Dismissed without Merit

Lead litigator Tom Barr seen here with the NYT from January 9, 1982 announcing the IBM case was being dismissed without merit

In 1982, the U.S Government announced two landmark anti-trust decisions that dominated The New York Times front page thirty years ago today. The headline was, “U.S. Settles Phone Suit, Drops I.B.M. Case; A.T.&T to Split Up, Transforming Industry”.

In one day, the U.S. Department of Justice announced the resolution to two antitrust lawsuits against corporate giants. In the first case, AT&T settled with the government by consenting to break up Ma Bell and divest itself of 22 Bell phone companies, transforming the telecommunication industry. That landmark decision blunted the news that the Justice Department was dropping its thirteen year antitrust lawsuit against IBM. The case was dismissed “without merit” by Assistant Attorney General of the Antitrust Division, William Baxter.

The lawsuit was filed in 1969 on Nicholas Katzenbach’s 47th birthday in the waning days of the Johnson Administration. Weeks earlier Katzenbach announced that he would be joining IBM as its General Counsel. Little did he or his successor, Attorney General Ramsey Clark, who filed the case, realize that this case would span five presidential administrations from Johnson to Reagan. Nor did Katzenbach realize that he would spend much of his time at IBM fighting the very institution he used to lead.

From the onset Katzenbach and Tom Barr, the lead litigator of IBM’s defense were adamant that IBM had not violated Section 2 of the Sherman Antitrust Act, the heart of which focused on preventing corporate monopolies. Barr worked for what many considered the premier corporate law firm in the country – Cravath, Swaine & Moore – which IBM already had on retainer prior to the suit. By the end of the lawsuit the Cravath approach to the IBM case served as the gold standard in complex corporate litigation and it gave rise to some legal giants including David Boies who most recently represented the NFL owners and the NBA players in their respective lockouts. In the meantime, computer giants such as Apple and Microsoft (the latter of whom faced its own government antitrust lawsuit led by Boies), have risen as IBM’s foothold on the computer industry has waned. The marketplace (a point of contention during the lawsuit) changed dramatically during the thirteen years the case dragged on, and has changed even more in the thirty years since it ended.

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3 responses to this post.

  1. Posted by Melissa on January 9, 2012 at 9:12 am

    My Dad worked for Bell for many yrs and I remember well many household conversations about the divestiture. Many employees “chose sides” but did not get placed where they’d hoped.

    Reply

  2. I worked for New York Tel and transferred to AT&T to their Discovery Team in Orlando, FL from 1979 to 1981 during the divestiture proceedings. There were 49 lawsuits brought against AT&T most dealing with the Sherman Act and other anti-trust issues. I was on the team dealing with the MCI suit.

    Here’s what I can tell you first hand. The few times I was in court the DOJ people were woefully unprepared. The case, if heard before a jury, would have been dismissed, in my opinion.

    What went on behind the scenes you may see fitting into the dismissal of the IBM case.

    It was not well known at the time but some of us were told to give it a good fight, but don’t get ulcers, etc over worrying about the outcome. Why? Because AT&T had computer technology it wanted to bring to market but the DOJ said it had a predatory hold on the phone market.

    At the time some of us began to sense that even though we were “winning” in the court proceedings, we were going to lose somehow.

    AT&T settled out of court and then, because that so disrupted the operating companies and their reach out to their suppliers like Western Electric,etc, AT&T began to pay more attention to the transition of the operating companies and lost the momentum to get their computer technology off the shelf and on to the market in a timely manner.

    IMB, now, could not be accused of having a lock on the computer market or an anti-trust issue because AT&T now had a presence in the market, albeit with a very tenuous hold.

    Reply

  3. Very interesting, thanks for sharing your first-hand experience. It definitely was no coincidence that two cases were announced at the same time and sounds like the AT&T lawyers had the same experience as the IBM lawyers – frustrating to say the least.

    Reply

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