The IBM Antitrust Litigation

In 1964 International Business Machines Corporation (IBM) introduced its System/360 mainframe computer system family, the first to cover the complete range of applications, from large to small, both commercial and scientific.[1]

One of the models in the family, System 360/91 (92?), was announced as being as fast as the then fastest machine on the market, Model 6600 from Control Data Corporation (CDC). IBM, however, was slow in producing its 360/91, but its mere announcement allegedly had adverse effects on CDC’s sales of Model 6600. As a result, in December 1968, CDC filed an antitrust lawsuit against IBM. The complaint alleged that IBM had monopolized the market for computers in violation of section 2 of the Sherman Act and that this conduct had damaged CDC’s business, entitling CDC to treble damages plus attorneys’ fees under section 4 of the Clayton Act.[2] The case was filed in Minnesota’s federal court.[3]

 

Thomas D. Barr

IBM immediately engaged its outside general counsel, Cravath, Swaine & Moore (CS&M), to defend the case. Partner Tom Barr was in charge of the CS&M team, and drafted several young associates, including Jay Gerber, David Boies and me, for the team. (As previously noted, I was an associate attorney at CS&M, 1966-1970.[4])

All of the CS&M team members soon started to learn about computers at a special school for the IBM lawyers at one of its locations in Westchester County, New York. (I do not recall what we were taught or what we learned, but this was long before the advent of personal computers and long before I had become familiar with their operation.)

Other private antitrust complaints were filed against IBM, and all of these cases were transferred to the Minnesota federal court for pretrial discovery regardless of where they initially had been filed in other federal trial courts. Minnesota’s U.S. District Judge Philip Neville was put in charge of managing all of these complicated cases. As a result, the other members of the team and I had frequent trips to Minnesota for pretrial conferences in the cases with the assistance of IBM’s local counsel, Faegre & Benson. All of the plaintiffs in these cases then embarked on a lengthy process of requesting and obtaining production of millions of IBM documents relevant to the cases.[5]

One of the companies suing IBM, however, had a different strategy. Greyhound Computer Corporation, a leasing company, filed a case under Illinois’ state antitrust law in Illinois state court (Peoria, as I recall) in order to avoid the complications of the consolidated pretrial proceedings in the Minnesota federal court. In addition, Greyhound wanted to take depositions (oral questioning of witnesses under oath) of top IBM officials as soon as possible before spending years in collecting and analyzing millions of IBM documents.

Thomas J. Watson, Jr.
Nicholas Katzenbach

One of the IBM officials to be deposed in the Greyhound case was its President, Thomas J. Watson, Jr.,[6] and I was put in charge of assisting Tom Barr in preparing Mr. Watson for his deposition. This was a daunting challenge. It meant collecting and analyzing as many IBM and public documents as possible that were potentially relevant to the Greyhound and other cases, figuring out the possible questions that might be asked of Mr. Watson by opposing counsel and then meeting with him and IBM’s General Counsel, Nicholas Katzenbach,[7]  to go over these documents and questions, all in a relatively short time period.

At the time my wife and I lived in Brooklyn Heights, across the East River from Wall Street and CS&M’s office. But Cravath had established a special office in White Plains, Westchester County, New York for the IBM litigation; this is where all the documents were stored and where the team members, including IBM employees assigned to help the lawyers, did their work. Thus, every morning I had to drive through Brooklyn and Queens, over the Throgs Neck Bridge and then through the Bronx and Westchester County to White Plains, and every evening I had to reverse this commute to my home. Traffic was heavy both ways, adding to the stress of the job. (Like many New Yorkers at the time, I did not own a car, but IBM supplied a rental car for me.)

Soon after our second son was born in December 1969, there was a bad winter storm in Westchester County, and I did not want to drive back home that night in order to get up early the next morning to return to White Plains. I, however, could not find a hotel room anywhere in the White Plains area. As a result, I had a very slow and dangerous drive home that night, and after a night of little sleep with a crying baby, I had to return to White Plains the next morning in another slow drive. I think that was the night that pushed me over the edge in deciding to leave CS&M and New York City.

Sometime in the process of preparing for this important deposition, I vividly remember Tom Barr and I flew from New York City to San Francisco one day for the sole purpose of flying back to New York City early the next morning on the IBM corporate jet with Mr. Watson because he had time on that flight to talk with us.

Soon the Watson deposition actually took place, probably in January 1970. Tom Barr and I thought it went well for IBM.[8] I then told Mr. Barr that I would be leaving CS&M in April to join Faegre & Benson in Minneapolis.

It is difficult in 2011 to understand how powerful IBM was in the late 1960’s. It did have a large percentage of the market for computers in that earlier period, and one of the major issues in those earlier antitrust cases was defining the market, geographical and product. The plaintiffs argued for definitions that produced large market shares for IBM while IBM argued for different definitions and lower market shares.

Now, however, IBM no longer is the dominant force in the U.S. and world markets for the manufacture of computers. In 2005, IBM sold its personal computer manufacturing operations to a Chinese company, Lenovo Group Limited. Now IBM is a large, multinational computer technology and IT consulting business with some computer manufacturing business.[9] IBM’s loss of a dominant position in the computer industry is another instance of what economist Joseph Schumpeter calls “creative destruction,” capitalism’s evolutionary process of revolutionizing itself from within.[10]

IBM thus survived after the scary early 1990’s when it nearly ran out of money. In June 2011 it celebrated its centennial as a company with strong profits, a robust portfolio of products and services and stock market valuation exceeding new-start Google. The central lesson of its survival and renewed success, experts believe, was an ability to identify and build upon its past success. For IBM, its key assets were strong, long-term customer relationships; deep scientific and research capabilities; and broad technical skills in computer hardware, software and services. The company was able to take these assets and recast itself as the one that can best manage and bring together diverse technologies in modern data centers.[11]


[1] Wikipedia, IBM System/360, http://en.wikipedia.org/wiki/IBM_System/360.

[2]  Id.; Wikipedia, Control Data Corporation, http://en.wikipedia.org/wiki/Control_Data_Corporation; Computers: Tackling IBM, Time, Dec. 20, 1968. Section 2 of the Sherman Act of 1890 provides that it is a felony for any “person . . . [to] monopolize or attempt to monopolize, or combine or conspire . . . to monopolize any part of the trade or commerce among the several States.” (15 U.S.C. § 2.) This crime requires proof of (a) the possession of monopoly power in the relevant market and (b) the willful acquisition or maintenance of that power (rather than the growth or development as a result of superior product, business acumen or historic accident). (U.S. v. Grinnell Corp., 384 U.S. 563 (1966).) Under section 4 of the Clayton Act of 1914, any person injured in his business or property by reason of a violation of the Sherman Act may sue for treble damages plus attorneys’ fees. (15 U.S.C. § 15(a).

[3] See Post: Minnesota’s Federal Court (June 28, 2011).

[4] See Post: Lawyering on Wall Street (April 14, 2011); Post: The Adam Clayton Powell, Jr. Litigation (May 31, 2011).

[5] In January 1969 the U.S. Department of Justice filed a civil lawsuit against IBM alleging that it had monopolized the market for general purpose computers. In 1982 the Department concluded that the case was without merit and dropped the suit. (Wikipedia, History of IBM, http://en.wikipedia.org/wiki/History_of_IBM.) I had no direct involvement in this case.

[6] Wikipedia, Thomas J. Watson, Jr., http://en.wikipedia.org/wiki/Thomas_Watson_Jr. In 1952 Watson succeeded his father, Thomas J. Watson, Sr., as IBM’s president and held that office until 1971. In 1964 President Lyndon Johnson awarded him the Presidential Medal of Freedom, and in the Carter Administration, Watson was the U.S. Ambassador to the Soviet Union (1979-81). (Id.)

[7] Mr. Katzenbach was General Counsel of IBM from 1969 through 1986. From 1961 through 1966 he was an attorney in the U.S. Department of Justice, serving as the U.S. Attorney General, 1965-66. From 1966 through 1969 Katzenbach was Under Secretary of State. (Wikipedia, Nicholas Katzenbach, http://en.wikipedia.org/wiki/Nicholas_Katzenbach.

[8] In 1972 the Greyhound case went to trial in federal court in Arizona with a directed verdict for IBM on the antitrust claims. However, in 1977 the court of appeals reversed this decision, holding there was sufficient evidence for a verdict for Greyhound, and remanded the case for retrial. (Greyhound Computer Corp. v. IBM, 559 F.2d 488 (9th Cir. 1977), cert. denied, 434 U.S. 1040 (1978).) Just before the retrial was to start in January 1981, IBM and Greyhound settled the case for $17.7 million. (IBM Antitrust Suit Records,  http://www.hagley.lib.de.us/library/collections/.) Earlier, in 1973 IBM settled the CDC case for about $80 million in cash and assets (transfer of an IBM computer service company at less than market value). (Computers: A Settlement for IBM, Time (Jan. 29, 1973).) (I had no involvement in any of these subsequent proceedings.)

[9] Wikipedia, History of IBM, http://en.wikipedia.org/wiki/History_of_IBM.

[10]  Schumpeter, Capitalism , Socialism and Democracy (1942); Wikipedia, Joseph Schumpeter, http://en.wikipedia.org/wiki/Joseph_Schumpeter.

[11] Lohr, Lessons in Longevity, From I.B.M., N.Y. Times (June 19, 2011).

The Adam Clayton Powell, Jr. Litigation

On March 1, 1967, the U.S. House of Representatives by a vote of 307 to 116 refused to seat Adam Clayton Powell, Jr., the re-elected African-American Congressman from Harlem, censured him, fined him $25,000, took away his seniority and declared his seat vacant. The grounds were that he had engaged in conduct unbecoming a Congressman: he had refused to pay a libel judgment ordered by a New York state court, had refused to return to his district except on Sunday in order to avoid service of legal process in that case, had misappropriated congressional travel funds and illegally had paid his wife a congressional staff salary for work she had not done.[1]

Soon thereafter Powell along with 13 of his constituents commenced a lawsuit in the U.S. District Court for the District of Columbia to invalidate his exclusion.  The defendants were John McCormack, who was the Speaker of the House, five other House members and three of its staff.  The complaint alleged that the exclusion violated Powell’s constitutional rights: Powell satisfied the constitutional qualifications for membership (age, citizenship and residency) and the exclusion allegedly was based upon his race and color and thereby violated his rights under the Fifth, Thirteenth and Fifteenth amendments to the Constitution.[2]

Powell’s lawyers were William Kunstler, a famous civil rights lawyer;[3] Arthur Kinoy, another prominent civil rights lawyer and Rutgers Law School Professor;[4] Herbert Reid, another civil rights lawyer and Howard Law School Professor;[5] and others.

The House decided that it did not want the Lyndon Johnson Administration’s Justice Department to defend the House’s leadership because of concern that political considerations would prevent the Department from vigorously asserting what the House believed to be its full constitutional prerogatives. Instead, the House took the recommendation of Emmanuel Celler, the Brooklyn Congressman and Chairman of the House Judiciary Committee, to hire as its attorney, Bruce Bromley, a partner in the New York City law firm of Cravath, Swaine & Moore.[6]

Bromley was a graduate of the University of Michigan and the Harvard Law School. He was a lawyer with the Cravath firm for over 50 years with one interruption. In January 1949, New York Governor Thomas E. Dewey, who had been the unsuccessful Republican presidential candidate the prior year, appointed Bromley to New York’s highest court (the Court of Appeals), but in November 1949, Bromley lost the election for a full term. Although he served on the bench for less than a year, thereafter he was always referred to as “Judge Bromley.” While at Cravath, he was the lead lawyer in successful representation of IBM, General Motors and other major corporations.[7]

For the Powell case, Bromley assembled a team of Cravath lawyers to work on the case, including yours truly. I do not recall what issues I worked on and now wish I had kept a journal about my involvement in this case to refresh my recollection. I do remember that another Cravath associate attorney and member of the team, Dorsey D. Ellis, Jr., was an amateur legal historian and was the primary draftsman of an appendix to the eventual Supreme Court brief that discussed the legislative common law of the British House of Commons and the early state legislatures regarding exclusion and expulsion of members of legislatures.[8] Another Cravath associate on the team, Jay Gerber, recently told me that he remembers the issues on which he worked.

The U.S. District Court for the District of Columbia dismissed the case for lack of subject-matter jurisdiction.[9]  The U.S. Court of Appeals for the D.C. Circuit affirmed the dismissal, but on different grounds. It held that the federal courts had subject-matter jurisdiction, but that case was not justiciable, i.e, it was not appropriate for judicial relief because of the separation of powers.[10] The case then went to the U.S. Supreme Court.

Before the Supreme Court argument, the other members of the Cravath team and I went to Washington several days ahead of time to prepare for the argument and to consult with Cravath’s Washington allies and former partners: Lloyd Cutler, who subsequently was White House Counsel for Presidents Carter and Clinton,[11] and John Pickering.[12] Cravath also brought the lawyers’ spouses to Washington on the Sunday before the oral argument in the Supreme Court so that they could watch the proceedings the next day. My wife was on a plane from New York City that Sunday with none other than Congressman Powell.

Although the House’s side had won in the lower federal courts, there were no guarantees that it would prevail in the U.S. Supreme Court. The House was asserting that its power under Article I, Section 5(1) of the Constitution to “be the Judge of the . . . Qualifications of its own members” was an implicit exception from the Article III “judicial Power of the United States [that was] vested in [the Supreme Court]” and the lower federal courts. Thus, the House argued, no federal court had the power to do anything in this case. As a result, it was anticipated that Chief Justice Earl Warren might well ask Judge Bromley in oral argument whether he was claiming that if the House or the Senate hypothetically were to exclude or expel five or six black members-elect in succession that the Supreme Court could do nothing. The answer to this hypothetical question was clearly “yes.”

At the oral argument, as I recall, the Chief Justice in fact asked that question. Bromley’s responded in essence that yes, the Court could do nothing, but that there was no reason to suspect that the House or the Senate might do such a thing and that there was a political remedy by the voters’ re-electing the same people. The Chief Justice and Bromley then got into a colloquy as to which branch of the federal government had the “final” say regarding the Constitution. Bromley said in very limited areas, each house of the Congress had the “final say:” impeachment and removal of federal officials and judging the qualifications of its members. Jay Gerber recalls that the Chief Justice almost fell out of his chair at that answer.

In June 1969, the U.S. Supreme Court, 7 to 1, reversed the dismissal of the lawsuit. The majority opinion by the Chief Justice held that the federal courts had jurisdiction over the subject matter of the case and that it was justiciable; that it did not constitute a political question that pitted one branch of government against another. Rather, it required “no more than an interpretation of the Constitution” by the Supreme Court.[13]

The majority opinion stated that while the House of Representatives was the sole judge of its members’ qualifications (U.S. Const., Art. I, § 5, cl. 1), the House did not have the power to develop qualifications other than those specified in the Constitution: election certificate, at least 25 years of age, U.S. citizen for at least seven years and an inhabitant of the state in which he or she was elected at the time of election (Art. I, § 2. Cls, 1, 2).

In addition, the Court’s majority opinion noted that while the Constitution states (Art. I, § 5, Cl. 2),”Each House [of Congress] shall be the Judge of the . . . Qualifications of its own Members,” the Constitution  immediately states that each “House may . . . with the Concurrence of two thirds, expel a Member.” The Court, therefore, held that the process leading to the expulsion of a Member, duly sworn and enrolled upon the body’s rolls, was the only constitutional method for a House to give effect to its power to determine the qualifications of its members. The House did not follow this procedure with respect to Congressman Powell. Therefore, he was entitled to a declaratory judgment that he had been unlawfully excluded from the Congress.

In the meantime, Powell had won the May 1967 special election to fill his congressional seat, but did not attempt to be seated.  He then won the next regular election in November 1968 and was seated in the House in January 1969 (approximately five months before the Supreme Court decision) subject to the $25,000 fine and loss of seniority. The next year, however, Powell lost the 1970 Democratic primary election to Charles Rangel and failed to qualify to be on the general election ballot.[14]

Powell was a member of a notable Harlem family. His father, Adam Clayton Powell, Sr., was Pastor of the Abyssinian Baptist Church in Harlem (1908-36) before being succeeded by Powell, Jr., his only son (1937-71).[15] Powell. Jr.’s older son, Adam Clayton Powell, III, was a journalist and media executive,[16] and Powell, Jr.’s younger son, Adam Clayton Powell IV, is a New York State legislator who lost the 2010 Democratic primary election for Congress to the incumbent, Charles Rangel.[17]

Powell, Jr. died in 1972 at age 62.


[1]  Powell v. McCormack, 395 U.S. 486, 489-93 (1969); Wikipedia, Powell v. McCormack, http://en.wikipedia.org/wiki/Powell_v._McCormack.

[2]  Powell v. McCormack, 266 F. Supp. 354 (D.C. DC. 1967).

[3]  Wikipedia, William Kunstler, http://en.wikipedia.org/wiki/William_Kunstler.

[4]  Wikipedia, Arthur Kinoy, http://en.wikipedia.org/wiki/Arthur_Kinoy.

[5]  Ravo, Herbert O. Reid, Sr., 75, Lawyer Who Taught Many Black Leaders, N.Y. Times (June 19, 1991).

[6]  Wikipedia, Bruce Bromley, http://en.wikipedia.org/wiki/Bruce_Bromley.

[7] Wikipedia, Bruce Bromley, http://en.wikipedia.org/wiki/Bruce_Bromley.

[8]  After Cravath, “Dan” Ellis became a member of the faculty at the University of Iowa School of Law and then Professor, Dean and eventually Dean Emeritus and William R. Orthwein Distinguished Professor of Law Emeritus at the University of Washington in St. Louis School of Law. (Washington University in St. Louis, Dorsey Ellis, http://news.wustl.edu/people/Pages/DorseyEllis.aspx.

[9]  Powell v. McCormack, 266 F. Supp. 354 (D.C. D.C. 1967).

[10]  Powell v. McCormack, 395 F.2d 577 (D.C. Cir. 1968).

[11]  Wikipedia, Lloyd Cutler, http://en.wikipedia.org/wiki/Lloyd_Cutler.

[12]  Wikipedia, John H. Pickering, http://en.wikipedia.org/wiki/John_H._Pickering.

[13]  Powell v. McCormack, 395 U.S. 486 (1969).

[14]  Wikipedia, Adam Clayton Powell, Jr., http://en.wikipedia.org/wiki/Adam_Clayton_Powell,_Jr.; Biographical Dictionary of the United States Congress, “Powell, Adam Clayton, Jr.,” http://bioguide.congress.gov/scripts/biodisplay.pl?index=p000477

[15] Wikipedia, Adam Clayton Powell, Sr., http://en.wikipedia.org/wiki/Adam_Clayton_Powell,_Sr.; Abyssinian Baptist Church, History, http://www.abyssinian.org/about-us/history/.

[16]  Wikipedia, Adam Clayton Powell III, http://en.wikipedia.org/wiki/Adam_Clayton_Powell_III.

[17]  Wikipedia, Adam Clayton Powell IV (Politician),  http://en.wikipedia.org/wiki/Adam_Clayton_Powell_IV_(politician).