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 104 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 104 of 140)
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its complaint, alleging violations of the antitrust laws by IBM in the then
soon-to-be-anonnced IBM System 370/16S and 370/15S central i)rocessing units
(CPI') with integrated (TT memory and integrated disk control circuitry
and a lower j)riced incremental memory. Telex sought injunctive relief prevent-
ing IB.M from integrating any memory or disk control circuitry into its
System 370 central processing units and from lowering its prices for memory
incremental to the CPU memory.

F6. On July 21, 1972, in partial response to a motion by Telex, the Minnesota
court granted a temporary restraining order enjoining IB:M from making
any announcement of its 370/l<)S and 370/158 central processing units until the
Minnesota court's deci.sion on Telex's pending motion for preliminary injunc-
tion was entered. IBM sought relief from the Miimesota court's action in the
Court of Api)eals for the Eight Circuit (Docket Xo. 72-1447) both by way of
api'eal and extraordinary writ. That court on July 2N. 1972. determined that
the temporary restraining order entered by the Minnesota court was tantamount
to the issuance of a preliminary injunction because it exceeded the ten day
limitation set forth in Fed. R. Civ. P. 65(b). The Telex Corporation v. Interiui-
tional Business Corporation, 464 F. 2d 1025 (Sth Cir. 1972). It was ordered that
the preliminary injunction be dissolved because the district court had made no
findings relative to the ultimate probable success of Telex on the merit." - or on
Telex's claim of irreparable injury. On July 2S. 1972, Telex moved for a second
temporary restraining order to be limited to ten days. That motion was denied
on August 1. 1972. ()n October 6, 1972, tlie Minnesota court, after the submission
of affidavits, evidentiarv appendices and briefs, denied Telex's moti<in for a
preliminary injunction as well as IBM's motion for summary judgment. After
extensive pre-trial discovery on both sides in the Minnesota proceedings. Telex
finally amended its complaint on January 2, 1973, to medand damages in the
amount of .$416,100,000, trebled, and on January S, 1973. filed as amended
consolidated complaint.

F7. Telex moved on January 9, 1973, that its cases be remanded to tlie Xorthern
District of Oklahoma for trial. On January 10. 1973, the case wns assigned to
this Judge for final pre-trial preparation and trial. Telex's remand motion was
granted on January 15. 1973. and as of that date, subject to the Minnesota
district court's retention of jurisdiction on certain ])rivilege issues. wl)ich have
now been finally resolved, this court o])tained jurisdiction of these proceedings.
On January 22. 1973. IP.M answered Telex's amended consolidated complaint and
filed two counterclaims — one alleging unfair competition and theft of IBM trade



1 The Oie!/hoiniil cnsp was tr:insfprred to tlip T'nitPfl Statps Distrk-t Court for tlip
Distript of .\rizi>n:i tor trial. On .Tiily 10. 1972. IB^Sfs motion for a directed verdict was
graiited at the end of tlie presentation of Gre.vhoiuid's case. .Jn<l};p ("raig s opinion trrant-

iii2 IBM's motion is rpportpd at 1072 Trade Cas. 11 74. 20.^ (D. Ariz.). F. Supp. .

Tlie Control Ilntft case was subsequently settled and on January 1."), lUT.i, Control Datas
complaint was dismissed.



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secrets, and the .second alleging Telex's infringement of IBM copyrighted manuals.

iF8. Pre-trial conferenecs were lield before this court on February 20, March 30,
and April 13, 1973. At the final pre-trial conference a jury, previously demanded
on both complaints and the counterclaims, was waived by both sides. This court
entered a final pre-trial order, based largely upon the March 30 conference, on
April 12, 1973, which enumerated in detail the cuntentions of the parties,
stipulated and disputed factual matters, the documentary evidence intended to be
offered, and the witnesses to be called by the respective pai'ties.

F9. Trial commenced on April 1«J, 1973, an<l the record was closed on May 24,
1973, after 29 days devoted to the taking of evidence. The expedition of the case
consistent with "full, fair and vigorous presentations was due in important
measure to the ability, organizational talent, diligence and experience of counsel,
together with the routine informal conferences held each morning before the
convening of court among court and counsel where evidentiary problems were
anticipated, presented and explored and the management of proceedings was
otherwise charted from d;iy to day. A brief post-trial conference was held on
May 25, 1973. The parties submitted their separate proposed findings of fact and
conclusions of law in compliance with the recpiest of the court, and on June 18
and 19, 1973, oral arguments were had. Whereupon the case was submitted for
decision and by the court was taken under advisement.

The court, now deeming itself fully advised, makes the following Findings of
Fact in addition to the statement of the case and proceedings set out above, and
the minute stipulated facts not set out, but iucorporated herein by reference
since there is no contest with respect to them.

I. THE PARTIES

FIO. Internati(mal Business :Machines Corporation (IBM) was incorporated on
February 24, 1924, and maintains its pi-ineipal place of business in a state other
than the State of Oklahoma where plaintiffs are incorporated and maintain their
principal places of business. Before its entry into the electronic data processing
(EiDP) industry, IB:\I manufactured punched card accounting machines and
other products. In addition to its EDP business, IBM develops, manufactures and
markets other business machines including copiers, dictating equipment, and
electric typewriters. IBM has been deeply involved in the phenomenal growth
of the electronic data processing industry since almost the beginning of the
industry. IBM's first EUP system offered for sale was the IBM 701. The first
IBM 701 was completed in April of 1953 and was intended primarily for scientific
work in connection with nuclear research. The first IBM computer intended for
commercial work was the IBM 702, wliich was installed in early 1955.

Fll. The Telex Corporation was incorporated in February, 1963. It is the
successor to Telex, Inc., which was incorporated in May, 1940. Since at least 1959
Telex has been manufacturing products which have been used by electronic data
processing equipment manufacturers as part of their equipment.

F12. Because of the success of IBM's System 300, certain companies such as
Telex entered into the marketing of devices functionally equivalent to IBM
devices. The devices nuirketed by Telex and others plugged into and replaced
parts of the System 300. In 1900 Telex began to market replacements for the
magnetic tape devices which were i)art of IBM's System 300 computers. Before
the receipt of a contract with DuPont to replace DuPont's installed second-
generation IBM magnetic tape devices. Telex liad been conducting engineering
development work to modify the Telex Model M3000-a magnetic tape drive
then being marketed by Telex to other EDP equipment manufacturers — to pro-
vide an appropriate electronic interface to attach to an IBM central processing
unit (CPU ). An interface is a shared t)oundary lietween electronic data processing
machines, or more accurately between tiie channels or physical pathways con-
necting those machines, through whicli data or progmms may be transmitted,
received, stored or processed. After receipt of the DuPont contract, the work
was completed and the equipment delivered in August, 1960. The Telex-developed
machine was designed with an electronic interface to work in conjunction with
an IBM CPU. It was designated as Telex's Model 4700. In late 1966, additional
47O0's were installed at Lockheed Aircraft and at P]lectronic Business Service
(AMI). The total engineering cost for designing the electronic interface neces-
sary to adapt TcIhx's rape drive for use with IBM equipment was .$42,000.

F13. In May, lOOO, Telex began to market replacements for lP>M"s disk drives.
Telex d(jes not manufacture but purchases the disk drives and disk drive con-



5713

trollors from another company. In X()veml)er. 1!»70. Telex announced that it
would begin marketing a printer and a printer controller. The printer meclia-
'uism is not manufactured b,v Telex hut is purchased from Control Data Corpora-
tion. Telex manufactures some of the printer electronics and the i)rinter con-
troller. In November, 1971, Telex announced it would offer a rei)lacement for
the memory or main storage used with certain IBM systems. In November. 1971,
Telex announced a 6360 memory for attachment to IBM Systems 370/155 and
370/165. That memory was first delivered in November of 197'J. Telex i)urchases
the parts of the memories from various corporations. It assembles tne parrs ana
markets the final product. As of January 26. 1973. Telex had installed two mem-
ories. In November, 1971. Telex announced a 6345 memory for attachment to an
IBM System 370/145. Telex has not yet delivered any 6345 memories. Telex has
recently advertised its intention to announce a memory for attachment to IB^I
Systems 370/168 and 370/158. Telex's forecast for first ciistomer delivery for
these products is the fourth quarter of 1973.

F14. Telex has never announced or delivered a "communications controller"
but is presently developing a plug compatible communication controller equiva-
lent to IBM's 3705. Telex has negotiated an agreement with Hitachi, a Japamese
corporation, under which Telex will engage in a joint development effort to
develop a CPU compatible with IB]M's System 370 and competitive with System
370 Models 135 and 145. No final decision has yet been made as to the actual
manufacturing and marketing of such a product.

F15. In the aspect of its business relating to the marketing of EDP products
to IBM end-users. Telex in the past has had a company policy generally of fol-
lowing IBM's product leadership and subordinating any technological product
innovation. Telex products are designed as the functional equivalent of previously
announced IBM products, except for whatever technological advances Telex is
able to introduce because of the later announcements of its products. Telex's
plug compatible tape drives, disk drives and printers have had better perform-
ance in some respects than IBM's corresponding products.

F16. Since entering the EDP industry and up to 1971, Telex reported a phe-
nomenal growth in revenues. Its revenues from EDP products and services
sold to customers within the United States as reported in the "census" ^ rose from
$870,000 in fiscal 1967 to $56,840,000 in fiscal 1971.

II. THE INDUSTRY

F17. The electronic data processing (EDP) industry is a young and dynamic
one ranking high in importance among the industries of the mation. The first
commercially built EDP system — the Univac I — was delivered in 1951 to the
Bureau of the Census. The demand for EDP products and services as indicated
by the revenue of companies responding to the court census has grown from $48
million in 1952 to $10.2 billion in 1970.

F18. Electronic data processing is employed by government and major pro-
ducers of goods and services throughout the country to make their operations
more efficient and to provide new and better products and services. The scientific
community has used and is continuing increasingly to use electronic data proc-
essing extensively. The kinds and types of available products, equipment or serv-
ices used are determined by tlie applications for which there is a need and the
availaijle resources to meet the need. Examples of electronic data processing ap-
plications are almost as numerous as business and scientific applications : The
computer can keep track of enormous numbers of people who have made reserva-
tions with the various airlines and tell passenger reservation agents when
planes are full. EDP s.vstems control many manufacturing processes and almost
entire factories, monitor patients with severe heart disease in hospitals, and
control some navigational systems on airplanes. Such systems are used in print-
ing newspapers, controlling traffic lights, guiding ships, navigating and con-
trolling space missions, and even in designing other computers. Less dramatic

2 The "ppnsus' refers to the responses of 1,7.86 companies to Rule 31 depositions upon
written questions ordered talcen by the United States District Court for the l>istrict of
Minnesota for the purpose of obtaininj? information concerning the EDP industry. The
depositions were taken in pre-trial discovery proceedinjrs relating: to several cases, includ-
iuff Telex v. IB^f, which had been consolidated in tlie Minnesota court with Control Data
Corporation v. IBM, Civil Action No. .3-R.S-312. Rule .11 Depositions were sent to approxi-
mately .3,300 companies and about 2,700 responses were received. About a thousand
responses were eliminated either because the companies responding were very small or
because the answers were not responsive or were otherwise not susceptible to recordation.
This census is in evidence.



5714

Init widespread are day by day business applications affecting the lives and for-
tunes of almost every individual in the country in one way or another. There has
been a marked increase in the sophistication of EDP customers in the last few
years. Immediate purchasers of EDI' products and services are most often large
institutions such as the United States government, universities, or large indus-
trial organizations. Most of the EDP systems are installed in the five hundred
largest governmental and business organizations. :Many professional consultants
offer assistance in the design of EDP systems and the procurement of EDP
products and services, thus enabling smaller users to make more knowledgeal)le
decisions concerning their EDP needs.

F19. Dramatically increasing demamds for EDP products and services and
the needs of EDP users have resulted in a rapid growth in the numl)er of com-
panies which offer EDP products and services and in a variety of products
and services which are offered to accomplish the data processing needs of users.
Many different kinds of companies have been attracted to the EDP industry. The
number of companies responding to the census and reporting EDP revenue in each
year from 1952 to 1970 has grown from 13 to 1773, a growth in number of more
than 136 times in eighteen years. According to the census, the number of com-
panies which nmnufacture and market a complete EDP system has grown from
3 in 1952 to 96 in 1972. but only 8 or 9 of these companies are considered in the
trade as principal systems nmnufacturers. These include IBM. I'nivac ( Sperry
Rand). Burroughs. Control Data Corp., General Electric, Honeywell, RCA. XDS
(Xerox), NCR, and Digital Equipment Corporation (DEC). Recently RCA and
GE have gone out of the systems business.

F20. Spurrefl additionally by the success of IBM's System 360, manufacturers
of certain peripheral devices began in 1966 to market to end-users products which
were functionally equivalent to certain IBM System 360 devices. The equipment
of these companies "replaced" IBM devices and utilized all the system's support
and services provided by IBM. In 1966 Telex, and shortly thereafter other
independent manufacturers, begau manufacturing and operating magnetic tape
drives which were functionally equivalent to IBM magnetic tape drives and
which could be "plugged" into, and thus were "plug compatible" to IBM central
processing units. The end-user customer of an IBM computer system then had
the option to use an IBM tape drive or to use one made by a "plug compatible
manufacturer" ( PCM). Peripheral eciuipment manufacturers have expanded their
peripheral product lines, moved into the leasing of complete EDP systems, and
certain of those companies, including Telex, Memorex and Mohawk Data Sciences,
are now expanding, or considering expanding, into the manufacture and market-
ing of their own central processing units.

F21. In the mid-19()0's leasing companies began purchasing computer products
from IBM, which they then leased to computer end-users. These companies pur-
chased $2.6 billion worth of IBM's 360 computer hardware for which IBM
received its full retail price and corresponding prolit. Leasing companies typically
purchase an installed IBM computer system and then lease it to the existing
end-user at a rate less than IBM charges for its identical products. When an
initial lea.se ends and the machine leaves the first end-user's shop, the leasing
company owner remarkets the "used" equipment when possible. Another type of
leasing company transaction involves the purchase of plug compatible tape and
disk drives from PCM's after they are installed and on rent in an end-user's
location. This type of transaction is primarily a method of financing and the
leasing company depends upon the manufacturer to market and service the
product.

F22. A service bureau owns or leases computer products and/or services and
then performs data processing services for customers for a fee. The customers
can get data processed by this method without owning or leasing any specific
EDP "hardware" or ".software". A time-sharing company is one that installs a
terminal facility in the customer's business locaticm : the terminal is connected
to the time-sharing company's computer system via telephone communication
lines. The end-user can then time-share the computer system by means of the
remote terminal for a fee. A data center is an estaltlishment having a computer
installation which permits customer personnel to operate the comi)uter equipment
for a fee. Software houses prepare and market computer programs or instructions
designed to cause the central processor and peripheral products to peform their
required functions. Examples are instructions that will cause data from input
devices to be transferred to storage devices, to be retrieved when needed, then
processed in a usable form. Facilities management companies, or system engineer-



5715

ins consultants, such as Computer Usast' Corixirat ion, provide I lie customer with
systems engineering; and design services as well as services for the actual opera-
tion of the end-user's computer facilities.

F28. The speed, reliability and capacity of computer products have increased
greatly since 1952. One of IBM's ClT's, the STO/KiS (announced but as yet
undelivered) when compared to the Univac I will have TOO times the storage
capacity of T'nivac I, and it will execute additions 4.;!(M) times faster, multiplica-
tion 3.100 times faster, and division 2.000 times faster. The data transfer rate of
current tape drives is 40 times greater than that of the earliest tape drives used
with the Univac I. Memory technology has increased cycle speed of main memory
devices a thousandfold since 1052. Electronic circuitr.v improvements permits
products to be made today which were difficult to conceive a few years ago.
Speed, capacit.v and reliability have improved, while power lecpiirements have
dropped.

III. THE NATURE OF ELECTRONIC DATA PROCESSING

F24. Electronic data processing (EDP) is the conversion of words, letters,
numbers or combinations of words, letters and numbers, or other types of data,
into electronical signals; the data is then collected, stored, sorted, analyzed,
compared or computed. The "hardware" products and "software" programs that
perform these functions are often referred to collectively as a computer system,
or simply as a computer. Computing may involve both simple and complicated
calculations, or the storing and sorting of large amounts of data. An example of
the complicated calculations of computers is the work done at the .Manned Space-
craft Center which links computer .systems throughout the T'nited States to
computers on board spacecrafts to ]>erform large numbers of precise, complicated
calculations. An example of stoi-ing, sorting and omiparing large amounts of
information is an airlines pas.senger reservation system, or a warehouse inventory
system.

F25. An EDP .s.vsteni consists of products which perform five basic functions.
These are "processing", "storage", "input", output" and ■"control". Input is the
entering of data into storage. The input devices convert data from an "ordinary"
language form (i.e.. English and numbers) to "machine" language or electronic
signals which are then understandable to a computer. Output is the opposite.
Output devices convert the "machine" language or electronic signals to the out-
put form desired, such as jrinted or typed in humanly understandable language
on paper, recorded on magnetic tape or magnetic disk, punched as a hole in a
l)unched card, or displa.ved on a television-like screen. Output devices can also be
used to open or close a valve, or to transfer electrical impulses to another com-
puter system. Storage of data is accomplished in either the main memory or some
type of auxiliary storage.

F26. Main memory is the storage from which data are transferred to the
processor and to which data are returned in their pnK'essed form. Auxiliary
storage is the storage from which data ai-e interchanged with the main memory
for processing, temporary transfer, or more permanent storage. Auxiliary storage
is usually accomplished in some one or more of the following : Large core stor-
age (LCS). data cells, magnetic drums, magnetic disk devices, magnetic tape
devices, paper tape devices and punch cards. The type of auxiliary used is
dependent upon the applications and needs of the customer with reference to the
stored data.

F27. The processing function is the comi)utation or jierformance of logical
oi)erations. These logical operations involve additions, subtractions, and com])ari-
sons. The logic is composed of single steps done rapidly to achieve the ultimate
results. A control function enables a computer system to perform a large number
of consecutive instructions. The control function can usually lUKlerstand or
evaluate the various operations as they are concluded and perform alternate o]i-
erations without human intervention based upon such evaluation. The control
function directs and coordinates the operation of the various products making
up the system and can be performed b.v a combination of hardware, micro-
l)rogramming aiid software. Programs are sequences of instructions which tell
the various devices what to do. Programs are also referred to as software.

F28. A modern comi»uter system is comi»osed of a variety of individual de-
vices each of which usually performs a different function that may be needed to
perform a particular needed aiiplication. The u.ser may select from various prod-
urts the particular com])ination of inividual devices and software which will



5716

solve the customer's data handling needs, taking into consideration the economics
and applications involved. The user's choice of alternative devices may depend
upon trade-offs among price, capacity, speed, flexibility, space requirements,
and the number, kind and priority of applications to be performed and users to
be serviced, but inherent are various limitations of functions and application
which as a practical matter most often dictate a particular device for a particular
application.

F29. Individual input/output products include teletype machines, typewriter
terminals, television-like displays which use cathode ray tubes, card punches
and punched card readers, magnetic tape drives and magnetic disk drives. There
are also devices which read magnetic characters or optical characters such as
those on checks, and there are devices which read coded tags on merchandise.
AYhen used in stores, these devices automatically record the sale, bill the cu.s-
tomer, and remind the store to reorder.

F30. Printers perform an output function. Like a typewriter terminal, a printer
converts electrical signals into printed characters and numbers. Printers, how-
ever, operate at much higher speeds than typewriter terminals. Mechanical input
printers operate at up to 2,000 lines per minute while electrostatic printers,
which operate similar to copying machine.'?, can operate at higher rates. There
are special purpose printers used to produce graphs, charts, drawings and maps.
Other output devices produce microfilm. These are called computer output micro-
film, or COM, devices.

F31. Products which perform a storage function include magnetic core arrays,
.semiconductor circuitry, magnetic tape drives, magnetic strip files, magnetic
drums, and magnetic disk drives. All these devices, except the semiconductor



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 104 of 140)