Print-Out Against IBM

The David v. Goliath legal struggle could not have been more aptly cast if its participants had been selected by, well, a computer. There, as defendant, was the International Business Machines Corp., the $9.5-billion-a-year giant of the computer industry, facing charges that it had illegally monopolized a fast-growing segment of its business. IBM's accuser was Telex Corp., a Tulsa-based manufacturer of "peripheral" components used with computers, which last year printed out a net loss of $13 million and has earned a total of only $7,000,000 in the best (1971) of its ten years in existence. Presiding over the trial was a 68-year-old federal judge who came out of semiretirement in Utah to decide one of the most complex antitrust cases ever and who backed up his instructions to the opposing computer-firm attorneys by quoting Poet Robert Frost to them.

Last week Judge A. Sherman Christensen chose a path that for both sides may well, as Frost once said, have "made all the difference." In a decision that reverberated throughout the computer industry, stock market and financial community, he found that IBM had engaged in "sophisticated, refined, highly organized and methodically processed" efforts to force Telex out of the peripherals market. For damages, he awarded the struggling firm the largest antitrust judgment ever rendered in the U.S.--$352.5 million. Moreover, Christensen ordered IBM to revise drastically some of its business policies in ways that are designed to allow other computer firms to successfully compete against it.

High Growth. Not surprisingly, IBM announced that it would immediately appeal for "an expedited decision" reversing Christensen's orders. The original verdict, said IBM Chairman Frank T. Cary, surpasses "any judicial precedent and contains serious errors of fact and law." Though IBM would hardly be bankrupted by the huge damage award--it amounts, when adjusted for potential tax write-offs, to about two months' profits for the corporation --Cary implied that it was far too high.

Admitting the difficulty of arriving at precise damages, Christensen found that Telex had lost $47.5 million in potential profits on equipment that the smaller firm was forced to underprice as a result of IBM's "predatory" marketing practices. He also decided that Telex was due another $70 million in possible earnings on equipment that it might have sold but for the same practices. Following standard antitrust law, the judge then trebled the $117.5 million total, to the final award of $352.5 million. The actual damages calculated by the court, Cary claimed, assume that Telex would have increased its earnings ten times over a three-year period--a "highly unusual growth rate."

The award produced a highly unusual growth rate indeed for Telex--in one fell swoop it nearly tripled the company's total assets. Roger M. Wheeler, 47, the normally quiet, gray-suited chairman of Telex and the man primarily responsible for pressing the first successful antitrust suit ever decided against IBM, was jubilant. "The award is a great thing for us, but it is also a great thing for the industry," said Wheeler. "The customers will ultimately benefit because it will make for better products and better price performance." The company, of course, will not collect its sudden bonanza while the case is tied up in appeals, a process that could last for years. But if the judgment is upheld, Telex will ultimately pocket interest payments as well--which pile up at the rate of nearly $100,000 per day, or half as fast as the firm's current sales.

The court found that Telex was far from blameless in its own business practices. In a countersuit, IBM was awarded $21.9 million for losses suffered in the theft of computer secrets by Telex, which was forbidden for the next two years to hire ex-IBM employees without court approval. Yet IBM, whose mighty stock shot down 38% points to 259 1/2 in the two trading days following the decision's announcement, had experienced a rare defeat that might grow even more serious in months to come.

For one thing, other small peripheral manufacturers are expected to follow the Telex lead and file suit for their own alleged antitrust damages. For another, the decision may give impetus to a four-year-old Justice Department suit that has charged IBM with monopolizing the entire basic computer market.

This file is automatically generated by a robot program, so reader's discretion is required.