Control Data Australia Memories compiled by Brian Membrey
1973 : The IBM Settlement
"COMPUTERS: A Settlement for IBM", Time magazine, Monday, Jan. 29, 1973.
“Peace negotiators have been meeting secretly for the past year at law offices in Manhattan and Minneapolis-
"In return for dropping its suit, Control Data won a good deal. For about $16 million, it will acquire IBM's Service Bureau Corp., a subsidiary that processes customers' data and sells time on its own computers. Wall Street analysts reckon that the Service Bureau's real market value is closer to $60 million. In addition, IBM will buy services from the bureau for five years, stay out of the services business itself in the U.S. for six years and reimburse Control Data for $15 million in legal fees spent on the case. Total cost of the package to IBM: at least $80 million. William C. Norris, Control Data's one-
Still regarded as one of the most famous civil cases in U.S. legal history, the basis of CDC Anti-
Perhaps inspired by the CDC initiative in moving Seymour Cray's design team "out-
The project produced interesting computer architecture and technology, but the initial design proved incompatible with IBM's hugely successful System/360 line of computers. Under management direction, the engineers solved the compatibility issues, but with a serious drop in performance and the ACS-
In reality, the early CDC 6600 models were experiencing their own difficulties, especially with memory. With penalty clauses for non-
IBM continued to pledge delivery dates and accepted orders for what was now promoted as the 360/90 Series, cutting into potential Control Data business. At one point CDC was said to have been unable to book a single order for the 6600 for nearly 18 months as a result of the "ghost" computer strategy with existing IBM customers who had been considering upgrading to the 6600 waiting for the release of the mythical Model 90 series.
“FUD you, I.B.M”, says Bill Norris
CDC founder and Chairman Bill Norris did not take this tactic lying done and firmly believed that the Model 92 was never a serious project after the initial ACS-
The complaint alleged that IBM had monopolized the market for computers in violation of section 2 of the Sherman Act  and that this conduct had damaged CDC’s business, entitling CDC to treble damages plus attorneys’ fees under section 4 of the Clayton Act. The case was filed in Minnesota’s federal court.
 The Sherman Anti-
IBM immediately engaged its outside general counsel, Cravath, Swaine & Moore (CS&M), to defend the case and began organising a number of crash training courses to bring its team of predominately computer-
And the U.S. Government
On 17 January, 1969, the U.S. Department of Justice filed suit in the U.S. District Court, New York, against IBM (also under Section 2 of the Sherman Act) with several claims of unfair competition by bundling prices, premature product announcements when it knew that its product was years from completion (mimicking the CDC accusation) and predatory pricing.
Over the next two or three years, several other companies took their own action -
Minnesota’s U.S. District Judge Philip Neville was put in charge of managing all of these complicated cases where one of the major issues was defining the market, geography and product lines. Plaintiffs argued for definitions that produced large market shares for IBM while IBM argued for different definitions and lower market shares.
The Case -
At the time, there was little publicity given to the three major lawsuits -
In general, the primary complaints raised (generally with a load of statistical data in support) were that :=
(In addition, CDC specifically objected to IBM's preemptive announcements of equipment that it never intended to produce in order that prospective Control Data customers (particularly for the 6600) would hold off purchasing; Telex alleged in its suit that IBM deprived it of the right to compete by reducing prices to unreasonable levels to cut Telex out of the market; and the Justice Department suit followed Telex in complaining that IBM had introduced low-
In June, 1969 following the lodgment of the suits, IBM announced plans to drop its heavy discounting to educational institutes and to "unbundle"; previously it priced systems to include software, training and servicing, meaning (a) buyers were charged for services they often did not require or could obtain more cheaply elsewhere, and (b) potential alternate suppliers of software and services could not assess competitive prices. CDC itself did not “unbundle” until early 1970.
IBM and “Unbundling”
Burton Grad, ex-
"The most significant suit as far as IBM was concerned was the Control Data suit in terms of its scope and the skill with which CDC pursued it. I was on IBM's unbundling task force and this is my recollection. We weren’t allowed to carry out any papers so I don't have any documentation, only what I can remember. "
"It got stirred up, apparently, by Burke Marshall and Nicholas Katzenbach, IBM attorneys, telling Tom Watson, Jr., IBM's chairman at the time, that systems engineering was a tie-
"But if they made the decision to unbundle systems engineering, they also had to unbundle education and field engineering where they were getting pressure from independent firms that wanted to be able to maintain any manufacturer's equipment. IBM announced the decision to unbundle in 1968 and hoped that would avoid a Justice Department suit. At least, that’s what Marshall and Katzenbach had told them: If you go ahead and do it on your own you probably won’t get sued by the government. Again, this is anecdotal. It's what I was told.
"In January of 1969 there was a big shock when the suit happened anyway. As most of you know, the government didn’t push the suit very hard for quite awhile.
(Interviewer): "for twelve years ..."
"No, for just the first three years, there was not much happening. It seemed like the government was depending upon Control Data to push ahead. But Control Data’s suit was not about software or about services; that wasn’t where their concern was. They were pushing on IBM’s so-
The CDC Case
The CDC case was eventually set aside from the others on the base that an action involving the mainframe market and IBM’s “fighting machine” was too dissimilar to be heard conjointly with the others which involved peripherals, maintenace services or lease finance.
The suit was eventually scheduled to commence on November 5, 1973 in a case where it was later suggested several million pages of documentary evidence would be involved, but in a move that surprised most observers (in particular the U.S. Department of Justice), IBM settled the CDC suit out-
It is probably impossible to accurately quantify, but one account suggests CDC's legal team examined over twenty million pages of IBM documentation, of which over a million were photocopied and around 150,000 documents (around half a million pages) added to its computerized database -
The settlement involved the rights for CDC to acquire IBM's Service Bureau Corporation (SBC) at a nominal book price of $16 million (a valuation put the true value of SBC as between $45 and $60 million based on a rough industry standard that suggested businesses be valued at their net yearly earnings multiplied by 30). SBC earned just on $1.5 million in fiscal year 1972 based on revenue of $63 million -
Based on those figures, one suspects no-
SBC had 40 data centres operating across the U.S., mostly operating IBM 360 models and at what might be termed the lower-
IBM also made considerable use of SBC for its own internal processing and the settlement also agreed that IBM would continue this processing with SBC at the current level of $5 million for five years, that IBM would to pay retirement and other one-
 Although never fully documented as an issue at the time, the accompanying restriction that SBC could not utilise the services of IBM employees would almost certainly meant that the existing SBC staff would have had to resign from IBM with the resultant payout of existing benefits and then, if they desired, apply for re-
The final part of the settlement was that IBM would fund CDC Research and Development projects at $6 million a year over the years with a world-
On face value, a disastrous result for IBM -
A Disaster for IBM?
Two aspects of the case suggest not.
As was standard in anti-
As no trial occurred, the matter of damages became irrelevant, but as a guide, another anti-
The “fly in the ointment” in the Telex case was they were found guilty in an IBM counter-
Throughout the duration of the CDC case, the company compiled a huge computerised database of documents -
Hidden away amongst the “big ticket” items in the settlement was an agreement that all of CDC's computerised documentation revert to IBM where it was predictably immediately destroyed. (Again, more on this to come in April, but both Telex (against CDC) and the Justice Department (against IBM) immediately launched actions to prevent further destruction of material -
The removal of incriminating documents collected over four years led to IBM either winning all the alternative private suits or them being dropped because of a lack of evidence because claimants depending of the CDC data base to support their claims.
“Terrible Tommy’s” Recollections
Even at the time, some observers later suggested that IBM's settlement was designed solely to have the damaging index destroyed -
"… And despite of everything, customers were still ordering 360s faster than we could build them".
At that time, however, IBM made what Watson Jr calls a "grievous mistake".
In August 1963, the tiny Control Data Corp had announced the 6600 super-
Junior notes that "the effect of this announcement was to put a chill on [CDCs] market".
"Even though our supercomputer didn't exist yet, a lot of customers decided to hold off buying from CDC until they could get a look."
CDC plunged into the red and IBM announced four different versions of this pseudo-
IBM eventually bought off Control Data in 1972. It sold CDC its service bureau for "a fraction of its real worth" and gave CDC $101 million worth of cash and contracts, including $15 million to cover legal fees.
"This settlement was a brilliant tactical stroke," writes Junior. CDC had indexed all IBM's documents on a computer and this "was the master link in all the other anti-
"Without Control Data to help, the Justice Department's case deteriorated into a courthouse mess." This anti-
Given America's fear of Japan, and its adoption of IBM as a "national champion", it is unlikely to be reopened …".
… the Anti-
The U.S. Government Anti-
Before the commencement, the Government estimated that the presentation of its case would last 60 days – it took three years – with one of the Justice Department's lead counsels dubbing the case ''the Anti-
It would be fascinating to have Bill Norris' private thoughts on the settlement as well as Watson's, but unfortunately nothing other than a few carefully worded comments has been traced – the last page of his scrapbook includes a press clipping on the launching of the case, but is dated some five months after the previous entry and is obviously a last-
Meanwhile, here in Oz …
From memory, we didn’t hear much of the case here in Oz -
"... we are pleased with the settlement and are confident that the results will greatly strengthen Control Data" … “the industry in general had derived great benefit from the case”.
Given that SBC had no presence in Australia, perhaps the one impact of the acquisition was the introduction of the Call/370 time-
Its predecessor, Call/360, was the SBC time-
Judge Philip Neville continued with the mix of anti-
“Judge Neville's most controversial decisions on the Federal bench came in a case in 1970 in which he ruled that the University of Minnesota could not refuse to hire a person merely because he was an avowed homosexual. In that case, involving a man who was refused a job as a university librarian after it became known that he had applied for a marriage license with a male student, Judge Neville declared in his decision, “a homosexual is a human being.” (New York Times, 16 February, 1974)
From the Charles Babbage Institute CDC image archive : three bank cheques following the 1973 settlement to the tune of a lazy $65 million dollars drawn against various IBM accounts and countersigned on the rear to the Northwestern National Bank of Minneapolis account Control Data Corporation (bottom).
The background to the cheques is however somewhat unclear -
The $15 million payable on the centre cheque may have been the amount specifically set aside for legal expenses; CDC’s legal firm Oppenheimer, Wolff, Foster, Shepard and Donnelly of St. Paul firm,are referenced in the countersigning below.
The other two cheques suggest that it may have been agreed that two of the other parts of the settlement that nominally extended over a period of some years were to be paid out in advance.
The agreement that IBM would pay all retirement and other benefits of Service Bureau Corporation employees for the next ten years, estimated in 1973 as $2.6 million per year and is probably the cheque cheque (top) for that sum.
The bottom cheque for $25 million in turn could be IBM’s advance payment against the $5 million per annum for five years to maintain its level of internal data processing with Service Bureau Corp.
That leaves the minor issue of the $30 million to fund R & D projects expected to amount to $6 million a year over five years, but there are references to this effort being paid based on “time and materials” and thus not calculable until after the event.
Even without that $30 million, one can imagine the look on the face of a spotty 19-
|CDC : The Office|
|CDC : Early Executives|
|CDC : Frank Mullaney|
|Introducing the 1604|
|A Satellite Computer System|
|A Nebraskan's Success story|
|1963 :IBM in praise of Seymour Cray|
|The Bill Norris Scrapbooks >>|
|And Cedar Engineering|
|Roseville :The Plant That Wasn't|
|Bloomington : And One That Was|
|1973 : The I.B.M. settlement|
|Curiouser and Curiouser|
|Telex v IBM : the winner is ...|
|The New York Times says ...|
|"The Anti-Trust Division's Vietnam"|
|Service Bureau Corporation|
|Facts for Management|
|Facts for Management|
|Facts for the technical staff|
|Control Data Corporation|
|Scrapbooks : V1 Pages 01-60|
|Scrapbooks : V1 Pages 61-120|
|Scrapbooks : V1 Pages 121-180|
|Scrapbooks : V1 Pages 181-215|
|Scrapbooks : V2 Pages 001-060|
|Scrapbooks : V2 Pages 61-180|
|Scrapbooks : V2 Pages 181-240|
|Scrapbooks : V2 Pages 241-300|
|Scrapbooks : V2 Pages 301-331|