Computer Identics Corp. v. Southern Pacific Co., 84-1277

• Decision Date: 07 March 1985
• Docket Number: No. 84-1277,84-1277
• Parties: 1985-1 Trade Cases 66,466 COMPUTER IDENTICS CORPORATION, Plaintiff, Appellant, v. SOUTHERN PACIFIC COMPANY, et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 200

756 F.2d 200

1985-1 Trade Cases 66,466

COMPUTER IDENTICS CORPORATION, Plaintiff, Appellant, v. SOUTHERN PACIFIC COMPANY, et al., Defendants, Appellees.

No. 84-1277.

United States Court of Appeals, First Circuit.

Argued Nov. 9, 1984.

Decided March 7, 1985.

Stephen A. Hopkins, Boston, Mass., with whom Paul Killeen and Sherburne, Powers & Needham, Boston, Mass., were on brief for plaintiff, appellant.

Jerome P. Facher, Boston, Mass., with whom Robert D. Keefe, James C. Burling, John F. Batter, III and Hale & Dorr, Boston, Mass., were on brief for defendants, appellees.

Before BOWNES, BREYER and TORRUELLA, Circuit Judges.

TORRUELLA, Circuit Judge.

This is an action alleging a conspiracy under Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1 (the Act). ¹ It is before us on appeal by Plaintiff Computer Indentics Corporation (Computer Identics) ² from a jury verdict in favor of defendants-appellees Southern Pacific Company (Southern Pacific), a holding company, its wholly owned subsidiary, Southern Pacific Transportation Company (SPT), a railroad operating company, TOPS On-Line Services, Inc. (On-Line), a computer consulting service, and Strong-Wishart & Associates (Strong-Wishart), transportation management consultants. The core of Computer Identics' allegations was that appellees conspired to restrain trade by damaging its position in the market for computerized control systems used in railroad operations.

On March 1, 1984, after a lengthy trial, the jury answered an interrogatory specifically finding that there had been no conspiracy among any of the defendants and thus returned a verdict in their favor. That finding being the fundamental issue underlying this action and appeal, the question before us is reduced to a determination of whether any error was committed in connection therewith. Having made timely objections to the jury instructions, alleging that said instructions were incomplete, confusing, inadequate and erroneous, Computer Identics seeks a new trial.

The relevant facts are as follows:

After testing various processes for automatically identifying railroad freight cars, the Association of American Railroads (AAR), in 1967, experimentally adopted technology, developed by the Sylvania company, which uses retro-reflective labels affixed to railroad cars. ³ At that time AAR amended its rule dealing with the physical characteristics of freight cars being interchanged between railroad lines, requiring that cars in interchange must be equipped with ACI labels, which could only be read by scanners employing the Sylvania technology. Appellant was a supplier of this technology.

Following the adoption of this rule, the railroad industry began the task of labeling the almost two million cars then in use. By the early 1970's, nearly 95% of the rolling stock had been labeled at some time. Nothing in the AAR's ruling, however, required that the railroads purchase the scanners or actually use the technology. Therefore, although there was a potential market for over 10,000 scanners, only about 400 scanners were actually sold to the entire railroad industry between 1967 and 1975. During this period Systems and Computer Identics began to expand their interests into the development of complex computer based operational control systems (CBOCS), with their optical scanners as the cornerstone of these systems.

Systems and Computer Identics, however, were not the only companies developing and implementing CBOCS. Appellee SPT had also developed, for its own use, a system commonly referred to as TOPS, which consisted of sophisticated centralized computing equipment with remote terminals located throughout its rail system. Its computer software programs were continually revised and updated. In 1969, Southern Pacific management decided to cash in on the development of TOPS and on the expertise gained by SPT in the process, through the establishment of a new company organized to sell the system to other railroads. Known as TOPS On-Line Services, the company was formed as a wholly separate corporation with Southern Pacific owning 80% of the stock and 20% being owned by Strong-Wishart. The TOPS system was not based on optical scanners nor was it designed for individual railroad yard control but, rather, was primarily designed for the central control of large railroad systems. When marketed to other railroads, the system software was not sold, but was made available at no cost to system purchasers who could then modify it to suit their particular needs, or pay On-Line and Strong-Wishart to do it for them. Appellant alleges, therefore, that Strong-Wishart/On Line and Computer Identics/Systems were competitors insofar as their business involved offering the "product" which consisted of the design and implementation of CBOCS in North American railroads.

By 1973, railroads using the scanner technology were experiencing serious labeling problems and deficiencies, including label mislocation and misapplication and unreadability due to dirt, damage and other causes. The label readability fell well below the 95% level, which some railroads considered a minimum, declining to 80% and continuing its downward trend.

By early 1974, some railroad officials expressed concern about the willingness of individual railroads to cooperate in labeling the cars and maintaining them. They criticized the technology as inherently ineffective. The AAR decided to continue the label rule for another two years of evaluation. Several major railroads began an intensive label cleaning and maintenance improvement campaign in an effort to increase label readability to a useful level. Potential customers of scanner technology, however, adopted a "wait and see" attitude toward the purchase of optical ACI equipment.

In early 1975 a course of events began among Southern Pacific, SPT, On-Line, and Strong-Wishart which appellant alleges was a conspiracy to undermine railroad industry support for label scanner technology and to destroy its prospects for business in the CBOCS market. In April of that year, James W. Germany, an executive of both On-Line and SPT, sent a memorandum to SPT Vice President Richard Spence, characterizing the intensive label maintenance programs as unsuccessful and recommending that optical ACI technology be discontinued. Spence later recommended to an influential committee of the AAR that the system be abandoned. In June, he ordered that label maintenance be discontinued at the West Colton railroad yard, and that ACI labels not be applied to new cars, although the price of such application was included in the cost. When knowledge of Southern Pacific and SPT's action spread through the industry via trade magazine articles, other railroads followed suit. In December, 1975, the AAR Board of Directors voted to continue the technology but without mandatory maintenance.

The plaintiff presented evidence related to its efforts to secure the contract to provide CBOCS for the Ferrocarriles Nacionales de Mexico (Mexico), evidence from which it believed the jury could infer that the appellees improperly acted to influence Mexico's choice of an On-Line supported system. Computer Identics also alleges that it was denied the opportunity to fairly compete for the CBOCS contract for the entire Conrail system when in 1976, Spence, who had left SPT and joined Conrail the previous year, set up a "study team" to recommend the computer systems. The team was made up of persons who, with one exception, ⁴ were representatives of railroads which were users of the TOPS systems obtained from SPT. Computer Identics alleges that for this reason the Systems proposal was neither reviewed nor considered by Conrail in their evaluation.

Plaintiff sold no ACI based systems subsequent to 1974. In November, 1977 the AAR formally voted to rescind the interchange rule requiring the application of labels to cars.

In order to prove a conspiracy under Section 1 of the Act, a plaintiff is required to present direct or circumstantial evidence that reasonably tends to establish that the defendants "had a conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto Co. v. Spray-Rite Service Corporation, --- U.S. ----, 104 S.Ct. 1464, 1471, 79 L.Ed.2d 775 reh'g denied --- U.S. ----, 104 S.Ct. 2378, 80 L.Ed.2d 850 (1984); Edward J. Sweeney & Sons Inc. v. Texaco, Inc., 637 F.2d 105, 111 (3rd Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981); accord H.L. Moore Drug Exchange v. Eli Lilly & Co., 662 F.2d 935, 941 (2nd Cir.1981), cert. denied 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 144 (1982). In doing so, the plaintiff is obliged to produce evidence "that tends to exclude the possibility that [the defendants] were acting independently." Spray-Rite Service Corp., supra, 104 S.Ct. at 1471.

On appeal we are required to test the legal sufficiency of the charge against these rules of law, and the facts as indicated. In this respect we must be mindful that although all parties are entitled to an adequate jury charge upon the controlling issues in the case, the court need not employ the precise language urged by any party. See McKinnon v. Skil Corp., 638 F.2d 270, 274 (1st Cir.1981); Wolff v. Puerto Rico, 341 F.2d 945, 946 n. 1 (1st Cir.1965). It is sufficient if the appropriate principle of law is correctly stated in the actual instructions given by the court. See Harrington v. United States, 504 F.2d 1306, 1317 (1st Cir.1974); Gray v. Shell Oil Co., 469 F.2d 742 (9th Cir.), cert. denied, 412 U.S. 943, 93 S.Ct. 2773, 37 L.Ed.2d 403 (1973). In our appellate function, we must also be satisfied that the instructions do not confuse or mislead the jury with regard to the applicable principles of law.

Our review of the jury instruction regarding the conspiracy issue shows that the essential elements were adequately covered. In charging the jury, the District Court included the following:

[T]he conspiracy or...