A long-running Justice Department antitrust investigation into International Business Machines Corp.'s outsourcing business has advanced to a higher level within the agency.
After a two-year inquiry by staff lawyers in the Justice Department's antitrust division, the investigation has been assigned to a deputy assistant attorney general, according to computer industry sources.
The investigation centers on whether IBM's outsourcing business is in compliance with a 1956 consent decree that prohibits the company from using its dominance as a computer hardware manufacturer to unfair advantage over other providers of data processing services.
Subsidiary for Outsourcing
In May, IBM set up a wholly owned subsidiary, Integrated Systems Solutions Corp., to handle its outsourcing business with banks and other companies. IBM officials said at the time that the new unit would satisfy the terms the decree. Several large banks, including Continental Bank Corp. and Hibernia Corp., have contracts with ISSC.
But with several competitors still complaining of unfair business practices by IBM, the Department of Justice has for the first time assigned a senior-level official to examine the case.
A report of the switch was reported by the trade newspaper Computerworld last week and confirmed by sources close to the investigation.
Mark Gidley, a deputy assistant attorney general in the Justice Department's antitrust division, met in September with at least one of the vendors filing complaints against IBM.
Since that time, Mr. Gidley has reportedly asked IBM to provide the Justice Department with information to refute charges that the company is providing its data processing subsidiary, Integrated Systems Solutions Corp., with hardware priced beneath what competing processors pay.
Such a practice would violate the 36-year-old consent decree that stipulated IBM was prohibited from "furnishing to [its] service bureau corporation any tabulating or electronic data processing machines except upon the same terms, conditions, and delivery schedules that such machines are furnished to any other service bureau."
IBM has repeatedly denied engaging in anticompetitive activities.
A spokeswoman for IBM said the company has had "routine conversations with Justice" regarding the consent decree, but she declined to be more specific about the nature of those meetings.
"We feel we are in compliance with the decree, and our commitment is to meet all of its provisions," the IBM spokewoman said.
Records Are Sought
However, several companies that compete for service bureau business with ISSC dispute that claim, and they are pushing Big Blue to back up its assertions with documentation.
The most vocal of these companies, Dallas-based Affiliated Computer Systems Inc., has written several letters to IBM chief executive John F. Akers requesting that Big Blue release records of hardware sales and leases between ISSC and its parent.
In a September reply to Affiliated Computer's requests for documentation, ISSC general counsel Stephen T. Huhn maintained that ISSC is receiving no improper discounts. But he offered no records of transactions between ISSC and IBM to support that claim.
It is unclear whether IBM is required under the consent decree to provide competitors with such information. Article VIII of the decree orders IBM to notify service bureaus using IBM equipment of the prices, terms, and conditions of computers sold or leased to any unit of IBM that participates in the service bureau business.
ISSC executives believe the general product information available through IBM marketing representatives satisfies that requirement. And they said more specific documentation would be provided on the request from the Justice Department.
Justice officials refused to comment on the investigation.
Officials at Affiliated Computer did not expect any new developments in the case until next year. Mr. Gidley, now the senior investigator on this case, is reportedly a Republican appointee whose tenure will likely expire in January when President-elect Clinton takes office.
But observers expect the investigation to continue under the new Administration.