Opinion ID: 391779
Heading Depth: 1
Heading Rank: 2

Heading: history of the comsat/ibm venture

Text: 19 As we have noted above, 30 the FCC initially decided in Domsat II to prevent Comsat from operating both as a carrier's carrier for AT&T or others and as a multipurpose carrier serving customers directly. 31 In its Reconsideration Order, 38 FCC2d 665 (1972), the FCC relaxed this restriction, subject to the following conditions: (1) Comsat would have to be a minority participant in a joint venture, and would have to seek prior FCC approval before increasing its ownership above a one-third interest or acquiring de facto control in any fashion; (2) no AT&T officer or director could serve as a director of Comsat; and (3) Comsat would be required to establish a separate corporation to operate its domestic system, and this separate corporation could not include any representatives of AT&T. Id. at 684-685 PP 42, 44, 45. Under this modified policy the Commission declared a joint venture between Comsat, Lockheed Aircraft Corporation, and MCI Communications Corporation (to be called CML Satellite Corporation) eligible for further consideration to become a domestic satellite communications licensee. Subsequently, for financial reasons, Lockheed and MCI withdrew from the CML venture.
20 On July 15, 1974 Comsat, in conjunction with IBM, applied for approval of changes in the structure of the CML venture. As proposed, Comsat General would have owned 45 percent, and IBM 55 percent, of the operating company. Some seventeen parties filed written submissions concerning the proposed entry, 32 and the Commission set the matter for oral argument en banc. 21 Opponents of the Comsat/IBM entry made three principal objections to it. First, they argued that IBM could dominate the satellite transmission of data communications by offering a packaged end-to-end data processing communications service compatible only with IBM equipment. Second, they argued that IBM could promote its satellite services to its computer and data processing customers, possibly by offering discounts or other advantages to customers for using both IBM equipment and IBM satellite services. Finally, they argued that IBM and Comsat, both of which do business with AT&T, would refrain from competing with AT&T in the voice and image communications market, and would concentrate instead on the data communications market. 22 In February 1975 the FCC released its CML Decision, 51 FCC2d 14 (1975), 33 disapproving the specific proposal, but delineating the circumstances under which entry by Comsat and IBM would be considered. The FCC decided not to hold evidentiary hearings on the antitrust issues, noting that they were substantially similar to issues already considered and decided in the earlier Domsat proceedings. Id. at 43-44, PP 47-48. Nevertheless, the Commission imposed restrictions on the Comsat/IBM entry to reduce the likelihood of anticompetitive effects. To prevent IBM's abuse of its dominant position in the computer and data processing industries, the FCC required the venture to provide for interconnection of its customers' data processing and communications systems on reasonable terms and without discrimination, and required it to submit a detailed description of such arrangements to the FCC in advance of its application. Moreover, the Commission required IBM to create a separate corporate entity to operate its satellite system. 34 This entity was forbidden to market IBM equipment, and IBM was forbidden to market satellite communications services except through the separate entity. To ensure that the venture would compete vigorously with AT&T, 35 the FCC required that Comsat and IBM adopt one of three permissible forms of business organization. One of them, called the balanced CML option, provided the framework for the plan now under review. The FCC described the option in this way: 23 Comsat General and IBM may choose to participate as partners in CML with another corporate partner(s) upon condition that no partner in CML shall have less than a 10% ownership interest or more than a 49% ownership interest or otherwise be in a position whereby it could exercise de facto control. 36 24 CML Decision, 51 FCC2d at 38. In addition, the FCC stated its intention to employ its continuing authority to impose additional restrictions should the Comsat/IBM venture later cause serious anticompetitive effects. Id. at 44, P 48. 25 Subject to these restrictions, the FCC determined that IBM, backed by its extensive financial resources and its experience concerning the usages and needs of customers in communications and data processing, offered the prospect of a strong and innovative competitor to AT&T. Moreover, in view of the formidable barriers to entry into the industry, the Commission concluded that requiring Comsat and IBM to enter the field separately might well deprive the industry of one or both as competitors. Therefore, the FCC adopted the policy that is now being challenged in this case: to permit a Comsat/IBM joint venture, subject to protective conditions. SBS, neEe CML, is the product of that policy.
26 Following the CML Decision, IBM and Comsat found a third partner to pursue the balanced CML option: Aetna Casualty & Surety Company, through its subsidiary, Aetna Satellite Communications, Inc. Under the agreement each partner has committed $55 million to the enterprise, and may provide additional funds if needed. 37 During the pre-operational phase of the system the three partners will exercise equal control. When the system becomes operational Aetna will have the choice to retain its one-third equity interest in SBS, or to convert a part of that investment to debt. In no event may Aetna's equity interest fall below 15 percent. Major decisions will require the unanimous consent of the partners. 38 27 In December 1975 SBS organized as a partnership and applied to the FCC for a license. Opponents of the license 39 made many objections, 40 but for purposes of this appeal only the antitrust-related objections are significant. In summary, the most important such objections are: 41 (1) that the SBS joint venture eliminates the actual competition that would occur were IBM and Comsat to enter the field individually, or the potential competition that would occur if one of the firms were to enter and the other to be perceived by the industry as a strong potential entrant; (2) that the combined strength of Comsat and IBM would be so great as to raise barriers to entry and to chill competition in the industry; and (3) that IBM could engage in predatory conduct in the satellite industry, the data processing industry, or both. 42 28 The FCC denied an evidentiary hearing into the various objections by SBS's opponents, and granted the license in a lengthy opinion released on February 8, 1977. It explained its reasoning as follows: 29 In sum, we have chosen to dispose of SBS' Applications without a trial-type evidentiary hearing because (1) the benefits to the public of a more rapid institution of service far outweigh any possible benefits of such time-consuming procedures; (2) facts which lend themselves to adduction by oral testimony would not be forthcoming in such proceedings; (3) in ten years of rulemaking and application comment proceedings the issues now before us have been explored in detail and no new material is sought to be placed before us through trial-type evidentiary procedures; (4) we have assumed for the purposes of analysis that the parties' contentions are correct and drawn appropriate inferences therefrom; and (5) in view of the conditions and limitations we are imposing herein, as well as our continuing regulatory supervision and the remedies available to us, we can and will assure that the SBS proposal will serve the public interest. The domestic satellite field remains experimental, and speculation about its future is as tenable through the notice and comment procedures which we have adopted, as it would be in trial-type evidentiary proceedings. In this unique environment, SBS' future actions and conduct, under our close regulatory supervision, will be far more determinative than would speculation in an evidentiary proceeding. 30 SBS Decision, 62 FCC2d at 1068 P 199, JA 1591. With appropriate restrictions, 43 modelled on those in the Domsat II and CML decisions, the FCC granted the proposed construction and operating authority to SBS. The Commission emphasized, however, that (i)f, for any reason, we deem it in the public interest to revisit any of these matters, we will not hesitate to do so. And we so condition our action today. Id. at 1044-1045 P 122, JA 1567-1568. Reconsideration was denied, 64 FCC2d 872 (1977). 31 American Satellite, Western Union, AT&T, and the Department of Justice have appealed the FCC order to this court. The appeal was first heard by a panel of this court, which released on August 29, 1978 a per curiam opinion reversing the Commission. The panel held: (1) that the FCC employed the wrong legal standard in balancing the public interest benefits of the SBS entry against the alleged violations of the antitrust laws, and (2) that the FCC did not adequately justify its failure to hold an evidentiary hearing on the antitrust question in the case. Because of the importance of the issues raised, we voted to rehear the appeal en banc, and vacated the panel opinion. 44 All parties and the amicus curiae have submitted supplemental briefs to assist the en banc court. At our request, their briefs primarily addressed two issues: 32 (1) Whether the case law and the legislative history of Section 11 of the Clayton Act (a) constrain the Court to interpret that provision as imposing an absolute enforcement responsibility on the FCC; or (b) warrant the interpretation of subsection 11(a) as a grant of discretionary enforcement authority, and the interpretation of subsection 11(b) as defining the procedures to be followed whenever such enforcement authority is exercised. 33 (2) Whether, and in what respects, the validity of the FCC's licensing determination is affected by the failure to conduct a full evidentiary hearing on the possibility of an antitrust violation and to review and analyze in depth such considerations. 45 34