IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, )
)Civil Action No. 1:95CV01398
COMPUTER ASSOCIATES )
INTERNATIONAL, INC.; and ) (TPJ)
LEGENT CORPORATION, )
UNITED STATES' REPLY TO DEFENDANT'S MOTION
TO APPROVE A LICENSE TO ALLEN SYSTEMS GROUP, INC.
The United States opposes the Motion of Defendant Computer
Associates International, Inc. ("CA") to Approve a License to
Allen Systems Group, Inc. ("ASG") ("CA Motion for Licensure").
The United States urges the Court to grant the Motion of the
United States for an Order Authorizing the Trustee to Sell the
"Subject Software Products" ("US Motion for Sale").
The decree assigned to the United States sole discretion to
approve the licensee in order to assure that the licensee would
be able to compete effectively in the sale of the Subject
Software Products. The United States has fulfilled this
responsibility in good faith. In disapproving ASG as a licensee,
the United States exercised its discretion in a reasonable and
appropriate manner. Because ASG is not likely to be able to
compete effectively in the sale of the Subject Software Products,
licensure to ASG will not fulfill the purpose of the decree.
The decree does not require, but clearly authorizes, the
Court to order sale of the Subject Software Products in order to
fulfill its express purpose to create a viable competitor in the
sale of the Subject Software Products. Such an order would not
constitute a modification of the decree, and would not require
further evidentiary proceedings. The sale would be subject to
approval by the Court.
CA's claims that sale of the Subject Software Products would
be unfair to CA or consumers are meritless. The United States
also opposes CA's alternative remedies, which would not serve the
decree's purpose to create an effective competitor.
Section I of the Memorandum in Support of the US Motion for
Sale ("US Memo for Sale") contains the relevant historical
background of this proceeding and will not be repeated herein.
The United States disagrees with many of the characterizations
contained in the "Procedural History" section of the Memorandum
in Support of CA's Motion for Licensure ("CA Memo for
Licensure"). Rather than responding in dueling background
sections to each CA mischaracterization, we will deal with the
major points in the context of the substantive issues discussed
below. However, we feel compelled to note here that CA spins the
purpose of the decree to a bare notion of "consumer choice," CA
Memo for Licensure at 4, ignoring the express statement of
the purpose in the decree -- to create a viable business that
can compete effectively. An effective competitor would offer
consumers real choices, not hollow choices. What follows is the
relevant factual background beginning with the Trustee's report
to the Court.
On September 13, 1996, pursuant to Section IV(C)(6) of the
decree, the Trustee filed the Trustee's Report of Auction Results
and Recommendation to the Court ("Trustee's Report"). The
Trustee's Report described the Trustee's efforts to license the
Subject Software Products and the reasons the required license
could not be accomplished.
The Trustee concluded that, for a number of reasons, the
"non-exclusive nature of the licensing provisions," which would
result in a licensee competing against CA with CA's product,
proved "a significant obstacle to achieving the results of the
auction contemplated by the Final Judgment." Trustee's Report at
6. Indeed, the Trustee concluded that "[a]s a probable
result of this structure, potential acquirors likely found the
prospects of competing with CA insufficiently attractive." Id.
at 7. The Trustee also noted that it "has not made an
independent determination as to the viability of any bid or the
acceptability of any bidder." Id. at 6.
The Trustee also noted that "several other software
companies, express their opinion that it would be highly
difficult, if not impossible, to compete with CA as a non-
exclusive licensee of the Products and that outright ownership of
the Products would be preferable." Id. at 7. In addition, the
Trustee's Contact Log (Trustee's Report, Exhibit C) indicates
that a number of firms expressed interest in purchasing the
Products, but not in licensing them.
On September 17, 1996, the United States filed its Motion
for Sale. On September 27, 1996, Allen Systems Group, Inc. filed
a Motion To Intervene as of Right, or in the Alternative for
Permissive Intervention ("Motion to Intervene"). On October 8,
1996, CA filed Defendant's Memorandum in Response to Motion to
Intervene. The United States filed this date, October 11, 1996,
a Memorandum In Opposition to the Motion to Intervene. On
September 30, 1996, CA filed the instant Motion for Licensure.
A. THE UNITED STATES HAS PROPERLY EXERCISED ITS SOLE DISCRETION
UNDER THE DECREE TO REJECT THE PROPOSED LICENSEES
1. The decree vested in the United States sole discretion to approve
When the decree was negotiated, the United States was
concerned that the selected licensee be able to "compete
effectively in the selling of the Subject Software Products."
Final Judgment § IV(C)(2). Clearly, it would be in CA's private
interest to license the Subject Software Products to as weak a
competitor as possible, in order to minimize its loss of
customers and revenues. To assure a licensing to a viable
competitor, the United States insisted upon, and obtained, the
provision that it have sole discretion to approve a licensee,
whether selected by CA and its investment banker or by the
Section IV(C)(2) of the decree provides, in pertinent part,
that "[t]he trustee shall have the power and authority to execute
a license or licenses to a person(s) acceptable to Plaintiff . .
. subject to the provisions of sections IV.A and IV.B of [the]
Final Judgment." Section IV(A)(8) provides that the licensing of
the Products shall be "accomplished in such a way as to satisfy
Plaintiff, in its sole discretion, that each Subject Software
Product can and will be used by the licensee(s) as part of a
viable, ongoing business involving the sale or license of the
Subject Software Products to customers, including a demonstration
to Plaintiff's satisfaction that (i) the license is for the
purpose of competing effectively in the selling of the Subject
Software Products to customers; [and] (ii) the licensee has the
managerial, operational, technical and financial capability to
compete effectively in the selling of the Subject Software
Products (emphasis supplied)."
In Government antitrust cases, courts have consistently
recognized that the Government represents the public interest in
competition.1. In Hughes, the decree provided
that Hughes either i) dispose of designated stock holdings, or
ii) deposit the stock with a trustee under a voting trust
agreement until he sold the stock. On motion of the U.S., the
court amended the decree 2. In Hughes, the decree provided
that Hughes either i) dispose of designated stock holdings, or
ii) deposit the stock with a trustee under a voting trust
agreement until he sold the stock.
On motion of the U.S., the court amended the decree 3
Reliance on the sole discretion of the United States to assure a
competitively viable licensee is particularly appropriate where,
as is the case here, the decision to be made is essentially a
judgment about the likelihood that a licensee will be an
2. The United States has exercised its discretion in good
faith and in a reasonable and appropriate manner in
rejecting ASG as a licensee
CA argues that the United States' "consistent and
unexplained refusal to approve suitable licensees has prevented
accomplishment of the purposes of the Decree." CA Memo for
Licensure at 6. ASG argues its rejection by the United
States "represents an arbitrary and capricious abuse of
discretion." ASG Memorandum in Support of Its Motion to
Intervene at 12. Both arguments reflect nothing more than
the fact that, from the standpoint of their private interests,
both firms dispute the United States' assessment of the likely
competitive viability of ASG as a licensee.
a. The United States has acted in good faith
In exercising its "sole discretion" to reject ASG as a
licensee, the United States has acted in good faith. CA has
offered no basis to conclude otherwise. ASG's cursory argument
that there has been an arbitrary and capricious abuse of
discretion rests solely on its belief that it would be a viable
In the absence of credible allegations of bad faith, there
is no cause for the Court to question what is in essence a matter
of judgment assigned by the decree for good reason to the sole
discretion of the United States. In the absence of allegations
of bad faith, there is no justification for a full-blown
evidentiary proceeding to determine whether the Court's judgment
as to ASG's competitive viability as a licensee is the same as
the judgment of the United States.
b. The United States has exercised its sole
discretion in a reasonable and appropriate manner
Given the need for the Court to determine what action is now
appropriate to carry out the purpose of the trust and because of
CA's objections to our disapproval of ASG as licensee, it may be
helpful to explain the basis for our conclusion.
CA's contention that the United States has consistently
refused to approve suitable licensees erroneously suggests that
there has been a significant number of disapprovals and no
approvals. During the Updata investment banker phase, the United
States was presented with three bidders in ranked priority. The
first bidder was a small firm producing a product that displayed
support manual text on a computer screen. This product is not
really systems software. Our rejection of this bidder is not
contested, even by the bidder. Updata's second-ranked bidder was
ASG. CA also negotiated with Updata's third-ranked bidder, but
failed to negotiate a license. CA Memo for Licensure at 5. It
is noteworthy that the United States had informed Updata that
this third-ranked bidder, a large and successful systems software
firm with substantial VSE business, would likely be approved.4
The Trustee phase produced two potential bidders, ASG again
and a start-up firm that had not yet established an actual place
of business and had no products. The firm's owner had a previous
track record in MVS in a privately-held firm about which we were
unable to obtain any business information after diligent effort.
Moreover, there were significant legal issues with respect to a
non-compete agreement that could have barred this firm from
selling the licensed products. Our rejection of this firm is
also not now contested, even by the bidder.
Thus, the United States has rejected two potential licensees
about which there is no significant issue, was prepared to accept
a potential licensee with whom CA did not reach a licensing
agreement, and rejected ASG.
Our refusal to approve ASG as the licensee was the product
of investigation and careful evaluation. In general, we met with
ASG, sought and evaluated information obtained from ASG, and
consulted with the Yankee Group, a widely-respected computer
industry consulting firm. Attached as Exhibit B is the
Declaration of Minaksi Bhatt ("Bhatt Declaration"), an attorney
for the Antitrust Division, which describes some of major steps
taken by the United States in investigating ASG and in concluding
it was not a viable competitor. Attached as Exhibit C is the
Declaration of Gregory P. Polonica ("Polonica Declaration"), a
Senior Financial Analyst for the Antitrust Division, who
participated in the financial analysis of the ASG bid. Attached
as Exhibit D is the Declaration of Carl C. "Pete" Clark, Jr.
Attached as Exhibit E is the Declaration of Howard M. Anderson
("Anderson Declaration"), Managing Director of the Yankee Group,
who evaluated ASG as a proposed licensee and advised the United
States that "ASG appears unlikely to be able to compete
effectively in the selling of the Subject Software Products to
customers." Anderson Declaration at ¶ 8.
There are a number of factors underlying our
determination that ASG would not be an acceptable licensee.
First, while ASG may be financially viable in its present
business, it appears to lack the financial resources to acquire
the products and provide the support and development necessary to
compete effectively. Polonica Declaration at ¶¶ 10-18; Anderson
Declaration at ¶ 6. ASG has no commitment from its bank to
finance any licensing costs or other funds to cover necessary
support and development expenses, such as ASG's acknowledged need
to hire VSE-experienced personnel. Bhatt Declaration at ¶¶ 10,
11; Polonica Declaration at ¶¶ 10-18. Moreover,
given the lack of any technical or strategic fit between the
Subject Software Products and the rest of ASG's product lines,
and in particular ASG's major new product development area,
"Enterprise Service Management," there are no apparent business
incentives that provide any assurance that ASG will make a
financial commitment to the Subject Software Products,
particularly if its limited financial resources are
needed for ASG's other products. Anderson Declaration at ¶ 6;
Bhatt Declaration at ¶ 9,10.
Second, ASG has very little VSE experience, expertise,
or reputation. According to the Yankee Group analysis, only
ASG's two VSE products (CMSDOS and LIBR) and its multiplatform
file transfer product (X-path) provide working VSE experience and
are a very small portion of ASG's business. The two VSE products
constitute only 1% and the multiplatform product accounts for
less than 2% of ASG revenues. Anderson Declaration at ¶ 5. The
additional VSE products claimed as relevant experience by ASG,
see CA Memo for Licensure Exhibit D, including a number of data
entry products that "run on top of VSE but their support does not
require detailed technical knowledge of VSE," and thus do not
support ASG's claims for VSE experience and expertise. Anderson
Declaration at ¶ 5.
Moreover, ASG's claims with respect to experienced VSE
executives and technical personnel are similarly misleading.
During ASG's meeting with the Antitrust Division, there was only
one top management official identified as having significant VSE
experience: Alan Bolt, ASG's Vice President for Development.
Bhatt Declaration at ¶ 8. It would appear from the Allen
Declaration that for whatever reason, Mr. Bolt is no longer
employed by ASG. CA Memo for Licensure, Exhibit C ("Allen
Declaration") at IV.h. Most tellingly, the description in
the Allen Declaration of the VSE experience of ASG personnel is a
list of persons no longer employed by ASG. Mr. Allen asserts an
intent to attempt to rehire some unspecified number of them. Id.
This bald assertion is certainly no basis for concluding that
ASG has, or can or will have, the experienced VSE personnel
necessary to compete effectively against CA with the Subject
According to Pete Clark, characterized by ASG's President as
"universally accepted as the VSE industry expert," Allen
Declaration at II, ASG (among other proposed licensees)
has "little or no VSE experience, were virtually unknown to most
VSE users, and I believe that it would be unlikely that many
users would switch to such vendors under a licensure scheme."
Clark Declaration at ¶ 14.
Third, about half of ASG's revenues are derived from
products that support CA's database product, IDMS. Anderson
Declaration at ¶ 7; Bhatt Declaration at ¶ 6; Polonica
Declaration at ¶ 19-20. ASG is "critically dependent upon
the continuing availability of CA's proprietary software as well
as continuing cooperation and information from CA." Anderson
Declaration at ¶ 7; see also Bhatt Declaration at ¶ 6. The
United States is concerned that CA's ability to adversely effect
half of ASG's revenues might inhibit ASG from competing
There are, in addition, a number of other factors we
considered, some of which warrant particular mention. ASG's
marketing plan for the Subject Software Products, characterized
by Mr. Allen as "unlike any other offered by any company I am
aware of," Allen Declaration at IV.g., warranted suspicion. When
the Antitrust Division sought to discuss the plan in its meeting
with ASG executives, Mr. Allen characterized it as a "secret
plan" and refused to discuss it in front of the rest of his
senior management. Bhatt Declaration at ¶ 11. The Division
later learned that the "secret plan" was essentially to allow
customers to lock-in future maintenance and upgrade fees, and a
$25,000 coupon for other ASG products. Id. The manner in which
this "secret plan" for marketing the Subject Software Products
was approached caused the United States some concern about ASG's
Another factor undermining ASG's credibility relates to Mr.
Allen's claim that ASG has the exclusive support as licensee of
Carl "Pete" Clark, widely-known for VSE expertise among VSE users
and characterized by Mr. Allen as "universally accepted as the
VSE industry expert." Allen Declaration at II. This claim of Mr. Clark's
support is untrue -- Mr. Clark does not endorse ASG as a licensee
and he believes that we acted appropriately in rejecting ASG as a
licensee. Clark Declaration at ¶ 13, 14.
For these and other reasons, it was a reasonable and
appropriate exercise of discretion for the United States to
conclude that ASG lacked the "managerial, operational, technical
and financial capability to compete effectively in the selling of
the Subject Software Products to customers." Final Judgment §
B. LICENSURE OF THE SUBJECT SOFTWARE PRODUCTS TO ASG IS NOT
LIKELY TO FULFILL THE PURPOSES OF THE DECREE
As we continually note, the purpose of the decree is to
provide effective competition. It is unsurprising that CA, whose
logical private interest is in licensure to a weak competitor,
argues that ASG as licensee would be an effective competitor. CA
Memo for Licensure at 10. CA offers little in support of its
argument other than to rely on the claims made by ASG. CA also
asserts that its guarantee of a minimum number of licensees
(1001) will provide sufficient revenue to allow ASG to dedicate
ample resources to support and enhancement of the products. Id.
at 12. There is no analytic basis offered for this assertion.
For the reasons discussed in Section II(A)(2) above, the
United States has ample basis to conclude that ASG lacks the
"managerial, operational, technical and financial capability to
compete effectively in the selling of the Subject Software
Products" as required by Section IV(A)(8) of the Final Judgment.
CA does not agree with this conclusion, but has no basis to
challenge the good faith of the United States, who was charged in
the decree with the responsibility to make this judgment.
C. CA AGREED TO A DECREE THAT CLEARLY AUTHORIZES THE COURT TO
ORDER THE TRUSTEE TO SELL THE SUBJECT SOFTWARE PRODUCTS
WITHOUT FURTHER PROCEEDINGS
1. The decree does not require but explicitly authorizes
the Court to order the sale of the Subject Software
Products in order to fulfill the purposes of the trust
The United States agrees with CA that the Court is not
required by the decree to order the sale of the Subject Software
Products. However, as CA concedes, CA Memo for Licensure at 15,
and as discussed below, the decree makes clear that the Court is
authorized to order a sale if the Court deems it appropriate.
The Court has discretion to "enter such orders as it shall deem
appropriate to carry out the purpose of the trust, which shall,
if necessary, include disposing of any or all assets of the
Subject Software Product businesses,..." Final Judgment § IV
(C)(6). The decree expressly defines the purpose of the
trust to be "to create a viable, ongoing business which can
compete effectively in the selling of the Subject Software
Products." Final Judgment § IV(C)(2). As explained in the US
Motion for Sale and in this Reply, the only way to fulfill the
purpose of the Trust at this juncture is for the Court to
exercise its discretion to order the sale of the Subject Software
2. The Court may order sale of the Subject Software
Products without further proceedings
CA argues that the Court does not have the authority to
order sale of the Subject Software Products without further
evidentiary proceedings. CA Memo for Licensure at 18. This
argument inexplicably ignores the clear language of the decree
and the July 26, 1995, letter from CA President Sanjay Kumar to
Assistant Attorney General Bingaman ("Kumar letter")(Exhibit F)
and is utterly without merit.
CA's reliance on Hughes v. United States, 342 U.S. 353
(1952) and United States v. Western Elec. Co., 894 F.2d 430
(D.C.Cir 1990) is misplaced. Both cases involved situations in
which the court was modifying a decree, not implementing its
In this case, the decree explicitly directs the Court to
"enter such orders as it deems appropriate in order to carry out
the purpose of the Trust which shall, if necessary, include
disposing of any or all assets of the Subject Software Product
businesses, ..." Final Judgment § IV(C)(6). The Kumar letter
states that "[w]e hereby acknowledge that the Decree permits the
court sufficient discretion, if the Court so desires, to dispose
of the five VSE software products in question in the event that a
suitable licensee or licensees are not found. We understand that
such disposition ordered by the Court could include the
divestiture of one or more of these five VSE software
products."6 It could not be more clear
that no modification of the decree is necessary before the Court
may order sale of the Subject Software Products, and that the
type of hearing a decree modification requires is not required
3. Sale of the Subject Software Products is necessary to
fulfill the purposes of the trust to assure competition
The attempts to find a competitively viable licensee in
accord with the procedures outlined in the decree have failed to
produce an acceptable licensee. Licensure has not been, and at
this point will not be, an effective remedy. CA's Senior Vice
President and General Counsel, Steven M. Woghin, informed the
Trustee in a September 12, 1996, letter that CA "believes that
the licensing provisions of the Final Judgment have been put to a
market test and have been found unnecessary and unworkable."7
The Trustee's Report, discussed above in Section I, identified a
number of structural reasons why the decree's non-exclusive
licensing structure was unattractive to potential acquirors. As
discussed more fully in the US Memo for Sale, the Court's best
alternative to fulfill the decree's stated purpose to provide
effective competition, and the only alternative expressly
mentioned in the decree, is to order the Trustee to sell the
Subject Software Products.
CA's favored alternative, to grant a license to a firm
unlikely to be able to compete effectively with the Subject
Software Products, does not accomplish the decree's purpose.
CA's proffered alternative remedies, discussed below, suffer the
4. CA's claim that the Government's proposed order would
permit a sale without judicial review or approval is
either incorrect or easily remedied
CA argues that the United States' proposed order would
permit the Trustee to sell the Subject Software Products without
further review by this Court or any opportunity to be heard in
opposition. CA Memo for Licensure at 20. The United States did
not intend this construction, and does not believe it to be the
appropriate construction of its proposed order. The United
States is cognizant that the decree requires that if the Subject
Software Product assets are sold, that they be sold to "such
buyers as the Court deems appropriate, ...." Final Judgment
IV(C)(6). The requirement of the proposed order that the
Trustee file a report with the Court upon completion of the sale
was intended to provide the vehicle for the Court to approve the
In any event, this issue is a tempest in a teapot. If this
provision of the proposed order is deemed inartful by the Court,
the United States would be pleased to submit a revised Proposed
Order that makes explicit that no sale agreement executed by the
Trustee is final until approved by the Court.
5. Sale of the Subject Software Products is not unfair to
customers or CA
CA's argument that a sale of the Subject Software Products
would be unfair to customers is so disingenuous that it may serve
as an illustration for the definition of "chutzpa."8 CA
seems to believe that it is unfair for customers to be switched
without choice to a new vendor unless that new vendor is CA. CA
acquired a number of software products and companies prior to its
acquisition of Legent, and those many thousands of customers were
forced to transfer their relationships to a new vendor -- CA.
That is precisely what CA did to what had been thousands of
Legent customers. Moreover, this type of divestiture is the
traditional remedy in antitrust cases, a fact too obvious to
merit citations. Finally, should there be customers genuinely
aggrieved to be separated from CA, which is unlikely to be a
substantial number since they had earlier chosen to be Legent
customers and not CA customers, such users may switch to the
alternative CA products.
CA also argues that there is no reason for confidence that a
forced sale would provide the prompt and certain relief sought by
the decree, as a sale may not be accomplished. This ignores the
Trustee's conclusions, discussed in Section I above, that a
number of firms found the licensure structure unworkable and
would prefer purchase, and that a number of firms expressed
interest in purchasing the assets, even to the extent of
submitting a purchase bid.9 While there is no guarantee of a
sale, attempting a sale to an effective competitor is clearly
preferable at this point to granting a license to a firm unlikely
to compete effectively.
CA's argument that a sale of the Subject Software Products
would be unfair to CA is also without merit. CA claims, both in
the CA Memo for Licensure (at 8 and 16) and in a letter from CA's
General Counsel to the Trustee,10 that it bargained for
licensure, not divestiture. This claim is hard to understand
given the express language of the decree stating that the Court
may order divestiture if the licensing attempts fail. Final
Judgment IV(C)(6). It is especially hard to understand given
the Kumar letter, which was required by the United States for no
purpose other than to have CA acknowledge that sale of the
Subject Software Products may be ordered.
CA's complaint about the $460,000 it has already spent on
investment banker and Trustee fees is beside the point. First,
all that is at issue is the incremental additional costs of
having the Trustee attempt a sale. Second, given CA's revenues
in excess of $3 billion, it has not made a persuasive case that
an inadequate remedy should be ordered by the Court in order to
save CA from further Trustee expenses that were within the range
that was reasonably anticipated as the possible cost of
accomplishing the decree's purpose.
D. CA'S ALTERNATIVE REMEDIES WOULD NOT SERVE THE PUBLIC
INTEREST MORE THAN A SALE OF THE SUBJECT SOFTWARE PRODUCTS
CA proposes three alternative remedies, none of which are
likely to achieve the competitive purposes of the decree. CA's
first alternative remedy is to license the Products to Elite
Systems, Inc. ("Elite"). CA does not contend that Elite would be
a viable and effective competitor. Elite is a start-up company
with no employees, no products and no VSE track record, no assets
or revenues, no office space, and a legal issue relating to a
The ultimate viability of a licensee will depend on its
ability to attract a critical mass of customers in the customer
election process, since an installed base is necessary to justify
continued support and development of the Products. Elite has no
experience developing, selling, supporting, or marketing VSE
products and has no name recognition in the VSE market. Clearly,
Elite lacks the "managerial, operational, technical and financial
capability to compete effectively in the selling of the Subject
Software Products to customers." Final Judgment § IV(A)(8). CA next
makes the disingenuous offer that it will provide a royalty-free
license to a licensee chosen by the Government. However, CA would
condition such a license on modifying the decree to eliminate the
provisions allocating customers who fail to make an election
(Final Judgment § (V)(E)) and requiring proration of prepaid
license fees (Final Judgment § (V)(H)).
CA's proposed one-sided
modifications would eviscerate the Final Judgment.
Eliminating the customer allocation requirement would create
a default mechanism whereby any customer who does not make an
election will stay with CA. Such a modification would defeat the
intent of the provision to ensure that the licensee gets a fair
opportunity, equal to CA's opportunity, to obtain a sufficient
number of licenses to compete. Eliminating the provision
requiring proration of prepaid licensing fees would unjustly
penalize customers who wished to switch and provide a windfall to
CA. Under CA's proposal, a customer who selects the licensee
would forfeit all pre-paid maintenance fees for services not yet
provided, and this financial penalty for switching appears likely
to effectively deter customers from selecting the licensee.
Even if CA were to withdraw its overreaching proposed
modifications, its royalty-free licensing proposal fails to
address the fundamental problem with the decree's licensing
remedy. The Trustee's Report indicates that the non-exclusive
nature of the licensing provision is the principal reason the
required license could not be accomplished. Trustee's Report at
6. CA's royalty-free license does not cure this fundamental
problem, and therefore CA's proposed remedy would likely fail.
Finally, CA continues to press its argument that the Final
Judgment should be terminated less than a year after entry and
before it has accomplished its purpose: the creation of an
effective competitor. The Government addressed this meritless
argument in its Memorandum in Support of Its Motion for Sale.
While the Government will not repeat this discussion, we briefly
respond to CA's claim that alleged customer "happiness" with CA
satisfies the "changed circumstance" test for decree modification
articulated in Rufo v. Inmates of the Suffolk County Jail, 502
U.S. 367, 383 (1992).
CA argues that the decree should be terminated because
"customers are happy with the services provided by CA" and
"[f]orcing these customers to deal with a new vendor would not
increase competition nor would it serve consumer interest." CA
Memo for Licensure at 23. CA's argument here in favor of
customer choice is both ironic and inconsistent. The irony in
this argument is that the former Legent customers had chosen
Legent and its products over CA, but were forced into a
relationship with CA as a result of the acquisition. The
inconsistency is with CA's claim that its customers are happy,
given CA's implicit claim in footnote 5 of the CA Memo for
Licensure, made in an unpersuasive attempt to avoid another
inconsistency, that it was "extremely unlikely" that at least
1001 customers would not wish to leave CA.
The Court in Rufo held that decree modification may be
warranted because of changes in factual conditions that: (1)
"make compliance with the decree substantially more onerous," (2)
make the decree "unworkable because of unforseen obstacles" or
(3) make "enforcement of the decree without modification ...
detrimental to the public interest ..." Rufo, 502 U.S. at 384.
CA cannot satisfy any of these alternative criteria for modifying
the decree based on changed circumstances. First, CA makes no
showing that decree compliance has become substantially more
onerous for CA, except to complain about Trustee fees as
discussed above. Second, the failure of licensure and the
possible need to order divestiture is expressly provided for in
the decree and acknowledged in the Kumar letter, and thus cannot
be claimed to be unforseen. Third, what would be detrimental to
the public interest would be to terminate the decree without
fulfilling its purpose to provide effective competition.
For the above reasons, the United States urges the Court to
deny the CA Motion for Licensure. The United States also urges
the Court to grant the US Motion for Sale.
Dated: October 11, 1996
N. Scott Sacks
James J. Tierney
United States Department of Justice
600 E Street, N.W.
Washington, D.C. 20530
CERTIFICATE OF SERVICE
The undersigned certifies that on October 11, 1996, copies
of the United States' Reply to Defendant's Motion to Approve a
License to Allen Systems Group, Inc., was served by hand delivery
Counsel for Computer Associates
Richard L. Rosen, Esq.
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Counsel for Allen Systems
Robert W. Fleishman, Esq.
Steptoe & Johnson LLP
1330 Connecticut Avenue, N.W.
Washington, D.C. 20036
and was served by Federal Express upon:
Michael A. Jacobs, Esq.
Morrison & Foerster LLP
345 California Street
San Fransico, CA 94104
N. Scott Sacks
United States v. Bechtel Corp., 648 F.2d 660,666 (9th
Cir.), cert. denied, 454 U.S. 1083 (1981); United States v.
Associated Milk Producers, Inc., 394 F. Supp 29, aff'd 534 F.2d
113, 117-18 (8th Cir.), cert. denied sub nom. National Farmers'
Organization, Inc. v. United States, 429 U.S. 940 (1976); United
States v. G. Heileman Brewing Co., 563 F. Supp. 642, 648 (D. Del
1983); see also Sam Fox Publishing Co. v. United States, 366 U.S.
683, 689 (1961).
It is also noteworthy that Updata had, indefensibly in
the view of the United States, ranked this bidder behind ASG even
though its bid was higher under the most plausible assumption
that less than 60% of the customers would elect to switch, and
its bid was firm while ASG's was contingent on financing. The
Updata bid analysis is appended at Exhibit A.
In Hughes, the decree required that Hughes either I)
dispose of designated stock holdings, or ii) deposit the stock
with a trustee pursuant to a voting trust agreement until he sold
the stock. On motion of the United States, the District Court
substantially modified the decree to require that if the stock
held under the voting trust was not sold by a certain date, the
trustee should sell the stock within two years thereafter. The
Supreme Court held that while the district court had the power to
modify the decree to require the sale of stock, such a
requirement was not in the decree and could not be ordered
without an evidentiary hearing. 342 U.S. at 356. In Western
Elec. Co., the relied-upon passage is explaining the procedural
requirements for modifying a decree. 894 F.2d at 435.
CA acknowledges that the contemporaneous Kumar letter
may be used as an aid to construction of the decree. CA Memo for
Licensure at 15.
Letter from Steven M. Woghin to Michael A. Jacobs,
September 12, 1996, at 2. Appended as Exhibit G.
"Chutzpa" is a Yiddish word in common parlance which by
an oft-used definition refers to the type of nerve exhibited by a
person who, upon conviction for the murder of his parents, would
plead with the judge for mercy because he is an orphan.
ASG apparently believes that a sale is likely to be
accomplished. ASG is concerned that "if full divesture occurs
and the VSE products are made the subject of competitive bids for
exclusive licenses, ASG may well be priced out of the market."
ASG's Memo in Support of Its Motion Intervene at 18-19.
"Forcing CA to sell the products -- which is not what
was bargained for in this consent judgment -- would be manifestly
unfair to CA and its customers." Woghin Letter at 3.