Opposition — Memorex Corp. v. International Business Machines Corp.

, ve

! ALGAANOt rR L. STEVAS

No. 80-1884 CLERK

|

IN THE

Supreme Court of the United State

Ooropesn ‘Team 1980

Memorex Corporation, et al.,

‘ Petitioners,

vs.

InreenaTionaL Business Macuines Corporation,

Respondent.

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

ESE

Paraick Lyncr

(Counsel of Record)

A. Rosert Pisano

Rozert S. DaaPer

James V. Seuna

Mask R. Strernsera

611 West Sixth Street

Los Angeles, CA 90017

(213) 620-1120

Attorneys for Respondent

International Business

Machines Corporation

Of Counsel:

| O’Mg.very & Myzns

| NicHo.ss pgB. Katzenpacu

| Jos Taytos III

Orwing, Conne.iy, Cuasz,

O’Downe_, & WevHes

|

i

/ ig TABLE OF CONTENTS

pend Page

TABLE OF AUTHORITIBG.$..........:.0cccecceserevessccsecseeseses ii

THE RECORD IN THIS CASE DOES NOT

PRESENT ANY ISSUE JUSTIFYING THE

ATTENTION OF THIS COURT................. 1

A. This Protracted Litigation Has Resulted

In Unanimity Of Decision — Not Conflict.......... 1

B. This Case Wus Decided On The “Rule Of

Reason” Standard For Which Memorex

ss cols gh Al ta tiieh bli seeciocsteSkeyscctdhbcswansihaadmeibien 4

ii

TABLE OF AUTHORITIES

Cases

In re Borden, 92 FTC 669 (1978).............02..

In re DuPont ............ BU. sais , CCH

Trade Reg. Rptr. § 21,770 (1980)................

California Computer Products, Inc. v. Inter-

national Business Machines Corp., 613

eR OR RE |) mere

ILC Peripherals Leasing Corp v. Inter-

national Business Machines Corp., 458

F.Supp. 423 (N.D. Cal. 1978), aff’d.,

Memorex Corp. v. International Business

Machines Corp., 636 F.2d 1188 (9th Cir.

Telex Corp. v. International Business Ma-

chines Corp., 367 F.Supp. 258 (N.D. Okla.,

1973) rev’d in relevant part, 510 F.2d 894

TR i | ER RIT as 3. >a

Telex Corp v. International Business Ma-

chines Corp., 510 F.2d 894 (10th Cir.

1975), cert. petition dismissed by stipula-

tiom, 423 U.S. 802 (1975) ..ccccccccccssscsssssseessee

Transamerica Computer Co. v. International

Business Machines Corp., 481 F.Supp. 965

CE eT i a oes

Rules of the

United States Supreme Court

ANDRIES SERA | See

Page(s)

5

2, 4,5

IN THE

Supreme Court of Che United States

Ocroser TERM 1980

Memorex Corporation, et al.,

Petitioners,

vs.

INTERNATIONAL Business MaAcHINES CORPORATION,

Respondent.

BRIEF IN OF 2£OSITION TO PETITION

FOR WRIT OF CERTIORARI

THE RECORD IN THIS CASE DOES NOT PRESENT

ANY ISSUE JUSTIFYING THE ATTENTION OF THIS

COURT

A. This Protracted Litigation Has Resulted In

Unanimity Of Decision — Not Conflict.

Before the Court is the coda to one of the most needless

and costly litigations in the history of the federal courts.

It began with Telex Corp. v. IBM, filed in 1972, and

tried for 29 days in 1973. Telex challenged a variety

of product and pricing decisions announced by IBM in

response to competition from Telex and other firms which

had made a business of copying IBM’s product designs,

and offering their copies as replacements for IBM’s most

2

popular computer “attachments.”! After a court trial,

decision was entered for the plaintiff. Telex Corp. v. IBM,

367 F.Supp. 258 (N.D. Okla. 1973). This was despite an

express finding that IBM had not “reduced prices below

cost and a reasonable profit.” Jd. at 306. The district

court’s judgment was reversed per curiam by the Tenth

Circuit which held on the issue involved here that:

“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 adoption of

legal and ordinary marketing methods already used by

others in the market, or to prohibit price changes which

are within the “reasonable range up or down.” Telex v.

IBM, 410 F.2d 984, 927 (10th Cir.), petition for cert.

dismissed by stipulation, 423 U.S. 802 (1975) [emphasis

supplied].

Between the trial court decision in Telex and its reversal,

this and four similar cases were filed in California by

companies engaged in the same business as Telex. By a

procedural miscarriage, each case was set down for separate

trial.

The first such trial, California Computer Products, Inc.

v. IBM, consumed 54 days and resulted in a directed

verdict for IBM at the close of the plaintiff’s evidence.

The resulting judgment was affirmed on the ground that

“Twlere §2 interpreted not to exempt price cuts from attack

under these circumstances, there could be no adequate

guidelines for a jury to determine whether the prices at

issue were ‘reasonable’”. 613 F.2d 727, 743 (9th Cir. 1979)

[emphasis supplied ].2

1. The term “attachments” does not do justice to the sophisticated

computer storage and retrieval devices involved in these cases,

but the term fairly communicates the relationship that existed

between IBM’s entire product line and the plaintiff's selective

reproduction of that product line.

2. Memorex asserts in its petition that “CalComp was settled and

thus no Petition for Certiorari was filed.” Petn. at 13. In fact,

CalComp had not been settled when the plaintiff's time to file its

tition for certiorari expired. IBM's cross-claim against CalComp

or theft of trade secrets had been severed and remained to be

tried. That claim was the basis of the continuing occasion for a

settlement between the parties.

3

After the trial court decision in CalComp, and before

the appellate decision, the same questions were tried to a

jury in this case for 96 days. The jury deadlocked after

19 days of deliberation, and the trial judge subsequently

granted judgment under Rule 50. ILC Peripherals Leasing

Corp. v. IBM, 458 F.Supp. 423 (N.D. Cal. 1978). The

judgment was affirmed in a three-paragraph per curiam

opinion holding that this case cannot be distinguished from

CalComp Memorex Corp. v. IBM, 636 F.2d 1188 (9th

Cir. 1980).

While this case was on appeal, but before decision, Trans-

america Computer Co. v. IBM was tried to a jury for 129

days. The jury again deadlocked and, by stipulation, the

trial judge, sitting as the finder of fact, decided the case in

IBM’s favor. 481 F.Supp. 965 (N.D. Cal. 1979).3

Thus, the petition at hand is based upon a set of facts

that has been tried and retried in four separate cases over

a period spanning six years. These trials consumed over

300 court days. After each, the result has been the same.

Six courts and twelve federal judges, passing on highly

comparable trial records, have been unanimous+ All have

agreed that IBM was entitled to lower its prices in order

to meet the lower prices being charged by its competitors

where, without question, IBM’s lower prices were fairly

anticipated to return profits well in excess of IBM’s total

costs. In so holding, neither this case nor its several

counterparts has decided a federal antitrust question “in

3. DPF, Inc. v. IBM and Hudson General Corp. v. IBM, two of the

five cases filed after Telex, were stayed and are currently inactive.

4. Circuit Judges Seth, McWilliams and Doyle of the Tenth Circuit

in Telex; Circuit Judges Choy and Kennedy and District Judges

Palmieri of the Ninth Circuit and Chief Judge McNichols sitting

by designation in the Central District of California in CalComp;

Circuit Judges Duniway and Goodwin, Judge Kashiwa of the

Court of Claims of the Ninth Circuit and District Judge Conti of

the Northern District of California in Memorex and District Judge

Schnacke of the Northern District of California in Transamerica.

This count does not include the denials of petitions for rehearing

en bane in Telex, CalComp and Memorex.

Ss

es

AS

4

a way in conflict with applicable decisions of this court” or

with any other federal court. Cf. Supreme Court Rules,

BR 19.5

B. This Case Was Decided On The “Rule Of Reason”

Standard Sought By Memorex.

The petition describes a false issue. It attempts to

portray this case as a test of the validity of the so-called

Areeda-Turner marginal-cost test of lawful pricing. In

fact, it is no such thing. The IBM prices at issue here

were shown by the undisputed evidence to be substantially

profitable considering IBM’s total costs, direct and indirect.

As the Ninth Circuit put it in California Computer, this

case “presents an a fortiori situation” as compared to

Areeda-Turner, 613 F.2d at 743.6

Memorex also attempts to portray this case as a conflict

between a per se and a “rule of reason” test for lawful

pricing; but again, it is no such thing. The simple fact of

the matter is that this case was decided on a “rule of

reason” standard: “the test is whether the defendant’s acts

5. It is worth noting that Memorex is quite mistaken in the prayer

for relief in its petition. Memorex asks this Court to remand

for retrial, but no issue raised in the petition would justify that

disposition. Memorex lost in the trial court on multiple grounds

not raised here, including a failure to — injury in an amount

reasonably susceptible to calculation. The Ninth Circuit found it

unnecessary to review the several additional grounds for affirm-

ance of the trial court’s judgment in view of the controlli

impact of CalComp, but these grounds would have to be review

by the Court of Appeals before reversal of the district court’s

judgment would be warranted.

6. The undisputed evidence showed that, at the date of announce-

ment, the estimated profitability of the IBM products involved

in this case was as follows:

TEBE SE MAT 32%

MIE hii oli soseeresberessuadiitaamnistocinanieciclsiy 31%

New Attachment Strategy .................. 26%

TIE Ponrekriptnissnsiniecesdssapnigeioanighiciionicneiaioka 19%

MITT plidichs atketieninhopinbuipic ssa celalbiigiogicn 20%

5

otherwise lawful, were wnreasonably restrictive of competi-

tion.” California Computer Products Inc. v. IBM, 613

F.2d at 736 [emphasis in original].

The petition cites numerous cases discussing the desirable

limits or limitations of the Areeda-Turner doctrine. The

suggestion is conveyed that this case somehow offers a

vehicle to define those limitations, but it does not. What

is notably lacking from the petition is citation of any case

decided in this Court, or any other court, that would permit

Memorex to recover a billion dollars in damages because

IBM offered its consumers lower but profitable prices in

response to competition from Memorex and others. As

the Ninth Circuit capsulized the issue in California Com-

puter:

“The test of the reasonableness of the foregoing pricing

actions, and the principal question facing us in this case,

is whether IBM — which was the inventor and dominant

supplier of the disk products in question — had the right

to respond to the lower prices of its competitors with

reduced, but still substantially profitable, prices on its

own products. We conclude that it did.” 613 F.2d at

741-42.

However much Memorex may seek to cloud the foregoing

holding by dredging up the extended academic argument

over the appropriate definition of “predatory” pricing, the

fact remains that no court or agency has ever held that it

could be unreasonable to offer profitable, competitive

across-the-board prices beneficial to consumers.’

7. The FTC decisions cited by Memorex as potentially contrary

to the decision below actually support it. Thus, in Borden, the

FTC acknowledges the validity of the Tenth Circuit’s holding

in Telex, (510 F.2d at 927), that the very prices in issue here

were within the “reasonable” range. Jn re Borden, 92 FTC at

802-03. In DuPont, after reviewing the “series of cases involving

marketing products of IBM,” the Commission held that DuPont

prices were “clearly” reasonable “absent at least some evidence

of below-cost pricing, in view of the firm’s cost advantage, its

market position and its legitmate expansion efforts.” Jn re

DuPont, oink. Lay 6, Veer a a , CCH Trade Reg. § 21,770 at

21,976 and 21,984. There is not a whisper of conflict between

the decision in DuPont and the decision below.

6

Thus, in Transamerica Computer Co. v. IBM, 481 F.Supp.

965 (N.D. Cal. 1979) — after another exhaustive examina-

tion of IBM’s prices — District Judge Schnacke (sitting as

finder of fact) held that:

“Even if [IBM’s] prices had been slightly below cost,

and their reasonableness thus open to inquiry, this Court

would not hestitate to find them reasonable. The 2319s

and Mandan were programs which reused third genera-

tion equipment at a time when [the] fourth computer

generation had already been announced. That older

equipment was soon to become obsolete, and it is reason-

able for a manufacturer in such circumstances to reduce

price and squeeze as much revenue as possible from

equipment before demand dwindles.

“Reasonableness is also indicated by comparisons be-

tween PCM’s prices and IBM’s. Such comparisons in-

dieate that IBM’s prices did not undercut the PCM’s

prices, they did not even equal them, they merely closed

the gap; the PCM’s prices were still lower.” 481 F.Supp.

at 1002.

In summary, regardless of scholastic debate over what

sort of pricing might be deemed “unreasonable,” this case

does not involve any such issue.

It is remarkable that although the identical facts have

been tried four separate times, each succeeding plaintiff has

offered a new theory for claiming that the self-same IBM

prices should be held unlawful. Indeed, Memorex itself has

stressed a new theory at each stage of this case. In the

trial court, Memorex focused on the contention that IBM’s

prices were not profit-maximizing in the short run; in the

Court of Appeals, they were “limit prices”; and here, they

fail to meet an amorphous “rule of reason” standard.

It is especially significant, then, that the legality of

IBM’s prices has been sustained in the face of every attack

that the ingenuity of multiple counsel could muster. To

contend on this record that the “reasonableness” of IBM’s

prices creates an important unresolved question of federal

7

law deserving the attention of this Court is to belittle the

significance of the writ of certiorari.

Dated: May 26, 1981.

Of Counsel:

O’Metveny & Myers

Nicnoutas DEB, KatzeEnBacu

Jos Taytor III

OtwineE, ConNELLY, CHASE,

O’DonNELL & WEYHER

Patrick LyncH

A. Rosert Pisano

Rosert 8S. Draper

James V. SELNA

Mark R. STernBerc

611 West Sixth Street

Los Angeles, CA 90017

(213) 620-1120

Attorneys for Respondent