IBM

ONCE FAMOUS FOR ITS one-word motto, “Think,” this high-technology colossus pursued ideas that included secret files and collaboration with foreign governments. In 1996, IBM was rumored to have sold two shipments of high performance computers to Russian nuclear research facilities, one in the closed city of Arzamas-16 and the other in an unknown location. A Congressional investigation noted that the United States would benefit from assuring Russia's cooperation with the Comprehensive Test Ban Treaty (CBTB) by allowing it to maintain its existing nuclear stockpile through computer simulations. The problem with IBM's activities was that the company had applied for the necessary federal license to ship the computers; when the government requested more information on how the computers would be used, IBM shortcircuited the process by shipping the computers through its German subsidiary to a Moscow computer dealer, Jet Infosystems.

Russian diplomats argued that the United States had promised similar computers as an incentive to agree to the CBTB. Private industry pursued the business. “IBM was very pushy. They thought Arzamas could be like Los Alamos, a very prestigious customer,” Yevgeny Shablygin, head of Jet Infosystems, told the New York Times. Russia refused to cooperate in the federal prosecution of IBM. The case was settled in 1998, with IBM paying an $8.5 million fine. The U.S. Department of Energy quietly contributed $2.3 million to a project with the Russian Ministry of Atomic Energy, resulting in the 16 illicit computers being featured in an “open computer center” dedicated to nonweapons research, in Arzamas-16, now returned to its former name of Sarov. The center opened in September 1999.

Using European subsidiaries to evade U.S. laws was not new to IBM. In a controversial 2001 book, Holocaust expert Edwin Black argued that the keystone of IBM's business strategy in 1930s Europe was supplying equipment and expertise to the Nazi program of identifying and exterminating Jews. Identifying Jews for deportation to concentration camps required a massive census effort. IBM not only actively pursued the business of providing customized Hollerith machines and punch cards—an early form of computer technology—but also provided technical support to Nazi governments throughout World War II.

When numerous U.S.-based companies were blacklisted for trading with the enemy in 1942, IBM's subsidiaries were not included. However, a separate 1943 investigation established that IBM's New York headquarters had approved the company's activities in Germany as part of an effort to establish a cartel controlling the world's supply of[Page 412] computer punch cards. Black notes that, since the U.S. government saw the Hollerith machines in Europe as critical to the success of its military occupation, IBM was never penalized. The company reabsorbed its German subsidiary and its profits; other European subsidiaries had always reported directly to American headquarters. A 2001 class action suit by Holocaust survivors against IBM was swiftly dropped due to concerns that it would slow long-awaited German plans for restitution to survivors.

Charges of monopolistic practices resurfaced in the late 1960s, when IBM was barraged with law-suits from computer industry competitors. The company's practice of bundling equipment, peripherals, programs, and support under a single price was seen by smaller manufacturers as a tactic to keep rivals out of each separate market. While most suits did little damage to IBM, peripherals manufacturer Telex scored a temporary victory in 1973, when a judge ruled that IBM's SMASH initiative to gain market share through lowered prices was an antitrust violation worth $350 million in damages. Historian Robert Sobel argues that before the verdict was reversed on appeal, suing IBM became a key business strategy for smaller competitors simply as a means of demonstrating commitment to growth.

...