For companies starting from scratch -- I mentioned Google and Facebook -- there are certainly some more cost-effective choices. But not for all those banks, insurance companies or governmental agencies who depend on their mainframe every day.

Migrations that enable such customers to dump their overpriced mainframes are few and far between. Not only are they rarely found but also do they usually relate to smaller solutions, therefore not representing a significant chunk of the overall mainframe business in financial terms.

I have seen the slides of an internal IBM presentation that was given last year and whose presenter claimed that for banks, (other) financial services, reservations, transaction accounts and batch workloads there's simply "no effective alternative on distributed [platforms]". So much for a competitive market.

The sheer cost of migration isn't the only obstacle. There are also other factors that make it very difficult in technical and organizational terms, and I'll elaborate on those some other time.

z/Linux isn't the answer to the lock-in problem

So where does z/Linux -- the mainframe version of the GNU operating system and the Linux kernel -- fit into all of this?

IBM recently celebrated the tenth birthday of z/Linux. Novell's SUSE Linux is still the most popular z/Linux distribution, and there are other choices. Virtualization makes it an option to run z/OS (the proprietary mainframe operating system on which the legacy code runs) and z/Linux in parallel.

Programs that are written for z/Linux can be easily recompiled (often without source code changes) for GNU/Linux on other platforms. But z/Linux isn't the answer to the existing lock-in problem: porting legacy code from z/OS to z/Linux is just as hard as porting it to any other platform.

New workloads are the raison d'être of z/Linux. If companies want to write new program code for an operating system that is available for different hardware platforms, z/Linux is eligible. In some cases, those new workloads may very well benefit from data exchange with legacy workloads. If a bank processes most of its transactions on a mainframe (which is what virtually all major banks do), it may choose z/Linux for the generation of dynamic web pages that use data from the transaction system. So z/Linux plays a complementary role -- but it isn't a substitutive force.

There may be a few exceptions, but it's a pretty accurate portrayal of the situation that mainframe legacy workloads run on z/OS and z/Linux becomes a choice only at the start of entire new projects.

IBM wouldn't have enabled the creation of z/Linux if its availability hurt its core business in any way. There was nothing stopping companies from developing software for new workloads on GNU/Linux for other servers, exchanging data with the mainframe via the network. There are important technical advantages to running everything on the same machine (which will be the subject of another posting), but the cost of mainframe equipment is so outrageous that z/OS would have lost the business of most of the new workloads to other operating systems (with GNU/Linux obviously capturing a large share on the server side) one way or the other.

The massive lock-in tax: ten times the price for identical performance

Recognizing that many new workloads have a real platform choice while legacy workloads are hopelessly locked in, IBM came up with a way to have it both ways: "coprocessors".

I put the word in quotes because IFL (Integrated Facility for Linux), zIIP (z Integrated Information Processor) and zAAP (z Application Assist Processor) aren't coprocessors in the traditional sense, such as an arithmetics coprocessor that can only perform some auxiliary computations. Instead, IFL, zIIP and zAAP are processors that execute actual program code. They are real CPUs.

The only way in which they're limited is that IBM erected artificial barriers (through microcode changes). Those have the effect that legacy workloads can't be executed on those processors. IFL can only be used for z/Linux, zIIP only for database purposes and zAAP only for Java programs and certain XML-related computations under z/OS, while legacy workloads are generally a matter of z/OS-based COBOL programs. But again, those limitations were built in on purpose.

Customers get two economic benefits from using those limited-purpose processors. One is that mainframe software license fees are calculated based on CPU power, and those limited-purpose processors are usually not factored in. The other is that IBM sells those limited-purpose processors at prices that are hugely lower than for the general purpose chips on which everything including the legacy code can be executed.

For an example, if you buy a mainframe and you "insert" a certain amount of processing power for all purposes (including legacy workloads), you pay about ten times as much as for the same hardware component that is limited to z/Linux. So for economic reasons, a mainframe customer will want to use the expensive general-purpose component only for legacy code and make as much use of lower-cost limited-purpose processors as possible for new workloads.

Unbelievable but true

You might wonder whether the price difference -- a factor of 10 in general -- is justified by any other reason than the artificial limitation I mentioned. There isn't any other reason. You get the same processing speed and in terms of hardware (at the level of the circuitry) it's also the identical product. The limited-purpose components aren't even optimized to be particularly efficient for Linux, Java or XML or whatever. It's just that IBM determines unilaterally what you are allowed to run on them -- and what you are not.

This is a unique two-tiered business model. Customers see that IBM can, if it wants, sell them everything at a tenth of the price and still make money (otherwise IBM wouldn't do it). However, to the extent customers are required to use general-purpose processors because of the $5 trillion lock-in, they have to pay ten times as much.

Even one tenth of regular mainframe costs is still high compared to, for an example, Intel-based servers. But it's a pricing that shows there's at least a minimum of competitive dynamics in play.

Actually, there is a technical solution on the market to make legacy workloads eligible for execution on those less expensive "specialty" processors: zPrime. IBM doesn't want that one to be used. Its vendor, NEON Enterprise Software, filed an antitrust lawsuit against IBM in the US last year and recently lodged a complaint with the European Commission.

The lock-in tax reduces to absurdity any claims that z/Linux competes with z/OS or that Intel-based servers compete with mainframes. IBM couldn't charge -- for identical performance -- ten times the price if it didn't have a monopoly for platforms that execute legacy mainframe workloads. It shows that competitive server platforms and the legacy mainframe business aren't in the same market.

Think of two gas stations, located next to each other in the same street. At one of them, it costs you 60 euros to fill up your car. At the other, it costs 600 euros -- quantity and quality being equal. So no customer in his right mind would go to the place that charges 600 euros -- unless there's some reason for which certain customers don't have a choice.

This must change.

If you'd like to be updated on patent issues affecting free software and open source (including but not limited to the antitrust investigations against IBM), please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents.

Western civilization runs on the mainframe

The EU's latest antitrust investigations target a market that's way more important than some people believe. The mainframe is far from dead.

The demise of "big iron" has been predicted many times. Those "experts" were consistently proven just as wrong as those doomsday prophets huddled on a hill with their sectarian faithful on whatever day they expected the end of the world to come.

Most of the time, IBM doesn't want people to know that the mainframe ("System z") is its core business from a financial point of view. It suggests better growth prospects to position oneself as a cloud company. More importantly, with formal probes in the EU and preliminary investigations in the US, IBM wants to give the impression that regulators shouldn't bother. The EU is absolutely right to care a great deal, and the US Department of Justice has probably also found out by now that the mainframe matters enormously.

At the recent launch of its new mainframe generation -- the biggest event of its kind in 20 years -- Tom Rosamilia, IBM's general manager for System z, was so exuberant that he forgot about antitrust and told a group of UK journalists the truth: "Western civilization runs on this system."

All of us are mainframe users -- albeit unknowingly

The IBM executive didn't exaggerate. There are estimates that 80% of the world's data are processed by mainframes. Banks, insurance companies and governmental departments still use them for their most mission-critical purposes. If you enter a bank transfer, chances are that your bank and the recipient's bank will process the transaction on their respective mainframes. If you get a social security statement anywhere in the industrialized world, the data will almost certainly come from a mainframe.

The New York Times most recently described mainframes as "the expensive, complex computing devices that still run most of the critical operations of big businesses and governments" and mention "a resurgence in the use of mainframe computing, which little more than a decade ago was widely dismissed as expensive and increasingly irrelevant in a market dominated by personal computers. Over the last decade, demand for mainframes has increased almost fourfold, according to data released by I.B.M."

Customers are locked in. They have invested many billions of dollars/euros in mainframe infrastructure, including purchased as well as custom-developed software. Most of that legacy software is written in COBOL, a programming language few people learn anymore. The total amount of mainframe code still in use amounts to an estimated 200-300 billion lines of source code.

It's easier said than done to migrate such huge and mission-critical applications to newer platforms. And there are still new organizations, especially in emerging markets such as India, adopting the mainframe for such purposes.

The mainframe software market is twice as big as the Linux market

What the mainframe monopoly means to IBM in economic terms is often underestimated. Even the European Commission's press release on the new antitrust probes talked only about mainframe hardware and operating systems, a total market (totally owned by IBM) of €8.5 billion worldwide in 2009 (€3 billion in the European Economic Area). That's an important part -- but only a part -- of the overall business.

There's a huge software and services market. In terms of software, the average mainframe customers spends about $1 million in annual licensing fees. The total mainframe software market according to IDC amounts to about $24.5 billion. That's twice the size of the Linux software market.

IBM leverages its monopoly to sell lots of non-operating-system software licenses and services. Of the mainframe software market, IBM owns approximately 40%. You can bet that if IBM sells a mainframe, the database will hardly be Oracle. It'll be DB2.

Huge margins for IBM: annual mainframe profits in excess of $5 billion

Everything mainframe is horribly expensive. For a given amount of memory, you'll pay about 60 times as much as for your PC. While mainframe components are built for extremely long mean times between failure (MTBF), that kind of difference is beyond justification.

A Hewlett-Packard executive compared IBM's mainframe business to heroin trafficking and estimated that "IBM gets 75 percent of its gross margins from mainframe software. It is not going to give you a truthful answer. It can’t."

The bottom line: squeezing those locked-in mainframe customers -- when counting hardware, software, services and financing -- "accounts for nearly 25% of total revenues and 40% plus of total [IBM] profits" according to Toni Sacconaghi, a financial analyst with Sanford C. Bernstein.

In 2009, IBM generated a net income of $13.4 billion. So last year the mainframe business generated north of $5 billion -- if not more than $6 billion -- in profits for IBM. That's mindboggling. Especially since we all pay for that mainframe tax, indirectly.

A platform in decline? Not so fast

Very recently, eWEEK Europe conducted an online poll, asking its highly professional audience what its organizations planned in terms of mainframe investment and disinvestment. The result is quite interesting: One third of respondents work for companies that can't afford a mainframe because they're too small. 30% plan to increase their mainframe spending, 20% plan to reduce, and only 10% said they got rid of their mainframes over the years. That 10% figure is really small when considering that mainframes were considered moribund more than a decade ago. By those famous doomsday prophets.

The mainframe is like Mark Twain, who famously said: "The rumors of my death have been greatly exaggerated."

I originally took interest in this antitrust issue because of IBM's patent bullying against TurboHercules. The more I familiarized myself with the topic, the more I understood that the mainframe market is an issue of major economic relevance. It's imperative to open up this strategically important market before IBM transforms its mainframe monopoly into a cloud-related monopoly.

The European Commission took the right decision by launching formal probes, and so did the US Department of Justice when it started a preliminary investigation in 2009. All of Western civilization -- which as you now know runs on the mainframe, even according to IBM itself -- will benefit from a good outcome of those competition cases. Free and open source software also stands a lot to gain, as I'll explain soon.

If you'd like to be updated on patent issues affecting free software and open source (including but not limited to the antitrust investigations against IBM), please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents.

IBM's patent holder rhetoric against open source innovation

I previously wrote that IBM's reaction to the European Commission's antitrust investigation boiled down to diversionary tactics (some of them implausible, all of them irrelevant) and the usual rhetoric of patent holders. Now I'll comment a little more on the latter part, which is of a kind that's been annoying me ever since I became involved with patent policy years ago.

It's a problem that isn't unique to IBM: every time someone sues someone over a patent, you can hear similar things. But no other company has used that kind of rhetoric in such an obnoxious and hostile manner against free and open source software (at least not recently).

Likening an alleged patent infringement to piracy

This is how IBM's reaction to the announcement of TurboHercules's EU antitrust complaint in March 2010 began:

TurboHercules is an "emulation" company that seeks a free ride on IBM's massive investments in the mainframe by marketing systems that attempt to mimic the functionality of IBM mainframes.

Hercules is an independently-developed, 11-year-old open source project. If that amounts to free riding, then all of FOSS does in one way or another. Linux, OpenOffice, MySQL... you name it.

This is not really any different from those who seek to market cheap knock-offs of brand-name clothing or apparel.

That's just so wrong. What IBM describes there is called "trademark piracy" (although the use of the term "piracy" is debatable in that context). Someone who intentionally makes illegal use of a trademark such as Armani or Boss knows exactly what he's doing: infringing on someone's rights. But if software developers infringe a patent, it's inadvertent most of the time. Someone writes code and someone else obtained a patent that reads on it. No wrongdoing. That's why I commented negatively on the inclusion of patents in the Anti-Counterfeiting Trade Agreement (ACTA).

An Armani or Boss pirate will also try to fool customers, at least the credulous ones, with respect to the origin and quality of the product. TurboHercules doesn't do that. It clearly says that its software is the Hercules open source mainframe emulator, and every single person who downloads and installs the program knows that it's software -- not a mainframe. You can tell by the weight :-)

TurboHercules is a member of organizations founded and funded by IBM competitors such as Microsoft to attack the mainframe.

On the Microsoft conspiracy theory I commented in the previous posting. The notion that TurboHercules aims "to attack the mainframe" is so absurd. Those guys are fans of the mainframe, and by making mainframe software run on other platforms they certainly don't harm the mainframe.

TheRegister's mainframe expert Timothy Prickett Morgan pointed out that the mainframe ecosystem stands to benefit from TurboHercules, calling it "perfectly understandable to want the Hercules emulator to be available as a true alternative to IBM's mainframe iron running its mainframe software, and a perfect fool as well as a genius could readily see that having such an alternative would be a good thing for mainframe shops."

Innovation requires incentives for innovators as well as a functioning competitive environment

Still commenting on IBM's reaction to TurboHercules's March 2010 antitrust complaint:

Such an anti-trust accusation is not being driven by the interests of consumers and mainframe customers - who benefit from intellectual property laws and the innovation that they foster - but rather by entities that seek to use governmental intervention to advance their own commercial interests.

IBM, you can be sure that the European Commission is "driven by the interests of consumers and mainframe customers", which is why the EU competition authority even opened a second probe of IBM's behavior at its own initiative. Then the part on "intellectual property laws and the innovation that they foster" ignores that innovation takes two things: an economic incentive (and I agree that IP often plays a key role in that) and, equally importantly, undistorted competition.

On the last part about "entities that seek to use governmental intervention to advance their own commercial interests", TheRegister's mainframe expert Timothy Prickett Morgan accurately noted: "There isn't enough time in the day to list all the times Big Blue has benefited from the intervention of local, state, and federal governments around the globe."

And the final part of the March 2010 statement:

IBM is fully entitled to enforce our intellectual property rights and protect the investments that we have made in our technologies.

This again suggests that IPRs are an absolute thing, detached from all other considerations. They're not. There can be limits under competition law.

Let me make this very clear: I don't downplay the relevance of IPRs as a factor that results in investment (of time, money and energy). I've personally lived off IP for many years. I started writing articles for computer magazines when I was 15, computer books at age 16, then became involved with several commercial software projects (including three Blizzard games: Warcraft II, Diablo I, Starcraft I). I co-founded and managed a startup that depended on IPRs. MySQL was probably the most IPR-focused open source company, and I was involved with it as an adviser and shareholder. I defended some IPR-related strategic interests (broadcasting rights) of my favorite soccer club in an EU policy-making context. So I have a whole pro-IP biography, but I also value undistorted competition.

Let me quote TheRegister's Timothy Prickett Morgan again:
"As anyone who has watched the engineering done by Amdahl/Fujitsu and Hitachi [makers of mainframe products who effectively left the market] in the long and strange mainframe market knows full well, it was these companies that often innovated ahead of Big Blue [...]"

Patent validity and actual infringement are doubtful

Now that the European Commission launched its two parallel investigations of IBM's conduct, IBM radicalizes its patent holder rhetoric:

The accusations made against IBM by Turbo Hercules and T3 are being driven by some of IBM's largest competitors -- led by Microsoft -- who want to further cement the dominance of Wintel servers by attempting to mimic aspects of IBM mainframes without making the substantial investments IBM has made and continues to make. In doing so, they are violating IBM's intellectual property rights.

Those conspiracy theories are a distraction, especially in the IP context: should there be an infringement (which is at least doubtful), it would also be committed by the 11-year-old Hercules open source project. The TurboHercules product is Hercules as far as the software is concerned (alternatively available for GNU/Linux or Windows).

The part about "violating IBM's intellectual property rights" is very aggressive. Who knows whether the patents IBM believes are infringed are even valid? I talked in 2006 to a company that's pretty big in the smartphone business and they said a patent law firm had told them there's about a 75% or higher chance that a European patent someone asserts against an alleged "infringer" isn't even valid. So many patents get thrown out due to prior art, lack of inventive step, incomplete disclosure, or for other reasons.

Even if IBM asserts patents that survive an effort to bust them, there's still the question of whether they're actually infringed. Hercules is an emulator, so it isn't a CPU "clone": it has completely different inner workings. It takes the CPU instruction set as input in order to perform functions, just like a JavaScript interpreter takes commands in that programming language as input. What Hercules does internally may very well be so fundamentally different from what IBM's System z CPU does that the patents obtained on one don't read on the other.

The Supreme Court of the United States made a very appropriate statement in its 1966 ruling on the Brenner vs. Manson case: "A patent is not a hunting license." This meant to say that a patent isn't supposed to monopolize the right to solve a problem: it's supposed to relate to one particular solution. IBM's patents, if even valid, may protect its CPU. But they certainly can't prevent others from solving the same task -- the interpretation of a machine language instruction -- with different means.

The developers of Hercules haven't commmitted any wrongdoing by developing their solution independently. The investigation is all about whether IBM harms competition. I believe that's the case, and that's why I'm glad the competition probe was launched.

In the course of it, IBM may even learn that a patent is not a bullying license.

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In the IBM antitrust case, Microsoft matters only as a precedent

In a reaction to Monday’s announcement of two parallel antitrust probes of IBM’s conduct in the mainframe market by the European Commission, IBM blamed it all on Microsoft and its “satellite proxies”.

IBM also referred to accusations “being driven by some of IBM's largest competitors -- led by Microsoft”. Other than diversionary tactics and some typical patent holder rhetoric, IBM had nothing special to say.

In fact, since IBM’s public response to the complaint TurboHercules lodged in March, it’s been the same kind of message again and again. Now that the European Commission has launched two formal investigations, IBM’s mantra is less credible than ever.

Regulators have to protect the public interest

There’s an important difference between litigation and regulation.

• If you sue someone, the court will have to take up your case unless it’s outrageously absurd at first sight. Access to justice for everyone.


• By contrast, regulatory authorities follow up on only a minority of the complaints they receive. They don’t have the resources to deal with everything, but they have more flexibility to reject. Quite often, the European Commission explains the rejection of a complaint simply with a “lack of Community interest.”

T3 Technologies filed its complaint last year, TurboHercules four months ago. There will have been a fair amount of research by the Commission, as well as back-and-forth correspondence and meetings between the regulator and IBM (knowing the Commission’s modus operandi). There must already be some strong indications of wrongdoing on the table. Monday’s announcement wouldn’t have happened otherwise.

I can’t see how Microsoft would be in the position to use the Commission for any purpose. It’s the record holder in terms of the total of fines levied by the Commission on a single company (1.7 billion euros). Microsoft was pursued by the Commission over three different issues (two of which formed part of the same case) in recent years.

The European Commission started one of the two investigations at its own initiative

We’re talking about two separate, parallel cases brought by the Commission against IBM. The Commission’s press release explains this:

Both cases are related to IBM's conduct on the market for mainframe computers. The first case follows complaints by emulator software vendors T3 and Turbo Hercules, and focuses on IBM's alleged tying of mainframe hardware to its mainframe operating system. The second is an investigation begun on the Commission's own initiative of IBM's alleged discriminatory behaviour towards competing suppliers of mainframe maintenance services.

So the first case -- the “tying” case -- resulted from two complaints (the one by T3 and the one by TurboHercules). But the second case -- the “maintenance” case -- relates to an issue that the Commission found out about without even getting a complaint from anyone.

Diversion is not a defense -- especially if it doesn’t make sense

At the heart of both cases is IBM’s suspected abuse of a dominant market position (actually it’s a monopoly).

Whatever IBM does in the mainframe market, if it’s against the law, it’s against the law and hurts consumers. IBM’s diversionary tactics don’t change the facts.

This isn’t the first time for IBM to face a mainframe antitrust issue. There’s a tradition of probes of that kind going back to the 1950’s and the famous Consent Decree. The European Commission reached a settlement with IBM in 1984. And by the way, the US Department of Justice launched a preliminary investigation last October. The DoJ is similarly unsuspicious of being in Microsoft’s pocket as the EC. It nearly broke up Microsoft into two or three pieces.

The Wall Street Journal makes some good points

The Wall Street Journal asked whether what’s good for the goose is good for the gander. It recalled that IBM ”was a principal antagonist of Microsoft during the software giant’s epic wars with Brussels.”

So IBM accuses Microsoft now of something that it actually did itself: supporting antitrust action against a competitor. But the more important thing is this:

Now it’s time to print off a few more copies of that [Microsoft] ruling. It’ll be used against IBM for sure.

The WSJ explains the parallels between both cases very well. Highly recommended reading.

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European Commission launches antitrust investigation against IBM

The European Commission today announced the launch of two formal investigations into IBM's practices in the mainframe business, following complaints lodged by T3 Technologies last year and French open source startup TurboHercules in March.

By coincidence, this announcement was made just a few days after IBM launched its new generation of mainframe computers, an event that shows mainframes are still big business and far from obsolescence. There are estimates that the mainframe business (including software) generates about half of IBM's corporate-wide profits. The mainframe software market has an estimated size of $25 billion, about twice the size of the software market for Linux.

The Commission appears concerned about the tying of IBM's mainframe hardware products to its dominant mainframe operating system, z/OS. This is reminiscent of the Commission's previous objection to the tying of the Media Player to the Microsoft Windows operating system and the "browser case" that was settled last year and resulted in a browser choice dialog box for Windows.

In early April, I published a threat letter with which IBM tried to intimidate French open source startup TurboHercules SAS, whose founder started the Hercules open source mainframe emulator in 1999, with 106 patents and 67 patent applications. If you're interested in the correspondence between TurboHercules and IBM -- two letters from each company --, please look up this page.

There is a possibility of the Commission also formally investigating the complaint brought forward by NEON Enterprise Software, on which I reported here. The other complaints were filed earlier, and there's always some back-and-forth correspondence between a complainant and a defendant after a complaint. That process must still be going on with respect to NEON's very recent complaint, but I wouldn't be surprised if in a few months the Commission also picked up that case. Then there would be three parallel EU cases related to IBM's mainframe practices in light of the suspected abuse of IBM's dominant market position (a de facto monopoly, actually).

Moreover, the US Department of Justice announced in October that it investigated IBM's mainframe practices. Since then, there hasn't been any further announcement by the DoJ. It will be interesting to see if the DoJ makes a further announcement in the weeks or months ahead.

The open source aspect of the TurboHercules complaint and IBM's use of patents are the reasons for which I recently learned a lot about the situation in the mainframe market. I'm convinced that customers are locked in and milked shamelessly by IBM, and I hope that the outcome of the process will result in more customer choice, including the possibility to use the Hercules open source emulator to run legacy mainframe applications on affordable Intel-based servers.

For some time, IBM has been lobbying the EU as a self-proclaimed advocate of open source and open standards. I can't see how this antitrust probe will enhance IBM's credibility in that context.

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NEON to lodge antitrust complaint against IBM with the European Commission

The Wall Street Journal was first to report today that NEON Enterprise Software, a maker of mainframe software, will lodge an antitrust complaint against IBM with the European Commission one of these days.

Meanwhile NEON has issued a press release confirming its intent to do so.

In December, NEON filed an antitrust lawsuit in the US against IBM over its practices in the mainframe market, which NEON calls "anticompetitive". In January, IBM then filed a countersuit against NEON, alleging an infringement of its intellectual property.

This SYS-CON Media article puts NEON's announcement into the context of other complaints against IBM and says that Allen & Overy, a law firm that previously helped such clients as Sun Microsystems with EU antitrust matters, is drawing up NEON's EU complaint.

French FOSS startup TurboHercules previously filed an EU antitrust complaint against IBM

Even though NEON's software is proprietary, I want to talk about the matter on this blog because there's a factual connection between NEON's complaint and the one previously lodged by TurboHercules, the French free and open source software startup that received a patent threat letter from IBM. NEON's press release also mentions TurboHercules.

By the way, after IBM's threat letter to TurboHercules became public, some IBM allies and apologists tried to muddy the water by claiming that IBM sent the threat letter only in reply to a question from TurboHercules, and others came up with the excuse that IBM was merely defending itself against an antitrust complaint. So if you heard any of those gross misrepresentations, you can easily verify that IBM asserted an infringement of "intellectual property" (as a synonym for patents) several months earlier. Apart from timing, an antitrust complaint could never have triggered the defense clause contained in IBM's patent pledge. IBM simply doesn't want to provide interoperability where its business interests collide with the concept of customer choice, even though IBM does a huge amount of lobbying to demand interoperability from others. Double standards. Open hypocrisy.

Differences and parallels between the problems NEON and TurboHercules have with IBM

NEON and TurboHercules are different companies that appear to have no connection whatsoever. NEON is a 15-year-old US company that sells proprietary, closed-source software. TurboHercules is a European FOSS startup.

NEON's founder, John Moores Sr., is a billionaire philanthropist and one of the founders of BMC Software, a major mainframe software company. TurboHercules' founder, Roger Bowler, is a mainframe fan and started the Hercules open source project about a decade before incorporating TurboHercules.

What NEON and TurboHercules have in common is that both are victims of IBM's bullying tactics.

Both just want to provide mainframe customers with much-needed cost-effective choice for their legacy software: hundreds of billions of lines of program code that are still in use, a very large part of it written in COBOL. NEON's zPrime software makes such legacy workloads eligible for execution on lower-cost (but fully functional) coprocessors. TurboHercules emulates the mainframe (System z) CPU on Intel servers.

But IBM wants to milk its locked-in mainframe customer base, hugely overcharging for everything that's needed to run legacy software.

NEON and TurboHercules are both very innovative in their way. IBM uses intellectual property, which should spur and protect innovation, as a destructive weapon against those companies. IBM told some mainframe customers using NEON's product that in IBM's opinion they're not allowed to do so and alleges that NEON wants to "induce" those customers to breach their license agreements with IBM. Many of you may be familiar with the Digital Millennium Copyright Act (DMCA), and IBM bases a part of its claims against NEON on that piece of legislation.

By the way, here's a YouTube video that NEON produced to explain why it believes mainframe customers have the right to use its zPrime product.

Procedural situation in the EU

Now NEON is about to file its EU antitrust complaint, and the European Commission is looking at TurboHercules' recent complaint. Previously, in January 2009, an EU antitrust complaint against IBM had been filed by T3 Technologies. The Commission still has to decide how to proceed with that one, too. If the regulator decides to lauch a full-blown investigation, IBM may have to defend itself against three complainants.

The European Commission isn't on any hard deadline for this but under its best practice guidelines a decision in the coming months is reasonably likely.

Some of the world's most critical data processing applications still run on mainframes. When any of us make a wire transfer, chances are that the bank will process it on a mainframe. Still today. Its demise was predicted a long time ago, but the mainframe isn't going away anytime soon. It's going strong. So it's an issue of major relevance to the worldwide (and European) economy to ensure that innovative solutions such as the ones provided by NEON and the Hercules open source project are available and that IBM doesn't bully anyone: neither customers nor solution providers. Enough is enough.

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IBM's defense clause that was never triggered

I had already explained in this post that there isn't any IBM defense clause that would ever have been triggered by TurboHercules. Hence, TurboHercules is still entitled to the benefits of the pledge.

But there's ongoing confusion. Just a few hours ago, someone commented on a previous post of mine and claimed that an "entity that has filed legal action against [IBM] is no longer protected [by the pledge]."

Another reader has, without posting a comment, challenged me to comment on the following quote from a senior IBM VP, a remark he made in a speech at a Linux event: "IBM has no intention of asserting its patent portfolio against the Linux kernel, unless of course we are forced to defend ourselves."

IBM may have said that, but it has nothing to do with TurboHercules. It's a statement about the Linux kernel. Hercules isn't the Linux kernel and IBM's patent pledge doesn't even mention the word Linux. IBM's comment has no effect on the scope of the patent pledge. The pledge stands on its own. It doesn't contain anything that would say: "You have to view this pledge in the context of whatever some IBM person said somewhere about something that is at best remotely related."

The pledge even encourages people to print it out and keep it like a contract. That underscores it's a document that stands on its own. The pledge defines one -- and only one -- defensive scenario in which IBM would not want to be constrained by the pledge. That clause exclusively pertains to "any party
who files a lawsuit asserting patents or other intellectual property rights against Open Source Software."

So IBM wanted to ensure that it could retaliate against a patent attack on open source even with pledged patents. But what TurboHercules did -- the lodging of an antitrust complaint with the European Commission -- is anything but filing a lawsuit asserting patents or other intellectual property rights against FOSS.

What TurboHercules did doesn't trigger the exception provided for in the pledge any more than reporting an illegally parked IBM car to the police would.

Antitrust and intellectual property are totally different areas of the law and the European Commission doesn't pursue patent infringement. (It doesn't adjudicate lawsuits of any kind.)

There are only three scenarios in which someone can claim that TurboHercules triggered the defense clause:

• that person hasn't ever bothered to read the actual pledge (which is only one page, plus a patent list) prior to commenting on this issue


• that person doesn't know that antitrust and intellectual property are disparate areas of the law, which I've now clarified


• that person intentionally wants to fool the community (and there are some out there who aim to do that)

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Roundup of coverage of yesterday's post

Many web media, and especially some very important ones, reported on yesterday's post to this blog (on IBM using patents against Free and Open Source Software).

Knowing that many will now want to find out what others are writing, I'd like to round up yesterday's coverage. I'll try to focus on just summarizing what those articles say rather than arguing the case again in this particular post.

Let me start with two sites contaning very useful additional material:

A file format conversion was provided by Benjamin Henrion (the president of the FFII): all pages of IBM's letter are available as PNG images on Benjamin Henrion's personal blog.

Roger Bowler, the founder of Hercules and TurboHercules, posted a new statement on IBM's patent attack to his blog. His statement doesn't contain any reference to my post. It's recommended reading because it explains TurboHercules' constructive, solution-focused approach to this matter. They want to serve users/customers. They're disappointed that IBM doesn't allow that, so far.

A positive surprise early in the day: An activist website named BoycottNovell, which was previously skeptical of TurboHercules' antitrust complaint, now says "SHAME on IBM" and expresses concerns over the theoretical possibility of IBM acquiring Novell and its patent portfolio. The title: "Big Blue Patent Monster"

Glyn Moody's blog (on the ComputerworldUK site) makes a number of good points in this article. Glyn points out that "IBM loves [patents] - for years it has obtained more of them than anyone else - whereas open source hates them." He also points to "larger issues", starting with this one: "One is that IBM is either a friend of open source, or it's simply an opportunist, supporting some projects when it suits, and attacking others when it doesn't."

TheRegister was also pretty quick to report: "Turbo-charged accusations fly", says "ElReg".

H-Online wrote that "IBM uses pledged patents against open source mainframe emulator"

ars technica provided a very comprehensive, insightful article (relatively early in the day). For those of you who are looking for some basic information on what the Hercules project is about and on the characteristics of the mainframe business, this is particularly recommended reading.

Slashdot also linked from its news item to the aforementioned ars technica article.

Dana Blankenhorn, a ZDNet blogger/lyricist, holds this effort up to mockery. He's entitled to that. And I'm entitled to fight for legal certainty for the Hercules project and its users, and for an overall outcome that will hopefully be a good one for Free and Open Source Software.

Commercial Open Source, Roberto Galoppini's blog, reports and links to TheRegister and Dana Blankenhorn's blog.

Maureen O'Gara looks into this issue in great depth in her article entitled "IBM Reneges on its Open Source Patent Pledge". If you read this article (and I can recommend it), make sure you also see the part below the table-of-contents box in the middle. That's where you can read about some aspects of IBM's approach to patents in general -- aspects that the other articles didn't address to the same extent. Maureen had insisted on knowing me from me why I didn't trust IBM back in 2005 when the original pledge was made. In a current context (European Interoperability Strategy/European Interoperability Framework), I'm also quoted on IBM's hypocrisy concerning open standards.

v3.co.uk has an article entitled "IBM accused of mainframe monopoly" and describes how "the situation came to head" in recent weeks.

The IDG News Service has a story that is centered around me ("Open-source advocate enter IBM antitrust fray") rather than the issue, citing "[p]eople close to [IBM]". None of that actually changes a thing about the fact that IBM, which it doesn't deny, wrote the letter to TurboHercules that I published.

Matt Asay is a professional open source optimist and writes that IBM's "patent claims show open source has arrived", portraying it as just a normal thing in general. But he does agree with me on some aspects of this. He concurs that "using patents to defend old monopolies is ugly" and also wants to know from IBM why two of the patents it once pledged to the FOSS community were listed in the letter to TurboHercules.

OSnews understands very well that the mainframe monopoly is "lucrative" for IBM and concludes: "So, there you have it. It would indeed seem that IBM only caters to the open source crowd when it has nothing to lose - when push comes to shove, and money's to be had, IBM doesn't appear to be too keen on open source at all."

NetworkWorld blogger Alan Shimel asks whether IBM speaks open source "with a forked tongue". He arrives at the conclusion that "they are consistent and will always do what is best for IBM. Expecting them to do anything more or less is silly." While I want this to be mostly a roundup, I would like to stress here that I fully understand the obligation every company has to its shareholders. But whatever IBM says about open source and open standards has to be seen against the backdrop of what IBM is doing to Hercules. Right now the only thing that is really consistently open about IBM is its open hypocrisy.

LWN.net believes the IBM/TurboHercules issue is just a "proprietary software squabble" (because TurboHercules' initial request to IBM was all about allowing IBM's customers to run their rightfully purchased copies of z/OS on non-IBM computers). However, there can be no doubt when reading IBM's letter and looking at the patents that IBM listed that those patents are not z/OS-specific. If Hercules, as IBM suggests, infringes those patents, then it will do so even in a 100% FOSS / 0% proprietary software configuration, such as running z/Linux (the mainframe version of Linux) on top of Hercules, which in turn (because it also needs an underlying operating system) would run on top of Linux for Intel x86/x64. Those patents are about the CPU instruction set, address management, virtualization/emulation - not about z/OS functions. In a follow-up article, LWN.net is not quite enthusiastic about IBM's approach to its patent pledge, distinguishing between "qualified" companies and others.

techdirt uses a very explicit language and concludes that the threat letter "calls into question IBM's real commitment towards moving away from supporting patents as a bullying tool."

Australia's iTWire writes that IBM has broken its 2005 promise. In the discussion part below the article, a reader (Richard Chapman) gives a vivid description of the situation: "Having IBM at your side in the land of Open Source is sort of like having a large carnivore as a pet. They may play and cuddle with you but you never know if or when they will revert to their natural ways and have you for lunch."

eWeek was the first website to report on IBM's official response.

The Financial Times and the Wall Street Journal analyzed IBM's reply and independently (they're fierce competitors) discovered an inconsistency between what IBM says now about possible patent litigation even against open source versus what the language of the actual 2005 pledge said. IBM now (unlike back then) says that the pledge is only meant to benefit "qualified" companies. The Wall Street Journal is right to ask: "If TurboHercules doesn’t qualify, who does?" And the Financial Times finds that "[e]ven under a very generous reading of the case, IBM is stretching the definition considerably to defend its turf. There’s a clear message there for any other open source company rash enough to try to take on Big Blue with its own weapons."

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IBM breaks the taboo and betrays its promise to the FOSS community

After years of pretending to be a friend of Free and Open Source Software (FOSS), IBM now shows its true colors. IBM breaks the number one taboo of the FOSS community and shamelessly uses its patents against a well-respected FOSS project, the Hercules mainframe emulator.

A reliable source close to the Hercules project has provided me with this letter that Mark Anzani, IBM's mainframe CTO, recently sent to TurboHercules SAS, a French startup founded by Roger Bowler, who started the Hercules project 11 years back. The letter comes with a "non-exhaustive" list including 106 IBM patents plus 67 pending patent applications.

This is so appalling that I felt compelled to show to the FOSS community what IBM is doing: IBM is using patent warfare in order to protect its highly lucrative mainframe monopoly against Free and Open Source Software.

Patents against FOSS and customer choice

The Hercules project is anything but anti-IBM. Hercules just wants to provide customers with an interesting and much-needed choice. In order to do so, Hercules is simply seeking a way that its customers will be allowed to run IBM's z/OS mainframe operating system on Hercules. IBM generally does not allow its customers to run z/OS (hence also the application software those customers internally developed on top of it for trilions of dollars) on non-IBM hardware.

When Roger asked IBM for a solution, IBM turned him down and accused Hercules of infringement of intellectual property rights. You can read Roger's summary of the initial exchange of letters with IBM here. The IBM letter I just published is IBM's reply to TurboHercules' request (made four months earlier) to specify which of IBM's intellectual property Hercules is allegedly infringing.

This proves that IBM's love for free and open source software ends where its business interests begin. In market segments where IBM has nothing to lose, open source comes in handy and the developer community is courted and cherished. In an area in which IBM generates massive revenues (the mainframe software alone has an estimated size of $25 billion -- twice as big as the Linux software market --, around $10billion for IBM, and IBM has a monopoly on mainframe hardware), any weapon will be brought into position against open source. Even patents, which represent to open source what nuclear arms are in the physical world.

Two of the patents had actually been pledged to the community

To add insult to injury, the list of patents with which IBM tries to intimidate the Hercules project even includes two of the 500 patents IBM originally "pledged" to the open source community.

Patent numbers U.S. 5613086 and U.S. 5220669 appear on page 4 of IBM's 2005 "patent pledge", and also appear as patents #83 and #106 in the letter IBM sent to TurboHercules.

This betrayal of the promise is unbelievable, but I never believed that IBM was sincere about that pledge in the first place.

When IBM made that announcement in 2005, I immediately viewed it as a deceitful attempt to kill two birds with one stone: to appease the FOSS community and to alleviate concerns by many European lawmakers who were opposed to a legislative proposal to enshrine software patents in European law (for more background on that process, see my initial post to this blog).

ZDNet and other media quoted me calling IBM "just being hypocritical". I stand by it. Five years later, I still can't find a better word to describe IBM's approach to open source.

Make no mistake: this is not about a simple commercial dispute between IBM and some other vendor. The patents in question, the largest group of which covers the IBM mainframe CPU instruction set, are not specifically connected to what the TurboHercules company is doing beyond the Hercules code base. That mainframe instruction set is emulated by the Hercules open source project itself, which started 11 years ago and has thousands of users worldwide, even including a number of IBM people. Other patents that IBM brings into position here cover general address management and virtualization/emulation functionality that would affect many other open source projects as well.

This is an attack on Free and Open Source Software as a whole. Unless IBM is stopped, other vendors might do the same to protect their turf.

If you read how IBM tries to justify its outrageous behavior, claiming that the Hercules folks are seeking a free ride, you'll see that we as a community face a fundamental problem.

Regulatory intervention against IBM is needed

So how can the current problem be solved? The only short-term fix that I can see -- other than IBM changing its stance -- is through regulatory intervention. IBM's mainframe monopoly is a huge problem. Customers who have invested trillions of dollars in mainframe infrastructure suffer from a lock-in and IBM doesn't even allow them to run the software they rightfully own on a platform of their choice.

Even prior to receiving that patent threat letter, TurboHercules had lodged a complaint with the European Commission. A formal investigation of IBM's conduct in this space, including (among other things) the way it uses its patent arsenal against an innovative open source program to prevent interoperability and customer choice, could ultimately open up the market and deter other monopolists from using their patent arsenals against open source in a similar way.

With all that's at stake, I'm now taking a really strong interest in this matter and will be following it more closely in the weeks and months ahead.

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