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 132 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 132 of 140)
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knowledge of Atanasoff's prior work was based on what Mauchly had earlier
told him.

14.11.3.8 On April 1. 1964. SR charged Control Data Corporation with infringe-
ment on the "827 patent (EM-1).

14.11.3.9 On February 2, 1965, SR charged Patter Instrument Company with
infringement on the '827 patent (EM-1).

14.11.3.10 SR also called the '827 patent (EM-1) to other computer manufac-
turers" attention, including Honeywell, as a part of its basic EDP patent port-
folio.

14.11.4 Incomplete Execution of the EM-14 and EM-22 Applications.

14.11.4.1 Albert Auerbach, an ensrineer formerly employed by EMCC. was
misled l»y the legal dejiartment of SR's predecessor into signing tl;e EM-l-* oath
of inventorship without being given an opportiuiity to determine what was claimed
in the E]\I-14 application: Auerbach was not provided with tbe claims of the
EM-14 application before he was asked to sign and did sign the EM-14 applica-
tion oath : as of September 10. 1971. Auerbach had never seen the claims filed with
the EM-14 application.

1^.11.4.2 Albert Auerliach and Wilson, another engineer formerly emnloyed
by EMCC. were mi'^led by tbe legal department of SR's predecessor into signing
the EM-22 oath of inventorsbip witliout b^ing given an opportunity to determine
wliat was claimed in the EM-22 application: neither Aiierbach nor "Wilson was



5861

IJi-ovided with the claims of the EM-22 applieatidii before each was asked to and
did sign the EM-22 application oath.

14.11.") Co-inventor omitted from the EM-43 patent.

14.11..",.l Part of the suhject matter claimed in the EM-'S patent was invented
by Paul Winsor who was not named therein and whom the Court finds to be a
credible witness. , , . , .

14.11.5.2 Paul Winsor invented some of the apparatus described and claimed m
the EM— <'3 patent.

14.11.5.3 Paul Winsor invented the 27 Pulse Dela.v Line arrangement sIkjwii
in Figures 5 and 13 of the EM-43 patent.

14.12 In view of the statement by plaintiff that the Court need not decide tliat
anv individual patent is invalid, I make no such finding of invalidity.

i4.12.1 II(meywell has stated that the Court need not decide that any of these
30A patents and applications is invalid.

14.12.2 Accordingly, the Court expresses no opinion on the technical validity or
invalidity of these SOA patents and applications and confines itself to the questions
of unenforceability of the 30A patents issued and pending as against Honeywell,
and whether Honeywell has proven a Sliermaii Act violation based on alleged
willful and intentional fraud on the Patent Office concerning these patents and
applications.

14.13 I find disturbing the fact that with the rejection and abandonment of
E:M-27 based on the June 30, 1946 EDVAC Report the applicants or their counsel
did not call this report to the attention of other examiners in Division 23.

14.13.1 The EM-21. 23 and 25-29 patent applications all were prepared from
the EDVAC Report by attorney Eltgroth who represented SR's predecessors.

14.13.2 The earliest of the E:M-21. 23 and 25-29 applications to be filed was not
received by the Patent Office until October 21, 1950.

14.13.3 The EM-27 and EiI-28 applications were both assigned to Division
23 of tlie Patent Office for examination ; the P:M-21. 23, 25, 26 and 29 applications
were assigned to Division 51 of the I'atent Office for examination.

14.13.4 Attorneys for SR's predecessors, Eltgroth and Light, handled all the
prosecution of these applications.

14.13.5 Through his own eiforts, the E:M-27 patent examiner in Division 23
uncovered the ED'N'AC Report and found that the EDVAC Rf^port was a printed
publication within the meaning of the patent statute prior to October 21. 1949,
thereby liarring patent protection for the EM-27 application.

14.13.6 This finding of the EM-27 examiner was agreed to by Light and was
confirmed by information from RR's ERA sulisidiary and from Libman ; none-
theless, an amendment attempting to eliminate the repf)rt as a reference was
filed.

14.13.7 A second examiner repeated the rejection, affirmed the finding that the
EDVAC Report anticipated EM-27, and stated that the materials submitted
with the amendment were "incomplete and consequently misleading" ; no further
action was taken and EM-27 was abandoned.

14.13.8 After the criticnl nature of the EDVAC Report had been pointed out to
them by the EM-27 examiner. Light and Eltgroth continiied prosecution of the
E?kI-23. 25. 26 and 29 applications which Eltgroth had based directly on the
anticipatory EDVAC Report.

14.13.9 The E;M-21. 23. 25. 26 and 29 applications were handled l>y examiners
outside Division 23 who did not lo<-ate and cite the EDVAC Report against these
applications : there is no evidence that these examiners were aware of the EDVAC
Report; neither Eltgroth nor Light informed such examiners about the EDVAC
Report or of the EM-27 examiner's adver.se ruling based on the EDVAC Report.

14.13.10 Wlien the EM-29 patent was drawn into an interference, Light and
Eltgroth relied on the EDVAC Report to establish prior inventorship but withheld
information which they had of the fact of the Report's publication.

1-1.13.11 Light and Eltgrotli relied on the EDVAC Report as proof of invention
of EM-2S. but withheld information about the fact of its publication and the
EM-27 examiner's prior adverse ruling based on it : despite tlie reliance upon the
EDVAC Report as a publication by the EM-27 examiner. Light and I]ltgroth
submitted an affidavit to the P^M-28 examiner to antedate and avoid a prior art
reference cited in the EM-28 case: in the affidavit in this respect. Eckert and
Mauchly attempted to establisli prior invention by relying on a drawing copied
from the EDVAC Report : the E;M-2S examiner was never told, however, that
the EDVAC Report had already been found to be printed publication by the
E;M-27 examiner in Division 23.



5862

14.13.12 Based on the afladavit, the EM-2S examiner withdrew hi?^ rejection
and relied instead on another prior art reference (Moore School Lecture Series
No. 46) as anticipating all claims of the EM-2S case; this was on June 16, 1953,
and Eckert and Mauchly and RR then abandoned the EM-28 application.

14.13.13 The published Moore School Lecture Series also anticipated cases
EM-21, 25 and 26 ; yet, even after the fact of publication was established by the
EM-2S examiner, Eckert and Mauchly's attorneys continued to withhold knowl-
edge of the Lecture Series from one Division 51 examiner handling E;M-25 and
from another Division 51 examiner handling EM-26.

14.13.14. EM-21 had already issued when the e:M-2S examiner uncovered the
published Lecture Series ; however, neither Eckert nor INIanchly nor their suc-
cessors have ever made any attempt to call the published Lecture Series to the
attention of the Patent Office in connection with the EM-21 patent or to dedicate
or disclaim the patent or any portion thereof.

14.14 I find and conclude that as yet defendants have threatened no harm to
plaintiff, that plaintiff has not proved injury, that plaintiff has failed to prove
willful and intentional fraud on the Patent Oflice by clear and convincing evi-
dence, and that plaintiff has failed to prove an illegal monopoly in restraint of
trade.

14.14.1 Honeywell has proven no actual or threatened injury to its business or
property caused by any of the 30A patents and applications it has challenged.

14.14.2 Defendants have not directly charged Honeywell with infringement of,
or specifically demanded royalties on, any of the 30A patents and applications.

14.14.3 Honeywell offered no evidence that it tried to design around any SR
patent or altered its conduct because of an SR patent or application. Honeywell
has not admitted that it designed any of its EDP machines to avoid any of the
claims of the 30A patents and applications.

14.14.4 Honeywell has failed to prove willful and intentional fraud on the Pat-
ent Office in connection with anv of the 30A patents and applications.

14.14.5 Findings 14.11-14.11.5.2 and 14.13-14.13.14 as to the infirmities in the
30A patents and applications and evidence tendered by Honeywell with respect
to the SR-IBM August 21, 19.56 cross-licensing and exchanging technical infor-
mation which included the 30A patents and applications and which was an un-
reasonable restraint of trade in violation of Section 1 of the Sherman Act as
found in 15.25 and 15.37 provide grounds for declaring the issued and pending
30A patents unenforceable.

14.14.6 "It is not the mere obtaining of a fraudulent patent which brings anti-
trust liability to its owner ; it is the assertion or enforcement of the issued pat-
ent acquired by fraud which creates antitrust liability."

[49] 14.14.7 One who has not yet been charged with infringing a patent may
have standing as private attorney general to seek a declaration that it is invalid
or unenforceable as may be necessary to fit the exigencies.

14.14.8 Honeywell has proven that SR violated Section 1 of the Sherman Act
in connection with the August 21, 1956 Agreement with IBM which licensed the
30A patents and patent applications, but has not proven that any of these 30A
patents or patent applications has injured Honeywell in its bu.siness or property.

15. SR-IBM August 21, 1956 Agreement

15.1 Plaintiff has stated its claim that defendants violated the antitrust laws
in a variety of ways and I am not certain beyond the broad claims of violation
what the exact claims may be.

15.2 I l>elieve the claims to be somewhat as follows :

15.3 Plaintiff claims that this agreement effected a technological merger he-
tween the two companies then in control of about 95% of the EDP business.

15.3.1 Honeywell claims that on August 21, 1956. SR and IBM entered into a
massive settlement and patent cross-license Agreement in the TAB and EDP
fields [hereinafter the "19.56 Agreement"] and shared propi-ietary and non-
patented design and manufacturing technology thereimder which effected a
practical merger thereof between SR and IBM: Honeywell claims also that at
that time SR and IBM controlled about 95% of the EDP business and became
conspirators.

15.3.2 See 15.24.

15.4 Plaintiff claims that the two companies shared their technological port-
folios bv cross licenses and exchanged kno^r-how.

15.4.1 See 15.2.5.



5863

15.5 Plaintiff claims that they further settled interferences with respect to
EXIAC and SSEC and other patents and applications which they then knew to
be invalid.

15.5.1 See 15.24.

15 6 Plaintiff claims that in substance that the agreement was anti-competitive
and that defendants violated Section 1 in that they unreasonably restrained com-
petition and this restraint violated the iier se standard or the rule of reason.

15 6.1 Honeywell claims that SR, together with IBM, unreasonably restrained
competition by entering into and performing the 1956 Agreement and technologi-
cal merger and that such action was a per se violation of Sherman 1.

15.7 AVith respect to Section 2, plaintiff claims that defendants effected or
attempted to effect monopoly power in the relevant market with an intent or
purpose to exercise that power. _

15.7.1 Honeywell also contends that SR. its constituent corporations and
ISD. effected, "attempted to effect, and, together with IBM under the 19.5(> Agree-
ment and technological merger, combined and conspired to eft'ect monopoly power
in the relevant market in violation of Sherman 2.

15..S Plaintiff claims that monopoly power is the power to control prices or
exclude comijetition.

15.S.1 Honeywell claims that power to control prices or exclude competition
may exist by virtue of a .iungle of patents and technology which creates sub-
stantial barriers to competitive entry or burdens the competition after entry
bv affecting costs.

15.9 Plaintiff claims that it was thus forced to compete in an artifically and
illes-allv infected and structured market or in an artiticially impacted market.

15.10 Plaintiff" claims that by the alleged misconduct that defendants intended
to dominate the EDP market and that defendants performed such acts intention-
ally and with an ultimate anti-competitive goal.

15.10.1 Honevwell's claim of misconduct by defendants included that of con-
.spiring with IBM in 1950 and 19(i5 and vritli BTL in 1901 under the leverage of
EXIAC application or patent which created a jungle of patents and technology.

15.11 Plaintiff" suggests that there was a less restrictive alternative which
defendants did not choose.

15.12 Plaintiff claims that though the agreement was labelled non-exclusive,
that it was nonetheless exclusive and secret.

15.1.''> In 19.50 the EDP industry was in its l)eginning stages.

15.1.3.1 Remington Rand (Remington Rand and Sperry Corporation were con-
solidated in 1955 to form SR) entered the computer l)usines.s in 19.50 by accpiiring
the Eckert-Mauchly Computer Corporation, which had ])een formed by Eckert
and Mauchly.

15.13.2 In 19.53. Remington Rand acquired another EDP company. Engineering
Research Associates. Inc.

15.13.3 IBM had l»een the dominant force in the tabulating machine business,
and in the early 19.50"s was preparing to enter the computer business.

15.13.4 The "commercial computer industry originated in the EDP systems
offerings of Remington Rand and IB:\I shortly after 1950: in the early 19.50's.
IBM was offering the 050. 701. 702. 704 and 705 EDP systems and Remington
Rand was offering the UXIVAC I and 1103 El )P systems.

1.5.13.5 While the Government's 1952 .suit against IBM was pending, the EDP
industry began to emerge.

15.13.6 Because of its acquisition of the Eckert-?>Iauchly Computer Corporation
in 19.50, and Engineering Research Associates in 1953. Remington Rand and its
UXIVAC division had an early lead in P]DP ; liowever. it soon lost this lead
to IBM.

15.1.3.7 In the period 195.5-1956, other companies besides SR and IBM. includ-
ing Honeywell, began to move seriously into the electronic data processing field
but basically IB>[ and SR still dominated it.

15.13..S By 1956. several other companies were beginning to develop and offer
EDP systems. Honeywell was working on a large computer, the D-1000, Avhicli
was first shipped at the end of 1957, and XCR. having acquired an EDP company,
was also working on a computer, first shipped in 19.59.

15.13.9 In April 19.55. Honeywell formed its .loint venture with Raytheon to
develop, produce and market EDP systems.

15.13.10 XCR acquired Computer Research Corporatir)n in 1953-54 and began
design on the NCR 303 (later 301) EDP system to be offered for business
applications.



5864

ir).13.11 Burroughs acquired I-^lectroData Coriioratioii in IIIIO, inherited and
marketed ElertroData's 205 EIDP system, and had begun designing its 220 EDP
system for luisiness applications.

' L">.13.12 RCA liad already marketed its RIZMAC system by lOHG and was
planning its 501 system which was intended for commercial applications.

15.14 For many years IBM had dominated the tabulating machine industry and
had a substantial sales foi'ce.

15.14.1 In 10.5»i. IBM was recognized as the principal U.S. .supplier of SO
column TAB card equipment and SK as the principal U.S. supplier of 90 column
TAB card equipment ; both of these companies had years of experience and
know-how. both in design and production areas.

15.14.2 The tremendous customer base which IBM had because of its domina-
tion of the tabulating industry had a good deal to do with its position in the
early days of the EDP industry and this, combined with the information exchange,
gave them the predominant role which has tended to perpetuate itself.

15.14.3 IBM used its dominant position in the tabulating business — particularly
its larae .sales and service force — to quickly seize the lead in the EDP business.

15.15 IBM and SR in 1956 had about 95% of the EDP bu.siness.

15.15.1 In terms of total revenue (stated in dollars) and market shares
(.stated as percentages of the total revenue of the industry), SR and IBM had
the following shares of the EDP market in 1956 :





World market




Domestic market


IBM .


$42,174,000


42.9
51.2
94.1


$39,276,000 47.5


SR

IBM and SR


50,329,000

92,503,000


37, 590, 000 45. 5
76, 866, 000 93.









15.15.2 In terms of the retail sale vahie of new EDP .systems shipped (stated
in dollars) and market shares (stated as percentages of the total value of shii)-
ments in the industry), SR and IBM had the following shares of the EDP market
in 1956 :





World market


Domestic


market






Amount


Percent


Amount




Percent


IBM


$160,036,800


85.2

9.7

94.9


$157,138,800

18,270,000

175,408,800




84.9


SR

IBM and SR combined


18,270,000

178,306,800


9.9
94.8



15.15.3 In terms of the retail sale value of units of systems outstanding in the
marketplace at year end (stated in dollars) and market shares (stated as per-
centages of the total value of luiits of .systems outstanding in the industry), SR
and IBM had the following shares of the EDP market in 1956 :





World


markfit


Domestic


market




Amount


Percent


Amount


Percent


IBM


. $205,568,600


75.7
18.4
94.1


$202,851,600

50.190,000

253,041,600


75.3


SR __.

IBM and SR combined


._ 50,190,000

265,758,600


18.6
93.9



15.16 Several other companies had 1% or 2% of the business.

15.16.1 In terms of total revenue (stated in dollars) and market shares (stated
as percentages of the total revenue of the industry), the other EDP companies
had the following shares of the EDP market in 1956 :



5865



World market



Domestic market
Amount



Percent



RCA - $1,583,000

Burroughs".::::::::::::::: — 4,i84,ooo

others. -



1.6 $1,583,000

4.3 4, 184, COO





1.9
5.1





15.16.2 In terms of the retail sale value of new EDP .systems shipped (stated
in dollars) and market shares (stated as percentages of the total value of ship-
ments in the industry), the other EDP companies had the following shares of
the EDP market in 1956 :





World market




Domestic market






Amount


Percent


Amount


Percent


RCA


$4,200,000


2.2
2.9



$4,200,000

5, 406, 450




2.3


Burroughs..

Others


5,406,450




2.9










15.16.3 In terms of the retail sale value of units of systems outstanding in the
marketplace at year end (stated in dollars) and market shares (stated as per-
centages of the total value of units of systems outstanding in the industry), the
other EDP companies had the following shares of the EDP market in 1U5G:



World market



Amount



Percent



Domestic market



Percent



RCA - - 14.200,000

Burroughs - - 11,782,050

NCR.... - 280,056

Others -



1.5

4.3

.1





$4,200,000

11,782,050

280, 056





1.6
4.4
.1




15.17 In 1956 IBM shipped about 85% of all the new business and SR about
10%.

15.17.1 See 15.15.2.

15.18 At the end of 195G IBM had 75% of all the EDP systems outstanding
and SR 18%.

15.18.1 See 15.15.3.

15.19 From 1955 through 1966 SR did not have less than 10% of the EDP
business.

15.19.1 In terms of the retail sale value of units of EDP systems outstanding
in the market place at respective year end (stated in thousands of dollars) and
market shares (stated as precentages of the total value of .systems outstanding
in the industry), the major members of the EDP industi-y had the following
shares of the world (W) and domestic (D) EDP market from 1955 through 1967:



5866



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5868

15.20 In 1967 the percentage was slightly less than 10%.
15.20.1 See 15.19.1.

15.21 In many of these years SR operated at substantial losses.

x5.22 Plaintiff claims that the exchange of technological know-how between
the two dominant companies in the industry permitted their progress at a much
faster rate than tlie extremely small companies not parties to the agreement.

15.23 Plaintiff claims that the failure to make this information available to
competitors caused plaintiff and the other small computer manufacturers to
become involved in a re-invention cycle which caused tremendous expenses to
the excluded companies, particularly for R & D.

15.24 The agreement was the product of a number of factors, including the
1956 IBM Consent Decree, the 1955 antitrust suit by SR v. IBM, the claim of IBM
that SR had infringed a number of its patents, a number of interferences involv-
ing ENIAC, the evaluation of ENIAC, the evaluation of the respective patent
portfolios, the claim by IBM that the ENIAC was invalid because of public use,
and undoubtedly other factors.

15.24.1 On January 21, 1952, the Government filed an antitrust suit against
IBM.

15.24.1.1 The Government suit charged IBM with monopolizing the tabulating
machine industry and with engaging in various restrictive practices in the con-
duct of its tabulating machines business.

15.24.1.2 At the time the Government action was filed and for some years there-
after IBM had about a 90 per cent share of the tabulating business and Reming-
ton Rand had the remaining 10 per cent.

15.24.1.3 The Government suit charged that one of the methods IBM used to
maintain its monopoly was to exclude potential and existing manufacturers of
tal)ulating machines from entering the tabulating industry by monopolizing pat-
ents, inventions and technical information relating to tabulating systems.

15.24.1.4 The Goverment suit also charged that IBM had refused to grant li-
censes under its patents relating to certain key tabulating machines and that
Remington Rand had endeavored unsuccessfully to obtain a license under these
patents from IBM.

15.24.1.5 In April of 1955, Herbert A. Bergson, former head of the Antitrust
Division who had been retained by Remington Rand, submitted a draft consent
decree to the Department of Justice.

15.24.1.6 According to Bergson's testimony of what he was told by McXamarn.
the Department of Justice had solicited Remington Rand"s views about the relief
to be sought from IBM in March of 1955.

15.24.1.7 Since Bergson was keenly aware that IBM had been using its tabulat-
ing monopoly to monopolize the computer industry, the proposed decree he sub-
mitted to the Department of Justice applied to EDP as well as to TAB.

15.24.1.8 Eventually, Bergson testified, he came to believe that the Govern-
ment would not get, via negotiations with IBM, what he considered to be ade-
quate relief from IBM.

15.24.1.9 On December 27, 1955, SR had sued IBM for Clayton and Sherman
Act antitrust violations involving, inter alia, EDP and TAB monopoly practices,
restrictive practices and the illegal tie-in of purchase of tab cards with the lease
of tab systems.

15.24.2 As of January 3, 1956, SR and IBINI were involved in seven Patent
Office interferences over priority and validity of claims contained in the ENIAC
patent application and a few other interferences with others of IBM and SR
EDP patents and applications.

15.24.2.1 IBM and SR met in late 1955 and early 1956 to discuss a procedure



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 132 of 140)