The opinion of the court was delivered by: LASKER
Howard S. Levin ("Levin"), plaintiff in this derivative stockholder suit, seeks a preliminary injunction against defendant International Business Machines Corporation ("IBM"). Levin, still a substantial stockholder in defendant Levin-Townsend Computer Corporation ("L-T"), was its President until January 1970, when he was ousted. He is presently engaged in a proxy fight to regain control of the corporation. He commenced this derivative stockholder suit on behalf of L-T against IBM on April 23, 1970, alleging numerous violations of the antitrust laws.
IBM is a manufacturer of computers, which it leases or sells to customers. L-T is in the business of leasing computers and has been a leader in this industry, which has grown rapidly in recent years. It neither manufactures nor sells such machines, but purchases electronic data processing equipment from IBM and leases the equipment to its own customers at rentals lower than the lessee would pay on a direct lease from IBM. Over a period of years L-T has purchased from IBM approximately $150 million worth of such equipment. $90 million of the purchases have been made pursuant to installment credit agreements with IBM providing for monthly payments over a 48-month period. IBM maintains security interest in the equipment until full payment is made, and has the right to accelerate all amounts due and repossess the equipment at any time upon L-T's failure to make any monthly payments as due.
Neither Levin nor L-T contests or disputes the nature of IBM's security rights.
In the last year L-T has fallen in arrears in its payments to IBM. Currently it owes IBM over $11 million on its installment contracts (that is, these installments are past due) and $4 million on account of maintenance service and other miscellaneous matters. The delinquency on the installment payments gives IBM the undisputed right to make currently due the entire $45 million payable on the installment agreements. On June 17, 1970, IBM exercised its right to accelerate an initial portion of that amount.
The present motion seeks a preliminary injunction to prevent IBM from exercising its rights under the installment purchase agreements by notifying customers or lessees of L-T, by foreclosing on security interests, by accelerating amounts due, by repossessing the machinery sold by IBM to L-T, or by "taking any steps to collect or otherwise enforce the indebtedness allegedly due to it from" L-T. In his reply brief Levin requests that the injunction decree a stretch-out of payments due to IBM at a proposed rate of $1 million a month. He adds the suggestion that the court appoint a fiscal agent to supervise the pay out.
Levin contends that vast sums are owed to L-T by IBM because of the violations of the antitrust laws alleged in the complaint. On this motion he stresses certain violations which he claims consist of acts so clearly illegal that they are per se violations, thus assuring, as he sees it, the probability of his success in this action. He emphasizes in particular two alleged illegal tie-ins:
First, that IBM forces L-T and other leasing corporations to purchase certain "hardware features" and "memory core upgrades" rather than permitting such leasing companies (who are all purchasers of the basic equipment) to lease these items, although IBM does lease these items to its own rental customers. Levin says that, although L-T needs to furnish these features and memory upgrades to its customers, they are necessary only occasionally and for limited periods of time. Accordingly, Levin argues that in a free market L-T or anyone in its position would obviously rent such features and memory upgrades rather than purchase them, but that L-T has been compelled to purchase them by IBM, which has a monopoly of them and which refuses to rent them to equipment leasing companies (even though, as indicated above, IBM will lease these items to its own rental customers). Levin alleges that the forced purchase of these items has cost L-T $17.5 million and that IBM's purpose in compelling these purchases (and otherwise oppressing L-T as set forth in the complaint) has been to drive L-T and other leasing companies out of business as competitors.
The second alleged tie-in complained of by Levin is the arrangement by which IBM until June 1969 sold "hardware" and "software"
as one package for a single price. Since June 1969, IBM has sold hardware and software separately, and Levin argues that this is an acknowledgment that its previous behavior was illegal. Levin contends that the cost of the software purchased by L-T from IBM prior to June 1969 was no less than "47,000,000 which when added to the $17,500,000 in damage suffered in the features and memory core tie-ins is grossly disproportionate to the $14,000,000 which Levin-Townsend is in arrears."
Levin views the situation as one in which IBM, a giant of industry and a competitor of L-T as a lessor in the computer industry, is attempting to drive L-T out of business by methods which are in violation of the antitrust laws. He argues that it would be ironical and inequitable to allow IBM to exercise its acknowledged security rights to foreclose on L-T's equipment when it is IBM's course of conduct that has been the very cause of L-T's liquidity crisis and when IBM itself has brought on the situation against which Levin claims L-T is entitled to be protected. Levin asserts that IBM would not suffer if it were restrained from exercising its foreclosure rights, since the value of the machinery on which IBM has a lien, together with L-T's other assets (to say nothing of the amounts claimed in this complaint), would more than amply secure repayment to IBM.
Finally, Levin contends that failure to protect L-T against the exercise of IBM's foreclosure rights will cause the trustees of various Levin-Townsend indentured obligations to demand the sums due them, thereby effectively putting L-T out of business -- and, according to Levin, this is precisely what IBM is trying to accomplish.
In reply, IBM asserts that no tie-ins were imposed by it on L-T. As to the question of requiring its purchasers of basic equipment to purchase (rather than lease) hardware features and memory core upgrades, it takes the position that such a requirement is a reasonable and technologically and economically justifiable policy. It views the matter as analogous to that of a mass automobile purchaser, such as, for example, the national car leasing companies, insisting on the right to lease (as distinguished from purchase) such accessories as radios or special engines. It states that not only is L-T not required by IBM to purchase any of these features at all, but that if L-T wishes to acquire any such features it is proper, reasonable and legal for IBM to require that the items be purchased and not leased. So far as the alleged "hardware-software tie-in" is concerned, it is IBM's position that Levin's argument is internally inconsistent. IBM asserts that Levin complains on the one hand that prior to June 1969 L-T was required to pay for and take things which it did not want (i.e., the software when it bought the hardware). On the other hand, says IBM, since June 1969 L-T has claimed that IBM was contractually obligated to supply the software, together with the hardware, at no increase in price. In any event, IBM contends, the contract by which IBM sold the machinery to L-T contains no provision obligating IBM to supply software, and its doing so prior to June 1969 was no tie-in and no violation of the Act.
As to the allegation that IBM is trying to drive L-T out of business, IBM denies it and replies that there is no evidence before the court of such motivation, that that issue is before the court in the plenary suit and will be determined there, and that its action is motivated by and intended for the normal purpose of protecting its rights as a secured creditor by methods classically devised to attain that object. IBM vigorously challenges Levin's assertion that IBM's practices have caused L-T's financial difficulties and counters with persuasive evidence that L-T is responsible for its own problems, having embarked on business ventures outside of its normal field, such as the purchase of a Las Vegas gambling casino, investment in Broadway theatrical productions, and other ventures, all of which have failed, causing substantial losses in profits and cash to L-T.
As to Levin's argument that the exercise of IBM's foreclosure rights will cause the trustees of L-T's indentured obligations to proceed to collection, IBM replies that the trustees of those obligations are aware of L-T's much publicized financial situation and that there is no evidence before the court or otherwise of the trustees' ...