United States v. Jerrold Electronics Corporation

• Decision Date: 11 October 1960
• Docket Number: Civ. A. No. 22080.
• Citation: 187 F. Supp. 545
• Parties: UNITED STATES of America v. JERROLD ELECTRONICS CORPORATION, National Jerrold Systems, Inc., Jerrold-Northwest, Inc., Jerrold-Southwest, Inc., Jerrold-Ohio, Inc., Jerrold Mid-Atlantic Corporation, and Milton Jerrold Shapp.
• Court: U.S. District Court — Eastern District of Pennsylvania

187 F. Supp. 545

UNITED STATES of America v. JERROLD ELECTRONICS CORPORATION, National Jerrold Systems, Inc., Jerrold-Northwest, Inc., Jerrold-Southwest, Inc., Jerrold-Ohio, Inc., Jerrold Mid-Atlantic Corporation, and Milton Jerrold Shapp.

Civ. A. No. 22080.

United States District Court E. D. Pennsylvania.

July 25, 1960.

As Amended October 10, 1960.

Final Judgment October 11, 1960.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert A. Bicks, Wilford L. Whitley, Jr., John F. Hughes, and Sidney Harris, U. S. Dept. of Justice, Washington, D. C., for plaintiff.

Israel Packel, Philadelphia, Pa., for defendants.

VAN DUSEN, District Judge.

This action was commenced with the filing of a complaint on February 15, 1957, charging Jerrold Electronics Corporation, its president, Milton Jerrold Shapp, and five of its corporate subsidiaries with being parties to a conspiracy and contracts in unreasonable restraint of trade and commerce in community television antenna equipment in violation of § 1 of the Sherman Act (15 U.S.C.A. § 1); with being parties to a conspiracy and attempting to monopolize trade and commerce in community television antenna equipment in violation of § 2 of the Sherman Act (15 U.S.C.A. § 2); and with contracting to sell and making sales upon unlawful conditions in violation of § 3 of the Clayton Act (15 U.S.C.A. § 14). The complaint was amended with approval of the court on April 2, 1959, to charge the defendants additionally with effecting a series of corporate acquisitions which were alleged to be unlawful under § 7 of the Clayton Act (15 U.S. C.A. § 18) and §§ 1 and 2 of the Sherman Act. The matter was tried before this court from November 9 to December 18, 1959. The parties then submitted their requests for findings of fact and conclusions of law, bringing this suit to its present posture.

I. Jurisdiction and Venue.

The jurisdiction and venue of this court with respect to this matter are not, and cannot be, in dispute. They are based on the following findings of fact:

1. The individual defendant, Milton Jerrold Shapp, resides within the Eastern District of Pennsylvania.

2. Jerrold Electronics Corporation was incorporated under the laws of Pennsylvania in 1948 and was the parent corporation of the other corporate defendants, National Jerrold Systems, Inc., Jerrold Northwest, Inc., Jerrold Southwest, Inc., Jerrold-Ohio, Inc., and Jerrold Mid-Atlantic Corporation.

3. The defendant, Jerrold Electronics Corporation, was incorporated under the laws of Delaware on April 15, 1955, and succeeded to the assets and business of the Pennsylvania corporation of the same name, which is now dissolved.

4. The defendant, Jerrold Electronics Corporation, is continuing the same business with the same corporate name and under the same management and control as the Pennsylvania corporation.

5. At the end of February 1958, all of the defendant subsidiaries went through corporate procedures to merge into Jerrold Electronics Corporation except Jerrold Northwest, which transferred all of its assets to Jerrold Electronics Corporation and went through dissolution proceedings.

6. The defendant, Jerrold Electronics Corporation, transacts business and has its principal office within the Eastern District of Pennsylvania.

II. Background.

Jerrold Electronics Corporation (hereinafter "Jerrold") was incorporated under the laws of Pennsylvania in March 1948 by Milton Shapp to engage in the sale of a television booster developed by one of his friends. This device was designed to improve television reception in fringe areas by amplifying the weak signals available there. At Shapp's request, his friend began working on the development of master antenna equipment. The purpose of this equipment was to enable a single antenna to serve a number of television receivers. It was inspired by the numerous antennas rapidly rising on the roofs of television set dealers' business establishments and apartment houses.

Jerrold installed the first operational master antenna system for Montgomery Ward in Baltimore during the summer of 1949. The success of this system resulted in a number of orders from other dealers. At first, this master antenna equipment was sold through the distributors who were handling Jerrold's booster. This proved unsatisfactory, however, because these distributors and their customers lacked the technical training and experience with respect to master antenna systems which was necessary to install and maintain them properly. Consequently, the Jerrold people were constantly called upon to put improperly installed, mal-functioning systems in working order. Jerrold felt compelled to render this time-consuming service in order to protect the reputation of its product. In an effort to solve this problem, it was decided in late 1949 that the master antenna equipment would only be marketed through distributors who had men specially trained in the sale, installation and maintenance of master antenna systems. Distributors who satisfied these requirements were designated "M" distributors. Jerrold also set up its own sales organization, Mul-T-V Sales Company, in Philadelphia to handle directly all sales of Jerrold equipment in this area. This method proved more satisfactory than the independent "M" distributors in Shapp's estimation, but financial limitations prevented its use on a larger scale.

In October 1950, Shapp was approached by a group of men from Lansford, Pennsylvania, who were interested in bringing television into their community. The people of Lansford were unable to receive any television signals through the use of conventional equipment because of the town's location. It was possible to receive a signal on a hilltop approximately a mile outside of town, however. They wanted to set up an antenna at this site and hook it up with receivers in the town. Subscribers to their service would pay a connection fee and monthly service charge. Basically, the envisioned system involved the same concept used for dealers and apartment houses of a single antenna for a number of receivers, but on a much larger scale. The difference in size was important, however. Shapp had already discovered that the equipment designed for dealers was inadequate for use in the larger apartment houses and had recently started developing new equipment for this purpose designated "CL." In addition, there usually was no problem with the quality of the signal at the antenna in a single building master system, since the dealers' establishments and apartment houses were generally located in strong signal areas. It was, therefore, readily apparent to Shapp that modifications would be necessary in order to install a working master antenna system in a community. It was equally apparent to him that this was a natural and promising area for Jerrold to enter, since there were many communities which, because of distance or topographical features, were in the same predicament as Lansford and had no immediate hope of obtaining television from any other source because of the freeze on the licensing of new television stations in effect at that time.

Shapp and the Lansford group finally worked out a mutually satisfactory arrangement. Jerrold was to install a system using its standard equipment, which the Lansford people would purchase. Jerrold was to use the system as an on-the-spot laboratory to work on the problems it anticipated, discover new problems, and develop the equipment necessary to eliminate them. As it was developed, the new equipment was to be exchanged for the original equipment in the system without additional cost to the Lansford group. A few days later, a similar arrangement was made with a group from Mahanoy City, Pennsylvania. Other groups interested in the same program were turned down because Shapp felt he had taken on all that he could handle in view of the expected difficulties.

The Lansford system was "turned on" in mid-December 1950 and the Mahanoy City system went into operation in January 1951. Both systems at that time were built with Jerrold's standard equipment designed for showrooms and small apartments. The initial results were deemed successful and the systems received considerable publicity, including articles in the Wall Street Journal and Newsweek magazine, since they were the first significant operational systems of this kind. As a result of the publicity, Shapp was approached by people from hundreds of communities interested in community antenna systems, both as a means of bringing television into their homes and as a profitable investment. These people came from all walks of life. Many of them had little or no technical background or knowledge. Furthermore, the system that went into operation in Lansford in December 1950 was only connected to a few showrooms. With the extension and continual operation of the system, the anticipated problems began to arise. They were of such a magnitude that Shapp's organization was completely tied up analyzing them and designing new equipment to cope with them. Also, there were several instances in which aspiring community system operators had obtained Jerrold's standard equipment through its distributors and attempted to install systems with unsatisfactory results. Under these circumstances, it was decided that no Jerrold equipment would be sold for community purposes until gear adequate to the task had been developed.

Some acquaintance with the technical aspects of a community television antenna system is essential to a full understanding of the contentions of both parties in this matter. This seems to be the most appropriate point to digress from the narrative to describe the nature of such a system and some of the particular problems which faced Jerrold and other companies which entered this field.

There are four parts to a community television antenna system. The first is the antenna site, referred to in the trade as the "head end." The second is the apparatus...