Home > Articles > Programming

An Interview with Watts Humphrey, Part 12: IBM Corporate Policy, Contracts, and Lawsuits

  • Print
  • + Share This
In this transcript of an oral history, Grady Booch interviews SEI Fellow Watts Humphrey. In Part 12, they discuss Watts' role as Director of Policy Development at IBM, including rewriting every IBM contract and keeping IBM out of lawsuit hot water.

This interview was provided courtesy of the Computer History Museum.

See the entire interview.

From the author of

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 Glendale, and they did the same in each of the locations. So, they completely restructured it, and I ended up taking the job on corporate staff as Director of Policy Development.

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 Poughkeepsie. I got a hold of them. Of course, when the lawyers called, that was the top priority. So, they said, “Okay. We can do it. We can meet with them Saturday and Sunday in Poughkeepsie.” So, I got their names and numbers and I got back to Tom’s office and said, “This is the guy you can talk to. Get a hold of him. Get in touch and go ahead.” And so, he did. Monday in court, Tom Barr cross examined this expert in computer sorting and took him apart technically. He actually asked him a whole bunch of questions about sorting the guy couldn’t answer. He destroyed the witness and I couldn’t believe it. I heard that he had done a marvelous job, and it sounded like he had been doing sorting work all his life. Tom Barr was just an extraordinary person. He had an ability to pull all this stuff together. So, it was just amazing to me what he did.

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 Rhode Island. And so, we were after them. We were just collecting the payments they owed us. They had trouble with the system and they were complaining that IBM had failed and we had screwed them up. The company was in trouble and they weren’t going to pay and this sort of thing. So, IBM would take them to court just to pay their bill.

And so they got a smart lawyer from New York who basically looked at this stuff and decided to file an antitrust lawsuit against IBM. He was going through all this stuff and as part of that, it turned out the old IBM purchase and lease contracts, and the lease contracts turned out to be specifically for hardware and it would exclude everything else. So, the contracts didn’t apply to software. And so the path these guys were taking was that all those warranty limitations and everything apply only to the hardware. They don’t apply to the software because the software is excluded from the contract, and as a consequence, any promises made by the salesmen or anybody else were legally binding.

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, "Watts, will you fix that? You know what we had to do?  We had to rewrite every IBM contract, every purchase contract, every lease contract, every maintenance contract.

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 England than in the U.S., because of course laws are quite different there.

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: Watts, I have to say, I am stunned on two levels. First, just the rich tapestry of things with which you were involved, and second, your ability to recollect all of these. It's quite impressive.

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 US and Europe, all around the world, everywhere, so if something came up, people would call me. I remember, I got one call from New York City, a guy called to say that one of his salesmen had been out on a date on a Friday, and I got the call on a Saturday. That salesman had been on a date with this young lady, it turned out her boss ran the whole company.

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 Montauk Point out there, and we'd typically have it in the late summer for about two or three days. And people kind of objected to what we were spending. I said, "Look, it's the only way I can stay in touch with all these guys worldwide," but I made it clear to them that if you have a legal problem, call me. Any time, day or night, I can get it fixed within -- usually within an hour -- and I can call the Chairman, and I did on occasion.

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 Netherlands. And it turns out this guy was saying, we've got a problem with a customer, where they added a memory in the machine from a competitor.

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.

  • + Share This
  • 🔖 Save To Your Account