Below is the text of the speech made by Michael Meadowcroft, the then Liberal MP for Leeds West, in the House of Commons on 25 February 1986.
I am grateful to have the opportunity to raise the matter of Systime plc of Leeds. I wish to set out at the beginning of my speech what I believe that the Government and the Minister should do. This will be the framework of the story of Systime plc and the Government’s role in that story.
I believe there should be an urgent inquiry, perhaps under section 6 of the Fair Trading Act 1973 or any other appropriate statute, into the key issue of whether Digital Equipment Corporation, known as DEC, the United States Department of Commerce, officials of the Department of Trade and Industry and Her Majesty’s Customs and Excise behaved legitimately in their dealings with Systime plc. The Government must act to make effective the express views of the Attorney-General on extra territoriality abuses by such companies as DEC. Urgent action is also required to enforce articles 30 and 86 of the Treaty of Rome, which refer to the dominant position being abused by a company and of trade restrictions being permissible only if they are approved by the EC countries. These articles are clearly relevant to the Systime case. The law relating to patent and copyright requires urgent review to see whether vexatious legal action which significantly harms the continued viability of a smaller company can be inhibited.
Since I first embarked on this case, I have been overwhelmed with evidence. Indeed, the question has been what to leave out rather what to put in. I have also met briefly with representatives of DEC through the good offices of the hon. Member for Surrey, North-West (Mr. Grylls), who numbers DEC amongst his financial interests. The case that I put before the House has been assembled painstakingly from numerous sources and pieces of evidence.
Within the time constraints of an Adjournment debate I cannot hope to cover every issue. Therefore, I will not deal with the vexed question of the use of legal action on alleged patent or copyright infringements to stop rivals trading. If this legal action is dragged out, it effectively put smaller competitors out of business. I will not deal in detail with the Co-ordinating Committee for Export to Communist Areas issue and the intricate problem of technology and the Eastern bloc countries—both issues are relevant.
I emphasise that I am in no way motivated by any anti-American spirit. In that respect I am at least at one with the right hon. Member for Old Bexley and Sidcup (Mr. Heath) and the speech that he made at the weekend. There is a sense in which, in the longer term, what I am arguing for will help the United States and its broader role in the world. I am not motivated by any wish to score party debating points — if the circumstances had been different, the material could have ended up in any hon. Member’s hands.
I am anxious to protect what jobs remain at Systime plc and I would urge the Government to use every means possible to assist the company’s future. I do not wish to pretend that one side is all pure and the other entirely evil. Systime plc has its faults. The computer business is not for the faint hearts and no doubt there is some sharp practice in virtually every major deal. The regular movement of skilled managers and entrepreneurs between companies makes the control of legitimate business confidentiality impossible. My case is simply that the odds are stacked against United Kingdom industry when it is under threat from the United States. The Government alone have the power to even up the balance and defend British industry.
I bring before the House the grave matter of Systime plc, at one time this country’s second largest computer maker. That company, based in Leeds and drawing staff from all constituencies of Leeds, has reduced its payroll from 1,200 in 1984 to about 400 today. Those 400 jobs and the fate of a major high technology manufacturer and exporter are now in jeopardy. I have a series of sworn affidavits, letters from the American Embassy in London, and other documents which show that Systime’s plight is mainly due to the illegal, improper and indecisive activities of three parties. Those parties are Digital Equipment Corporation — Systime’s major American supplier and competitor — a number of American Government officials — some based at the London Embassy whom I shall name—and a number of officials and Ministers at the Department of Trade and Industry.
The matter of Systime plc is not, as the Westland affair was, a matter of disclosure but rather a matter of law. Laws have been broken on a significant scale and frequently by those charged with upholding the law. It is not solely a commercial matter but rather of a question of legality. It involves a sustained breach of United Kingdom sovereignty, condoned by the Government—if only by default — and used as a weapon to destroy Systime. Within six years we have witnessed the destruction of a company.
I will describe Systime and its rival and supplier, DEC. Systime plc was an entrepreneurial company founded in Leeds by Mr. John Gow and others in the mid-seventies. Its major business developed around retailing of equipment purchased mainly from Digital Equipment Corporation, with additional parts and software. DEC, as Digital is known, is the second largest computer company in the world, based near Boston, Massachusetts. It built up its huge sales mainly by wholesaling equipment to companies, such as Systime, which then sold the equipment to end users.
In 1979, Systime’s management discovered that it was about 25 per cent. cheaper to buy equipment direct from DEC in the United States than from DEC’s subsidiary in the United Kingdom. DEC UK objected to the loss of profit that that implied, and persuaded DEC US to insist that equipment could be bought only from the subsidiary. Subsequently, when DEC US tried to break its contract with the Systime subsidiary in the United States, Systime’s management commenced an anti-trust action in which the British Government took an amicus curiae position. DEC drew back and agreed to a partial continuation of supply. Systime appeared to have won a breathing space, but it was only temporary. That is apparently the only time that the British Government have openly defended Systime, and, significantly, the only time that DEC has drawn back.
In 1979, DEC UK, under its American manager, Mr. Darryl Barbé launched a formal campaign known as the “Kill Systime” campaign. He had the full support of the American management. The DEC president, Mr. Ken Olsen, was subsequently overheard leaving a board-level meeting with another company, declaring that he wished to see Systime out of business. Mr. Pier-Carlo Falotti, European vice-president of DEC, said to DEC staff:
“I want you guys to go out and kill Systime.”
DEC’s most senior vice-president, Mr. Jack Shields, was regularly in the United Kingdom, supervising the events that I shall set out. Between 1980 and 1983, Systime grew rapidly, making sales to the British and United States Governments, and commencing the manufacture of ruggadised computers for the Ministry of Defence. Exports also grew to the benefit of the United Kingdom.
The British Technology Group, the Government’s investment arm, and others invested heavily in Systime. By the end of 1982 the need for new cash to support the now rapid growth of the company became urgent. That was well known to DEC, which took unique and wholly improper advantage to destroy Systime.
Besides the openly declared “Kill Systime” campaign, there was a secret investigation conducted on DEC’s behalf by a private detective agency, Network Security Services. I was told by one ex-DEC employee that Network Security Services “have contacts everywhere.”
Recalling that we are dealing with a publicly funded company, I come next to a meeting between Systime, its bankers, Kleinwort, Benson, and representatives of the Government, including the Department of Trade and Industry and others, which took place on 19 January 1983 at Kleinwort, Benson’s premises in London. Prior to the meeting, DEC’s legal representative, Mr. Harry Small, of the solicitors, Linklaters and Nines, made, among others, the following allegations based on a report from Network Security Services.
First, that Systime was illegally pirating DEC software on a large scale. Secondly, that Systime had exported no fewer than 400 DEC computers to the Soviet Union and the eastern bloc disguised as juke boxes. Thirdly, that Systime was involved in a series of other breaches of United States export regulations. Present at the meeting were all the Systime directors, Mr. Geoffrey Sterling, representing 10 Downing street and the Department of Trade and Industry, Mr. Stuart Bloc, representing the NEB and British Technology Group, and Mr. Bill Wigglesworth for the Department of Trade and Industry.
The DEC representatives made it plain that they intended to inform the United States Government of those matters. The implication was clear to intending investors and purchasers. The flotation effort failed, and a would-be takeover by STC failed which, no doubt, DEC intended should happen to any attempt to keep Systime going.
John Gow was concerned that there may have been some minor infringements, and so DEC was subsequently allowed to audit Systime’s books, at Systime’s invitation and expense. It was unable to produce any evidence for its more extravagant claims, and only a minor under-accounting for the key one. But Systime was doomed, though not adequately from DEC’s point of view. The “Kill Systime” campaign continued.
Between 1983 and July 1984, DEC obtained Systime’s crucial customer list, and it is alleged that Systime’s offices in Washington DC were broken into or that staff were bribed. In Leeds, Systime’s own shipping files were apparently raided and documents removed. Those two sets of documents, together with the report used in the 19 January 1983 meeting, were given to the United States department of commerce in Washington, which began an investigation of Systime. The Prime Minister wrote concerning the missing Leeds documents to my hon. Friend the Member for Yeovil (Mr. Ashdown). She said that British Customs
“were not aware of any documents which would be of assistance to them being removed from other companies by US Customs”.
Note the use of the word “other”. The Prime Minister refused to exonerate United States Customs from having illegally acquired documents. I assume that she refused to do so because she had good reason to believe that it was indeed United States Customs, or its agents, which raided Systime for the missing documents.
In July 1984, on advice from the United States Government, the United Kingdom Government instructed United Kingdom Customs to raid Systime in Leeds. It was United Kingdom Customs which discovered that the key shipping documents were not there. It took a little longer to discover that the key documents were in the United States being used as evidence against Systime by the Department of Commerce.
There were two American officials in the United Kingdom working with diplomatic status at the embassy who, according to letters in my possession, were involved in the case against Systime. The first is Mr. Jack Lacey, the head of a Customs team at the United States embassy, responsible for the de facto direction and supervision of the United Kingdom’s own campaign against the export of high technology. The second was Mr. Timothy Deal, who was directly involved in the subsequent blacklisting of Mr. John Gow, the founder of Systime. Those two officials were, I believe, involved with DEC in the Systime case.
Based on DEC’s report on the various illegally obtained documents, the United States Government found Systime guilty of violations of United States export laws. Systime was found guilty of exporting computer equipment from the United Kingdom to Pakistan, Iraq, South Africa and other destinations, without the permission of the American Government. Amazingly, it is now, and has been for some considerable time, an offence to ship high technology goods from the United Kingdom without United States Government export licences.
Systime was fined $400,000 and has had its domestic and export sales put under the direct control of the United States Department of Commerce. More important, and having a direct bearing on its fate, the company found it almost impossible to obtain supplies of equipment from any American supplier. It began to fall behind on orders. In the last eight weeks alone Systime, having waited months, has been refused United States Government permission to supply a multi-million pound computer order to West Germany from the United Kingdom.
In furtherance of this effort to eliminate Systime, DEC’s private detectives have followed Systime personnel and placed their homes under surveillance.
There are allegations in my possession of phone tapping, of breakins, and of pressure which directly or indirectly led, alas, to at least one suicide. Certainly, it would appear that Systime engineers have been followed to their customers’ offices by DEC agents. Subsequently, those sites have been visited by DEC personnel under the guise of wishing to quote for a maintenance contract. The serial numbers of machines were then noted and the original American supplier to Systime was then pressured to discontinue supply.
In the same context, DEC has made use of improperly obtained Systime customer lists to canvass Systime’s customers with, in DEC’s words, a “rubber order book”. What has the United States Commerce Department to say about all this? Mr. Frank Deliberti, the manager of the compliance division of the United States Commerce Department said:
“I am going to shut Systime down. I am going to issue an (export) denial order and shut them down.”
In an internal document relating to exports from the United Kingdom, DEC states:
“Digital UK must control the movement of the hardware, software and know-how”—
“in the United Kingdom to ensure that DEC remains within the US and UK laws.”
There is no United Kingdom law that requires anyone to control the movement of computers, software or the know-how in people’s minds within the United Kingdom, but the fact that DEC can say it is the measure of the position we are now in the United Kingdom, as a result of the Government’s failure to act to end the monstrous imposition of United States law on United Kingdom exports and even on United Kingdom citizens—a failure that has doomed Systime and many other less well known United Kingdom companies.
In the case of Systime I allege that, first, the company has been fatally damaged as the result of a sustained campaign, much of it illegal, by DEC, Secondly, that the most damaging facet of that campaign was the move by the United States Government against Systime based on laws that, according to our Attorney-General, are:
“an infringement of United Kingdom jurisdiction and contrary to international law.”
Thirdly, based on the Prime Minister’s letter to my hon. Friend the Member for Yeovil, and correspondence between Systime, the United States embassy and the Department of Trade and Industry, I further allege that the Government had specific knowledge of the illegal removal of documents from Systime in Leeds to the United States, the spurious charges against Systime by DEC’s representatives prior to the 19 January 1983 meeting and the fact that those charges were being conveyed to the United States Government, the improper interference in United Kingdom domestic affairs of the two United States embassy officials, Mr. Jack Lacey and Mr. Timothy Deal and the fact that DEC’s application against Systime of its internal export rules demonstrates prima facie evidence of multiple breaches of at least two articles of the Treaty of Rome, which the Government are legally bound to uphold — article 86, the abuse of a dominant position, and article 30, which prohibits barriers to trade other than those agreed by the EEC.
In a real sense, the Systime case is virtually closed. DEC has achieved its major objective and now owns Systime’s lucrative maintenance contracts and, in a sense, has brought the evidence. The rest of the company, under CDC parentage, will depend on the success or otherwise of its S series computers. I wish it well. Ironically, even that success can be affected by DEC future policy.
The significance of this story is in its lessons. Why depend on a crystal ball for Westland, British Leyland or for other United Kingdom computer companies when the record exists? Virtually 20 years ago, Servan Schreiber wrote in his book “The American Challenge”:
“Current disjointed, nearsighted attempts at competition by individual European governments are inexcusable, and doomed to failure. Not only can we succeed, we must succeed. No area of industry can ever be independent if we rely on others for computers, hardware and software. If there is a battle for the future, it is the battle of computing.”
Successive Governments have allowed battle after battle to the be lost. Whether the war is lost I know not, but I am sure that the Government must act as if there is still time. What are the Government going to do to protect our future and Europe’s future?