United States. Congress. Senate. Committee on the.

The Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) online

. (page 103 of 140)
Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 103 of 140)
Font size
QR-code for this ebook


system.

4. Whether IBM believed or had reason to believe that its employment of single
or bundled pricing permitted it to price discriminate among its customers or
potential customers by varying the amount of customer support services it offered
or supplied.

5. Whether IBM's employment of single or bundled pricing permitted it to price
discriminate among its customers or potential customers by varying the amount
of customer support services it offered or supplied.



5705

G. Whether IBM utilized its single or bundled prieiug to price discriminate
among its customers by varying the amount of customer support services offered
or supplied, depending upon the competition encountered, the prestigiousness of
the account, and/or the desirability of obtaining or maintaining a particular
account.

7. Whether IBM believed or had reason to believe that its employment of a
single or bundled price inhibited the growth of independent competitors in the
computer support field.

S. Whether IBM's employment of a single or bundled price did inhibit the
growth of independent competitors in the computer support field. If so, whether
such an inhibition prevented, discouraged or forestalled the entry or expansion of
other companies engaged in the manufacture and marketing of products in the
relevant markets.

9. Whether IBM, in furtherance of its attempt to monopolize and the monop-
olization of the relevant markets herein, engaged in some or all of the tech-
niques set forth below, for the purpose or with the effect of discouraging or fore-
stalling the growth or entry of actual competition in the peripheral equipment
market and the potential competition in the relevant markets herein which manu-
facturers and marketers of said peripheral equipment represented :

(a) IBM's post-Complaint announcements of changes in its product line.S,
marketing policies and prices with respect to its peripheral equipment ;

(b) IBM's June 1971, Fixed Term Plan announcement ;

(c) IBM's August 1971, Extended Term Plan announcement;

(d) IBM's technological rebuudling in its recent announcements with re-
spect to the memory units, file adapters and selector channels of its 370 Se-
ries general purpose digital computer systems.

FIGHTING MACHINES

1. Whether IBM, pursuant to and in furtherance of its attempt to monopolize
and the monopolization of the relevant market or markets herein, restrained or
attempted to restrain competitors from entering, remaining or expanding in one or
more of the relevant markets by announcing and introducing selected computer
products, with unusually low profit expectations, in those markets or segments
of the markets where the competitive success of such competitors affected or
appeared likely to affect IBM's monopoly position in one or more of the relevant
markets.

2. Whether IBM, pursuant to and in furtherance of its attempt to monopolize
and the monopolization of the relevant markets herein, restrained or attempted
to restrain competitors from entering, remaining or expanding in one or more of
the relevant markets by announcing future production and marketing of computer
products for such markets when it believed or had reason to believe that it was
unlikely to be abie to produce and market such products within the announced
time frame.

3. Whether IBM, pursuant to and in furtherance of its attempt to monopolize
and the monopolization of the relevant markets herein, restrained or attempted
to restrain comi>etitors from entering, remaining or expanding in one or more
of the relevant markets by developing and announcing computer products pri-
marily for the purpose of discouraging actual and potential customers from ac-
(juiring. by purchase or lease, computer products being marketed by its
competitors .

4. Whether IB:\I, pursuant to and in furtherance of its attempt to monopolize
and the monopolization of the relevant markets herein, restrained or attemped
to restrain competitors from entering, remaining or expanding in (uie or more
of the relevant markets by advancing announcement dates for vnrions fomjmter
pr(j(lucts. particularly the announcement of its systeJu/3G0 on April 7, 19G4, when,
in fact, such products were not tested or announced in conformance with IBM's
established procedures on product announcement and marketing.

"). Whether IBM. pursuant to and in furtherance of its attempt to monopolize
and the monopolization of the relevant markets herein, misrepresented to cus-
tomers or potential customers the characteristics, delivery dates capabilities
and/or specifications of new or modified (or purportedly new or modified) com-
puter products for the purpose of or with the effect of hindering competition.



1. Whether IBM. ii) furtliernnce of its attempt to monoiiolize :nid Hie moimii-
olization of the relevant markets herein, engnged in one or more of the I'ol-



5706

lowing- practices for the piirpose or with tlie effect of encouraging customers and
potential customers to lease from IBM the products in the relevant market :

(a) Manipulation of the relationship between the lease and purchase prices
HO as to encourage the lease of its eciuipment and discourage the purchase
of its equipment :

(b) Employment of a "subsequent user" policy which discrinunated
against subsequent users with respect to the denial of customer support,
engineering and maintenance services provided by IBM to first users:

(c) Denial or threatened denial of maintenance services to customers or
potential customers of independent leasing companies when such customers
or iMitential customers used or intended to use non-IBM memory units with
an IBM central processing unit :

(d) Announcement and offering of extended and long-term product leases
at substantial discounts with substa;itial penalties for premature termina-
tion :

(e) Employment of salesmen compensation policies designed to encourage
salesmen to attempt to lease rather than to sell computer e(iuipn!eut ;

(f) Refusal to lease add-on equipment to customers who have purchased
their products.

2. AVhether IBM. in furtherance of its attempt to monopolize and the monopoli-
zation in the relevant markets herein, engaged in one or more of the practices .set
forth in 1 here<ti for the purpose or with the effect of creating a lea.se-oriented
environment so as to raise the barriers to entry or expansion in such markets by
any competitor or i)otential competitcn- by creating extreme capital re(iuirements.

EDUCATIONAL ALLOWANCES

1. Whether I?>M. pursuant to and in furtherance of its attcmj)t to monojtoMze
and the monopnUzation of the relevant market or markets herein, restrained or
attenqited to restrain competitors from entering, remaining or exiianding in tlie
relevant markets Ity granting exceptional discriminatory alhnvances and other
considerations to educational and scientific institutions, as well as other prestige
accounts, for the purp-ose of

(a) Maintaining IBM computer installations at prestige accounts, and
( b) Insuring familiarity among graduates of educational institutions with
IBM products.

2. Whether the practices by IBM listed in 1 hereof had tlie purpose or effect
of excluding competitors or itotential competitors from such accounts, thereby
inhiliiting tlie entry or growth of such competitors l)otli by reason of the suitstan-
tiality of these accounts and by reason of the ultimate impact on the purchasing
deci-^ions by customers in one or more of the relevant markets.

Respectfully submitted,

Raymond M. Carlson,
Joseph H. Widmar,
Grant G. Moy. Jr.,

BURNEY P. C. BOOTE.

Attor)i('!/s. U.S. Deixirtiiiciit of Justice.
Dat(>d : December 12. 1973.

United States District Coltrt
Southern District of New York

(Civil Action 60 Civ. 200.)

United States of America, plaintiff

rcr.siis

International Business :Maciiines Corporation, defendant

plaintiff's preliminary memorandum on relief

On September 12. 1972. the Court directed plaintiff to submit, on October 10,
1972. a tentative application for relief as seen f)y plaintiff at this stage in its
pretrial preparation (Pretrial Order No. 0). Because of the protracted nature
of this case and the substantial discovery and evidentiary hearings yet to be had,



5707

phiiiitiff is uiiuhlc at this time to specify with any more sisiuiticant degree of
precision than contained herein the exact relief wlucli it may Ultimately con-
sider appropriate to create competition and to remedy the alleged violation of
the antitrust laws in the markets involved in this case.

While plaintiff is unable to state that the principles of relief herein set forth
will ultimately prove to he the l)est of many alternatives, the tentative outline
suggested herein reflects plaintift"s best economic judgment as of this date, based
upon an incomplete and sometimes eipiivocal factual record. Inasmuch as this
is the present state of the record, this statement is in part premised up(»n the
proposition that divestiture such as that propo.>-ed is the normal, natural and
ai>propriate form of relief in monopolization case.s under .se<-tion 2 of tlie Sher-
man Act.

Preparation of this statement (»n relief has demonstrated to plaintiff that, be-
fore any type of relief can be finalized in this mjitter, a more thorough and de-
tailed analysis must be made of the markets which defendant is alleged to have
monopolized. Such analysis will recpiire the development of additional facts
through further discovery and evidentiary proceedings involving personnel en-
gaged in these various markets. This further analysis may demonstrate that other
forms of divestiture, or divestiture coupled with injunctive reiief. may be sufficient
to remedy the effects of the alleged m(»n(ti)olization. However, plaintiff notes that
injunctive relief has in the past met with only limited success. On occasion, such
provisions have been overly regulatory, inhibiting rather than preserving or re-
storing competition in the long run. Decretal provisions barring entry into speci-
fied businesses have aciver.sely affected conipctiti(m in the prohibited markets.
See, e.g., I'nitcd States v. Sirift d Co.. 276 I'.S. 311. 32,S-2!J (1928), decree modified,
1!>71 CCH Trade Cases ^ 73.760 (X.D.Ill. ). Similar provisions can have an ad-
verse effect on competition, incentive and innovation in markets related to the
primary business of an enterprise. Finally, higlily regulatory decretal provisions
can involve inordinatt* aniotmts of administrative and judicial time directed to-
ward securing jierformance of the decree. See. ejj - I iiif'd States v. Pat amount
Pictures. Inc., Equity Xo. 87-273, S.D.X.Y. (tiled July 20. 11)38).

Accordingly, [ilaintiff iielieves that the parties should direct their efforts to
achieving a fidly developed record upon which to evaluate the future efficacy of
tills or other forms of relief. Analysis of this record may modify, rule out or re-
inforce the principles set forth herein.



Upon the present record, should plaintiff pi'cvail at trial, i)laintiff tentatively
i^eeks :

A. Divestiture relief designed to dissipate the enormous market power of
the current IBM computer manufacturing and marketing structure by the
formation of the total domestic and international computer systems facili-
ties of IBM ( mantifacturing. marketing, research and develoi)nient, capital,
pattiits and know-how) into several discrete, separate, independent and com-
petitively balanced entities capable of competing successfully in domestic and
international markets with one another and with other domestic and foreign
competitors.

B. The entities resulting from the divestiture should, after an apjiropriate
transitional period, be relatively unfettered in their ability to engage in
dmnestic and international competition with one another in the manufac-
ture, marketing (including leasing) and maintenance of a broad line of com-
puter systems or any part thereof, or lawfully to engage in any related or un-
related field of endeavor.

C. The relief outlined immediately above should be accompanied by pro-
tective provisions designed to insure that the entities resulting from the di-
vestiture continue to provide service effectively to existing u.sers of IBM equip-
ment. This is to be achieved by injunctive i»rovisions designed to insui'e all
these entities the necessary access to know-how, e(iuipment and parts so that
they can provide customers with a brord line of computer equipment, parts,
software, maintenance and other services during an approiiriate transitional
period following divestiture.

II.

Relief should include injunctive provisions designed to prohiliit II'M. i)eiiding
effectuation of divestiture, from acting so as to frustrate the orders of this Court,
or to put significant aspects of its biisiness beyond the reach of the Court, iu-
•oluding, but not limited to, the following:



5708

A. Change iu ownership or control of subsidiaries or divisions, other than
in the ordinary course of business ;

B. Change in financial or employment procedures, otlier than in the
ordinary coux'se of business ;

C. Realignment of plants, personnel or capital, other than in the ordinary
course of business.

III.

Relief should also include injunctive provisions designed to prohibit IBM, pend-
ing effectuation of divestiture, from :

A. Marketing its computer systems or any part thereof, its software, and
its support services by the use of bundled prices ;

B. Pricing any computer system or any part thereof, its software, or its
support services at loss or other predatory levels, or discriminating in price,
for the purpose or with the effe(^t of hindering competition ;

C. Announcing new computer products or systems prior to the time tliat
such products or systems have reached the point of manufacturing and mar-
keting feasibility, for the purpose of hindering competition.

Respectfully submitted.

Raymond M. Carson,
.Joseph H. Widmar,
A1tonic!j)<, L'.S. Department of Justice.

Dated : October 13, 1972.

In the United States Court of Appeals for the Ninth Circuit



No. 72-2553
Greyhound Computer Corporation, Inc., plaintiff-appellant

vs.
International Business Machines Corporation, defendant-appellee

APPEAL from the UNITED STATES DISTRICT COURT FOB THE DISTRICT OF ARIZONA
HONORABLE WALTER E. CRAIG, DISTRICT JUDGE



appendin: of plaintiff-appellant

Edward L. Foote,
Winston & IStrawn,
One First National I'laza. Chicago, 111. 60670,
RouLAND W. Hill,
James W. Hill,
Shi>[mel, Hill & Bishop,
111 West Monroe. Phoenix, Ariz. 85003.

Attorneys for Pluinti ff -Appellant .

RULING OF judge CRAIG DIRECTING VERDICT IN FAVOR OF DEFENDANT

July 10, 1972

The Court : I uiiglit say. gentlemen, that the burden placed on the Court by your
respective motions is indeed an unhappy one.

With respect to the plaintitt's motion for directed verdict on the issue of liabil-
ity, the motion is denied.

With respect to the plaintiff's motion for directed verdict on the issue of monop-
olizatioiL the motion is denied.

AVith respet't to the defendant's motion for directed verdict on the contract is-
sue, the motion is granted.

The Court is of the opinion Diat. number one. the proof is not sufficient to sub-
mit that (inestion to the jury, even with aiipro])iiate instructii)ns as to the law.

The Court is of the ojjinion that Hint issue is lesolved by the parol evidence rule,
the statute of frauds, and last, but not least, the local rules of this court.



5709

Even considering tlie I'niforiu Conimertial Coi\o of New Yorlc, my understand-
ing is that the parties agree that is the law applicable to this ease. As I say, having
considered that, the Court is of the (>i»inion that that issue is foreclosed under the
parol evidence rule.

Moreover, the only two contracts in evidence have integration clauses which
limit the sul)ject matter of the contract.

The final motion of the defendant as to a directed verdict with respect to Sec-
tion 2 of the Sherman At-t posed more ditiicult problems to the Court.

The Court is of the opinion that the evidence with respect to the market and the
defendant's relative share of the market is insufticient to submit that issue to the
jury. Assuming for the purposes of argument that that issue might be submitted to
the jury on the present status of the record, the Court is of the opinion that the
evidence is insufficient to submit the question as to defendant's control or ability to
control the market regardless of its purported relevant share thereof.

The Court is of the further opinion that with respect to the issue of monopoly
liy the defendant, that the record is insufficient to submit that issue. Assuming
that the defendant does hokl a suljstantial shai-e of a market, whatever that
market may be, it is the opinion of this Court from the evidence adduced thus
far on the record that the defendant's place in the industry has been achieved
as a result of superior skill, foresight and industry.

The Court is of the opinion, from the evidence adduced at trial, that such
activity as was engaged in by the defendant with respect to its pricing, both in
leases and purchases, was brought about by economic factors over which
defendant had no control.

The same reasoning ai)plies to the issue with respect to attempt to monopolize.
This Court is of the opinion that there is no evidence of an attempt to monopolize
in the record.

And finally, the Court is of the opinion that with respect to the issue on
damages, were the jury to consider this record in its present state it would be
purely speculative as to how the jury would reach a conclusion in that respect.

From this Court's days in law school, which is a very long time ago, appar-
ently it is still the law that size alone does not constitute an offense under the
Sherman Act. nor does pie mere possession of monopoly power.

It is the wrongful use and exercise of that power which is proscribed by Section
2 of the Act.

^^ This Court is of the opinion that the opinions in Alcoa. United Shoe, American
Tobacco and Griiniell do not ai)ply to the circumstances in this case, and rather
du Pont is closer to an analogy.

The Court is also cognizant of the language in Bushie by the Ninth Circuit.

I might say, gentlemen, that it would have been much easier to avoid this
issue, but I don't believe that that is the function of the Court, and therefore
with respect to defendant's motion for directed verdict with respect to Section 2
of the Sherman Act, the motion is granted. *



In the United States District C(mrt for the Northern District of Oklahoma

No. 72-C-lS; No. 72-C-S9 (Consolidated)
The Telex Corporatiox and Telex Computer Products, Inc., plaintiffs,

V.

International Business Machines, Corporation, defendant.
Findings of Fact and Conclusions of Law

Contents
Findings of fact — General.
Statement of the case — preliminarv proceedings.

I The Parties.

II The Industry.

III The Nature of Electronic Data Proceeding.

IV Relevant Market.

V Market Power.

VI IBM's Practices and Intent.



5710

VII Impact and Damages for Antitrust Violations.
\1II E(iiiitable Relief on Antitrust Claims.

IX IBM's Counterclaim against Telex for Unfair Competition, Misappro-

priation of Trade Secrets and Proiirietary Information.

X Statute of Limitations as to the Misappropriation of Confidential In-

formati<m and Trade Secrets.

XI IBiM's Further Efforts To Protect its Trade Secrets.

XII Telex Cop.ving of IBM Copyrighted Manuals.
Conclusions of Law ; Discusison

A. Jurisdiction and Venue.

B. Antitrust Claims — Monopolization.

C. Attempt To Monopolize.

D. Restraint of Trade.

v.. Integrated Functions as Tying Agreements.
F. Injury and Damage From Antitrust Violations.
(1. Ecpiitable Antitrust Relief.

il. Telex's Misappropriation of Trade Secrets and Confidential Informa-
tion — I'nfair Comi>etition.
I. Conclusions Concerning Infringement of Copyright Material.
.J. Remedial I'rovisions under Counterclaim.
K. Conclusion.
Judgment and Decree.



Finding 1. This case involves the electronic data processing industry — an
industry based upon a concept and system or reckoning (binary) as simple
as turning on and off a switch ; in which transmissions are timed in billionths
of seconds (nanosec(mds), storage capacity (memory), measured by millions of
combinations of bits of information (megabytes) : in which numerous problems
involving logic or arithmetic functions are separately but simultaneously worked
upon and instantly solved within a single system : in which in their ov>'n peculiar
language machines communicate with one another (multiprocessing) and then
in words understandable by humans may present printouts of results at the rate
of as much as 2.000 lines per minute: in whicli devices facilitate maintejiance
by the detectitm and isolation of their own malfunctions or mistakes (diagnostic
programs I ; upon which most other industries of the country and couiitless
businesses, as well as science and space exploration-s, vitally depend; in which
product and market developments seem almost kaleidoscopic when viewed
from the outside; which appears uniijue in monopoly context by reason of its
youth and apparent dynamics, but which by the same token in the ultra-
modern setting may be unprecedented also because of increased inducements
for, and vulnerability to, sophisticated submarket control on the one hand,
and massive industrial espionage on the other.

Statement of the Case — Preliminary' Proceedings

F2. This is an action brought by the Telex Corporation and Telex Com-
puter Products, Inc ("Telex") against the International Business Machines
Corporation ("IBM") in pursuance of Secticm 4 of the Clayton Act (15 U.S.C.
§15) to recover treble damages for alleged violations of Secticms 1 and 2 of
the Sherman Act, 15 U.S.C. §S 1. 2, and Section 3 of the Clayton Act. 15 U.S.C.
S 13. IB'Sl counterclaimed against Telex for alleged unfair competition, theft
of trade secrets and copyright infringement in reliance upon state law and 17
U.S.C. S 101 with reference to the infringement of copyrights.

FS. Telex's initial complaint was filed on January 21, 1072, in the United
States District Court for the Northern District of Oklahoma (Action No.
72-C-18), alleging IBM's monopolization of, and attempts to monopolize, the
worldwide manufacture, distribution, sale and leasing of electronic data proc-
essing equipment since 1954, and seeking damages in the amount of .$23N,-
2!)(),()()0, trebled, injunctive relief, attorneys" fees, and costs. With the con.seut
of the parties the issues and discovery for the purpose of the.se proceedings
were limited to the United States.

F4. Concurrently with the filing of its complaint. Telex moved before the
Judicial Panel on :\Iultidistrict Litigation (JPML) in the nnitter entitled "In
re IBM Antitrust Litigation", Docket No. 18, to transfer its case to the United



5711

states District Court for the District of Minnesota for coordinated and con-
solidated pre-trial proceedings with Control Data Corjjoration v. International
Business Machines Corporation. 3-(JS Civ. 312, and (ireyhound Computer
Corporation v. International Business Machines Corporation, 3-70 Civ. 329
(X.D. 111. 70C 2203), l)oth of which were then pending in that court. ^ On
Fehruary 1, 1S>72, Telex amended its complaint to describe in more detail its
monopolization claims relative to the manufacture. distril)uti<in. sale and leasing
of plug compatible peripheral products which could be attached to an IBM
central processing unit. On February 2."), 1972, Telex's motion to consolidate
was argued before the .JPML.

F"). On March 15. 1972, while its motion for consolidation was pending before
the JI'ML, 'J'elex filed a second complaint in the Xorthern District of Oklahoma
(Action No. 72-C-S9) alleging that IBM had violated Section 2 of the Slierman
Act (15 T'.S.C. §2) by announcing its "Fixed Term Plan" in May of 1971 and
its ••Extended Term Plan" on March 1, 1972. Telex sought a temporary
restraining order and preliminary injunction from the Oklahoma court. On
April 19. 1972, the .II'ML issued orders transferring the Telex actions to the
^Minnesota court. Telex Corp v. International Business Machines, Inc.. 342
F. Supp. 20 (1972), and Honorable Philip Neville, I'nited States District
Judge for the District of Minnesota, was assigned to handle complicated dis-
covery and other matters preliminary to trials. Under his aide supervision
millions of documents were discovered or exchanged and photographed, and
various procedural rulings made. On .Tune 12. 1972, Telex tiled a supplement to



Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 103 of 140)