The opinion of the court was delivered by: BIUNNO
This matter comes on by motion of defendants, Western Electric Company, Inc. and American Telephone and Telegraph Company, as a post-judgment motion in this cause, Civil Action No. 17-49. The complaint was filed by the United States on January 14, 1949 as a civil anti-trust suit alleging violation of sections 1, 2 and 3 of the Sherman Act.
An answer was filed in the style authorized by Rule 8(b), F.R.Civ.P. that is, by setting out what defendants alleged to be a correct statement of the facts pleaded in the complaint, and denying the remainder. The main answer effectively denied the anti-trust allegations. By way of separate defense, the defendants pleaded the bar of res judicata. That defense was grounded on a civil anti-trust suit (a petition in equity) filed May 13, 1930 in the U.S. District Court for the District of Delaware, which was amended and supplemented on March 7, 1932, naming the defendants here, as well as others as party defendants. That suit is said to have involved certain patent license agreements with a number of radio manufacturing companies, and it is alleged that after the license agreements were revised or replaced to the satisfaction of the Attorney General, a supplemental answer pleading them was filed, and the case was disposed of by an order of dismissal as to the defendants here and entry of a consent decree as to other defendants, on November 21, 1932. It further alleged that on July 31, 1942 the United States filed a motion in the Delaware suit to vacate the earlier dispositions and instead to dismiss the suit without prejudice. That motion was denied, see 46 F. Supp. 654 (D.Del., 1942).
There was no testimony taken in the 1949 suit here, and no adjudication of any issue of fact or law made. Rather, the case was closed by the entry of a final judgment by consent, reciting that it was not to constitute any evidence or admission by any party as to any issue in the case.
That final judgment was signed January 24, 1956 by the late Thomas F. Meaney, U.S. District Judge.
The present motion is filed under the provisions of Section XVII of the judgment, the first sentence of which says that:
"Jurisdiction is retained for the purpose of enabling any of the parties to this Final Judgment to apply to this Court at any time for such further orders and directions as may be necessary or appropriate for the construction or carrying out of this Final Judgment, or the modification or termination of any of the provisions thereof or for the enforcement of compliance therewith or for the punishment of violations thereof." (Emphasis added)
This provision to retain jurisdiction for the indicated purposes makes it unnecessary to engage in a review of the applicable law in respect to proceedings to construe a judgment, and particularly a permanent injunction, whether in the cause or by independent suit, or as a collateral issue in a suit involving other parties. For a case where another tribunal was called upon to construe certain provisions of the 1956 judgment here, see Southwire Co. v. U.S. Intern. Trade Com'n., 629 F.2d 1332 (CCPP, 1980). See, also Rule 60, F.R.Civ.P. For a case where the judgment court entertained and ruled on a motion for construction (with no mention of an express provision to retain jurisdiction) see New Jersey v. New York, 296 U.S. 259, 56 S. Ct. 188, 80 L. Ed. 214 (1935). A case illustrative of the bringing of an independent action in the same court where the judgment was entered, but not in the same cause, is National-Ben Franklin, etc. v. Camden Trust Co., 21 N.J. 16, 120 A.2d 754 (1956).
That it is prudent to secure construction, especially when there is a disagreement, is exemplified by State ex rel. Jarboe v. Holt, 444 S.W.2d 857 (Mo., 1969) (en banc), and Lucky Calendar v. Cohen, 19 N.J. 399, 117 A.2d 487 (1955) and 20 N.J. 160, 119 A.2d 14 (1955).
The retained jurisdiction has been invoked before in this case, though not between the plaintiff and defendants. The most recent instance was a motion by an applicant for a license under Section X of the judgment (dealing with a judgment structure for the mandatory licensing of patents) to have the court establish interim rates, terms and conditions, and thereafter to establish reasonable royalties and other terms for the license desired. The patents involved had reference to the circuitry of devices known as "modems" which perform various functions such as modulation/demodulation, scrambling/descrambling, and automatic equalization, which functions are performed in order to transmit high-speed digital pulses from and to computers or computer terminals over the communications network successfully and with means for error detection and correction.
No claim has been raised that the court lacks jurisdiction to entertain the motion or to construe the judgment. Rather, the plaintiff and most of those who filed submissions amicus have taken the position that the motion is in fact one to modify the judgment rather than to construe it. The court sees this issue as a collateral one and not a matter of substance.
The motion, as framed, seeks construction of the judgment and advances a particular construction. If the court concludes that the meaning advanced is correct, its ruling will be both a construction and an approval of the particular meaning advanced. On the other hand, if the court concludes that the meaning advanced is incorrect, it will nonetheless be construing the judgment. If that should be the outcome, at least two courses of action will exist. One, the FCC may need to revise its new regulatory structure to conform to whatever meaning is ascertained, and, two, defendants could ask the court to modify the judgment to accommodate the FCC's new regulatory structure.
In order to test the question whether the point was merely a matter of procedure, the court asked the United States to consider the question whether it would oppose modification to accommodate the FCC's new regulatory scheme, and it has made clear in the post-argument briefs that it would oppose such modification. It is of some significance, too, that the United States has not filed a cross-motion for modification of the judgment to embody the meaning advanced by it in the event the court should conclude that the meaning advanced by defendants is correct.
Given this pattern of postures and positions, it is clear that on the present motion the court has before it only the task of construing the judgment as it is, a task which is independent of the tenor of the meaning found.
The occasion which gives rise to the motion is a disagreement between two units of the United States. The FCC, after lengthy and complex hearings called Computer Inquiry I and Computer Inquiry II, concluded that its regulatory mandate and the public interest would be served best if a category of equipment labelled "customer premises equipment" (CPE), and a category of service labelled "enhanced service" (ES), be regulated in a new and different format than the underlying transmission "pipeline", labelled "basic services."
There is no dispute that this is the conclusion reached by the FCC. The disagreement arises from the fact that FCC believes that the provisions of the 1956 judgment do not stand in the way of compliance by AT&T with the directions of its order. The United States, through the Department of Justice, and in particular its Anti-Trust Division, is of the view that the 1956 judgment stands in the way, and that if AT&T complies with the FCC order, it will violate the 1956 judgment.
The background of the two extensive inquiries that led to the FCC ruling is enormously complex, and while the court has carefully reviewed the Tentative Decision, 72 F.C.C.2d 358 (1979), the Final Decision, 77 F.C.C.2d 384 (1980), and the Reconsideration Decision, 84 F.C.C.2d 50 (1980), a detailed discussion of them is not needed to decide this motion, although a brief historical review is essential to an understanding of the issue.
The decision of the FCC itself is on direct review elsewhere, sub. nom. Computer and Communications Industry Ass'n, et al v. FCC, U.S. Court of Appeals for the District of Columbia, No. 80-1471 and others. In that review, no doubt, questions involving the statutory authority of the FCC to make the order, as well as the factual and policy support for it, and other like questions, will be raised and decided. None of those questions or any questions like them are before this court on the present motion. The court here necessarily accepts the order as it is and proceeds to consider whether the 1956 judgment stands in the way of its implementation. No decision is intended or made on any issue on direct review in the District of Columbia.
Two separate historical streams lead to a confluence giving rise to the FCC decision. One has to do with technological developments and activity. The other has to do with recent regulatory action taken by the FCC.
The technology history was briefly outlined by the court at the argument of the motion, with the request that the parties indicate whether they had any objection to its being considered as context. There was no objection. By later memorandum, the court asked the parties if they wished to adduce any further facts to be made part of the record here. None did. The court also authorized those allowed to make submissions amicus to prepare factual summaries of their particular fields of activity, to be submitted to the parties as though furnished under Rule 36, F.R.Civ.P., so that they could be considered as facts not in dispute for the purposes of the motion only, thus barring their use for any other purpose or their use against a party in any other proceeding, see Rule 36, last sentence. Many such submissions were made and filed. The United States agreed to the arrangement, but defendants did not.
Despite the lack of agreement to this suggested mechanism, the court is satisfied that the factual materials so submitted (ignoring matters of argument with which one or another may be interlaced) are sufficiently reliable to warrant their consideration for context only. In addition, much of the history has been adequately recorded in reference sources of reasonably indisputable accuracy such as to warrant taking judicial notice of the path technology has taken. The major facets that are pertinent can be found in any good encyclopaedia or other reference work.
Before the telephone, the only successful mode of communication by wire was through the telegraph, which dates to Morse's invention of 1837. Long-distance communication by wire and radio dates to 1905, with Marconi's invention of the radio telegraph. When the telephone came along in 1876, the telegraph was fairly well advanced. Chain transmission by the use of the repeater telegraph already had achieved long distance linkages, and Edison's quadruplex system of 1873 had already provided enlarged capacity to send simultaneous signals over the same wires.
However, what had been achieved for telegraph was not a technology usable for telephone. This is because the electrical signals each used were of an entirely different nature. The signals of the telegraph were pulses of current-dots and dashes with spaces between. The signals of a telephone were fluctuating levels of current on a continuous basis, superimposed upon the steady level provided by the battery. Both sending devices converted mechanical action into electrical currents, and both receiving devices converted the electrical currents back into mechanical action, but there the resemblance ended. The telegraph's mechanical action was the closing or opening of a key, and the same was true of the sounder. In the telephone, the mechanical action consisted of vibrations in air pressure induced by the human voice at the sending end, and the induced vibration of a diaphragm to reproduce those air vibrations at the receiving end so that they could be heard. About all that was common between the two was that both made use of wire circuits and a battery to connect the sending and receiving devices or "terminal equipment," and the underlying idea of converting some kind of mechanical action into electrical signals that could be conveyed over a wire circuit. There was a further difference: the telegraph required the use of a code for the dots-and-dashes. The telephone, when used for voice communication, required no code.
It took some time before means to extend the telephone communication link were discovered. The first was Pupin's invention of the "loading coil" in 1900. The next was DeForest's invention of the triode, which could amplify the kind of fluctuating signal used in telephone. DeForest's invention was the basis for the audio amplifier, used as a "repeater" as the repeating telegraph had been, to make voice transmission by wire possible from coast to coast. It also became the basis for radio broadcasting, and eventually TV. Since then, of course, except for picture tubes in cameras and receiving sets, and for high power applications, the transistor and its progeny of solid-state devices replaced the vacuum tube for most purposes.
Another branch of development deals with the difference between communication by wire and radio on the one hand, and radio "broadcasting" on the other. This branch deals with what might be thought of as isolation or privacy of a communication. The network for wire and radio communication is like a first class letter: only the writer and addressee have access to the content of the communication. For radio broadcasting, the analogy is to whatever is printed in a newspaper. The message is sent out willy-nilly, so to speak, and can be received by anyone and everyone tuned to the station at the time of the broadcast and within the range of its signals. Thus, the wire/radio communications network must have a system for connecting a calling instrument to a called instrument so that the two parties may communicate privately over the connecting link. This branch was dealt with by switching systems, manual at the start and now automatic.
If every instrument were to be connected by direct wire/radio link to every other instrument, the combinations and permutations would be astronomically high and the cost of plant and equipment would put the service beyond reach. By using a series of switching systems at hierarchal levels, accessibility to all instruments is achieved with a far smaller number of wire/radio channels. The local exchange connects instruments in a geographic area where the largest number of calls arise. The exchange in a toll office provides links for the smaller number of calls from one local exchange to another. And other switching centers pick up the traffic and provide links for the still smaller volume of calls between more distant locations. A caller in New York who phones Oahu once a year does not need his own wire to span that distance available 365 days a year. He only needs the use of an available channel when he places the call. If he should call on Mother's Day, or on Christmas Eve, or Easter Sunday, he may need to wait a bit for the lines to be free. If he calls while the annual Superbowl game is on, his call will doubtless go straight through.
These sketchy fundamentals are mentioned as context because otherwise one might think that the "basic service" that the FCC speaks of is a simple matter of dialling a number and making a connection. This would be misleading because the magnitude and complexity of providing "basic service" are enormous in size and complexity.
Another branch of the context has to do with the "computer", whose wide proliferation gave rise to the several complex FCC inquiries. The modern computer dates to World War II, though its beginnings are attributed to the use of punched cards by Herman Hollerith to tabulate the data compiled by the 1890 census. Hollerith, in turn, got his idea from the Jacquard loom of 1800, who himself had extended principles and systems going back to Hero of Alexander in the second century B.C. See, for example, the discussion in James Burke's "Connections" (Little, Brown & Co., 1978), at pp. 106-113.
The modern "computer" began as a device placed at a specific location, where tasks were taken to it to perform. In a rapid evolution of considerable complexity, the tasks were "sent" to the computer from remote terminals over the communications network, and its output was communicated in the same way to the terminal. Today, the terminals themselves are equipped with various kinds of computer capability and communicate with each other over the same network.
Within the communications network itself, and as part of the "basic services" defined by FCC, computer devices have been installed and employed for the more efficient and effective operation of the network and to render various services that could not otherwise be offered, thus providing the benefits of new inventions and developments. These devices are used not only for the process of transmission of signals over the network, but also for essential functions needed for accounting and record keeping of operations.
Thus, the wire/radio communications network today has come to the point of being able to transmit both oral or voice communications, which are "analog", and telegraph or computer communications, which are pulses or "digital", involving one or another code. It is this coming together of different systems into a communications network able to handle both, an essential to the effective use of both, that has blurred earlier lines of distinction in the view of the FCC.
The stream of regulatory events is also pertinent. In a series of decisions starting with Carterfone, 13 F.C.C.2d 420, recon. den. 14 F.C.C.2d 571 (1968) and culminating with Terminal Equipment Registration, 58 F.C.C.2d 736 (1975), the historical and traditional arrangement under which no piece of terminal equipment could be connected by a customer directly to the communications network was replaced by an entirely different one. Under the present structure, a subscriber entitled to use the network is free to acquire whatever terminal equipment desired, whether it be as simple and basic as a standard telephone handset or as complex and intricate as a computer, from any manufacturer he chooses and to connect it to the network so that it can be used for communication. This system is regulated by the FCC in that the piece of equipment must be tested and evaluated, and certified as compatible with the network, and then registered.
What the FCC order does, so far as pertinent to this case, is to direct that terminal equipment, including the ordinary telephone, be removed from the charges made by common carriers for "basic service", and that the customer be left free to decide whether to obtain his terminal equipment from the telephone company that serves him or from some independent source. It is the finding of FCC that there has developed and now exists an active and intensely competitive market for terminal equipment. This court does not go behind that finding.
Since telephone companies have always included the plant and service cost of terminal equipment in the single charge for access to the communications network, this change is not intended to reduce market competition for terminals by barring common carriers from participating. Their participation and continued competition was intended.
What was done, in the case of AT & T, was to require the creation of a "fully separated subsidiary" (FSS) as a vehicle for offering to the public, in competition with others, the terminal equipment and enhanced services.
FCC regards the technique as a different format for regulating AT&T in these respects, in substitution for the traditional and classic method of "tariffs". Through its authority to regulate AT&T, FCC has set up regulatory controls over the formation and operation of the FSS. Major items are:
...there must be separate officers from those of any AT&T communicating carrier;
...the FSS must do its own marketing at its own expense;
...for the equipment and services it provides, the FSS must have its own personnel;
...AT&T may not advertise or engage in the promotion or sale of the offerings of the FSS;
...enhanced services offered by the FSS may not use shared computer capacity of an AT&T communications carrier;
...there must be physical separation of physical space requirements from places where transmission or facilities equipment for basic services is located;
...the FSS must develop or acquire its own software;
...FSS earnings may not be imputed to AT&T tariffed activities or alter its revenue requirements;
...the FSS may not own any transmission facilities; its access to the network is to be on the same terms as for all others;
...capitalization of the FSS, as well as accounting methods, are to be reported to FCC and subject to its approval.
There are other controls as well, all of them adding up to a newly designed format for regulation of CPE and ES activities by AT&T's new FSS. As a matter of judgment and for the time being, subject to later change, this regulatory format is not now to be applied to any carrier other than AT&T. Thus, this regulatory format is structured to function on the basis of a combination of specific regulatory restraints and of market forces. There is at least one instance in which it has been ruled that the FCC is authorized to rely on the action of market forces among its array of regulatory tools. See FCC v. WNCN Listeners Guild, 450 U.S. 582, 101 S. Ct. 1266, 67 L. Ed. 2d 521 (1981). Thus, it cannot be said, as a matter of law, that FCC reliance on market forces implies lack of regulation.
The position of the United States is grounded on the proposition that it is only an exception to the injunction of Section V of the 1956 judgment that allows AT&T to engage in the business of "furnishing common carrier communications services", and that this term is defined by Section II(i) to mean communications services and facilities, "the charges for which are subject to public regulation under the Communications Act of 1934."
From these two phrases, primarily, it argues that unless tariffs are actually filed to specify the dollar amount for the sale or rental of a telephone handset or a Dataspeed 40/4 (a video terminal with some computer capabilities not unlike the many makes now available for "word processing", see 62 F.C.C.2d 21 and 570 F.2d at 455), the injunction bars their offer.
While tariffs of that kind have long been used in public utility regulation, they are but one of the tools of public regulation. The argument is therefore one of semantics and is not supported by either the language or the obvious intent of the judgment, read from its four corners and aided by the pleadings and surrounding circumstances.
Most significant of all is the fact that, as a judgment in a civil anti-trust suit, none of the language can be regarded as in any way confining or limiting or restricting the mandate, authority or discretion of the FCC, or the manner of its exercise.
The key regulatory expressions in the 1934 Act are not the tariff mechanism, but other provisions. Thus, 47 U.S.C. § 201(b) declares that "all charges ... shall be just and reasonable..." and the last sentence of that section authorizes rules and regulations as may be necessary in the public interest to carry out the provisions of the Act. The statute does not purport to instruct FCC on how to do so, or what the rules and regulations are to say. By this provision alone, the "charges" are "subject to public regulation" under the Act.
Even in the usual case where a charge is tariffed, the tariff is but a step in the process of regulation. Under 47 U.S.C. § 204, FCC may on its own initiative suspend a proposed new charge, conduct hearings and decide what the charge should be. The fact that a charge may be already in force does not bar FCC, on its own initiative, to investigate and determine the just and reasonable charge, which may be a minimum, a maximum, or both, under 47 U.S.C. § 205.
In short, the FCC has plenary jurisdiction over charges, which it may look into either on complaint or on its own initiative. This jurisdiction, of course, is a primary jurisdiction to exercise what amounts to continuing surveillance. This is not a matter of deference as such but rather a matter of separation of powers. The Congress has placed in the FCC, an administrative agency in the Executive Branch, the function of public regulation of charges for common carriers in communications.
If the argument of the United States is intended to imply that FCC's decision to rely in part on competitive market forces as one of its regulatory tools to assure that charges are just and reasonable, is outside FCC's statutory authority, that question is not before this court and can be raised only in the ongoing proceeding for direct review in the District of Columbia.
The language of the judgment is clear and unambiguous, and it seems to the court beyond dispute that AT & T, in complying with the FCC order, will be engaging in the business of furnishing communications services and facilities, the charges for which are subject to public regulation under the Communications Act of 1934, as amended. The judgment here does not stand in the way of implementing the order.
A reading of the final judgment from its four corners, in the context of the issues raised by the pleadings, discloses that the terms and provisions negotiated and developed were prospective and looking to the future. Although some of the provisions are expressed in the form of enjoining and restraining, and others in the form of ordering and directing, various exclusions and exceptions have the effect of leaving the subject activities unaffected by the judgment.
For example, Section IV(A) enjoins and restrains each defendant from "manufacturing" for sale or lease "any equipment which is of a type not sold or leased or intended to be sold or leased to Companies of the Bell System, for use in furnishing common carrier communications services, except equipment used in the manufacture or installation of equipment which is of a type so sold or leased or intended to be so sold or leased ..." (Note: Excluded from this injunction altogether are three other categories: 1. the artificial larynx; 2. by-products of the reclamation of scrap; 3. equipment manufactured for the United States or for its contractors or sub-contractors for the performing of their contracts with the United States).
As another example, Section IV(B) enjoins and restrains defendant Western from engaging in any "business" which is not of a character or type engaged in by Western or its subsidiaries for Companies of the Bell System, other than
"(1) businesses in which defendant AT&T may engage under Section V hereof,
"(2) businesses in which Western is required to engage under this Final Judgment, and
"(3) any business engaged in for the plaintiff or any agency thereof".
It is beyond question that Section IV is prospective and forward looking not only in the sense that any injunction is, but in its content as well. This is evident from Appendix C to the Answer, which identifies Western's larger manufacturing plants and their products as at the time the Answer was filed. In the case of central office switching equipment, it lists only panel, step-by-step and crossbar. In the case of electrical or conductor links in the communication network, it lists exchange area cable, copper line wire, steel wire and strand, local cable, rubber covered wire, toll cable including coaxial, switchboard wire and cable, enameled wire and factory cable for dial switching systems.
If Section IV were intended to exclude from the injunctive language only those articles "manufactured", or only those "businesses" engaged in as of the date the judgment was entered, it would have frozen the permitted items of manufacture and the permitted businesses to those of early 1956. Such a construction would bar the manufacture of electronic switching system (ESS) central offices, and the manufacture of optical fiber (both of which reflect newer technology) and would also bar Western from engaging in the non-manufacturing functions as to these two examples. Such a construction would do violence to the ...