Control Data Australia Memories compiled by Brian Membrey

Telex v. IBM : And the winner is …

Of course, the legal profession!

Following “Curioser and Curioser”, the major anti-trust case was that initiated by Telex Corporation, based in  Burnsville, Minnesota.  Not to be confused with the generic “TELEX” communication technology, the company was founded in 1936 as a manufacturer of hearing aids and audio equipment, later in the 1960s entering the computer peripherals market the 1960s. Following its extended legal case against IBM, a subsidiary Telex Communications was structured as a subsidiary in the late 1970s. It was subsequently acquired by Memorex in 1988,  and after a number of restructures was acquired by Germany's Bosch Group for $420 million in October, 2006 becoming a business unit under the name "Bosch Communications Systems".

Telex versus IBM : The ball-by-ball coverage

IBM files a $750,000 damages suit against the Telex Corporation alleging Telex refused to pay royalties under a July 1, 1966, agreement for use of I.B.M. patents in magnetic tape and disk equipment.

Telex Corporation files suit in the U.S. District Court in Tulsa, Oklahoma asking for the dissolution of IBM as a single entity for monopolizing and controlling the E.D.P. industry. The suit asks for treble damages under the Sherman Act totalling about $877 million.

Telex updates its $877 claim to include a request for a temporary (pending a permanent) injunction barring IBM from offering new long-term or renewing existing leases with Telex customers.  IBM declares the new charges were without merit and that it would defend them in court.

Judge Philip Neville of the U.S. District Court for the District of Minneapolis in St. Paul issues a restraining order barring IBM from announcing a new product line - the 370 series - to allow him time to hold a hearing on 1 September on a Telex request that he issue a preliminary injunction barring an announcement until the anti-trust case is decided.   Neville's decision was immediately overturned on application by IBM to the Eighth Circuit Court of Appeal on a point of law in that it would have been in effect for more than 20 days, the maximum allowed under Federal law.

Judge Neville hears Telex's motion for a preliminary injunction preventing IBM from marketing its equipment on extended-term and fixed-term leases to Telex customers and IBM's motion for a summary judgement in the anti-trust case.

The Minnesota District Court denies both IBM's motion for a summary hearing and Telex's motion for a preliminary injunction.

A date of April 16 is set for the beginning of the Telex versus IBM trial under the direction of Judge A. Sherman Christensen in the District Court, Tulsa, Oklahoma.

Telex asks the District Court in St. Paul to set aside the out-of-court settlement made in the Control Data anti-trust suit against IBM on the basis that the agreement to destroy documents prevented Telex from pursuing its suit against own suit against IBM.

IBM sues Telex for misappropriation of IBM trade secrets and aggressive pirating of IBM employees and asks the court for $25 million in damages.

IBM files suit against Telex charging breach of a 1966 patent agreement and  asking for payment to IBM of royalties due under the agreement. Telex reacts by claiming this suit was only intended to divert attention from the antitrust case.

The District Court in Minneapolis denies the Telex motion to set aside the out-of-court settlement between CDC and IBM and to find CDC and IBM in contempt of court for destroying the index of documents prepared by CDC.

Telex versus IBM goes before court Judge Christensen.

All testimony in the anti-trust case between Telex and IBM heard and  with oral summations of the arguments begin.   Judge Christensen decides not to issue as temporary judgement immediately after the conclusion of the arguments because of the complexities of the case and, rather controversially, "to prevent trading of either stock by the courtroom attendees".

Telex requests that IBM pay $1.3 million in legal fees if it is found guilty of the anti-trust charges and increases its treble-damages claim to $1.08 billion.  IBM reacts by increasing its $25 million counter-suit claim to $48 million.

After a trial, lasting 29 days, Judge Christensen finds IBM guilty of monopolization of the plug-compatible peripherals market and Telex guilty of the charge of misappropriating trade secrets.  IBM is fined $352.5 million and Telex is ordered to pay over $21.9 million to IBM. The decision ordered I.B.M. 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. I.B.M. also was instructed to release to competitors some of its design specifications for certain products. 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 yearly low at $270¾. Telex, almost doubling in price, ran up 3⅜ points to 7⅝.

IBM complies with one of the provisions in Judge Christensen's decision by suspending collection of penalty charges under the fixed-term, extended-term and long-term lease plans, but stipulates that if a higher court reverses the district Court ruling, IBM will apply the penalty charges retrospectively.

IBM and Telex both file motions seeking to amend the judgements made against them by the District Court. Telex requests Judge Christensen set the trial date for the case it wants to bring against IBM for monopolization in the international market.

Judge Christensen admits his computation of the anti-trust damages against IBM involved substantial error and sets a new hearing date for re-consideration of the fines.

Judge Christensen sets aside his $352.5 million judgement for Telex

Damages to be paid by IBM are reduced by $93 million, now to pay $259.5 million (three times the actual damages of $86.5 million found for its domination of the plug-compatibles peripherals market.  IBM's appeal of the Telex anti-trust case goes to the Tenth Circuit Court of appeals in Denver. The definition of "predatory pricing" becomes crucial to both parties in the case.

IBM and Telex complete delivery of their now-familiar arguments in the case before the Appeals Court. some observers believe a decision on the case is expected "almost immediately", but it is not until  ...

and that IBM marketing was ”valid competitive practice and neither predatory nor otherwise violative of the antitrust acts”, and reverses the decision of the lower court on the basis of the arguments in IBM's counterclaim.  Telex is fined $18.5 million in compensatory ($17.5m) and punitive damages (1m) on the theft of trade secrets charges.

Telex files for a rehearing of the anti-trust suit on the basis that the Appeals Court erred in its definition of the relevant product market.

The Tenth Circuit Court of Appeals denies Telex's petition for a rehearing.

Telex files an appeal on its anti-trust case against IBM in the U.S. Supreme Court. claiming the Appeals Court erred in defining the relevant product market

Telex files that the $18.5 million judgement against it in favour of IBM would send it into insolvency and withdraws its appeal to the Supreme Court in the anti-trust case in exchange for release from the $18.5 liability.  No monetary payments on either side are involved in the settlement.

and the winner is ...

Well, perhaps not the clear-cut in favour of the “legal eagles” as it may have appeared … per U.S. Computerworld article of October 11, 1976

“Numerous lawsuits are amassing in the Tulsa Court following the settlement of the Telex versus IBM suit a year previously , most pertaining to the payment of legal fees by Telex”.

As a precautionary measure, IBM also re-entered the legal arena by filing an action "in case it is told by the Tulsa court that it must share in some of the payments by Telex”.

Cases involved a former Telex attorney, Floyd Walker (Walker, Jackman & Associates, Inc) who claimed he was owed $1.5 million by Telex for services rendered under his employment contract - Telex's counter-claim against Walker sought $938, 676; another Telex attorney claimed $1 million, and a third, Harry Ashbridge claimed a more modest $25,000 owed to him as a paralegal.

IBM itself filed suit against Telex and its chairman Roger M. Wheeler, claiming that as part of the settlement agreement, he and Telex had agreed to compensate IBM for any loss, expense incurred in the anti-trust suit, including reasonable attorney's fees and that Wheeler in his position at Telex had personally guaranteed the indemnity”.

(The Computerworld article adds "continued on page 46" ... go for it folks!

Here come de Judge!

Albert Sherman Christensen (1905-96) was a trial attorney, judge, and author who received an LL.B. from National University Law School, Washington, D.C. in 1931 and who was first nominated as a United States federal judge by President Dwight D. Eisenhower in 1954. Christensen resigned from the federal bench in 1971 but remained a senior judge until 1992; trying several large antitrust cases including the huge Telex v. IBM suit. Christensen died in Provo, Utah on August 13, 1996, at the age of 91


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The New York Times says ...



Curiouser and Curiouser 1973 : The I.B.M. settlement "The Anti-Trust Division's Vietnam" Service Bureau Corporation