Control Data Corp. v. International Business Mach. Corp.
| Citation | 306 F. Supp. 839 |
| Decision Date | 20 November 1969 |
| Docket Number | No. 3-68 Civ. 312,3-69 Civ. 157-159.,3-68 Civ. 312 |
| Parties | CONTROL DATA CORPORATION, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. DATA PROCESSING FINANCIAL & GENERAL CORPORATION, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. APPLIED DATA RESEARCH, INC., Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. PROGRAMMATICS INCORPORATED, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant. |
| Court | U.S. District Court — District of Minnesota |
COPYRIGHT MATERIAL OMITTED
Oppenheimer, Hodgson, Brown, Wolff & Leach, by John G. Robertson, St. Paul, Minn., for Control Data.
Strasser, Spiegelberg, Fried & Frank, by Victor S. Friedman, New York City, and Leonard, Street & Deinard, by Sidney Barrows, Minneapolis, Minn., for Data Processing Financial & General Corporation.
Jacobs & Cohen, by Morton C. Jacobs, Philadelphia, Pa., and Pressman & Scribner, by David Scribner, New York City, for Applied Data Research, Inc. and Programmatics, Inc.
Faegre & Benson, by Lawrence C. Brown and John D. French, Minneapolis, Minn., and Cravath, Swaine & Moore, by Thomas D. Barr, New York City, for IBM.
Order Amending Pretrial Order No. 2. November 20, 1969.
The first above captioned case originated and is pending in this court. The three other above captioned cases were transferred to this court by an order of the Judicial Panel on Multidistrict Litigation filed July 31, 1969, pursuant to 28 U.S.C. § 1407 for consolidated pretrial proceedings for all four cases. Pursuant to this court's pretrial Order No. 1 of August 26, 1969, a pretrial conference attended by counsel for all parties was held at St. Paul, Minnesota, on September 19, 1969, with an agenda of some 11 matters as set forth in said pretrial Order No. 1.
Though no answers have yet been filed by the defendant (IBM) and the court as yet has heard no evidence, it appears from the statements of various counsel that IBM is a new York based corporation engaged in manufacturing and selling electronic computers and computer equipment. Broadly speaking, the computers themselves are referred to as "hardware" and the material used in their operation such as tapes, punch cards and basic operation programs, training courses, etc., are referred to rather generally as "software." IBM manufactures, sells and leases both hardware and software. Its counsel states that there are approximately eighty other companies, many of them large corporations, which compete with it to some degree in manufacturing hardware, though the various plaintiffs' complaints allege that defendant's share of the market approximates or exceeds 70%. The plaintiffs variously charge IBM with violations of Sections 1 and 2 of the Sherman Act, allege the applicability of the Clayton Act, assert the common law offense of unfair competition and in some instances other violations of law such as the Robinson Patman Act.
Plaintiff Control Data Corporation (CDC) competes with IBM in that it manufactures both hardware and software, and sells and leases the same to users. The complaint in the CDC suit charges some 37 instances of alleged monopolistic practice on the part of IBM and certain other violations of law.
Plaintiff Data Processing Financial & General (DPF & G) does not manufacture hardware but buys and has bought at least 99% of some 200 million dollars' worth of hardware it now owns from IBM. It leases this hardware to various customers "at rates which compare favorably with rental rates that the end user could get directly from the manufacturer." DPF & G believes itself to be the largest single hardware customer of IBM and in its leasing function it is a direct competitor of IBM. DPF & G operates data centers throughout the United States, supplies software and various items of peripheral equipment and system maintenance.
Plaintiff Applied Data Research, Inc. (ADR) does not manufacture, sell or deal in hardware but is a manufacturer of software and sells or leases the same to customers. It claims to have been one of the first companies to market a "software package" in competition with IBM and other hardware manufacturers. ADR particularly complains of IBM's "bundling" or tie-in practices whereby it is claimed IBM sells its hardware at a high price and then furnishes the software and programming services free to the customer, thus allegedly unfairly competing with ADR.
Plaintiff Programmatics Incorporated (PI) apparently has merged with or been bought out by ADR in some fashion which counsel did not make entirely clear at the pretrial conference, though he states such will not affect the maintenance of the action by PI. This is a matter that discovery procedures may shed light on in due course. PI has developed and markets in California and elsewhere a software "sort" program. It is a "special purpose computer system" called Pi Sort which it is claimed can reduce by one-half the amount of machine time presently required by IBM's present system of sorting. PI contends that after its program was on the market IBM announced a similar competitive new program and gave it away free to hardware purchasers and others.
IBM twice prior to the institution of these actions has been in antitrust litigation with the Federal Government.1 The first Government action was brought in 1932 and culminated in an injunction entered in the Southern District of New York on December 26, 1935. By its terms IBM (and others) were permanently enjoined: "* * * from making, entering into, carrying out or enforcing any agreement or understanding, express or implied, with competitors dealing in tabulating machines—" whereby they agreed only to lease and not to sell the same, to adhere to minimum prices, and to require customers to purchase tabulation cards only from their lessors or pay higher prices. The computer industry as it now exists had not been born in 1935.
Again in 1952 the United States of America filed a civil complaint in the United States District Court for the Southern District of New York against IBM charging violations of Sections 1 and 2 of the Sherman Act. This resulted in a consent decree with judgment entered pursuant thereto on January 25, 1956. Prior to this time apparently IBM had not sold, and had refused generally to sell, computer hardware or software, but had merely leased the same to customers. Though the decree is many pages in length, its principal provision so far as its impact on the four lawsuits now before this court required IBM to offer its hardware for sale "upon terms and conditions which shall not be substantially more advantageous to IBM than the lease charges, terms and conditions for such machines." It was not until after the entry of this consent decree that companies such as DPF & G and numerous others came into existence. Thus to an extent the 1956 consent decree gave rise to an entirely new industry, i.e., the purchasing and releasing of IBM electronic computer hardware and perhaps other equipment.
The above brief recital of facts has been made because several of the principal items on the agenda at the pretrial conference of September 19, 1969 were IBM's motions to strike from all four complaints certain allegations, including reference to either of the above decrees on the grounds that the same are totally immaterial and irrelevant and if not stricken will be substantially prejudicial to defendant when and if the cases are tried to a jury. The several plaintiffs' complaints vary as to their allegations and so will be taken up separately later herein.
The court is of the opinion that all references to both the 1935 and the 1956 decrees should be stricken from the four complaints, and that such ruling should be made now in these pretrial proceedings rather than be deferred for ruling until the time of trial:
(1) So that the issues may be defined and appropriate appellate review may be sought by either party and a final determination made before trial date.
(2) So that the scope of pretrial discovery may be defined and perhaps at least to some extent reduced, and
(3) So that the parties, in ultimate preparation for trial will not have to make alternate preparation not knowing what the court may rule at the time of trial.
As to (2) above the court recognizes that under Rule 26 et seq. of the Federal Rules of Civil Procedure matters may be inquired into even though the testimony will be inadmissible at the trial, if such inquiry is reasonably calculated to lead to the discovery of admissible evidence. Thus the court does not rule that in discovery proceedings references may not in some ways be made to the decrees, but does rule that neither decree will be admissible at a jury trial nor will any reference thereto be permitted nor will any claim be sustained based upon alleged violation thereof or failure to comply therewith.
On December 31, 1968 this court originally heard defendant's motion, directed at that time solely to Control Data Corporation's complaint, seeking to strike therefrom all references to the 1956 consent decree, there being no reference therein to the 1935 judgment or decree. The CDC complaint does not per se seek to enforce the provisions of the consent decree nor does it purport to set forth an independent cause of action based thereon, though it does assert that one of the 37 instances of IBM's alleged monopolistic practice grows out of its failure to abide what the decree required, perhaps a distinction without a difference. The court made no ruling because of the pending petition to the Judicial Panel on Multidistrict Litigation to consolidate that case with the other various cases for pretrial purposes.
The complaint of Data Processing Financial & General Corporation makes one or some historical references to the 1956 consent decree but in Count V advances an...
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