Glictronix Corp. v. American Tel. & Tel. Co.

• Decision Date: 04 October 1984
• Docket Number: Civ. A. No. 82-4447.
• Citation: 603 F. Supp. 552
• Parties: GLICTRONIX CORPORATION, on behalf of itself and all others similarly situated, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

603 F. Supp. 552

GLICTRONIX CORPORATION, on behalf of itself and all others similarly situated, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants.

Civ. A. No. 82-4447.

United States District Court, D. New Jersey.

October 4, 1984.

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Stern, Steiger, Croland & Bornstein by Howard Stern, Paramus, N.J., for plaintiff.

Pitney, Hardin, Kipp & Szuch by Dennis R. LaFiura, Morristown, N.J., and Sidley & Austin by George L. Saunders, Jr., Chicago, Ill., and Sidley & Austin by Stewart A. Block, Ronald S. Flagg, Washington, D.C., and Norman E. Gamble, American Tel. & Tel. Co., New York City, for defendants.

OPINION

DEBEVOISE, District Judge.

Plaintiff Glictronix Corporation filed this action against the American Telephone and Telegraph Company and its other affiliated defendants alleging violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2.

Now pending are plaintiff's motions (1) for class certification and (2) for partial summary judgment to preclude relitigation of issues decided adversely to AT & T in Litton Systems, Inc. v. American Tel. & Tel. Co., 76 Civ. 2512 (S.D.N.Y.1981), aff'd, 700 F.2d 785 (2d Cir.1983), cert. denied, ___ U.S. ___, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984).

Facts

Plaintiff, Glictronix Corporation ("Glictronix") a retailer of telephone terminal equipment, alleges that the defendants (hereinafter collectively referred to as "AT & T") engaged in a course of anticompetitive and predatory conduct with respect to the distribution, sale, rental and/or lease of telephone terminal equipment in the geographic markets serviced by the two defendant operating companies, New Jersey Bell Telephone Company and New York Telephone Company. Glictronix alleges that defendants' acts constitute monopolization, attempt to monopolize and conspiracy to monopolize, all in violation of Section 2 of the Sherman Act and a conspiracy to restrain trade in violation of Section 1 of the Sherman Act.

The products at issue in this case are two types of telephone terminal equipment: private branch exchange telephone systems ("PBXs") and key telephone systems ("key systems"). A PBX is used for transmitting and receiving telephone calls and switching such calls to a number of connected individual telephones. A key telephone system is used to connect a single telephone station to telephone trunk lines by manipulation of buttons on the face of the telephone.

Reference to the history of AT & T's control over the telephone terminal equipment market is necessary to an understanding of Glictronix's claims.¹ Until 1968, AT & T held an absolute, governmentally recognized monopoly over terminal equipment. It issued tariffs which were filed with the Federal Communications Commission ("FCC"), prohibiting telephone customers from installing any such equipment not obtained from AT & T.²

In 1968, the FCC ruled that these tariffs were unlawful. In the Matter of Use of the Carterfone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, recon. denied, 14 F.C.C.2d 571 (1968). Following this decision, AT & T imposed new tariffs which required that telephone customers who obtained terminal equipment from AT & T's competitors use an "interface device" or "protective connecting arrangement" ("PCA"), to be interposed as a barrier between the AT & T network and the non-AT & T equipment. The PCA had to be leased from and installed by AT & T. The ostensible purpose of the PCA was to protect the network from non-AT & T equipment which might damage it.

The PCA tariff was chosen by AT & T over an alternative method of ensuring protection of the network, namely the development of a system of certification standards. A certification or registration system would regulate the type of equipment which could be connected to the network, and ensure that potentially harmful equipment would not be connected to the network, at least not without protective circuitry.

When AT & T filed the PCA tariff in 1968, the FCC permitted enforcement of the tariff without either approving or disapproving it. Carterfone, supra, 14 F.C.C.2d 571 (1968).

However, in November, 1975, the FCC generally rejected the PCA tariff in favor of a certification system. Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Services (MTS) and Wide Area Telephone Service (WATS), 56 F.C.C.2d 593 (1975). Although excluded from this ruling in 1975, the equipment at issue in this case was later included in the certification program. Interstate and Foreign Toll Telephone Service, 58 F.C.C.2d 736 (1976); Interstate and Foreign MTS and WATS, 67 F.C.C.2d 1255 (1978).

The FCC's 1975 ruling stated in unequivocal terms that the PCA tariff provisions "imposed an unnecessarily restrictive limitation" and "constituted an unjust and unreasonable discrimination both among users.... and among suppliers of terminal equipment." After cataloging the extensive reports, recommendations and other material the FCC had considered, the filing also concluded that "there has been no demonstration of network harm resulting from the interconnected operation of some 1600 independent local telephone companies and the Bell System ... many of whom purchase and connect without benefit of carrier-supplied connecting arrangements the identical independently manufactured terminal equipment for which the individual user must lease carrier-supplied connecting arrangements." 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) (first Report & Order). In affirming the FCC's extension of a certification system to PBXs and key systems which had their own protective circuitry, the Fourth Circuit termed the PCA requirement an attempt to preserve "the carriers' private lawmaking authority over independent manufacturers." North Carolina Utilities Commission v. F.C.C., 552 F.2d 1036, 1051 (4th Cir.), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977).

Even after these decisions, PCAs are still required for equipment that does not meet FCC registration standards and for equipment which is not properly installed. Interstate and Foreign MTS and WATS, supra, 67 F.C.C.2d at 1256, 1272 n. 21.

Glictronix alleges that AT & T violated § 2 of the Sherman Act, by adopting the PCA tariff and opposing the adoption of certification standards. It alleges that AT & T's imposition of the PCA tariff was unlawful in light of the alleged facts that:

1. the PCA was unnecessary to protect the network from harm;

2. the direct cost of the PCA created an artificial economic barrier to competition in the terminal equipment market; and

3. the tariff was adopted and pressed on the FCC as a delaying tactic, designed to suppress competition in the terminal equipment market until AT & T developed products which could compete effectively in that market.

Glictronix also alleges that AT & T: disparaged the telephone terminal equipment distributed by their competitors (Complaint ¶ 33(a)); prematurely announced to telephone customers the availability of new terminal equipment in order to persuade such customers not to purchase competitive equipment (id. at ¶ 33(b)); delayed installation of and improperly installed and maintained PCAs required to interconnect the equipment distributed by plaintiff and other class members (id. at ¶ 33(d)); engaged in the practice of reciprocal trading, whereby defendants would purchase goods and services upon the condition that the supplier of such goods and services would obtain its telephone equipment from defendants (id. at ¶ 33(g)); "refused to sell inside wiring at all, refused to sell the inside wiring at a reasonable price, refused to negotiate the sale of inside wiring in good faith, refused to make timely responses to purchase requests and otherwise sabotaged inside wiring obtained by plaintiffs" (Plfs. Brief at 26); and "subjected competitors to unfair and expensive cutover tactics by failing to acknowledge or claiming non-receipt of customer cutover instruction letters; by continuously changing cutover dates; by delivering the wrong Bell trunk line or tie line equipment; by refusing to remove defendants' equipment or lines; by insisting incorrectly that customer difficulties were due to the customer equipment; by installation personnel leaving a job site unfinished; by their destruction of cable on the customer's premises; and by improperly making the cutover to competitor's equipment" (Plfs. Brief at 27-28).

AT & T contends that the equipment included under the headings of PBXs and key systems is diverse. It claims that the design and functions of PBXs vary greatly, with different variations handling from fewer than 30 to thousands of telephone lines. During the relevant period, PBXs could operate through "radically different technologies." The generic term "key telephone system" also encompasses a wide variety of equipment having varying capacities and using varying technologies. Glictronix marketed only a few of the many PBX and key systems in existence during the relevant period. (Glick Dep. at 91-93). Glictronix concentrated its sales efforts on customers seeking equipment for fewer than 200 lines (Id. at 96).

AT & T asserts that these different makes and models of PBXs and key systems possessed different potentials for causing harm to the AT & T network. As noted by AT & T, even when the FCC permitted direct connection of PBXs and key systems to the network in 1978, it ruled that PCAs would continue to be required for equipment that did not conform to registration standards, 67 F.C.C.2d 1255, 1272 n. 21 (1978).

One difference among various makes and models of PBXs and key systems found significant by the FCC in its registration orders was the ability of the power supply transformer to prevent power surges from passing through the...