Northeastern Tel. Co. v. American Tel. & Tel. Co.

• Decision Date: 30 July 1980
• Docket Number: Civ. A. No. B-75-319.
• Citation: 497 F. Supp. 230
• Court: U.S. District Court — District of Connecticut
• Parties: NORTHEASTERN TELEPHONE COMPANY, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants.

497 F. Supp. 230

NORTHEASTERN TELEPHONE COMPANY, Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY et al., Defendants.

Civ. A. No. B-75-319.

United States District Court, D. Connecticut.

July 30, 1980.

COPYRIGHT MATERIAL OMITTED

J. Daniel Sagarin, Schless & Sagarin, Bridgeport, Conn., Philip E. McCleery, pro hac vice, J. Robert Sheehy, pro hac vice, Sheehy, Lovelace & Mayfield, Waco, Tex., for plaintiff.

Marshall Collins, Asst. Atty. Gen., Hartford, Conn., for amicus curiae.

John M. Goodman, Leonard Joseph, J. Paul McGrath, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Lewis H. Ulman and Peter J. Tyrrell, William J. O'Keefe, Anne U. MacClintock, Southern New England Telephone Co., New Haven, Conn., William R. Moller, Moller & Horton, Hartford, Conn., Burton K. Katkin, New York City, for defendants.

EGINTON, District Judge.

RULING ON POST-TRIAL MOTIONS

This case presents a number of important issues concerning the application of the antitrust laws to a regulated telephone utility in the business terminal equipment market. These issues arise in the context of a private treble damage action brought pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15, and tried to a jury.

FACTUAL BACKGROUND

Plaintiff, Northeastern Telephone Company ("Northeastern"), is a supplier of certain types of telephone terminal equipment and has been engaged in the sale, installation, and servicing of such equipment in the State of Connecticut since 1972. Northeastern is not licensed to provide, and does not provide, telephone service, but instead sells terminal equipment directly to users who obtain service from telecommunication common carriers. When Northeastern entered the terminal equipment business, it did so with a small amount of capital and over the past eight years has managed to achieve an impressive record of growth. The company started with only its two founders doing primarily maintenance work on telephone systems sold and installed by International Telephone & Telegraph; it now has over fifty employees. Initially, Northeastern operated out of part of a building that was formerly a church; since then, it has expanded at the rate of approximately one new office every year and now has permanent facilities in Stamford, Hartford, New London, Danbury, and Waterbury, in addition to new headquarters in Milford. Northeastern's revenues its first year were approximately $70,000; in its seventh year, it posted sales of over $3,000,000.

Defendants American Telephone & Telegraph ("AT&T"), Southern New England Telephone Company ("SNET"), and Western Electric Company ("Western Electric"), are parts of an integrated telecommunication common carrier enterprise known as the Bell System, which enterprise, in cooperation with some 1600 independent telephone companies, owns, operates, and manages the nationwide telecommunications network. As a part of its telecommunications services, the Bell System provides terminal equipment to its customers under tariffs that have been filed with appropriate regulatory agencies. AT&T is the parent company of the Bell System and has an interest in twenty-three operating telephone companies, which provide most of the local telephone service in the country. AT&T's Long Lines Department, in cooperation with these companies and with the non-Bell System telephone companies, coordinates and supervises the long distance telephone service in this country. AT&T has entered into License Contracts with each of the Bell System operating companies, under which AT&T's general departments provide those operating companies with a vast array of services.

SNET, one of the two Bell System operating companies in which AT&T owns only a minority interest, is specially chartered by the Connecticut General Assembly to provide telephone service in virtually all of Connecticut. It provides basic residential and business service, intercity toll service, and a variety of other business, public, and residential services, including provision of terminal equipment. SNET, unlike many of its competitors, does not sell terminal equipment as such. Rather, it provides it customers with terminal equipment through a variety of different lease-type arrangements.

Almost all of Western Electric's business involves the manufacture and supply of telephone equipment for Bell System companies. The operating companies, like SNET, are not required, however, to acquire such equipment from Western Electric, and are free to acquire such equipment from other manufacturers. During most of the period in question in this suit, SNET purchased much of its private branch exchange equipment from Nippon Electric Company (a Japanese company which also supplied Northeastern), while it bought its key telephone system equipment from Western.

This suit was instituted on October 22, 1975. The amended complaint, filed two weeks after the commencement of trial, alleged that defendants monopolized, attempted and conspired to monopolize, and restrained trade in the business terminal equipment market in the State of Connecticut in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2. The request for relief included treble damages, attorney fees, and costs as provided for under section 4 of the Clayton Act, 15 U.S.C. § 15. A preliminary injunction was sought and subsequently abandoned in reliance on an agreement among the parties to proceed promptly to trial. Northeastern no longer asserts any claims for equitable relief.

This action involves two general types of telephone terminal equipment: private branch exchanges and key telephone systems. A private branch exchange ("PBX") consists of equipment connected to the telephone network located on a customer's premises which can switch calls from one telephone to another, a switchboard to control that operation, and the associated telephone sets and wiring. A key telephone system ("KTS") consists of a group of ordinary telephones, usually used in offices, which provide the user with a number of buttons or keys which permit access to a multiplicity of communications lines for incoming or outgoing calls from a single telephone station.

Until 1969, federal and state tariffs generally required that equipment connected to the telephone network be supplied and maintained by an operating telephone company (one of the 23 affiliated with the Bell System or one of the more than 1600 independent operating companies). In Use of the Carterfone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, reconsideration denied, 14 F.C.C.2d 571 (1968), the Federal Communications Commission ("FCC") embarked upon a major reform of telephone interconnection. In that decision, the FCC ruled that defendants' tariffs prohibiting interconnection were unreasonable and unlawful under The Communications Act of 1934, 47 U.S.C. §§ 151 et seq. The Bell System responded to Carterfone by filing revised tariffs which, inter alia, permitted the direct electrical interconnection of customer-provided equipment through a protective connecting arrangement ("PCA") provided, installed, and maintained by the telephone companies at the customer's expense.

Trial began on October 10, 1979. By agreement of counsel, the trial was bifurcated; liability was tried first, damages were then determined in a separate trial before the same jury. The parties stipulated that the relevant product and geographic market was the market for business terminal equipment, namely, PBXs and KTSs provided to business customers, in those areas in the State of Connecticut in which SNET provided local exchange service. The liability portion of the trial, including summations and the Court's charge, lasted twenty-one days.

In order to facilitate orderly decision-making and to ensure particularized appellate review, the Court submitted to the jury fourteen interrogatories on the liability issues. After one and one-half days of deliberations, the jury returned a liability verdict for Northeastern on all counts, finding that: (1) SNET had monopolized the relevant market; (2) SNET had attempted to monopolize the relevant market; (3) all three defendants had engaged in a conspiracy to monopolize the relevant market; and (4) all three defendants had engaged in a conspiracy to restrain trade. The damages portion of the trial lasted five days, and after two and one-half days of deliberations, the jury returned a verdict in favor of Northeastern in the amount of $5,515,692. $3,368,906 of this amount was for lost profits; $2,146,786 was for damage to going concern value. Pursuant to section 4 of the Clayton Act, the Court ordered that the amount be trebled and that judgment enter in the amount of $16,547,076.

Pursuant to Fed.R.Civ.P. 50(b) and 59, defendants have moved for judgment notwithstanding the verdict, or in the alternative, for a new trial.¹ The motion is based on four grounds: (1) that the conduct that the jury found to be anticompetitive or predatory is within the exclusive jurisdiction of regulatory agencies and is immune from the antitrust laws; (2) that the evidence is legally insufficient to support the jury's verdict; (3) that Northeastern's proof of damages was defective; and (4) that there were errors in the selection of the jury and the charge to the jury. Also before the Court is Northeastern's application for an award of attorneys' fees.

I IMPLIED ANTITRUST IMMUNITY

Defendants' initial contention in their motion for judgment n.o.v. is that the conduct for which they have been found liable falls within the exclusive jurisdiction of regulatory agencies and is immune from the antitrust laws because of pervasive regulation under a public interest standard. This same argument was made by defendants in their pretrial motion to dismiss and was extensively briefed and argued by the parties at that time. Judge T. F. Gilroy Daly,² in denying the motion to dismiss,³ found that defendants had not made the requisite showing to support an...