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 118 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 118 of 140)
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cliiaes is further enjoined and required to set its prices for all such functionally
different EDP products by using or applying a substantially uniform percentage
markup over actual designing, manufacturing and marketing costs as between
such integrated and separately boxed products.

6. International Business Machines Corporation is enjoined from adapting, im-
plementing or carrying out predatory pricing, leasing or other acts, practices or
strategies with intent to obtain or maintain a monopoly in the market for EDP
peripheral e(iuii)ment plug compatible to its CPUs, or any relevant submarkets
thereof.

7. International Business Machines Corporation shall have and recover from
Telex Corporation and Telex Computer Products, Inc., the total sum of $21,913.-
776, made up as by the Conclusions of Law shown, together with costs and
attorneys' fees in connection with its copyright claim to be hereinafter fixed.

8. Telex Corporation and Telex Computer Products Incoi-porated are enjoined :

(a) To return to IBM all IBM documents and all Telex documents containing
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 employee for a period of two
years without approval from the court.

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

(dj To refrain from soliciting or using any IBM confidential or proprietary
information.

(ei To refrain from assigning any former IBM employee employed now or in
the future by Telex to the development or manufacture of products functionally
CQuivalent 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.

9. Except for the fixing of the amounts of attorneys' fees and costs to which
the respective parties are entitled, the court pursuant to Rule 54(b) Fed. R. Civ.
P. determines that there is no just cause for delay in the entry of this judgment,
-and the clerk is hereby directed to enter final judgment in accordance with the
foregoing forthwith on all issues except as to the amounts of the attorneys'
fees, which shall be covered by supplemental judgment, there being hereby
granted a stay of execution until the disposition of the post-trial motions herein-
after mentioned, or until the court otherwise orders.

10. For the purposes of fixing the amounts of said atterneys' fees, con.sidering
any motions filed within ten days of the entry of this judgment for correction of
the findings of fact, conclusions of law and judgment pursuant to Rule 60(a)
Fed. R. Civ. P., or to amend findings and judgment pursuant to Rule 52(b) Fed.
R. Civ. P., or to alter or amend judgment or for a new trial pursuant to Rule
59(a), (e). Fed. R. Civ. P., a hearing will be held at the United States
Courthouse, Tulsa, Oklahoma, on October 16, 1973, beginning at the hour
of 10 o'clock A.M.

Dated this 14th day of September, 1973.

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



[Filed Nov. 10. 1973]

In The United States District Court for the Northern District of Oklaho.ma

No. 72-C-18. No. 72-C-89 (Consolidated)

The Telex Corporation and Telex CoirpiiTER Products. Inc.. plaintiffs.

versus

International Business Machines Corporation, defendant.

amendments to findings of fact

The defendant having moved to correct, amend or alter the court's findings
of fact filed September 17, 1973, concerning damages and injunctive i-elief, and



5783

the court having reconsidered the record and having heard arguments and
deeming itself fully advised, it is hereby ordered that :

The following amendments to the court's findings of fact are liereby made and
entered and in all other respects the court's findings of fact as heretofore made
and entered shall remain in full force and effect.

Tlie title preceding finding 1 on page 1 is amended to read "Amended Findings
•of Fact and Conclusions of Law".

The first paragraph of finding F9 is amended by adding thereto the following :

On September IT, 1973, findings of fact, conclusions of law and judgment
and deci'ee were filed. On October 16-18, 1973, timely post-judgment motions
for correction and amendment thereof were argued to the court and
submitted for decision on supplemental Itriefs.

The second paragraph of finding F9 is amended to read as follows :

Tlie court, now deeming itself fully advised, makes tlie following amended
Findings of Fact in addition to the statement of the case and proceedings
set out above, and the miniite stipulated facts not set out. including but not
limited to the (i) Stipulation of Background Facts Concerning the Elec-
tronic Data Processing Industry, the Products, the Industry, the Parties
and the Issues, dated March 23, 1973, (ii) Stipulation of Fact No. 2. dated
April 12, l!t73. (iii) Stii)ulation of Fact No. 3, dated April 7, 1973, and (iv)
Defendant's Exhibit 1G62 (an exhibit compiling plaintiffs' admissions in-
troduced at trial), but incorporated herein by reference since there is no
contest with respect to them.

Finding F19 is amended by adding :

The products and systems formerly manufactured and marketed l)y RCA
and GE remain in the market and are now being maintained, serviced and
remarketed by Honeywell and Sperry Rand. As a result Honeywell and
Sperry Rand probably have been strengthened and their ability to compete
with IBM enhanced by their acquisition of the computer operations of
RCA and (JE.

Finding F21 is amended by adding after the fourth sentence the following
sentence :

During the late 1960"s a substantial (luantity of the initial leases relating
to the .$2.6 Itillion worth of IBM 360 computer equipment mentioned above
were expiring and during the late 1960"s and early 1970's leasing companies
were engaged in remarketing that EDI' equipment.

Finding F38 is amended by adding the following provision after the fourth
sentence :

For example, the IBM Merlin (3330) disk drive was believed by IBM to
be a critical factor to the competitive price/performance of the 370 sy.stem.s
135, 14.5, 1.")"), 158. 165 and 168. The 3330 was therefore announced iii June
of 1970 at a price/performance designed to make IBM more competitive
with both systems manufacturers and peripheral equipment manufacturers.
The Court finds that the dociunent entitled "Listing of Manufacturers of
Plug Compatible Products, The Products Offered and the Systems Manu-
facturers for Whose Systems the Products are Offered" (attached to "IBM's
Response to Some of Telex's Proposed Findings of Fact and Conclusions of
Law Relating to Telex's Antitrust Claims" dated June 15, 1973) is a sum-
mary of the details there stated.

Finding F67 is amended by adding following the chart on page 53, the
following :

The following four charts accurately reflect the information set forth. In
the following four charts the figures following "user owned" and -leasing
company" refer to devices initially manufactured by IBM. In the preceding
chart the devices listed under "IBM' include IBM manufactured devices
whether owned by IBM, owned by end-users or owned by leasing companies :



57S4

3D GENERATION 240X AND 2420 TYPE TAPE DRIVES FOR IBM SYSTEMS UNITS AND PERCENTAGE



December
1970



June 1971



December
1971



June 1972



Decenber
1973



240Xtype:

IBM owned 20.182(59.8) 18,045(55.4) 15.859(52.3) 10.771(43.6) 5,996(30)

Userowned 3,900(11.6) 4,057(12.4) 4,369(14.4) 4,656(18.8) 5.035(25)

Leasing company 5.554(16.5) 5.565(17.1) 5,405(17.8) 5,236(21.2) 4.911(25)

Peripheral company 4.088(12.1) 4,919(15.1) 4,705(15.5) 4,059(16.4) 3,602(18)

Total 33.724 32,587 30,338 24,722 19,544

2420 type: "

IBM owned. 6.744(94.1) 7,695(87.2) 7,319(82.0) 3,698(67.7) 1.290(43)

Userowned 304(4.2) 332(3.8) 344(3.9) 367(6.7) 384(13)

Leasing company 42(0.6) 46(0.5) 46(0.5) 38(0.7) 26(0)

Peripheral company 81(1.1) 749(8.5) 1,216(13.6) 1,351(24.9) 1,213(42)

Total 7,171 8,822 8,925 5,464 2,963

Total 240X-2420 type tapes:

IBM owned 26,926(65.8) 25.740(62.2) 23,718(59.0) 14,469(47.9) 7,286(32)

Userowned 4.204(10.3) 4.390(10.6) 4,713(12.0) 5,023(16.6) 5,419(24)

Leasing company 5.596(13.8) 5,611(13.5) 5,451(13.9) 5,274(17.5) 4,937(21)

Peripheral company 4.169(10.2) 5.668(13.7) 5,921(15.1) 5,420(18.0) 4,865(21)



Total 40,895 41,409 39 263 30 186


22 507






3420-TYPE TAPE DRIVES FOR IBM SYSTEMS UNITS AND PERCENTAGE


December December

1970 June 1971 1971 June 1972


December
1972



IBM owned

User owned-lBM

Leasing company-IBM.
Peripheral company...






2,937(95.7)


12,845(92.6)


20, 990(87. 4)


1(100)


124( 4.0)


320( 2.3)


881( 3.7)








13(0.1)


57( .2)





10( .3)


696( 5. 0)


2,057( 8.7)



Total .





1


3,071


13, 874


24, 015










3D GENERATION,


2311-2314-2319 TYPE DISK SPINDLES FOR IBM SYSTEMS UNITS AND PERCENTAGES






December
1970


June
1971


December
1971


June
1972


Decei


Tiber
1972



2311 Type:

IBM owned 10,712(51.4) 8,196(43.7) 6,464(38.0)

Userowned 3,426(16.5) 3,507(18.6) 3.662(21.5)

Leasing company.... 4,497(21.6) 4,499(24.0) 4,348(25.5)

Peripheral company 2,194(10.5) 2,569(13.7) 2,576(15.0)

Total. 20,829 18,771 17,050

2314-2319 Type:

IBM owned. 33,991(66.4) 32,552(58.6) 33.865(57.5)

Userowned 7,009(14.1) 7,709(13.9) 8,124(13.8)

Leasing company 7,051(14.2) 7,109(12.8) 7,135(12.1)

Peripheral company 2,639(5.3) 8,179(14.7) 9,826(16.6)

Total 49,690 55,549 58,950

Total 2311 and 2314/2319 type spindles:

IBM owned 43,703(62.0) 40,748(54.8) 40,329(53.1)

Userowned 10,435(14.8) 11,216(15.1) 11,786(15.5)

Leasing company 11,548(16.4) 11,608(15.6) 11,483(15.1)

Peripheral company 4,833(6.8) 10,748(14.5) 12,402(16.3)



5.343(33.5) 4,326(29.0)

3,838(24.1) 4,016(26.9)

4,200(26.3) 4,035(27.1)

2,572(16.1) 2,536(17.0)



15,953



14,913



30,656(53.3) 27,066(49.4)

8,493(14.7) 9,326(17.0)

7,018(12.2) 6,595(12.0)

11,395(19.8) 11,824(21.6)



57, 562



54,811



35,999(49.0) 31,392(45.0)

12,331(16.8) 13,342(19.1)

11,218(15.2) 10,630(15.1)

13,967(19.0) 14,360(20.6)



Total


70,519




74, 320


76, 000


73, 515


69, 724


3330-TYPE DISK SPINDLES FOR IBM SYSTEMS UNITS AND PERCENTAGE




December
1970


June 1971


December
1971


June 1972


December
1972


,BM owned

'User owned— IBM

Leasing company — IBM












2(100)




2,400(86.1)
374(13.4)
14( 0.5)



6,412(90.6)
606( 8.6)
56( 0.8)



11,518(90.5)

972( 7.6)

148( 1.2)

Ibi 0.7)


Peripheral company..




Total...







2


2,788


7.074


12, 723



5785

Finding F71 is amended by substituting the following for the last sentence .
This concern was intensified in January of 1{>70 when IBM learned that the
Bureau of the Budget intended to encourage federal agencies to use equiva-
lent lower cost peripheral equipment compatible with CPU's supplied by IBM
and by other systems manufacturers and suggested the utilization of stand-
ard interfaces.

Finding i^2 is amended by adding after the last sentence thereof the follow-
ing:

Product superiority was achieved by Telex because these products were first
delivered substantially later than the IBM products. The Telex 5314 and
the Telex 5328 which is the controller for the Telex 5314 were purchased
from Itel and were developed for Itel by a group of 12 former IBM per-
sonnel. The following table shows when IBM first announced and delivered
the products and when Telex first announced and delivered the products it
intended to replace the IBM product :

CHRONOLOGY OF PRODUCT INTRODUCTIONS



Telex product



Telex

announcement

date



Telex

1st customer

shipment



IBM product



IBM

announcement

date



IBM

1st customer

shipment



4700 tape drive

4800 tape drive

5311 disk drive

5314 disk drive and

controller.
•S420 (model 7)

tape drive.
5420 (model 5)

tape drive.
6420/6803 tape
drive and con-
troller.
5403/5821 printer
and controller.



6360 memory

6330/6830 disk
drive and con-
troller.
6345 memory



May 1966 August 1966...

July 1967 March 1968

May 1969. _ August 1969....

do April 1970



6721 printer system.



May 1970 December 1970.

August 1970 February 1971.

December 1970.. November 1971.

November 1970. August 1971...



November 1971. November 1972.
do October 1972...



do Not yet

delivered.
August 1972 do



729 tape drive

2401 tape drive

2311 disk drive

2314 disk drive and

controller.
2420 (model 7)

tape drive.
242C (model 5)

tape drive.
3420/3803 tape

drive and con-

trller.
1403N1/2821

printer and con-
troller.

3360 memory.

333/3830 disk

drive and con-

troler.
3345 memory



January 1957.
April 1964....

do

April 1965....



January 1968...
December 1968.
November 1970.



August 1958.
May 1965.
February 1965.
March 1S67.

December 1S68.

October 1969.

September 1971.



April 1964 June 1965.



June 1970.
do....



1403N1/'2821
(model 2) printer
and controller.



September 1970.
April 1964



February 1971.
August 1971.



November 19/3.
June 1S65.



Finding F88 is amended to add after the last sentence thereof the following:
In view of the fact that most of IBM's systems manufacturer leasing com-
pany and peripheral equipment manufacturer comijetitors were offering long
term leases by the Spring of 1971 (Finding F1(M)), IBM expected to, and was
likely to, continue to lose substantial systems and peripheral business unless
some plan was adopted.

^Following finding F89, the court makes as finding F89a, the following :

F89a. In 1970 and 1971 IBM experienced the effects of a nationwide re-
cession combined with inflation, which caused a substantial increase in the
level of returns and discontinuances of its EDP equipment including periph-
eral equipment. IBM at that time offered equipment only on short-term leases
or for sale; its rental customers could effectively return their equipment to
IBM on 30 days' notice. As a result of the economy, many of IBM's rental
customers took advantage of this privilege and returned a significant amount
of equipment to IBM. IBM's experience was not shared by its leasing com-
pany, systems manufacturer or peripheral equipment manufacturer competi-
tors, since their equipment was generally leased for terms of one, two or more
years, with termination charges or other ci«ts in the event of cancellation.
Another factor affecting IBM's business in this period was the increasingly
lower rental prices charged by leasing companies and peripheral equipment
manufacturers for equipment similar to IBM's. As a consequence of these
factors. IBM's sales force in 1970 achieved only 50% of its selling objective.
In 1971. IBM experienced tlie worst sales record year in its history for EDP
equipment.

Finding F95 is amended by substituting the word "some" for the word "many"
in the -last sentence thereof.



57S6.

Following finding F95 the court makes as finding F95a, the following :

F95a. Between 1968 and 1972, Telex had a number of products which com-
peted with IBM products. There were many price changes and price varia-
tions during this period. All of those Telex products were at all points in time
listed at lower prices than comparable IBM products except on four isolated
occasions. Telex's prices were generally higher than the prices of other plug
compatible manufacturers. In addition, Telex and the other plug-compatible
manufacturers generally reduced below list the prices they actually charged
through various forms of price concessions.
Finding F96 is .-mended to add in the nintli sentence in place of the words-
". . . 28.7% of the plug compatible disk market . . .", the following :
28.7% of the 2311/2319 plug-compatible disk installations,
48% of the 3330 plug-compatible disk installations,
and the remainder of the sentence should remain as it now is. , r • •

Finding F97 is amended by substituting tlie term •■3UU" for the term "SoO im
the second sentence thereof.

Finding FlOO is amended by adding at the end of the fourth sentence thereot
the following phrase :

with cancellation penalty clauses or with no cancellation option at all.
Finding F106 is amended by substituting the word -Mallard" for the word.
"Merlin" in the fourth sentence thereof.

Following finding Fill, the court makes as Finding Fllla the following:

Fllla. There was no evidence that IBM reduced prices below cost and a
reasonable profit. Indeed, when announced the profitability of the 2319 disk,
storage units, the 370/158 and 168 CPIT-s and CPU memory elements were
anticipated to he in excess of 20%. Likewise, at the announcement of FTP
it was anticipated that the profitability of the products to which it applied;
would be at least 20%. Those profit margins in part, of course, would have-
been achieved by obtaining leases of products which would have otherwise
been made by Telex and other PCM's. Those price reductions are found to-
be predatory. , ., , . ,
The fifth sentence of finding F116 is amended to replace the phrase . . . pui)-
licity over IBM's accounting methods . . ." with the phrase ". . . publicity over
Telex's accounting methods .. ."

Finding F121 is amended by changing the period at the end thereof to a comma-
and by adding "subject to the adjustments made in _F124 with respect to the
net antitrust damages to be awarded in favor of Telex."
Finding F122 is amended by adding at the end thereof :

Tliese findings are subject to the adjustments made in F124 with respect
to the net antitrust damage to be awarded in favor of Telex.
Finding F123 is amended to add at the end of that paragraph the following :
These findings are subject to the adjustments made in F124 with respect to
the net antitrust damage to be awarded in favor of Telex.
Finding F124 is amended to read as follows :

F124 Accordingly the court finds that as a proximate result of IBM s unlawful
acts and conduct "the plaintiffs have suffered actual damages totaling $117.5-
million, sul)ject to the following adjustments: (a) An adjustment of $6 million
representing by fair approximation the corrective or diminishing effect of the
injunctive relief gi-anted against IBM upon the damages that would be otherwise
recoverable.* (b) unjust enrichment and damage items included in the judgment
against Telex on IBM's first counterclaim for trade secret violation in the sum
of $17.5 million which represents the best available quantification of the com-

*Plaintiffs contend in effect that any such offset woulcl he speculative ; that lost place-
ments because of IBM's unlawful actions cannot be retrieved ; that the curative effect
of itricing provisions as to past impact are minimal -within the period of allowed damages ;
th-it the iniuuctive relief does not restore the predatory price cuts, withdraw the prior
^'ffect of the FTP lockout nor negate their continuing effect to a measurable extent ;
that the already protracted delay in progressively building up its projected and formerly
realistic market share as a result of IBM's suppression cannot now be made yip : that
the prohibition of future unlawful manipulation of prices or such lockout cannot reverse
the effect of the past actions in view of lead time, and building, nianutactiiriug hnancing
and other problems attributable to IBM's conduct and already effective, and that the results
of the iniunction, as important as they may be, will be large long range relating to
future products not vet marketed by either IBM or Telex. The court already has limited
the effect of plaintiffs' future market projections in determining damages to turther
minimize the bearing of the injunctive relief upon damages awarded. Yet upon coii-;!.!"i-.-i-
1 1.111 vL the post-judgment motions I have found that that there will be an apprec r.inie
effect by the injunctive relief in reudction of actual damages otherwise recoverable, as^
aliove determined.



I



57S7

petitive advanlage uukiwfully obtained by Telex in establishing the market posi-
tion upon the basis of which antitrust damages were in part determined by the
court and which should be deducted from otherwise allowable antitrust damages
before trebling; and (c) the additional sum of $7.5 million representing liy fair
approximation additional unlawful competitive advantage secured by Telex
through misappropriation of IBM trade secrets, this being a judgmatical factor
not quantified in the direct proof or findings on the trade secret counterclaim but
not otherwise taken into account in my determination of actual antitrust dam-
ages. Accordingly, after deducting these factors and in view of all of the other
circumstances heretofore considered by the court as reasonably bearing upon
plaintiffs' damages, it is found that $86.5 million represents a fair and reasonable
approximation of plaintiffs' actual antitrust damage proximately caused by the
unlawful conduct of defendant as herein found.

Findings F126, F127, F128, F129. F130, are amended to read as follows:
F126. IHM should be enjoined for a period of three years from the date of
this judgment from entering into or enforcing any contractually specified
termination charges or liquidated damages which it otherwise might be eii'
titled to collect because of tei*mination of any long term lease agreement
entered into between IBM and any of its end-user customers, Avith respect
to IBM EDP peripheral prcKlucts that are cable connected to any IBil CPU
or its channel.

F127. IBM should be enjoined and required in good faith to make available,
on request, at the time of first customer shipment of an IBM CPU or its
channel, information describing the design of the electronic interface for
such product (including the details necessary to describe the characteristics,
timing and sequencing of all signals to be interchanged, together with the
function of such signals and the expected response to such signals trans-
ferred at the interface between such IBil CPU or its channel and the EDP
peripheral products cable connected to it) and. in the event that a sub-
sequently shipped IBM EDP peripheral product changes that interface. IBM
should be required to make changes in the above information available at
the time such product is shipped.*

F128. IBM should be enjoin'-d and required to continue to price separately
those System 370 memories v.hich are not a single product with the central
processing unit.**

F129. IBM should be enjoined and required to price separately its sep-
arate EDP products, including l)ut not limited to CPU's, memories I as set
forth in paragraph F128), tape products and their controllers, disk products
and their controllers, printer products and their controllers and communica-
tion controllei'S.

F130. Where it offers a separate EDP peripheral product cable connected
to an IBM CPU or channel in a separate box and a substantially equivalent
version made fi'om substantially common parts integrated into another-
protluct. IBM should be enjoined and required to continue to price the-
integrated version separately from the product into which it is integrated,
and should be further enjoined and required to make a good faith effort to.
set its prices for both such versions with a substantially equivalent profit
objective, and with cost and profit objectives being measured on an equivalent
basis.
There is hereby added immediately following paragraph F130 as so amended,
the following :

F130a. Neither paragraph F12S, F129 nor F130 hereof is intended to re-
quire the separate pricing of anything which would not be regarded as a
separate product pursuant to Section 3 of the Clayton Act and provided fur-
ther in this connection that the court does not intend to inhibit technological
changes which may alter the definition of what today may be a .separate
product.

F130b. IBM should be enjoined from adopting, implementing or carrying
out predatory pricing, leasing or other acts, practices or strategies with



*Thp parties and the Court shall use, as an aid in construction of this provision, the
IBM IManual GA 22-6794-1 : IBM System/360 and System/370 I/O Interface Channel to.
Control Unit Original Equipment Manufacturers' Infofmatlon.

**See Findings 110, 111 and Conclusion 31.



5788

intent to obtain or maintain an illegal monopoly in a relevant market for
EDP peripheral equipment plug compatible to its CPU's, or any relevant
submarkets thereof, in violation of Section 2 of the Sherman Act.

F130c. The foregoing injunctions are intended to be effective only within



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 118 of 140)