Control Data Australia Memories compiled by Brian Membrey

“Curiouser and Curiouser”

Curiouser and curiouser!” cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English)

Alice (of Alice in Wonderland (the 1865 novel written by English author Charles Lutwidge Dodgson under the pseudonym Lewis Carroll).

After the settlement, the legal teams of both CDC and IBM could perhaps be excused for expecting a well-earned break - "earned" the operative word given the $15 million in legal fees reimbursed to CDC by IBM and anecdotal suggestions that IBM had itself spent probably twice that sum.

IBM was negotiating settlements with several smaller complainants, but there were still two anti-trust cases before the courts.

The main suit was that of the U.S. Justice Department which had fallen in a somewhat moribund state with the Department admitting that it did not have sufficient knowledge of the computer industry to advance the action without the assistance of Control Data’s technical support (which was withdrawn after the settlement, although it remains unclear whether this was part of the agreement between the two parties).

The other was a newer action brought by the Telex Corporation.

Not to be confused with the generic communications protocol, Telex Corporation was founded in 1936 as a maker of hearing aids and audio equipment before it entered the computer peripherals businesses in the 1960’s.   At the time it initiated its anti-trust suit, it was based in Tulsa, Oklahoma, but in the mid-1970’s relocated to Minnesota as Telex Communications.

Within a fortnight of the CDC-IBM settlement, Telex filed in the Minneapolis District Court before Judge Philip Neville to have the computer database compiled by CDC and subsequently handed back to IBM for destruction to be restored.

"Curiouser and Curiouser"

… was the sub header used by Computerworld in discussing the settlement, the Telex action and the unexpected renewed vigour of the U.S. Justice Department, suggested industry observers were "feeling like Alice at the argument over the deal between IBM and Control Data to destroy the computer-based document index".

It expressed surprise not only in Justice joining forces with Telex, but also at "the angry language" that had crept into their arguments.

Neville, who had presided over all the pre-trial hearings in the CDC-IBM suit may have been somewhat miffed at not being part in the subsequent settlement, but realistically, there was little he could do except to insist that no further documents be destroyed ...

"This is clear. Control Data is under injunction from this court as of now, IBM is under injunction from this court as of now not to destroy another document, not to move, transfer, give back or otherwise deal with any documents before this issue that is pending before the court".

Perhaps realising that there was little point in pursuing Control Data, the Justice Department fixed its sights firmly on IBM, claiming that their payment of $15 million in reimbursing CDC for legal work had put placed the index under IBM's control and that their lawyers had been present when the index was destroyed.

As well as seeking reconstruction of the index and permission to subpoena all representatives of IBM and CDC who took part in the negotiations, Justice also asked the court to issue an order prohibiting IBM from disposing of any assets, wherever they be located other than in the normal course of business until the case was settled.

It was subsequently revealed (NY Times, Jan, 31, 1973) that Control Data had spent $3 million to prepare the magnetic tapes (indexed by date, author and content) that were destroyed under the settlement agreement (the Justice Department during the post-settlement hearing suggested it would cost them $4 million to restore the database, a sum they expected to recover from IBM).

The index comprised “several million” documents turned over by IBM to Control Data by court order to help it gather evidence in support of its case; one of the justifications put forward by IBM for their subsequent destruction was that a number of highly confidential internal documents had been "inadvertently" included in the material passed to CDC.

Control Data argued that the documents themselves would be of no benefit to Telex; instead it was the result of thousands of man-hours of analysis by CDC and its legal team that had provided the basis for the settlement of its claim.

Richard Lareau, a lawyer for Control Data suggested that the analysis was still not complete when the settlement was reached and made the surprising revelation that Telex earlier had rejected a CDC offer to hand over the data base for a nominal $25,000 fee and later a reduced offer of $5.000. He said Telex lawyers, after two days of consultations, had stated that only some 200 of the millions of pages of IBM. documents indexed by the tapes were pertinent to their case.

A lawyer for Telex claimed his client had never rejected the $5,000 offer and had been under the impression that the deal was still open to negotiations when it was discovered the tapes had been erased.

Lareau also confirmed that the documents in themselves were of no use to Telex or the Justice Department; it was the cumulative result of the massive analysis of the material and thus the intellectual property of CDC that made up the compelling evidence that had seen IBM offer the substantial settlement.

Most legal observers agreed that the settlement of the CDC suit against IBM would place a heavier burden on the U.S. Justice Department in preparing its case against IBM, given that the Department was relying on documents passed to CDC had been forwarded to the Department after they had been edited and microfilmed.

It was also suggested that Justice had relied heavily on Control Data expertise for much of its information on the computer industry ... "often the Justice Department lawyers have admitted in court that they really did not understand the computer industry and they would have to learn more about it before they could take the case to court".

In fact, during one of the pre-trial hearings, the judge had suggested that Justice should get additional expertise in order to get quicker action in its anti-trust case, but the Department claimed that "with the support being provided by CDC, it would not need extra help".

Justice declined to comment on the CDC - IBM settlement, but in a letter to CDC shareholders (of which we love a copy) following the settlement, Bill Norris indicated that the Justice Department suit "might be further along than others believe".

Norris suggested that since the outcome of the Government anti-trust was "uncertain" in 1969, "we found it necessary to proceed with our case, although we would have preferred to avoid the huge investment in a Control Data lawsuit".

Industry commentators took this to mean that CDC was more certain of the outcome of the Justice suit at the time of the settlement, that it effectively indicated that the company had given Justice all the help it could, and that Norris wouldn't have accepted the IBM settlement unless he was positive the Justice Department had a strong chance of getting "the full relief desired" - to wit, the complete restructuring of IBM into separate product lines, at a minimum a software company, a peripherals company, and a mainframe CPU company.

Norris also revealed that CDC had submitted to the Justice Department a "constructive, non-punitive plan for restoring competition to the computer industry" which had been developed over four years by top members of Control Data's technical and management staff, outside legal counsel and a leading U.S. economist.

He admitted, however, that while the breakup of IBM into several small companies was technically feasible, in reality "it would not be politically popular" and thus probably never happen - instead he suggested that injunction relief be granted against IBM's allegedly unfair market practices, and that IBM's participation in industries "complementary" to the computer business be ceased.


Telex v IBM : the winner is ... 1973 : The I.B.M. settlement The New York Times says ... #top "The Anti-Trust Division's Vietnam" Service Bureau Corporation