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 138 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 138 of 140)
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19.6.2 During a July, 1965 meeting with Burroughs, SR indicated that it would
consider granting it a paid-up license for .$20,000,000.

19.6.3 In December, 1965, SR contacted representatives of GE and indicated
that SR was willing to grant GE a paid-up license for $8,500,000.

19.6.4 In January, 1966, GE informed SR that the $8,500,000 paid-up licen.se
offered to them was unreasonable and discriminatory since it was similar in total
amount to the settlement given to IBM although GE's computer business was
much smaller,

19.6.5 At the October, 1966 meeting of SR and RCA, SR was prepared to offer
RCA a cross-license at the rate of $1,250,000 per year for 15 years or an aggre-
gate of $18,750,000.

19.6.6 RCA rejected the SR demand as exorbitant.

19.7 A substantial difference is that in 1956 the ENIAC patent was still in
the application stage and in 1964 the patent had issued.

19.8 It, of course, strains logic to settle with IBM (one of the two dominant
members of the industry in 1956 and the monopolist in 1965 and now) for $11,-



5897

100.000 and to demand in 1964-1967 from plaintiff (a minor factor in the indus-
try ) $25(),000,0€0 or $20,000,000.

19.8.1 Tlie competitive situation and comparative patent portfolio values of
IBM and SR during the license negotiations in 1956 are comparable to the
competitive situation and comparative patent portfolio values of SR and Honey-
well during their license negotiations in 1966-67.

19.8.2 In the 1956 negotiations for an EDP cross-license between IBM and SR,
SR representatives indicated to IBM representatives that the SR EDP iiatent
and application portfolio, excluding the value of the then pending EXIAC patent
application, was equal to the IBM EDP patent and application portfolio.

19.8.3 In negotiations with IBM in 1965, SR contended that the $10,000,000
paid by IBM to SR under the 1956 Agreement was not adequate to cover 1% of
IBM'sEDP equipment manufacturing cost for the years 1957-64 ; as a result IBM
paid an additional $1,100,000 royalty to SR under the 1965 Agreement. .

19.8.4 In answer to Honeywell's Interrogatory 58 in this case, SR stated that
none of the $10,000,000 paid by IBM under the 1956 Agreement was attributable
to a license under the ENIAC patent rights.

19.8.5 Contemporaneous documents, however, indicate that IBM's license under
the ENIAC patent rights was claimed by SR at a value equal to 1% of IBM's
EDP equipment manufacturing cost for the years 1957-64 ; although SR repre-
sented in negotiations with Eckert and Mauchly that only 2% of the IBINI 1956
Agreement royalty of $10,000,000 [or $200,000] was attributable to the license
under the ENIAC" patent rights; if this is accepted, the 30A patents and applica-
tions account for a larger part of the $10,000,000 than either conspirator admits.

19.8.6 In negotiations between Honeywell and defendants in January 1967,
defendants indicated that they regarded Honeywell's EDP patent and applica-
tion portfolio as equal to defendants' EDP patent and application portfolio
excluding the ENIAC patent.

19.8.7 The IBM royalty rate under the ENIAC patent was 1% of EDP system
and machine manufacturing cost over the 8 year period 1956-64 compared with
the royalty rate demanded from Honeywell and the rest of the EDP industry of
11/^% "of EDP system and machine selling price or rental value over the 17 year
period 1964-81.

19.8.8 Had Honeywell been given the same arrangement as IBM for the same
period 1957 through 1964, royalties for access to the ENIAC patent and the rest
of the SR portfolio would have totaled merely $953,680 compared with the mini-
mum $20,000,000 demand made by defendants before ISD sued.

19.8.9 Honeywell's royalty based on 1^2% of the selling price or rental value
of shipments for the four year period immediately following the issuance of the
ENIAC patent would have been in excess of $8,000,000 and would greatly increase
every year.

19.9 I believe competitors should in fairness be treated somewhat equally but
find no violation of the antitrust laws.

19.9.1 Honeywell has not shown that acceptance of defendants' 1967 license
offer would have caused a substantial impairment of competition in the relevant
market; it would have increased cost or reduced profit on the basis of 1^/2% of
price.

[52] 19.9.2 In order to sustain a finding of patent misuse or a Sherman Act
violation based on discriminatory licensing, at least the following must be
present: (a) the plaintiff took a license; (b) the royalty rate charged plaintiff
and that charged a competitor were unequal; (c) in all particulars relevant to
equality of rates plaintiff and its licensed competitor were similarly situated;
and (d) the royalties were an important expense factor in the production costs
and the discriminatory rate caused substantial impairment of competition in the
relevant market.

19.9.3 Honeywell failed to prove that defendants' offers to license the ENIAC
patent and SR's EDP patents violated the Sherman Act, injured Honeywell in its
business or property, or provide any basis for declaring the ENIAC patent invalid
or unenforceable.

[53] 19.9.4 Even if Honeywell had proven any impropriety on defendants'
part in making the 1964-67 license offers, any such impropriety would have been
cured and purged by the placing of ISD's patent infringement case (and the ques-
tion of appropriate royalties or infringement damages) before the Court.

19.10 Plaintiff has not proved injury.



40-927—75 68



5898

19.10.1 Honeywell lias not shown that the SR-ISD 1964-67 offers to license
their patents injured Honeywell in its business or property.

20. Pending Application Royalties

20.1 After issuance of the ENIAO patent in 1964 and a demand by ISD for
royalties, H and SR discussed a possible cross license of their respective patent
portfolios.

20.1.1 After the issuance of the ENIAC patent in 1964, Honeywell and SR, at
Honeywell's request, discussed a possible cross-license of their EDP patents.

20.1.1.1 In October, 1964, ISD requested a meeting with representatives of
Honeywell to discuss a license under the ENIAC patent ; there has never been an
EDP patent cross-license or know-how exchange between Honeywell and SR.

20.1.1.2 No such patent cross-license ever ensued.

20.1.2 Also in October, 1964, SR sent Honeywell a notice of infringement of two
additional SR EDP Patents Nos. 2,625.607 and 2,686,100 (EM Nos. 2 and 2A).

20.1.3 In December, 1964, Honeywell requested a specification of the ENIAC
claims believed to apply to Honeywell EDP equipment and indicated that any
meetings to discuss licenses under the ENIAC patent would have to be arranged
so that both SR and ISD representatives were present.

20.1.4 In May, 1965, SR inquired of Honeywell as to when a meeting with SR
and ISD could be arranged but protested that the matters to be considered by
Honeywell and SR were entirely separate from the matters to be considered by
Honeywell and ISD.

20.1.5 In June, 1965, SR sent Honeywell a notice of infringement of two addi-
tional SR EDP Patents Nos. 3,189,290 (EM No. 19A) and 3,189,291.

20.1.6 On July 21, 1965, representatives of SRand ISD asserted that the ENIAC
patent claims covered entire data processing systems and submitted to Honeywell
a draft of an ENIAC license agreement which provided for a royalty of 1-^/4% of
the net amount of the selling price or rental value of the equipment covered by the
ENIAC patent.

20.1.7 The draft license agreement also included a clause under which Honey-
well was to agree to admit validity of the ENIAC patent and agree not to ques-
tion or attack it.

20.1.8 Also during the July, 1965 meeting, SR demanded that Honeywell make
an initial royalty payment as a prerequisite to any agreement to account for
alleged past infringement of the ENlAC patent and estimated that Honeywell's
liability during the life of the patent would be in excess of $200,000,000.

20.1.9 SR also stated at the July meeting that it had studied the issue of ex-
cluded coinventors to the ENIAC patent four or five times and that it felt safe on
the public use question since it had been litigated successfully.

20.1.10 During the July, 1965 meeting, SR gave Honeywell notices of infringe-
ment of two additional SR EDP 30A Patent Nos. 2,629,827 and 2,915,966 (EM Nos.
1 and 55C).

20.1.11 In December, 1965, Honeywell informed ISD that it would only deal
with SR on a unified basis regarding all patents of both corporations rather than
dealing with ISD alone for rights under the ENIAC patent.

20.1.12 At a later meeting in January, 1967, SR representatives informed Hon-
eywell that SR had evaluated its patent portfolio including the ENIAC patent and
concluded SR's portfolio was more valuable than Honeywell's ; in view of this,
SR demanded a royalty of 1-%% of all EDP sales to enter into a total cross-li-
cense including the 30A patents and applications.

20.1.13 During the January, 1967 meeting, SR indicated to Honeywell that it
would accept a lump sum settlement with Honeywell paying SR $1,250,000 an-
nually for fifteen years [$18,750,000] plus settlement for past liability.

20.1 .14 During the January, 1967 meeting, Honeywell stated its belief that the
royalty arrangement l>etween IBM and SR was detrimental to Honeywell which
was subject to a license on terms which carried a larger dollar amount than was
reported to have been paid by IP.^I which bad a much larger sales base.

20.1.15 Honeywell informed SR that it believed the paid-up license offered by
SR put Honeywell at an unfair and arguably unlawful disadvantage vis-a-vis both
SR and IBM.

20.1.16 During the January, 1967 meeting, SR informed Honeywell that its
royalty position was nonnegotiable and that any further meetings, including
meetings between top management, would not be particularly helpful.

20.1.17 On May 26, 1967, ISD sued Honeywell and Honeywell sued SR.



5899

on 1 18 Throughout the license negotiations with Honeywell, SR never indicated
that' it was willing to grant Honeywell access to any EDP know-how nor did it
reveal that IBM and SR had already shared their entire EDP technology.

20 ^ Honeywell claims that the demands of SR included pre-issuauce royalties
for the BINAC and UNIVAC, and claims that such demands constitute further
violations of the antitrust laws. x. • , i.

20.3 I find that SR did not make such demands and if made do not violate

* ^0 3 i Honeywell has not proven that SR either specifically demanded or
actually received from Honevwell or anyone else any royalties on its pending
BINAC and UNIVC I patent applications, or on any other 30A patent appUcations.

20.4 Plaintiff has not proved injury.

21. Section 7 of the Clayton Act

91 1 Count III of the Amended Complaint of May 1, 1968, charged defendants
with a violation of Section 7 because of the 1950 acquisition of the ENIAC

application. ^,. . ,_ .ttt

'>1 9 The Court on November 29, 1971, dismissed Count III.

'>l"3 In asking for injunctive relief under Section 16, plaintiff emphasizes the
ENIAC asset acquisition and states that this was the root cause of defendants'
ability to dominate the EDP market. ^ i 4. tn i « f

21.3.1 On February 6, 1950, Remington Rand acquired control of Eckert-
Mauchly Computer Corporation ("EMCC").

21.3.2 At the time of Remington Rand's 1950 acquisition of EMCC, EMCC was
an under-financed company. , ^^-r-r ,^ ^

"^1 3 3 At the time of Remington Rand's 1950 EMCC acquisition, the ENIAC
patent application was owned of record by Eckert and Mauchly, not EMCC. Rem-
ington Rand finallv acquired full legal control of the ENIAC patent application
on February 13, 1950 when Eckert and Mauchly assigned it to EMCC, then
under Remington Rand control.

21.3.4 Prior to February 1950, Remington Rand had been engaged in the tabu-
lating business but not EDP.

21.3.5 Honeywell has proved that there was an EDP line of commerce in
1950.

21.4 Plaintiff makes inconsequential reference to the asset acquisitions from

IBMandBTL. . ^ . .^.

21.5 Plaintiff's specific request is that the ENIAC and 30A patents acquisition
be declared unenforceable.

21.6 I find that the acquisition by defendants of the ENIAC and 30A patents
did not violate Section 7.

21.6.1 Honeywell has not proven that Remington Rand's 1950 acquisition of
the ENIAC patent application might have had the effect of, or had the effect of,
substantially lessening competition or tending to create a monopoly in any line of
commerce in any section of the country.

21.6.2 Honeywell has not proven that Remington Rand's 19.50 acquisition of
EMCC might have had the effect of, or had the effect of, substantially lessening
competition or tending to create a monopoly in any line of commerce in any section
of the country.

21.6.3 Honeywell has not proven that the record transfers of the ENIAC patent
or patent application from EMCC to Remington Rand in 19.52, from Remington
Rand to SR in 1955, and from SR to ISD in 1964, might have had the effect of,
or had the effect of, substantially lessening competition or tending to create a
monopoly in any line of commerce in any section of the country.

21.6.4 Honeywell has not proven that the 1965 IBM-SR Agreement and the 1961
SR- Western Electric Agreement might have had the effect of. or had the effect of,
substantially lessening competition or tending to create a monopoly in any line
of commerce in any section of the country.

21.6.5 Section 7 of the Clayton Act prohibits the acquisition of the whole or any
part of the stock or assets of another corporation "where in any line of commerce
in any section of the country, the effect of such acquisition may be substantially to
lessen competition, or to create a monopoly".

21.6.6 Section 7 of the Clayton Act in effect in February 19.50 applied to the
acquisition of stock not to the acquisition of assets. Accordingly, Remington
Rand's February 13, 1950 acquisition of the ENIAC patent application could not
have violated Section 7 of the Clayton Act.



5900

21.6.7 Even after its ameiidment in December 1950 to apply to tlie acquisition
of assets, Section 7 of the Clayton Act has applied only to the acquisition of
as.sets from corporations, not individuals. Since Remington Rand acquired, for
record, the ENIAC patent application on February 13, 1950 from Eckert and
Mauchly, individuals, that record acquisition could not have violated Section 7'
of the Clayton Act.

21.6.8 Honeywell, a private party, has no standing to sue for any alleged vio-
lations of Section 7 of the Clayton Act.

21.7 Honeywell has not proven that it has suffered any actual or threatened
injury to its business or property as a result of any of the acquisitions or trans-
actions it has challenged under Section 7 of the Clayton Act with the exception
of the 1956 SR-IB:M Agreement.

22. Statute of Limitations

22.1 Fraud on Patent Office. If this Court's findings are reversed on api>eaL
damages to plaintiff will have accrued after May 26, 1963, and plaintiff mil be
entitled to recover its attorney's fees and costs trebled.

22.2 1956 Cross-License and Technical Exchange Agreement. The cause of
action accrued before ISIay 26, 1963. and is barred, and prior to that date non-
speculative damages could have been proved.

22.2.1 Certain of Honeywell damages caused by the 1956 IBM-SR Agreement
were nouspeculative before May 26, 1963.

22.2.2 Honeywell's ]\ray 26, 1967 Complaint did not raise any claims for damages
caused by the 1956 IBM-SR Agreement.

22.2.3 Honeywell first raised a claim for damages caused by the 1956 IBM-SR
Agreement in early 1970.

22.2.4 Certain Honeywell damages caused by the 1956 IBM-SR Agreement were
non-.speculative before late 1965.

22.2.5 Honeywell's claim based on the 1956 IBM-SR Agreement is barred by
the four-year statute of limitations.

22.3 195G Interference Agreement. The cause of action accrued before May 26,
1963, and is barred by the four-year statute of limitations.

22.4 1961 Agreement. The cause of action accrued before May 26, 1963. and
is barred by the four-year statute of limitations.

22.5 1965 Agreement. The cause of action accrued after May 26, 1963, and is
not barred, but plaintiff has not proved any injury.

22.6 niscriminatory Licensing. The cause of action accrued after May 26, 1963,.
and is not barred.

22.7 In view of the invalidity of the ENIAC patent, plaintiff will have suft'ered
no injury or damages.

22.8 Pre-Issuance Royalties. The cause of action accrued after May 26, 1963,
and is not barred.

22.9 Plaintiff has paid nothing and has suffered no injury or damages.

22.10 Section 7. The cause of action accrued before May 26, 1963, and is barred.

22.10.1 Honeywell's claims concerning Remington Rand's 1950 acquisition.s of
EMCC and the ENIAC patent application are barred by the four-year statute of
limitations.

22.10.2 Honeywell's Clayton Act claims concerning the 1956 iBM-SR Agreement
and the 1961 SR-Western Electric Agreement are barred by the four-year statute
of limitations.

22.11 I find no fraudulent concealment suflScient to toll the statute of limita-
tions.

22.11.1 There was no fraudulent suppression of the facts concerning the 1956 ;
IBM-SR Agreement which is sufficient to toll the statute of limitations as to that
violation of the Sherman Act.

23. Infringement of ENIAC

23.1 Assuming that ENIAC is determined to be valid and enforceable, I find
that certain Honeywell products infringe various claims of the ENIAC.

23.1.1 Prior to the trial, pursuant to Rule 30(b) (6), F.R.C.P., defendant ISD
took the deposition of Honeywell consisting of the testimony of olficers and other
persons it designated to testifv on its behalf with respect to Honeywell products
H-201-0. H-201-1, H-201-2. H-121. H-1201, H-2201. H-4201. H-in/121/126. H-
800, H-400 and D-1000 and the printed documents describing these products, and'



5901

said deposition of Honeywell and its printed descriptive materials were received
in the evidence at the trial.

23.1.2 Dr. Walter R. Beam, a witness called by defendant ISD, is an electronics
^xj>ert who has specialized in electronic digital computers, with extensive ex-
perience as an engineer, a University faculty member, and an author. Dr. Beam
made an investigation of the Honeywell products H-201-0, H-201-1, II-201-2,
H-121, H-1201, H-2201, H-4201 ; H-lll/121/12i;, H-SOO, H-400, and D-1000, and
■considered the printed descriptive documents relating thereto (including the
Schrimpf patent No. o,201,7(>2 containing descriptive matter relating to the D-1000
■computer) and the depos^itiou of Honeywell taken pursuant to Rule oO(b) (6). He
also made an initial .study of the ENIAC patent [but not the "file wrapper" or
prior art] in order to determine the relationship between Honeywell's products
and the subject matter claimed in the ENIAC patent. He devoted more than 1,000
Jiours to this study.

23.1.3 Dr. Beam explained the manners in which the apparatus disclosed in the
ENIAC patent may be arranged to perform different operations and to solve dif-
ferent types of problems to achieve accurate answers.

23.1.4 One particular arrangement which is disclosed in the ENIAC patent callfS
for an ENIAC function table to be connected in a way such that a program of
sequences takes place. Claims 56 and 57 are directed to the apparatus and com-
bination of elements which make possible the carrying out of such a programming
arrangement.

23.1.5 If Claim 56 is valid, it is infringed bv each of the following Honeywell
products: H-201-0, H-201-1, H-201-2, H-121, H-1201, 2-2201, H-4201, H-111/
121/126. H-800, H-400, and D-1000. Each of these products contains the combina-
tion of elements required by Claim 56 and the claim applies in the same manner as
in the ENIAC patent.

23.1.6 If Claim 57 is valid, it is infringed by each of the following Honeywell
products : H-201-0, H-201-1, H-201-2. H-121, H-1201. H-2201, H-4201, H-111/
121/126. H-800, H-400, and D-1000. Each of these products contains the com-
bination of elements required by Claim 56 and the claim applies in the same
manner as in the ENIAC patent.

23.1.7 Claim 52 covers an arrangement to permit program sequences to be
selected alternatively, i.e., an arrangement for branching. In such an arrange-
ment the apparatus disclosed in the ENIAC patent is so connected and pro-
grammed as to cause tlie next program seqttence step to be taken from some loca-
tion in the storage means (function table) which is not sequentially arranged
witli respect to tlie previous step.

23.1.JS Im claim 52 is valid, it is infringed by each of the following Honeywell
products : H-201-0, II-201-1. H-201-2, H-121, H-1201, H-2201, H-4201, H-111/
121/126. H-800, H-400. and D-KXIO. Each of these products contains the combina-
tion of elements called for by Claim .52 and the claim applies in the same manner
as in the ENIAC patent. P]ach of these Honeywell products use this program
feature in a substantially .similar v>'ay and for the same general purpose as the
apparatus described in the ENIAC patent.

23.1.0 Claim .55 descril)es another arrangement for sequencing a computer, and
for using a storage jneans (its function taltle) for program memory. The opera-
tion of such an arrangement in the ENIAC patent is a parallel to that of such
Honeywell computers as the H-201-0 computer and H-4201 computer.

23.1.10 If Claim 55 is valid, it is infringed bv each of the following Honeywell
products: H-201-0. II-201-1. H-201-2, H-121. H-1201. H-2201, H-4201, H-111/
121/126. H-SOO. H-400. and D-1000. Each of these products contains the combina-
tion fif elements required by Claim 55 and the claim applies in the same manner
as in the ENIAC patent.

23.1.11 Any or all of the three function tables of the ENIAC patent can serve
as memory means storing data in selectively acces.sible locations.

23.1.12 Claim 6J> relates to a memory used for storing data items with particu-
lar means for accessing those data items from the memory.

2.3.1.13 The accessing of both an ENIAC function table and the Honeywell mag-
netic core memories is done at electronic siieeds, and the selection of a particular
location is done at electronic .speeds.

23.1.14 If Claim 6f) is valid, it is infringed by each of the following Honeywell
products : H-201-0, H-201-1, H-201-2. H-121. H-1201, H-2201. H-4201. H-111/
121/126, H-800. H-400. and D-1000. Each of these products contains the com-
bination of elements required by Claim 69 and the claim applies in the same man-
ner as in the ENIAC patent.



5902

23.1.15 Claim 65 deals with a memory which has specific means for assessing
information in it and for locating that information within it.

23.1.16 If Claim 65 is valid, it is infringed by each of the following Honeywell
products : H-201-0, H-201-1, H-201-2, H-121, H-1201, H-2201, H-4201, H-111/
121/126, H-800, H^OO, and D-1000. Each of these products contains the com-
bination of elements required by Claim 65 and the claim applies in the same man-
ner as in the ENIAC patent.

23.1.17 Claim 75 also relates to a memory device and with respect to both the
ENIAC function table memory operation and the Honeywell memory operation
the relationship between the action provided and the result accomplished is the
same, that is, related data items in closely adjacent storage locations in memory
(closely adjacent addresses) are arranged to be accessed with circuitry provided
for modifying the address.

23.1.18 If Claim 75 is valid, it is infringed by each of the following Honeywell
products : H-201-0, H-201-1, H-201-2, H-121, H-1201, H-2201, H-4201. H-111/
121/126, H-800, H-400, and D-1000. Each of these products contains the combina-
tion of elements required by Claim 75 and the claim applies in the same manner as
in the ENIAC patent.

23.1.19 Claim 78 also relates to a data storing means and the configuration for
accessing data from it in particular ways.

23.1.20 If Claim 78 is valid, it is infringed by each of the following Honeywell
products : H-201-0, H-201-1, H-201-2, H-121, H-1201, H-2201, H-4201, H-111/
121/126, H-800, H-400, and D-1000. Each of these products contains the combina-
tion of elements required by Claim 78 and the claim applies in the same manner
as in the ENIAC patent.

23.1.21 Claim 109 relates to the selection of alternative program sequences upon
the comparison of two quantities such that, based on some characteristics of the
quantities, a choice of a subsequent operation can be made. This claim applies to
a compare operation in the ENIAC patent and in the Honeywell equipment and
also applies to a sign comparison operation in the ENIAC patent and in 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 138 of 140)