15. SR — IBM August 21, 1956 Agreement
- Plaintiff has stated its claim that defendants violated the antitrust laws in a variety of ways and I am not certain beyond the broad claims of violation what the exact claims may be.
- I believe the claims to be somewhat as follows:
- Plaintiff claims that this agreement effected a technological merger between the two companies then in control of about 95% of the EDP business.
- Honeywell claims that on August 21, 1956, SR and IBM entered into a massive settlement and patent cross-license Agreement in the TAB and EDP fields [hereinafter the "1956 Agreement"] and shared proprietary and non-patented design and manufacturing technology thereunder which effect a practical merger thereof between SR and IBM; Honeywell claims also that at that time SR and IBM controlled about 95% of the EDP business and became conspirators.
- See 15.24
- Plaintiff claims that the two companies shared their technological portfolios by cross license and exchanged know-how.
- See 15.25
- Plaintiff claims that they further settled interferences with respect to ENIAC and SSEC and other patents and applications which they knew to be invalid.
- See 15.24
- Plaintiff claims that in substance that the agreement was anti-competitive and that defendants violated Section 1 in that they unreasonable restrained competition and this restraint violated the per se standard or the rule of reason.
- Honeywell claims that SR, together with IBM, unreasonably restrained competition by entering into and performing the 1956 Agreement and technological merger and that such action was a per se violation of Sherman 1.
- With respect to Section 2, plaintiff claims that defendants effected or attempted to effect monopoly power in the relevant market with an intent or purpose to exercise that power.
- Honeywell also contends that SR, its constituent corporations and ISD, effected, attempted to effect, and, together with IBM under the 1956 Agreement and technological merger, combined and conspired to effect monopoly power in the relevant market in violation of Sherman 2.
- Plaintiff claims that monopoly power is the power to control prices or exclude competition.
- Honeywell claims that power to control prices or exclude competition may exist by virtue of a jungle of patents and technology which creates substantial barriers to competitive entry or burdens the competition after entry by affecting costs.
- Plaintiff claims that it was thus forced to compete in an artificially and illegally infected and structured market or in an artificially impacted market.
- Plaintiff claims that by the alleged misconduct that defendants intended to dominated the EDP market and that defendants performed such acts intentional and with and ultimate anti-competitive goal.
- Honeywell's claim of misconduct by defendants included that of conspiring with IBM in 1956 and 1965 and with BTL in 1961 under the leverage of the ENIAC application or patent which created a jungle of patents and technology.
- Plaintiff suggests that there was a less restrictive alternative which defendants did not choose.
- Plaintiff claims that though the agreement was labeled non-exclusive, that it was nonetheless exclusive and secret.
- In 1956 the EDP industry was in its beginning stages.
- Remington Rand (Remington Rand and Sperry Corporation were consolidated in 1955 to form SR) entered the computer business in 1950 by acquiring the Eckert-Mauchly Computer Corporation, which had been formed by Eckert and Mauchly.
- In 1953, Remington Rand acquired another EDP company, Engineering Research Associates, Inc.
- IBM had been the dominant force in the tabulating machine business, and in the early 1950's was preparing to enter the computer business.
- The commercial computer industry originated in the EDP offerings of Remington Rand and IBM shortly after 1950; in the early 1950's, IBM was offering the 650, 701, 702, 704 and 705 EDP systems and Remington Rand was offering the UNIVAC I and 1103 EDP systems.
- While the Government's 1952 suit against IBM was pending, the EDP industry began to emerge.
- Because of its acquisition of the Eckert-Mauchly Computer Corporation in 1950, and Engineering Research Associates in 1953, Remington Rand and its UNIVAC division had an early lead in EDP; however, it soon lost this lead to IBM.
- In the Period 1955-1956, other companies besides SR and IBM, including Honeywell, began to move seriously into the electronic data processing field but basically IBM and SR still dominated it.
- By 1956, several other companies were beginning to develop and offer EDP systems. Honeywell was working on a large computer, the D-1000, which was first shipped at the end of 1957, and NCR, having acquired an EDP company, was also working on a computer, first shipped in 1959.
- In April 1955, Honeywell formed its joint venture with Raytheon to develop, produce and market EDP systems.
- NCR acquired Computer Research Corporation in 1953-54 and began design on the NCR 303 (later 304) EDP system to be offered for business applications.
- Burroughs acquired ElectroData Corporation in 1956, inherited and marketed ElectroData's 205 EDP system, and had begun designing its 220 EDP system for business applications.
- RCA had already marketed its BIZMAC system by 1956 and was planning its 501 system which was intended for commercial applications.
- For many years IBM had dominated the tabulating machine industry and had a substantial sales force.
- In 1956, IBM was recognized as the principal U.S. supplier of 80 column TAB card equipment and SR as the principal U.S. supplier of the 90 column TAB equipment; both of these companies had years of experience and know-how, both in design and production areas.
- The tremendous customer base which IBM had because of its domination of the tabulating industry had a good deal to do with its position in the early days of the EDP industry and this, combined with information exchange, gave them the predominant role which has tended to perpetuate itself.
- IBM used its dominant position in the tabulating business — particularly its large sales and service force — to quickly seize the lead in the EDP business.
- IBM and SR in 1956 had about 95% of the EDP business.
- In terms of total revenue (stated in dollars) and market shares (stated as percentages of the total revenue of the industry), SR and IBM had the following shares of the EDP market in 1956:
- In terms of the retail sales value of new EDP systems shipped (stated in dollars) and market shares (stated as percentages of the total value of shipments in the industry), SR and IBM had the following shares of the EDP market in 1956:
- In terms of the retail sales value of units of systems outstanding in the marketplace at year end (stated in dollars) and market shares (stated as percentages of the total value of units of systems outstanding in the industry), SR and IBM had the following shares of the EDP market in 1956:
- Several other companies had 1% or 2% of the business.
- In terms of total revenue (stated in dollars) and market shares (stated as percentages of the total revenue of the industry), the other EDP companies had the following shares of the EDP market in 1956:
- In terms of the retail sale value of the new EDP systems shipped (stated in dollars) and market shares (stated as percentages of the total value of shipments in the industry), the other EDP companies had the following shares of the EDP market in 1956:
- In terms of the retail sale values of units of systems outstanding in the marketplace at year end (stated in dollars) and market shares (stated in percentages of the total value of units of systems outstanding in the industry), the other EDP companies had the following shares of the EDP market in 1956:
- In 1956 IBM shipped about 85% of all the new business and SR about 10%.
- See 15.15.2.
- At the end of 1956 IBM had 75% of all the EDP systems outstanding and SR had 18%
- See 15.15.3.
- From 1955 through 1966 SR did not have less than 10% of the EDP business.
- In terms of the retail sale value of units of EDP systems outstanding in the market place at respective year end (stated in thousands of dollars) and market shares (stated as percentages of the total value of systems outstanding in the industry), the major members of the EDP industry had the following shares of the world (W) and domestic (D) EDP market from 1955 through 1967:
- In 1967 the percentage was slightly less than 10%.
- See 15.19.1
- In many of these years SR operated at substantial losses.
- Plaintiff claims that the exchange of technological know-how between the two dominant companies in the industry permitted their progress at a much faster rate than the extremely small companies not parties to the agreement.
- Plaintiff claims that the failure to make this information available to competitors caused plaintiff and the other small computer manufacturers to become involved in a re-invention cycle which caused tremendous expenses to the excluded companies, particularly for R & D.
- The agreement was the product of a number of factors, including the 1956 IBM Consent Decree, the 1955 antitrust suit by SR v. IBM, the claim of IBM that SR had infringed a number of its patents, a number of interferences involving ENIAC, the evaluation of ENIAC, the evaluation of the respective patent portfolios, the claim by IBM that the ENIAC was invalid because of public use, and undoubtedly other factors.
- On January 21, 1952, the Government filed an antitrust suit against IBM.
- The Government suit charged IBM with monopolizing the tabulating machine industry and with engaging in various restrictive practices in the conduct of its tabulating machine business.
- At the time the Government action was filed and for some years thereafter IBM had about a 90 per cent share of the tabulating business and Remington Rand had the remaining 10 per cent.
- The Government suit charged that one of the methods IBM used to maintain its monopoly was to exclude potential and existing manufacturers of tabulating machines from entering the tabulating industry by monopolizing patents, inventions and technical information relating to tabulating systems.
- The Government suit also charged that IBM refused to grant licenses under its patents relating to certain key tabulating machines and that Remington Rand had endeavored unsuccessfully to obtain a license under these patents from IBM.
- In April of 1955, Herbert A. Bergson, former head of the Antitrust Division who had been retained by Remington Rand, submitted a draft consent decree to the Department of Justice.
- According to Bergson's testimony of what he was told by McNamara, the Department of Justice had solicited Remington Rand's views about the relief to be sought from IBM in March of 1955.
- Since Bergson was keenly aware that IBM had been using its tabulating monopoly to monopolize the computer industry, the proposed decree he submitted to the Department of Justice applied to EDP as well as to TAB.
- Eventually, Bergson testified, he came to believe that the Government would not get, via negotiations with IBM, what he considered to be adequate relief from IBM
- On December 27, 1955, SR had sued IBM for Clayton and Sherman Act antitrust violations involving, inter alia, EDP and TAB monopoly practices and the illegal tie-in of purchase of tab cards with the lease of tab systems.
- As of January 3, 1956, SR and IBM were involved in seven patent office interferences over priority and validity of claims contained in the ENIAC patent application and a few other interferences with others of IBM and SR EDP patents and applications.
- IBM and SR met in late 1955 and early 1956 to discuss a procedure for facilitating the resolution of these interferences.
- Eventually, these late 1955 and early 1956 IBM-SR discussions expanded to include discussion of other outstanding differences between the two companies, particularly patent licensing and the SR antitrust suit against IBM. In the discussions SR and IBM considered the possibility of a TAB and EDP patent cross-licensing and exchange of know-how.
- On January 25, 1956, the United States District Court for the Southern District of New York approved a consent decree entered in the case of United States v. IBM.
- The 1956 consent decree contained numerous remedial provisions directed at the IBM tab and EDP monopoly.
- In section IV of the decree, for example, IBM was required to offer for sale as well as lease all of its tab and EDP machines.
- In section IX of the decree, IBM was required to afford certain applicants (other than agents or employees of a manufacturer of tab or EDP machines) the opportunity to obtain training to repair and maintain IBM tab and EDP machines and to furnish to such applicants repair and maintenance manuals and instruction books on all IBM tab and EDP machines. IBM was also required pursuant to section IX to furnish such repair and maintenance books and manuals to owners and lessees of IBM machines.
- Regarding patents, section XI of the consent decree required IBM to license any applicant under any, some or all of IBM's tab and EDP patents and applications filed prior to 1961. IBM was permitted to charge a reasonable royalty for most patent licenses, but section XI of the decree also stated that if the applicant and IBM were unable to agree on what constitutes a reasonable royalty, either could apply to the Court for such determination (with the burden on IBM to prove reasonableness).
- Section XI of the decree opened the injunction so as to permit IBM to grant patent licenses under future tab and existing or future EDP patents on the applicant's granting fair value to IBM , as a reasonable royalty, including license under any, some or all of the applicant's patents.
- In addition to the information contained in the IBM repair and maintenance manuals required to be furnished applicants under section IX, section XIV of the decree required IBM to furnish any applicant for a patent license with technical information with respect to , and for use in the manufacture of, a list of some 98 IBM "tabulating machines". Basically, this list (set forth in Appendix A to the decree) of "tabulating machines" included all of IBM's tab line as of January 1, 1956 of which three were electronic, viz., the IBM 604 Electronic Calculating Punch, the 083 Sorter and the 101 Electronic Statistical Machine. The card readers, card punches and other devices covered by the decree were not electronic nor used primarily in or with an electronic data processing system. These were not "EDP systems or machines", therefore, and the consent decree did not provide that the EDP know-how later obtained by SR was to be available to anyone.
- The technical information to be provided by IBM pursuant to section XIV of the consent decree was to be such as to enable the applicant satisfactorily to manufacture or assemble the tabulating machinery covered thereby. IBM was permitted to charge applicants only for the cost of reproducing the technical information.
- Section XIII of the consent decree also prohibited IBM from entering into any agreement or understanding relating to tab or EDP machines or systems which, "provides for disclosure to IBM on an exclusive basis of any invention, formula, process or technical information".
- The 1956 consent decree required IBM to grant specifically defined tabulating systems know-how technology, but not EDP systems know-how technology, to certain applicants.
- Honeywell executives were aware of the IBM consent decree, and Henry Hanson, Honeywell's EDP patent counsel. Prepared a summary of the decree for distribution to selected Honeywell personnel.
- Herbert Bergson, on-time Assistant Attorney General in charge of the Antitrust Division, had attempted (for SR) to persuade the Justice Department to include a consent decree provision for a public dedication of IBM's EDP know-how technology in order to correct what he and SR saw as the already noticeable advantage of IBM in the EDP industry.
- SR and Bergson considered it necessary, in order to have viable competition in the EDP industry, for all competitors to have royalty-free access to IBM's EDP know-how technology, as well as its TAB know-how technology.
- However, SR was unsuccessful in having the EDP know-how requirement included in the consent decree for the public; subsequently it began direct negotiations with IBM to and did obtain the IBM EDP know-how solely for itself.
- On March 5, 1956, a conference was held between SR and IBM to discuss the possibility of settlement of the then pending patent and antitrust disputes between the two companies.
- Because SR believed that the consent decree January 1, 1956 cut-off date was insufficient, SR suggested that the cut-off date be extended approximately a year and that the definition of technical information be broadened to include EDP, as well as tab.
- On May 28, 1956, SR and IBM representatives met to discuss the antitrust problems which might arise out of a them proposed settlement between IBM and SR which included a complete sharing of know-how technology in both the tabulating systems and EDP systems area and a settlement of all Patent Office interferences between the two companies.
- At this meeting, IBM submitted a proposal to SR that each company would grant the other a royalty-free, non-exclusive license under all tab and EDP patents and patent applications as of July 1, 1956; each would release the other from liability for past infringement; each would furnish the other, at cost, tab and EDP know-how as of July 1, 1956; IBM would pay $2,000,000 in royalties to SR; and SR would dismiss its antitrust suit.
- As part of the negotiations at that meeting, representatives of IBM told SR that neither company would get a patent in the "big interference case" between the IBM "SSEC" computing system and the SR "ENIAC" because of the fact that the ENIAC machine and any alleged invention therein were in public use prior to the critical date.
- It was stated by both SR and IBM that it was in the interest of both companies to settle their Patent Office interferences.
- Shortly after making its May 28, 1956 proposal to SR, IBM counterclaimed against SR for infringement of 35 patents, mostly in the tabulating area, and it petitioned the Patent Office for the institution of public use proceedings against the ENIAC patent application.
- SR management evaluated the IBM May 28, 1956 offer and concluded that EDP should be left out of the settlement. But it remained interested in tab, particularly because it suspected that IBM was holding under wraps an IBM tabulating machine called the World Wide Accounting Machine (or WWAM).
- SR officials estimated that patent licenses and technical information on the WWAM machine would be worth $20,000,000 to SR.
- SR sent a counter-offer to IBM on June 27, 1956, proposing a tab patent cross-license and an exchange of tab technical information as of December 31, 1956. SR also asked for a $20,000,000 payment by IBM.
- SR hoped that the December 31, 1956 cut off date contained in its June 27, 1956 counter offer to IBM would be late enough to "catch" IBM's WWAM tabulating machine.
- At meetings subsequent to June 27, 1956, SR reduced its offer to $10,000,000 and IBM eventually accepted, but on the basis that the agreement include licenses under IBM and SR's EDP patents and applications (including the ENIAC patent application) and that the cut-of date for know-how be shortened to October 1, 1956. After much discussion, the parties agreed to these arrangements.
- Again in the July 1956 negotiations, IBM representatives told SR representatives that IBM's patent counsel, Sanborn, Brumbaugh & Cooper, New York City, had forecast that IBM would prevail ultimately on the public use question and that the ENIAC patent would be invalidated.
- At a meeting with SR on July 16, 1956, IBM representatives took the firm position that the ENIAC application had to be a part of any settlement agreement.
- At a July 23, 1956 meeting, SR was successful in obtaining IBM's agreement to pay an additional royalty if certain conditions were fulfilled.
- A July 25, 1956 draft of the agreement contained a provision for exchange of EDP technical information on machines announced or released to production as of October 1, 1956.
- In July of 1956, IBM's top management indicated a concern that the largest patent license deal in history would not be well received by the public.
- There were final drafting sessions on August 1 and August 2, 1956. Bergson testified that he had probably reviewed the final drafts of the agreement and orally advised SR that the agreement was lawful.
- At the August 2, 1956 drafting session, Bergson suggested that the parties submit a copy of the agreement to the Department of Justice. After the agreement was signed, Bergson personally delivered a confidential copy of the agreement to Marcus Hollabaugh, a Justice Department attorney who had been in charge of the IBM litigation.
- In August, 1956, a meeting was held between representatives of SR and IBM to work out the procedure for settling major interferences and lesser patent office interferences.
- Interferences were divided into major and lesser to try to avoid raising antitrust problems over a settlement of major interferences between the conspirators without presentation of some evidence by IBM; all such showings were essentially a formality.
- At this August, 1956 meeting, representatives of IBM again repeated to representatives of SR that the "public use" defense was a good one against the ENIAC patent.
- On August 15, 1956 the Assistant Attorney General wrote IBM's counsel and asked for a copy of the agreement. Accordingly, after the agreement was executed on August 21, 1956, IBM's counsel sent a copy to the Assistant Attorney General.
- Defendants used their EDP patent and application portfolio in influencing IBM to enter into the 1956 Agreement at a time when the conspirators had about 95% of the EDP market.
- On August 21, 1956, IBM and SR entered into a complete cross-license under all their EDP and TAB equipment patents and patent applications, a complete sharing of all EDP and TAB equipment know-how and a complete settlement of all EDP and TAB Patent Office interferences.
- The completeness of the August 1956 technology sharing is evidenced by the following excerpt from that Agreement:
- a complete set of drawings used in the manufacture of all the detail parts, assemblies, subassemblies, circuits, components, etc., for the product;
- a complete set of operation sheets, duplicates of those which the manufacturer used in the manufacture of the product;
- a duplicate set of all inspection specifications for parts, assemblies, subassemblies, circuits, components, and machines;
- a duplicate set of drawings of the tools , jigs, dies, and fixtures necessary for the manufacture of the product;
- a bill of all materials necessary for the manufacture of the product and specifications to cover the purchase of such materials; and
- illustrated service manuals listing all the detail parts of the product and setting forth mechanical and electrical instructions to enable servicemen to maintain and service machines.
- The 1956 IBM-SR Agreement as finally consummated contained, among other things, the following terms:
- an exchange of patent licenses on tab and EDP patents and applications as of October 1, 1956;
- an exchange of technical information on tab and EDP machines announced to the public or released to production as of October 1, 1956;
- a payment of a fixed annual royalty by IBM of $1,250,000 a year for eight years;
- a payment by IBM of an additional royalty, if a patent issued on the ENIAC application prior to January 1, 1956, of 1 per cent of the manufacturing cost of each IBM EDP machine embodying any invention covered by the claims of the ENIAC patent manufactured within the United States between October 1, 1956 and October 1, 1964--after deducting the $1,250,000 payments as a credit;
- dismissal of SR's antitrust suit against IBM and dismissal of IBM's patent infringement counterclaim against SR.
- IBM and SR also on August 21, 1956 entered into a series of procedural agreements to dispose of the various outstanding patent interferences between patent and patent applications of the two companies. These agreements were characterized as "very conventional", and Honeywell (Datamatic) later joined several of them.
- I find that the cross-license and exchange of technical information agreement was an unreasonable restraint of trade and was an attempt by IBM and SR to strengthen or solidify their monopoly in the EDP industry.
- Section 1 of the Sherman Act prohibits "Every contract, combination... or conspiracy, in restraint of trade..."
- Nonexclusive patent cross-licensing in itself may be proper.
- During the negotiation of their 1956 Agreement, both IBM and SR had expressed the view that they were not particularly interested in exchanging EDP know-how (or technical information); each asserted its belief that its own position in EDP was superior to the other's. Nevertheless, a provision for the exchange of EDP technical information — on machines announced to the public released to production as of October 1, 1956 — became part of the agreement.
- Shortly before the 1956 SR-IBM Agreement was executed, J. Presper Eckert , then a UNIVAC executive, expressed opposition to the agreement. Among other things, Eckert was concerned about the treatment of "some dubious information known as 'know-how' (whatever that is)". Eckert also wrote:
- Notwithstanding Eckert's demurral, the 1956 Agreement was concluded and IBM and SR went about working out details for the exchange of technical information. IBM and SR representatives met again several times in the fall of 1956 for this purpose.
- Since neither IBM nor SR really knew what it wanted or might expect in the other's technical information, it was ultimately agreed to have a broad exchange. However, a large number of obsolete machines were removed from the lists of machines on which information was to be exchanged.
- Pursuant to the August 21, 1956 Agreement, IBM and SR did, in late 1956, exchange thousands of documents containing proprietary, technological and production know-how of the kinds described in the Agreement with respect to the EDP and TAB systems and machines listed in the Exhibits A to that Agreement; at least as late as 1962, SR requested and received technical information from IBM pursuant to the 1956 Agreement.
- In the fall of 1956, SR received IBM manuals called for by the agreement and also received the manufacturing information on the IBM 604 Electronic Calculating Punch (a tab machine listed on appendix A to the IBM consent decree). The reminder to the manufacturing information which IBM supplied was received by SR in late December of 1956. After this information was received, it was placed in the custody of Robert Kalb at a UNIVAC facility in St. Paul.
- The technical information SR obtained from IBM did not disclose design alternatives that had been considered by IBM and rejected, cost data, price data, software, third party proprietary information or information on IBM's field experience.
- In October of 1959, McNamara (General Counsel of SR's Remington Rand division) approached IBM's Birkenstock, stating that perhaps the time had come to discuss extension of the 1956 cross-license with an exchange of know-how. Birkenstock replied that he did not feel that an exchange of know-how was practical and that:
- No further exchange of unpatented know-how (or technical information) between IBM and SR was entered into after 1956 except under the patent exchange of 1956.
- None of the other EDP competitors ever received either SR's or IBM's EDP know-how.
- After receiving the technological and production know-how from each other, both SR and IBM studied and used the information; SR refused to sell or allow use of any of its equipment made in consequence of the technological merger by any EDP industry member at any price; IBM sold or leased such items at retail prices; by reviewing and studying the technical information shared under the 1956 Agreement, SR and IBM were better able to know and to evaluate the options available to each of them and to decide what equipment to build and how; having such opportunities involves time and cost saving shortcuts in the evaluation and selection of alternative routes.
- One instance where manufacturing information on an IBM EDP machine was examined by SR was on the IBM RAMAC device.
- The drawings on the RAMAC were incomplete and, in any case, SR had prior to 1957 already developed considerable competence in random access storage, both disc and drum. Indeed, SR's Appleton patent, filed on February 2, 1955, and licensed to IBM but not others, discloses an invention bearing a striking similarity to IBM RAMAC.
- SR made no specific use of the IBM RAMAC drawings as it could have; instead it continued to follow the drum approach to random access, which it had used prior to 1957.
- The SR technical information was shipped in late 1956 to IBM's plants at Endicott and Poughkeepsie, New York. The SR EDP material went to Poughkeepsie.
- An assignment was made in February of 1957 to H.A. Mussell of IBM to review the SR drawings that had been sent to Poughkeepsie. After months of prodding by Mussell's superior, Phelps, a one-page report was ultimately issued on July 8, 1957. The report stated:
- Information available was better organized.
- A key to readily interpreting the Sperry Rand circuit coding were available.
- Missing prints and information were available.
- In September of 1957, Phelps was asked by H.T. Marcy, the head of engineering at IBM's Poughkeepsie facility: "Are we using any of the data we obtained from Sperry Rand as a result of our settlement with them?" Phelps responded:
- In the spring of 1957, IBM was in a "bind" on its high speed printers — they were wire printers giving IBM "fits from a mechanical performance point of view". IBM examined the 1956 SR technical information of the UNIVAC high speed printer, but concluded that IBM should solve its problem by going ahead with its own development, the chain printer. IBM thus eventually elected to introduce its very successful chain printer, which was "as different was day and night, from a functional and mechanical point of view " from the UNIVAC printer. No other mainframe manufacturer had this choice.
- IBM also examined 1956 SR technical information on magnetic drum plating and magnetic drum bearings. However, IBM found no information that would advance IBM's state of the art and so put the drawings :"back in the file and forgot it". No other mainframe manufacturer had this opportunity.
- IBM put the 1956 SR information into dead storage in 1958.
- In 1960 J. Svigals, an IBM employee, wrote to Birkenstock:
- IBM could have but never built a copy of any of the SR machines on which it had received EDP technical information and it could have but never used or incorporated into any of its equipment, designs, details, features or processes specifically derived from the SR technical information. No other mainframe manufacturer had such an opportunity.
- There was a competitive advantage to be gained by both IBM and SR receiving the respective packages of EDP know-how.
- That same competitive advantage was also possible for any other EDP competitor had it received that EDP know-how.
- SR and IBM attempted to, and did, gain a competitive advantage by the receipt and subsequent ability to consider and decide upon utilization of that EDP know-how.
- The other EDP competitors, by reason of their non-access to the EDP information, did not gain or have competitive advantage.
- Since SR and IBM gained a competitive advantage and since the other EDP competitors did not, the others were at a competitive disadvantage compared to either SR or IBM or both.
- This, the effect of the technological sharing, embodied in the 1956 Agreement, and the subsequent use of and ability to use each other's know-how by SR and IBM, was to confer a competitive advantage on the parties and to put the other EDP competitors at a competitive disadvantage with respect to SR and IBM and each of them as they both are held and have realized at the time and thereafter.
- Conversely stated, the cause of the other EDP competitors being put at a competitive disadvantage was the technological merger accomplished by the 1956 Agreement, and the subsequent use of and the opportunity and ability to use each other's know-how by SR and IBM which the competitors lacked.
- The impact of the total EDP and TAB system technological merger between IBM and SR in 1956 was stifling on the growth of EDP competitors and the EDP industry generally; since 1956, all EDP industry members except IBM and SR (and CDC to a limited degree) have been operating under artificial EDP market constraints imposed by having had to compete against the combined technological portfolios of IBM and SR during the critical starting and developmental period of the EDP industry.
- The technological merger between IBM and SR restrained and hampered the EDP industry from growing in time and size, restrained and hampered the ability of other members of the EDP industry to thrive and grow and depressed the incentive to invent within the industry.
- Prior to and after the 1956 technological merger between SR and IBM, technological competition was the single most important component of competition among entrants to the EDP industry; in perhaps no other industry had technological development been so important to the success of the participants.
- The competitive structure of the EDP industry, particularly prior to 1956, created a substantial incentive toward technological innovation.
- The importance of technological competition in the computer industry is illustrated by the large outlays for research and development (hereinafter R & D) made by the various members of the EDP industry.
- The R &D expenditures for the EDP divisions of several electronics firms frequently exceed 10% of total revenues and, in early stages of development, R&D expenditures actually exceed total EDP system revenues.
- For example, Honeywell made annual R&D expenditures considerably in excess of its annual world EDP system revenues in the entire period 1955-1960, and in excess of 20% of EDP system revenues in the following five year period 1961-1965.
- Even SR, although a part to the technological merger with IBM in 1956, made annual R&D expenditures in excess of 10% of its annual world EDP revenues in all except one of the four years from 1957 to 1960.
- Because of the benefits obtained from the technology shared under the SR-IBM Agreement of 1956, both SR and IBM realized a dulling of their individual incentive to innovate which would have continued but for the Agreement.
- At the time of the SR-IBM Agreement of 1956, IBM and SR had already developed substantial technological expertise in the EDP field and were the two dominant firms in the tabulating machine market whose customers were the most likely prospects for EDP systems.
- Thus, the SR-IBM Agreement of 1956 solidified an already dominant consortium.
- The terms of the SR-IBM Agreement of 1956 assured that the dominance of the consortium would persist since the parties agreed to exchange existing know-how and information on developments then in progress as well as future patents.
- The SR-IBM technological merger gave SR and IBM a decisive advantage over the actual and potential EDP manufacturers who were not parties to the Agreement and, as a consequence, significantly reduced the competitive potential of outsiders.
- After the 1956 IBM-SR agreement, SR's share of EDP business declined.
- Although SR's UNIVAC Division had been claimed to be profitable before the 1956 IBM-SR agreement, it lost $250,000,000 in the 1957-1965 period.
- In the 1957 to 1967 period, Honeywell, RCA, Control Data and NCR grew from having practically no EDP business to having annual EDP shipments each about as large as SR's.
- In the 1957-67 period, SR spent $223,000,000 (18% of its EDP revenues) on EDP research and development; in the same period Honeywell spent $95,000,000 (21% of its EDP revenues) on EDP research and development.
- The 1956 IBM-SR patent cross-license was de facto exclusive, and SR conspired and agreed with IBM to prevent Honeywell from obtaining access to any IBM or SR patent license and know-how.
- Honeywell has proven that it was injured in its business or property by reason of the 1956 EDP patent cross-license between IBM and SR.
- As to licenses under IBM EDP patents, any applicant under the IBM consent decree had a right to obtain such licenses, and Honeywell and the other major EDP companies did obtain such licenses.
- Honeywell offered no evidence that it ever tried to design around an SR patent or even altered its conduct because of an SR patent. In fact, in answers to defendants' Interrogatories 248 and 251, Honeywell admitted that it never studied any of the SR patents and applications involved in the 195 IBM-SR cross-license and that it never designed any of its EDP machines to avoid any of their claims.
- The SR-IBM technological merger in 1956 injured competition in the EDP industry by conspiratorially allowing the perpetuation of the high combined market share of the two parties to the merger and tending to protect the proportion of each conspirator.
- In 1956 IBM and SR had about 95% of the EDP market and each had a duty to the remaining members of the industry to make full disclosure of the agreement.
- SR had the duty to seek out Honeywell and offer it access to technical information equal to that offered to IBM.
- On May 10, 1956, a meeting was held between IBM and SR at which representatives of both companies discussed a then proposed settlement between SR and IBM.
- At this meeting, F.J. McNamra of SR stated that as a part of the settlement, he contemplated an exchange of know-how between IBM and SR which would cover the EDP field as well as the TAB systems area.
- On May 15, 1956, Birkenstock of IBM sent a letter to outside counsel with an attached copy of suggested points to be negotiated between IBM and SR, including an exchange of EDP know-how.
- On May 22, 1956, IBM concluded that the proposed know-how exchange between IBM and SR would raise serious problems under the antitrust laws unless both companies were willing to provide the same know-how to all licensees.
- On May 28, 1956, a meeting was held between representatives of IBM and SR to discuss further a proposed settlement between the two companies.
- One of the principal points at this meeting was the antitrust problems which might arise out of the proposed settlement.
- Judge Bromley, outside counsel of IBM, stated that the proposed settlement between the two principal occupants of the field was fraught with antitrust difficulties.
- McNamara of SR stated that an exchange of EDP know-how would give rise to antitrust problems and that SR was not then disposed towards a know-how exchange.
- On June 6, 1956, Birkenstock of IBM and McNamara of SR discussed the fact that should an exchange of know-how be concluded between the two companies, IBM would be obligated to provide EDP know-how, at least coextensive to patent grant, to all licensees.
- IBM had made it clear to SR throughout their negotiations that because of its consent decree, IBM would make available to all competitors who requested it the same patent licenses and technical information it provided to SR. IBM did nothing effectual to implement this requirement.
- At a June 20, 1956 meeting with IBM, McNamara stated that, based upon a previous conference with Birkenstock, there was an understanding that the objective of a settlement between IBM and SR was to place SR in such a position with respect to patents, applications and know-how that it would be on the same level as IBM; this was what occurred.
- At a June 29, 1956 meeting with SR, Birkenstock of IBM stated that, contrary to the advice of IBM's antitrust counsel, IBM would agree to a cutoff date of June 1, 1956, for and IBM-SR know-how exchange; the ultimate date became October 1, 1956.
- Birkenstock further stated that IBM's counsel had advised IBM that it would be obligated to provide all licensees, with respect to any particular machine, the same know-how exchanged with SR.
- The 1956 consent decree required IBM to grant technology access to specifically defined tabulating systems [not EDP systems technology] to certain applicants; Section XIII of the decree also prohibited IBM from exchanging disclosures of technical information on an exclusive basis.
- During the course of the 1956 negotiations IBM had become concerned that any settlement with SR, if publicized, might be constructed as an admission of guilt to SR's monopoly charges or that SR's salesmen might make unfair use of it in the way they might described or talk about the agreement. This concern first appears in the "minutes" of a June29, 1956 SR-IBM negotiating session; these memoranda indicated that IBM and SR then discussed having a joint press release as a possible solution.
- An IBM draft agreement dated July 6, 1956 contained an express provision that there should be a joint press release and that the terms and conditions of the agreement would be kept confidential; this draft contained no provision for an exchange of EDP technical information.
- In July of 1956, IBM was specifically advised by outside counsel, and so told SR, that know-how and patent exchange with SR would violated the antitrust laws unless IBM made arrangements for other companies in the industry to get the same benefits royalty-free; no provision implementing this necessity was included in the technological merger.
- At an August 1, 1956 meeting of IBM and SR representatives, Birkenstock of IBM reported that IBM had been unable to avoid mentioning the settlement negotiations to the editors of Fortune magazine; however, SR representatives were assured that Fortune would not publish any details.
- Both companies desired to gain technological peaceful co-existence and expressed their mutual concern over antitrust problems which would arise from the two dominant companies exchanging EDP know-how and patent licenses when these same benefits would not be available royalty-free to the industry; nonetheless, they made their Agreement de facto exclusive.
- Both conspirators desired to keep factual information from their competitors and the public concerning the true scope of their proposed technological merger and concealed, to the maximum degree, details of the 1956 Agreement, both before and after it was executed.
- SR and IBM were naturally sensitive about candid disclosure of the full details of their know-how exchange when they did not heed the warnings of counsel by making the technology available to all; they agreed upon a closely worded and innocuous-sounding press release and agreed that no other comment would be allowed by any representative of either company.
- By issuing the jointly drafted press release, SR and IBM appeared to disclose the nature of their settlement, but the press release did not contain enough information to make it self-explanatory no to prevent it from being misleading as to the true content of the technological merger; the press release was calculated to allay suspicions which the conspirators knew would follow the inevitable leak of information about the deal.
- The joint press release was issued a few hours after the 1956 Agreement was signed. The release stated:
- The fact of the 1956 IBM-SR Agreement, but not the details, received publicity:
- Versions of the press release appeared in the Wall Street Journal, The New York Times and in trade journals such as Computers and Automation.
- The press release was mailed to thousands of IBM stockholders and an expanded version of it appeared in the 1957 SR Annual Report.
- The Wall Street Journal account stated that technical information was to be exchanged on "all data processing and punched card equipment announced or released for production before October 1" 1956.
- SR had several hundred copies of the agreement printed; these copies were circulated to SR personnel and some copies went to outsiders.
- On August 21, 1956, T.J. Watson, Jr. chief executive of IBM sent a worldwide memorandum to all executives and department managers, district managers, IBM branch managers and plant and laboratory executives in which he specified what could and should be said regarding the technological merger and attached a script with prescribed answers to questions; the script was designed to disclose none of the details of the Agreement.
- Although IBM and SR made reference to an exchange of EDP and TAB systems technical information in their jointly drafted press release of August 21, 1956, and a letter to IBM shareholders dated the same date containing the same reference, both companies were careful to disclose no factual details concerning the extent to which IBM and SR had accomplished a practical technological merger by the 1956 Agreement.
- At a September 5, 1956 meeting of SR executives, McNamara stated that the privileges of the deal with IBM, including the know-how exchange, were not available to other industry members.
- IBM and SR, singly and together, had the duty to explain the 1956 Agreement openly to the other members of the EDP industry and the public and to offer the opportunity to gain access to the joint power base on nondiscriminatory terms; the 1956 Agreement created an affirmative obligation to inform others of the availability of the pooled EDP know-how.
- However, neither IBM nor SR ever told any EDP competitor about the extent of the EDP information exchange in 1956, nor did either ever offer any EDP competitor any of the EDP know-how of either company; neither pursued a program of bringing their know-how, patent or application technology into the public domain; neither engaged in any program or plan to make their bringing their know-how, patent or application technology into the public domain; neither engaged in any program or plan to make their de facto exclusively shared technology available on any terms to any EDP industry members or the public.
- SR's executives testified that they had remained entirely willing after the 1956 agreement to discuss patent licensing and technical information with competitors but did nothing overt to make this willingness effective.
- In fact, every effort was made by SR and IBM to keep such information from their competitors and the public, and only a limited number of men in each company were given access to the information.
- The 1956 Agreement between IBM and SR had significant anti-competitive impact on the development of the EDP industry and there was a less restrictive alternative available, namely, to grant the EDP industry access to the technological merger with accompanying freedom to innovate and compete.
- IBM and SR were both specifically familiar with how to achieve publication of the availability of know-how as a result of the 1956 IBM governmental consent decree experience; however, neither took any steps reasonably calculated to publicize the availability of the EDP technology and know-how shared between themselves.
- While IBM and SR filed copies of the 1956 Agreement with the Justice Department, they knew and intended that the Justice Department would treat the matter as confidential under the express provisions of the 1956 Consent Decree; it was so treated.
- SR knew, before it entered into the 1956 Agreement with IBM, that there was a probability that the technological merger provided for in the agreement between the two then dominant companies in the EDP and TAB industries would violated the antitrust laws.
- Therefore, in July of 1956 and thereafter, SR and IBM agreed to and did keep the details of the Agreement secret from the EDP industry and the public; the 1956 technology sharing was regarded by SR to be "company confidential and not to be disclosed"; further, SR and IBM agreed that there would be no publicity regarding any of their technology sharing activities.
- Consequently, no industry member actually realized or knew the scope and breadth of the Agreement and information exchange between IBM and SR in 1956 nor until much later.
- Honeywell had no actual knowledge or realization of the full significance of the technological merger between SR and IBM or the conspiratorially intended effects thereof until the discovery process provided by this lawsuit.
- The 1956 EDP know-how exchange between IBM and SR, although labeled "non-exclusive" was effectively "exclusive", i.e., de facto exclusive as it was intended by the parties to be.
- The true scope of the 1956 Agreement and the breadth of information exchanged was kept secret by the conspirators until unearthed by Honeywell during the discovery in this lawsuit in 1969.
- When IBM and SR finally, under legal demand, produced copies of the 1956 Agreement in this lawsuit, both demanded that the copies be treated as "confidential" by Protective Orders of the Court.
- Plaintiff knew of the 1956 Agreement, the 1956 IBM Consent Decree, and the 1955 antitrust suit of SR against IBM.
- Though plaintiff knew of the 1956 Agreement, it made no demand then or within a reasonable time thereafter for the agreement or the information contained therein.
- Honeywell officials read the press accounts of the 1956 IBM-SR agreement. In fact, Hanson (the head of Honeywell's EDP patent department) in a September 10, 1956 memorandum to Finke (the head of Honeywell's EDP operations) described the 1956 IBM-SR Agreement and wrote:
- In late 1956, Honeywell explicitly considered whether it should approach SR or IBM or whether it should stall and wait for IBM or SR to approach Honeywell. It adopted the latter course in the hope that it could in the meantime develop trading stock so that it would not have to pay cash for any IBM or SR patent licenses.
- Until this lawsuit, neither Binger (Honeywell's chief executive), Finke nor Hanson ever sought any additional details concerning the 1956 Agreement from IBM or SR, nor did they ever ask to see a copy of the agreement.
- Honeywell has never sought any technical information from SR or from IBM.
- If the demand had been refused, legal action in antitrust or other theory would have forced disclosure of the agreement.
- See 18.8.
- In 1956 plaintiff knew that SR had a high speed printer and the IBM had RAMAC and knew that it suffered competitively for lack of such devices or information.
- See 15.40.49 through 15.40.70 and 15.40.83 through 15.40.94.
- Plaintiff, however, took no legal action in 1956 or within a reasonable time thereafter to eliminated the restraint of trade or continued monopoly power.
- As in Section 7 cases, the Court believes that whatever happened after 1956 has relevance.
- The history of the industry indicated that defendants in no way assumed or obtained a dominant or monopolistic position.
- SR from 1956 to 1967 remained at about 10% of the EDP industry, and in most of those years operated at substantial losses.
- See 15.19.1
- SR and ISD are the defendants in this lawsuit, not IBM.
- The relevant market is the EDP industry and the geographic market is the United States and foreign markets for sales and rentals of EDP products manufactured in the United States.
- The relevant product market for purposes of this lawsuit is defined to include those EDP systems and machines falling within the following definition:
- The relevant geographic markets for purposes of this lawsuit are the United States and the world market (a combination of the foreign and United States markets).
- At least since the early 1950's, there has been a definable relevant market in the development, manufacture, sale, lease and use of electronic data processing machines and systems (as defined above) in each of the geographic markets (as defined above).
- I find a violation of Section 1 in the agreement.
- See 126.96.36.199 and 15.26.
- Though the agreement was a further attempt to extend the monopoly, I find that in view of later events that defendants did not create any monopoly in violation of Section 2.
- Honeywell has failed to prove that SR's participation in the 1956 IBM SR Agreement violated Section 2 of Sherman Act.
- I find that in view of plaintiff's knowledge of the fact of the agreement and of the dominant position of SR and IBM in 1956, that plaintiff failed to act with any kind of diligence in the protection of its interests.
- I find that if the agreement violates the antitrust laws that plaintiff has proved injury.
- The creation of the mutually shared pool of technological know-how on the part of SR and IBM, who at the time of the Agreement had about 95% of the world EDP market, placed the other industry members not party to the Agreement including Honeywell, at a severe competitive disadvantage.
- In agreeing to exchange know-how and information on developments, SR assured itself that other EDP manufacturers would confront a decisive technological disadvantage or excessively high R & D costs, either of which would reduce technological competition in the EDP market.
- An analysis of the ratio of "imputed rental value" of annual EDP system shipments to R & D expenses for the period 1957-1967 shows that Honeywell's R & D outlays relative to value of shipments were consistently much higher than those of SR.
- "Imputed rental value" as herein used means the value arrived at by converting all EDP sales transactions in each year to lease transactions by a formula which spreads the revenue derived from these sale transactions over a 3 1/2 year period commencing with the first year the revenue was earned; this "imputed" value is then added to the actual lease revenue to obtain the "imputed rental value" (hereinafter "IRV"); this is a valid base for comparison purposes.
- From 1957 to 1960, the four years immediately following the SR-IBM Agreement, Honeywell's R & D outlays exceeded total EDP revenues.
- During the same period, SR's R & D outlays ranged from 10% to 22% of its EDP revenues.
- Although the productivity of a particular R & D investment may not be immediately measurable, it is well accepted statistically that given the fact that a company is investing R & D dollars every year, the ratio of annual revenue or value of equipment shipped to annual R & D expenditures is a valid basis for considering how productive R & D efforts are over a period of time.
- It was not until 1965 that Honeywell attained a ratio (4.787) of IRV of EDP systems shipped to R & D costs as favorable as the 4.619 ratio which SR had enjoyed in 1957, the year immediately following the technological merger.
- Utilization of the ratio analysis technique makes possible the ascertainment of the competitive disadvantage suffered by Honeywell as a result of the 1956 Agreement in either of two ways: (1) the lower revenues of Honeywell compared to its R & D outlays as compared to SR, or (2) the excess R & D outlays Honeywell was forced to make in order to achieve any given level of revenues as compared to SR.
- The competitive disadvantage suffered by Honeywell as a result of the 1956 Agreement (compared with SR's experience) measured in terms of lost IRV in the years 1958 to 1967, ranges from $516,877, 000 (calculated with no time lag between R & D spent and IRV earned) to $ 360, 541, 000 (one year time lag); generally speaking , this means that had Honeywell's R & S expenditures been statistically as productive as SR's for those years, Honeywell would have generated between $360,000,000 and $517, 000,000 more revenue than it actually did.
- The competitive disadvantage suffered by Honeywell as a result of the 1956 Agreement (compared to SR's experience) measured in terms of excess R & D costs incurred in the years 1958 to 1967, ranges from $55,314, 000 (calculated with no time lag between R & D spent and IRV earned) to $36,871,000 (one year time lag); generally speaking, this means that Honeywell had to spend between $36,000,000 and $55,000,000 more for R & D than SR did in order to generate the same dollar revenue.
- The SR-IBM technical merger had the effect of causing a technological lag of several years on Honeywell, and it required unusually high R & D expenditures in an attempt to overcome that lag.
- To determine the extent of the injury to Honeywell caused by the 1956 Agreement and the technological sharing thereunder, the nature of that agreement must be evaluated in light of what Honeywell stood to gain from having access to it, or alternatively, what it stood to lose from not having access to it, in terms of its competitive position.
- What Honeywell's activities and subsequent competitive position would have been must be compared to what its activities and subsequent competitive position actually were in order to measure the total impact of the technological merger on it; essentially, the extent of the competitive advantage Honeywell would have receive must be added to the extent of the competitive disadvantage it actually sustained.
- In 1956-57 and thereafter, Honeywell and others of the EDP industry had workable central processing units ["mainframes"] but were experiencing substantial difficulties in developing and producing peripheral and input-output devices and were therefore forced to turn to costlier and disadvantageous sources.
- Because it recognized it deficiencies in the peripheral areas, Honeywell representatives talked with representatives of SR in 1956 and requested that SR sell Honeywell its high-speed printers and card readers; SR declined to do so on any basis; this equipment was included in technology shared between SR and IBM.
- Therefore, Honeywell was obligated to and did ask IBM to supply card readers and punches and went elsewhere to obtain printers.
- IBM did agree to lease card punches and readers to Honeywell but only on a full retail price basis, thereby eliminating that part of the EDP system as a potential for profit for Honeywell.
- From 1957 to 1964, Honeywell leased for re-lease card readers and punches from IBM.
- Beginning with the Datamatic D-1000, Honeywell's first computer (first shipped at the end of 1957), Honeywell obtained input/output devices from IBM for use with Honeywell central processors. Among the IBM items purchased or leased at retail prices by Honeywell were the IBM 407 printer and the IBM 519 card punch.
- The IBM 407 printer and the IBM 519 card punch were explicitly listed on Appendix A to the IBM consent decree as items on which IBM was obligated to furnish technical information to all tab patent licensees. Honeywell never sought this 407 and 519 technical information, or any other technical information, from IBM.
- Binger, Honeywell's chief executive officer, did not know why Honeywell did not invoke the IBM consent decree to get IBM 80 column punched card equipment
- At various times over the years since 1956, Honeywell's Capp Smith and Walter Finke complained to IBM about IBM's policy concerning prices on peripherals it was selling or leasing to Honeywell. On such occasions, Birkenstock testified that he countered that Honeywell was free to apply for IBM know-how and build the peripherals itself if it did not like IBM's policy. Birkenstock claimed to have explained to Smith and Finke that IBM would make available to Honeywell all of the technical information, both tab and EDP, that it made available to SR.
- In August of 1959, Birkenstock met with Paul Wishart, then Honeywell's President to discuss the possibility of taking a license under IBM EDP patents.
- Following his August 1959 discussions with Birkenstock, Wishart advised Finke that IBM's royalty rates were "a great deal more liberal than I had thought they would be". Wishart also stated to Finke:
- Henry Hanson wrote to Will Freeman, outside patent counsel for Honeywell, about the August 1959 Birkenstock visit. Hanson stated:
- By March of 1963, IBM and Honeywell had agreed in principle on a patent cross-license that was royalty-free but with IBM to receive licenses also under Honeywell's valuable industrial instrumentation patents as a "quid pro quo" for IBM's greater EDP patent position.
- The final IBM-Honeywell agreement was worked out in an April 1963 session between Will Freeman (late Honeywell patent counsel) and Birkenstock. During this session, Birkenstock claimed, he had a detailed discussion with Freeman concerning IBM's tab and EDP technical information exchange with SR in 1956 and the fact that similar IBM information — as of October 1, 1956 — was available to Honeywell.
- At their April 1963 meeting, Birkenstock said, Freeman advised that since the IBM know-how (technical information) was limited to October 1, 1956 he believe it had little value to Honeywell at that time. Freeman also expressed a reluctance, according to Birkenstock, to request IBM know-how because he did hot want to expose Honeywell to the possibility of IBM's asking for Honeywell know-how in the instrumentation field.
- At his April 1963 meeting with IBM's Birkenstock, Freeman suggesting, according to Birkenstock, that the IBM-Honeywell agreement specifically state that no know-how was to be provided by either party; such a provision was incorporated into this agreement.
- Final drafting of the IBM- Honeywell agreement was concluded, and it was executed in April of 1964.
- The IBM-Honeywell agreement called for nonexclusive patent cross-licenses on existing "information handling" patents and on patents issuing on applications filed prior to May 1, 1968.
- In December of 1964, IBM notified Honeywell that it would no longer lease for re-lease card readers and punches to Honeywell.
- That meant that Honeywell was forced to purchase card readers and punches at full list price from IBM in the current year and then wait several years for a return through rental payments of money which was currently paid to IBM for its readers and punches.
- Although this placed Honeywell at a significant competitive disadvantage in the EDP market, Honeywell nevertheless continued to buy readers and punches from IBM since SR would not deal on any terms and there was not other alternative pending final completion of design and development of Honeywell readers and punches.
- In May of 1966, representatives of Honeywell visited representatives of IBM to ask that IBM reconsider its policy that it would not lease for re-lease readers and punches to Honeywell.
- IBM refused to reconsider both policies, SR knowing of IBM policy and vice-versa.
- From at least as early as 1956-57, it has been very important for an EDP manufacturer to develop its own complete system because customers disliked "split-system responsibility" with one manufacturer maintaining the central processor and one or more others maintaining the peripheral devices.
- The purchase or lease of peripheral devices by an EDP system producer from another manufacturer removed that area of the system as a potential profit-maker.
- Peripherals have contributed to an increasingly greater share of total system price during the period 1955 to 1970.
- Peripheral and input-output devices have been and are now critically important to EDP system customers and hence to sales since they determine the "through-put" of the system, the speed and flexibility with which the system can meet the user's needs, and often, the quality of the user's performance for its customer.
- A range of types of peripheral devices (as well as a range of speed and capacity within each type) offered with a central processor permits the selection of the best combination of capability and price for the customer.
- The EDP manufacturer with a limited set of peripherals was and is therefore severely limited in its ability to compete.
- Since the late 1950's, emphasis has been moving increasingly away from the central processor and toward peripheral capabilities in the EDP customer's comparison of performance of data processing business applications by competing EDP systems.
- It is common today, and has been increasingly so since the late 1950's , t refer to a system with apparent limitations in efficiency as "printer-bound" or "input bound" or "tape bound" meaning that the speed of a particular peripheral unit is the measure of EDP system performance.
- Honeywell experienced substantial deprivation and competitive disadvantage because of nonaccess to the exclusively held technology which IBM and SR shared under the 1956 Agreement.
- Although the Honeywell EDP organization had a strong management position and a growing sales capacity in 1956/1957, it had little if any specialized know-how with respect to peripheral or terminal equipment design and evaluation or the production of electronic or mechanical units except on a model-shop basis.
- Had Honeywell participated in the information sharing between IBM and SR, it would have obtained valuable, needed know-how to supplement that which it already possessed.
- With access to the SR-IBM shared technology, the overall course of Honeywell would have changed noticeably; access to the exchanged information would have significantly changed the climate in which business decisions were being made at Honeywell EDP in the areas of management, finance, engineering and marketing during the entire period from 1956 until 1970.
- Honeywell would have achieved a strong number two EDP industry market share position as early as the 1960-1964 period if the company's two prime weaknesses had been eradicated in the late 1950's by access to the shared technology:
- The following benefits would have accrued to Honeywell from the time Honeywell obtained access to the 1956 know-how technology:
- The primary technical strength of the Honeywell organization rested in its central processor design competence rather than in the areas of implementation of designs in reliable, economical or producible hardware.
- Honeywell would have profited by access to the merged technology in the areas of memories, central processors, and control units by knowing certainly what had already been discarded as unreliable, uneconomical or otherwise unsuitable.
- Brute-force implementation techniques were utilized in the Honeywell D-1000 and H-800 in an attempt to resolve problems which surely had more reasonable solutions; however the pressures of time and lack of design knowledge and experience forced Honeywell engineers to find their own solutions which were often clumsy, expensive, or difficult to reproduce, all of this would have been alleviated from the time of and by access to the merged technology.
- Some of the major potential contributions from Honeywell access to the shared technology are in the areas of improved implementation of the conceptual design (better documentation, better packaging, better powering) and in the application of the detailed information efforts to replace or co-exist with equipment of IBM or SR which a potential customer already had; none of these could be supplied by examination of the competing equipment or by "reverse engineering."
- The Honeywell D-1000 systems were built one-by-one by highly trained engineers and technicians, as were the first H-800 systems; access to the merged technology would have ameliorated this condition for Honeywell and the public would have benefited.
- Honeywell EDP engineers had little production experience in 1957; particularly, a lack of knowledge of what could be produced in a factory as opposed to a model shop or test laboratory, and a lack of knowledge of what the factory had to know to produce such equipment; the technology shared between SR and IBM covered such matters.
- The lack of production experience among Honeywell EDP engineers resulted in the use of older technology when current technology of Honeywell (not equal to that shared between SR and IBM) did not produce reliable products, or resulted in expensive model shop crash redesign programs and other activities tending to increase costs, delay shipment, reduce reliability and damage Honeywell's performance and image.
- SR's UNIVAC II and File computer, made accessible to IBM, both were constructed using printed circuit packages; had information on these been available to Honeywell as it was to IBM, Honeywell would have been able to improve both design and documentation by engineers and improvement of procedures and techniques by production personnel; IBM had access to all of this in the technological merger.
- The SR-IBM information concerning design and production would have been valuable to Honeywell with respect to connectors, connector techniques, power supply and distribution, cabling and cooling.
- Honeywell, having personnel with little knowledge of production techniques, used older technology or over-designed for performance reliability, with the result that the electronic portions of the H-800/1800, 400/1400 and 200, were more expensive to build and operate than competitive equipment, which affected Honeywell's competitive ability in terms of price and customer costs in floor space and environmental condition.
- These deficiencies in Honeywell's design implementation, documentation and production know-how would have been substantially eliminated by access to the technology shared between SR and IBM.
- These deficiencies resulted in a loss of sales and loss of EDP image because of the deficiencies in technology displayed by Honeywell.
- Honeywell's financial losses were reflected not only in lost sales dollars and increased costs for production and repair of hardware, but also a loss in market place status as reflected in the difficulty in hiring quality personnel and gaining access to sophisticated buyers.
- As early as 1959, in developing the H-800 system, Honeywell was forced to attempt to achieve compatibility with certain SR and IBM equipment in order to make sales.
- In late 1957, Honeywell was weak in the entire area of high capacity, medium-access-time storage when contrasted with the IBM 305 RAMAC and the SR Magnetic Drum File Computer, both covered by the shared technology.
- In 1958 and thereafter, the weakness of Honeywell in random access unites was increasingly apparent and the competition, including SR, capitalized on that weakness.
- Honeywell had few personnel experienced in this branch of EDP technology and any realistic prospect of developing random access equipment from scratch was hopeless.
- Honeywell, in 1957 and for several years thereafter, could not have become competitive in this rapidly evolving technological area without a body of technological information on which to build; the shared technology would have provided this know-how.
- The Bryant disc memory unit was selected to be the device offered by Honeywell with its systems, although not without reluctance.
- Four systems containing the Bryant disc unit were shipped to Honeywell customers, but they did not become acceptable in the general marketplace primarily because of inability to keep them operative in services.
- For the immediate future, Honeywell was thus committed to the use of the Bryant disc unit but the difficulties with this unit coupled with the increasing pressure of the market required that investigation of other units be continued.
- Honeywell considered as late as 1964, developing a unit using magnetic tape loops to provide a random access capability because of growing indications that they IBM 1311 (random access) unit would destroy any possible market access for the Honeywell 400 and also the Honeywell 200; SR and IBM had shared this technology in 1956-57.
- Honeywell personnel concluded that wide tape would not be competitive either with the IBM 1301 disc unit or with the IBM 1311 disc pack unit and that Honeywell would need another program for random access mass storage.
- Large numbers of important EDP prospects, some of whom already were customers, made it plain in 1964 that they would not continue to consider Honeywell as a supplier because Honeywell was not competitive in random access.
- In September 1964, Honeywell was forced to offer to provide IBM 1311 disc pack units with Honeywell systems or be faced with the alternative of continuing to lose orders.
- In December 1964, the Bryant disc unit was removed from the product line because of difficulty in operation and the conviction by Honeywell personnel that it was no longer competitive.
- Honeywell's attempted internal development of a magnetic card random access storage proved to be a disaster both financially and reputation -wise.
- The Honeywell card mass storage project was terminated as a product development in the first quarter of 1966 because Honeywell could not perfect the card storage unit to a point at which it would function reliably; access to the 1956 technology shared by SR and IBM would have provided a substitute whenever access was achieved.
- Honeywell immediately instituted a series of orders to CDC for disc pack drive units and began a crash program for control units, both resulting in heavy expenses.
- In 1966, Honeywell began its own disc pack development and in 1969 put into production random access equipment of its own comparable to current offerings of disc pack drive units of other vendors; the shared technology anticipated this by over ten years.
- Had the IBM 305/355 information been made available to Honeywell in 1957 as it was to SR, the following would have resulted [each year of deferment beyond 1957 would have postponed the results correspondingly]:
- The loss to Honeywell of not having suitable random access equipment, available by the shared technology, during the first half of the 1960's was substantial and was further complicated by the fact that this was one area where Honeywell was at the mercy of its competitors, IBM and SR.
- IBM and SR capitalized on Honeywell's weakness by repeatedly taking prospective sales away from Honeywell during a period of potentially substantial Honeywell growth.
- With a strong random access unit from the shared technology in its equipment offering, Honeywell's total would have accelerated during the period from 1959 to 1965.
- The effect of such equipment offering would have been cumulative since, as Honeywell enjoyed a wave of customer acceptance, it would have received further orders from those who had shown previous hesitancy.
- With the addition of suitable random access equipment from the shared technology, it can be seen retrospectively that Honeywell's sales for the H-800 series alone would have tripled or quadrupled, and these sales would have had substantial impact sales of the H-800 series and later the H-200 series.
- Honeywell never had a drum storage unit of its own design and manufacture and instead of building on a shared technology base, had been forced to go to other EDP manufacturers for drum storage units whenever a customer demanded such a unit with a Honeywell system.
- Often Honeywell was not able to provide a drum storage unit at all when a potential customer demanded one and hence it lost the sale or lease.
- Honeywell could have offered a drum storage system on, or earlier than the H-800 and would have with access to the technology shared between SR and IBM in 1957.
- Honeywell had not design or production know-how in the area of tab-card handling equipment in the late 1950's and could not afford the gamble of undertaking to design and produce its own tab-card equipment with not base to start from and no guarantee of success.
- If Honeywell had had access to the technology shared between IBM and SR in 1957, it could have begun to manufacture tab-card equipment by the end of 1959 with confidence in success and provided its H-800 customers with card equipment of its own manufacture; each year of deferred access cost money and delayed the date of fruition for Honeywell.
- Beginning such activity in 1957 would have produced more competitive tab-card products earlier with Honeywell features designed to complement its own system designs.
- Without access to the shared technology, Honeywell was not able to deliver a card-reader of its own design and manufacture until May of 1965 after substantial expenditures and difficulties.
- Similarly to the card-reader, Honeywell was not able, without access to the shared technology, to deliver a card-punch of its own design and manufacture until mid-1966; access to the shared technology would have accelerated this delivery.
- If Honeywell had developed its own readers and punches for delivery with its first H-800 in 1960, based on shared technology, it would have been able to market an "all Honeywell system: then with single (not split) system responsibility, and this would have improved sales, market status and customer base earlier.
- With adequate and competitive reader-punch equipment based on shared technology, Honeywell could have retained the profits paid to SR's co-conspirator IBM from which units were obtained at list prices (either leased or purchased); and the money spent in modifying its own equipment to suit the IBM design, such expenditures being non-recoverable since the leases and purchases from IBM were on a full retail price basis, and interface costs could not be passed on the EDP customer; earlier access to the shared technology would have shortened the period of dependence on IBM.
- Assuming access to the shared technology, Honeywell would have acquired over the years after 1957, or after obtaining such access, a competency in engineering , manufacturing and field maintenance which would have become increasingly valuable because of the growing numbers of Honeywell systems and card handling units installed.
- With access to the shared technology, Honeywell's revenues would have been increased in the following ways: by selling or leasing an increased number of systems, by making an increased profit on each system sold or leased, and by improving long-range opportunity, starting with the date of access.
- From 1955 to 1965, the printer was a weak link in the Honeywell EDP systems offering and had a negative impact on the company's image as an EDP equipment supplier for the whole decade.
- Print quality was considered carefully when vendor-selections were being made by several potentially large government and commercial accounts for which business Honeywell bid in 1955-1965.
- Honeywell approached SR in 1956 to attempt to buy or lease for re-lease the UNIVAC High Speed (600 lines a minute) printer and SR refused to deal on any terms; this was included in the technology shared between IBM and SR; and, incidentally the patents on such printers were barred by public use.
- Honeywell then decided to offer Anelex printers at an advertised speed of 900 lines per minute.
- The Anelex arrangement was a costly and unsatisfactory interlude in Honeywell's search for a solution to its printer problems.
- The Anelex printer occupied an inordinate amount of time on the part of Honeywell's systems engineers and designers, and control over the design proved to be of only limited advantage.
- By March, 1959, the decision was made to manufacture printers for the 800 system at Honeywell which began a tedious learning process lasting several years for the Honeywell development group.
- Print quality reminded only marginally acceptable through the Honeywell 822, 422, and 206 printers delivered by Honeywell during the period 1960-1965 and improvements did not come until the Honeywell 222 printer was first delivered in 1965.
- Honeywell poured large amounts of money into printer engineering and field maintenance, but its loss was far greater in terms of systems sales or leases lost to competition.
- Had the UNIVAC high-speed printer design information and manufacturing drawings shared with IBM been made available to Honeywell in 1957 or later, steps would have been taken to produce the UNIVAC type printer in-house immediately.
- The first Honeywell printer would have been designed and produced in-house by the end of 1959 [or later if access to the shared technology had been later] for delivery with the H-800 system which would have been a better product, both in cost and performance, than the printer Honeywell actually delivered with the system.
- Assuming the access to the shared technology, the print quality of the H-800 or the 400 and the early 200 series printers would have been at least equal to that of SR's UNIVAC printer device and the impact upon sales of the H-800, H-400 and H-200 would have been substantial during the years 1958-1965 when such systems were offered.
- In 1957, Honeywell had little know-how on which to build an EDP system manufacturing facility.
- The only electromechanical EDP units manufactured by Honeywell prior to 1964 were magnetic tape units and printers with tape units receiving by far the greatest amount of attention.
- Had the IBM/SR shared technology been available to Honeywell in 1957 or later, Honeywell engineers would have been able to learn in such areas as optimal assembly techniques, preferred componentry, preferred materials, current manufacturing methodologies and use of special tools and jigs; knowledge in these areas was the product of extensive prior cycles of trial, error, and revision by IBM and SR product engineering and manufacturing personnel by the time of the 1956 Agreement and was shared thereunder; early access by Honeywell would have meant earlier accomplishment by Honeywell.
- Had Honeywell had access to the technology exchanged between IBM and SR in 1957 or later, there would have been improvements in Honeywell's production engineering activities, in documentation and implementation of design changes and in manufacturing performance and cost reduction before they were accomplished without access.
- Access to core storage stack technology shared between SR and IBM would have increased the ability of Honeywell to choose, work with and evaluate core storage suppliers earlier, which would have resulted in reduced system costs and increased system performance earlier.
- Information from service manuals exchanged between IBM and SR in 1957 or later would have benefited Honeywell in the following ways as soon as obtained and thereafter:
- Honeywell could not have "reverse-engineered" the IBM and SR electronic and electromechanical devices as to which IBM and SR shared information in the technological merger of 1956 and which would have been helpful to it in the period 1957 to date for the following reasons:
- Had Honeywell been given access to the shared technology, a substantial forward momentum would have been delivered to Honeywell at an earlier time when the leverage was much greater; hence, potential beneficial effects from such an exchange to IBM and SR were greater in 1956-57 than they would be today and made it that much more difficult for those who had no access to the shared technology to complete profitably in the years after the exchange.
- The following is the actual schedule for production and delivery of the Honeywell H-800, H-400 and H-200 systems:
- Had Honeywell had access in 1957 to the technology shared between IBM and SR, Honeywell could have designed and manufactured a set of its own peripherals for inclusion with the first H-800 system delivery in 1960; later access would have saved money but not alleviated the problem of the 1960's.
- That set of Honeywell peripherals would have included a card reader, a card punch, a drum storage device, and a high speed printer with print quality and speed equal to that of SR's high speed printer.
- Had Honeywell had access in 1956-1957 to the information exchanged, the first H-800 system could have been in volume production by July1, 1960.
- Delivery of the H-800 with its own set of Honeywell-built peripherals at an earlier date would have enhanced the image of the system in the marketplace and improved the reliability and performance of the complete package.
- Had Honeywell had access to the shared technology in 1956-57, first delivery and volume production of the H-400 would have been stepped up t July1, 1961, resulting in a time saving of six months in first delivery and a full year in volume production over the actual schedule, again with additional competitive advantage of greater dimension.
- Assuming Honeywell had had access to the shared technology in 1956-57, the H-400 which had acceptance problems in the marketplace, would have had its image enhanced and its reliability and performance improved because of the availability of a complete set of high quality Honeywell-built peripherals.
- Had Honeywell had access to the shared technology, in 1956-57, the H-200 would have been first delivered and in volume production by late 1963, instead of 1964, resulting in a time saving of six months in first delivery and a full year in volume production; this six month to one year advantage would have greatly increased sales of the H-200 system since SR's co-conspirator IBM had problems in meeting promised delivery schedules of its own 360 systems as late as 1965 and 1966 which promises were forcedly announced to meet the H-200 system.
- The experience of having designed and built a complete set of Honeywell peripherals on the shared technology base for the H-800 and the H-400 systems would have meant that Honeywell's H-200 system would have contained an attractive set of Honeywell-built peripheral devices which would have enhanced the H-200's market image for reliability and performance for customers.
- As a result, Honeywell would have become a much more efficient organization earlier with a totally competitive EDP system product to offer in the marketplace and thus would have had substantially increased efficiencies, sales, revenues, and profits throughout the period after access to the shared technology.
- Had Honeywell had access to the shared technology, it would also have been able to penetrate user markets earlier from which it was excluded by its lack of peripheral equipment capabilities.
- These effects are cumulative.
- The most important loss to Honeywell was the loss of the opportunity it could have had to advance its image and customer base position in the field and its consequent reduction in revenue and profit during the years following the technological merger of SR and IBM.
- The anticompetitive effect of the sharing of technology between SR and IBM was to place Honeywell (and others) in a "reinvention" cycle in competition with both SR and IBM; SR and IBM conspiratorially obtained an advance and combined base of know-how in 1957 against which Honeywell and the EDP industry had to compete; it enabled SR and IBM to stay two or three years ahead of Honeywell and the Industry which were "reinventing" the merged technology whereas SR and IBM were able to concentrate on more advance products or fresh approaches and to keep them in reserve until competition was about to or did announce or introduce similar items to the market.
- This never-ending disadvantage continues with Honeywell and the industry still having to "re-invent" what the co-conspirators shared in technology and which provided a base on which they could build.
- Finally, the technological merger dampened the need and diminished the reason for SR and IBM to expend as large sums, relatively speaking, for current R & D, thus reducing the total penetration of EDP equipment and systems and keeping the total market size smaller and more risky to enter than otherwise would have been the case.
- Honeywell, throughout the period 1957 to 1969, made R & D expenditures for design of EDP equipment, some of which would have been unnecessary at some point in time had Honeywell had access to the technology shared between SR and IBM in 1956 or thereafter.
- Honeywell EDP Division's financial history for the period 1955 to 1969 demonstrated the heavy expenses and losses which Honeywell incurred in trying to turn the profit corner in the EDP industry dominated by co-conspirators SR and IBM.
- Comparing the relationship between R & D productivity statistics for Honeywell against those with access to the merged technology produced injury and probable damage to Honeywell.
- Honeywell's wasted or marginally required EDP R & D expenses produced injury and probable damage to Honeywell.
- Honeywell's lost EDP business due to defendants' pattern of conduct, including their control of and shared technology, produced injury and probable damage to Honeywell.
- Defendants' pattern of conduct, including the technological merger of IBM and SR, imposed and perpetuated the effects of an entry barrier on the EDP industry and artificially depressed the size and rate of growth of the industry and its market, and depressed Honeywell's share therein and produced injury and probable damage to Honeywell.
- Hindsight demonstrates that certain of the injury and indicated damage aforesaid were probably provable with reasonable certainty prior to May 26, 1963; certain thereof were not susceptible to proof at all or to such a certainty until a later time.
IBM & SR
IBM & SR
IBM & SR
"Exchange of Technical Information. Sperry Rand and IBM will each, to the extent that it has the right to disclose such information, furnish to the other, as soon as practicable but in no event later than January 1, 1957, all technical information, both domestic and foreign, in its possession as of October 1, 1956, relating to, and for use in the manufacture of tabulating systems and machines and electronic data processing systems and machines which shall have been release to production or announced to the public for sale or lease by it up to and including October 1, 1956
For the purpose of this Section 5, "technical information" shall mean the following information:
In the event that either party shall give the other party notice in writing that the technical information furnished to it is inadequate to enable it satisfactorily to manufacture the commercial end product involved, the other party will supply such further information as may be reasonably necessary for such purpose."
"A considerable emphasis has been placed on the value of something known as 'know-how' (presumably this means manufacturing drawings, etc.) to us. I cannot find anyone in Engineering who actually knows how we can use this so-called valuable know-how. The only work I know of at IBM which would be of great interest to us would be that of high speed circuitry and the study of new electronic storage techniques. Since, however, none of this is at the present time being used or offered for sale we would not get anything on the things that they are doing which would be of real value to us..."
"We were able to include a know-how exchange in our present cross-license agreement because we had already been required by our Consent Judgment to make January 1, 1956 level know-how available. It was relatively simple for us to merely update it to a level consistent with the date of our cross-license agreement. It would, however, be a tremendously expensive and time-consuming job to update it again to a current level. Furthermore, if we were to make current know-how available to RemRand, we would feel obligated to make it available to others who request it as well. The cost of maintaining the records would be too burdensome."
"Detailed studies of the subject information were not made since it was felt, in all cases, that the information to be gained would not greatly benefit IBM."
"In all cases, it was felt that the material might have proven more valuable, if:
"For a few weeks...there was reasonable activity in that various individuals came to the library and studied parts of the data. For some time there has been almost no activity with these files at Poughkeepsie."
"Several years ago, I believe the year was 1956, IBM received detailed descriptive material from Sperry Rand. The material described all of their announced products at the time.
"There has been little or no use of this material. As part of this department's File Retention Program, it is desirable that this material be discarded. May I please have your advice on the disposition of this material. Attached is a list describing the contents of these files."
The EDP information which IBM received from SR was subsequently destroyed and the tab information remained in dead storage at Endicott.
"Culminating more than a year's negotiations, International Business Machines Corporation and Sperry Rand Corporation today entered into a nonexclusive licensing agreement to exchange licenses to manufacture punched card accounting machines and electronic data processing machines under their respective patents and patent applications in existence as of October 1, 1956.
Based on IBM's greater production of these machines, IBM will pay to Sperry Rand a fixed annual royalty of $1,250,000 for eight years as a credit against production royalties, after which time no further royalty will be due.
"The two companies also agreed upon a procedure for settling patent interferences now pending in the United States Patent Office and arranged to exchange technical information with respect to punched card accounting and electronic data processing machines announced or released to production prior to October 1, 1956.
"Simultaneously with the execution of the above agreements, Sperry Rand withdrew its Anti-trust complaint, filed December 27, 1955, and IBM withdrew its counter-claim, charging patent infringement, filed June 6, 1956."
"There is also alleged to be a mutual exchange of technical information between the two companies in the tabulating machine and electronic data processing machine field."
EDP System — shall mean any machine or group of automatically inter-communicating machine units capable of entering, receiving, storing, classifying, computing and/or recording alphabetic and/or numeric accounting and/or statistical data without intermediate use of tabulating cards, which system includes one or more central data processing facilities and one or more storage facilities and has either
(a) the ability to receive and retain in the storage facilities at least some of the instructions for the data processing operations required, or
(b) means, in association with storage, inherently capable of receiving and utilizing the alphabetic and/or numeric representation of either the location or the identifying name or number of data in storage to control access to such data, or
(c) storage capacity for 1, 000 or more alphabetic and/or decimal numeric characters or equivalent thereof.
EDP Machine — shall mean a machine or device and attachments thereof used primarily in or with an electronic data processing system.
All systems and machines falling within the above definition are included in the relevant product market, with the exception of those so-called "special purpose" systems designed to accomplish a specialized task and sold or leased to the United States or any agency or department thereof, as long as no such system was ever offered generally to the public, and with the proviso that business or scientific electronic data processing machines or systems ordinarily sold or leased in the commercial market, which happen also to be sold or leased to the military, the United States Department of Defense or any other United States Government department are included.
"I think that he (Birkenstock) was trying to say in a nice way was that he knew we were infringing, and that perhaps the time had come to talk about it...I do not think there is any occasion to immediately contact him, but when we start delivering (our first computers), we may well be forced to do this."
"As we have discussed previously, we are not desirous of opening any patent discussions at the present time. However, we may not be able to stall indefinitely on this matter. I have been hoping that it would be possible to build up a better picture in the anti-trust area than I have been able to do at the present time...I am not planning to put any concentrated effort on this at the moment but to continue on as we have been trying to locate what our potential problems may be and building up our own patent portfolio."
.1 The lack of production and commercial product experience; and
.2 The lack of knowledge and customer and corporate confidence in the peripheral areas from both a design and production viewpoint.
.1 Electronic products would have been produced at lower costs with better reliability, and EDP systems could have been brought into the market sooner;
.2 Electromechanical products would have been selected with greater discrimination, implemented for better performance, and produced in-house at a much earlier date with greater customer acceptance;
.3 A broader and more reliable product line would have enhanced the image of the company as a full-line vendor of EDP equipment;
.4 A full-line vendor image would have resulted in more customers earlier ; and
.5 A broader product line would have attracted more creative design talent to Honeywell employment in both hardware and software areas.
.1 Honeywell wold have undertaken in 1957 to build random access storage systems starting with the H-800, increasing the customer base and storing up a reservoir of know-how on hardware, software and systems;
.2 The net result to Honeywell of this development project would have, at least, yielded a workable, acceptable random access storage unit, and the leverage on sales would have been markedly positive;
.3 Honeywell would have avoided involvement with the Bryant units on the 800 and 400 systems;
.4 Honeywell would have avoided the card mass storage debacle which cost it not only money but also time and adverse publicity;
.5 Honeywell would have saved some of the very large disc drive development costs incurred from 1966 to 1970;
.6 Honeywell would have avoided investing a very large amount of money in the purchase of CDC's disc pack drives;
.7 Honeywell would have avoided involvement with the Bryant units on the 800 and 400 systems.
.1 In those cases in which IBM equipment would still have been used with Honeywell systems, selection of specific units and cost estimated would have been on a more knowledgeable and effective basis;
.2 Honeywell service manuals, after exposure to IBM and SR manuals, would have been improved;
.3 Adjustment and calibration information necessary to achieve compatibility with IBM and SR terminal and peripheral units respectively would have been more readily available; and
.4 Maintenance tools and test equipment respectively used by IBM and SR would have been available to Honeywell design engineers and would have minimized one of Honeywell's greatest technical problems, namely, disparity between Honeywell maintenance aids and those of IBM and SR.
.1 It is impossible on small parts to determine what type of metallic material was used, whether steel, brass, bronze, or some alloy;
.2 It is impossible to tell from examination of parts which parts were made by the peripheral device manufacturer and which parts were purchased from vendors and, if some were purchased, it is impossible to tell the sources, purchase specification and inspection criteria;
.3 It is impossible to tell by examination of the device what kinds of tooling, or machine tools, fixtures, jigs and dies were used by the manufacturer of the device to produce the desired shapes and tolerances;
.4 It is impossible to decipher tolerances and adjustments of intricate electromechanical and electronic parts since the particular machine which is torn down may be in the middle, low or high position within the permissive tolerance range with respect to each part; and competitive tolerance ranges are not known and are impossible to decipher by inspection;
.5 It is impossible to determine by inspection the order of manufacture and assembly and the procedures and finishes used in the manufacture and assembly processes; and
.6 Most important, it is impossible to reproduce any device without making some unintended or intended modifications or adjustments and as soon as any such modification or adjustment is made a part may be removed outside the permissible tolerance range since there is no way of knowing which adjustments are incidental and which are fundamental.
.1 The first H-800 was delivered on December 31, 1960, but production problems were not resolved until July of 1961;
.2 The H-800 used IBM card readers and punches, had no drum storage unit, had no acceptable disc random access storage unit, and had a significantly inferior Honeywell-built printer;
.3 The first H-400 system was delivered in late December, 1961, but production problems were not resolved until about July, 1962;
.4 The H-400 had acceptance problems in the marketplace and suffered from the same peripheral equipment disadvantages as H-800;
.5 The first H-200 system was delivered in June of 1964 but did not go into volume production until December of 1964 or January of 1965;
.6 The H-200 suffered from split system responsibility in its early years and lacked quality peripheral devices until Honeywell was able to deliver its own reader, its own punch, its improved printer, and its own disc random access unit; and
.7 Honeywell has never had its own drum storage equipment, did not come out with a printer which was satisfactory to its customers until February of 1965, did not produce its own card reader until May of 1965, did not produce its own card punch until mid-1966, and did not produce its own disc random access storage unit until 1969.