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

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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 117 of 140)
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statement of Agency §312 ; Ferroline C<n-p. v. General Aniline & Film Corp.,
207 F.2d 912 (7th Cir. 19.53). rrrt. denied. 347 ILS. 953 (1954) ; Atlantic Wool
Combing Co. v. Norfolk Mills, Inc., 357 F.2d 866 (1st Cir. 1966) ; A. H. Emery
Co. v. Marcan Products Corporation. 389 F.2d 11 (2(1 Cir.). cert, denied, 393
IT.S. 835 (1968) ; Hulsenl)ush v. Davidson Rubber Company. 344 F.2d 730 (8th
Cir. 1965), rert. denied. 283 U.S. 977; Englehard Industries, Inc. v. Research
Instrumental Corpor., 324 F.2d 347 (9th (Mr. 19(53), e<rt. denied. 377 U.S. 923
(1964); Midland-Ross Corporation x. Yokana, 293 F.2d 411 (3d Cir. 1961):
Schreyer v. Casco I'roducts Corp., 190 F.2d 921 (2d Cir. 1951). cert, denied. 342
U.S. 913 (1952) ; Shellmar Products Co. v. Allen-Qualley Co.. 87 F.2d 104 ( 7tli
Cir.), rert. denied. 301 U.S. 695 (1937) : Standard Brands Inc. v. U.S. Partition &
Packaging Corp., 199 F. Supp. 1(>1 ' E. 1). Wise 1961); Sperry Rand Corpora-
tion V A-T-O, Inc., 557 F.2d 13S7 (4th Cir. 1971), cert, denied, 405 U.S. 1017

on /

(1072) : Monsanto Chemical Co. v. Miller, IIS TLS.P.Q. 74 (D.C. Utah lOoS) ;
Duhnqne Products Inc. v. Lemco Corporation 227 F. Supi). lOS (D. ITtah 196;^).

C46. On the basis of the facts found from the record, it is concluded that
Telex knowingly induced Mr. James to breach his fiduciary obligations to IBM
and willfully niisaiJi)roi)riated IBM's trade secrets concerning the planning of
future products, to IBM's substantial damage.

C47. The court concludes that Telex knowingly and deliberately misappropri-
ated IBM trade secrets in the design of the Aspen products and used those
secrets in marketing its (5420/6803 tape products to IBM's substantial damage
and in unjust enrichment to Telex. IBM was injured by Telex's misappropria-
tion of the Aspen trade secret in an amount to be reasonably approximated in
relationship to IBM's investment in the Aspen research and by the rental reve-
nues which IBM would likely have enjoyed but for the early marketing of Telex's
0420/6S03 products.

C48. The court concludes that Telex has knowingly sought, obtained and used
confidential trade secret information relating to IBM's Merlin and FRIBND-2
program as a conscious part of a recruitment effort directed to IBM employees
l)ossessing or having access to that information. Telex recruited and hired
these IBM employees at least in part for the trade secrets they had or knew.
After their employment Telex disregarded the prior agreements between these
employees and IBM and used these trade secrets and the proprietary FRIEND-2
program and source code in the development of Telex's Merlin controller, and
otlierwise, to IBM's substantial damage and Telex's unjust enrichment.

C49. The court further concludes on the basis of the facts found in the record
that Telex has engaged in a continuing course of activity calculated to induce
the disclosure by IBM employees of IBM confidential information in breach of
their fiduciary obligations to IBM so that Telex can misappropriate such infor-
mation to its own use and benefit. The cotirt here deals not with isolated instances
of misappropriation by Telex, nor are \\e concerned merely with the recruit-
ment by Telex of persons knowledgeable in the design and manufacture of
electronic data processing equipment for the primary purpose of developing
competitive equipment. We have been confronted here by a widespread, pur-
poseful effort of Telex to secure confidential technical information concerning
the design of products which were then unannottnced, for the purpose of dupli-
cating sttch equipment through use of such confidential information. Telex's
pattern of recruitment, job assignment, production growth and compensation
arrangements, were so designed as to lead inevitably to the misappropriation
of IBil's confidential information. Telex's past pattern of conduct makes it
apparent that such misappropriation will contintte tuiless the court provides
protection commensurate with the threat posed by Telex's deliberate and con-
tinuing course of improper behavior with respect to the invasion of IBM's
trade secret and confidential information.

C50. The court further concludes that IBM's counterclaim relating to un-
fair competition and the misappropriation of trade secrets and confidential
information is not barred by the statute of limitations. The parties agree that
the court should look to the conflicts law of Oklahoma to determine the appli-
cable statute of limitations, although Telex at one time suggested that it
might be appropriate to invoke the substantive law of another state. It is con-
cluded that the Oklahoma statute of limitations law ought to be applied since
the counterclaim asserted by IBM arose within the State of Oklahoma. Telex's
misappropriation of IBM confidential material was centered in Tulsa. The
decisions reached in the course of Telex's practice were made and largely
implemented in Tulsa. Almost all the hired IBM engineers were entertained
in Tulsa, were offered bonuses in Tulsa, and those that went to Telex signed
contracts in Tulsa. The Telex copy of the Aspen products, S6803/6420 tape
subsystem, was manufactured in and marketed from Tulsa and the court con-
cludes that these claims arose in the State of Oklahoma. There is no reason to
suppose that the result would be different had they arisen within the State
of California.

C51. IBM asked the court to conclude that under Oklahoma law the counter-
claim is "connected with tlie subject of the action within the meaning of
Section 273 of Title 12 of Oklahoma Statutes Ann. 1960, and thus cannot be
barred unless the complaint is barred, citing Mever 1. Vance, 406 P.2d 996
(Okla. 1965) ; Perrault v. Holland, 360 P.2d 240 (Okla. 1961) ; Gooldy v. J. B.
Klein Iron & Foundry Co., 170 Okla. 466, 40 P.2d 1070 (1935) ; Guv Harris
Buick Co. v. Bryant, 108 Okla. 117, 233 Pac. 752 (1925). It is true as contended
that the primary claims and counterclaims are intertwined to an extent and


the trial has disclosed that the evidence to a degree was interrelated. This was
among the reasons leading me to deny plaintiljCs' motion for severance of the
counterclaim. Because this is a federal case, the counterclaim is brought pur-
suant to Rule 13(a) Fed. R. Civ. P., rather than 12 Okla. Stat. Ann. §273
(1U60). Nevertheless, even though no Oklahoma case closely in point has been
found, it seems likely that the Oklahoma courts, on facts similar to tho.se here,
would And the cotmterclaim permissible under § 273, and therefore subject to
the same limitation period as the plaintiffs' cause of action. In any event,
I am of the opinion that IBM's misappropriation counterclaim is not time barred
also because it involves a continuing wrongful course of action pursued to
within two years of the tiling of the counterclaim — the shortest limitations
period contended for by Telex and applicable to tort claims in general. 12 Okla.
Stat. Ann. § 95. There is force to the contention of IBM that its counterclaim
comes under the Oklahoma three-year statute of limitations because the IBM
claim lies in unjust enrichment.

The Oklahoma stature provides a three year limitation to causes of action
arising out of "express or implied contracts not in writing." 12 Okla. Stat. Ann.
§95 (1960). See Bidleman v. National Feeders Service. 2'o8 F. Supp. 904 ( W. D.
Okla. 1967) ; Koehring Company v. National Automatic Tool Co., 257 F. Supp. 282
(S.D. Ind. 1966), aff'd per curiam, 385 F.2d 414 (7th Cir. 1967). From another
viewpoint, the gist of the claim is the use of the trade secrets, not necessarily
their acquisition, and in this sense the statute would not commence to run prior
to any such ttse and, with the period renewed by its continuance. See Under-
water Storage, Inc. v. United States Rubber Co.. 371 F. 2a 950 (D.C. Cir. 1966),
cert, denied, 386 U.S. 911 (1967) ; Koehring Co. v. National Automatic Tool
Co., supra. But compare Monolith Portland Midwest Co. v. Kaiser Aluminum &
Chemical Corp., 407 F.2d 288 (9th Cir. 1969) : Shatterproof Glass Corp. v. Guard-
ian Glass Co. 322 F. supp. 984 (E.D. Mich. 1970), affd, 402 F.2d 1115 (6th Cir.
cert, denied, 409 U.S. 1039 (1972). Telex continued to seek and did obtain IBM
business planning information after Jantiary, 1971. Gruver continued to use
IBM trade secrets in the design of the Telex 6803 control unit after January,
1971, and Telex shipped its first unit in November. 1971. After January. 1971,
Clemens and his IBM recruits continued to make use of IBM trade secrets in
attempting to construct the Merlin control tmit and Telex u.sed these secrets
to induce prospective buyers. After January, 1971, Telex continued to use the
IBM FRIEND program and sold the FRIEND source deck to CDC. Since Janu-
ary, 1971, Telex has attempted to interest other manufacturers in the then un-
announced IBM products named Winchester, Midas, Birch, Apollo and Ice-

C52. Moreover, the Oklahoma statute and the ca.ses make it abundantly clear
that fraudulent concealment by a wrongdoer of the injured party's cause of ac-
tion will toll the statute of limitations until the injured party is placed on
reasonable notice of the wrong. See 12 Okla. Stat. Ann. §95) (1960) : Morris
V. Wise. 293 P2d 547, 55 A.L.R. 2d 1033 (Okla. 1955) : Moses v. Miller, 202 Okla.
605, 216 P.2d 979 (19.50) : Waugh v. Guthrie Gas. Light, Fuel & Improvement
Co., 37 Okla. 239, 131 Pac. 174, LRA 1917B 1253 (1913). See also Murray r.
Teape, 260 P.2d 727 (Okla. 1953) ; Holmes v. McKay. 383 P.2d 655 (Okla. 1962).

No evidence has been called to my attention to suggest that IBM learned,
or should have learned, of the misappropriation more than two years prior to the
filing of its counterclaim, and the preponderance of the evidence indicates that
up to two years prior to that filing IBM was justified in assuming that there
was no utilization of its trade secrets of the nature here found. In addition,
IBM's discovery of the misappropriation was no doubt delayed by Telex's at-
tempted concealment of the facts from IBM. IBM was led by Telex and the ex-
IBM engineers to believe that these employees were honoring their obligations
to IBM and refraining from utilizing IBM confidential information and tliat
Telex has ceased recruiting IBM engineers. Up to the very time of the trial Telex
and variotis of its employees formerly working for IBM have insisted that no
confidential information was used: and only upon full inquiry at the trial did
it appear clear that such protestations i^ould not be accepted. Al>srnt sinli seavch-
ing inquiry in open court and the discovery made by IBM following tlie filing
of the complaint by Telex, it .seems pos.sible that IBM could yet be ignorant of
the extent, or even the existence, of the actionable misappropriation. Under all
these circumstances the court rules that IBM's said counterclaim is not barred
bv anv statute of limitations. See Wills v. Black and West. 344 P.2d 581 ( Okla.
1959)"; Kansas City Life Ins. Co. v. Nipper, 174 Okla. 634, 51 P.2d 741 (1935) ;:


McClenahau v. Oklahoma R. Co., 131 Okla. 73. Tac. 657 (1928) ; Waiigli v. Guthrie
Gas, Light, Fuel and Improvement Co. 37 Okla. 239, 131 Pac. 174, LEA 1917 B
1253. Cf. Public Service Co. of New Mexico v. General Electric Co., 315 F.2cl 306
(10th Cir.), cert, denied, 374 U.S. 809 (1963).

I. Coticl virions covccrninf) infrhigcmcnt of copijrirjhf material

C53. IBM claims that its cop.vrights in six copyrighted publications have been
infringed in one or more of a total of twelve Telex manuals or publications. The
IBM publications relate to and are marketed for the use of IBM customers and
IBM maintenance personnel in connection with several different IBM products.
A valid certificate of cop.vright was issued by the Registrar of Copyrights in
respect of each of the publications involved and each is therefore entitled to
prima facie presumption of authorship, originality, copyrightability and com-
pliance with statutory copyright formalities. Tennessee Fabricating Co. v. Moul-
trie Mfg. Co., 421 F. 2d 279 (5th Cir.), cert, denied, 398 U.S. 928 (1970) ; Flick-
Reedy Corp. V. Hydro-Line Mfg. Co., 351 F.2d 546 (7th Cir.), cert, denied, 383
U.S. 958 (1970) : Drop Dead Co. v. S. C. Johnson & Son. Inc., 326 F. 2d 87 (9th
Cir, 1963), cert, denied, 377 U.S. 907 (1964) ; Ilarcourt. Brace and World. Inc.
v. Graphic Controls Corps., 329 F. Supp. 517 (S.D.N.Y. 1971). Telex has offered
no evidence to overcome this presumption. Telex admits that it is guilty of the
infringement alleged in Count 1. Each of the Telex publications complained
of in the remaining counts of the counterclaim likewise contain portions identi-
cal or virtually identical to poi'tions of the other five IBM manuals.

Telex has offered no explanation for these substantial identities. The similari-
ties are such that this court would be hard pres.sed to find any reasonable ex-
planation other than deliberate copying. Telex asserts by way of defense that
simple directions dictated by functional considerations, even if original, do not
contain sufficient intellectual labor to constitute writing, and that apart from
the particular tangible form and manner of their composition or pre.sentation.
ideas, methods and systems are not proper subjects of copyright and are not
protected from appropriation by others. I do not fiuestion these general jimp-
ositions but the authorities cited by plaintiffs to sustain them readily deni'in-
strate that they are not in point. E. II. Tate Co. v. Jiffy Enterprises, Inc., 16
F.R.D. 571 (E.D. Pa. 1954) for example involved small sketches by the alleged
infringer and a legend "apply to wall". Two of the cited authorities, Guthrie v.
Curlett, 36 F.2nd 694 (2d Cir. 1929), and Gordon v. Weir. Ill F. Supp. 117 (E.D.
Mich. 1953). seem to full.v support defendant's position. Eisenschiml v. Fawcett
Publications, 246 F.2d 598 (7th Cir. 1957), and Morrissey v. Proctor & Gamble
Co., 379 F.2d 675 (1st Cir. 1967), appear more nearly in point and teach respec-
tively that de minimis copying and availability of only limited number of forms
of expression in giving directions for a box top content may justify a decison of
noninfringement. Grume v. Pacific Mut. Life Ins. Co.. 1-10 F.2d 1S2 (7th Cir. 1944 ).
which on the surface may appear in point to a degree, clearly draws the distinc-
tion when it notes : "The description of the art in a book, tliough entitled to a
benefit of copyright, lays no foundation for an exclusive claim to the art itself.
The object of the one is explanation ; the object of the other is use. The former
may be secured by copyright. The latter can only be secured, if it can be secured
at all, by letters patent."

C54. Certain Telex manuals relate to the Itel/ISS-made 5314 disk drive sub-
.system and on their face purport to be Itel/ISS publications. Assuming that the
actual copying was performed by Itel/ISS, that fact does not immunize Telex
against the claim of infringement under the circumstances of this case. These
manuals are used to facilitate maintenance, preventive maintenance and opera-
tion of the Telex 5314 : Telex has the exclusive marketing rights for rhe 5314
and provides service as part of its marketing of that device. Telex's interest and
participation in the distribution of these manuals are sncli that Telex is clenvly
a related or contributory infringer and jointly and severally liable with Itel/ISS
for the copving of the IBM manuals. Buck v. Jewell-La Salle Realtv Co.. 283 U.S.
191 (1931) : Shapiro, Bernstein & Co. v. H. L. Green Co.. 316 F.2d 304 (2d Cir.
1963: Bradbury v. Columbia Broadcasting S.vstem. Inc.. 287 F.2d 478 (9th <'ir. i,
cert, dismissed. 368 T\S. 801 (1971) : Screen Gems-Columbia Music Inc. v. Mark-
Fi Records. Inc.. 327 F. Supp. 788 (S.D.N.Y. 1971). rev'd on other qrounds. 453
F.2d 552 (2d Cir. 1971) ; Davis v. E. I. Du Pont De Nemours, 240 F. Supp. 612
(S.D.N.Y. 1965).

C55. The fact that some pages of infringing Telex manuals do not contain in-
fringing material copied from an IBM manual does not exonerate Telex for the
portion which is infringed, for the presence of original elements in the copied


matter does not relieve the infringer of liability if the infringed material is sub-
stantial. Davis V. E. I. Du Pont De Nemours, siifira. The exact proportion of the
copied material to the total volume of the work is immaterial, and it is sufficient
if a material and substantial part shall have been copied even though it be a
small part of the whole. See Henry Holt <& Co. v. Liggett & Mvers Tobacco Co.,
23 F. Supp. 302 (E.D. Pa. 1938).

Co6. The docti'ine of "fair use" clearly is inapplicable to the facts of this case.
That doctrine permits limited use of material protected by statutory copyright,
such as in book reviews, newspapers or scientific journals, in order more fully
to promote the ultimate goals of copyright laws. Telex's use of the materials
copied from IBM materials evidence only a purpose to appropriate IBM's
creative efforts for Telex's own profit, precluding application of the "fair use"
doctrine. Tennessee Fabricating Co. v. Moultrie Mfg. Co., 421 F.2d 279 (5th Cir.),
Cert denied, 398 U.S. 928 (1970), supra

C57. The court concludes that each of the twelve Telex manuals constitutes
an infringement of IBM's copyright in one or more IBM manuals. As a result
of Telex's infringement, IBM is entitled to an injunction against continuing
infringement. 17 U.S.C. § 101(b) (1947). IBM is also entitled to statutory dam-
ages under the Copyright Act, 17 U.S.C. § 101 (b), in the amount of $250 for each
infringement and $1 for each additional infringing copy. Since two of the Telex
manuals each infringed two IBM manuals, publication of the twelve manuals
constitutes fourteen separate infringements of the six IBM manuals. U .A.
Westermann Co. v. Dispatch Printing Co., 249 U.S. 100 (1919) : Bacarro v. Pisa,
252 F. Supp. 900 ( S.D.N. Y. 1966) ; Harry Alter Co. v. A. E Borden Co.. 121 F.
Supp. 941 (D. Mass. 1954). The Telex manuals are utilized and distributed b.v
Telex in connection with the marketing of the various Telex devices to which
they relate. Calculation of the statutory damages on the basis of the number
of units shipped of each device I'elating to each infringement by each Telex
manual results in a total of $13,776. In addition IBM is entitled to the destruc-
tion of all copies of the infringing Telex manuals insofar as still under the
control of Telex, 17 U.S.C. § 101(d), and reasonable costs and attorneys' fees. 17
U.S.C. § 116,

./. Remedial provisions under counterclaim

CSS. Accordingly, the court concludes that IBM is entitled to an injunction
ordering Telex :

(a) To return to IBM all IBM documents and all Telex documents contain-
ing IBM confidential information which are in Telex's custody or under its
control, and to destroy all copies of Telex manuals under its control or in its
custody which infringe IBM copyrighted manuals.

(b) To refrain from hiring or soliciting any IBM employe for a period of two
years without approval f i*om the court.

(c) To refrain from copying any IBM copyrighted materials.

(d) To refrain from soliciting or using any IBM confidential or proprietary

(e) To refrain from assigning any former IBM employee employed now or in
the future by Telex to the development or manufacture of pi-oducts fiinctionally
equivalent or similar to those on which such employee worked at IBM for a
period of not less than two years following the termination of his employment
with IBM.

C59. Tlie court further concludes that IBM is entitled to damages in the fol-
lowing amounts on its counterclaims :

(a) Statutory damages for copyright violation in the amount of $13,776.

(b) $4.5 million for losses through December of 1972 in monthly rentals of
3803 and 3420 units as a result of the acclerated shipments of Telex 6803 and
6420 replacement units which were made possible by the misappropriation of
IBM's trade secrets.

(c) $13 million in damages, as in the findings more particularly indicated,
measured by the additional advantages secured by Telex in the development of
its Aspen and Merlin type products through misappropriation of the defendant's
trade secrets.

(d) $3 million for the costs of increased security in 1971 and 1972.

(e) $400,000 for the additional cost of manufacturing the IBM Merlin head
arm within IBM.

C60. In light of the willful, deliberate and pervasive nature of Telex's unlaw-
ful conduct, the court further concludes that IBM is entitled to punitive damages
in the amount of $1 million.


K. Conclusion

C61. In sum, under the facts and the law of the case it has been concluded that
plaintiffs' complaint has required vindication in the manner provided above in
justice to them and in aid of proper competition ; that defendant's counterclaims
similarly have required vindication in justice to it and in discouragemet of
improper competition.
Dated this 14th day of September, 1973.

A. Sherman Christensen,
Senior U.S. District Judge {Assigned).

In the United States District Court for the Northern District of Oklahoma

No. 72-ClS, No. 72-C-89 (Consolidated)

The Teles Corporation and Telex Computer Products, Inc., plaintiffs


Inteenational Business Machines Corporation, defendant.

Judgment and Decree

The issues having been duly tried to the court, findings of fact having been
made, and conclusions of law having been entered ; now, according, it is hereby
ordered, adjudged and decreed :

1. That plaintiffs, The Telex Corporation and Telex Computer Products. Inc.,
have and recover judgment of and from the defendant International Business
^Machine Corporation in the sum of $352.5 million, after they found actual dam-
ages have been trebled as required by law, together with costs and attorneys'
fees, the amount of such attorneys' fees to be reserved for future determination.

2. International Business Machines Corporation is hereby permanently en-
joined from enforcing or collecting any contractually specified penalty pay-
ments 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 IBM and any of its and-user customers, including but not limited
to IBM's Term Plan leases, Extended Term Plan leases and Terra Lease Plan
leases. For a period of three years from and after the data of this judgment
International Business Machines Corporation is enjoined and prohibited from
including in any lease agreement for electronic data processing products for
terms in excess of 90 days any provision requiring payment of any liquidated
damages or penalty because of the customer's earlier termination of said lease

3. At the time of a product announcement concerning any EDP product, or
at the time of release of such product for manufacturing and production,
whichever first occurs, International Business Machines Corporation is en-
joined and required to publicly describe and disclose the design of the electronics
interface for such product in sufficient detail as to make feasible the reproduction
of such interface by other qualified manufacturers ; and within 60 days from
the entry of this judgment. International Business Machines Corporation shall
similarly describe and disclose the details of the design of the electronic
Interface for each System 370 EDP peripheral product that it has announced

4. International Business Machines Corporation is enjoined and prohibited
from single or "bundled" pricing of IBM memories with its System 370 central
processing units, that is, from charging a single price for both the central proc-
essing unit and the memory, and within 60 days IBM shall separately price its
CPU's and memories. This does not prohibit, restrict or enjoin International
Business Machines Corporation from selecting any particular physical locations
or packaging of its products so long as these requirements and those stated in
the next succeeding paragraph are followed.

5. International Business Machines Corporation is enjoined and required to
separately price its functionally different products, including but not limited to
central processing units (CPU's), 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


ill siugle cabinets or in multiple boxes or cabinets. International Business Ma-

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 117 of 140)