Ibm-Lotus Deal Should Pass Antitrust Review Proposed Merger Doesn’t Pose Threat Of Market Domination

International Business Machines Corp.’s planned purchase of Lotus Development Corp. will likely get a clean antitrust review even though the Clinton administration has been tougher than earlier Republican regimes.

The main reason is that the $3.3 billion takeover announced Tuesday won’t significantly increase Big Blue’s skimpy share of the personal computer software business, experts said. While the Justice Department earlier this year drove Microsoft Inc. to abandon its purchase of Intuit Inc., they said, IBM doesn’t pose the same threat of market domination.

“It’s very hard to see today where IBM has significant market power in any market related to what Lotus does,” said Charles Rule, a Justice Department attorney under the Reagan administration and head of the antitrust division from 1986 to 1989. “The folks in the Clinton administration are more aggressive than folks who have been there in the last 10 to 15 years … but I don’t think they’d challenge this transaction.”

For one thing, the Justice Department learned a lesson in the 1970s when it tried to break up IBM, experts added: Big isn’t necessarily bad.

The government pursued IBM for more than 13 years under the theory that the Armonk, N.Y., computer company was trying to drive competitors out of business. It dropped the complaint in 1982 when Assistant Attorney General William Baxter declared the case “flimsy.”

“The suit against IBM was a catastrophe,” said Richard Epstein, a professor at the University of Chicago Law School and critic of antitrust policy.

The Justice Department under Clinton appointee Anne Bingaman is more aggressive, he said, “but it’s certainly not going back to the way it was in the 1960s.”

The key test, Epstein said, is whether a combination with Cambridge, Mass.-based Lotus gives IBM control of entire segments of the PC software market. If not, the merger, no matter how big, should sail through.

Epstein cited Philip Morris Cos.’s $12.9 billion purchase of Kraft Foods in 1988, which passed antitrust scrutiny even though it combined two of the nation’s largest consumerproducts companies. Philip Morris was concentrated in tobacco while Kraft was almost strictly food.

“When (IBM Chairman Louis Gerstner) said the fit with Lotus is breathtaking, he meant the overlap between the two companies was negligible,” Epstein said. “This may look more like a Kraft/Philip Morris merger than Microsoft/Intuit.”

Some observers believe IBM and Lotus together may actually spur competition in the PC software business.

Microsoft controls 85 percent of the market for PC operating systems and 50 percent of the business-applications market. IBM, while the world’s largest software company with more than $11 billion in software sales, is focused on the mainframe computer business and has generally failed to crack the PC software market.

Antitrust officials “may see this as something that makes them a more vigorous competitor in both the applications and operating system market,” said Deborah K. Owen, a Washington antitrust lawyer and former Federal Trade Commission member.

Competitors who protested Microsoft’s purchase of Intuit may be reticent on IBM’s plans, added Gerry Michalski, managing editor of Release 1.0, a computer trade publication.

“Whom should this scare?” he said. “Microsoft is so dominant that other players have to go through some sort of consolidation in order to survive.”

If the government intervenes, Rule said, it could repeat the mistake it made in the 1970s when it assumed that IBM’s size gave it monopoly power in the computer business. That view ignored the rapid changes that led to the explosion of the PC industry and Microsoft’s ascendancy, Rule said.

“It probably had a kind of an ossification effect” on IBM, Rule said, that limited IBM’s development of new products and services. “Even though they ultimately were successful in the courts, the diversion of management attention and their obsession with the government probably played a role in the fact that they missed the ‘80s and let everyone pass them by.”

Some antitrust experts wondered whether the Justice Department will remember its past mistakes.

“Did they learn a lesson with IBM? Yes,” Epstein said. “But the problem is lessons like that tend to deteriorate over time.”