# Petition — International Business Machines Corp. v. Greyhound Computer Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_0052%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1978 - **Citation:** 434 U.S. 1040 ## Text — se ——— ee O |; i Supreme Court, U. . FILED \9TT In THE | MICHAEL RODAK, JR., CLERK Supreme Court of the United rs OcTOBER TERM 1977 No. 7 -694 INTERNATIONAL BUSINESS MACHINES CORPORATION, Petitioner, —against— GREYHOUND COMPUTER CORPORATION, INC., Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT Tuomas D. Barr, ALAN J. HRUSKA, Ropert F. MULLEN, One Chase Manhattan Plaza, New York, N. Y. 10005 NICHOLAS DEB. KATZENBACH, Old Orchard Road, Armonk, New York 10504 Lioyp N. CUTLER, Joun H. PICKERING, James S. CAMPBELL, 1666 K Street, N.W., Washington, D. C. 20006 Attorneys for Petitioner International Business Machines Corporation CRAVATH, SWAINE & Moore, One Chase Manhattan Plaza, New York, N. Y. 10005 Washington, D. C. 20006 November 14, 1977. PAGE I oe eek cou weeawe tbe d ou eEeiee l OPINIONS BELOW AND JURISDICTION ............. l Compeseets PRMSMTED oo ccc ccccccccccccccccces 2 SRATEMENT OF MR CAGE onc cccccccdcccccvcvescs 4 UD BD bs cat ddb kc Sabu ckdeasaandaeontieas 5 Me Se 466 bo 044-00 6eekncdeedeennnedNenseens 5 ih SED onc Guius ondh abuse eben eetekaes 6 Tue Evecrronic Data Processinc INDUSTRY ..... 7 CHRONOLOGY OF RELEVANT EVENTS ...........+.: 8 II TE Sikbied o Wee srédekeurdcoccacteds 10 Re, We ES oo videceedédccdecuSascate 10 BD, Wee Ge GE CRED one ccccccccvcccdivcus 10 OTT TT TTT 10 2. Possession of Monopoly Power ........ 12 3. Wilful Acquisition or Maintenance of BECRGRGET POWER oc ccccccccccpsecece 12 4. What the Court of Appeals Calls IBM’s SN OD ccceneeheneheneuus 15 5. Attempt to Monopolize ............... 15 G BMD cccccccccccccescccccccccess 16 REASONS FOR GRANTING THE WRIT ........50006: 16 Tue Basts UPon WHICH THE CouRT CONCLUDED A Jury Coutp Separate A “LEASE SURMARKET” FROM A “PURCHASE SUBMARKET”’ Is WITHOUT am LEGAL PUGTEPICATION 2occcccccscccccceccccess 20 PAGE Tue Court Betow INcorrectLy HELD THAT A JURY Coup INFER Monopoty Power From IBM's SHARE OF THE NARROWLY DerFINep “LEASE” Sub- a SE Re ATES a eee Tue Court BELow BroapLy CONDEMNS LEGITIMATE I Se oe a eee cht sb eb 8 66-0 Tur Nrntu Crecuit’s Rute on ArtemMpt to Mon- OPOLIZE Is FLATLY INCONSISTENT WITH DECISIONS or Turis Court AND WITH DECISIONS IN ALL ee bhees kekenee ee nas APPENDIX A THE DECISION OF THE DISTRICT COURT AppENDIXx B THE DECISION OF THE COURT OF APPT ccccccccscccccvceccccerevcccces AppEenpIx C STATUTORY PROVISIONS .......eeeeeeees AppENbDIx D RECORD AS TO THE ELECTRONIC DATA PROCESSING INDUSTRY AND _ IBM's PARTICIPATION IN IT .....-. cee eee eees TABLE OF AUTHORITIES CASES: | Acme Precision Products, Inc. v. American Alloys Corp., 484 F.2d 1237 (8th Cir. 1973) ......... Agrashell, Inc. v. Hammons Products Co., 479 F.2d 269 (8th Cir.), cert. denied, 414 U.S. 1022 CEBUSD oc dccecccccvecqcccoversesseccescces Alles Corp. v. Senco Products Co., 329 F.2d 567 (Gta Gir; TEBE) nc ccccvcccccccccccccavesece American Tobacco Co. v. United States, 328 U.S. ft SP Prrrrrrrrrrrrrrrreririr st ta 27 32 la 4la 43a iii PAGE Brown Shoe Co. v. United States, 370 U.S. 294 ST dx 6 dt mcuekuwuainian wae ik ind hed ede 23 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 a: Se AUS Wevnckes cecanabdasuasacaes 35 California Computer Products, Inc. v. International Business Machines Corp., Civil No. C73-2331-RM yea ee 8 Gg eee 4, 6, 17, 20 Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674 (9th Cir.), cert. denied, 429 U.S. Pe COWUED cK sccncnedcvesececseicvscdv 23 Cole v. Hughes Tool Co., 215 F.2d 924 (10th Cir, ME cn kh'ss 699446 ReksaeheRe cee eae eee 29 Continental T.V., Inc. v. GTE Sylvania, 97 S.Ct. gp RARE eps re See 3 Diamond International Corp. v. Walterhoefer, 289 F. Se Soe CD, BEG, TSGB) on ccccccccweccccn 38 E. J. Delaney Corp. v. Bonne Belle, Inc., 525 F.2d 296 (10th Cir. 1975), cert. denied, 425 U.S. 907 ft er re ee ere ree 37 Fleetway, Inc. v. Public Service Interstate Trans- portation Co., 72 F.2d 761 (3d Cir. 1934), cert. GONE: GO Wes GO CUOUOD cecccvececcesdus 36 FLM Collision Parts, Inc. vy. Ford Motor Co., 543 F.2d 101% (2d Cir. 1976), cert. denied, 429 U.S. Se EE, oven cane vatad esis ne eddae test. 37 Forro Precision, Inc. v. International Business Ma- chines Ooh) No. 74-1653-RM (N.D. Cal. George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547 i Cir. 1974), cert. denied, 421 U.S. 1004 (1975) ..........0005. 37 IBM Peripheral EDP Devices Antitrust Litigation, Dl Sinehsédeasdelanduvaspeisasensct 4 In re IBM Antitrust Litigation, MDL 18 ........ 4-5 International Air Industries, Inc, v. American Ex- celsior Co., 517 F.2d 714 (Sth Cir. 1975), cert. Gated, 42% U.S. 9438 CIGTS) 2. cccccccccccces 36 iV PAGE McElhenney Co. v. Western Auto Supply Co., 269 P24 332 (4th Cle. S9GD) oc cocccccvessceeses 37 Memorex Corp. v. International Business Machines Corp., Civil No, C73-2239-SC (N.D. Cal.) .... 17 Mullis vy. Arco Petroleum Corp., 502 F.2d 290 (7th Cle. S506) cc cvicutccssecuvdveseeaunneee 23-24, 37 Northern Pacific Railway v. United States, 356 U.S. € CIGER) ccccccccccecepeccsueneneeue 19, 40 Pacific Engineering & Production Co. y. Kerr- McGee Corp., 551 F.2d 790 (10th Cir.), cert. denied, U.S, —=—= (1977) ..ccccscccccces 36 Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418 (D.C. Cir.), cert. denied, 355 U.S. Gee CESSP) vecces ccccceueeeneseenenee 37 Panotex Pipe Line Co. v. Phillips Petroleum Co., 457 F.2d 1279 (Sth Cir.), cert. denied, 409 U.S. BAS (1972) ..cccccccccccsceccvccesesesnens 36 Purex Corp. v. Procter & Gamble Co., 419 F. Supp. 931 (C.D. Cal. 1976) ..ccccccccccccccscccess 36 Rea vy. Ford Motor Co., 497 F.2d 577 (3d Cir.), cert. denied, 419 U.S. 868 (1974) ......0e00es 37 Sulmeyer v. Coca Cola Co., 515 F.2d 835 (5th Cir. 1975), cert. denied, 424 U.S. 934 (1976) ...... 37 Swift & Co, v. United States, 196 U.S. 375 (1905). 37 Symbolic Control v. International Business Machines Corp., Civil No. 71-2207 (N.D. Cal. Dec. 31, IGTS) oc ccccccccccccsacasnueee enn 4 Telex Corp. v. International Business Machines Corp., 367 F. Supp. 258 (N.D. Okla. 1973), modified, 510 F.2d 894 (10th Cir.), cert. dis- missed, 423 U.S. 802 (1975) ..... 4-7, 20, 23, 27, 31, 35-36, 44a-45a Travelers Insurance Co. v. Blue Cross, 481 F.2d 80 (3d Cir.), cert. denied, 414 U.S. 1093 (1973). 29 Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264 (9th Cir. 1975) ........00e 23 Union Leader Corp. v. ——, of New England, Inc., 180 F. Supp. 125 (D. Mass.), modified, 284 F.2d 528 (lst Cir. 1960), cert. denied, 365 U.S, 833 (1961) ......cee ee eeees 38-39 ee! ee ne eect 6 Outl v PAGE United States v. Aluminum Com an A } 148 F.2d 416 (2d Cir. 1945) . . te od a neve United States v. Columbia Steel Co.. 334 U.S. 495 eo TM aaa aaa «1423, 29 United States v. E.I. duPont de N US. 377 (1956) e Nemours & Co., 351 United States v. Empire Gas Corp., 537 F.2d 296 8th Cir. 1976), cert. denied, 430 U.S. 915 (1977) 37 United States v. General D ics Co 486 (1974) ynami-s Corp., 415 U.S. United States v. Griffith, 334 U.S. 100 (1948) ...33-34 United States v. International Business Machines Corp., oy as Oe MUO TLD... is. css... 4 "US G8 (ING nent Harvester Co, 24 158 (1908) Aaasheons —— -_ o wen 23 United States v. United Shoe Machinery Corp., 110 Sa Ba (ight 8.6 pe carom 7 429 US Cid (ist) : ou i ee 25 tmmtnmieneen Weber v. Wynne, 431 F.Supp. 1048 (D.N.J. 1977) 36 Yoder Brothers, Inc. v. C alifornia-Florida Plant Corp., 537 F.2d 1347 (5th Cir. 1976), cert. = nied, 429 U.S. 1094 pa 23 STATUTES AND RULEs: Sherman Act § 2 (15 U.S.C. § Se eee passim Clayton Act § 4 (15 U.S.C. § Died. vain 3. 4la Investment Tax Credit (26 U.S.C. 8§ 38, 46-50) ..6, 25 ES a 2 EE 2 ES 4la “—— IN THE Supreme Court of the United States OCTOBER TERM 1977 No. »™ vr INTERNATIONAL BUSINESS MACHINES CORPORATION, Petitioner, —against— GREYHOUND COMPUTER CORPORATION, INC., Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT STATEMENT Petitioner International Business Machines Corporation (IBM) respectfully prays that a Writ of Certiorari be issued to review the judgment of the United States Court of Ap- peals for the Ninth Circuit (Browning, Ch. J.) entered on August 17, 1977, reversing a judgment of the United States District Court for the District of Arizona (Craig, Ch. J.), entered on July 10, 1972. OPINIONS BELOW AND JURISDICTION Judge Craig’s opinion, granting petitioner-defendant’s motion for a directed verdict on all elements of respondent- plaintiff's Sherman Act Section 2 claim and its contract claim is reported at 1972 Trade Cases § 74,205, and is attached as Appendix A. The opinion of the court of appeals reversing the decision of the district court on the Section 2 claim and affirming on the contract claim is reported at 559 F.2d 488 and is attached as Appendix B. The judgment below was entered on August 17, 1977; the 2 mandate of the court of appeals was stayed by order /— September 13, 1977, pending review by this Court. This petition is filed within 90 days of the judgment below, as required by 28 U.S.C. § 2101(c). This Court's jurisdiction is invoked under 28 U.S.C. § 1254(1). The pene tag utes relating to this petition are contained in Appendix C. QUESTIONS PRESENTED The basic question is whether, given that the judgment below intimidates vigorous competition on the merits, burdens the lower federal courts and immediately oe numerous actual and potential defendants, oe IB : ‘ the judgment should promptly be reversed. Analytically the separate issues we raise as questions are: 1. Whether the court of appeals erred in holding that a jury could find that any firm could monopolize a sub- market” consisting of the leasing of computer a separate from a “submarket” consisting of the sale of suc uipment, where: : . es (a) the products in both “submarkets” are iden- tical; . (b) all manufacturers of such equipment both sell and lease such equipment on a wide and changing variety of “sale” and “lease” terms and conditions; (c) the custemers in both “submarkets” are almost entirely the same and frequently both lease and pur- chase; and - (d) new “leasing companies” can enter, and large numbers have entered, the “lease submarket” in re- sponse to small changes in lease prices. ed in holding that 2. Whether the court of appeals err a jury could find that IBM possessed monopoly npedlgs the “lease submarket” almost entirely because IBM ha ee ee Ohi ens - h Pitta pa ee oe ee eee 3 large share of that narrowly defined “submarket”, and that a jury could disregard—as did the court below—uncontro- verted evidence of: (a) rapid and numerous market and “submarket” entries; (b) continuing, unprecedented product and price improvement; (c) unique customer sophistication and indepen- dence; (d) a constantly declining IBM share in the “lease submarket” and in any conceivable “market” or “sub- market”; and (e) an IBM share of the total market, from which the “lease submarket” was extracted, far too low to permit any inference of monopoly power. 3. Whether the court of appeals erred in holding that a jury could conclude that honest, competitive, non-preda- tory conduct constitutes monopolization under the Sherman Act if it “unnecessarily excludes competition”,* and that such “otherwise lawful” conduct is proscribed even when it occurs outside the relevant market in a “market” in which the defendant possesses no power. 4. Whether the court of appeals erred in holding that a jury could find that IBM was liable for an attempt to monopolize where it was assumed that “the record would not support a jury finding of even a dangerous probability of monopolization” by IBM of any “appropriate market”. 5. Whether the court of appeals erred in holding that plaintiff had offered sufficient evidence of damages to go to a jury, where plaintiff offered no testimony even attempting *This concept in Chief Judge Browning’s decision of “unneces- sary” exclusion seems part of the same approach which led Judge Browning to condemn “unnecessary restrictions” on the marketing of products—rejected by this Court in Continental T. V., Inc., v. GTE Sylvania, Inc., 97 S.Ct. 2549, 2553-54 n.10 ( 1977). 4 to calculate such damages and the jury would necessarily have been forced to engage in sheer speculation on the amount of any damage supposedly sustained. STATEMENT OF THE CASE This case is one of 19 private suits brought against IBM under Section 2 of the Sherman Act since the United States Government commenced its own Section 2 action almost nine years ago.* Most of the existing cases were filed after the district court’s decision in Telex Corp. V. IBM, 367 F. Supp. 258 (N.D. Okla. 1973) and before the unanimous reversal by the Tenth Circuit Court of Appeals (510 F.2d 894, cert. dismissed, 423 U.S. 802 (1975)). Two groups of cases have been consolidated by the Multi- district Panel.** Before the decision below, four cases had been tried+ and IBM had won all four—three (includ- ing the instant case) by directed verdict or judgment at the close of plaintiff's case and one, Telex v. IBM, by the Tenth Circuit’s unanimous decision. In all those decisions the courts involved have held that IBM has not violated Section 2 of the Sherman Act; they have rejected, as the district court did in this case, *The trial in United States v. IBM, 69 Civ. 200 (S.D.N.Y.) com- menced on May 19, 1975. As of November 11, 1977, the trial had consumed 407 days and the United States had not finished presenting its direct case. It will be a period of years before that case is ready for decision even by the district court. **7n re IBM Antitrust Litigation, MDL 18; IBM Peripheral EDP Devices Antitrust Litigation, MDL 163. +Greyhound v. IBM, 24 trial days; Telex v. IBM, 26 trial days; Symbolic Control v. IBM, Civil No. 71-2207 (N.D. Cal. Dec. 31, 1975), 27 trial days; California Computer Products v. IBM, Civil No. C73-2331-RM (C.D. Cal. Feb. 15, 1977), 58 trial days. Appeals are pending in the Symbolic Control and CalComp cases. ++The trial of another case, Forro Precision, Inc. v. IBM, Civil No. 74-1653 (N.D. Cal. Nov. 3, 1977), commenced on August 15, 1977, in the Northern District of California, and consumed 22 trial days. With respect to the antitrust issues there involved, the jury was unable to reach a verdict and on October 26, 1977, the court granted IBM’s post-trial motion for a judgment on those issues. ARCO DE OE AOA ert see 6A RW te ow aa tne wane A NC ew 5 all claims that IBM m lize in violation of eo the a paaetreteneet a eo . record here, although made only by witnesses pr ea a (including deposition testimony by IBM mong ah employees) and by stipulation, coupled with e decision in Telex, provides a fully adequate basis f sound resolution of the legal questions presented. * ‘ THE PARTIES A. IBM ae ‘ Rage develops, manufactures and markets electronic ata processing (“EDP”) equipment and services. EDP €quipment—commonly referred to as computers or com puter systems—consists of a variety of electronic ond electromechanical equipment organized in separate boxes (“hardware”). To make a hardware system operable, it must also receive, store and execute instructions called — (“software”) (Tr. 1466-72). customer may purchase or lease** parts thereof from IBM, or it may sale cue ware and software from others, or it may purchase or lease different pieces of hardware from different manufac turers, interconnect those parts and create its own > —_ or obtain Programs from still another source gl cluding IBM, or it may lease computer time from others The Court Census, stipulated into evidence,+ shows that *The record was Statement necessarily Pte pent pad . an five years ago and our **IBM and most others offer a i range of different types on mene arrangements, e.g., “lease” (Tr. 3043-45) Si leone? (Tr. 7) yy tal payout lease” (Tr. 2585-88), “long term lease” i a 49), installment sale” (Tr. 2855), “rental credit” (Tr {This was fe bes yarn | a ey or “census” of the EDP i Prova. Census”) ordered by the Minnesota District Coast oy this : was consolidated for pre-trial there under the of n re IBM Antitrust Litigation, 18. The census wn sworn answers to questions posed by IBM and ponding ' ing the revenues, products and services of approximately 1800 re- 6 customers may obtain EDP products and services from almost 1800 companies. IBM is the largest supplier of EDP products and services, having a share of revenues of approximately 35% in 1970. Telex v. 1BM, 367 F. Supp. at 286 B. Greyhound Greyhound Computer Corporation (Greyhound Com- puter), respondent-plaintiff below, is a computer leasing company. Such companies purchase computer equipment from manufacturers for re-lease to users. Greyhound Computer is one of two commonly man- aged (Tr. 124-26, 960-61, 2482-83, 2488, 2610-12) leasing company subsidiaries of The Greyhound Corpora- tion, a holding company. The other subsidiary, Greyhound Leasing & Financial Corporation (Greyhound Leasing), is the parent and creator by spin-off in mid-1966 of Grey- hound Computer (Tr. 2776, 2806). Both subsidiaries provide convenient vehicles for utilization of The Grey- hound Corporation’s cash flow and, through the Investment Tax Credit (26 U.S.C. §§ 38, 46-50), tax shelters for Greyhound’s otherwise taxable income (Tr. 551-53, 1221-25, 2500). Greyhound Computer asserts that it prefers to engage in short term or “risk” leasing and that Greyhound Leasing prefers to engage in longer term or “payout” leasing (Tr. 2505-10). However, terms and conditions offered by both leasing company subsidiaries have from time to time been substantially the same (Tr. 2770-72) and neither “risk” nor “payout” has any precise meaning since all leases re- ferred to in the testimony involved degrees of both “risk” spondents, and all of the answers are in evidence here (Tr. 2929). his same census was stipulated into evidence in its entirety in Telex v. IBM. See 367 F. Supp. at 271 n.2. Most of the statistical data contained in the census was also in evidence in CalComp v. IBM in the data base of one of the plaintiff's witnesses. ee 7 and “payout”.* In any event, the principal claim at trial was that IBM had precluded Greyhound Computer—but not Greyhound Leasing—from purchasing IBM EDP equipment announced in 1970 and after and leasing that equipment to others. THE ELECTRONIC DATA PROCESSING INDUSTRY It is not disputed that the EDP industry as a whole is one of the youngest, most dynamic and most vigorously competitive industries in the United States. Some of the highlights of the development of this industry, and IBM's participation in it—as attested to by Greyhound’s witnesses —are summarized in Appendix D to this petition. The entire commercial existence of the EDP industry has not been appreciably longer than 20 years. Entry has been literally massive—from 11 firms to 1,757 in less than 20 years; the rate and magnitude of price declines have been unprecedented; technological innovations and product im- provements virtually boggle the mind; price/performance has improved exponentially. These facts were given appro- priate weight by the Tenth Circuit Court of Appeals in Telex v. IBM where IBM’s acts were realistically viewed as “part of the competitive scene in this volatile business inhabited by aggressive, skillful people seeking to market a product cheaper and better than that of their competi- tors” (510 F.2d at 928). And they were acknowledged and relied on by the district court here which found that IBM's “[p]lace in the industry has been achieved as a result of superior skill, foresight and industry.” (App. A, at p. 2a) For the very characteristics which make competitive mar- kets socially and economically preferable from a policy standpoint are all evinced by the industry involved in this case. As one of Greyhound’s expert witnesses testified: *Greyhound Computer’s President Bumpers admitted that the line between risk | and —_ leasing “can get vague”, that “there is no clearly definable line” (Tr. 2606). “(T]he computer industry has been the subject of a faster rate of technological progress in engineer- ing accomplishment than perhaps any other industry in the history of human enterprise” (Tr. 1646). And as Greyhound’s principal expert witness concluded concerning the rapid rate of progress and accomplishment in the EDP industry: “[T)hat’s a bonanza from the user’s point of view...” (DX B-4, at p. 52) and “[t]hat is what vigorous competition is supposed to contribute to the marketplace .. .” (Tr. 3354). We outline the direct evidence of substantial competi- tion on the merits in an appendix (App. D) rather than in the body of this petition, because the Ninth Circuit Court of Appeals declined to take issue with it (App. B, at p. 17a) —indeed, the court below noted our position that price reductions and product improvements were “character- istics of the industry” but viewed those facts as essentially irrelevant or even negative (id.). CHRONOLOGY OF RELEVANT EVENTS April 7, 1964 IBM Announced System/360. IBM announced a new family of EDP equipment generally called System/360 or S/360 (Tr. 248-57; DX J). October 1965 “Technological Discount” on S/360. IBM announced a purchase price discount of 12% for S/360 equipment leased one year or more (Tr. 71-72). Greyhound’s trial counsel labelled this a “Technological Discount” and the court of appeals utilized that phrase. This discount plan was not thereafter changed (Tr. 1102-05), although pur- chase prices were twice thereafter (on 10/1/66 and 6/23/69 as explained below) reduced by 3%, bringing the total reduction of purchase prices to about 18% below the original announcement level. ee ——————————— June 1966 Plaintiff-respondent Greyhound Computer Created. Greyhound Leasing spun off a portion of its EDP leasing business into its newly created subsidiary Greyhound Com- puter (DX X, at p. 4). Prior to October 1, 1966, Greyhound Computer (or its predecessor) purchased approximately $13 million of System/360 equipment (Tr. 2793; PX 613). October 1, 1966 IBM Price Adjustment. IBM raised lease prices and lowered purchase prices on all of S/360 by 3% (Tr. 2419- 20), thereby lowering the so-ca'led “multipliers” on $/360. Those $/360 multipliers were never thereafter raised or lowered in any significant way.* June 23, 1969 IBM “Unbundled”. IBM announced that it would thereafter make a separate charge for certain customer sup- port services and that henceforth purchase and lease prices would be reduced 3% (Tr. 1077). June 30, 1970 IBM Announced System/370. The first models of System/370, a new family of EDP equipment similar in breadth to S/360, were announced by IBM (PX 686, at p. 6). The relationship between lease prices and purchase prices on S/370 from announcement through trial below (two years and one month), both with and without con- *“Multipliers” are the ranges between lease and purchases prices for EDP equipment, expressed generally as the number of months’ lease price which is equal to the purchase oo panies also make other such calculations, giv Mee Foy as the cost of monthly maintenance, availability of the Investment Tax Credit and interest rates. New products were from time to time an- nounced within the $/360 line with er and lower multipliers but such new products were never more than a very small part of the total offerings at any point in time. 10 sidering maintenance charges, was substantially the same as the relationship which existed on S/360 equipment between announcement on 4/7/64 and the 10/1/66 price adjustment (two years, six months); that is, the multipliers on §/360 and S/370 were the same for the same respective periods. DECISIONS BELOW A. The District Court The district court directed a verdict in favor of IBM on both plaintiff's contract claim* and its claim under Sec- tion 2 of the Sherman Act. The court found that plaintiff had failed to prove a single element of its Section 2 claim (App. A), and held explicitly that, “[a]ssuming that the defendant holds a substantial share of a market, whatever that market may be, it is the opinion of this Court from the evidence adduced thus far on the record that the defen- dant’s place in the industry has been achieved as a result of superior skill, foresight and industry” (id., at p. 2a). B. The Court of Appeals Five years later the court of appeals reversed the district court on the Section 2 claim although it affirmed the dis- trict court on the contract claim. (App. B) The opinion laid out a basis for a jury verdict for plaintiff as follows: 1. Relevant Market. The court concluded “that the evidence was sufficient, though by no great margin, to per- mit the jury to find that the differences between leasing and selling general purpose computers were of sufficient *On October 20, 1969, Greyhound Computer commenced an action against IBM in Illinois state court, alleging treach of contract arising out of IBM's announcement that it would charge separately for certain customer support services. The state court action was removed to federal court and later consolidated with this action, which was commenced on September 4, 1970. ee significance to justify treatment of the two forms of distri- bution as distinct submarkets for competitive purposes” (App. B, at pp. 12a-13a). The following is to be noted with respect to that leasing “market”: (a) Plaintiff never claimed a “leasing” market, but only a “risk lease” market.* (b) The EDP equipment manufacturers included within plaintiff's “risk lease” market employed the same sales forces to both sell and lease, at the user's option, the same EDP equipment and the same users often both purchased and leased the same models of equipment (DX K-4). (c) The court of appeals repeatedly stated that de- fining a lease market separate from a purchase market was a Close question (App. B, at pp. 10a-13a). In resolv- ing that close question in favor of plaintiff, the court (i) characterized lease and sale—which are no more than financial alternatives concededly offered by all manufacturers and utilized by all customers—as “means” of distribution (App. B, at pp. 10a, 13a) and with that label invoked “distributor” cases in support of its analysis (App. B, at p. 10a n.8); (ii) brushed aside plaintiff's failure to offer any evidence of entry barriers or lack of supply substitutability with the state- ment—as if it were defendant's burden of proof— that “neither IBM nor the record suggests’ that there were any alternative suppliers that “could have shifted their operations to such a business readily” (App. B, at p. 8a n.4); (iii) ignored the evidence of un- precedented supply substitution through prompt entry *Indeed, Greyhound argued that “{a] full-payout lease is simply another means of financing an outright sale .. .” (GYH. App. Reply Br., at 8). The court ex ly declined to rule on the risk/payout lease distinction asserted by Greyhound (App. B, at p. 13a n.15). 12 of some 120 firms which occurred after IBM increased the lease prices by 3% and reduced the purchase prices by 3% on S/360 in October 1966; and (iv) finally re- solved the close question of market definition for plain- tiff only because of “the weighty presumption in favor of a jury determination” (App. B, at pp. 10a, lla). 2. Possession of Monopoly Power. Having carved a narrow “submarket” out of a broad competitive industry, the court of appeals placed its principal reliance for a show- ing of monopoly power on IBM's share of that “submarket” —a share which the court said had declined from 82.5% in 1964 to 64.6% in 1970 (App. B, at pp. 14a-15a). No significance was given to that loss of almost 20 percentage points in six years—a phenomenon wholly inconsistent with monopolization—nor to overwhelming direct proof of vigorous, continuing competition on the merits (See App. D). 3. Wilful Acquisition or Maintenance of Monopoly Power. The court flatly rejected any defense based on the fact that the acts at issue were “ ‘honestly industrial’ —that is of a kind an ordinary enterprise might utilize with im- punity” (App. B, at p. 18a). To the contrary, the court said, “[i]f the jury concluded IBM possessed monopoly power in the leasing of general purpose computers, IBM would be precluded from employing otherwise lawful prac- tices that unnecessarily excluded competition from the sub- market” (id.). The specific acts which the court believed could be so condemned by a jury fit nowhere in almost a century of antitrust litigation. They are not, for example, claimed to have been below-cost pricing, even arguable violations of Section 1, or even anticompetitive vis-d-vis the preponder- ance of other companies with which IBM competes. Rather, Wier 13 the claims upheld by the court were all founded on the fact that IBM either charged plaintiff somewhat more for equipment than plaintiff wished to spend, or charged users effectively less in monthly lease rates than plaintiff wanted to compete with. Specifically, the practices in question were: (a) “Technological Discount” Claim on S/360. A 12% discount on installed equipment announced by IBM in October 1965 (almost a year before plain- tiff was created) which plaintiff later utilized repeatedly on purchases from IBM, but which was not as high as the discount previously offered by IBM for older equip- ment. The court concluded that a jury could find that the 12% discount was not “economically justifiable” (App. B, at p. 22a), ie., that it might—or should— have been increased in the late 1960’s to a level ap- proaching or equal to the purchase discount offered on pre-360 equipment. (b) The “Unbundling” Claim. In June 1969, IBM offered certain services for a separate charge and concomitantly reduced the lease and purchase prices 3%. Applying contract law, the court below affirmed dismissal by the district court because Greyhound had received exactly what it bargained for and had no right to complain about the separation of services or the 3% reduction. However, under the Sherman Act unbundling was found by the court to be “anticompetitive” because it “left the leasing companies with an inflated invest- ment and lowered returns” (App. B, at p. 27a).* decision’ this t is actually more bla- tant, Ie nsactetcing piaiatlirs proot ia support of is breach of ee an te kl Danes otek “Viewed most f to Greyhound, the evidence showed Py ty customers had bargained on an 14 (c) The “Multiplier’ Claim. A relationship be- tween IBM’s sale and lease prices, attacked not on the ground that either price was in some sense “too high” or “too low”, but on the theory that the range between the lease and purchase prices was in some sense “greater” than it had been on a prior line of equipment. The court here concluded that the “jury could have found that IBM did increase [the] multiplier” on Sys- tem/370 over that which had applied to System/360 and that that “restricted” plaintiff's “access” to the market (App. B, at pp. 23a-24a). Had multipliers actu- ally been increased, it would still be difficult to under- stand why IBM’s offering of one multiplier on one line of equipment made actionable under the Sherman Act any change in that multiplier on a subsequent line of equipment. But the plain facts are, despite the court’s confusion, that no multipliers at all were ever increased; no restriction on access ever occurred or was even remotely proven. * (d) The “Maintenance Price’ Claim. An increase in IBM maintenance charges which was done, accord- ing to the court, “despite decreased maintenance costs” (App. B, at p. 24a). The court’s finding of “decreased individual basis for some unspecified eee of r- gener- ally defined services, and that some undetermin yy of these services had been withheld.” (App. B, at p. Yet it was this “evidence” which was viewed in the same opinion as sufficient to uphold a jury verdict that IBM was guilty of a monopo- —~¥ practice in violation of the Sherman Act (App. B, at pp. 25a- a *What the court apparently confused as an “increase” is that multipliers on S/360 were lower at the end of that product life than the multipliers on S/370 were at the beginning of that product life. But this much is not even debated: the S/370 multipliers were the same at the beginning of that product's life and at the time of trial as the S/360 multipliers were at the beginning of that product's life and at the time plaintiff came into existence. ow whe’ _— 15 maintenance costs” was conjured solely from the hy- pothesis that because each succeeding generation of IBM equipment was more reliable, it was “hence less costly to maintain” (id.). No such evidence was of- fered. In fact, the court’s hypothesis flies in the face of common experience that labor intensive services, such as maintenance, have continually increased in cost and price in all areas of our economy irrespective of increases in reliability. (e) The “Fixed Term Plan” Claim. In May 1971, IBM announced optional one- and two-year term leases for certain EDP equipment at discounts from IBM's monthly rental prices. This was the only aspect of Grey- hound’s antitrust claims concerning which the court of appeals held that a directed verdict had been properly granted (App. B, at p. 19a). 4. What the Court of Appeals Calls IBM’s General Defense. IBM argued that even assuming Greyhound had detined a “lease” or “risk lease” “submarket”, the acts com- plained of—failure to reduce the purchase price, the setting of the purchase price in the multiplier, and the separate charge for services and for maintenance on sold machines— were all practices which occurred in the “purchase sub- market” and Greyhound had made no attempt to show that IBM had any kind of power in that market. Thus, none of the practices could possibly be considered instances of the exercise of monopoly power. The court elided the point of that argument, holding that Greyhound was “not required to prove the source of IBM’s power . . . ” (App. B, at p. 29a). 5. Attempt to Monopolize. Contrary to decisions by this Court and every other United States Court of Appeals, 16 the court below concluded that a plaintiff seeking to prove an attempt to monopolize need not show either “an appro- priate relevant market” or “a dangerous probability of monopolization”. The court explicitly assumed “that the record would not support a jury finding of even a danger- ous probability of monopolization of an appropriate mar- ket” (App. B, at p. 30a). Nevertheless, it concluded that if the plaintiff could prove “the required specific intent” and “that any action by IBM was predatory in nature”, an attempt to monopolize would be established (id.). The court took the same acts discussed in the earlier monopo- lization section of its opinion—which it had assumed were “not ‘predatory’ but ‘honestly industrial’"—that is, of a kind an ordinary enterprise might utilize with impunity” (App. B, at p. 18a), and here characterized those same acts as “anticompetitive activities that impaired competition with- out a legitimate business purpose” (App. B, at p. 32a). 6. Damages. Greyhound did not put on any witnesses to calculate, estimate or even approximate what damages Greyhound had suffered. However, the court fashioned a damage claim which Greyhound never made and which ignored the district court’s conclusion that such an exercise would be “purely speculative”. REASONS FOR GRANTING THE WRIT We wish to emphasize at the outset that we believe certiorari should be granted in this case not merely because each part of the judgment appealed from is wrong—and in direct conflict with the principles of antitrust law estab- lished by decisions of this Court and other circuits—but that, singly and in combination, the immediate effects of this judgment are intolerable. 17 The judgment appealed from, in total effect, condemns competition. If allowed to stand, it would make the Sher- man Act a restraint of trade. If allowed to continue in effect even briefly, six other Sherman Act Section 2 cases, now pending against IBM in the already overburdened Ninth Circuit, will go forward at almost unimaginably high cost to litigants and courts—all threatened by a totally erroneous set of legal standards.* The judgment below is wrong in its definition of a nar- row product “submarket” in disregard of the uncontro- verted facts of supply and demand substitutability. It is fur- ther wrong in its conclusion that a “share” of any such mar- ket is sufficient to establish “monopoly power” against the conceded fact of a precipitous decline in that “share” and against unchallenged proof of continuously improving price and product performance, ease of entry, actual entry and other direct evidence of vigorous competition (which this Court and others have previously deemed inconsistent with any such “power”). It is additionally wrong in holding actionable concededly lawful, honest business acts which might “exclude” competitors “unnecessarily”. Indeed, the court held that normal competitive acts were unlawful if *Two of those decisions are now on appeal in the Ninth Circuit from directed verdicts in IBM’s favor, including California Computer Products v. IBM, Civil No. C73-2331-RM (C.D. Cal. Feb. 15, 1977) in which IBM’s motion for directed verdict was granted at the close of plaintiff's 58-day case. Retrial of California Computer would take more than 100 trial days. Retrial of the present case, Greyhound, would take more than 50 trial days. A third case in the lineup, Memorex v. IBM, Civil No. C73-2239-SC (N.D. Cal.), is now scheduled to be tried before a jury commencing in January for a period of at least ten months. While we believe and will urge that California Computer and Memorex should be resolved in IBM’s favor even if the decision below stands, our opponents will and have urged the contrary. Thus, in its reply brief to the Ninth Circuit, California Computer by stating that the court’s decision in Greyhound Beet D that CalComp be accorded a new trial.” (CalComp. Reply r., at 1 18 “unnecessary” even if taken outside of the market in which the power supposedly exists and in a market in which no power is possessed or was even claimed—and that is a self- evidently erroneous proposition. To ensure that such “otherwise lawful” competition will not escape the full penalties of the Act, even where the perpetrator does not hold a high share of a contrived “sub- market”, the court below makes it actionable as an “attempt to monopolize” without any showing of either relevant mar- ket or likelihood of success. That view, so patently unsound, which, as a practical matter proscribes almost any business conduct a jury does not like, conflicts with decisions of this Court and every other circuit court of appeals in the country. To ensure that the penalty will be a sufficiently strong deterrent to engaging in such behavior, the decision permits treble damages to be based on extreme speculation and thus to be wholly unpredictable in amount. That holding is flatly inconsistent with a host of judicial decisions. To ensure that such claims, no matter how tenuous, will still enable the less successful competitor-claimant to reach a jury with a “shot” at such speculative damages, the decision constructs a “weighty presumption in favor of a jury determination” which, coupled with a liability standard susceptible of meaning anything, is not merely “weighty” but insurmountable. In short: (1) a jury is free to find almost anything to be a “submarket” even if plaintiff fails to prove barriers to entry, and supply and demand substitutability are clearly present; (2) a jury is free to find monopoly power almost solely from defendant’s high, but rapidly declining share of such a “submarket”; 19 (3) a jury is free to find virtually any honest, lawful practice “unnecessary” and hence a source of liability— and even to do so without any showing of relevant mar- kets, any power of any kind or any likelihood of achiev- ing it; (4) a jury is free to construct damages out of any- thing and in any way it wants; (5) all such questions are guaranteed to go to the jury under instructions which are vague and potentially all encompassing. Surely the effect of such a decision is te spawn litigation by those unsuccessful in the competitive marketplace;* to impel successful companies to “soften” their competitive activities so as to avoid the expense and penalties of such litigation; and hence to suppress that “free and unfettered competition”** which the Sherman Act was enacted to pro- tect and encourage. This effect inevitably follows from the decision below. But the adverse impact of this decision is not confined to its intimidation of vigorous competition. Litigation inspired by the principles of this opinion will be typically massive and complex. However tenuous the plaintiff's pi vof may be, the possibility of a resolution by a court is virtually elimi- nated—the case must continue to a jury determination as to how narrow a market a jury may wish to define and whether the “exclusion” which inevitably occurred was “unnecessary”. Since the application of such a novel, inherently ambiguous and undiscriminating standard to the sort of complex facts involved in such litigation is a process with which a jury trial cannot rationally cope, subsequent, *The possibility always exists that a jury may be confused by complex facts and incomprehensible idelines, and there the capture of unearned profits will be trebled. Indeed, for many companies the potential for success may be much higher in litigation than in the marketplace. **Northern Pacific Ry. v. United States, 356 U.S. 1, 4 (1958). 20 inevitable appeals in search of an intelligible standard will plague the courts of appeals. As noted above, there are six such actions pending against IBM in the Ninth Circuit alone, one of which, a jury trial of at least ten months duration, is set to commence in January, and the others are to follow. If this case goes back for trial, it too will last for many weeks and months. If the plaintiffs succeed in persuading those courts that standards enunciated in this opinion control those cases, huge private and judicial resources, costing many millions of dollars, will be squandered in those trials and appeals —for, we believe, this Court will not ultimately tolerate these standards. Counsel for the plaintiff in CalComp v. IBM (which was dismissed at the close of plaintiff's case after 58 days of trial) has recently proclaimed to the Ninth Circuit in the reply brief on appeal that the rulings in Greyhound squarely conflict with the Tenth Circuit rulings in Telex.* Certainly they are inconsistent with decisions of this Court and other circuits. They disrupt the pro-competitive stream of antitrust decisional law in this country. There are com- pelling reasons for granting this petition and rejecting these erroneous standards right now. THE BASIS UPON WHICH THE COURT CONCLUDED A JURY COULD SEPARATE A “LEASE SUBMARKET” FROM A “PUR- CHASE SUBMARKET” IS WITHOUT LEGAL JUSTIFICATION, In defining the relevant market, the court below re- solved a “close question” in favor of a “lease submarket” only with the aid of a “weighty presumption in favor of a *Indeed, CalComp goes so far as to say: “. . . Telex has arguable validity only if this Court is willin to hold that the Greyhound opinion misstated the law with respect to acquisition and maintenance of monopoly and the acts permitted to a monopolist.” (CalComp Reply Br., at 12) 21 jury determination” (App. B, at p. Lla).* But to dis- tinguish a “lease submarket” from a “purchase submarket” is no mean trick. The products in both “submarkets” are not merely “reasonably interchangeable” (United States v. E. I. DuPont de Nemours & Co., 351 U.S. 377, 395 (1956) )—they are identical; generally, the same custom- ers both purchase and lease the same models of equipment at the same time; and all the manufacturers of EDP equip- ment both sell and lease their products (Tr. 3020). The only difference between the two “markets” is the timing of payment to the supplier** for the use of the same equip- ment. There are no other differences of any kind, and however one exercises one’s imagination, no other differ- ences can be perceived.+ To Judge Wyzanski in United States v. United Shoe Machinery Corporation, the difference between payment by lease and purchase hardly created two distinct markets. He *The court of appeals actually defined the market as that for the leasing of “general a digital computers for commercial applica- tions” (App. B, at pp. 9a-10a). The court stated that “IBM does not challenge the adequacy of Greyhound’s evidence to establish a market limited to general w% digital computers for commercial applica- tions” (App. B, at p. 8a). That is not true. Greyhound did not claim any such market, nor did it offer any proof of such a market. IBM made no effort to refute such a contention simply because there was none. Had such a contention been made, we would have opposed it vigorously. **Even the timing of payment by the customer for the use of computer equipment is not necessarily a function of whether the equipment is purchased or leased. A purchase transaction, for ex- a may be fuianced by the customer's time payments to a bank. Conversely, a supplier may not receive the full purchase price when equipment is sold; for example, IBM offers to sell equipment under an instalment payment plan spreading payment of the purchase price over a multi-year period and to credit a percentage of lease payments already made to the purchase transaction. Title does pass from the supplier in a sale or instalment sale, but who in effect “owns” or has a priority interest in the equipment will vary depending upon how the transaction is financed—it could be the supplier itself, a bank, the customer, or some combination. 22 ordered the defendant to sell its machines as well as lease them in order to create more opportunities for United Shoe’s shoe machinery competitors and thereby to diminish United Shoe’s market power (110 F. Supp. at 349-50). To the Ninth Circuit in this case, in contrast, the differ- ence in timing of payment was itself sufficient to create a distinct market. The court concluded: “On this record a jury could infer that the need for flexibility governed the choice between a lease and purchase, and that there was substantial customer resistance to shifting from one to the other.” (App. B, at p. 12a) In effect, the court was saying that the record was adequate to support a jury finding that demand substitutability be- tween lease and purchase was sufficiently low to separate purchase and lease of the same product into different “sub- markets”. For low demand substitutability to have been proven—and clearly plaintiff had the burden of so doing— required evidence, at minimum, that a legally significant number of customers so strongly preferred lease to pur- chase as to render purchase an inadequate substitute with- out a drastic narrowing of the monthly-rental-price/pur- chase-price ratio. Plaintiff produced no evidence even re- motely establishing that proposition; on the contrary, it was clearly established that customers Greyhound labelled as “purchase prone” both leased and purchased the same kinds of EDP equipment at the same points in time (DX K-4). Common experience demonstrates that a given decision to lease or purchase is primarily dependent upon constantly changing factors such as availability of capital, interest rates, tax provisions and the like. No effort was made to deal with any of those factors. But even more glaring was the error of law the court committed in drawing a market definition line between 23 lease and purchase when the obvious supply substitutability between the two makes any such line nonsensical. Market definition is simply a construct for the measure- ment of monopoly power, which, in essence, is the power to raise price without attracting entry. Such a power may be checked either by the ability of customers readily to switch to a substitutable product (demand substitutability) or by the ability of other sellers readily to make or offer the same or an interchangeable product when the incentive to do so exists (supply substitutability). Since a high rate of either demand or supply substitutability will constrain the power of the subject firm to increase price, a product market definition which does not include both the interchangeable product and that potentially offered by such other suppliers will not sensibly test for monopoly power.* The court below (App. B, at p. 8a n.4) expressly recog- nized that any market line based solely on low demand substitutability was obliterated in fact and law by high supply substitutability. In addition to citing several of the many decisions to that effect by this Court and other federal tribunals, the court below stated: “Attempts to exclude competition or control prices may also be checked if other suppliers shift their production facilities to the product in question.” (/d.) *See, ¢.g., United States v. Penn-Olin Chemical Co., 378 U.S. 158, 173-74 (1964); Brown Shoe Co. v. United States, 370 U.S. 294, 325 n.42 (1962); United States v. Columbia Steel Co., 334 U.S. 495, 510- 11 (1948); Yoder Bros., Inc. v. California-Florida Plant Corp., 537 F.2d 1347, 1368 (Sth Cir. 1976), cert. denied, 429 U.S. 1094 (1977); Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674, 691 (9th Cir.) , cert. denied, 429 U.S. 940 (1976); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271-73 (9th Cir. 1975); Telex Corp. vy. International Business Machines Corp., 510 F.2d 894, 916-17 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975); Mullis v. Arco Petroleum Corp., 502 F.2d 290, 296-98 (7th Cir. 1974). 24 Immediately thereafter, however, the court appeared totally to have misconceived the point. First, the court suggested that it was IBM’s burden to prove the degree of cross-elasticity of supply rather than a part of plaintiff's burden of establishing a relevant market (App. B, at p. 8a n.4). Such a shift in the burden of proof is plainly wrong. See Mullis v. Arco Petroleum Corpora- tion, 502 F.2d 290, 296 (7th Cir. 1974). Secondly, the court stated that supply substitutability would be present only if “industries not presently engaged in the leasing of general purpose commercial systems could have shifted their operations to such a business readily” (App. B, at p. 8a n.4). That misses the point entirely. In determining whether leasing is an appropriate market, the primary issue is not merely whether companies not pres- ently leasing EDP equipment could readily shift “opera- tions”. Rather, the dispositive question of supply substi- tutability is whether the same manufacturers who already both lease and sell their equipment could, if IBM raised its lease prices, compete with IBM by readjusting their lease prices or otherwise emphasizing lease transactions so as to make it more attractive to potential users to lease their equipment rather than purchase it. Obviously, substitution can be achieved by any manufacturer with the stroke of a pen, without shifting any “operations” whatever. That plaintiff offered no evidence to the contrary is hardly sur- prising; total supply substitutability from sale to lease is a self-evident proposition. Moreover, plaintiff made no effort to establish that its proffered market included all or substantially all of the firms reasonably able to satisfy consumer demand for “risk lease” (or, as the court defined the market, “lease’’) 25 financing; nor did Greyhound even attempt to suggest why financing and other institutions could not easily satisfy such demand.* Obviously, since the role of the leasing com- pany is strictly a financial one (see p. 6 supra) any bank, insurance company, leasing company dealing in other prod- ucts (e.g., airplanes) or other financial enterprise can enter with ease (and, as Greyhound Computer and other leasing companies freely assert, they compete with those financial institutions in leasing computer equipment). See, e.g., DX X at p. 13; Tr. 598-99; DX Z-1 at pp. 11-12; Tr. 1834. The president of Greyhound Computer at the time the action was commenced testified that, in 1966, there were 15 to 30 leasing companies who bought EDP equipment and leased it in competition with IBM (Tr. 588-89). In October 1966, IBM raised the lease price on most of its EDP equipment by 3%.** An immediate influx of leasing companies followed. The president testified that by 1969 there were between 120 and 150 such leasing companies (excluding banks and financial instututions) (Tr. 590), and the record shows that those leasing companies in 1967, 1968 and 1969 purchased some two billion dollars of EDP *In United States Steel Corp. v. Fortner Enterprise, Inc., 429 U.S. 610 (1977), this Court recently addressed, in a tie-in context, the issue of economic power in a financing market similar to the “leasing” market involved in the present case. The Court there stated that where “there is nothing to suggest” that competing sellers and other lenders were unable to offer ———— financing if they chose to do so (id. at 622 & n.15), — s failure to offer evidence of such inability is fatal to its market power claim. Greyhound’s proof at trial was defective in precisely the same fashion, but the court below held the defect to be of no consequence. **Furthermore, in March 1967, the Investment Tax Credit (26 U.S.C. §§ 38, 46-50) was reinstated after a —— of approxi- mately 6 months. That reinstatement prov leasing companies and other purchasers of certain EDP equipment with a 1h tax credit, the effect of which was to provide a substantial discount on certain purchases, and hence yet another incentive to purchase EDP equip- ment for use in leasing to EDP users. -c—-— 26 equipment and leased that equipment in competition with IBM* (App. D). To regard lease and purchase transactions as “means” or “forms” of distribution, as the court below did (App. B, at pp. 10a, 12a-13a), is neither analytically sound nor per- tinent to the undisputed—indeed, indisputable—fact of supply substitutability between the two. The court adopted that characterization as a peg for citing distributor cases that focus upon different means of distribution as a basis for defining different markets (see App. B, at p. 10a n.8). Those cases and that characterization are inapposite; neither IBM nor its competitors use distributors at all, let alone any different means of distribution. Common par- lance, we submit, would not refer to the method of financ- ing as a “means of distribution” and we have found no reported decision or other precedent which supports such a use of the term. We urged that the only distinction be- tween lease and purchase was a method of financing and that that was not a valid basis for defining a relevant mar- ket. The court below enigmatically disposed of that argu- ment as follows: “IBM argues that both leasing and buying are merely methods of financing the use of computer systems. However, the Sherman Act cannot be avoided by classifying the commercial activity in- volved as financing.” (App. B, at p. 12a) We never suggested any such avoidance. We did suggest strongly that such a distinction is neither adequate nor rational as a basis for segregating into separate markets products which are in all respects identical, marketed by the same companies to largely the same users, and as to which supply substitutability from sale to lease is immediate, *The record also was replete with evidence of numerous and major corporations from other industries entering into the EDP busi- ness and into direct competition with IBM in the leasing of EDP equipment (see, e.g., DX C-4). 27 effortless and total—indeed, the ability to shift is self-evi- dently possessed by every company whose identical sold products were excluded by the court’s definition from the market it found to exist. We submit that if a jury were nevertheless instructed that such a market might be defined on this sort of record, then juries may be permitted to find any kind of market under any set of circumstances, for a “relevant market” under this decision is anything a jury chooses to say it is. THE COURT BELOW INCORRECTLY HELD THAT A JURY COULD INFER MONOPOLY POWER FROM IBM’S SHARE OF THE NARROWLY DEFINED “LEASE” SUBMARKET Also warranting review is the court of appeals’ error in viewing “share”, however calculated, in any market however defined, as dispositive of the question of monopoly We will not discuss here the many arithmetical fallacies engaged in by Greyhound to construct IBM’s purported submarket “share” which the court below accepted, or how the leasing revenues of companies within the court’s “lease submarket” (but outside Greyhound’s proffered “risk-lease submarket”) were somehow omitted from such “shares”. The fact is that, using the same Court Census data stipu- lated into evidence in this case, both the district court and Tenth Circuit Court of Appeals concluded in Telex that IBM had only a 35.1% share of the EDP market (see p. 6 supra). Of course, the walling off entirely of the total EDP revenues of some 1,800 companies shown in that census, and the inclusion of the lease revenues only of the 101 companies selected by Greyhound, were achieved main- ly by the market definition error discussed in the preceding section of this petition. Even assuming that a rational computation of “share” was made and an economically meaningful market defined, the fact remains that the court below barely paused to con- POOL OE LOOT SE A AIF EAN pm 2 Ooh . 28 sider IBM’s loss of almost 20% of such a “share” in the so-called “lease submarket” between 1964 and 1970. Such a phenomenon is, we believe, so unlikely to occur in a monopolized market that a strong inference should arise that something fundamental is wrong with the analysis. But the share figures were plainly talismanic and thus de- cisive to the court below, since the other evidence cited in support of an inference of monopoly power is trivial.* The commitment to share as the critical determinant of market power is erroneous in law precisely because it blinds the court to the sort of direct evidence of vigorous, healthy competition—entry, product and price improve- ment, Customer sophistication and sovereignty both within *It was also badly misunderstood. For example: (1) The court stated that the evidence indicated IBM “never set a price simply to meet competition” (App. B, at p. 16a). However, the only two witnesses to address that issue gave testi- mony of a far different nature. Mr. Cary testified that IBM offered Superior price performance as compared to its competitors, not that it priced its products above its Competitors (Tr. 3376-78) . Mr. Watson S testimony was taken out of context. He testified — y h- 7 a its competitors’ prices but that ] r upon competitiv i i i -- on our machines” (Tr. 5697). Pee ree (2) The court stated that IBM’s prices “were 5 to above those of the best of its competition” (App. B, 4. Aa But, again, the witness (Mr. Cary) testified that IBM’s price per- — was —, + —y of its competitors, by a range of : ion oan competitors (Tr. 3376-78). — (3) The court stated that “IBM’s senior vice presiden i- fied that rental prices of some models could be focteneed sehen proportionate decreases in demand.” (App. B, at p. 16a) In fact that witness testified that in deciding whether to increase certain rental prices, “I know that we looked at what the result in pricing —price performance structure would be versus all of our competi- tors. . . . His further testimony—that “rental demand was inelastic” after a 3% price increase—followed immediately there- after and was clearly premised on IBM's superior price perform- ~My is, 3 = and amount of ormance per unit of ” evan aiter that tafen | , : ie see), price increase, as compared to its competi- 29 and surrounding the narrow submarket segment—that this record so overwhelmingly establishes (App. C). It is also, of course, completely inconsistent with this Court’s decison in United States v. General Dynamics Corp., 415 U.S. 486, 498-501 (1974) and United States v. Columbia Steel Co., 334 U.S. 495, 533 (1948), and with other decided cases. See, e.g., United States v. Inter- national Harvester Co., 274 U.S. 693, 708-09 (1927); Cole v. Hughes Tool Co., 215 F.2d 924, 938 (10th Cir. 1954); Travelers Insurance Co. v. Blue Cross, 481 F.2d 80 (3d Cir.), cert. denied, 414 U.S. 1093 (1973). The court below recites IBM’s contention “that price reduction and product improvement are characteristics of the industry and are inconsistent with the existence of monopoly power” (App. B, at p. 17a). It is nowhere sug- gested that this contention is in any sense flawed or un- supported by the record—-indeed the district court held “that the evidence [was] insufficient to submit the ques- tion as to defendant’s control or ability to control the mar- ket regardless of its purported share thereof” (App. A, at p. 2a). Instead, and necessarily, those characteristics of the industry and IBM’s position in it are treated as accu- rate by the court of appeals—and then effectively ignored. Heretofore, however, all learning in the case law has in- structed that price reduction and product improvement are the antitheses of monopolized industry phenomena and precisely what the competitive system is supposed to gen- erate and the Sherman Act to ensure. Hence Judge Hand’s classic distinction between the monopolized and the com- petitive industry: “Many people believe that possession of unchal- lenged economic power deadens initiative, dis- courages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevi- Pee rss _-— + >a - —_ 30 table disposition to let well enough alone.” United States v. Aluminum Company of America, 148 F.2d 416, 427 (2d Cir. 1945). It is the “constant stress” which makes a firm unable to “let well enough alone” that compels price reduction and product improvement; that compulsion is competition, and the result is to provide consumers with exactly what our economic system is designed to produce. The court below finds no such virtues in price reduc- tion and product improvement. Necessarily conceding that the record is replete with such proof (see App. D), the court disposes of the evidence—and the importance—of compe- tition with two sentences: First, with respect to product improvement, “But rapid technological progress may provide a climate favorable to increased concentration of market power rather than the opposite.” (App. B, at p. 17a) Secondly, with respect to price reduction, “[A] decline in prices does not necessarily imply an absence of monopoly power; a fair profit might have been made at even lower cost to users. See United States v. Aluminum Company of America, 148 F.2d 416, 427 (2d Cir. 1945).”* (Id.) *The court’s reliance on Alcoa as support for its rejection of declining prices as disproof of monopoly power is misplaced. In Alcoa, Judge Hand reasoned that the “narcotic” of monopoly, so clearly present in that case, is to be condemned even if “the monopoly has not been used to extract from the consumer more than a ‘fair’ profit” (148 F.2d at 427). The court was not there faced with a strik- ing record of declining prices and rapidly improving price perform- ance; the court was not there saying, as the Ninth Circuit has said, that monopoly power is not disproved because price performance improvements could possibly have been more extraordinary. On the contrary, Judge Hand merely observed that where the “stimulant” of “rivalry” is missing from an industry, as was the case in Alcoa, the fact that extraordinary profits have not been extracted from con- sumers does not dispose of liability under the Sherman Acct. 31 In support of the first assertion, the opinion refers to two quite thin and hardly relevant law journal articles (App. B, at p. 17a n.21).* Judge Hand, normat 2 €co- nomic analysis, the record of extraordinary product innova- tion in this case, and the dramatic loss of IBM’s “share” in whatever “market” one cares to carve out of the Court Census data—all speak eloquently to the contrary effect insofar as the EDP industry is concerned. Whether or not a continuing decline in prices over a twenty year period is sufficient to disprove the existence of monopoly power, the court’s second assertion—that a court or jury should undertake to determine whether pro- fits are “fair” or fairer profits might have been achieved— would, if ever attempted, cause the greatest confusion and difficulty. | This Court’s familiarity with administrative rate mak- ing should, we believe, leave it with substantial incred- ulity that a jury could master such an undertaking or should ever be asked to do so. A jury could never—we believe—evaluate the “fairness” of any particular price change without reviewing at least the whole pricing struc- ture of defendant and plaintiff and perhaps that of the le industry. “~ sum, a court below exalted the significance of even a rapidly declining share of an artificial “lease submarket” over direct, uncontroverted proof of massive, continuous new entry and vigorous price and product competition in that defined “submarket”. Ease of entry, price reduction, product improvement—that’s competition. To set aside all *A curiosity is that one of those articles reviews the decision of the Court of apes for the Tenth Circuit in Telex v. IBM which, relying upon the same Court Census and the same of “ne proof of price reduction and product bon prvenny ound A. on all the elements of monopolization attempt to monopo whe which the court below found against IBM. Notably, the court below does not otherwise mention Telex v. IBM. 32 proof of it in favor of a mechanistic analysis based merely on “share”—and a rapidly declining “share” at that—is to lose sight of the very reasons for which the statute was enacted. THE COURT BELOW BROADLY CONDEMNS LEGITIMATE COMPETITION Having thus found monopoly power in a narrow slice of a vigorously competitive market, the court announced and applied a test which proscribes virtually all legitimate competition by IBM. The court below concluded that IBM cannot engage in the kind of business conduct “an ordinary enterprise might utilize with impunity” because “if the jury concluded IBM possessed monopoly power in the leasing of general purpose computers, IBM would be precluded from employing other- wise lawful practices that unnecessarily excluded competi- tion from the submarket”* (App. B, at p. 18a). The court’s application of this stated rule makes plain that it is intended to be just as broad and sweeping as it sounds. Thus, the court has not only prohibited legitimate prac- tices in general terms, but specifically condemns under the Sherman Act as “anticompetitive” as to plaintiff the very action—IBM’s 3% sales discount coincident with “unbun- dling”—which it finds fully justified in contract law and concedes “may have been pro-competitive”** vis-a-vis most *The court of appeals apparently was interpreting language in United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 344-45 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954). That lan- guage, however, is inapposite here. United Shoe involved, among other practices wholly dissimilar from anything evidenced by the present case, the defendant’s insistence on only leasing its products, only leasing them long-term, and then charging a penalty on cancella- tion for replacement with a competitive machine that was more than the lessee would nave had to pay had it simply returned the equipment and gone out of business. We do not understand that decision nor any decision of this Court as legislating “soft” competition by broadly condemning legitimate competitive activity. _ **We take “pro-competitive” to mean simply legitimate competi- tion which, in this instance, created new marketing opportunities for IBM and for others as well. 33 actual or potential suppliers. Of course, one could only expect chaos in the minds of jurors faced with this anomaly. On the one hand, under the court’s analysis IBM plainly would be entitled to a peremptory jury instruction that there was no breach of contract because Greyhound received the benefit of the bargain it struck. On the other hand, the jury could still find against IBM—and award treble dam- ages—on the theory that it was not “necessary” for IBM to do what it did. Consider also the mindless exercise—for all involved —in trying to determine whether it was “unnecessary” for IBM not to increase its 12% “technological discount” still further at some point in time despite the subsequent 3% purchase price reduction in 1966 and the 3% general price reduction in 1969. The court also erred in its proscription of honestly com- petitive practices which took place outside the defined “submarket”. Of course, there are cases, such as United States v. Griffith, 334 U.S. 100 (1948), which hold that the use of power in a monopolized market to impair com- petition outside the monopolized market may be a proper basis of liability and the court cites some such cases. Strangely, the court cites those cases here for a proposition which is the obverse of that for which they stand. No prior case holds that legitimate, competitive acts conducted out- side the allegedly monopolized market constitute monopoli- zation of that market. Indeed, it makes absolutely no sense to reach such a conclusion. However, that is exactly the conclusion reached below. Thus, we pointed out that, assuming acceptance of Greyhound’s separate lease and purchase markets, IBM’s acts in setting and lowering the purchase price—the “multi- plier”, “technological discount” and “unbundling” issues— were all actions taken by IBM in what Greyhound called the separate “purchase market” and that no effort had been made to prove that IBM had any power in such a market. To that—we believed dispositive—contention the court of 34 appeals, inappositely citing Griffith and its progeny, re- sponded: “Greyhound was not required to prove the source of IBM’s power to do what Greyhound’s evidence indicated IBM in fact did.” (App. B, at p. 29a) We thus reach a point where if a plaintiff convinces a jury that a defendant has a high share of market A and takes a legitimate business act in market B, where it has no power, a plaintiff may recover if it can show it was in some way affected thereby. It should be clear that something has gone wrong with the analysis. We think that when the court reached this point in its analysis it found the extremely artificial distinction between lease and purchase “submarkets” untenable. We do too, but the court cannot have it both ways. If the markets are separate, those acts in the purchase submarket cannot form the basis for liability. If those acts could create liability, the markets are not separate. Thus, if one says that pur- chase price changes affect the amount of equipment which will be leased, one is saying that there is cross-elasticity between lease and purchase, ¢¢.,. they are .not distinct “submarkets”. Finally, the court suggests one further extension of its proscription of legitimate business conduct. If one reads together (as lawyers advising clients about this decision must) (a) the language concluding that “otherwise lawful practices that unnecessarily exclude competition from the submarket” are forbidden, with (b) the language rejecting direct proof of competition through price reduction and product improvement by impugning technological progress which “may provide a climate favorable to increased con- centration of market power”, one must necessarily conclude that product innovation may be banned under the court’s test. We doubt the court intended such a result, but that contention is presently being urged against IBM in other lawsuits. 35 The result of the court’s test, then, is simply to say to a large, dynamic corporation which routinely announces sig- nificant product and price improvements that it must soften up and slow down the competitive pace if its rivals may be unable to keep up. If such a corporation is counseled that it should move slowly and then only to meet the actions of its competitors, surely those competitors will recognize that competition has been shackled and will not provoke com- petitive responses. But courts have time and time again recognized that competition on the merits is what the antitrust laws were intended to foster and that, as Judge Hand stated in Alcoa, “(t]he successful competitor, having been urged to com- pete, must not be turned upon when he wins” (148 F.2d at 430). Even where monopoly power has been estab- lished, or assumed for purposes of argument, courts have refused to proscribe legitimately competitive conduct. See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977), where in ruling that “an illegal presence in the market” cannot result in an award of treble damages without proof that plaintiff's claimed injury “flows from that which makes defendant's acts unlawful”, this Court stated: “{T]he damages respondents obtained are de- signed to provide them with the profits they would have realized had competition been reduced. The antitrust laws, however, were enacted for the pro- tection of competition, not competitors. . . . It is inimical to the purposes of these laws to award damages for the type of injury claimed here.” To the same effect, the Tenth Circuit held in Telex v. IBM, 510 F.2d at 927: “There must be some room to move for a de- fendant who sees his market share acquired by re- te wee e 36 search and technical innovations being eroded by those who market copies of its products. It would seem that technical attainments were not intended to be inhibited or penalized by a construction of section 2 of the Sherman Act to prohibit the adop- tion of legal and ordinary marketing methods al- ready used by others in the market, or to prohibit price changes which are within the ‘reasonable’ range, up or down.”* But the court below has followed a different course in its analysis of Section 2 of the Sherman Act. It is protecting a competitor at the obvious expense of competition, better products and lower prices. It is doing so by injecting into the bloodstream of competition that narcotic which Judge Hand long ago condemned—the narcotic which deadens the competitive nerve and seduces enterprises to “let well enough alone”. THE NINTH CIRCUIT'S RULE ON ATTEMPT TO MONOPO- LIZE IS FLATLY INCONSISTENT WITH DECISIONS OF THIS COURT AND WITH DECISIONS IN ALL OTHER CIRCUITS. Every United States Court of Appeals, with the excep- tion of the Ninth Circuit, has held or stated that, in order to make out a prima facie case of attempt to monopolize, a plaintiff must prove (in addition to specific intent to mo- nopolize and predatory conduct) both a relevant market and that the defendant had a dangerous probability of succeed- *See also Pacific Engineering & Prod. Co. v. Kerr-McGee Corp., 551 F.2d 790, 795 (10th Cir.) , cert. denied, U.S. ____ (1977); International Air Indus., Inc. vy. Amer. Excelsior Co., 517 F.2d 714, 721 (Sth Cir. 1975), cert. denied, 424 U.S. 943 (1976); Panotex Pipe Line Co. v. Phillips Petroleam Corp., 457 F.2d 1279, 1289 (Sth Cir.), cert. denied, 409 U.S. 845 (1972); Fleetwry, Inc. vy. Public Service Interstate Transp. Co., 72 F.2d 761, 763 (3d Cir. 1934), cert. denied, 293 U.S. 626 (1935); Weber v. Wynne, 431 F. Supp. 1048, 1059-60 (D.N.J. 1977); Purex Corp. v. Procter & Gamble Co., 419 F. Supp. 931, 940 (C.D. Cal. 1976). 37 ing in monopolizing that market.* Those decisions have followed this Court’s repeated statement that attempt to monopolize means the use of methods which, although fall- ing short of actual monopolization, “approach so close as to create a dangerous probability of it.” American Tobacco Co. v. United States, 328 U.S. 781, 785 (1946); see also Walker Process Equipment, Inc. v. Food Machinery & Chemical Corporation, 382 U.S. 172, 177 (1965); Swift & Co. v. United States, 196 U.S. 375, 396 (1905). The dangers of eliminating from the law of attempted monopolization the fundamental requirements of defining a relevant market and that there be a dangerous probability of success are obvious: “ ‘It seems to this court clear, both on authority and logic, that when a charge is made of attempt to monopolize, the first question would be—‘to monopolize what?” The answer would seem to be “the relevant market, toward the monopolization of which the attempt was directed.” Were this not so, there would be the anomaly that a defendant could be punished for attempting to do what, if accomplished, would be legal. That is, if a defend- dant in fact acquired a position in a relevant mar- ket that did not amount to monopoly, how could *E2 G R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 Fis 547, 550 (Ist Cir. 1974), cert. denied, 421 U.S. 1004 (1975); ] ir. 1976), States v. Empire Gas Corp., 537 F.2d 296, 298-99 (8th Cir cert. denied, 430 U.S. 915 (1977); Agrashell, Inc. v. Hammons Prods. 973): E. J. Delaney Corp. v. Bonne Bell, Inc., 525 F.2d 296, 307 sods Cie. 1975), ron denied, 425 U.S. 907 (1976); Packard Motor Car Co. Vv. Webster Motor Car Co., 243 F.2d 418, 420 (D.C. Cir.), cert. denied, 355 U.S. 882 (1957). 38 it be wrongful for a defendant to attempt, success- fully to acquire that position—i.e., to try to do that which if accomplished would be valid?’” Acme Precision Products Inc. v. American Alloys Corp., 484 F.2d 1237, 1240 (8th Cir. 1973) (quoting from Diamond International Corp. v. Walterhoefer, 289 F. Supp. 550, 576-77 (D. Md. 1968) ) In relying solely on “specific intent to monopolize” and the existence of “anticompetitive conduct”, and interpreting those elements as it has here, the court below has fashioned a rule in Section 2 attempt cases which proscribes precisely the sort of activity which the antitrust laws were intended to encourage. Any business enterprise, whatever its size, seeks to obtain all the business it profitably can handle. Certainly it has the “specific intent” to achieve that goal. Its success indisputably will have an impact upon its competitors. Those are natural, intended consequences of all price or product actions. Heretofore, such actions were not unlawful or predatory simply by reason of such “specific intent” to be successful. Under the decision below, all such actions may form the basis of a jury verdict without further proof. Indeed, any company, large or small, which undertakes a vigorous advertising campaign, institutes a sales incentive plan or otherwise encourages its sales force to prevail over its competitors, all with the “specific intent” of capturing more business, runs the risk of violating Section 2 of the Sherman Act under the novel interpretation of the court below. That is clearly not, and never has been, the objec- tive of antitrust enforcement even in a “winner take all” situation—wholly unlike the EDP industry—where only one competitor can survive. As Judge Wyzanski has stated: “While the phrase ‘intent to exclude,’ or its equivalent ‘exclusionary intent,’ is reiterated in antitrust cases, it is not easy to define its precise meaning. Contrary to what a layman might sup- pose, a person does not necessarily have an exclu- 39 sionary intent merely because he foresees that a market is only large enough to permit one successful enterprise, and intends that his enterprise shall be that one and that all other enterprises shall fail. If the evidence shows that in laying his plans and executing them he contemplates and utilizes only superior skill, foresight, and industry, he has not an intent which is contrary to law. To prove that a person has that type of exclusionary intent which is condemned in anti-trust cases there must be evi- dence that the person who foresees a fight to the death intends to use or actually does use unfair weapons.” Union Leader Corp. v. Newspapers of New England, Inc., 180 F. Supp. 125, 140 (D. Mass.), aff'd in pertinent part, 284 F.2d 582 (lst Cir. 1960), cert. denied, 365 U.S. 833 (1961) The Ninth Circuit’s anomalous attempt rule, when added to its complete misconception of the monopolization offense, serves to illuminate its view that vigorous competi- tion is itself anticompetitive. The inevitable result is to convert the battle of the marketplace, where the public is the victor, to the battle of the courts, where those losing out to fair (and previously encouraged) competition stand to be winners at the public’s expense. In a world in which almost anyone can monopolize something or attempt to monopolize almost anything, and almost any act of vigor- ous competition can constitute “unnecessarily” exclusion- ary conduct in furtherance of this sort of a monopolization “attempt”, the only dam placed on the flood of such litiga- tion is the deterrent effect those rules have on vigorous competition itself. If these are the standards under which we are to live in the future, then the premises of the past— “ _. that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same 40 time providing an environment conducive to the preservation of our democratic political and social institutions” (Northern Pacific Railway v. United States, 356 U.S. 1, 4 (1958) ) —have truly been forsaken. This, we submit, cannot be allowed. CONCLUSION For all the foregoing reasons, this petition should be granted. In addition, if certiorari is granted, we will respect- fully request that the Court establish an accelerated briefing and argument schedule so that this case, of such importance generally and of particular significance to many cases now pending in the lower federal courts, may be decided dur- ing this Term. Respectfully submitted, Tuomas D. Barr, ALAN J. HRUSKA, Ropert F. MULLEN, One Chase Manhattan Plaza, New York, N. Y. 10005 NICHOLAS DEB. KATZENBACH, Old Orchard Road, Armonk, New York 10504 Lioyp N. CUTLER, Joun H. PICKERING, James S. CAMPBELL, 1666 K Street, N.W., Washington, D. C. 20006 Attorneys for Petitioner International Business Machines Corporation Of Counsel: Evan R. CHESLER, CRAVATH, SWAINE & Moore, One Chase Manhattan Plaza, New York, N. Y. 10005 A. DouGLas MELAMED, Witmer, CuTLER & PICKERING, 1666 K Street, N.W., Washington, D. C’ 20006 November 14, 1977. APPENDIX “A" la APPENDIX A GREYHOUND CoMPUTER CorpP., INC. v. INTERNATIONAL BUSINESS MACHINES Corp. U. S. District Court, District of Arizona No. Civ-72-242-Phx. Dated July 10, 1972. Afternoon Session (In The Absence of the Jury) The Court: I might say, gentlemen, that the burden placed on the Court by your respective motions is indeed an unhappy one. With respect to the plaintiff’s motion for directed ver- dict on the issue of liability, the motion is denied. With respect to the plaintiff's motion for directed ver- dict on the issue of monopolization, the motion is denied. With respect to the defendant’s motion for directed verdict on the contract issue, the motion is granted. The Court is of the opinion that, number one, the proof is not sufficient to submit that question to the jury, even with appropriate instructions as to the law. The Court is of the opinion that that issue is resolved by the parol evidence rule, the statute of frauds, and last, but not least, the local rules of this court. Even considering the Uniform Commercial Code of New York, my understanding is that the parties agree that is the law applicable to this case. As I say, having consid- ered that, the Court is of the opinion that that issue is fore- closed under the parol evidence rule. 2a Moreover, the only two contracts in evidence have integration clauses which limit the subject matter of the contract. The final motion of the defendant as to a directed ver- dict with respect to Section 2 of the Sherman Act posed more difficult problems to the Court. The Court is of the opinion that the evidence with re- spect to the market and the defendant’s relative share of the market is insufficient to submit that issue to the jury. Assuming for the purposes of argument that that issue might be submitted to the jury on the present status of the record, the Court is of the opinion that the evidence is in- sufficient to submit the question as to defendant’s control or ability’to control the market regardless of its purported rele- vant share thereof. The Court is the icrther opinion that with respect to the issue of monopoly by the defendant, that the record is insufficient to submit that issue. Assuming that the defendant does hold a substantial share of a market, what- ever that market may be, it is the opinion of this Court from the evidence adduced thus far the record that the defendant’s place in the industry has been achieved as a result of superior skill, foresight and industry. The Court is of the opinion, from the evidence adduced at trial, that such activity as was engaged in by the defend- ant with respect to its pricing, both in leases and pur- chases, was brought about by economic factors over which defendant had no control. The sarne reasoning applies to the issue with respect to attempt to monopolize. This Court is of the opinion that there is no evidence of an attempt to monopolize in the record. And finally, the Court is of the opinion that with re- spect to the issue on damages, were the jury to consider arm 3a this record in its present state it would be purely specula- tive as to how the jury would reach a conclusion in that respect. From this Court’s days in law school, which is a very long time ago, apparently it is still the law that size alone does not constitute an offense under the Sherman Act, nor does the mere possession of monopoly power. It is the wrongful use and exercise of that power which is proscribed by Section 2 of the act. This Court is of the opinion that the opinions in Alcoa, United Shoe, American Tobacco and Grinnell do not apply to the circumstances in this case, and rather du Pont is closer to an analogy. The Court is also cognizant of the language in Bushie by the Ninth Circuit. I might say, gentlemen, that it would have been much easier to avoid this issue, but I don’t believe that that is the function of the Court, and therefore with respect to de- fendant’s motion for directed verdict with respect to Sec- tion 2 of the Sherman Act, the motion is granted. APPENDIX "B" 4a APPENDIX B GREYHOUND CoMPUTER CoRPORATION, INC., Plaintiff-A ppellant, Vv. INTERNATIONAL BUSINESS MACHINES CORPORATION, ' Defendant-A ppellee. No. 72—2553. UNITED STATES CourT OF APPEALS, NINTH CIRCUIT. August 17, 1977. APPEAL FROM THE UNITED STATES District CourRT FOR THE DISTRICT OF ARIZONA. Before BROWNING, Moore,* and WALLACE, Circuit Judges. BROWNING, Circuit Judge: Greyhound Computer Corporation brought this action against International Business Machines Corporation alleg- ing IBM had monopolized or attempted to monopolize various markets in the electronic data processing industry in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Greyhound also charged IBM with breaching contracts to provide certain services in conjunction with the sale of com- puter equipment. After presentation of Greyhound’s case the district court granted IBM’s motion for a directed ver- dict. This appeal followed. *Honorable Leonard P. Moore, Senior Judge, United States Court of Appeals for the Second Circuit, sitting by designation. Sa We affirm the directed verdict on the contract issue, but reverse and remand for trial of the monopolization and attempt to monopolize claims. I. Factual Background and Standard of Review The computer industry, which is little more than 25 vears old, has witnessed the introduction of three (and possibly four) “generations” of equipment, each generation representing a major technological advance. The first com- puters, introduced in 1952, were built with vacuum tubes. The second generation, introduced in 1958, utilized tran- sistor technology. In 1964 IBM introduced the third genera- tion with the System 360 family of computers, employing integrated circuits and other advances. In 1970 IBM announced an improved third (or possibly fourth) genera- tion, the System 370 line. Because the electronic compo- nents of second and third generation equipment are virtually indestructible, the life of this equipment is a function of price and technological obsolescence rather than wear from usage. A computer system consists of a central processing unit (or “mainframe’’) and peripheral equipment. Peripheral equipment includes means for storing information such as disk and tape drives, and input and output devices such as printers and terminals. Programmed instructions, or soft- ware, must be designed to enable the equipment to perform particular functions. Computer systems vary greatly in size and capacity to perform specified tasks. IBM manufactures entire computer systems, including mainframes and peripherals. It also provides software and support services to its customers. Like other manufacturers, IBM both leases and sells its computers. Greyhound is a leasing company; it does not manufac- ture computers. It buys computers from others and leases ee ee Poe 6a them in competition with computer manufacturers and other leasing companies.’ Greyhound is both a customer and competitor of IBM. Greyhound’s antitrust claim is that IBM restricted sales of its computer equipment in order to monopolize the leasing market in which Greyhound competes. Greyhound’s contract claim is that IBM breached an obligation to provide ser- vices to Greyhound’s lessees. The district court granted the motion for a directed verdict on the antitrust claim because (1) the evidence was insufficient to establish a relevant market and IBM’s share of the market; (2) the evidence was insufficient to estab- lish IBM’s control of a market; (3) the share of any mar- ket IBM holds “has been achieved as a result of superior skill, foresight, and industry”; (4) IBM’s activity of which Greyhound complains was a competitive response to eco- nomic factors over which IBM had no control; and (5) Greyhound’s damages were “purely speculative.”’ The court directed the verdict on the contract claim because the evi- dence was insufficient and because the claim was barred by the parol evidence rule, the statute of frauds, and local rules of court. The standard on review of a directed verdict favors Greyhound. We are “bound to view the evidence in the light most favorable to [Greyhound] and to give it the benefit of all inferences which the evidence fairly supports, even though contrary inferences might reasonably be 1]_easing companies operate on the premise that the useful life of a computer system will exceed the manufacturer’s — as reflected in the manufacturer’s rental rates. Because leasing com- panies calculate that the equipment will have a longer economic life, they charge less, assume the risk of technological obsolescence, and rely on their ability to lease the equipment long en to make a profit. See ABA Standing Committee on Law and Technology, Computers and the Law 125-26 (2d ed. 1969). 7a drawn.” Continental Ore Co. v. Union Carbide, 370 U.S. 690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962).? II. Monopolization “The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly pow- er in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”’ United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966).° A. The Relevant Market Greyhound’s major contention is that IBM has monop- olized or attempted to monopolize a submarket for leasing general purpose digital computers for commercial applica- tion. Greyhound also contends that IBM has monopolized or attempted to monopolize a separate submarket for IBM’s own product line. The question is whether Greyhound offered evidence from which the jury could have reasonably concluded that 2Hanson v. Shell Oil Co., 541 F.2d 1352, 1356 (9th Cir. 1976) ; Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674, 684 (9h Cir. 1976); Chisholm Bros, Farm Equip. Co. v. International Harvester Co., 498 F.2d 1137, 1140 (9th Cir. 1974); Hallmark Industry v. Reynolds Metals Co., 489 F.2d 8, 13 (9th Cir. 1973) ; Cornwell Quality Tools Co. v. C. T. S. Co., 446 F.2d 825, 830 (9th Cir. 1971); Juhnke v. EIG Corp., 444 F.2d 1323, 1325 (9th Cir. 1971); Case-Swayne Co. v. Sunkist Growers, Inc., 369 F.2d 449, 452 (9th Cir. 1966), rev'd on other grounds, 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1967). 8See also Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1270 (9th Cir. 1975); Treasure Valley Potato Bargaining Ass’n vy. Ore-lda Foods, Inc., 497 F.2d 203, 209 (9th Cir. 1974); ON Co. v. Sunkist Growers, Inc., 369 F.2d 449, 458 (9th Cir. 1966), rev'd on other grounds, 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1967). 8a the submarkets which Greyhound defined were sufficiently distinct in commercia! reality to permit a company that dominated these submarkets to exclude competition and control prices. This depends upon whether efforts to exclude competition or control prices in the submarkets in question would be negated by a shift of buyers to other portions of the market.* IBM does not challenge the adequacy of Greyhound’s evidence to establish a market limited to general purpose digital computers for commercial applications. It does argue, however, that the evidence will not support a finding that leasing constitutes a separate subiiarket. IBM also contends that the record does not establish a submarket defined exculsively in terms of IBM’s product line. From the record the jury could have concluded that the market for general purpose computers for commercial applications was distinguishable economically from the market for “dedicated application” computers or other general purpose systems, including minicomputers, process *See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 571, 572-74, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962) ; United States v. E. 1. duPont de Nemours & Co., 351 U.S. 377, 380, 393-95, 400, 404, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) ; Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612 n.31, 73 S.Ct. 872, 97 L.Ed. 1277(1953) ; International Tel. & Tel. Corp. v. General Tel. & Elec. Corp., 518 F.2d 913, 932-33 (9th Cir. 1975) ; Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271 (9th Cir. 1975). Attempts to exclude competi- tion or control prices may also be checked if other iers shift their production facilities to the product in question. Brown Shoe Co. v. United States, supra, 370 U.S. at 325 n.42, 82 S.Ct. 1502; United States v. Empire Gas Corp., 537 F.2d 296, 303 (8th Cir. 1976) ; Twin City Sportservice, Inc. v. Charles O. Finley & Co., supra, 512 F.2d at 1271. However, neither IBM nor the record suggests that industries not presently engaged in the leasing of gen- eral purpose commercial systems could have shifted their operations to such a business readily. 9a control computers, and large scientific computers.* Grey- hound offered evidence that other computers are not reason- ably interchangeable with general purpose commercial sys- tems, and that no significant substitution in fact takes place. Other evidence indicated that computer systems manufacturers tend to specialize in but one of these types of computers, that the industry and its customers recognized these categories of computers, and that the various cate- gories have distinct prices and distinct sets of competitors employing different marketing techniques. See Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962).’ This evidence was sufficient to sup- 5One witness testified that general purpose digital systems are “designed to be internally programmed and store data internally and could be applied to a broad variety of applications, in principally commercial, also scientific and engineering environments.” The gen- eral purpose systems suitable for commercial application are those that “can be, without undue burden and effort . . . programmed and applied efficiently to the type of applications that one incurs in a business or commercial environment.” Minicomputers are used primarily in instrumentation and indus- trial automation, and are suited for customers whose computer requirements are relatively simple and stable in character. Process control computers are used for control and measurement of industrial process. Large scientific computers (dubbed “number crunchers’’) focus on “certain portions of the scientific and government com- munity who are interested in intensively high calculations.” ®There is evidence in the form of an editorial in a trade journal that design changes in the new minicomputers make them “a reason- able alternative” to full-sized general purpose machines. In view of the unreliability of such evidence and the substantial nature of the evidence of differentiation presented by Greyhound, the jury was free to conclude that minicomputers were not readily substitutable for general purpose systems. 7Brown Shoe involved a claim under § 7 of the Clayton Act, but is equally applicable to cases arising under § 2 of the Sherman Act. United States v. Grinnell Corp., 384 U.S. 563, 572, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). See, e. g.. Knutson v. The Daily Review, Inc., 548 F.2d 795, 804 (9th Cir. 1976). As the Supreme Court said in Grinnell, “We see no reason to differentiate between ‘line’ of commerce in the context of the Clayton Act and ‘part’ of commerce for purposes of the Sherman Act.” 384 U.S. at 573, 86 S.Ct. at 1705. 10a port a jury conclusion that the market for general purpose computer systems for commercial applications constitutes a relevant market for antitrust purposes. It is a closer question whether the evidence would permit a jury finding that leasing general purpose com- puters for commercial applications constituted a submarket economically distinct from others in which such computers are made available to users. We conclude, however, that such a finding would have been justified. No rule of law or economic principle bars applica- tion of section 2 of the Sherman Act to one of several alternative means of distributing a product. The statute prohibits monopolization of “any part” of interstate or foreign commerce. Accordingly, the Sherman Act and other antitrust statutes have been applied to protect competition in one of alternate channels of distribution.* The record indicates that data processing services are distributed to users by: (1) sale of computer systems, (2) lease of computer systems, (3) time-sharing,’ or (4) con- tracting with service bureaus.’* The latter two are the most clearly discrete. There was ample evidence that service 8Cornwell Quality Tools Co. v. C.T.S. Co., 446 F.2d 825, 830 (9th Cir. 1971) (Sherman Act); Columbia Broadcasting System, Inc. v. FTC, 414 F.2d 974, 978-79 (7th Cir. 1969) (Federal Trade Commission Act); Evening News Publishing Co. v. Allied News- paper Carriers of New Jersey, 160 F.Supp. 568, 576-77 (D.N.J. 1958), aff'd, 263 F.2d 715 (3d Cir. 1959) (Sherman Act). See gen- erally C. A. R. Leasing, Inc. v. First Lease, Inc., 394 F.Supp. 306 (N.D.Il. 1975) (Sherman Act). ®*One witness testified, “Time sharing is a system of using a com- puter whereby a user has a terminal of some capability, some small, some large, and the terminal is hooked to the computer via telephone line at some remote distance, and this allows the user to access the computer through the telephone lines and through his terminal.” 1° According to one witness, “A service bureau is a form of busi- ness which utilizes data processing equipment to provide a service, and for which the owner of the service bureau charges some fee for the services rendered on his computers.” lla bureaus and time-sharing arrangements do not provide an acceptable alternative to those who might buy or lease com- puter systems. Greyhound offered testimony that time- sharing and service bureaus are addressed to needs different from those served by an installed computer,’’ that pur- chasers and lessees of computers do not consider service bureau and time-sharing arrangements an acceptable sub- stitute, and that leasing companies do not consider suppliers of these services to be their competitors. The evidence is not so clear that leasing general purpose computers constitutes a market distinct from selling. Con- sidering the weighty presumption in favor of a jury deter- mination, however, we conclude the evidence was sufficient. Leases and sales serve different customer needs. Grey- hound offered testimony that general purpose commercial computers are purchased by banks, insurance companies, and other businesses with predictable long-term data proces- sing needs and the capacity to undertake long-term financial commitments. Computers are leased by customers that have variable business requirements and a need to keep abrcast of advancing technology. A single company with a variety of problems may purchase a computer to perform one task and lease a computer to perform another.” Because lessees 2The following testimony is illustrative. An i analyst testified, “If the man at General Motors is in a control in an assembly area, he will buy that. If he’s in a computer to run the payroll, to keep sales analysis he probably lease that.” Asked whether this difference was related to flexibility, he responded, “Yes, because his production control system will be dedicated to assembling automobiles, which is a relatively fixed task.” The data processing manager of one company testified that his organization had both rchased and leased computers, and that it had elected to lease an IBM 500/30 ot Ge ame due Gat 8 peetees 9 Bem machine because it desired the flexibility of the and did not wish to assume the risk of owning a machine it might outgrow. 12a retain the option to cancel (albeit at somie penalty), even the long-term lessee has a degree of flexibility unavailable to the purchaser. IBM’s senior vice president testified that, at least with some models, the decision to purchase or lease may not be affected by price changes. On this record a jury could infer that the need for flexibility governed the choice between a lease and purchase, and that there was substantial customer resistance to shifting from one to the other.’ The computer industry, as well as its customers, recog- nized the distinction between the business of selling and the business of leasing. Leasing companies, of course, engaged only in the latter. Moreover, leasing requires a commitment of capital for a substantially greater period of time than selling. IBM argues that both leasing and buying are merely methods of financing the use of computer systems. How- ever, the Sherman Act cannot be avoided by classifying the commercial activity involved as financing. A difference in services offered by financial institutions may provide the basis for recognition of distinct submarkets for antitrust purposes. ** We conclude that the evidence was sufficient, though by no great margin, to permit the jury to find that the dif- ferences between leasing and selling general purpose com- '8The fact that some leases contained a purchase option per- mitting the lessee to obtain title to the equipment at some point after expiration of the contract term does not undermine the distinction between leasing and purchasing. The customer’s need for flexibility still dictates the initial decision to lease, and the purchase option may prove to be a desirable alternative should the user’s data proc- essing needs stabilize at some point in the future. ‘BM argues that in any event Greyhound’s proof relates to the wrong market. It claims that Greyhound’s charge is that IBM manipulated the price at which computers are sold, not leased, and if the two submarkets differ, the relevant market is not the lease market but the purchase market. We deal with this contention below, when we consider IBM’s general defenses. See 559 F.2d p. 502, infra. l3a puters were of sufficient significance to justify treatment of the two forms of distribution as distinct submarkets for competitive purposes. In light of this conclusion we need not decide whether IBM’s product line constitutes a separate submarket for antitrust purposes.’* Greyhound offered evidence that al- though other manufacturers compete with IBM for initial installation, the cost of changing to another manufacturer’s system once a system is installed may be prohibitive.*® Greyhound asserts that by offering a complete product line of general purpose commercial systems, IBM is able to “lock in” users who select IBM equipment initially, and limit competition to leasing companies carrying IBM sys- tems. We intimate no view on whether such evidence estab- lishes an economically distinct submarket. Compare Bushie v. Stenocord Corp., 460 F.2d 116, 120-21 (9th Cir. 1972) ; Industrial Building Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1344 (9th Cir. 1970). B. Possession of Monopoly Power There was evidence from which the jury could reason- ably infer that IBM possessed monopoly power in the leasing of general purpose commercial computers. 15We also do not reach Greyhound’s contention that “risk leas- ing” constitutes a submarket distinct from “full-payout” leasing. “Full-payout” leasing is self-defining. “Risk leasing” was de- scribed as “the business of purchasing equipment, in this case, computer equipment, putting it out on rent to a user under a contract, which does not pay for the total cost of the equipment, thus requiring us to move the equipment from one user to another user, and so forth, hopefully to a sufficiert number of users at sufficiently high rent to pay for the equipment and result in a profit.” 16Qne customer testified: “[T]o replace the IBM equipment with some other manufacturer’s equipment now would mean literally scrapping of maybe a million dollars worth of programming and systems engineering.” A leasing company executive testified that when one of his IBM computers came off lease, he did not compete with non-IBM manufacturers in releasing the equipment : “Well, we only compete with the same kind of equipment, whether it be owned by IBM, or another company. We do not compete between types of equipment. The economics are just not practical.” l4a “Monopoly power is the power to control prices or exclude competition.” United States v. E. I. duPont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956). Accord, United States v. Grin- nell Corp., supra, 384 U.S. at 571, 86 S.Ct. 1698. “[S]ize is of course an earmark of monopoly power,” United States v. Griffith, 334 U.S. 100, 107 n. 10, 68 S.Ct. 941, 946, 92 L.Ed. 1236 (1948), and “[t]he existence of such power ordinarily may be inferred from the predominant share of the market.” Uniied States v. Grinnell Corp., supra, 384 U.S. at 571, 86 S.Ct. at 1704. The evidence in this record permitted a calculation’’ of IBM’s share of revenues from leasing of general purpose computers at 82.5 This calculation is based on the following steps. , Exhibit 633 shows the total leasing same dena Nag sage oy major manufacturers in the general purpose commercial market for the years 1964, 1967, and 1970, and IBM s percentage of these totals. Greyhound’s Exhibit 630 shows the leasing revenue earned by leasing companies during the same years. Addition of the figures in the two exhibits gives an approximation of the total lease revenue earned from general purpose commercial systems. IBM’s portion of this total is 82.5% in 1964, 75.1% in 1967, and 64.7% in 1970. Lease revenue earned by peripheral manufacturers and systems manufacturers other than the eight major manufacturers is not in- cluded in the total from which 1BM’s share was figured. However. Greyhound’s Exhibit 625 indicates that peripheral companies account for a maximum of 1.3% of the total lease revenues for all computer systems and that in recent years systems manufacturers other than the major eight account for only about .5% of this total. Conse- quently, the jury could ignore as insubstantial whatever share of the general purpose commercial market these companies held. _ IBM quibbles with the figures in Greyhound’s exhibits, but the jury could conclude they were essentially accurate. It 7 ~~ from the a whether banks and finance com- panies also derive revenue from the leasing of general se com- mercial systems that should be included ‘a the total a which IBM’s share is measured. Because Greyhound is entitled to have eevery reasonable inference drawn in its favor, we’ have excluded banks and finance companies from the group of competitors in the relevant market. [BM makes a passing reference to competition from foreign manufacturers, but the evidence showed only that Japanese manufacturers hoped to enter the market at some time in the future. 15a percent in 1964, 75.1 percent in 1967, and 64.68 percent in 1970."* The portion of the market not controlled by IBM was dispersed among many other companies, none account- ing for more than 4 percent of total lease revenues. Eight firms manufactured over 95 percent of the general purpose computers,’* and IBM’s share of the general purpose com- mercial lease revenues of this group of the strongest com- petitors in the relevant market was 83.7 percent in 1964, 78.9 percent in 1967, and 77.7 percent in 1970. The reve- nue of each of the other seven was relatively insubstantial. 18In United States v. Grinnell Corp., 384 U.S. 563, 571, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966), the Supreme Court held that an 87% market share “leaves no doubt that . . . these defendants have monopoly power.” In American Tobacco Co. v. United States, 328 U.S. 781, 797, 66 S.Ct. 1125, 1133, 90 L.Ed. 1575 (1946), the Court stated that “over two-thirds of the entire domestic field of cigarettes, and... over 80% of the field of comparable cigarettes” constituted “a substantial monopoly.” This court has found monopoly power where the defendant’s market position was less dominant. Pacific Coast Agricultural Export Ass'n vy. Sunkist Growers, Inc., 526 F.2d 1196, 1204 (9th Cir. 1975) (45-70%) ; Case-Swayne Co. v. Sunkist Growers, Inc., 369 F.2d 449, 452, 458 (9th Cir. 1966), rev'd on other grounds, 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1967) (67 or 70%). But cf. United States v. International Harvester Co., 274 U.S. 693, 709, 47 S.Ct. 748, 71 L.Ed. 1302 (1927) (64.1% not sufficient in increasingly competitive market) ; United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945) (“it is doubtful wheth- er sixty or sixty-four percent would be enough”). We have expressed doubt that a 50% share of the market is sufficient to establish — oly power se. See Twin = Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1274 (9th Cir. 1975). a The record indicates that IBM’s market share is declining. A declining market share may reflect an absence of market power, see United States v. International Harvester Co., supra, 274 U.S. at 709, 47 S.Ct. 748; United States v. United States Steel Corp., 251 US. 417, 439 n.1, 40 S.Ct. 293, 64 L.Ed. 343 (1920), but it does not foreclose a finding of such power. See American Tobacco Co. v. United States, supra, 328 U.S. at 794-95, 66 S.Ct. 1125. 19These eight manufacturers were IBM, B Control Data, General Electric, H , NCR, RCA, and Rand (Univac). RCA’s ye was later seamed ter’ Sperry Rand; Honeywell acquired the General Electric computer business. l6a Evidence other than IBM’s predominant share of the market supported an inference of market dominance. About 80 percent in dollar value of the installed base of general purpose systems is IBM equipment. IBM derived substan- tial market leverage from the fact that the vast majority of installed computer systems are IBM built. There was evi- dence that because of the high changeover costs faced by customers who wish to change equipment manufacturers, the rental demand for IBM systems among current IBM users was inflexible. IBM’s senior vice president testified that rental prices of some models could be increased with- out proportionate decreases in demand. Other evidence in- dicating IBM’s ability to manage its prices with little regard to competition included testimony that IBM based its prices on a 30 percent profit objective, that it never set a price simply to meet competition, and that its prices were 5 to 15 percent above those of the best of its competition. IBM responds that other evidence in the record indicates IBM did not possess monopoly power. None of this evidence compelled a ruling in IBM’s favor as a matter of law. IBM argues, for example, that the “youth, change and growth” of the computer industry are inconsistent with a finding of monopoly power. These characteristics, however, do not immunize an industry from monopolization, and, in any event, nothing in the record suggests that IBM’s own power was transient. IBM also argues that entry into the indus- try is easy, and that IBM’s competitiors are strong and independent. But the record suggests new entrants avoided direct confrontation with IBM and occupied interstices in the market. Two substantial competitiors who met IBM di- rectly in the marketplace (RCA and General Electric) bowed out after sustaining heavy losses. The record also suggests that IBM’s dominant installed base and high changeover costs have created a barrier to entry at the manu- facturing level so substantial that only leasing companies 17a will be able to initiate competition with IBM for this large group of users.” IBM also contends that price reduction and product improvement are characteristics of the industry and are inconsistent with the existence of monopoly power. But rapid technological progress may provide a climate favor- able to increased concentration of market power rather than the opposite.” Moreover, a decline in prices does not neces- sarily imply an absence of monopoly power; a fair profit might have been made at even lower cost to users. See United States v. Aluminum Company of America, 148 F.2d 416, 427 (2d Cir. 1945). Finally, IBM asserts that because of competition from other companies its revenue fell $220 million from 1968 to 1969 and $150 million from 1969 to 1970. But IBM offered quite a different explanation to its shareholders, informing them that the decline was the result of cyclical purchases and an adverse economy. C. Willful Acquisition or Maintenance of Monopoly Power The gravaman of Greyhound’s complaint is that IBM undertook to advance IBM’s own leasing operations at the expense of leasing companies by making the purchase of computer equipment for lease economically unattractive.” 20This evidence suggests one answer to IBM’s argument that monopolization is precluded by the fact that most users of computers are themselves strong, sophisticated business organizations “able to evaluate and switch to competitive products.” 21See Halverson, The Relationship of Antitrust Policy and Tech- nological Progress, 1975 Wash. U.L.Q. 409, 413-20; Note, Innovation Competition: Beyond Telex v. IBM, 28 Stan.L.Rev. 285, 289 n.14 1976). : *21_easing was more advantageous to IBM than selling the same equipment. Leasing avoided the bunching of revenues and profits during heavy sales periods (usually the first years after introduction of a new product), and thereby helped maintain a constant revenue flow. It also generated particularly attractive profits after the equip- ment was fully depreciated. Moreover, it facilitated introduction of newly developed products, since lessees were not inhibited by a large investment in either the new or the old machine. 18a There was ample evidence that IBM officials became concerned that the balance between sales and rental had turned too heavily toward sales, and deliberately set about to reverse the trend. Greyhound asserts that in pursuit of this goal IBM adopted certain practices that reflect “the willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic acci- dent.” United States v. Grinnell Corp., supra, 384 U.S. at 570-71, 86 S.Ct. at 1704. These practices were (1) inaugurating the “fixed term plan,” (2) eliminating the technological discount, (3) in- creasing the “multiplier” (a ratio describing the relation- ship of IBM purchase price to IBM rental price), and (4) “unbundling” (1.e., pricing services separately from the equipment purchase price). It is no answer to the charge to say that these prac- tices are not “predatory”** but “honestly industrial’”?*— that is, of a kind an ordinary enterprise might utilize with impunity. If the jury concluded IBM possessed monopoly power in the leasing of general purpose computers, IBM would be precluded from employing otherwise lawful prac- tices that unnecessarily excluded competition from the sub- market.*® The question is whether the jury could have found that the alleged practices were in fact adopted, and, if so, whether they had the prohibited effect. IBM’s posi- *8Hanover Shoe, Inc. vy, United Shoe Machinery Corp., 392 U.S. 481, 497-98, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). 24 American Tobacco Co. v. United States, 328 U.S. 781, 814, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946), quoting United States v. Alumi- num Co. of America, 148 F.2d 416, 431 (2d Cir. 1945). See Hanover Shoe, Inc. y. United Shoe Machinery Corp., 392 U.S. 481, 496, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). *5United States v. United Shoe Machinery Corp., 110 F.Supp. 295, 344-45 (D.Mass.1953), aff'd per curiam, 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910 (1954). See also Industrial Building Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1344-45 (9th Cir. 1970). 19a tion is that Greyhound failed to show any manipulation of the multiplier or technological discount, and that “unbundl- ing” and the fixed term plan were not exclusionary but pro-competitive. 1. The Fixed Term Plan IBM had leased mainframe equipment for 90 days and peripheral equipment for 30 days. In May 1971 IBM announced the “fixed term plan,” offering an 8 percent re- duction on some peripheral equipment for a one-year lease, and a 16 percent reduction for a two-year lease. The plan also eliminated extra shift and maintenance charges. Sub- stantial penalties were imposed for premature lease can- cellation. The purchase price of the equipment was also reduced 15 percent, and purchasers were given a 12 per- cent technological discount per year for up to two years. At the same time IBM increased rental rates for main- frame equipment. Greyhound contends that the fixed term plan locked cust [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_0052%3A1. Public record. Not legal advice.