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 119 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 119 of 140)
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the United States. They and any changes, modifications or amendments
thereof, should be enforced, construed or considered only upon motion duly
made by The Telex Corporation, Telex Computer Products, Inc., or Inter-
national Business Machines Corporation, or their successors in interest, and
such motions should be made on at least twenty days' written notice.
Except as hereinabove provided, all motions to correct, amend or alter the
findings of fact hereinbefore filed are hereby denied.
Dated this 9th day of November, 1973.

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



[Filed Nov. 10, 1973]

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

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

The Telex Cobpobation and Telex Computeb Peoducts, Inc., plaintiffs,

V.

International Business Machines Cokp., defendant,
amendments to conclusions of law

Upon the defendant's timely motion to amend conclusions of law with reference
to antitrust damages and injunctive relief, and the matters having been argued
and submitted to the court for decision, it is now hereby ordered that the con-
clusions of law filed on September 17, 1973, be and they are hereby amended as
follows :

The heading "Conclusions of Law ; Discussion" on page 155 is amended to read
"Amended Conclusions of Law; Discussion."

The following paragraphs C40(a) to (d), beginning at page 198 of said con-
clusions, are hereby added :

C40(a). Damage adjustments have been made as indicated in finding F124
with resi>ect to the probable efi'ect of injunctive relief, and the unlawful com-
petitive advantages secured by Telex througli misappropriation of IBM trade
secrets. With reference to the first mentioned factor reducing actual damages
by $6 million there need be added here only my conclusion that such authorities
as United States v. Oi-egon State Medical Soc, 343 U.S. 325 (1952). and Florists'
JS'ationwide Tel. Del. Net. v. Florists' Tel. Del. Ass'n., 371 F. 2d 263 (1967), relied
upon by plaintiffs in an attempt to establish that no adjustment at all should be
made for possible effects of the injunction, are not in point. Further discussion,
however, seems necessary concerning adjustments based upon the effect of my
trade secret counterclaim findings against Telex uix)n the determination of the
antitrust damages against IBM. This aspect involves more complicated factual
and legal problems to add to the array which already has characterized this
unusual suit.

C40(b). I have, as in the findings indicated, deducted from the plaintiff's dam-
ages found before trebling the amount of ,S17.5 million fixed in my findings on
IBM's first coinitei-claini to be the damages and unjust enrichment caused or
enjoyed by plaintiffs as a result of the unlawful misappropriation of defendant's
trade secrets^ (not including, however, cost of increased .security, additional cost
of manufacturing the IBM head arm, and punitive damages which have little or
no relationship to the subject under discussion). Initially I was. and plaintiffs
continue to be, of the view that the subject matter of the first counterclaim and



^ Tlip items totaling: this amount really constitute the only types of qnantiflcation of
competitive advantage aceruinp from trade secret misappropriations which IBM suggested
at (he trial. Wliile tiiis quantification was not then attempted precisely for our present
purpose it represents the best figure available in the evidence and I have concluded that it
should be used in this connection.



5789

the remedies thereon awarded in tlie nature of involuntary royalty were inde-
pendent of the antitrust damages and should simply be set off against them after
the latter were trebled, in view of Perma Life Mufflers, Inc. v. International Parts
Corp.. 392 U.S. 134 (1968). and Kiefer-Stewart Co. v. Joseph E. Seagram & Sons.
340 U.S. 211 (1951). However, I have concluded that this was error, since
plaintiffs' prospective market position to the extent it otherwise would have been
recognized in my antitrust damage calculations would have included such com-
petitive advantage and should be adjusted accordingly before plaintiffs' damages
are trebled. Other authorities relied upon by plaintiffs to the contrary are in-
apposite. See Semke v. Enid Automobile Dealers, 456 F. 2d 1361 (10th Cir. 1972),
see also, 320 F. Supp. 445, 446-447 (W.D. Okla. 1970) ; Flintkote Company v.
Lysfjoi-d, 246 F. 2d 368 (9th Cir.), cert, denied, 355 U.S. 835 (1957) ; Bal Theatre
Corp. V. Paramount Dist. Corp.. 206 F. Supp. 708 (N.D. Cal. 1962) ; Waters v.
Turner, 76 F. Supp. 279 (E.D. Pa. 1948) ; Sampson v. Thomas. 76 F. Supp. 691
(E.D. Mich. 1948) ; and Jerard Associates, Inc. v. The Stanley Works, 1966 Trade
Cas. 1171,820 (D.C.S.D. N.Y. 1966). In these cases the counterclaim or offset
amounts were not, as here, directly connected with the evaluation of primary
damages. In other contexts, I would agree that tbere is no justification in law
or justice for the treble damage provision of the antitrust laws to be emasculated
by artificially trebling a defendant's counterclaim. But damages cannot be re-
covered for detriment not based upon the violation of legal rights. Keogh v.
Chicago & Northwestern Ry., 260 U.S. 156 (1922) ; Okefenokee Rural Electric
Membership Coi-p. v. Florida Power & Light Co., 214 F. 2d 413, 418 (5th Cir.
1954) ; Maltz v. Sax, 134 F. 2d 2 (7th Cir.), cert, denied, 319 U.S. 772 (1943) ;
Calnetics Corp. v. Volkswagen of America, Inc., 348 F. Supp. 623 (CD. Cal. 1972) ;
Jones Knitting Corp. v. Morgan, 244 F. Supp. 235, 239 (E.D. Pa. 1965). rev'd on
other grounds, 361 F. 2d 451 (3d Cir. 1966) ; Mason City Tent and Awning Co. v.
Clapper, 144 F. Supp. 754, 770 (W.D. Mo. 1956). See also, Columbia Nitrogen
Coi-p. V. Roysten Co., 451 F. 2d 3, 15-16 (4th Cir. 1971) ; Semke, supra at 1370.

C40(c). The application of this principle is relatively clean-cut in the cases
cited. For example Calnetics Corp. involved a single identifiable factor to be
eliminated from consideration. Semke dealt with enjoined sales. Involved in
Mason City Tent and Awning was attempted recovery under the antitrust laws
for loss of profits from adjudged patent infringements. The principle of these
cases has been applied in the complicated setting of the present one through the
counterclaim deduction from antitrust damages before trebling to the extent
above specified. I have found that there should be deducted also $7.5 million on
an analogous theory, representing by fair approximation the additional effect of
trade secret advantages not quantified in connection with IBM's counterclaim,
not heretJ3fore otherwise taken into account and which unless deducted would
distort the antitrust damage determination made by the court. Concededly this
is a judgmental process based upon a broad evaluation of the evidence.^ But I
cannot escape the conviction in review of the antitrust damages as a result of
motions directed to the original judgment that account must be taken of this
additional factor to the extent indicated. Plainiffs' contention that this re-evalua-
tion is mere speculation in view of the drastic revision already made to their
damage projections is rejected, for my evaluation has extended to a reconciliation
of the two aspects in light of the evidence as I have viewed it. Much less am I
persuaded, as argued by IBM, that these adjusting factors should be extended
to swallow up all antitrust damages to which plaintiffs might otherwise be en-
titled. In effect IBM would extrapolate from each confidential document, subject,
plan or employment, without proof or justification in the court's findings, dire
consequences to its own business and unlimited advantage to Telex. I cannot
accept the thesis, inferentially though not expressly advanced, that because of



= It is hoperl that no apolojry need be made for resnrtinff to luimnn jiulfrment despite
rather complete envelopment by a computer climate. In post-jndprment briefs on nunnti-
fioation problems submitted to it each side seeminjrly has been able to support its position
witli a myriad of figures precisely allocated among a wide range of EDP devices, pre-
sumably with the aid of the ubiquitous machines. Nonetheless, the prior experiences of
both parties, as documented in my findings, may raise some question concerning the
infallibility of such processes. IBM's computers taught with little question that its nnti-
fompetitive stratagems would be effective In suppression of its ping compatible competition
hut the .iudgmental tost of the extent to which this properly could be accomplishe.l was
represented neither in their Input nor output. And Telex's lead time advantage bv
utilization of IBM's Aspen secrets likely could be computerized quantitatively but not
qualitatively. Reversing the process, IBM's utilization of the court's qualitative findings
cumulatively of "massive" trade secret penetration bv Telex to treat each part or frag-
ment as "massive" and to quantify It as such, is unjustified by the record.

40-027—7.5 01



5790

the misappropriation of some of its trade secrets, however unjiistified or impres-
sive in aggregate, but yet limited in relation to Telex's total business and pros-
pects, IBM became in effect almost the virtual owner of Telex's future despite
its victimination by IBM's antitrust strategies. Such an argument in its full
reach indeed would do violence to the principle of Pernia Life and involve a
domination of employment, technology and ideas in the EDP industry far beyond
anything suggested by the evidence.^ Moreover, its acceptance would tend to
unduly extend if not pervert the state law of trade secrets in the defeat of federal
antitrust policy. Cf. Sears, Roebuck & Co. v. Stiffel Company, 376 U.S. 225 (1964) ;
Lear Inc. v. Adkins, 395 U.S. 653 (1969) ; Kewanee Oil Company v. Bicron Cor-
poration, 478 F. 2d 1074 (6th Cir. 1973). Plaintiffs, as indicated in the findings,
has the right to employ the skill, competitive aggressiveness, knowhow, ambition,
foresight and planning together with all of the other talents and information of
numerous experts hired from other EDP companies, as well as from IBM, and
to utilize these to the fullest extent, short of illegal trade secret misappro-
priations.

C40(d). The final related point which seems to require comment is plaintiffs'
contention that if counterclaim components are credited against the antitrust
damages, they should be eliminated from the counterclaim. I cannot agree.
Plaintiffs are entitled only to their proper antitrust damages. By the court's
eliminating elements from the antitrust damage determination which should
not have been included in the first place defendant is rendered no less entitled to
the damages to which it has been awarded on its counterclaim. Certainly this
would be tnie as to the elements not included in the adjustment, i.e., security,
extra manufacturing costs and punitive damages. The additional amounts have
not been credited against plaintiffs' antitrust award but rather such award has
been fairly fixed in view of them to the best of the court's ability. Assuming that
I am right in this view, if Telex collects the present antitrust damage award it
■o-ill have as much as it is entitled to. even though required to pay or offset the
counterclaim. If the counterclaim award should be reversed, an adustment
upward may have to be made in the antitrust award. If the antitrust award does
not survive appeal and the trade secret award does, Telex should pay the latter,
unless it becomes involved to the contrary in antitrust damage problems
surviving appeal.

Change C41 beginning on page numbered 198 to read as follows :
The court accordingly concludes within the perimeter of the proof that Telex
and Telex Computer Corporation have sustained damages to their business as a
proximate result of defendant's violations of Section 2 of the Sherman Act in



3 The latest evaluation by the defendant of the effect of trade secret misappropriations
seems somewhat an afterthought. No trade secret misappropriation counterclaim was
actually pleaded until almost a year after plaintiffs filed their antitrust action against
IB?k[. At a pre-trial hearing, in denying plaintiffs' motion to sever the counterclaim, the
court did recognize that in the antitrust phase of the case it would be improper "to draw
an iron curtain over tlieir [trade secret misappropriations] exploration, with regard to
damages, perhaps with regard to impact and ])robabl.v with regard to other elements of
lial)ility . . ." IBM's amended answer, in twelve pages of denials and averments, con-
tained only one express reference to Telex's violation of its trade secrets, ". . . that
Telex has hired, and is continuing to hire, former IBM employees to obtain IBM confi-
dential and proprietary information from such former IBM employees and from others
and has thereby copied IBM tape, disk, printer and memory and storage devices and has
announced such copies. Its trade secret counterclaim was pleaded as indojiendent of its
answer to the plaintiffs' antitrust charges. The court lias found in the transcript no evidence
offered by IBM as a part of its defense to the antitrust claims directly addressing itself
to the quantification of any trade secret misappropriations as against plaintiffs' damages
nor. indeed, did defendant's counsel cross-examine the principal witness presenting
plaintiffs' damage projections with reference to the relationship itself. 'The only express
mention that I have been able to find in IBM's final argument as to some possible' relation-
ship between antitrust damages and the subject matter of the counterclaim is when
counsel began his discussion of the counterclaim and said : "Now, Tour Honor. I want to
turn to the last part, which will be mixed together somewhat : The injur.v. damages and
counterclaim. As a prelude to that let me state a brief chronology . . ." And laterVoiinsel
added : "Mr. Jatras testified that lie believed they were going to the moon ; and Telex's
business success or failure was hinged entirely upon these products which it had set out
to copy from IBM." (As I have pointed out in the findings, there is nothing improper in
itself about copying unpatented products, and indeed that is an important part of com-
petition in the industry.) Thereafter the quantification of counterclaim damage argued
and requested by IBM had little or no bearing upon the pervasive effects of trade secret
misnppropriation now urged, nor any reference to t.vpes of counterclaim damage essen-
tially different than those already allowed. The court awarded with some modification
in amounts, for reasons stated, trade secret damages precisely on the theorv defendant
requested them in its proposed findings. It would not be fair to attempt to hold IBM to a
waiver of its present broader contentions, but this note may serve to put them in more
realistic perspective.



5791

the amount of $86.5 million which amount must be trebled as required by law ;
and the plaintiffs therefore are entitled to judgment against IBM in the total
amount of $259.5 million, plus attorneys' fees of $1.2 million, which the court
finds to be reasonable, and for costs in accordance with the stipulation already
of record. 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
prepcjnderance of the evidence and accordingly also a miscarriage of justice.
Paragraph C43 beginning on page numbered 200 is amended to read as follows :
Applying the established principles of these cases to the facts found, and in
reasonable relief to the plaintiffs and protection to the public, but without
unnecessary interference with technological developments in the industry, the
decree herein should contain the following equitable remedies on the plaintiffs'
antitrust claims :

( a ) IB:M should be enjoined for a period of three years from the date of this
judgment from entering into or enforcing any contractually specified tennination
charges or liquidated damages which it otherwise might be entitled to collect
because of termination of any long term lease agreement entered into between
IBM and any of its end-user customers, with respect to IBM EDP peripheral
products that are cable connected to any IBM CPU or its channel.

(b) 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 transferred at the interface
between such IBM CPU or its channel and the EDP peripheral products cable
connected to it) and, in the event that a subsequently 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.*

(c) IBM should be enjoined and required to continue to price separately those
System 370 memories which are not a single product with the central processing
unit.^

(d) IBM should be enjoined and required to price separately its separate
EDP products, including but not limited to CPU's, memories (as set forth in
paragraph (c)). tape products and their controllers, disk products and their
controllers, printer products and their controllers and communication
controllers.

(e) 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 from substantially common parts integrated into another product, IBM
should be enjoined and requii-ed 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.

(f) Neither paragraph (c). (d) nor (e) hereof is intended to require the
separate pricing of anything which would not be regarded as a separate product
pursuant to Section 3 of the Clayton Act and provided further 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.

(g) IBM should be enjoined from adopting, implementing or carrying out
predatory pricing, leasing or other acts, practices or strategies with intent to
obtain or maintain an illegal monopoly in a relevant market for EDP peripheral
equipment being campatible to its CPU's, or any relevant submarkets thereof, in
violation of Section 2 of the Sherman Act.

(h) The foregoing injunctions are intended to be effective only within the
United States. They and any changes, modifications or amendments thereof
should be enforced, construed or considered only upon motion duly made by The
Telex Corporation. Telex Computer Products, Inc., or International Business
Machines Corporation, or their successors in interest, and such motions should
be made on at least twenty days' written notice.



^ Thp parties and the Court shall use, as an aid In construction of this pro.-ision. the-
IBM Manual OA 22-6794-1 ; IBM S.vstem/360 and System/370 I/O Interface Channel to
Control T^nlt Original Equipment Manufacturers' Information.

^ See Findings 110, 111 and Conclusion 31.



5792

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

Paragraph C59(a) beginning on page numbered 216 is amended to read as
follows :

(a) Statutory damages for copyright violation in the amount of $13,776,
together with attorney's fees in the sum of $3,000, which the court finds to be
reasonable.

Except as hereinabove provided and as reflected and provided in the amended
judgment and decree file herewith, all motions to correct, amend or alter the
conclusions of law and judgment and decree or for a new trial as hereinbefore
filed are hereby denied.

Dated this 9th day of November, 1973.

A. Sherman Christen sen.
Senior United States District Judge

(Assigned) .



[FiledNov. 10, 1973]

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

No. 72-C-18; No. 72-C-S9 (Consolidated)

The Telex Corporation and Telex Computer Products, Inc., Plaintiffs,

v.
International Business Machines Corporation, defendant.

amended judgment and decree

The issues having been duly tried to the court, findings of fact, conclusions of
law and judgment and decree having been filed and entered on September 17,
1973, timely motions to amend such findings of fact, conclusions of law and
judgment and decree having been filed, argued and considered by the court, and
the court having made certain amendments and supplements to its findings of
fact and conclusions of law ; now, accordingly.

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
Machines Corporation in the sum of $259.5 million, after the found actual
damas^es have been trebled as required by law, together with attorneys' fees
in the sum of $1.2 million, and stipulated costs of court in accordance with
the agreement of the parties heretofore entered on the record.

2. IBM is hereby 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 entitled to collect
Iiecause of termination of any long term lease agreement entered into between
IBM and any of its end-user customers, wtih respect to IBM peripheral products
that are cable connected to any IBM CPU or its channel.

3. IBM is 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, informa-
tion 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 transferred at the interface between such
IBM CPU or its channel and the EDP peripheral products cable conected to
it) and, in the event that a subsequently shipped IBM EDP peripheral product
changes that interface, IBM shall make changes in the above information avail-
able at the time such product is shipped.^

4. IBM is enjoined and required to continue to price separately those System
370 memories which are not a single product with the central processing unit."



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

2 See Findings 110, 111 and Conclusion 31.



5793

5. IBM is enjoined and required to price separately its separate EDP products,
including but not limited to CPU's, memories (as set forth in paragraph 4),
tape products and their controllers, disk products and their controllers, printer
products and their controllers, and communication controllers.

6. 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 from substantially common parts integrated into another product, IBM
is enjoined and required to continue to price the integrated version separately
from the product into which it is integrated, and is further enjoined and required
to make a good faith effort to set its prices for both such versions with a sub-
stantially equivalent profit objective, and with cost and profit objectives being
measured on an equivalent basis.

7. Neither paragraph 4, 5, nor 6 hereof is intended to require the separate
pricing of anything which would not be regarded as a separate product pursuant
to Section 3 of the Clayton Act and provided further in this connection that the



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 119 of 140)