An Interview with Watts Humphrey, Part 12: IBM Corporate Policy, Contracts, and Lawsuits
This interview was provided courtesy of the Computer History Museum.
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Corporate Policy
Humphrey: After the forced attrition and all that stuff,
they had another re-organization. It was much along the lines of what Bob Evans
was talking about. They put in a location manager over the lab and
manufacturing in
So, that turned out
to be a fascinating experience, but it lasted a long time. I was there from
1972 to 1979. While I was there, we got involved in lots of stuff. I remember I
got called in. It was an issue on the performance of the SABRE System. I
remember we went over to the SABRE lab. This was after Pat Beebe had moved on,
but somebody was running SABRE. It was a big American Airlines reservation
system, and it was before SABRE had really gotten going. They were still doing
the development work.
And so, we went out
and had a review of it and one of the questions was the data rates. The question
was what kind of data rate are you planning for, and they were talking about
ten transactions per second. I said, “Well, how would you handle a thousand?” They
said, “Oh, we’re within the specification for a maximum of ten.” I said, “No. Forget
the specs. I said what would happen if you had a thousand?” “Well, the system
would crash.” I said, “You need to rethink that.” That’s basically what the
taskforce did, and it turned out they had some kind of handshaking system that
would break down with larger data rates.
Booch: So, at least they knew how it
would fail, how it would fall apart. That’s a good sign.
Humphrey: They
did know that. They did redo it, but it was amazing. I think I heard that the
SABRE workload was running at about 10,000 transactions a second. People
couldn’t think big. Like I said, it was true of memories. It was true on the
performance of chips and everything. Okay. Well, anyway, back to my corporate
job. I moved on to corporate staff in 1972 -- Director of Policy Development --
and it turned out a big part of my job [was] because the lawsuits were going on,
and they wanted someone in corporate that would be involved from a business
side. I had an MBA. And so they felt that that was a good connection. I had a
lot of background with hardware and software.
Booch: Besides, you were a machine
gunner in the war. So, you had a lot of experience.
Humphrey: Yeah, there were
times I could have used a machine gun. So, I went down there. Actually, the
head lawyer—he was attorney general under Lyndon Johnson. His name will come
back, but a marvelous guy. I would go in and meet with him often. He was a
wonderful guy to deal with. The lawyers were great to work with as a matter of
fact.
Booch: Ramsey Clark - does that sound
familiar?
Humphrey: Oh, no. No, that
wasn’t him. It was Nick Katzenbach. The Chair he used
as a Cabinet Secretary was the chair he had in his office. It was his chair. So,
he was there in this big leather plush chair. He was a wonderful guy. And so,
the lawyers at IBM really understood one thing very well. They understood that
their job was not to make decisions. It was to give advice. The businessmen
made decisions. I was a businessman and they were giving advice. But boy, when
you listened to them, they were really good.
And so, he was a
marvelous guy to work with. A lot of lawyers get into trouble that way. They
think their job is to
make decisions -- unless you’re in a trial, because there they make decisions
of course.
Oh, one thing I forgot to mention— let me get this in. This
would have been at about 1967-1968 after we had all these discussions with the
lawyers, and I described what programming was, and Tom Barr and all that sort
of thing. I got a call one day from Tom Barr’s office. This is like on a
Thursday afternoon or a Friday morning. They said Tom Barr has to be in court
Monday morning on a lawsuit about computer sorting. Because apparently, IBM had
been sued by some company that had a sort program, and they were after us on
this program, and they were out for a bunch of money. And so, the case was in
court and Tom Barr had to be there Monday. I don’t know whether sort was the
basic lawsuit or just it came up all of a sudden. They had this witness and he
was an expert on sorting. That’s what it was. Tom Barr had to cross-examine a
witness who was an expert on sorts on Monday morning. So, he had all weekend to
prepare.
They called on me like on Friday. “What
can you do about that?” I said, “Well I can get a hold of our guys.” We had
some sort experts in
Contract Problems
So in any event, now I’m in the
corporate office, in the corporate staff in 1972. I reported to Dean Phipers, and I was sort of the next layer down from the
president, chairman - all of those. The job I was in, basically all policy
changes went through me. The kind of things that came up -- one was the new
purchase and lease contracts. IBM had had a battle with collecting money from a
small jewelry company in
And so they got a smart lawyer from
In fact, we lost the lawsuit on those
grounds. And this came out in a Board meeting, when I was sitting there. I was
sitting right behind John Opel, who was now President of the Company, or CEO of
the Company. I was sitting right behind him. He was at the table, around where
the top executives sit. And John Opel
turned around to me, and said, "
We had to go through everything, and
what we realized was you can't limit liabilities without actually making
commitments, so if you're going to limit your liability, you have to make sure
that you are in fact committing to what you're limiting about. And so that was
what we had to do. So we did, in fact, rewrite every purchase and lease
contract for IBM worldwide.
Booch: That would have been thousands of
contracts.
Humphrey: Oh yeah, it was an
enormous number, and so we put it together-- I was the final source. We
completely restructured it. We included warranties for software. It was
principally that the software will be there. Fundamentally, it's the basic
limitation they've got on all the stuff right now. We had no limitation that it
would run -- the limitation was that the code was there and not what it would
do. It was present on the media that we delivered it on, and that was basically
it. Now it's obviously evolved a bit since then, but we had to put that in
place, and we had to put basic warranties in place on that software, which we
did, and they were pretty rudimentary, but we did it. I think those are still
pretty much what they've got, so I'm the guy responsible for all that stuff.
Booch: It's all your
fault.
Humphrey: Yeah, so we put those
together. The IBM lease contract was a contract that lived in perpetuity; you
couldn't get rid of the IBM lease contract unless the customer was willing to,
because it had a renewal clause right in it. So the customer always had the
option to renew the old lease contract.
The purchase was
different, of course. And so we basically did the complete redesign. We had to
make the contract attractive to the customer. We had to be very sure it wasn't
forcing anything on them that they would be upset about. We went through it
very carefully and I remember translating the contracts. They actually had a
different contract in
And I remember one of
the big problems we had was with the finance community, surprisingly enough.
The lawyers we didn't have too much trouble with. We'd go through, work out all
the language with them, but the finance people were real sticklers on
negotiating all these contracts. And I remember the British people came over to
negotiate the final language on their contracts, and so I was involved in all
these things. This was a hell of a job.
And I remember, we
were going through a contract, and it started to snow. And we were working on
it, and we weren't able to get all the way through, and so Friday afternoon,
everybody sort of had to break out. And I said, "Well we'll meet again in
the morning." This was Saturday morning, and the finance guys said,
"No, we can't meet tomorrow." And I said, "Fine, if you can't be
there, then you can't object, and we'll go ahead without you." And so we
did.
That's sort of the
way we did all of this negotiation. We did it on a fast track, and if people
weren't able to stay till the meetings ended, until 2 in the morning or
whatever it took, we'd go till we were done, and the people who had the guts to
stick around, got to speak. But we basically got it all done and then, when the
contracts were all completed and ready to go, we couldn't introduce them
because the administrative community hadn't fixed the programs yet, so the
administrative programs to actually administer the contracts had to get
rewritten, and we couldn't get a priority on that to get it done. But we
finally got it done.
We got the contracts
out, and we replaced them worldwide, and we ended up without a single lawsuit,
which is kind of amazing. It went across smoothly, everybody took them. The new
contracts were the only way you could buy the new equipment -- any new machines
-- hardware or software. One of the big issues we had was that every time you
go to negotiate a contract, the customer's lawyers always want to change
things. And so I started to get these phone calls. We finally concluded that
you could change any language you want, as long as you don't change the
meaning. So we gave our marketing lawyers the freedom to change words, as long
as it didn't legally affect what was meant, and we were very precise on that.
The lawyers had to make damn sure that, from a legal perspective, the meaning
was identical. We gave them that flexibility, and all of a sudden, all the
questions went away. Customers and lawyers were happy if they could go in and
change half a dozen words. All of a sudden, they had done their job, and so we
replaced all the contracts without a single lawsuit or a single problem. I was
astounded. It worked like a dream.
Booch: Amazing.
Humphrey: Yeah, so it can be
done. The customers were perfectly pragmatic. They weren't going to fight us
over this nonsense as long as we dealt with them in a realistic way, and we
did. It worked fine.
The IBM Business System
One of the things
that I was going to talk about here was the IBM business system. One of the
guys who was a wonderful guy, -- he was the guy who was in charge and handled
the pricing for us on the FAA earlier -- his name was Hilary Faw. He had been Director of Policy Development earlier,
the job I now had. And he was a respected old timer, and I think he was still
there in 1972, or he was just about to retire. But he had actually gotten
people working at what he called the IBM Business System.
Booch:
Humphrey: Well they pop up at
random here, but I've got to go back to this meeting. But in any event, so
Hilary put together this thing -- what the IBM Business System was and the
structure of the Business System. It was basically around the whole lease
framework -- that when you lease a new machine, you get more revenue, so the
question was lease life, and all the rest of it. The whole Business System, --
how it worked and the feedback systems and the nature of the lease business,
and how effective it is -- was extraordinary.
And that's how IBM
had run, and how they've been so enormously successful financially, because
every time you lease a machine, all your marketing effort now is out to sell
more stuff, and upgrade the machines you've got. So the stuff you've got out
there continues to gather revenues, so your revenue base is just constantly
growing. It was marvelous. It was a great system, and you had to, sort of keep
the machines up to date and that sort of thing, I think, but it seemed to --
just the magic -- make an extraordinary amount of money.
Booch: And were IBM's competitors doing
the same thing -- the seven dwarfs around that time, did they have a similar
strategy?
Humphrey: They all had the
same basic strategy. What had happened, however, IBM had had a previous
antitrust lawsuit which was settled in 1956. Remember,
I joined the company in '59. The previous antitrust lawsuit was settled in
1956, essentially over Tom Watson Senior's dead body. He really objected
strenuously, he fought it like a tiger. His son had concluded that he had to do
it, and they signed an antitrust agreement. They never went to court. They
signed a Consent Decree, and Tom Watson Senior died, like, that year, so it was
'56. And in that Consent Decree, IBM agreed that it would sell machines as well
as lease them, and it would sell them at some presumed
life, so there was some ratio of lease to purchase price. The Consent Decree
put some constraints on it, so we couldn't put the purchase price way out of
range, so purchase was an economic
reality. When we announced a new machine, the antitrust lawyers would examine
the pricing.
And we also had to
permit other people to maintain our purchased equipment. And to do that, that
meant that we had to make maintenance parts available and we had to be able to
break out the maintenance price, so they could price it themselves. We had to
price it separately, and we had to price spare parts separately, and as a
matter of fact, we had to make some maintenance documentation publicly
available. Well all of this was sticking a spear right into the IBM Business
System. So that Consent Decree basically opened the door for all the plug
compatible guys that came in later. And that was the real threat to the IBM
business. I mean, it fundamentally changed it, but it took a long time.
Other Legal Issues
And so from '56 to
the early '70s was how long it took for the plug compatible community to catch
on that they could do this, and a bunch of them came up as a result of that. I
hit lots of them when I was on the policy job. I had a policy representative in every region
of the company, and both around the
The Policy Representative
in the Eastern Region called me with this story and told me that, "Oh yeah,
this lady mentioned that, oh, we're going to sue you Monday." <Laughs>
He told me who the company was, so I called our lawyers right away, and said,
"Here's what I just learned."
And so they got somebody
out in this president's office Monday morning. And we were able to stop the
lawsuit. It turned out it was a little company that had gone into business with
buying and selling features for IBM equipment. And the lawyer told me, when he
went out to meet with this guy, parked in the parking lot were you know, Cadillacs, a Mercedes. He said, "These people were
doing well. This was not a low-price operation." They were doing
extraordinarily well, because what they had discovered was that the way IBM
priced features had no relationship to cost. And if you really got in and
understood what the maintenance stuff was all about, you understood how the feature
was actually put in place -- for instance, the feature to upgrade the Model 30
computer from 32 to 64K. The computer was basically built with 64K in it. And
when you purchased a 32K machine, they had a wire that blocked it, and so to
upgrade from 32 to 64K, you go in and you clip this wire.
Booch: Oh my, so the memory was there
already.
Humphrey: It was there
already. I mean it basically would have been much more expensive to do it any
other way, so they had done that, and this is the way all features were done.
They had no connection. They would price the feature, and you'd price the parts
independently. And so the whole structure and the way IBM was making money was
all of a sudden exposed by these guys, and what they were doing was, they were
buying machines of their own. They'd pick them up, and they'd de-feature them.
They'd take parts off of them, so people weren't buying parts from us, they
were getting parts and pulling features and adding features and so they were
charging much less than IBM did, but making a bundle of money.
And so these guys
sued IBM, and the reason they sued us wasn't because of the way we were doing
it. They sued us because, in moving to the 370 line, IBM was claiming that the
maintenance documentation revealed proprietary information and we could not
make it available. That was an out in our 1956 consent decree -- that we had to make maintenance information available, but
we were not required to make proprietary information available. And so they
concluded that this was proprietary information and therefore we didn't have to
make it available. And so the lawyers, when they heard this, they came back to
me, and said, "Well what's the story, what do we do? If this is all
proprietary it's got to be all right." I said, "Well let me just
check." So I called the hardware staff, the engineering staff.
And I said, "I
understand this stuff is proprietary. If you've got something that's
proprietary that's maintenance information, show me, so I can see what it looks
like." So they brought me the maintenance documentation for one of our new
disk files. And I said, "Show me what's proprietary." So we started
to go through it. And the maintenance material had nothing in it that revealed
any real technical design data or anything that was in any way proprietary. And
so this was their best example of proprietary documentation. So I sent a note
out immediately to all the division Presidents, and I said, "Have your
people go immediately through all of your maintenance documentation and tell me
immediately about anything that is proprietary, so we can, you know, examine
it." And so all of the division Presidents did, except
one. The one was Bob Evans. And Bob answered me immediately, and said,
"Of course it's proprietary, we're not going to bother."
So I basically
ignored that and went with all the others. And no one found anything that was
proprietary. It was extraordinary. And so I told the lawyers, I said,
"You're not going to be able to defend that lawsuit," and went
through it with them, and they agreed. So we had to basically change the policy
on how we were going to handle maintenance material on the 370 and make it
available, and we did. Basically the issue was an enormous problem.
There were a bunch of
lawsuit issues. There are a couple more I want to mention. One came up -- they
were coming up with a new display. I think we had the 2250, and they were coming
up with the 3270. I've forgotten the numbers, but it was some new display that
was going to be on the 370. It was only coming out with the 370 line. They were
coming up with new equipment. And so when we came up with new equipment, we
could use new policies, new prices and everything else, so the development
people had a lot of flexibility.
And so they came up
with this new display. If you remember, I talked about plug compatible
displays. People were coming out with plug compatible memories and displays and
all kinds of stuff, and we were getting our clock cleaned in the display
business, so other people were selling displays for the equivalent of two to
three months of the IBM lease price, and our displays were not selling at all.
The market almost moved completely away from us. And so the new display
actually was priced, and when they came out with the announcement, they were
dropping the programming support for the old display. So the new ones, you
could obviously do whatever you want, but they basically were saying that in
the release of the operating system that was going to support only the new
displays and nothing else, so people had to move to the new release.
The engineers said,
"We will no longer support the old display." And I said, "Why is
that?" And the answer was -- now this is what the lawyers told me --"Well
it turns out, what they're saying is, we don't have to spend any extra money to
support the old hardware." And I said, "That's certainly true."
And so if that's the case, well it's completely defensible. And they agreed,
"Yes, that's true." So okay, the question is, are they spending extra
money, would they have to spend any extra money to do it? And I said,
"I'll bet you what's happened is that actually the old support was there
already, and they had to spend extra money to take it out." I said,
"If they did that, would that be defensible?" And they said,
"No, it would not." And I said, "Well you'd better go back and
make sure, because my bet is that they spent money to take the support for the
old displays out, not the other way around." They went back and discovered
that what I had said was true, and they would have lost a multi-billion dollar
lawsuit over that.
Booch: Ouch.
Humphrey: Well that's the kind
of stuff we were facing all the time. And so this was the problem with people
being so convinced that, if this is the way it should be, that it's the way
that it is, even if it ain't true. We had to look at
the facts, and that was really kind of amazing, but it was certainly the case.
Another one was an interesting one. I had meetings with my policy development
worldwide folks. We would come together for meetings.
I remember we had
meetings out at
So, like, this is
what we've got to do. We can make decisions instantly and get it done. And it
was marvelous, so we had a marvelous pipeline, and these people would pick up
the phone and call me. And I got a call on on a
Friday I think, late Friday. We got these calls at terrible hours, so you had
the weekend to do stuff. It was from the
It's an IBM machine,
and our people -- our maintenance people -- were unwilling to work on the
machine, because it's a competitor's memory, and we've got to do this and that,
and they had all kinds of problems with it. And it turned out that the EC
lawyers were arriving Monday morning to examine the situation and see what was
going on. And the machine wasn't working. And so he said, "What do we
do?" I told him right then, I said, "Get maintenance people out there
over the weekend and get it fixed."
Booch: As I recall, the phone company,
which had a monopoly at that time, had the rule that you couldn't attach any non-certified
equipment from them. And there was this
great lawsuit -- I think around the same time -- over somebody that just wanted
to put a little device on the handset to make it more comfortable to listen to,
and that broke open the notion of having third party things. So what would the
year of this have been?
Humphrey: This must have been
about '72, '73, '74, along in there.
Booch: Very nice.