Litton Systems, Inc. v. American Tel. & Tel. Co.

• Decision Date: 04 March 1980
• Docket Number: No. 76 Civ. 2512 (WCC).,76 Civ. 2512 (WCC).
• Citation: 487 F. Supp. 942
• Parties: LITTON SYSTEMS, INC. et al., Plaintiffs, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants. NEW YORK TELEPHONE CO., INC. et al., Counterclaimants, v. LITTON SYSTEMS, INC. et al., Counterdefendants.
• Court: U.S. District Court — Southern District of New York

487 F. Supp. 942

LITTON SYSTEMS, INC. et al., Plaintiffs, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants.

NEW YORK TELEPHONE CO., INC. et al., Counterclaimants, v. LITTON SYSTEMS, INC. et al., Counterdefendants.

No. 76 Civ. 2512 (WCC).

United States District Court, S. D. New York.

March 4, 1980.

COPYRIGHT MATERIAL OMITTED

Theodore F. Craver, Larry L. Yetter, Litton Industries, Inc., Beverly Hills, Cal., Howrey & Simon, Washington, D. C., Curtis, Mallet-Prevost, Colt & Mosle, New York City, for plaintiffs; William Simon, John Bodner, Jr., Francis A. O'Brien, Ralph Gordon, Kevin P. McEnery, Washington, D. C., Peter E. Fleming, Jr., New York City, of counsel.

Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for defendants; Leonard Joseph, O. Nile Bell, J. Paul McGrath, Harvey Kurzweil, New York City, of counsel.

OPINION AND ORDER

CONNER, District Judge:

This antitrust action is before the Court on objections filed by both sides, pursuant to 28 U.S.C. § 636(b)(1), to the Recommended Decision of Magistrate Kent Sinclair, Jr. submitted September 21, 1979, on defendants' motion for judgment of dismissal on the pleadings or for partial summary judgment.

The complaint charges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, by conspiring and attempting to restrain trade in and to monopolize, and by monopolizing, the interstate sale and leasing of telephone terminal equipment, including private branch exchange ("PBX") and key telephone system ("KTS") equipment designed to interconnect defendants' telephone trunk lines selectively with a number of individual telephones within an office, store, plant or other facility. The complaint alleges that defendants sought to and did accomplish these illegal objectives by, inter alia, (1) filing with the Federal Communications Commission ("FCC") and with state regulatory agencies self-effectuating tariffs which provided that terminal equipment supplied by others could be interconnected with defendants' trunk lines only if there was interposed between them an interface device provided and maintained by defendants, said tariffs being supported by "incomplete, misleading and erroneous information"; (2) falsely disparaging the terminal equipment offered by competitors, including plaintiffs; (3) deliberately making the required interface equipment unnecessarily complicated, expensive and inefficient and delaying its production, installation and service; (4) predatorily pricing defendants' terminal equipment below its production cost; and (5) depriving plaintiffs of fair access to state regulatory agencies by improper payments to officials thereof and illegal political contributions.

Plaintiff Litton Systems, Inc. ("Litton") is a Delaware corporation with its principal office in Beverly Hills, California, selling products and services in a wide range of business areas, including aerospace, communications, computers, shipbuilding and minerals exploration. Until 1974, its wholly-owned subsidiary, plaintiff Litton Business Telephones Systems, Inc. ("BTS") manufactured and sold telephone terminal equipment in competition with defendants. The complaint alleges that BTS sustained losses and eventually went out of business as a result of defendants' antitrust violations.

Defendants (collectively referred to hereinafter as "AT&T" or "Bell") include American Telephone & Telegraph Co.; its manufacturing subsidiary, Western Electric Company; its research subsidiary, Bell Telephone Laboratories, Inc.; and seven of its fully- or majority-owned regional operating companies. Intrastate telephone service is provided by the regional operating companies, whose rates and practices operations are controlled by state and local regulatory agencies, while interstate service is provided by AT&T's Long Lines Division under regulation by the FCC.

After extensive discovery, defendants moved for judgment of dismissal on the pleadings on the grounds that all aspects of operation of the Bell system, specifically including the interconnection of equipment thereto, are subject to pervasive regulation by the FCC and by state regulatory commissions, and that the purposes of such regulation are incompatible with the objectives of the antitrust laws, so that such activities are impliedly immune from the antitrust laws under the doctrine of such decisions as Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963) ("Pan Am"); Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973) ("Hughes Tool"); Gordon v. New York Stock Exchange, 422 U.S. 659, 95 S.Ct. 2598, 45 L.Ed.2d 463 (1975) ("Gordon"); United States v. National Association of Securities Dealers, 422 U.S. 694, 95 S.Ct. 2427, 45 L.Ed.2d 486 (1975) ("NASD") and Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), as specifically applied to the regulation of the market in ancillary telephone equipment in such cases as Essential Communications Systems, Inc. v. American Tel. & Tel., 446 F.Supp. 1090 (D.N.J.1978), rev'd, 610 F.2d 1114 (3d Cir. 1979) rehearing denied, No. 78-2521 (3d Cir., filed November 23, 1979). Defendants alternatively moved for partial summary judgment or judgment on the pleadings on the ground that their alleged activities in attempting to influence administrative action were shielded from antitrust liability by the First Amendment under the "Noerr-Pennington" doctrine established by Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961) ("Noerr") and reaffirmed in United Mine Workers v. Pennington, 381 U.S. 657, 669-70, 85 S.Ct. 1585, 1592-93, 14 L.Ed.2d 626 (1965) ("Pennington"). Plaintiffs, on the other hand, contend that defendants, by their false and misleading submissions to the regulatory agencies, have attempted to subvert the regulatory process, so that the "sham" exception to the Noerr-Pennington doctrine, recognized in such cases as California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972) ("California Motor Transport"), is applicable.

The motions were referred to Magistrate Sinclair for recommended decision pursuant to 28 U.S.C. § 636(b)(1)(B). In an unusually exhaustive and meticulous Recommended Decision 270 pages in length, exclusive of a 58-page appendix, Magistrate Sinclair recommended granting of the motion and dismissal of the entire complaint. He concluded that plaintiffs' "core" claims relating to defendants' activities before the FCC and the state regulatory commissions were immunized from antitrust liability in view of the pervasive regulation of the industry and because the specific conduct in question had, for the most part, been expressly sanctioned by the responsible agencies. He further recommended that the "peripheral" claims relating to defendants' alleged "business torts" such as disparagement of competitive terminal equipment be dismissed as ancillary to the "core" activities and likewise subject to remedial action by the agencies.

In the alternative, Magistrate Sinclair recommended stay of the action and referral of all the claims therein to the FCC for consideration in the first instance, pursuant to the principle of primary jurisdiction, as articulated, for example, in United States v. RCA, 358 U.S. 334, 79 S.Ct. 457, 3 L.Ed.2d 354 (1958).

The Magistrate further recommended denial of defendants' motion for partial summary judgment under Noerr-Pennington on the ground that there were material issues of fact bearing on the "sham" exception, particularly with respect to defendants' intentions relative to their challenged activities before the regulatory agencies.

In support of and in opposition to their exceptions to the Recommended Decisions, the parties have made massive and numerous written submissions. After due consideration thereof, and of the authorities cited therein, the Court has concluded, with due deference to the painstaking and conscientious effort of Magistrate Sinclair, that his recommendations that the action be dismissed on grounds of implied antitrust immunity or stayed pending referral for initial review by the FCC cannot be adopted. His recommended denial of defendants' motion to dismiss under the Noerr-Pennington doctrine is adopted. Defendants' motions are therefore denied in their entirety.

IMPLIED IMMUNITY

General Principles

There is an inherent and obvious tension between the emphasis on unrestrained competition underlying the antitrust laws and the "public interest" rationale underlying other instances of governmental regulation of business activity. The Sherman Act is premised on the theory that "the unrestrained interaction of competitive forces will yield the best allocation of our economic resources," Northern Pacific Ry. v. United States, 356 U.S. 1, 4, 78 S.Ct. 514, 517, 2 L.Ed.2d 545 (1958), and, to some extent, on the political and social desirability of smaller, competitive businesses, see United States v. Falstaff Brewing Corp., 410 U.S. 526, 540-43, 93 S.Ct. 1096, 1104-06, 35 L.Ed.2d 475 (1973) (Douglas, J., concurring in part); Northern Pacific Ry., supra, 356 U.S. at 4, 78 S.Ct. at 517. The assumption underlying economic regulation, on the other hand, is that unrestrained competition in certain industries will not adequately serve the public interest either because the activity involved is, from the standpoint of economic efficiency, a "natural monopoly" (certain utility activities, for example, see Otter Tail Power Co. v. United States, 410 U.S. 366, 369, 93 S.Ct. 1022, 1025, 35 L.Ed.2d 359 (1973)); or because the business conduct involved should be judged by criteria other than or in addition to competitiveness, such as convenience to the public or nondiscrimination in providing services (e. g., certain activities of common carriers, see Georgia v. Pennsylvania R.R. Co., 324 U.S. 439, 453, 456-67, 65 S.Ct....