General Dynamics Corp. v. American Tel. & Tel. Co.

• Decision Date: 04 December 1986
• Docket Number: No. 82 C 7941.,82 C 7941.
• Citation: 650 F. Supp. 1274
• Parties: GENERAL DYNAMICS CORPORATION, et al., Plaintiffs, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, etc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

650 F. Supp. 1274

GENERAL DYNAMICS CORPORATION, et al., Plaintiffs, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, etc., Defendants.

No. 82 C 7941.

United States District Court, N.D. Illinois, E.D.

December 4, 1986.

COPYRIGHT MATERIAL OMITTED

Philip W. Tone, Richard T. Franch, James A. McKenna, Jenner & Block, Chicago, Ill., for plaintiffs.

Theodore N. Miller, Sidley & Austin, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

Plaintiffs, General Dynamics Corporation, et al. (hereinafter collectively referred to as "General Dynamics"), brought this antitrust action, alleging that defendants, American Telephone and Telegraph Company, et al. (hereinafter collectively referred to as "AT & T"), attempted to and did monopolize the telephone terminal equipment market from approximately 1970 through 1978. This matter is now before the court on General Dynamics' motion to collaterally estop AT & T from relitigating certain issues decided adversely to AT & T in Litton Systems, Inc. v. AT & T, 700 F.2d 785 (2d Cir.1983), cert. denied, 464 U.S. 1073, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984). For the reasons set forth below, the court denies General Dynamics' motion.

I. Facts

General Dynamics acquired Stromberg-Carlson Corp., a manufacturer and distributor of telecommunications equipment, in 1955. Stromberg-Carlson historically sold the bulk of its equipment to independent (non-Bell) telephone companies, which, in turn, leased the equipment to their customers. Occasionally, Stromberg-Carlson sold its equipment to Bell companies, which also leased the equipment to their customers. Recently, Stromberg-Carlson began distributing its equipment directly to subscribers of both independent and Bell telephone companies.

In Counts I and II of its complaint, General Dynamics claims that AT & T unlawfully monopolized the "customer premises equipment distribution submarket"¹ by interfering with the connection of non-Bell customer premises equipment to the telephone network. More specifically, General Dynamics contends that AT & T interfered with the connection of non-Bell equipment to the telephone system by requiring the use of an interface device, or protective connecting arrangement ("PCA"), and by opposing the certification program that would have eliminated the PCA requirement. General Dynamics brings Count I in its capacity as a competitor of AT & T, seeking recovery of lost profits. General Dynamics brings Count II in its capacity as a customer of AT & T, seeking recovery of PCA charges it paid as a customer using non-Bell equipment. In Count III of its complaint, General Dynamics contends that AT & T unlawfully monopolized the "telecommunications equipment market"² by refusing to deal with, or acquire equipment from, manufacturers other than Western Electric Co., now known as AT & T Technologies, Inc. General Dynamics now moves to estop AT & T from relitigating a wide range of liability issues, predominantly arising with respect to Counts I and II.³

A. Regulatory History

The allegations set forth in Counts I and II of General Dynamics' complaint, as well as the claims in Litton and in several other actions against AT & T, arise out of changes in federal telecommunications policy during the 1950s and 1960s. The court in Jack Faucett Associates v. AT & T, 744 F.2d 118 (D.C.Cir.1984), cert. denied, 469 U.S. 1196, 105 S.Ct. 980, 79 L.Ed.2d 220 (1985), comprehensively set forth the regulatory history underlying the telephone terminal equipment cases:

Prior to 1956, AT & T, through a tariff filed with the Federal Communications Commission ("FCC" or "Commission"), prohibited the attachment of all foreign devices to its telephone network. AT & T justified this prohibition as necessary to ensure the safe and effective operation of the national telephone network. Using the same rationale of operation concerns, the FCC, in 1955, prohibited the use of a sound shield that attached to a telephone's mouthpiece. Hush-A-Phone Corp., 20 F.C.C. 391 (1955). Indicating that actual harm to the network was to be the guiding principle, this court voided that FCC decision, finding the Hush-A-Phone ruling to be neither just nor reasonable. Hush-A-Phone Corp. v. United States, 238 F.2d 266 (D.C.Cir.1956). This case represented the initial erosion of AT & T's absolute bar against foreign attachments. In Use of the Carterphone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, reconsideration denied, 14 F.C.C.2d 571 (1968), the FCC applied the Hush-A-Phone rationale and declared unlawful the existing foreign attachment prohibition and ordered AT & T to file new tariffs.

In response to Carterphone, AT & T filed the so-called interface tariffs that are a focus of this litigation. In broad terms, the tariffs permitted the attachment of foreign devices to the telephone network so long as any electrical connections were through a PCA or other interface device provided by AT & T or its subsidiaries. The FCC permitted the tariffs to become effective, but did so without "giving any specific approval to the revised tariffs." AT & T "Foreign Attachment" Tariff Revisions, 15 F.C.C.2d 605, 610 (1968). For several years thereafter, the necessity of requiring the interface device was studied. In 1969, for example, the FCC convened a panel of the National Academy of Sciences to study the problem. And in May 1971, the FCC formed a "PBX Advisory Committee" to study the feasibility of connections to the network without the interface device. State regulatory commissions also investigated AT & T's interface tariffs. See, e.g., New York Telephone Co., 79 P.U.R.3d 410, 417 (N.Y. Pub.Serv.Comm'n 1969); Glusing v. C & P Telephone Co., 1974 Md. P.S.C. 377 (Md.Pub.Serv.Comm'n).

In 1972, the FCC instituted rulemaking proceedings to address the interconnection issues. During the proceedings the PBX Committee submitted a report that included a model certification program. Under a certification program, terminal equipment that met certain standards could connect to the AT & T network without any interface device. AT & T, whether motivated by a genuine desire to protect its network or by a desire to protect its alleged monopoly, opposed the certification standard by filing comments with the Commission and, allegedly, by taking other steps in opposition. Despite this opposition, the FCC, in late 1975, adopted regulations establishing certification standards. 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, 599-613 (1975). Subsequently, the FCC applied its certification regulations to customer-provided terminal equipment. 58 F.C. C.2d 736 (1976). The Commission's order was affirmed on appeal. North Carolina Utilities Commission v. FCC, 552 F.2d 1036 (4th Cir.), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977).

Faucett, 744 F.2d at 120-21. See also Litton, 700 F.2d at 790-98; Glictronix Corp. v. AT & T, 603 F.Supp. 552, 556-57 (D.N.J. 1984); Selectron, Inc. v. AT & T, 587 F.Supp. 856, 858-59 (D.Ore.1984); United States v. AT & T, 524 F.Supp. 1336, 1348-50 (D.D.C.1981).

B. Prior Cases

General Dynamics seeks to estop AT & T on the basis of the Litton jury verdict, and it is to this case that the court now turns. However, also relevant to this court's determination is the government case against AT & T, United States v. AT & T, 524 F.Supp. 1336, and the five cases in which courts have already decided whether to estop AT & T on the basis of Litton, Faucett, 744 F.2d 118; Glictronix, 603 F.Supp. 552; Selectron, 587 F.Supp. 856; Wrede v. AT & T, 1985-1 Trade Cases ¶ 66,563 (M.D.Ga. 1984); Phonetele v. AT & T, 1984-1 Trade Cases ¶ 65,921 (C.D.Ca.1984).

1. The Litton Decision

The Faucett court set forth Litton's history and holding:

In June 1976, Litton Systems and some of its subsidiaries (collectively referred to as Litton) brought an antitrust action in the United States District Court for the Southern District of New York against AT & T, Western Electric Company, Bell Telephone Laboratories, and several Bell operating companies. Litton, suing as both competitor and customer, alleged that AT & T had monopolized and attempted to monopolize the telephone terminal equipment market by requiring the use of the interface device and by opposing the certification program that would have abolished that requirement.

The Litton litigation was lengthy and complex. Pretrial proceedings consumed over four years. Trial began in 1980, ran for more than five months and generated 18,000 pages of testimony and 945 exhibits. The jury ultimately found for Litton, concluding that, inter alia, AT & T had filed the interface tariff in bad faith, had intentionally delayed in providing and installing the interface devices, and had opposed certification in bad faith....⁴ The jury awarded damages in the sum of $92,258,243, before trebling.

On appeal the Second Circuit affirmed. 700 F.2d 785 (2d Cir.1983).... Significantly, the court, two judges concurring, held that AT & T's actions were not within the ambit of the Noerr-Pennington doctrine. Id. at 806-09. This conclusion, the court indicated, was required because AT & T was "`engaged in private commercial activity, no element of which involved seeking to procure the passage or enforcement of laws.' The decision to impose and maintain the interface tariff was made in the AT & T boardroom, not at the FCC...." Id. at 807. The court thus concluded that AT & T's opposition to certification "embraced much more than merely advocating a position before the FCC." Id. at 809. Alternatively, the court, all three judges concurring, held that if Noerr-Pennington were applicable, liability attached since AT & T's actions were within the sham exception.

The Second Circuit also concluded that the trial court erred in excluding a 1969 New York State Public Service Commission decision that approved the

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