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 116 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 116 of 140)
Font size
QR-code for this ebook


The facts that the Fixed lYrm and Extended Term plans apply to some but not
all of the data processing eciuiimient and services does not effe<-t a tying restric-
tion. A le.ssee of a piece of IBM equipment pursuant to the Fixed Term or Ex-



5772

tended Term plan remains free to select whatever other data processing equip-
ment or services he desires without any contractual restriction. The fact that
his choice is limited to equipment compatible with his requirements and may be
influenced by the type of other equipment he may independently have does not
in my judgment transform the lease into a tying agreement. The fact that a lessee
can lease IBM equipment under the Fixed Term or Extended Term plan at a price
which is lower than that offered under the IBM's 30 day lease does not trans-
form such plan leases into tying agreements, this situation having l»ecome sig-
nificant only in connection with the monopolization or attempted monopolization
findings. The fact that the reduced prices offered may induce a user to utilize
IBM equipment and that this utilization will aft'e<-t his decision i-oncerning other
equipment lie may wish to use does not establish a tying agreement in my judg-
ment. A user's choice of equipment is inevitably aft'ected by e<piipment he is cur-
rently using and limited by the alternatives which the industry can make avail-
able. To rule otherwise might serve to transform most leases of a producer's
goods into a tying agreement. The coxirt concludes that leases entered into pur-
suant to IBM's Fixed Term and Extended Term Plans do not constitute tying
agreements violative of Section o of the Clayton Act or Section 1 of the Sheinnan
Act, notwithstanding their utilization in violating Section 2 of the Sherman Act.

F. Injury and damage front anfitriist violations

C33. Recovery under the Sherman Act is limited to a person who has been
"injured in his business or property by reason of" violation of the antitrust laws.
15 U.S.C. § 15. The plaintiffs have the burden of proving that they have in fact
been injured and that the injury was caused by the defendiinfs unlawful conduct.
They are required to establish with reasonable probability a causal connection
between defendant's allegedly wrongful acts and some loss of anticipated revenue.
If all of a plaintiff's loss is caused indei>endent of any unlawful act of a defendant
by such factors as lawful economic competition in the marketi)lace, Dollac Cor-
poration V. Margon Corporation, 164 F. Supp. 41 ( D.X..I. l'J.58), aff'd, 275 F.2d
202 (3d Cir. 1960), inefficiency, unfavorable market conditions, or customer dis-
satisfied. As Judge Doyle aptly stated for the court in Westric Battery Company

V. Standard Electric Co., — F.2d (10th Cir. No. 72-1734. July 6, 1973), an

injured party ". . . is entitled to be compen.sated for losses attributable to the
injury inflicted, but is not entitled to earn a profit or necessarily to come out
wiiole because some of its troubles could be attributable to causes other than the
defendant's separators. It must be emphasized that it is only the damages flow-
ing legally from the defendant's misdeeds which count.'' See also Herman Sch-
wabe. Inc. v. United Shoe Machinery Corp., 297 F.2d (2d Cir.), cert, denied, 369
U.S. 865 (1962) ; Baush Mach. Tool Co. v. Aluminum Co. of America, 79 F.2d 217
(2d Cir. 1935) ; Momaud v. Universal Film Exchanges. 172 F.2d 37 (1st Cir.
IMS), cert, denied, 336 I".S. 967 (1949) ; General Electric Credit Corporation v.
Grubbs. 478 F.2d 53 (5th Cir. 1973).

C34. Mindful of plaintiffs' burden and various limitations and qualifications,
and recognizing that many of Telex's financial difficulties have resulted from the
inherent nature of its business of producing products functionally equivalent to
those first produced by IBM, competition by firms other than IBM, delay in the
introduction of new products, product performance, maimgerial errors, resistance
to its penetration of IBM trade secrets, and operational difficulties to lie expected
in the industry, yet in my judgment the preponderance of the evidence before me,
referred to in my findings, compels the conclusion that IBM's unlawful conduct
in violation of Section 2 of the Sherman Act has had not only substantial but
severe impact upon the plaintiffs' business and that this impact is estalilished
with certainty adetpiate to satisfy plaintiff's' burden of proving impact or injury.
With respect to the amount of plaintiffs' damages the evidence is not as clear.
The court recognizes that an antitrust plaintiff" has no obligation to prove his
damages with absolute certainty. A plaintiff does, however, have the burden of
offering evidence upon which the court reasonably may base its damage conclu-
sions, having in mind that the defendant should not be permitted to capitalize
upon the eff'ect of its unlawful acts in rendering precise damage computations
difficult, nor should the plaintiffs be awarded damages which are merely
speculative.

C35. The court, having concluded that the defendant has violated Section 2
of the Shernmn Act and that by reason of such violations and as a proximate re-
.sult lliereof the i)laintiffs Telex and Telex Computer Coriioration have been
caused damage in tlieir business and property, is called upon to make a reasfin-
able approximation ot the damages to which plaintiffs are entitled if and to rhe



0/ /d

extent that there is evidence in the record reasonably permitting this. Zenith
Radio Corp. v. Hazeltine Research, 401 U.S. 321 (1071) ; Bigelow v. RKO Radio
Pictures, 327 U.S. 251 (1946) ; Continental Baking Company v. GUI Homestead
Bread Co., F.2d (10th Cir. 1973) ; Kobe, Inc. v. Dempsey Pump Co., 198 F.2d
416 (10th Cir.) Gcrt. denied, 344 U.S. 837 (1952). As was stated in the Continental
Baking opinion :

"However, in cases such as this the courts have repeatedly and consistently
held the plaintiff to a lower standard of proof than he is nominally required to
make . . . 'The most elementary conceptions of justice and public ixilicy reipiire
that the wrongdoer shall bear the risk of umertainty which he has all along
created' [Biglow v. RKO Radio Pictures, Inc.. supra] '. . . This position was re-
cently reaffirmed by the Supreme Court in Zenith ..." It has been otherwise
stated : 'Having best establishetl the factum of damages, the amount thereof may
be fairly approximated . . .' " Continental Baking Co. v. Old Homestead Bread
Co., supra.

C56. The court may measure loss of profits by use of projections or forecasts
of future business made in the regular and ordinary course of business, AutoAvest,
Inc. V. Peugeot, Inc., 434 F.2d 556 (2d Cir. 1970). I have found that the damage
evidence adducetl by Telex is insufficient to support the full amount of its claim
based upon the Telex forecasts. The relation between its claim for $257.7 million
in lost profits or diminution of market share and any action of IBM involves dif-
ficult questions quantitatively and corresponding problems of law. Plaintiffs'
claims rest upon the November, 1970, forecast which, as the court has found, in-
volves some (luestionable features, and projected a higher total than any other
forecast by Telex for those products. The January 12, 1972, forecast, against
which the earlier forecast was compared, was the lowest forecast Telex ever
made for the selected products. The November, 1970, forecast was revi.sed down-
ward almost immediately and the January, 1972. forecast would have recpiiretl a
compound annual growth of 67% which was beyond the ability of Telex to have
achieved, in the court's judgment. Moreover, the computations of Telex's damage
witnesses, l)ased on the two forecasts, assume that every variation in the number
of units forecast were caused by the unlawful acticms of IBM. The evidence as
to other components of plaintiffs' damage claims also have required weighing
and evaluating, as has been done in the findings with the factual results indi-
vated therein. It is believed that these factual determinations, along with the
other findings made, are supported by substantial, indeed, preponderating evi-
dence.

C37. Fluctuation in Telex's stock market prices on the basis of which Telex
asserts that '$149.9 million in damages is indicatetl is equivocal as proof of dam-
ages proximately resulting from IBM's unlawful action, but is supportive to a
degree. There is substantial reason for attributing at least a part of this loss to
other causes. The court has determined also that Telex's attempt to comi>are
earnings for different periods on the basis of information shown in tax retunis
must be carefully weighted because of the distinctions between the applica-
tion of the principles of tax accounting and other generally accepted account-
ing principles, the differences in Telex's own method of tax and financial ac-
counting and certain inconsistencies in Telex's comparison of 1971 and 1972 tax-
able income revenues and expenses. In addition, it is apparent that Telex's 1971
and 1972 tax returns cover subsidiaries, divisions and transactions not involved
with Telex's domestic EDP business. Telex's income statements do irot afford
any precise basis for damage c<nuputations because they fail to match revenues
with expenses in accordance with customary accounting principles and reflect
a significant change in Telex's accounting methods effective April 1, 1970, to-
gether with a number of fluctuations due to causes which are extraneous to this
litigation and unrelated to the competitive behavior of IBM; but, again, they
do not api>ear to be inconsistent with the findings made here.

("38. I have been unable to accept plaintiffs' damage figures on their face as
indicating the amount to which they are entitled : it is clear that a portion is
attributable to causes for which IB:M has no accountability and that they are
magnified, if not distorted, by the circumstances indicated. It is equally clear that
lilaintiffs have sustained serious impact and have suffered sub.stantial damages
proximately caused by the unlawful conduct of IBM as herein found. In short,
plaintiffs have claimed too much, and they have failed to directly prove what
lart of their claimed damages was caused by acts for which defendant is legally
resiionsible. But l)e('ause of the complicated damage picrure. resulting in import-
ant part from defendant's unlawful action, it is unlikely that anymore specific
damage evidence coidd be submitted short of plaintiffs" conceding the excessive



5774

uatiire of its claims and introducing expert testimony or other evidence seelving
to sustain its claims on a more moderate and realistic basis.

C39. The question remains whether these circumstances preclude any and
all recovery by the plaintiffs or wliether tlie court upon the basis of the evi-
dence before it can reasonably approximate plaintiffs' damages for wliich the
defendant is legally responsible. Juries frequently are called upon to make
reasonable approximations within the perimeters of parties' claims, and it has
not been thought fatal to their verdicts that the amount awarded did not pre-
cisely correspond with the claims or expert testimony, but represented an accept-
ance of the claims in part.

The judgment of a court sitting without a jury, to put the matter modestly
as an opinion of a court, should be at least as perceptive and fair in weighing
the various points and counteriioints with reference to the amount of damages.
Notwithstanding the obligation of a court sitting without a jury to make tindings
of fact beyond a general verdict, it has been concluded here that detailed and
minute findings weighing and allocating portions of claims going to make up the
finding of the ultimate fact of damage would be a mechanical process which
would be unrealistic and of no more validity, if as much, as finding by fair
and reasonable approximation in the judgment of the court the total damages
which the court is convinced the plaintiffs have suffered us a direct and proxi-
mate result of the unlawful acts of the defendant. iStory Parchment Co. v.
Patterson Parchment Paper Co., 282 U.S. 5.i.5 (1931) : Agrashell, Inc. v. Ham-
mons Products Company, 479 F.2d 269 (Sth 'Cir. 1973) Continental Baking
Co. V. Old Homestead Bread Co., supra ; Locklin v. Day-Glo Color Corporation,
429 F.2d 873 (7th Cir. 1070), cert, denied, 400 U.S. 1020 (1971) ; DeVries v. Starr,
393 F.2d 9 (10th Cir. 19(58). See also Perkins v. Standard Oil Co.. 395 U.S. 642
(1969). Cf. Continental Ore Co. v. Union Carbide & Carbon Co., 370 U.S.
(1962) ; Autowest Inc. v. Peugeot, Inc., 434 F.2d 556 (2d Cir. 1970) : Flintkote
Company v. Lysfjord, 246 F.2d 36S (9th Cir.). cert, denied. 355 U.S. S3.". (1957) ;
Shannon v. Shaffer Oil & Refining C(-., 51 l'.2d 878 (10th Cir. J9.{1) ; Peter v.
Union Oil Company of California. 328 F. Supp. 998 (CD. Cal. 1971).

C40. I have endeavored to weigh and consider all of the circumstances as
shown by the evidence relating to the amount of plaintiffs' damages with the
object of fixing the amoimt determinable on the basis of a fair preponderance of
the evidence, and with the view of discounting any amount which could be
deemed speculative or a matter of sumiise, or properly deductible expense, but
fixing the maximum amount of damages which can be said without speculation
or conjecture to have been suffered by plaintiffs as a proximate result of
defendant's unlawful actions as herein found. I have sought to eliminate ad-
vantage on the part of tlie plaintiffs stemming from the speculative nature of
some of their proof and yet not to penalize them for uncertainties in the
proof stemming from the unlawful acts of the defendant.

C41. The court concliules within the perimeter of the proof that Telex and
Telex Computer Corporation have sustained damage to their business as a
proximate result of defendant's violations of Section 2 of the Sherman Act in the
total sum of $117,500,000, which amount must be trebled as required by law : and
the jdaintiffs are therefore entitled to judgment against IBM in the total amount
of .^352,500.000, plus reasonable attorneys" fees which the court shall determine
upon notice and hearing, and for their costs incurred in prosecuting this action.
It is believed and found that any greater amount, although supported by some
evidence, would be speculative and not supported by preponderant evidence
applying the rule of liberality enjoined by the authorities. Weighing all relevant
factors it is believed that any less amount would be contrary to the preponder-
ance of the evidence and accordingly also a miscarriage of justice.

G. Equitable antitrust relief

C42. Any person, firm, corporation or association shall be entitled to sue for
and have injunctive relief against threatened loss or damage by a violation
of the antitrust laws in harmony with established principels of equity. 15
U.S.C. § 26. Accordingly, it must i)e determined what equitable relief, if any.
should lie granted in favor of the plaintiffs and against the defendant for the
protection of plaintiffs' rights in the futiire and in reasonable enforcement of the
antitrust laws in the public interest. United States v. Grinnell Corporation, 384
U.S. .5()3 (1966). supra; Reynolds Metals Company v. F.T.C. 309 F.2d 223
(D.C. Cir. 1962). supra: United States v. Aluminum Co. of America, 148 F.2d
416 (2d Cir. 1945). supra; Zenith Radio v. Hazeltine, 395 U.S. 100, on remand,
418 F.2d 21 (7th Cir. 1969) rev'd on other grounds, 401 U.S. 321 (1971) ; Bed-



Di tO

ford Cut Stone Co. v. Journeyman Stone Cutters', Inc., 274 U.S. 37 (1927) ;
Swift & Company v. United States, 196 U.S. 375 (1905) ; United States v.
Oregon State Medical Soc., 343 U.S. 326 (1952) ; United States v. W. T. Grant
Co., 345 U.S. 629 (1953) ; Calnetics Corporation v. Volkswagen of America, Inc.,
353 F. Supp. 1219 (CD. Cal. 1973). Injunctive relief sliould not be utilized when
not essential for the protection of a litigant's rights or when it would be in-
jurious to the public interest by preventing technological developments or in
aid of further anticompetitive conduct, and the courts unitormally have re-
jected efforts of litigants to use the courts to create or enforce illegal agreements.
See Continental W. P. Co. v. Louis Voight & Sons Co., 212 U.S. 227 (1909) ;
Killv V. Kosuga. 35S U.S. 516, 520 (19.59) ; Winston Research Corp. v. Minne-
sota" Min. & Mfg. Co., 350 F.2d 134 (9th Cir. 1965) ; Kentucky Rural Elec.
Coop. Corp. v. Melouey Elec. Co., 2S2 F.2d 481. 482 (6th Cir. 1960), cert. <!niied.
865 U.S. 812 (1961) ; Ful-^'ue Sales Co. v. American Optical Co.. 118 F. Supp.
517 (S.D.N.Y. 19.53) : Fartienfabriken Bayer A. G. v. Sterling Drug, Inc.. 307
F.2d 207 Ckl Cir. 1962 ) . cert, denied, 372 U.S. 929 (1963) ; United States v. Colum-
bia Artists Management. Inc.. 1963 CCII Trade Cas. Ij 70,955 (S.D.N.Y. 1963).
Nor should the court unnecessarily involve itself in the task of the administration
of prices, product designs and technological applications or other functions
neither contemplated under the antitrust laws nor properly performed by the
judiciary. See Booth v. American Telephone and Telegraph Company, 253 F.2d
57. 5S (7th Cir. li)58) : Montana-Dakota Utilities Co. v. Northwestern Public
Service Co.. 3^1 U.S. 246 (1951) ; United States v. Pullman Co., 64 F. Supp. 108,
no (E.D. Pa. 1945), affUl per curiam, .3:',0 U.S. 806 (1947).

C43. Applying t!ie established principles of these oases to the facts found,
and in reasonable relief to the plaintiffs and protection to the public, the decree
htn-ein should contain the following equitable remedies on the plaintiffs' anti-
trust claims :

(a; The defendant should be permanently enjoined from enforcing or collect-
ing any contractually specified penalty payments which it otherwise might be
entitled to collect because of termination upon ninety days' notice of any
long term lease agreements heretofore entered into between 1MB and any of
its end-user customers, including but not limited to IBM Fixed Term Plan leases,
Extended Term Plan leases and Term Lease Plan leases. For a period of three
year^. from and after the date of this judgment it should be enjoined and
pmhibited from including in any lease agreement for electronic data processing
products for terms in excess of 90 days any provision requiring payment of ajiy
liquidated damages or penalty because of a customer's earlier termination of
.^•aid lease agreement.

(ill The defendant should be enjoined and required, at the time of a product
rtnii.,uncement concerning any peripheral EDP product, or at the time of release
for manufacturing or production, whichever first occurs, to publicly describe
and disclose the design of the electronic interface for such product essential
for connection to a CPU or its channel, in sufficient detail as* to render reasonably
feasible the reproduction of such interface by other qualified manufacturers;
and within 60 days from the entry of this judgment International Business
]\racliines Corporation should be ordered to .similarly describe and disclose the
details of the design of the electronic interface for each System 370 peripheral
EI 'I' product announced heretofore.

(CI The defendant should be enjoined and i)rohibited from single or "bundled"
pricin.g of memories with its System 370 central processing units, that is. from
charging a single price for both the central processing unit and the memory,
and within 60 days from the entry of the judgment lierein IBM shall separately
price its CI'U's and memories. This should not prohibit, restrict or enjoin IBM
from selecting the phy.-ical locations of its products so long as these requirements
and rho.se staled in the next succeeding paragraph are followed.

(d) The defendant should be enjoined and required to separately price its
functionally different products, including memories, tape products and their
controllers, disk products and their controllers, printer products and their
controllers and communication controllers regardless of whether it elects to place
such products in single cabinets or in multiple boxes or cabinets. International
Business Machines Corporation is further enjoined and required to set its prices
for all such functionally similar EDP products by using and applying a sub-
stantially uniform percentage markup over actual design, manufacturing and
marketing costs as between such integrated and separately boxed products.

(e) The defendant should be enjoined from adopting, implementing or carr.v-
ing out predatory pricing, leasing or other acts, practices or strategies with



5776

intent to obtain or maintain a monopoly in tlie market for EDP peripheral
equipment plug compatible to its> CPU's, or any relevant snbmarkets thereof.

(f) The court should decline to order either the public disclosure by IBM of
all i)lanned or anticipated product enhancements, or the divestiture of IBM's
holdings, for the reasons more fully developed in the findings, supra.

H. Tefexs' misappropriatioH. of trade secrets and confidential information — un-
fair competition

C44. In view of the programmed and massive invasion by Telex of IBM's
trade secrets already found, it is not deemed necessary here to analyze the law
of trade secrets in general or to discuss tine distinctions and qualifications of
which I have been mildful. See e.g.. Motorola, Inc. v. Fairchild Camera «& Instr.
Corp.. F. Supp. (D.C. Ariz.. March 13, 1973) : Sears, Roebuck & Co. v. Stiffel
Co., 376 U.S. 225 (1964) : Compco Corp. v. Day-Brite Lighting, 376 U.S. 234
(1964) : Sarkes Tarzian, Inc. v. Audio Device.s, Inc., 166 F. Supp. 250 (S.D.
Cal. 1958). aff'd, 283 F. 2d 695, cei-t. denied, 365 U.S. 869; A. O. Smith Corpo-
ration V. Petroleum Iron AVorks Co., 73 F. 2d 531 (6th Cir. 1934). The facts
here go beyond the mere termination of employment and the acceptance of
employment from a competitor : disclosures to employers of information acquired
during the course of pi-evious employment which was a matter of general
knowledge or information as it might be retained in memory ; the utilization
of skills, expertise and general technical and l)usiness information learned in
former employment: the employment of "key" employees of a former employer
to obtain skills and knowledge in the usual course of businesis ; the obtaining or
disclosure of data not confidential or which do not constitute trade secrets rea-
sonably protected by others; information disclosed by the product.'^ marketed;
the disclosure of information tliat could not be considered to have been "dis-
covered" ; the disclosure of information readily available from other sources ; or
matter.s which are generally known in the trade or readily discernible by those
skilled in the trade, and .such circumstances.

C45. The trade secrets or confidential information found here clearly fall
within the definition of fornuda, patterns, business plans, compilations of
information or technical knowledge which were u.sed in IBM's business, which
were important in that business, which were treated and .sought to be protected
as confidential to IBM for the purposes of its business, and which entitled IBM
for the purpo.ses of its business, and which entitled IBM legitimately, by i-ea-
son of its exceptional diligence, technology and discovery to obtain legitimate
competitive advantage over competitors not possessing such knowledge or in-
formation and not able, legitimately and within a rea.S'Onable time frame, to
obtain it otherwise. Telex obtained these trade .secrets from IBM by a massive
and pervasive program de.signed to induce the breach of known obligations of
IBM employees or former employees. That such information or part of it
could have been subsecpiently procured by Telex, given enough time and expense,
by independent investigation, research or experience, did not ji;stify Telex's
conduct. That sul)sequent to the invasion of IBM's trade secrets a portion of
tlie information in tlie cour.se of marketing of IBM products became available to
the public, including Telex, did not excu.s-e Telex's conduct in the first instance
nor insulate it from liability to both monetary and equitalile relief. See Restate-
ment of Torts S 757 ; Restatement of Agencies § 39.5. 21 Okla. Stat. Ann § 1730
(Supp. 1968) ; Bancroft Whitney Co. v. Glen. 64 Cal. 2d 327, 49 Cal Rptr. 825,
411 P.2d 921 (1966) ; By-Buk Co. v. Printed CeUophane Tape Co., 163 Cal. App.
157, 319 P.2d 247 (D. Ct. App. 2d Dist. 1958) ; Sperry Rand Corporation v.
Rothlein, 241 F. Sui)p. 549 (I). Conn. 1964) ; Restatement of Tort.s, §396; Re-



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 116 of 140)