We saw in CI No 1,630 how IBM insists that when it upgrades a mainframe, the replaced parts remain IBM’s property – and how upgrade pricing bears no relation to the actual cost or value of the parts in question, but are an extension of IBM’s marketing policy. Such practices would be alarming in other contexts. What would the reaction be if Toyota maintained its cars the way IBM’s does mainframes and offered trade-ins on two-year-old cars comparable to IBM’s upgrade policies? Imagine getting a new power train for your car at half price or less! Customers would flock to the Japanese autos. Detroit’s car makers would scream bloody murder. And, unless the practice was found to be illegal or unfair – or quashed by political means during some kind of international trade negotiation – Toyota could well end up with the kind of market share in mid-range automobiles that IBM enjoys in mainframes. Nonetheless, IBM’s contracts and the practices they support have not been found to be illegal. If anything, the company’s willingness to litigate to enforce its agreements – and the history of Cravath, Swain & Moore’s courtroom successes on behalf of IBM – suggest legitimacy. Moreover, the agreements were signed by executives with the assent of their corporate lawyers. Neither the lessees nor the defendants can claim that they were bilked.

Cannot treat the English language as their own

Still, there is a chance that IBM’s lawsuits will be overturned. On February 21, the Boston arm of New York law firm Skadden, Arps, Slate, Meagher & Flom filed a motion to dismiss IBM’s three-week-old lawsuit against EMC. Skadden, Arps also responded to IBM’s flack attack, which had brought its client and the other defendants some bad press well before they could properly respond to Big Blue’s charges.In the preamble to the motion to dismiss, EMC’s lawyers write, IBM and IBM Credit filed this lawsuit and other lawsuits against other computer companies while asserting, contrary to fact, in a contemporaneous press release to news media and trade journals that EMC was ‘treating IBM Credit’s property as its own’. While such remarks will not be made with impunity, this motion points out the fundamental flaw in IBM and IBM Credit’s Complaint and press campaign: IBM and IBM Credit cannot treat the English language as their own. The Skadden, Arps motion presents three arguments that apply to various aspects of IBM’s complaint. One is that IBM’s claims cannot be pressed because they are not ripe: Under the terms of the lease, no damage can be done until the leases end. A second is that IBM and IBM Credit failed to join key parties; in other words, IBM can’t sue EMC unless it also sues the lessees. The third argument deals with the IBM Credit system at EMC, which IBM Credit says it hasn’t been allowed to inspect under the terms of its lease. EMC says IBM Credit never asked to look at the machine.

– By Hesh Wiener –

Comdisco will also respond in due course. To a large extent, its defence will be based on those in the EMC motion to dismiss… if it works. Lessees and third-party lessors are paying careful attention to the issue of ripeness. While IBM Credit’s lease seems to impose its requirements for the return of an intact system at the end of a lease, there are some actions a lessee can take during the term of a lease that would be difficult to defend. For instance, if a lessee (or, as IBM’s legal strategy suggests, a third party) removes parts from an IBM Credit machine and sells them, the lessee’s promise to hang onto IBM Credit’s equipment cannot be kept. But what if the lessee’s arrangement with a third party includes a promise of replacement with identical IBM parts (except for their serial numbers) on demand? IBM’s additional requirements, contained in its June 1990 guidelines to lessees, aren’t part of any of the leases at issue. Unless the guidelines are specifically incorporated into a contract, they have no bearing on the agreement. No court would support an IBM contention that it didn’t quite state what it meant in its lease. While we cannot beg

in to guess how the courts will view the defendants’ treatment of parts removed from IBM Credit’s machines, the second line of EMC’s defence has great likelihood of broadening the case. In most instances, according to Skadden, Arps’ presentation, the law insists that a plaintiff include all defendants in a suit if they are, in judicial terms, necessary or indispensable or else the suit may be dismissed. EMC says it doesn’t want to bring IBM Credit’s lessees into the fray. Presumably, IBM doesn’t either, or it would have named them. If EMC gets its dismissal on the basis of its joining argument, IBM will be left no other choice but to give up… or sue its lessees. IBM’s lawyers must surely have contemplated this possibility and its consequences. Most likely, a dismissal would end the whole affair without engendering countersuits. The other course for IBM, if it is seriously threatened by EMC’s motion for dismissal, is to haul the lessees into court. However, IBM is not the only party in the dispute. Comdisco and EMC may feel that they have to stand and fight, not merely defend, or they will surely face a more formidable IBM tomorrow. Other lessors could well join in and, to an extent, already have. Computer Dealers & Lessors Association members have raised funds estimated to be in excess of $1.5m for a legal war chest called the Computer Leasing Industry Contingency Fund. The trust is administered by the Association and governed by a board of directors. The formation of this trust was carried out in secrecy, but on February 22 the Association made the fund’s existence and purpose public and also disclosed the names of the trust’s directors.

Basis of serious legal challenge to IBM

They are Ron Breckner, president of Data Sales Company; Rick Forsythe, president of Forsythe/McArthur Associates; Dean Lawrence, president of Unimark; Ken Pontikes, chairman of Comdisco (who also chairs the fund’s board); and Duane Whitlow, president of Duane Whitlow & Co.The computer leasing industry’s initial circumspection has been swept aside by an appeal for candor: it has set up a toll-free hotline number tied to an answering machine. The organisation hopes that lessors (and, perhaps, lessees) will call with their questions, inform the Association of events that might impact the business or just spout off about the Association’s posture in the IBM Credit-lessor dispute. Complaints about IBM’s practices gathered by the Association are unlikely to have an effect on the current spate of lawsuits. They could, however, form the basis for a serious legal challenge to IBM based on both antitrust law and the constraints imposed by IBM’s 1956 Consent Decree.

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