Litton Systems, Inc. v. American Tel. and Tel. Co.

• Decision Date: 03 February 1983
• Docket Number: D,1344,Nos. 1323-26,s. 1323-26
• Parties: 1982-83 Trade Cases 65,194, 12 Fed. R. Evid. Serv. 1426 LITTON SYSTEMS, INC., Litton Business Telephone Systems, Inc., Litton Business Systems, Inc., and Litton Industries Credit Corporation, Plaintiffs-Appellees- Cross Appellants, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Western Electric Company, Inc., Bell Telephone Laboratories, Inc., New York Telephone Company, Inc., New Jersey Bell Telephone Company, Southern Bell Telephone and Telegraph Company, The Ohio Bell Telephone Company, Southwestern Bell Telephone Company, The Pacific Telephone and Telegraph Company, and Pacific Northwest Bell Telephone Company, Defendants-Appellants-Cross Appellees. LITTON SYSTEMS, INC., v. SOUTHWESTERN BELL TELEPHONE COMPANY, Defendant-Appellee. ockets 81-7598, 7766, 7776, 7778 and 7856.
• Court: U.S. Court of Appeals — Second Circuit

Page 785

700 F.2d 785

1982-83 Trade Cases 65,194, 12 Fed. R. Evid. Serv. 1426

LITTON SYSTEMS, INC., Litton Business Telephone Systems,

Inc., Litton Business Systems, Inc., and Litton

Industries Credit Corporation, Plaintiffs-Appellees- Cross Appellants, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Western Electric

Company, Inc., Bell Telephone Laboratories, Inc., New York

Telephone Company, Inc., New Jersey Bell Telephone Company,

Southern Bell Telephone and Telegraph Company, The Ohio Bell

Telephone Company, Southwestern Bell Telephone Company, The

Pacific Telephone and Telegraph Company, and Pacific

Northwest Bell Telephone Company,

Defendants-Appellants-Cross Appellees.

LITTON SYSTEMS, INC., v. SOUTHWESTERN BELL TELEPHONE COMPANY, Defendant-Appellee.

Nos. 1323-26, 1344, Dockets 81-7598, 7766, 7776, 7778 and 7856.

United States Court of Appeals Second Circuit.

Argued June 14, 1982.

Decided Feb. 3, 1983.

Howard J. Trienens, New York City (Jim G. Kilpatric, William J. Jones, David J. Ritchie, New York City, Leonard Joseph, Harvey Kurzweil, Joseph Angland, Fred R. Biesecker, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Frank C. Cheston, Henry T. Brendzel, New York City, of counsel), for defendants-appellants-cross appellees.

William Simon, Howrey & Simon, Washington, D.C. (Theodore F. Craver, Larry L. Yetter, Litton Industries, Inc., Beverly Hills, Cal., Peter E. Fleming, Jr., Curtis, Mallet-Prevost, Colt & Mosle, New York City, John Bodner, Jr., Francis A. O'Brien, John W. Nields, Jr., Ralph Gordon, Albert O. Cornelison, Jr., Kevin P. McEnery, Lewis M. Barr, Lisa A. Gok, Howrey & Simon, Washington, D.C.), for plaintiffs-appellees-cross appellants.

Before OAKES, MESKILL and KEARSE, Circuit Judges.

OAKES, Circuit Judge:

This appeal is taken from jury awards exceeding ninety million dollars before trebling entered by the United States District Court for the Southern District of New York, William C. Conner, Judge, in an antitrust action brought by Litton Systems, Inc. and some of its subsidiaries (Litton) against the American Telephone and Telegraph Company and some of its subsidiaries (AT & T). The awards were based on special jury findings that AT & T used its telephone monopoly illegally to monopolize the telephone terminal equipment market, thereby excluding Litton as a competitor, and imposing costs on Litton as a customer, of the AT & T system. The jury found that this was accomplished principally through opposing the adoption of certification standards and the imposition of tariffs filed with but not approved by the Federal Communications Commission (FCC). The tariffs required telephone customers to connect equipment purchased from AT & T's competitors to the telephone system only through the use of a device designed by AT & T.

This device--called an "interface device" by Litton and a "protective connecting arrangement" (PCA) by AT & T--was used in lieu of a system of "certification standards." These standards would have regulated, as they indeed now do regulate, the kind of equipment that can be connected with the AT & T system to ensure interconnection compatibility. Under the AT & T tariff, however, Litton had to pay for the privilege, so to speak, of connecting to the system with a "black-box" of AT & T's devising. The tariff was eventually rejected by the FCC in favor of certification standards, and Litton's principal argument before the jury and to the district court was that AT & T's bad faith opposition to certification standards drove Litton out of the telephone terminal equipment market in the interim period between the filing and the ultimate rejection of the tariff. While our recounting of the facts will disclose many other complexities, pro and con, of Litton's case, certainly a crucial factor is the FCC's ultimate finding that the interface device was not needed to protect the AT & T network from harm. Various network users had long purchased equipment from AT & T's competitors, using it without an interface with "no demonstration of ... harm" to the AT & T network. Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service (MTS) and Wide Area Telephone Service (WATS), 56 F.C.C.2d 593, 598 (1975). The gist of Litton's case and the jury's findings is that the interface device was unnecessary and uneconomical and that AT & T at all times knew this was so, and that despite clear prior indications from the FCC that the tariff would be set aside as unreasonable and destructive of competition, AT & T nevertheless proposed and fought to maintain the tariff--all in bad faith in order to exclude competition in the terminal equipment market.

AT & T raises a score of issues on appeal. In addition to disputing the evidence underlying the jury's verdict, AT & T argues that its opposition to certification standards was privileged under the First Amendment by virtue of the Noerr-Pennington doctrine because it merely advocated a position before a government agency. AT & T also claims that the district court erred in its evidentiary rulings, instructions to the jury, and handling of special interrogatories, and that the jury's damage award was not supported by substantial evidence and was inconsistent with certain jury findings in AT & T's favor. The jury verdict for Litton as an AT & T customer is attacked as both unsupported by the evidence and improper under the "filed tariff" doctrine of Keogh v. Chicago & Northwestern Railway Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922) and the 'target area' standing doctrine, see Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292, 1295 (2d Cir.1971), cert. denied, 406 U.S. 930, 92 S.Ct. 1776, 32 L.Ed.2d 132 (1972). Finally, AT & T argues that Litton's misconduct during discovery, which resulted in the denial of attorneys' fees to Litton, warranted outright dismissal of the case. Litton appeals the denial of attorneys' fees and conditionally cross-appeals on the basis that the district court's instructions to the jury prevented it from recovering its full measure of damages.

Bearing in mind that in reviewing the jury's verdict the evidence must be viewed in the light most favorable to Litton, we affirm, holding the Noerr-Pennington doctrine inapplicable to Litton's suit as a competitor. We have considered all the parties' contentions and have found none requiring reversal. We find that the evidence was sufficient, both in terms of its weight and from the standpoint of causation, to support the damage award and that the district court's instructions to the jury and evidentiary rulings were free from prejudicial error. We also uphold the verdict for Litton qua customer--no small sum, albeit almost wholly insignificant relative to the principal verdict. Although we are not without doubt, perhaps because the amounts involved are so large, we uphold the district court's imposition of discovery sanctions under Federal Rule of Civil Procedure 37 and therefore deny Litton's unconditional cross-appeal. Our disposition of the case renders consideration of Litton's conditional cross-appeal unnecessary. In affirming, we take due note that this case was a model of judicial technique for handling a serious, complex, and difficult jury trial. Irrespective of what we might say regarding certain of the rulings below that we think were questionable or debatable, if not reversible error, we commend the district court's handling of the case.

I. BACKGROUND

A. Early Restrictions on Interconnection

Prior to 1956, AT & T had an absolute monopoly over long distance telephone service and local telephone service in areas accounting for over eighty percent of this country's telephones. Independent telephone companies, familiar to many rural users, interconnected with AT & T's long distance network and provided local telephone service in those areas not serviced by AT & T. The AT & T "telephone network" comprised local central office switching systems as well as the wires and cables linking them with the businesses and homes of customers. This monopoly, administered under the aegis of the FCC, was recognized as perfectly lawful and proper.

But AT & T had another monopoly--not similarly sanctioned--over the sale and lease of individual telephone sets and business telephone systems. Broadly speaking, a business telephone system can be classified into one of two general categories. The first, a Key System, allows a single telephone set to connect several others through the use of buttons on the telephone. Key Systems are used primarily by small offices. The second category, a PBX System, employs a central console or switching mechanism to allow interconnection of up to several thousand telephones. Key Systems and PBXs--stipulated as the relevant product market in this case--are referred to in the industry as "telephone terminal equipment." AT & T's monopoly over such equipment (including residential telephones) was preserved after the expiration of Alexander Graham Bell's original patents by the simple expedient of prohibiting the attachment of non-AT & T equipment to the AT & T system. AT & T enforced this policy by cutting off service to customers who attached non-AT & T equipment. ¹ This practice was approved first by state regulatory agencies and later by the FCC after it assumed regulatory responsibility for telecommunications under the Communications Act of 1934, 47 U.S.C. Sec. 151 et seq. Because telephone terminal equipment sends electrical signals into the network, this policy was at that time considered necessary to ensure the safe and effective operation of the nationwide telephone network. ²

After World War II, however, various users sought to connect devices that AT & T had always considered "foreign attachments" to the telephone network. Efforts to challenge AT & T's absolute prohibition against interconnection of non-AT & T equipment met with some limited success as early as 1947...