Intern. Tel. & Tel. Corp. v. General Tel. & Elect. Corp.

Decision Date28 February 1978
Docket NumberCiv. No. 2754.
Citation449 F. Supp. 1158
CourtU.S. District Court — District of Hawaii



Vernon F. L. Char, Damon, Shigekane, Key & Char, Honolulu, Hawaii, Maxwell M. Blecher, Blecher, Collins & Hoecker, Los Angeles, Cal., Howard J. Aibel, Edwin A. Kilburn, Daniel R. Solin, Grant S. Lewis, LeBoeuf, Lamb, Leiby & MacRae, New York City, for plaintiff.

Marshall M. Goodsill, Martin Anderson, Goodsill, Anderson & Quinn, Honolulu, Hawaii, Milton Handler, Stanley D. Robinson, Michael Malina, Kaye, Scholer, Fierman, Hays & Handler, New York City, Thomas R. Mulroy, Mark Crane, Hopkins, Sutter, Mulroy, Davis & Cromartie, Chicago, Ill., for defendants.

PENCE, District Judge.


This is the latest chapter in this continuing antitrust saga, the first three installments of which may be found at 296 F.Supp. 920 (D.Haw.1969) (GTE I); 351 F.Supp. 1153 (D.Haw.1972) (GTE II); and 518 F.2d 913 (9th Cir. 1975) (GTE III). The International Telephone and Telegraph Corporation (ITT) filed this suit in this court in 1967 against the General Telephone and Electronics Corporation (GTE). The gravamen of its complaint was that GTE, through a series of acquisitions both of telephone operating companies and of telephone equipment manufacturers, and through its subsequent business behavior that flowed from those acquisitions, had violated the Clayton and Sherman Acts as well as the Hawaii state antitrust statute, and thus foreclosed ITT from sales in a legally significant portion of the telephone equipment market.

In GTE I, this court swept away, on plaintiff's motion to strike, a number of defenses—statute of limitations, laches, estoppel, unclean hands—which GTE had interposed on its behalf. GTE II was this court's decision on the merits: the challenged acquisitions and practices violated Clayton § 7 and Sherman § 1 with respect to the national market—and their Hawaiian statutory analogues with respect to the state market—in telecommunications equipment (switching, telephone apparatus, and radio transmission, excluding wire and cable) for the market consisting of "independent" telephone operating companies (i. e., excluding the American Telephone and Telegraph system—AT&T or Bell), and ITT as a private "attorney general" had standing to request divestiture and mandatory injunctive relief.

On appeal, the Ninth Circuit, in GTE III, affirmed in part and reversed in part, and remanded. It held that divestiture is not available to private antitrust plaintiffs (although full injunctive relief is); that the defense of laches is or may be available to GTE; that AT&T purchases were or may have been improperly excluded from the market defined, as were purchases by customers not telephone operating companies and all potential purchases by telephone subscribers; and that, as to the Hawaii state statute, the relevant market should not have been limited to opportunities for sales to Hawaiian buyers. Further, this court was directed to determine the anticompetitive effect of each individual GTE acquisition. A more complete history of the case may be obtained by reference to the decisions cited above.

Thus on remand, ITT v. GTE is again before this court. By stipulation of the parties, the latest clash is to be limited initially to ITT's claim that GTE has committed a Sherman § 1 violation, based on analysis of GTE's in-house purchasing policy i. e., the alleged practice of requiring its telephone operating companies to purchase equipment requirements from GTE's affiliated equipment manufacturers, principally Automatic Electric (AE) and Lenkurt.

The parties have agreed that this court's decision may be made on the basis of the record now before it. They have additionally stipulated as to the annual share of all purchases of telephone equipment in the United States represented by GTE operating companies from affiliated manufacturers for each year from 1945 to 1969, both including and excluding Bell purchases as part of the total market.1 GTE's share in 1969 came to 7.41% with Bell included, and 37.72% with Bell excluded.

ITT's basic position here is that GTE, "acting in concert with its subsidiaries, adopted an in-house purchasing policy, which, wholly apart from its acquisitions, produced an actual trade restraint in violation of Sherman Act § 1" in foreclosing ITT and other equipment manufacturers from GTE's portion of the telephone equipment market.2 GTE, in rebuttal, asserts that ITT has not previously raised this claim, which GTE asserts is groundless on the merits,3 and that in any event the Federal Communications Commission (FCC) has exclusive jurisdiction over the matters at issue.4

The limited determination of § 1 legality now to be made by this court thus requires a preliminary disposal of several points: (1) may ITT now raise this allegation? (2) if so, may GTE now raise the defense of exclusive jurisdiction? (3) if so, does the FCC in fact have exclusive jurisdiction?

(1) May ITT now raise its Sherman § 1 claim?

GTE posits that ITT has not previously raised the § 1 claim now asserted, and, by implication, that ITT should now be estopped from presenting new claims on remand. However, ITT brought its original complaint under the Sherman Act as well as the Clayton Act, GTE II, supra, 351 F.Supp. at 1161, and it is clear that ITT there challenge GTE's in-house purchasing practices. Id. at 1161, 1188-94, 1196-98. Moreover, this court there found a § 1 violation based on GTE's "mergers and consolidations, and * * * subsequent actions and conduct in effectively foreclosing the market for telephone equipment represented by the GTE telephone operating companies, which constituted a continuing combination in unreasonable restraint of interstate trade * * *." Id. at 1198 (emphasis added). It is thus manifest that the impact of GTE's in-house purchasing was considered separately from the impact of its acquisitions; therefore ITT is free to make its § 1 claim; it is not new matter.

(2) May GTE now raise the defense of exclusive FCC jurisdiction?

Since subject matter jurisdiction is never waived, may be raised at any point during litigation, and must in fact be raised by the court itself if the parties fail to do so, therefore, GTE may assert this defense. Louisville & Nashville R. R. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908); Federal Rule of Civil Procedure 12(h)(3).

(3) Does the FCC have exclusive jurisdiction?

GTE claims that, with the exception of acquisitions and mergers, the FCC "has exclusive jurisdiction to regulate the vertical dealings between telephone company common carriers such as the operating companies of the General System and affiliated manufacturers of telephone equipment such as Automatic Electric." More specifically, its claim is that the regulatory scheme effected by statute and agency upon telephone companies has worked an implied repeal of the antitrust laws with respect to them; that by the 1934 Communications Act (FCA) Congress committed to the FCC all supervision of interstate wire and radio communication, which subsumes regulation of telephone company equipment purchases from affiliated manufacturers. The essence of FCC authority, says GTE, is rates and profits, which necessarily goes to costs and therefore the reasonableness of equipment prices.5

GTE also points out that the FCC is currently involved in a complex administrative proceeding (FCC Dkt. 19129) involving the relationship between Bell and its affiliated manufacturer Western Electric (WE), and therefore covering much of the same ground as here; that ITT and GTE are parties to that proceeding; and that therefore this court should not interfere by passing on related antitrust questions. Since the FCC could in its present proceeding regulate telephone equipment purchases from affiliated manufacturers, says GTE, an antitrust court could rule inconsistently on the same issue, and the possibility of such a conflict requires that antitrust immunity be implied to make the regulatory scheme work.6 GTE relies largely on two recent U. S. Supreme Court decisions, Gordon v. New York Stock Exchange (Gordon), 422 U.S. 659, 95 S.Ct. 2598, 45 L.Ed.2d 463 (1975), and United States v. National Association of Securities Dealers (NASD), 422 U.S. 694, 95 S.Ct. 2427, 45 L.Ed.2d 486 (1975), which, GTE asserts, establish the following "fundamental proposition":

Antitrust does not apply to activity (1) subject to the regulation of a federal administrative agency which has supervisory responsibility over that activity which (2) could result in a standard of conduct duplicative of or inconsistent with that established by the antitrust laws, (3) whether or not the agency has actually exercised its jurisdiction to approve or disapprove the challenged conduct.7

ITT contradicts, claiming that only in cases of plain repugnancy between regulation and antitrust is exclusive agency jurisdiction— antitrust immunity—implied, and regulated industries are so exempted only to the extent legislated by Congress, with such implied exclusion disfavored. The relevant factors leading to a finding of immunity, asserts ITT, are (1) congressional intent to immunize, (2) conflict between regulatory and antitrust standards, and (3) continuing regulatory supervision. None of those factors is present here, maintains ITT. The current FCC administrative proceeding goes to rates, which could only regulate equipment procurement practices indirectly. Moreover, again to paraphrase ITT's argument, the FCC has never sought to regulate such practices nor concerned itself with their impact on competition in the telephone equipment market. Its jurisdiction over telephone operating companies does not extend to equipment manufacturers.8

A regulatory statut...

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