510 F.2d 894 (10th Cir. 1975), 73--1874, Telex Corp. v. International Business Machines Corp.

Docket Nº:73--1874 to 73--1878, 73--1961 and 73--1962.
Citation:510 F.2d 894
Party Name:127 The TELEX CORPORATION, and Telex Computer Products, Inc., Plaintiffs-Appellees-Appellants (and Appellants on Counterclaim), v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Appellant-Appellee (and Cross-Appellant on Counterclaim).
Case Date:January 28, 1975
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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510 F.2d 894 (10th Cir. 1975)


The TELEX CORPORATION, and Telex Computer Products, Inc.,

Plaintiffs-Appellees-Appellants (and Appellants on




Defendant-Appellant-Appellee (and Cross-Appellant

on Counterclaim).

Nos. 73--1874 to 73--1878, 73--1961 and 73--1962.

United States Court of Appeals, Tenth Circuit

January 28, 1975

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

Order Jan. 24, 1975.

Rehearing Denied March 27, 1975.

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Thomas D. Barr, New York City, and Nicholas DeB. Katzenbach, Armonk, N.Y. (Frederick A. O. Schwarz, Jr., Robert F. Mullen, and George Vradenburg III, New York City, Truman B. Rucker, Rucker, Tabor, McBride & Hopkins, Tulsa, Okl., Robert H. Harry, Davis, Graham & Stubbs, Denver, Colo., and Cravath, Swaine & Moore, New York City, of counsel, with them on the brief), for defendant-appellant, International Business Machines Corp.

Floyd L. Walker, Walker, Jackman & Associates, Inc., Tulsa, Okl., and Richard B. McDermott, Boesche, McDermott & Eskridge, Tulsa, Okl. (Serge Novovich, Tulsa, Okl., with them on the brief), for plaintiffs-appellees, The Telex Corp., and Telex Computer Products, Inc.

Before SETH, McWILLIAMS and DOYLE, Circuit Judges.



The judgment of the trial court in favor of Telex Corporation and Telex Computer Products, Inc. and against IBM must be and the same is hereby reversed for reasons fully set forth in the court's opinion which will follow. In brief summary, the court does hereby:

Reverse that part of the judgment of the trial court which entered money judgment against IBM. This reversal is based on this court's determination that the trial court erred in defining relevant market or market as the term is used in the antitrust laws and within the scope of which the framework of competition, the market shares, the acts and the identity of the competitors may be evaluated and compared. This fundamental misconception affected the remainder of the court's decision.

Secondly, the judgment against IBM is reversed because of the trial court's findings of fact as to the acts of IBM and the court's determination that these acts were predatory and contrary to the Sherman Antitrust Act. The evidence establishes that IBM's actions constituted valid competitive practice and were neither predatory nor otherwise violative of the antitrust acts.

The judgment of the trial court against Telex based on the counterclaim of IBM which finds that Telex had misappropriated and pirated trade secrets of IBM is supported by the evidence and law and affirmed as to the liability of Telex. The damage award is reduced to $17,500,000 compensatory damages; the judgment in the amount of $1,000,000 punitive is affirmed. As modified, this judgment on the counterclaim is affirmed.

We do hereby vacate the trial court's awards of attorney fees and costs. On remand the trial court is directed to reconsider its awards of costs and attorney fees in the light of the action taken in this court. The parties are directed to bear their own costs and attorney fees incurred in this appeal.

The judgment, as fully expressed in our opinion, is reversed and remanded to the district court with directions to enter judgment in favor of IBM on the Telex complaint and for award of costs and attorney fees at the trial and for the modification of judgment in favor of IBM on its counterclaim as above provided.

The opinion of the court will be filed in the next several days.



The appellant, International Business Machines Corporation (IBM), here appeals a judgment in favor of Telex Computer Products, Inc. (Telex), appellee, in the total amount of $259.5 million, plus.$1.2 million in attorneys' fees and costs (this latter amount was stipulated by the parties). Actual damages were determined to be in the amount of $117.5 million. This amount was reduced substantially before trebling so as to prevent Telex from profiting as a result of

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certain advantages obtained from unlawful competitive activities and its illegal obtaining of trade secrets of IBM. Originally the trial court had ordered damages in favor of Telex in the amount of $352.5 million, but in amended findings and judgment this was reduced as stated above.

Telex has alleged in the complaint that IBM violated sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and section 2 of the Clayton Act, 15 U.S.C. § 13, in that IBM had monopolized and attempted to monopolize the manufacture, distribution, sale, and leasing of electronic data processing equipment. The complaint was later amended to charge IBM in more specific terms with monopolization in the manufacture, distribution, sale, and leasing of plug compatible peripheral products which are attached to IBM central processing units.

IBM in turn filed a counterclaim against Telex in which the latter is charged with unfair competition, theft of trade secrets, and copyright infringement pursuant to both state law and 17 U.S.C. § 101.

It is alleged that jurisdiction is based upon 15 U.S.C. § 15, which makes provision for a private claim for injuries resulting from violation of federal antitrust laws. IBM's counterclaim, sounding in unfair competition and copyright infringement, is allegedly brought pursuant to 28 U.S.C. § 1332 (diversity of citizenship) and § 1338.

Following the filing of the case, it was transferred to the United States District Court for the District of Minnesota. This was for pretrial proceedings together with other cases against IBM which were then pending.

A supplemental complaint was filed by Telex. This charged that IBM had violated section 2 of the Sherman Act by announcing its 'Fixed Term Plan' and 'Extended Term Plan' for the leasing of IBM equipment.

Still other supplemental claims were filed by Telex alleging other violations and seeking an injunction to prohibit IBM from integrating memory and disk control circuitry as well as from lowering its prices on memories.

The court in Minnesota issued a temporary restraining order enjoining IBM from announcing its new central processing units. However, this order was dissolved by the Court of Appeals for the Eighth Circuit. Following the completion of discovery, the instant case was remanded to the United States District Court for the Northern District of Oklahoma for trial.

Further pretrial conferences were held in the District Court during February, March, and April 1973, and following waiver of a jury the cause went to trial to the court on April 16, 1973. The trial was for twenty-nine days. The District Court on September 17, 1973, issued very extensive findings of fact and conclusions of law in which it, as has been noted, entered judgment in favor of Telex against IBM. The trial court amended its findings of fact and conclusions of law and entered a reduced judgment on November 9, 1973.



The evidence established that IBM was first incorporated in 1924 and operated as a producer of office machinery and equipment. However, in the early 1950's it entered the electronic data processing industry. It produced a research computer in 1953 and installed its first computer for use in commercial work in 1955. Telex began manufacturing electronic data processing products in the year 1959. The evidence established in the court found that the electronic data processing industry was a young, dynamic one with a tremendous amount of revenue. In 1952 its total revenues were $48 million. By 1970 its total revenues equalled $10.2 billion. The number of companies in the electronic data processing business grew from thirteen in 1952 to 1,773 in 1970. Nevertheless, IBM, although originally dominant, steadily declined. It had 64.1 per cent of the electronic data processing revenues in 1952,

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but only 35.1 per cent of the total revenue in the year 1970. Although IBM was recognized as an industry leader, having more revenue from the industry than any other company, it did not, according to the finding of the trial court, have monopoly power or status in the industry as a whole. 1

At the outset it is necessary to distinguish between the general systems portion of the industry which encompasses the manufacture of the basic electronic data processing system, the essential equipment being a central processing unit. The number of manufacturers engaged in the manufacturing of the processing units increased dramatically, from three in 1952 to ninety-six in 1972. The court found that about eight or nine of these were considered principal manufacturers. In the segment of the industry involving the manufacture of the central processing units, IBM did not have monopoly power, although it was estimated by the court that its market share was about thirty-five per cent.

In addition to the central processing unit, a data processing system also has a number of so-called peripheral devices which are connected with the central processing unit and which perform various special functions in the data processing system. These include information storage components like magnetic tape drives, magnetic disk drives, magnetic drums and magnetic strip files; terminal devices such as printers; memory units, which are specialized storage units, and other similar types of peripheral components. Sometimes these devices are included in the central processing unit, that is, do not exist as external components. It is these peripheral components with which we are primarily concerned in this lawsuit. The importance of these can be judged from the fact that the court found that they constitute 50 to 75...

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