Opinion ID: 414451
Heading Depth: 3
Heading Rank: 1

Heading: Support for the Hexter Study in the Record.

Text: 122 AT & T argues that Hexter's projections--the heart of the Lost Profits Study--were based on a host of mutually independent assumptions which find no support in the record. The argument is that the Lost Profits Study should therefore not have been admitted and that the verdict must be set aside. See Yentsch v. Texaco, Inc., 630 F.2d 46, 59 n. 19 (2d Cir.1980); Herman Schwabe, Inc. v. United Shoe Machinery Corp., 297 F.2d 906, 912-13 (2d Cir.), cert. denied, 369 U.S. 865, 82 S.Ct. 1031, 8 L.Ed.2d 85 (1962). AT & T specifically attacks six assumptions of the Hexter study. 123 The first of these relates to Hexter's assumption that certification standards would have been adopted by early 1973 but for AT & T's opposition. AT & T argues that because various other groups also were opposed to certification, there is no evidence that AT & T's conduct was responsible for the FCC's failure to implement a certification program any earlier than it did. But Litton demonstrated that various AT & T executives admitted that they could have filed standards within a year of the Carterfone decision. This supports the premise, as not unreasonable or contrary to common sense, see Auto West, Inc. v. Peugeot, Inc., 434 F.2d 556, 566-67 (2d Cir.1970), that if AT & T had behaved legally there would have been no interface device after early 1973. 49 The validity of this premise is the very heart of the jury's verdict that AT & T filed the interface tariff and opposed certification in bad faith. 124 The second assumption AT & T challenges concerns the amount of money Litton would have invested in research and development in Hexter's but for world. As support, AT & T points to the Business Opportunity Plan Litton prepared before it entered the market. The plan called for an investment of $1,452,000 in research and development from 1972 to 1976, but Hexter assumed that Litton would have invested $14,828,000 in the same period. But of course R & D does not immediately bear fruit; by making a higher estimate of Litton's investment than was contemplated in the Business Opportunity Plan the effect was to decrease profits for Litton's early years in the terminal equipment market. 50 Because the jury only awarded damages for lost profits in the years from 1972 to 1978, to the extent that Hexter's study might have overestimated R & D investment, Litton rather than AT & T was disadvantaged. In any event, AT & T's reference to the Business Opportunity Plan only substitutes one set of assumptions for another. In fact, there was evidence in the record from the author of the Business Opportunity Plan that Litton had intended from the beginning to spend more on R & D than the plan projected. There was also testimony to the effect that Litton was ready to invest whatever was needed to make the business succeed. The AT & T argument is thus both irrelevant and mistaken. 125 AT & T's third argument is that Hexter's assumptions about the size of the total terminal equipment market and Litton's share of that market were not supported by the record. But we note that damages in antitrust cases are rarely susceptible of the kind of concrete, detailed proof of injury which is available in other contexts, Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969), thus bringing the elasticity of Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563, 51 S.Ct. 248, 250, 75 L.Ed. 544 (1931), into play. See also Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264-65, 66 S.Ct. 574, 579, 90 L.Ed. 652 (1946). Accordingly, where there is a basis on which a jury can reasonably infer significant antitrust injury, [the court] should be very hesitant before determining that damages cannot be awarded. Berkey Photo, Inc., 603 F.2d at 304. Hexter's estimates were based upon a two year analysis of industry data available from Litton, AT & T, and public sources, and a review of more than thirty terminal equipment studies. His study projected that by 1978 AT & T would still have 79 percent of the terminal equipment market with the remaining 21 percent shared by all non-AT & T competitors. This estimate was conservative as compared to a study done by General Electric, which estimated that by as early as 1975 competitors would divide 30 percent of the market. Hexter's estimate of Litton's share of the total non-AT & T terminal market was also conservative; his estimates never exceeded 14.5 percent when in fact Litton's actual share before it left the terminal equipment market was at one point between 23 and 25 percent. 126 AT & T also complains about Hexter's treatment of Litton's bad debt costs. The argument is that Hexter ignored Litton's actual experience and postulated these costs on the basis of a composite profile based on six well-run, thriving companies in high technology industries. For the limited time Litton sold and leased equipment, its bad debts amounted to almost 12 percent of its sales, while Hexter's model assumed that they would amount to less than 2 percent. According to Hexter's testimony, however, these companies were the six most comparable; three of them were actually in the terminal equipment business. We believe that Hexter's decision to use these estimated bad debt figures was based on the plausible assumption that Litton's actual experience in the start-up phase of its business was not representative of what those costs would be in later years. 51 We note in any event that Hexter's estimates of Litton's profits for the 1972 to 1976 period averaged less than 1 percent of sales, and the estimated profits of only 6.7 percent of sales for 1977 and 1978, was about half of AT & T's profits on its overall sales. We think that AT & T's argument as to Hexter's treatment of this single cost factor goes only to the weight of the evidence and does not compel rejection of the damage study or overturning the verdict. Greene v. General Foods Corp., 517 F.2d 635, 665 (5th Cir.1975), cert. denied, 424 U.S. 942, 96 S.Ct. 1409, 47 L.Ed.2d 348 (1976). 127 The fifth Hexter assumption that AT & T challenges is that there would be tough but equal price competition and that Litton and other terminal equipment companies would be able to compete profitably against whatever Bell tariffs were filed. AT & T argues that it had an inherent pricing advantage and that therefore neither Litton nor any other competitor could compete equally. This court has, of course, emphasized that a monopolist may lawfully take advantage of benefits deriving from its size or integration, see Berkey Photo, Inc., 603 F.2d at 276, but AT & T has completely mischaracterized Hexter's assumption. Hexter's assumption concerning tough but equal competition between the products and the people in the field related not only to pricing, but included price and features. His assumption was that the companies would compete on their ability to sell, properly install and service the equipment. 128 The assumption that Litton would have been able to compete successfully was borne out by Litton's initial success in the terminal equipment market and evidence tending to indicate that AT & T itself thought that some of Litton's products possessed desirable features that AT & T's equipment did not. Moreover, Hexter testified at trial that his assumptions as to Litton's ability to meet AT & T's competition in the non-price category of product capabilities were in fact conservative insofar as he assumed only that Litton would stay abreast of the competition after it had established a position in the market. 129 The sixth and final assumption AT & T challenges is Hexter's inclusion of lost profits attributable to Litton's leasing operation, Litton Industries Credit Corporation (LICC). AT & T argues that the only commodity essential to an equipment leasing business is money and that Litton's leasing subsidiary was therefore free to lease any other equipment--telephone terminal equipment or otherwise--that it could purchase. But in the real world--for the limited time that Litton was in it--Litton did lease as well as sell its equipment and the money that LICC used to purchase the equipment from Litton BTS was obtained by financing. Litton introduced evidence to support the proposition that the leasing operation was essential to its market efforts because many customers preferred a leasing arrangement to outright purchase. AT & T's argument that Litton could have leased any other commodity puts the cart before the horse; Litton operated the leasing subsidiary to sell telephone equipment, and not vice versa. AT & T's contention that Litton should have leased another product is equivalent to saying that an antitrust plaintiff's recovery of lost profits is limited by the highest alternative return that a plaintiff could have secured in another line of business entirely. The leasing operation was part of Litton's terminal equipment business and whatever profits Litton's leasing operation lost as a result of AT & T's conduct are therefore properly included in the measure of damages. 130 In short, the Hexter study is supported by the record and not based on assumptions as to evidence not in the record. The Hexter study is not rendered inadmissible because AT & T would have calculated the damages in a different manner or used other figures. See, e.g., Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 379, 47 S.Ct. 400, 405, 71 L.Ed. 684 (1927); Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 843 (7th Cir.1978); Pacific Coast Agricultural Export Ass'n v. Sunkist Growers, Inc., 526 F.2d 1196, 1207 (9th Cir.1975), cert. denied, 425 U.S. 959, 96 S.Ct. 1741, 48 L.Ed.2d 204 (1976). Under Story Parchment, Bigelow v. RKO Radio Pictures, and Zenith Radio Corp., the verdict must be sustained. Cf. Shapiro, Bernstein & Co. v. Remington Records, Inc., 265 F.2d 263, 272 (2d Cir.1959). 131