[Federal Register Volume 63, Number 6 (Friday, January 9, 1998)]
[Notices]
[Pages 1499-1508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-522]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. International Business Machines Corporation and 
Storage Technology Corporation; Proposed Final Judgment and Competitive 
Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, 
Stipulation, and Competitive Impact Statement have been filed with the 
United States District Court for the District of Columbia in a civil 
antitrust case, United States v. International Business Machines 
Corporation and Storage Technology Corporation, Case Number 1:97 CV 
03040.
    On December 18, 1997, the United States filed a Complaint alleging 
that an ``OEM Agreement'' between International Business Machines

[[Page 1500]]

Corporation )``IBM'') and Storage Technology Corporation (``STK'') 
unlawfully restrains competition in the market for disk storage 
subsystems (``DASD'') for mainframe computers, in violation of Section 
1 of the Sherman Act, 15 U.S.C. 1. The proposed Final Judgment 
prohibits IBM and STK from carrying out anticompetitive terms of the 
OEM Agreement and imposes requirements to restore competition in the 
market. A Competitive Impact Statement filed by the United States 
describes the Complaint, the proposed Final Judgment, and remedies 
available to private litigants.
    The public is invited to comment to the Justice Department and to 
the Court. Comments should be addressed to John F. Greaney, Chief, 
Computers & Finance Section, U.S. Department of Justice, Antitrust 
Division, 600 E. Street, N.W., Suite 9500, Washington, D.C. 20530 
(telephone: (202) 307-6200). Comments must be received within sixty 
days.
    Copies of the Complaint, Stipulation, proposed Final Judgment, and 
Competitive Impact Statement are available for inspection in Room 207 
of the U.S. Department of Justice, Antitrust Division, 325 7th Street, 
N.W., Washington, D.C. 20530 (telephone: (202) 514-2481), and at the 
Office of the Clerk of the United States District Court for the 
District of Columbia, 333 Constitution Avenue, N.W., Washington, D.C. 
20001. Copies of these materials may be obtained from the U.S. 
Department of Justice upon request and payment of a copying fee.
Rebecca P. Dick,
Director, Civil Non-Merger Enforcement.

Stipulation

    It is stipulated by and between the undersigned parties, by their 
respective attorneys, that:
    1. The Court has jurisdiction over the subject matter of this 
action and over each of the parties hereto, and venue of this action is 
proper in the District of Columbia.
    2. The parties consent that a Final Judgment in the form hereto 
attached may be filed and entered by the Court, upon the motion of any 
party or upon the Court's own motion, at any time after compliance with 
the requirements of the Antitrust Procedures and Penalties Act (15 
U.S.C. 16), and without further notice to any party or other 
proceedings, provided that plaintiff has not withdrawn its consent, 
which it may do at any time before the entry of the proposed Final 
Judgment by serving notice thereof on the defendants and by filing that 
notice with the Court.
    3. The defendants shall abide by and comply with the provisions of 
the proposed Final Judgment pending entry of the Final Judgment, and 
shall, from the date of the filing of this Stipulation, comply with all 
the terms and provisions thereof as though the same were in full force 
and effect as an order of the Court.
    4. In the event plaintiff withdraws its consent or if the proposed 
Final Judgment is not entered pursuant to this Stipulation, this 
Stipulation shall be of no effect whatever, and the making of this 
Stipulation shall be without prejudice to any party in this or any 
other proceeding.

    Dated: December 18, 1997.

    For Plaintiff, United States of America
John F. Greaney,
Chief, Computers and Finance Section, Antitrust Division, U.S. 
Department of Justice, Bicentennial Building, 600 E Street, NW., Suite 
9300, Washington, DC 20530, (202) 307-6122.

    For Defendant, International Business Machines Corporation
Evan R. Chesler,
Paul C. Saunders (Bar No. 973388),
Cravath, Swaine & Moore, Counsel for Defendant International, Business 
Machines Corporation, Worldwide Plaza, 825 Eighth Avenue, New York, NY 
10019, (212) 474-1000.

    For Defendant, Storage Technology Corporation
J. Edd Stepp, Jr.,
Phillip H. Rudolph (Bar No. 392189),
Gibson, Dunn & Crutcher LLP, Counsel for Defendant Storage, Technology 
Corporation, 1050 Connecticut Avenue, NW., Washington, DC 20036-5306, 
(202) 955-8500.

Disclosure Pursuant to Rule 108(K)

    Pursuant to Rule 108(k) of the Local Rules of this Court, the 
following is a list of all individuals entitled to be notified of the 
entry of the foregoing Stipulation and of the entry of the proposed 
Final Judgment:
John F. Greaney,
U.S. Department of Justice, Bicentennial Building, 600 E Street, N.W., 
Suite 9300, Washington, D.C. 20530, (202) 307-6122.
Evan R. Chesler,
Cravath, Swaine & Moore, Counsel for Defendant International Business 
Machines Corporation, Worldwide Plaza, 825 Eighth Avenue, New York, NY 
10019, (212) 474-1000.
J. Edd Stepp, Jr.,
Gibson, Dunn & Crutcher LLP, Counsel for Defendant Storage Technology 
Corporation, 333 South Grand Ave., Los Angeles, CA 90071, (213) 229-
7000.

Final Judgment

    WHEREAS, the United States of America, having filed its Complaint 
herein on December 18, 1997, and the United States and Defendants, by 
their respective attorneys, having consented to the entry of this Final 
Judgment without trial or adjudication of any issue of fact or law, and 
without this Final Judgment constituting any evidence against or an 
admission by any party with respect to any issue of fact or law;
    And whereas, Defendants having agreed to be bound by the provisions 
of this Final Judgment pending approval by the Court;
    And whereas, the essence of this Final Judgment being prompt and 
certain action to ensure that the OEM agreement referred to herein will 
not substantially lessen competition in the development, production, or 
marketing of DASD as hereinafter defined;
    And whereas, Defendants having represented to Plaintiff that the 
provisions of this Final Judgment can and will be accomplished;
    Now, therefore, before the taking of any testimony, and without 
trial or adjudication of any issue of fact or law herein, and upon 
consent of the parties hereto, it is hereby Ordered, adjudged, and 
decreed as follows:

I. Jurisdiction

    This Court has jurisdiction over each of the parties hereto and the 
subject matter of this action. Venue is proper in this Court. The 
Complaint states a claim upon which relief may be granted against the 
Defendants under Section 1 of the Sherman Act (15 U.S.C. 1).

II. Definitions

    A. IBM means International Business Machines Corporation, its 
successors and assigns, each subsidiary and division thereof, and each 
officer, director, employee, agency and other person acting for or on 
behalf of any of them.
    B. STK means Storage Technology Corporation, its successors and 
assigns, each subsidiary and division thereof, and each officer, 
director, employee, agent and other person acting for or on behalf of 
any of them.
    C. Defendants means, collectively or individually as the context 
request, IBM and/or STK.
    D. DASD means direct access magnetic disk storage subsystems 
configured for attachment to IBM System 390 mainframe computers, any 
future versions, models, or generations of IBM System 390 mainframe 
computers (regardless of name or other product designation), and plug-
compatible mainframe computers, without regard to whether or not such 
subsystems also attach to any other computer processor product. The 
term ``DASD'' does not include parts of

[[Page 1501]]

subassemblies sold or shipped to repair or upgrade existing DASD 
installations, and it does not include any used DASD.
    E. STK DASD means any DASD product developed, manufactured, or 
supplied by STK at any time prior to the expiration of this Final 
Judgment, including but not limited to Iceberg, Kodiak, the products 
marketed by IBM as RAMAC Virtual Array and RAMAC Scaleable Array, and 
any future versions, models, or generations of any of the 
aforementioned products (regardless of name or other product 
designation). The term ``STK DASD'' does not include Virtual Storage 
Manager, any future versions, models, or generations thereof 
(regardless of name or other product designation), or any existing or 
future STK Nearline storage products, or any used DASD.
    F. Agreement means any agreement or understanding, whether written 
or oral, formal or informal.
    G. OEM agreement means the agreement dated June 7, 1996, pursuant 
to which IBM has purchased STK DASD, including all attachments, 
exhibits, schedules, and other documents referenced therein, and all 
amendments, additions, updates, or modifications to any of the 
foregoing.
    H. Modified OEM agreement means the agreement dated December 18, 
1997, pursuant to which IBM has agreed to purchase STK DASD from STK, 
and STK has agreed to sell STK DASD to IBM, including all attachments, 
exhibits, schedules, and other documents referenced therein, and all 
amendments, additions, updates, or modifications to any of the 
foregoing.
    I. STK Minimum Means a number of terabytes of STK DASD determined 
for a twelve-month period by multiplying the number of months before 
January 1, 2000, included in such period by 10.5; multiplying the 
number of months after December 31, 1999, included in the period by 16; 
and adding the two products together. For example, the STK Minimum for 
the period from October 1, 1998, through September 30, 1999, would be 
126 terabytes (10.5 x 12), and the STK Minimum for the period from 
October 1, 1999, through September 30, 2000, would be 175.5 terabytes 
((10.5 x 3)+(16 x 9)).
    J. Purchase means, in connection with IBM purchases of STK DASD, a 
transaction in which IBM requires title to the STK DASD purchased, 
other than a financing transaction that meets each of the following 
conditions: (1) IBM Credit Corporation acquires title to STK DASD, 
ordered by a customer from STK or an STK remarketer other than IBM, in 
order to finance the STK DASD; (2) such STK DASD carries an STK logo 
and conforms in appearance to other STK DASD sold by STK, or an STK 
remarketer other than IBM, to non-IBM purchasers; (3) the price for the 
STK DASD is negotiated between the customer and STK or an STK 
remarketer other than IBM, without participation by IBM; (4) such STK 
DASD is not installed on the customer's premises by IBM or any person 
acting on its behalf; (5) warranty service, if any, for such STK DASD 
is not provided by IBM or any person acting on its behalf; and (6) the 
transaction if financed by other than IBM would be considered a sale by 
STK under Section VI.A. of this Final Judgment. The term ``purchase'' 
does not include a transaction in which IBM may act as sales agent, 
distributor, or other channel of distribution in which IBM does not 
acquire title to the STK DASD.
    K. Change of control means the acquisition by an entity of more 
than 20 percent of the outstanding common shares of STK representing 
the right to vote for STK's board of directors, the sale of all or 
substantially all of the assets of the assets of STK, or any 
consolidation, merger, or other reorganization of STK in which STK is 
not the continuing or surviving corporation or pursuant to which shares 
of such common stock would be converted into cash, securities, or other 
property.
    L. Derivative work means a work that is based on an underlying work 
that would be a copyright infringement if prepared without the 
authorization of the copyright owner of the underlying work, Derivative 
works are subject to the ownership rights and licenses of others in the 
underlying work.

III. Applicability

    A. The provisions of this Final Judgment apply to the Defendants, 
their successors and assigns, their subsidiaries, affiliates, 
directors, officers, managers, agents, employees, attorneys and all 
other persons in active concert or participation with any of them who 
shall have received actual notice of this Final Judgment by personal 
service or otherwise. Defendants and each person bound by this Final 
Judgment shall cooperate in ensuring that the provisions of this Final 
Judgment are carried out.
    B. Each Defendant shall require, as a condition of the sale or 
other disposition of all or substantially all of the assets used in its 
business for developing, manufacturing and selling DASD that the 
acquiring party or parties agree to be bound by the provisions of this 
Final Judgment.
    C. Nothing contained in this Final Judgment is or has been created 
for the benefit of any third party, and nothing herein shall be 
construed to provide any rights to any third party.

IV. Terms of IBM Purchases From STK

    A. Defendants may enter into or carry out any agreement pursuant to 
which IBM may in any manner distribute STK DASD, including any such 
agreement pursuant to which IBM may act as sales agent, distributor, or 
any other channel of distribution for STK DASD in which IBM does not 
acquire title to the STK DASD to be distributed, provided that in each 
such instance such agreement is not inconsistent with the provisions of 
this Final Judgment. The volume of STK DASD distributed under any such 
agreement, except in an agency agreement in which IBM acts only as 
agent for the end-user customer, shall be included in IBM's and not 
STK's volumes of terabytes computed pursuant to Section VI of this 
Final Judgment. Where IBM acts as agent to procure the STK DASD for the 
end-user customer and also finances the transaction, the STK DASD so 
distributed shall also be included in IBM's and not STK's volumes of 
terabytes computed pursuant to Section VI of this Final Judgment.
    B. Defendants shall not make any changes to any of the terms of the 
modified OEM agreement, or enter into any other agreement, that would 
be inconsistent with any of the unexpired provisions of this Final 
Judgment. Defendants shall provide to the Antitrust Division of the 
United States Department of Justice written notice (or a copy) no later 
than 15 business days after receipt by the Defendants' Contract 
Administrators of any written amendment, executed by authorized 
representatives of Defendants, of the following documents included 
within the modified OEM agreement: the ``OEM Agreement Between IBM and 
STK'' dated December 18, 1997; the ``IBM Developer Base Agreement;'' 
the ``Statement of Work'' referenced in the IBM Developer Base 
Agreement; and the ``Description of Licensed Works'' (but not including 
any exhibits, attachments, or schedules to such documents, or other 
documents referenced in such documents).
    C. Except to the extent set forth in this Final Judgment, 
Defendants shall not enter into or carry out any agreement that: (1) 
sets any IBM volume commitments, or provides for recovery payments or 
liquidated damages from IBM as a consequence of IBM's failure to 
purchase a certain volume of STK DASD; or (2) contains any provision

[[Page 1502]]

under which any IBM obligation to STK is contingent upon any level of 
sales or shipments of STK DASD by STK to persons other than IBM.
    D. Except to the extent set forth in this Final Judgment, 
Defendants shall not enter into or carry out any agreement pursuant to 
which IBM is bound to purchase any volume of STK DASD, or that contains 
any provision requiring IBM to make payments for IBM's failure to 
purchase a certain volume of STK DASD; provided, however, that IBM may 
provide STK with non-binding monthly, quarterly, and/or 12-month 
estimates, expressed in terabytes or other units of storage capacity, 
of anticipated purchases of STK DASD, and IBM, subject to Section VI of 
this Final Judgment, may become contractually obligated to purchase STK 
DASD as follows: (1) On or after the 30th day before the beginning of a 
calendar quarter, IBM may bind itself to purchase up to 80 percent of 
its estimate of purchases for that quarter; (2) IBM may thereafter 
issue binding purchase orders for deliveries within such quarter 
without regard to the estimate; (3) to the extent that IBM's purchases 
of STK DASD for a given quarter are less than IBM's estimate for that 
quarter, IBM may bind itself to purchase during the subsequent quarter 
some or all of the difference between IBM's estimated and actual 
purchases from the prior quarter, in addition to up to 80 percent of 
its estimate for the subsequent quarter; and (4) in the event of 
termination or winding down of the modified OEM agreement, in the last 
quarter in which IBM provides an estimate of purchases, IBM may issue 
purchase orders for volumes to satisfy its future needs and such 
volumes may be delivered in that quarter or subsequent quarters. IBM 
shall issue purchase orders for STK DASD only to the extent that they 
reflect IBM's actual intention to purchase and take delivery of the STK 
DASD ordered. IBM shall purchase and pay for all STK DASD for which it 
becomes contractually obligated pursuant to the foregoing provisions; 
provided, however, that nothing in this Final Judgment shall preclude 
IBM and STK, in the event of a bona fide dispute concerning IBM's 
obligation to purchase or accept delivery of STK DASD under a purchase 
order, or concerning whether or to what extent IBM is obligated to 
purchase STK DASD under a specific binding estimate, from pursuing 
their remedies at law or resolving the dispute in a commercially 
reasonable manner.
    E. Defendants: (1) May establish prices and volume discounts for 
the purchase of STK DASD by IBM, provided, however, that such discounts 
are based upon actual volumes of STK DASD and upgrades purchased, 
rather than projected volumes, and may reflect credits obtained as a 
result of STK's failure to meet on-time delivery, quality, or product 
deliverable requirements; but (2) shall not enter into or carry out any 
agreement in which any prices or other terms applicable to IBM's 
purchases of STK DASD are contingent upon any prices or other terms 
offered by STK to any prospective end-user customer for STK DASD.
    F. If demand for STK DASD exceeds supply, Defendants shall not 
enter into or carry out any agreement that favors allocation to IBM 
over other purchasers if STK cannot meet delivery commitments. In all 
such situations, STK will allocate production for shipment to IBM and 
to other customers based upon the delivery dates requested in purchase 
orders received by STK for STK DASD from IBM or other customers. For a 
given date, STK will allocate production for shipment to IBM and to 
other customers on a pro rata terabyte basis.

V. Licenses; Product Development

    A. IBM shall grant STK licenses effective immediately to all 
hardware and software developments and enhancements that have been 
funded by IBM under the OEM agreement or modified OEM agreement or that 
IBM is obligated to fund under the modified OEM agreement to Iceberg, 
Kodiak, future versions or models thereof, IXFP, and Snapshot 
(hereinafter, ``Funded Enhancements''), which shall be at least 
equivalent in scope to the licenses set forth in Attachment A of this 
Final Judgment.
    B. STK may pay hardware and software royalties to IBM. For STK's 
sales, shipments, licenses, or other distribution of STK DASD, hardware 
upgrades or components therefor, and IXFP and Snapshot software to 
persons other than IBM that are shipped or otherwise distributed prior 
to April 1, 1999, royalties for Funded Enhancements and derivative 
works thereof used with the following (but not including royalties for 
customer service that include the right to install basic enhancements 
and maintenance modifications, and software and microcode, other than 
IXFP and Snapshot, distributed separately from hardware or major 
enhancements or hardware that are not based on capacity) may not exceed 
the amounts set forth below:
    1. STK shall make a nonrefundable payment to IBM of $4 million 
during 1998, payable in equal quarterly installments beginning January 
1, 1998. This payment will initially be applied to any royalties that 
become due under the modified OEM agreement for shipments before April 
1, 1999. Unused portions of this payment that do not exceed $2 million 
may be credited toward royalties due for shipments after March 31, 
1999.
    2. For sales, leases, licenses, or any other distribution by STK of 
STK DASD, STK DASD hardware upgrades, or components to customers other 
than IBM, STK may pay IBM up to: (a) $0.08 per megabyte through 
December 31, 1998; and (b) $0.067 per megabyte from January 1, 1999, 
through March 31, 1999;
    3. For each copy of IXFP software licensed or otherwise distributed 
by STK to customers other than IBM for use on STK DASD, STK may pay IBM 
up to: (a) $5,400 through December 31, 1997; (b) $5,500 from January 1, 
1998 through December 31, 1998; and (c) $3,000 from January 1, 1999, 
through March 31, 1999;
    4. For each copy of Snapshot software licensed or otherwise 
distributed by STK to customer other than IBM for use on STK DASD, STK 
may pay IBM up to: (a) $18,000 through December 31, 1998; and (b) 
$10,000 from January 1, 1999, through March 31, 1999. Except as 
provided above, STK may pay hardware and software royalties to IBM 
under the provisions of the modified OEM agreement, including but not 
limited to, to provision that beginning April 1, 1999, the royalties 
for each STK DASD subsystem or controller sold, leased, licensed, or 
otherwise conveyed by STK to customers other than IBM will not exceed 
the lesser of $3,500 or five percent of the revenue received. Except as 
otherwise provided in the modified OEM agreement with respect to a 
change of control or termination for cause, all royalties will become 
fully paid-up no later than (a) when the sum of all payments made by 
STK on account of such royalties, including any portion of the initial 
$4 million payment that can be credited to royalties after March 31, 
1999, but excluding royalties paid under Section V.B.2., V.B.3., and 
V.B.4. above, equals $18 million, or (b) on December 31, 2002, 
whichever first occurs.
    C. For the duration of the modified OEM agreement, IBM shall offer 
to sell to STK IBM disk drives and IBM disk drive replacements for use 
in STK DASD that IBM has assisted in enhancing or developing under the 
OEM agreement, regardless of whether such STK DASD are shipped to other 
customers, provided that IBM makes such disk drives generally 
available. Such offers shall be made under terms

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no less favorable to STK than IBM's standard non-price terms and 
conditions, and at a price no greater than the average of the five 
lowest prices paid by IBM's OEM customers who have committed to 
purchase comparable quantities during the same calendar quarter.
    D. The provisions of this Section V shall terminate on December 31, 
2002.

VI. IBM Purchase Volumes

    A. For each calendar year during the period January 1, 1999, 
through December 31, 2002, IBM's total purchases of STK DASD (measured 
in terabytes) for use in the United States shall not exceed 67 percent 
of the volume of STK DASD (measured in terabytes) purchased by IBM 
during the calendar year 1998 for use in the United States, unless (1) 
STK has already shipped a total of at least the STK Minimum to STK's 
United States customers other than IBM during the preceding 12 months, 
or (2) IBM and STK obtain prior approval of the United States under the 
provisions of section VI.B. below.
    B. IBM may purchase STK DASD without regard to the limitation of 
Section VI.A. above if approved by the United States Department of 
Justice. The United States may approve such purchases upon the 
submission of a written request to the Antitrust Division of the United 
States Department of Justice, supported by both Defendants, and setting 
forth the additional purchase volumes requested, the time period(s) for 
which the additional purchases are requested, and the reasons and 
circumstances related to the request. The United States will approve 
the request if it concludes that notwithstanding STK's failure to 
supply the STK Minimum to United States customers, IBM faces vigorous 
competition from STK in the United States for the development, 
production and marketing of DASD, and IBM's proposed additional 
purchases would not substantially lessen that competition. The United 
States will not unreasonably withhold approval, and if it does not deny 
a request in writing setting forth the reasons for the denial within 30 
days of submission, the request will be deemed approved. If the United 
States denies a request, the Court may review the matter upon the 
filing of an application by both Defendants. The Court may overrule a 
denial by the United States of a request made before January 1, 2001, 
only if Defendants establish that notwithstanding STK's failure to 
supply the STK Minimum to United States customers, IBM faces vigorous 
competition from STK in the United States for the development, 
production and marketing of DASD, and IBM's proposed additional 
purchases would not substantially lessen that competition. The Court 
may overrule a denial by the United States of a request made on or 
after January 1, 2001, only if Defendants establish either (1) that 
notwithstanding STK's failure to supply the STK Minimum to United 
States customers, IBM faces vigorous competition from STK in the United 
States for the development, production and marketing of DASD, and IBM's 
proposed additional purchases would not substantially lessen that 
competition or (2) that because of technological advances, the entry of 
new competitors, or otherwise, a material change has occurred since the 
date of this Final Judgment in the competition in the United States for 
the development, production and marketing of DASD, such that IBM's 
proposed additional purchases would not substantially lessen such 
competition.
    C. The provisions of this Section VI shall terminate on December 
31, 2002.

VII. Compliance Inspection

    For the purposes of determining or securing compliance with the 
Final Judgment and subject to any legally recognized privilege or 
doctrine:
    A. Duly authorized representatives of the Department of Justice, 
upon written request of the Attorney General or of the Assistant 
Attorney General in charge of the Antitrust Division, and on reasonable 
notice to a Defendant made to its principal office, shall be permitted:
    1. Access during regular office hours of Defendants to inspect and 
copy all books, ledgers, accounts, correspondence, memoranda, and other 
records and documents in the possession or under the control of 
Defendants, who may have counsel present, relating to any matters 
contained in this Final Judgment; and
    2. Subject to the reasonable convenience of Defendants and without 
restraint or interference from them, to interview or depose officers, 
employees, and agents of Defendants, who may have counsel present, 
regarding any such matters.
    B. Defendants shall submit written reports with respect to matters 
contained in this Final Judgment as follows:
    1. On the 30th day after the beginning of each calendar quarter, 
STK shall submit to the Antitrust Division of the United States 
Department of Justice a written report setting forth: (a) The total of 
IBM's purchases of STK DASD for use in the United States during the 
preceding quarter, measured in terabytes; (b) the total of IBM's 
distribution of STK DASD for use in the Untied States, through a means 
of distribution in which IBM did not acquire title to the STK DASD, 
during the preceding quarter, measured in terabytes; (c) the total of 
IBM Credit Corporation's purchases of STK DASD bearing STK's logo for 
use in the United States during the preceding quarter, measured in 
terabytes; (d) the total of STK's shipments of STK DASD to United 
States customers other than IBM pursuant to transactions in which IBM 
ordered such STK DASD as agent for such customers, during the preceding 
quarter, measured in terabytes; (e) the total of all other STK 
shipments of STK DASD to United States customers other than IBM during 
the preceding quarter, measured in terabytes.
    2. Apart from the foregoing, upon the written request of the 
Attorney General or of the Assistant Attorney General in charge of the 
Antitrust Division made to Defendants' principal office, Defendants 
shall submit such written reports, under other if requested, with 
respect to any matters contained in this Final Judgment as may be 
requested.
    C. No information or documents obtained by the means provided in 
this Section shall be divulged by a representative of the Department of 
Justice to any person other than a duly authorized representative of 
the Executive Branch of the United States, except in the courts of 
legal proceedings to which the United States is a party (including 
grand jury proceedings), or for the purpose of securing compliance with 
this Final Judgment, or as otherwise required by law.
    D. If at the time information or documents are furnished by 
Defendants to Plaintiff, Defendants represent and identify in writing 
the material in any such information or documents to which a claim of 
protection may be asserted under Rule 26(c)(7) of the Federal Rules of 
Civil Procedure, and Defendants mark each pertinent page of such 
material, ``Subject to claim of protection under Rule 26(c)(7) of the 
Federal Rules of Civil Procedure,'' then ten (10) calendar days notice 
shall be given by Plaintiff to Defendants prior to divulging such 
material in any legal proceeding (other than a grand jury proceeding) 
to which a defendant is not a party.

VIII. Retention of Jurisdiction

    Jurisdiction is retained by this Court for the purpose of enabling 
any of the parties to this Final Judgment to apply to this Court at any 
time for such further orders and directions as may be

[[Page 1504]]

necessary or appropriate for the construction or carrying out of this 
Final Judgment, for the modification of any of the provisions hereof, 
for the enforcement of compliance herewith, and for the punishment of 
any violations hereof.

IX. Termination

    This Final Judgment shall expire on the fifth anniversary of the 
date of its entry.

X. Public Interest

    Entry of this Final Judgment is in the public interest.

United States District Judge.

    Dated:

Attachment A

    A. An STK Incidental Use License for any purpose.
    B. For IKA Storage Systems, an STK Material Use License for any 
purpose.
    C. For products other than IKA Storage Systems, an STK Material Use 
License for any purpose.
    D. STK Incidental Use License means a nonexclusive, worldwide 
license to use (1) the ideas, concepts, and techniques contained in, 
(2) the structure, sequence and organization of, and (3) other 
nonliteral aspects of IBM Materials and their Derivative Works. Such 
license shall not include the right of STK to make a copy of any of the 
IBM Materials or any Derivative Work thereof owned by IBM which is 
substantially similar thereto and would constitute literal infringement 
under applicable copyright law.
    E. STK Material Use License means a nontransferable, nonexclusive, 
worldwide, license to use, execute, reproduce, display, perform, 
transfer, distribute, sublicense, and prepare Derivative Works, of the 
IBM Materials and its Derivative Works. Such license includes the right 
of STK to authorize others to do any of the above, and also applies to 
associated audio and visual works. Except for the right to sublicense 
STK subsidiaries pursuant to Section 11.0 of the IDA, the right to 
sublicense under this definition is limited to granting sublicenses for 
microcode which include terms and conditions substantially similar to 
the STK Customer Agreement, to granting sublicenses for software other 
than microcode under the terms and conditions that STK uses for similar 
software of its own, and to granting sublicenses to third-party 
maintainers under reasonable terms and conditions. Nothing in this 
definition of STK Material Use License or elsewhere in the Modified OEM 
Agreement shall be construed, subject to the payment of royalities due, 
to prevent STK from distributing through OEMs other than IBM, Funded 
Enhancements that are incorporated in STK DASD, provided that nothing 
in the Final Judgment to which this definition is attached shall 
obligate IBM to grant to obligate IBM to permit STK to grant rights 
under such license to OEMs other than the right of STK to permit OEMs 
to distribute Funded Enhancements contained in STK products. In the 
event of a Change of Control, subject to the payment of royalties due 
and the acquiring entity's agreement to be bound by the Modified OEM 
Agreement, nothing in this license shall be construed to prevent the 
acquiring entity from developing, producing, or marketing Funded 
Enhancements incorporated in DASD.
    F. Change of Control means the acquisition by an entity of more 
than 20 percent of the outstanding common shares of STK representing 
the right to vote for STK's board of directors, the sale of all or 
substantially all of the assets of STK, or any consolidation, merger, 
or other reorganization of STK in which STK is not the continuing or 
surviving corporation or pursuant to which shares of such common stock 
would be converted into cash, securities, or other property.
    G. Derivative Work means a work that is based on a underlying work 
that would be a copyright infringement if prepared without the 
authorization of the copyright owner of the underlying work. Derivative 
works are subject to the ownership rights and licenses of others in the 
underlying work.
    H. Funded enhancements means hardware and software developments and 
enhancements that have been funded by IBM under the OEM agreement of 
June 7, 1996 or the Modified OEM Agreement, or that IBM is obligated to 
fund under the Modified OEM Agreement.
    I. IBM means International business Machines Corporation, its 
successors and assigns, each subsidiary and division thereof, and each 
officer, director, employee, agent and other person acting for or on 
behalf of any of them.
    J. IBM Materials means deliverables funded in accordance with the 
IBM Developer Agreement, attached as Exhibit 3 to the Modified OEM 
Agreement.
    K. IDA means the IBM Developer Agreement, attached as Exhibit 3 to 
the Modified OEM Agreement.
    L. IKA Storage Systems means Iceberg, Kodiak, and Arctic Fox 
storage systems, as defined in the IDA Description of Licensed Work 
(Attachment 2 to Exhibit 3 of the Modified OEM Agreement as 
Attachment).
    M. Modified OEM Agreement means the agreement dated December 18, 
1997, pursuant to which IBM has agreed to purchase STK DASD from STK 
and STK has agreed to sell STK DASD to IBM, including all attachments, 
exhibits, schedules, and other documents referenced therein, and all 
amendments, additions, updates, or modifications to any of the 
foregoing.
    N. STK means Storage Technology Corporation, its successors and 
assigns, each subsidiary and division thereof, and each officer, 
director, employee, agent and other person acting for or on behalf of 
any of them.

Competitive Impact Statement

    The United States, pursuant to Section 2(b) of the Antitrust 
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files 
this Competitive Impact Statement relating to the proposed Final 
Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

    On December 18, 1997, The United States filed a civil antitrust 
complaint alleging that an ``OEM agreement'' dated June 7, 1996, 
between International Business Machines Corporation (``IBM'') and 
Storage Technology Corporation (``STK'') unreasonably restrained 
competition in the United States and worldwide in the sale of disk 
storage subsystems (``DASD'') for mainframe computers, in violation of 
Section 1 of the Sherman Act (15 U.S.C. 1). Before entering into the 
OEM agreement, IBM and STK competed with each other, and with only two 
other major competitors, in the development, production, and marketing 
of mainframe DASD in the United States and worldwide. With the OEM 
agreement, however, IBM became STK's exclusive outlet for STK's 
mainframe DASD products, thereby eliminating competition between them 
for sales of mainframe DASD to end-users.
    At the same time as it filed the Complaint, the United States also 
filed a Stipulation and a proposed Final Judgment in settlement of the 
suit. As described in greater detail below, the proposed that made the 
OEM agreement an exclusive arrangement between IBM and STK, and will 
provide positive incentives for STK to resume its position as an 
independent competitor in the market.
    The United States, IBM, and STK have stipulated that the proposed 
Final Judgment may be entered after compliance with the APPA. Entry of 
the proposed Final Judgment would

[[Page 1505]]

terminate this action, except that the Court would retain jurisdiction 
to construe, modify, or enforce the provisions of the proposed Final 
Judgment and to punish violations thereof.

II. Description of Events Giving Rise to the Alleged Violation

A. The Defendants and Mainframe DASD

    IBM is incorporated in the State of New York and is headquartered 
in Armonk, New York. IBM is by far the world's largest supplier of 
mainframe computers and related products. For the year 1996, IBM posted 
worldwide revenues of about $75 billion. In 1995, the last full year in 
which the IBM and STK were separate competitors in the mainframe DASK 
market, IBM had mainframe DASD sales of over $2 billion, representing 
shipments of about 588 ``terabytc'' of data storage capacity. The 
terabyte--equivalent to the amount of data that can be stored in 
hundreds of millions of pages of paper--is a standard industry measure 
of sales volume. In 1995, IBM sold 275 terabytes of mainframe DASD, for 
over $1.2 billion, in the United States.
    STK is a Delaware corporation headquartered in Louisville, 
Colorado. STK reported total worldwide revenues of about $2 billion in 
1996. STK's core businesses are computer data storage and retrieval 
systems, especially those for mainframe computer systems. Other than 
mainframe DASD, STK's major products are automated tape library storage 
systems for mainframe computers, and it is the world's dominant 
supplier of these tape systems. STK's 1995 worldwide sales of mainframe 
DASD were over $300 million, representing shipments of about 155 
terabytes. Its U.S. sales of mainframe DASD were about $190 million, 
representing shipments of 100 terabytes.
    DASD are computer data storage systems that utilize rotating 
magnetic disks. As defined in the Complaint and proposed Final 
Judgment, ``mainframe DASD,'' are DASD specifically designed to attach 
to and operate with IBM's System 390 computers, predecessor and 
successor models, and other manufacturers' IBM-plug-compatible 
computers.\1\ As described in the Complaint, mainframe DASD perform 
high-speed and high-capacity data storage and retrieval functions that 
are essential to the operation of mainframe computers, which is turn 
are commonly and widely used for mission-critical data processing by 
business, educational, governmental, and other organizations throughout 
the world.\2\
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    \1\ These mainframe computers are distinguishable from other 
computers in that they all operate with IBM mainframe computer 
operating systems, principal examples of which are IBM's OS-390, 
MVS, VSE, and VM operating systems. Some ``mainframe DASD'' attaches 
to and operates with other types of computers as well.
    \2\ Data search times measurable in milliseconds and high data-
transfer rates make DASD suitable for on-line transaction 
processing, large volume batch processing, and other applications in 
which rapid access to large amounts of data is important.
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B. The OEM Agreement

    On June 7, 1996, IBM and STK entered into an OEM agreement pursuant 
to which STK agreed to supply IBM, and IBM committee to purchase for 
resale purposes, mainframe DASD products developed and manufactured by 
STK.\3\ The parties agreed to extend the arrangement through the end of 
1999, subject to terms for renewal. Before the OEM agreement, STK sold 
its mainframe DASD products in direct competition with IBM's internally 
developed and manufactured mainframe DASD products. Under the OEM 
agreement, however, IBM became STK's exclusive outlet for its mainframe 
DASD, and this relationship displaced the competition that had 
previously existed between them.
---------------------------------------------------------------------------

    \3\ The OEM agreement was not subject to the prenotification 
requirements of Sec. 7a of the Clayton Act, 15 U.S.C. 18a.
---------------------------------------------------------------------------

    The OEM agreement required IBM to purchase certain minimum volumes 
and to make substantial payments to STK if it failed to meet the 
minimum purchases. The OEM agreement committed IBM to purchase annual 
and quarterly minimum volumes of STK's DASD products. For each of the 
years 1997 and 1998, IBM had to purchase minimum volumes of 710 
terabytes, and thereafter, the parties were to negotiate new volume 
terms. If IBM failed to purchase the minimum volumes, STK would be free 
to terminate the agreement, and IBM would be obligated to pay 
liquidated damages of $75 million for a termination based on IBM's 
failure to meet the 1997 minimum volumes and $27 million for a 
termination based on IBM's failure to meet the 1998 minimum volumes.
    Under the OEM agreement, IBM was also required to pay STK 
``recovery payments,'' which increased proportionately with lower 
levels of purchases by IBM, but declined to zero as the purchases 
approached 400 terabytes in 1996 and 1500 terabytes in 1997 and 1998. 
For example, if IBM sold only the minimum 710 terabytes in 1997, it 
would owe STK up to $60 million in recovery payments for falling 790 
terabytes short of the 1500. These recovery payments also took into 
account the proportion of IBM's total sales of STK's DASD products 
versus IBM's sales of its own DASD, so that the higher the proportion 
of STK products sold by IBM, the lower the recovery payments. The OEM 
agreement also required IBM to contribute $100 million over three years 
to help fund STK's on-going efforts and plans to improve the 
performance and capabilities of its mainframe DASD products.
    Although the OEM agreement did not expressly provide that IBM would 
be STK's exclusive mainframe DASD distributor, it contained provisions 
that made independent sales by STK so unattractive economically that it 
gave IBM de facto exclusively. The OEM agreement provided that if STK 
sold mainframe DASD to anyone other than IBM, IBM would be freed from 
its purchase volume commitments, its obligation to make recovery 
payments or pay liquidated damages upon failure to achieve those 
commitments, and its duty to help fund STK's product development 
programs--obligations that in total were worth hundreds of millions of 
dollars to STK. Due to these prohibitive contractual consequences, 
internal STK documents referred to STK sales of mainframe DASD to 
anyone other than IBM as ``forbidden'' under the OEM agreement.\4\ 
Shortly after entering into the OEM agreement, STK stopped all efforts 
to sell mainframe DASD to customers other than IBM; and STK became 
completely dependent on its former competitor to sell STK mainframe 
DASD to end-users.
---------------------------------------------------------------------------

    \4\ To protect STK in the event it unintentionally entered into 
transactions that would trigger these severe financial penalties, 
STK insisted that it be allowed to make up to 12 otherwise 
``forbidden sales'' over the life of the agreement. Another 
exception allowed STK to sell its mainframe DASD to others without 
penalty so long as STK first sold it to IBM and then repurchased it 
from IBM.
---------------------------------------------------------------------------

C. The OEM Agreement Violates Section 1 of the Sherman Act

    The Complaint alleges that the OEM agreement unlawfully restrained 
competition in the mainframe DASD market in the United States and 
worldwide, in violation of Section 1 of the Sherman Act. Mainframe DASD 
is a relevant antitrust market because there are no substitute products 
to which mainframe DASD purchasers would turn even if prices of 
mainframe DASD were to increase substantially.\5\ The

[[Page 1506]]

OEM agreement greatly increased the level of concentration in a market 
that was already highly concentrated. In 1995, the last full year in 
which IBM and STK competed against each other, IBM had a worldwide 
market share of about 36 percent (based on total shipments of about 558 
terabytes), while STK's share was about 10 percent (shipments of about 
155 terabytes). The Herfindahl-Hirschman Index, a standard measure of 
market concentration, increased by 720 points, to a post-agreement 
level of 3767, as a result of the OEM agreement.\6\ The reduction of 
competition from the OEM agreement has not been alleviated by new entry 
into the manufacture and marketing of mainframe DASD, and because such 
new entry would be extremely difficult and time-consuming, it is 
unlikely to occur in the foreseeable future.
---------------------------------------------------------------------------

    \5\ Although other types of data storage devices exist--for 
example, tape, optical and electronic memory products--because of 
performance or cost differences, none of these other products are 
effective substitutes for DASD. Conversion to a non-mainframe 
computer system is also not an effective way to substitute away from 
mainframe DASD because of the substantial costs and risk of 
switching to an alternative computer platform.
    \6\ The HHI is well accepted as a measure of market 
concentration. It is calculated by squaring the market share of each 
firm competing in the market and then summing the resulting numbers. 
For example, for a market consisting of four firms with shares of 
thirty, thirty, twenty, and twenty percent, the HHI is 2600 
(302 + 302 + 202 + 202 = 
2600). The HHI takes into account the relative size and distribution 
of the firms in a market and approaches zero when a market consists 
of a large number of firms of relatively equal size. The HHI 
increases both as the number of firms in the market decreases and as 
the disparity in size between those firms increases. Markets in 
which the HHI is between 1000 and 1800 are considered to be 
moderately concentrated and those in which the HHI is in excess of 
1800 points are considered to be highly concentrated. Transactions 
that increase the HHI by more than 100 points in moderately 
concentrated and concentrated markets presumptively raise antitrust 
concerns under the Department of Justice and Federal Trade 
Commission Horizontal Merger Guidelines (rev. 1997).
---------------------------------------------------------------------------

    The Complaint further alleges that the OEM agreement removed a 
significant competitive force from the marketplace. STK had been the 
low price bidder for numerous DASD sales, and IBM and STK products had 
been the top two choices for many customers. Competition from STK had 
contributed to the substantial erosion in prices of mainframe DASD in 
the years immediately prior to the OEM agreement. In this marketplace 
setting, the OEM agreement eliminated direct and significant 
competition between IBM and STK and deprived mainframe DASD customers 
of the benefits of that competition. As a consequence of the OEM 
agreement, the rapid decline in the price of mainframe DASD eased, and 
the parties' output of mainframe DASD fell below levels they had 
projected prior to the agreement. Thus, the OEM agreement has been 
anticompetitive and its violates Section 1 of the Sherman Act.

III. Explanation of the Proposed Final Judgment

    The proposed Final Judgment bars IBM and STK from including in an 
OEM agreement terms that would prevent STK from selling mainframe DASD 
in competition with IBM. The modifications to the OEM agreement remove 
the provisions that made the agreement a de facto exclusive 
arrangement.\7\ As a result, STK will suffer no economic penalty if it 
sells to customers other than IBM. The elimination of these 
restrictions makes the relationship between IBM and STK non-exclusive, 
and provides an incentive to STK to begin selling mainframe DASD as an 
independent competitor. Furthermore, the proposed Final Judgment 
creates additional incentives for STK to begin selling DASD 
independently by limiting the amount of mainframe DASD that STK may 
sell through IBM, unless STK sells significant amounts of mainframe 
DASD on its own. The purpose of these limitations, which are described 
in detail below, is to make it economically attractive for STK to seek 
out business from customers other than IBM. In setting these 
limitations, the proposed Final Judgment does not preclude STK sales 
though IBM that may arise under a non-exclusive OEM arrangement between 
them, but adds a positive incentive for STK to re-enter the mainframe 
DASD market as a seller independent of IBM.
---------------------------------------------------------------------------

    \7\ See modified OEM agreement dated December 18, 1997, a 
redacted copy of which is attached hereto as a determinative 
document under the APPA. The redactions are necessary to avoid 
disclosure of competitively sensitive information. An unredacted 
copy will be made available to the Court upon request.
---------------------------------------------------------------------------

    Section IV of the proposed Final Judgment enjoins the 
anticompetitive contractual arrangements that have prevented STK from 
selling mainframe DASD independently of IBM. Except in limited 
specified contexts common in normal supply contracts,\8\ Section IV 
prohibits IBM and STK from entering into or maintaining any agreement 
as to price, volume, or other terms that would be contingent upon 
either the level of IBM's mainframe DASD purchases from STK, or the 
level of STK's sales to customers other than IBM. The provisions of the 
OEM agreement that imposed upon IBM minimum purchase commitments and 
obligated it to pay recovery payments and liquidated damaged if those 
commitments were not met, and that established contractual penalties to 
STK for making mainframe DASD sales to customers other than IBM, are 
prohibited by Section IV.
---------------------------------------------------------------------------

    \8\ The proposed Final Judgment allows IBM to provide STK with 
monthly and quarterly forecasts of its purchases, in order to enable 
STK to anticipate capacity requirements to fill IBM orders, while 
imposing strict limits on the extent to which IBM may actually bind 
itself to make purchases (Section IV.D.); permits IBM and STK to set 
prices for IBM purchases that reflect volume-based discounts and any 
credits obtained as a result of STK's failure to meet on-time 
delivery, quality, or product deliverable requirements (Section 
IV.E.); and allows STK to pay IBM specified unit based royalties for 
its sales of DASD to other customers, which would enable IBM to 
recover a portion of its investments in STK DASD product 
improvements (Section V).
---------------------------------------------------------------------------

    Section V of the proposed Final Judgment contains technology 
licensing provisions designed to ensure that STK will not be prevented 
from independently marketing mainframe DASD improvements that STK had 
developed with IBM funding. These provisions require IBM to grant STK a 
license to all mainframe DASD hardware or software product improvements 
funded by IBM or for which it provided assistance under the OEM 
agreement. The license is subject to STK's payment of reasonable 
royalties, however, to allow IBM an appropriate return on its 
contributions.
    Section VI.A. of the proposed Final Judgment provides a positive 
incentive for STK to compete against IBM, by requiring that STK must 
sell DASD on its own as a condition of making unconstrained sales to 
IBM. Under Section VI.A., beginning on January 1, 1999, IBM's U.S. 
purchases from STK in a calendar year may not exceed 67 percent of 
IBM's U.S. purchases in 1998, unless STK has shipped over the preceding 
twelve months a substantial volume of mainframe DASD to U.S. customers 
other than IBM. If STK fails to sell the specified amount to customers 
other than IBM, it may make additional sales to IBM only if the parties 
obtain prior approval from the United States pursuant to Section VI.B. 
The United States will grant or deny such approval on the basis of 
whether vigorous competition from STK has been restored, and whether 
such competition would be substantially lessened as a result of 
additional purchases by IBM. Section VI.B. also sets out a process and 
standard for judicial review should IBM or STK contest a denial by the 
United States.\9\
---------------------------------------------------------------------------

    \9\ The proposed Final Judgment imposes on Defendants the burden 
of proof in such proceedings. For the period up to January 1, 2001, 
the proposed Final Judgment permits the Court to overrule a denial 
by the United States of a request for additional IBM purchases only 
if Defendants establish that, notwithstanding STK's failure to 
supply the STK Minimum to United States customers, IBM faces 
vigorous and ongoing competition from STK in the United States for 
the development, production and marketing of DASD, and IBM's 
proposed additional purchases would not substantially lessen that 
competition. Beginning on January 1, 2001, the proposed Final 
Judgment expands the review criteria beyond whether STK is a 
vigorous DASD competitor in the United States. Here, the proposed 
Final Judgment also permits the Court to overrule a denial by the 
United States if the Defendants establish that, because of 
technological advances, the entry of new competitors, or other 
material competitive changes, IBM's proposed additional purchases 
would not substantially lessen competition in the United States in 
the development, production or marketing of mainframe DASD.

---------------------------------------------------------------------------

[[Page 1507]]

    Other provisions of the proposed Final Judgment are also aimed at 
fostering STK's competitive independence from IBM. Section IV.C. 
prohibits IBM and STK from avoiding the proscriptions of the Judgment 
by entering into a sales agency or distribution agreement that would 
not entail actual IBM purchases of mainframe DASD. Section IV.D 
restricts STK's reliance on IBM purchases by limiting the extent to 
which IBM volume forecasts and purchase orders may become binding. 
Section IV.E. limits the parties' ability to set IBM's prices on terms 
other than actual amounts purchased. Section IV.F. requires STK to 
allocate fairly production between the needs of IBM and that of other 
STK customers in the event of supply constraints. Finally, Section V.C. 
guarantees that IBM will continue to sell IBM disk drives used in STK's 
mainframe DASD products, at competitive prices and terms, so long as 
IBM makes such drives generally available to other purchasers.

IV. Remedies Available to Potential Private Litigants

    Section 4 of the Clayton Act (15 U.S.C. 15) provides that any 
person who has been injured as a result of conduct prohibited by the 
antitrust laws may bring suit in federal court to recover three times 
the damages the person has suffered, as well as costs and reasonable 
attorneys' fees. Entry of the proposed Final Judgment will neither 
impair nor assist the bringing of any private antitrust damage action. 
Under the provisions of Section 5(a) of the Clayton Act (15 U.S.C. 
16(a)), the proposed Final Judgment has no prima facie effect in any 
subsequent private lawsuit that may be brought against Defendants.

V. Procedures Available for Modification of the Proposed Final Judgment

    The United States and the Defendants have stipulated that the 
proposed Final Judgment may be entered by the Court after compliance 
with the provisions of the APPA, provided that the United States has 
not withdrawn its consent. The APPA conditions entry upon the Court's 
determination that the proposed Final Judgment is in the public 
interest.
    The APPA provides a period of at least sixty (60) days preceding 
the effective date of the proposed Final Judgment within which any 
person may submit to the United States written comments regarding the 
proposed Final Judgment. Any person who wishes to comment should do so 
within sixty (60) days of the date of publication of this Competitive 
Impact Statement in the Federal Register. The United States will 
evaluate and respond to the comments. All comments will be given due 
consideration by the Department of Justice, which remains free to 
withdraw its consent to the proposed Final Judgment at any time prior 
to entry. The comments and the response of the United States will be 
filed with the Court and published in the Federal Register. Written 
comments should be submitted to: John F. Greaney, Chief, Computers & 
Finance Section, Antitrust Division, United States Department of 
Justice, Suite 9500, 600 E Street, N.W., Washington, D.C. 20530.
    The proposed Final Judgment provides that the Court retains 
jurisdiction over this action, and the parties may apply to the Court 
for any order necessary or appropriate for the modification, 
interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

    The United States considered, as an alternative to the proposed 
Final Judgment, proceeding to a full trial on the merits of its 
Complaint. The United States is satisfied, however, that the relief 
contained in the proposed Final Judgment should reestablish and 
maintain viable and effective competition in the mainframe DASD market 
that has otherwise been adversely affected by the OEM agreement. Thus, 
the proposed Final Judgment will benefit competition substantially to 
the same extent that the government could have obtained through 
litigation, but avoids the time, expense and uncertainty of a full 
trial on the merits of the government's Complaint, including the 
uncertainty over whether a remedy imposed after a long delay would be 
efficacious.
    The United States also considered a claim for damages arising from 
increased prices paid by the United States for its purchases of 
mainframe DASD as a result of the reduction of competition caused by 
the OEM agreement. However, calculation and proof of such damages to 
the United States is likely to be complex and difficult, and the 
litigation necessary to secure the damages would be costly and 
protracted. During the pendency of the litigation, moreover, the OEM 
agreement would remain in effect, depriving the United States and all 
other mainframe DASD purchasers of the benefit of STK as an independent 
competitive source of supply. Purchases by the United States constitute 
only a modest percentage of all domestic DASD purchases. The United 
States concluded, therefore, that the public interest is better served 
overall by securing the immediate, certain, and substantial relief set 
forth in the proposed Final Judgment.

VII. Determinative Documents

    One determinative document within the meaning of the APPA--the IBM-
STK agreement dated December 18, 1997, which modifies the July 7, 1996, 
agreement in conformity with the terms of the proposed Final Judgment--
was considered by the United States in formulating the proposed Final 
Judgment. A redacted copy of this document is attached hereto, is being 
filed with the Court, and will be available for public inspection.\10\

    \10\ Certain confidential business information contained in the 
modified OEM agreement, but not significant to consideration of the 
proposed Final Judgment by the United States, has been redacted from 
the filed and publicly available copies. Due to the length of the 
modified OEM agreement, it will not be published in the Federal 
Register.
---------------------------------------------------------------------------

    Dated: December 18, 1997.
Weeun Wang,
James J. Tierney,
Sanford M. Adler,
Richard I. Irvine,
Don Allen Resnikoff,
Molly L. DeBusschere,
J. Roberto Hizon,
Attorneys, Antitrust Division, U.S. Department of Justice, Computers & 
Finance Section, Suite 9500, 600 E Street, N.W., Washington, D.C. 
20530, (202) 307-6200.

United States Memorandum Regarding Antitrust Consent Decree 
Procedures

    The United States files this Memorandum to set forth the procedures 
regarding entry of the proposed Final Judgment, pursuant to the 
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h) (the 
``APPA''). The APPA applies only to antitrust cases brought by the 
United States.
    1. On December 18, 1997, the United States filed a proposed Final 
Judgment and a Stipulation between the plaintiff and defendant in which 
both parties agreed to entry of the proposed Final Judgment.
    2. The United States also filed a Competitive Impact Statement 
relating to the proposed Final Judgment, pursuant to the APPA, 15 
U.S.C. 16(b).

[[Page 1508]]

    3. The APPA requires the United States to publish the proposed 
Final Judgment and Competitive Impact Statement in the Federal Register 
and in newspapers 60 days prior to entry of the Final Judgment. The 
Notice will inform members of the public that they may submit comments 
about the Final Judgment to the United States Department of Justice, 
Antitrust Division.
    4. The United States will consider any comments it receives, 
respond to them, and publish the comments and responses in the Federal 
Register.
    5. Pursuant to the APPA, at the expiration of the 60-day period, 
the United States will file with the Court the comments, its responses, 
and a Motion For Entry of The Final Judgment, unless it withdraws its 
consent to entry of the Final Judgment pursuant to Paragraph 2 of the 
December 18 Stipulation.
    6. When the United States files its Motion For Entry of The Final 
Judgment, pursuant to the APPA the Final Judgment may be entered with 
or without further hearing, if the Court determines that entry is in 
the public interest.

    Dated: December 18, 1997.
Weeun Wang,
James J. Tierney,
Sanford M. Adler,
Richard I. Irvine,
Don Allen Resnikoff,
Molly L. DeBusschere,
J. Roberto Hizon,
Attorneys, Antitrust Division, U.S. Department of Justice, Computers & 
Finance Section, Suite 9500, 600 E Street, N.W., Washington, D.C. 
20530, (202) 307-6200.

Certificate of Service

    The undersigned certifies that he is a paralegal employed by the 
Antitrust Division of the United States Department of Justice, and is a 
person of such age and discretion to be competent to serve papers. The 
undersigned further certifies that on December 18, 1997, he caused true 
copies of:
    1. Complaint;
    2. Stipulation;
    3. proposed Final Judgment;
    4. Competitive Impact Statement;
    5. Plaintiff's Memorandum Regarding Antitrust Consent Decree 
Procedures;
and this certificate of service, to be served upon the persons at the 
place and addresses stated below, which are the last known addresses:

Counsel for International Business Machines Corporation

    Evan R. Chessler, Esq., Cravath, Swaine & Moore, Worldwide Plaza, 
825 Eighth Avenue, New York, NY 10019 (by facsimile (212-474-3700) and 
by overnight courier).

Counsel for Storage Technology Corporation

    J. Edd Stepp, Jr., Esq., Gibson, Dunn & Crutcher 333 South Grand 
Avenue Los Angeles, CA 90071 (by facsimile (213-229-6466) and by 
overnight courier).
    Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that 
the foregoing is true and correct.

    Executed at Washington, D.C. this ______th day of December, 
1997.
J. Cory Allen,
Paralegal, Antitrust Division, U.S. Department of Justice, Computers & 
Finance Section, Suite 9500, 600 E Street, N.W., Washington, D.C. 
20530, (202) 307-6200.
[FR Doc. 98-522 Filed 1-8-98; 8:45 am]
BILLING CODE 4410-11-M