Control Data Australia Memories compiled by Brian Membrey

And the New York Times says …

NEW YORK TIMES, Tuesday, September 18, 1973

“TULSA, Okla. September 17 - The International Business Machines Corporation was found guilty today of violations of the Sherman Antitrust Act and ordered to pay triple damages of $352.5 million to the Telex Corporation, a manufacturer of peripheral equipment for computers.

The giant computer company was also enjoined from “adopting, implementing or carrying out predatory pricing, leasing or other acts, practices or, strategies with intent to obtain or maintain a monopoly in the market”.

The decision ordered IBM to halt “single or bundled” pricing of memory systems in its System 370 central processing unit and to price memories and processing units separately within 60 days.  IBM also was instructed to release to competitors some of its design specifications for certain products.

Telex for its part was ordered to pay I.B.M. $21,913,766 for infringement of IBM. copyrighted manuals and for hiring IBM employees to get trade secrets from them. This action was a result of a countersuit by IBM.

The decisions, handed down by Federal Judge A. Sherman Christensen, of Salt Lake City, and released in Federal Court here this morning in a 217-page document, found IBM guilty of “possessing and exercising monopoly power” over the “plug compatible peripheral equipment market,” comprising such items as memories, tape devices and printers that plug directly into the main processing unit of a computer.

Both IBM and Telex shares traded actively on the New York Stock Exchange after delayed openings. IBM plunged 26 points to, close at 272 a share after posting a previous yearly low at 270¾. Telex, almost doubling in price, ran up 32 points to 72.

Judge Christensen's decision said that IBM had tried to “substantially constrain or destroy its plug peripheral competition by predatory pricing actions and by market strategies bearing no relationship to technological skill, industry, appropriate foresight or customer benefit.”

Today's action marked the first major court case ever lost by IBM. and could have an effect on other lawsuits against the computer giant, particularly the Justice Department's four-year-old antitrust action now in its pretrial stage in Federal Court in New York.

In addition, a number of new suits are expected to be filed by other companies in various segments of the computer industry for relief similar to Telex's for alleged monopolistic actions by IBM.

A spokesman for I.B.M., reached at corporate headquarters at Armonk, N.Y., today would say only that “we intend to appeal.”

Steven Jatras, president of Telex, said his company was considering an appeal of the decision in IBM's countersuit. "But in general, we're quite pleased with the outcome and feel that Telex's decision to pursue this litigation has been fully justified,” he asserted.

Mr. Jatras added that “in view of the court's ruling with regard to the domestic claim, it is the intention of Telex to vigorously prosecute the foreign aspects of the case, which were severed from the domestic issues during pretrial preparations and which are still pending.”

IBM Likely to Have Cash for Fine on Hand

If the International Business Machines Corporation eventually has to pay the Telex Corporation the third of a billion dollars, it will likely have the money on hand to do it.

At the end of 1972, IBM's total cash and marketable securities positions amounted to $2.6 billion, up from $1.9 billion the year before.

An IBM spokesman, while noting the company planned to appeal, said he did not want to speculate about financing any possible ultimate payment. Underwriters suggested that IBM wouldn't need to do any public financing to raise the money.

The judge's decision in the IBM case revolves around whether the plug compatible devices constituted a market in themselves or just a segment of the larger general computer market and whether IBM had engaged in predatory practices. In both instances, Judge Christensen found against IBM, deciding that the plug peripherals were indeed a separate market and that IBM had been involved in actions that went beyond normal competitive practices.

In the award on IBM's countersuit, Judge Christensen prohibited Telex from hiring any employee of IBM. for two years without approval of the court. He also ruled that former employees of IBM (section indecipherable)  after leaving IBM. to projects similar to those on which they worked at IBM.

Telex must also return to IBM documents and confidential information that it now has and must destroy all copies of Telex manuals that infringe on IBM copyrighted manuals.

IBM. is easily the dominant figure in the world computer business, with an over-all share of the market estimated at 60 to 70 per cent. It had sales of $9.5 billion last year and profits of $1.3 billion.

Telex is a Tulsa-based manufacturer of computer peripheral equipment, communications devices and home entertainment products. It had earnings of $2.16 million last year on sales of $72.81 million. Its stock, which sold as high as 31 in 1970 has been priced at below $5 most of this year.

Telex filed suit on Jan. 21, 1972, when Telex charged that IBM had monopolized and had attempted to monopolize the worldwide manufacture, distribution, sales and leasing of electronic data processing equipment including the relevant sub-market of plug compatible peripheral devices. The smaller concern also charged contractual restraint-of-trade violations of Section I of the Sherman Act. The company sought damages in the amount of $238,290,000, tripled, and injunctive relief to restore competition in the market.

Injunctive Relief

Both parties opted for a non jury trial that began on April 16, 1973, before Judge Christensen. The judge's decision gives Telex less than a third of what it asked in damages. With regard to injunctive relief, Judge Christensen included the following:

Psychologically, however, IBM may now be willing to accept a harsher consent decree from the Government than it would have earlier. The Justice Department, however, has indicated that it is not interested in obtaining a consent decree but rather would try to break IBM up into several smaller companies.

In 1956 the Government and IBM entered into a consent decree providing for the separation of the Service Bureau Corporation from the computer manufacturing and marketing operation at IBM.

In January of this year IBM settled an antitrust action brought by the Control Data Corporation by giving CDC. about $101-million in direct and indirect payments. Control Data took over the service bureau, which provides data processing services to clients.

There are no other major antitrust suits pending against IBM. at this time.

Today's decision could bring important changes to the computer industry, according to executives within the industry and analysts. “It means whole re-evaluation of the computer industry,” said one official of a peripheral equipment concern.

In making his decision Judge Christensen pointed out that the basic policy that led to the predatory competitive actions was set down by Thomas J. Watson, formerly IBM.'s chief executive officer, in a memo in which he said he wanted “a clear understanding that the company swallow whatever financial pills be required now and get ready for the future ... irrespective of financial considerations over one or two years — we must return this business to a growth posture and operate accordingly.”

Judge Christensen said that IBM's subsequent pricing marketing and manufacturing actions were “directed not at competition in an appropriate competitive sense but at com petitors and their viability as such.”

Floyd L. Walker, trial counsel for Telex, said that he hoped the court would not stay the various injunctions against IBM. pending appeal.

“An attempt is being made here to establish a competitive environment in the peripheral equipment business,” he said, adding that “lengthy appeals could delay the establishment of that environment.”

Mr. Walker also said that if it was in the best interests of Telex, he might consider settlement of the suit at the appeals level”.





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