Full opinion text
OPINION HAROLD H. GREENE, District Judge. Section 1(A) of the decree entered on August 24, 1982, provides that “[n]ot later than six months after the effective date of [the decree], defendant AT & T shall submit to the Department of Justice for its approval, and thereafter implement, a plan of reorganization,” and section VIII(J) specifies that the plan of reorganization “shall not be implemented until approved by the Court as being consistent with the provisions and principles of the decree.” In accordance with these provisions, AT & T has submitted its plan to the Court following approval by the Department of Justice. The intervenors were thereafter given the opportunity to raise objections; a considerable number of such objections were, in fact, filed with the Court; and AT & T and the Department of Justice,'in turn, filed their own responses. Following receipt of these papers, the Court designated certain issues for more intensive briefing and for oral argument. Voluminous briefs were received on these issues, and argument was had thereon on June 2, 1983. At that hearing, the Court also heard testimony from three of the designated chief executives of the seven newly-established Regional'Companies. Additional documents were submitted after the hearing, including one — a letter with attachments from AT & T (see p. 1067 infra ) — as late as June 29, 1983. The Court has considered all issues raised with respect to the plan of reorganization on the basis of the written materials, the oral hearing, the testimony, and the entire record herein, and it has concluded that the plan of reorganization will be approved provided that certain inconsistencies with the provisions and principles of the decree are corrected. I Equal Access The decree requires the Operating Companies to “provide to all interexchange carriers and information service providers exchange access, information access, and exchange services for such access ... that is equal in type, quality, and price to that provided to AT & T and its affiliates.” Section 11(A). As the stepping stone to increased competition in the field of intercity telecommunications, the decree’s equal access requirements and the implementing provisions of the plan of reorganization have generated substantial controversy. Comments filed by Operating Company executives, interexchange carriers, regulatory commissions, consumer groups, and telecommunications associations indicate that at this stage of the proceedings there is a need to resolve three primary questions relating to equal access: what is it, how is it to be achieved, and who will pay for it? A. What Does “Equal” Mean? A number of the Operating Companies propose to connect AT & T’s interexchange competitors to the homes or businesses of local telephone subscribers by using facilities built or upgraded specially for that purpose; AT & T, on the other hand, will in numerous LATAs gain access to subscriber lines through different facilities, many of which are already extant. For that reason, the access provided AT & T’s competitors will not be identical to that given AT & T in all places; rather, it will be technically different in certain areas and at certain times. The Operating Companies assert that any such technical deviations will be so slight as to be imperceptible to all customers, whether of voice or of data. Accordingly, they urge the Court to accept a definition of “equal access” as access whose “overall quality in a particular area is equal within a reasonable range which is applicable to all carriers,” and to reject a more stringent definition which would demand access that yields identical technical quality (i.e., identical values for loss, noise, and echo, and identical possibility of blocking). The Court accepts the Operating Companies’ definition and will not insist on absolute technical equality. To do otherwise would necessitate substantial dismantling and reconstruction of local telephone networks without any real benefits either to the consuming public or to AT & T’s intercity competitors. This ruling, however, is based squarely upon the Operating Companies’ representations that both voice and data customers will perceive no qualitative differences between AT & T transmissions and those of its competitors — at least with respect to those portions of the transmissions carried by an Operating Company. The Operating Companies are well aware, however, that the Department of Justice will be monitoring the quality of the access they will provide and that the price of falling short of their assurance of equal quality will be enforcement proceedings brought by the Department. The interexchange competitors, as noted, would not be disadvantaged if the Operating Companies meet the standard they have proposed. Their real complaint is that the Operating Companies will be unable to meet that standard in many of the LATAs by the means they propose — a subject to which the Court now turns. B. Which Switches Should Be Used for Access Arrangements? First. Since the initial comments were filed regarding the first, or LATA, phase of the plan of reorganization, a number of intervenors have expressed concern over the kinds of switches the Operating Companies will use to route traffic from an interexchange carrier’s point of presence in a LATA to a local Class 5 end office. The Court initially shared this concern, primarily because so little information about equal access planning for individual LATAs had been made available. In May of 1983, it therefore requested the Regional Companies to report in detail regarding their plans for equal access and their need in this respect for the efficient, state-of-the-art No. 4ESS switches. The Court asked to be apprised of any instances where an Operating Company believed that a particular switch should be assigned to it for equal access purposes even though that switch would belong to AT & T under the predominant use test. The responses were extremely helpful. Their detail and the varied recommendations made with respect to each region revealed that, contrary to some speculation, the Operating Companies had carefully studied the alternatives for the provision of access within their respective territories, and that they had concluded, independent of pressure from AT & T, which arrangements would be most economical and efficient for them. Most of the LATAs will be served by four-wire digital tandems, if not in 1984, then within two years. The Operating Companies are not planning to make as much use of the existing No. 4ESS switches, however, as might have been anticipated. The basis of that choice appears reasonable. Because of the large capacity of the No. 4ESS switch, the cost to an Operating Company of leasing part of it would be, in most cases, greater than would be that of constructing a smaller-scale switch directly for that company. The other alternative— vesting ownership of the No. 4ESS switch in the Operating Company, in the expectation that it will be able to lease substantial capacity to AT & T — is problematic in many cases because AT & T may choose instead to build a new switch (and even if it did not, it would be required in any event under the plan to terminate the lease after eight years). In either event, the Operating Company would thus be left with the expense of stranded capacity. For these reasons, the Operating Companies will instead engage in a substantial amount of new construction, and they have persuaded the Court that this is an appropriate decision. In some instances they will thereby be merely accelerating construction which would have occurred in any event, and new construction, as opposed to leasing, will have the advantage of facilitating network separation between AT & T and the Operating Companies. Given the care which went into the Operating Companies’ studies, the Court will not second-guess them by imposing upon them an assignment of switches which they do not endorse. The Court therefore rejects the position of some that all No. 4ESS switches should be divested from AT & T and assigned instead to the Operating Companies. Second. The New England Telephone Co. (NET) has suggested that it could provide access more economically if the Court were to override the predominant use test in its territory with respect to three advanced switching systems. NET wishes to make extensive use of No. 4ESS switches— which apparently would be more appropriate in its region than elsewhere because of existing population densities — and it states that it could benefit from the allocation of three existing No. 4ESS switches (in Manchester, New Hampshire; Springfield, Massachusetts; and Cambridge, Massachusetts). NET has further informed the Court that if it were to receive the existing switches in these locations, the net present value advantage to it would range from $20 to $25 million with respect to the Cambridge switch and from zero to $8 million per switch with respect to the Manchester and Springfield facilities. Although it accepted the predominant use test, the Court has stated that this test would be waived where particular equipment was needed by an Operating Company for the provision of equal access. See note 20 supra. Clearly that need is present with respect to the Cambridge switch, and the Court will therefore require that AT & T assign that switch to NET. The matter is not as clear with regard to the Manchester and Springfield switches. If NET wishes to make a formal proposal for the transfer of these switches, it should submit a motion explaining under what circumstances the savings would amount to zero and under what circumstances they would amount to $8 million, and AT & T and the Department of Justice may respond to the motion. The Court will order no other changes in the assignment of switches. C. How Should the Operating Companies Recover the Costs of Becoming Equal Access Providers and of Reconfiguring Local Networks to Conform to LATA Boundaries? AT & T estimates that it will cost the Operating Companies $73 million to reconfigure their networks and $2.47 billion to provide equal access. The plan of reorganization does not directly address the issue of who should pay these costs but seems to proceed on the premise that equal access is exclusively an Operating Company responsibility with which the plan, and AT & T, need not be concerned. That approach is improperly simplistic. Section 1(A)(1) of the decree states that AT & T shall transfer from AT & T and its affiliates to the BOCs .. . sufficient facilities [and] systems ... to permit the BOCs to perform, independently of AT & T, exchange telecommunications and exchange access functions ... and [which are] sufficient to enable the BOCs to meet the equal exchange access requirements of Appendix B (emphasis added). There can be no doubt, then, that AT & T has a significant responsibility to see to it that the Operating Companies are left in a position, as of divestiture, that will enable them to offer equal access to AT & T’s competitors. The only question is what obligations attach to this responsibility. The intervenors have proposed various ways to assign the costs of network configuration and equal access directly to AT & T, from requiring AT & T to give the Operating Companies more switches to requiring it to finance all equal access projects. The former has the disadvantage of imposing switch assignments on the Operating Companies which they do not want; the latter is problematic in that it will perpetuate a liaison between AT & T and the Operating Companies where none should exist. AT & T, for its part, while it rejects any suggestion that it should have to pay these costs, in effect concedes that it bears some share of the responsibility since it asserts that the access charges paid by interexchange carriers will reimburse the' Operating Companies, and that it, as the dominant interexchange carrier, will pay the lion’s share of such charges. All the parties have agreed that these costs are properly to be recovered from the interexchange carriers, rather than through access charges levied on local ratepayers, because the expenditures represent improvements to the long distance network. AT & T’s assurances to the contrary notwithstanding, it is unsettled at present by what methodology the interexchange carriers could be made to bear the costs of equal access and network reconfiguration through interstate access charges. Under existing procedures for allocating property costs, revenues, expenses, and reserves between intrastate and interstate jurisdictions for rate making purposes (see 47 C.F.R. § 67.1), a disproportionately small amount of equal access and network reconfiguration costs would be designated for recoupment through interstate tariffs; most of these costs would be designated for recovery through intrastate tariffs even though, at least initially, most of the benefits of equal access connections will flow to users of interstate, not intrastate, telecommunications services. See Correspondence between Howard J. Trienens and A. Gary Collins, filed June 29,1983; Response of Mid-Atlantic Bell Telephone Companies, May 31,1983, at 8-10. In fact, only after it was pointed out by others did AT & T acknowledge that all equal access and network configuration costs would not be recovered through interexchange carrier charges under the current jurisdictional separations procedures. Another, equally serious problem is created by the ability of AT & T to make use of the so-called bypass technology (552 F.Supp. at 175-76) which would allow that company, at its choice, and given the availability of the necessary technology, to bypass the Operating Company circuits altogether and to reach ultimate telephone subscribers directly. To the extent that bypass is a serious threat to the Operating Companies, AT & T, because of its size and its well-developed telecommunications technology, is by far the most likely origin of that threat. Use of that bypass technology by AT & T would, of course, permit it to escape the payment of access charges to the Operating Companies, and this, in turn, would jeopardize the recovery of the funds which will be expended by the Operating Companies for the equal access and reconfiguration construction program. It is thus not certain that the Operating Companies will be fully reimbursed through carrier access charges for their equal access and network reconfiguration expenditures. Yet because the decree anticipated that AT & T would transfer sufficient facilities to the Operating Companies to ensure equal access; because it now appears that the Operating Companies will instead have to undertake substantial new construction of their own; and because AT & T has throughout this proceeding assured the Court that access charges paid by interexchange carriers would be the instrument which would prevent divestiture from causing increases in local rates, it is appropriate that AT & T should bear the ultimate risk if it turns out that its assurances are overly optimistic. That risk will accordingly be assigned to AT & T in the following manner. According to the plan of reorganization, the equal access construction program will be completed in five years. Within five years thereafter, that is by January 1,1994, if the Operating Companies have not recovered the costs of equal access and network reconfiguration, inclusive of financing costs, through their collection of access charges from the interexchange carriers, AT & T will be responsible for reimbursing the Operating Companies in the amount of any remaining deficit. A preliminary accounting will take place at the close of the construction program on by January 1, 1989, whichever is earlier. If the Operating Companies and AT & T are able to report to the Court on or before January 1,1994, of their agreement that all costs have been recovered, AT & T will be discharged from any further obligation with respect to the cost of equal access and network reconfiguration. If there is a dispute, the Court will decide, if necessary with the assistance of the Department of Justice and the Federal Communications Commission, whether all costs have been recovered. II Contingent Liabilities Under the plan of reorganization, the contingent liabilities of the Bell System are apportioned among AT & T and the Operating Companies on the basis of their relative net investment as of the date of divestiture. Section VIII(H) of the decree allocates to each Operating Company a proportionate share of the System’s consolidated debt and equity; and the plan of reorganization provides that the post-divestiture entities will share in the contingent liabilities on the same basis. The intervenors acquiesce in most aspects of the plan’s allocation of contingent liabilities, and they limit their objections in the main to the allocation of contingent antitrust liabilities. Several intervenors assert broadly that because the Operating Companies were not responsible for AT & T’s alleged conduct in violation of the antitrust laws and reaped no benefits from such violations, they should not have to share in the liabilities resulting from any antitrust claims. Others make similar arguments more narrowly with respect only to certain types of antitrust violations, such as those relating to the provision of interexchange services or of customer premises equipment (CPE). The contingent liability provisions of the plan assume (1) that prior to divestiture the Bell System operated as a single unit, and (2) that the residual risks of the System’s predivestiture operations should be shared by all entities which receive a part of the System’s assets. Several intervenors challenge these assumptions. A. Principle of the Division of the Contingent Liabilities It is argued by a number of opponents of the plan that for many purposes the Bell System did not operate as a single enterprise. Thus, it is claimed that various Operating Companies charged different rates, operated under different tariffs, were directed by different personnel, and engaged in other practices which differed from company to company. One consequence of this diverse pattern, according to the plan’s opponents, is that some Operating Companies were charged with violations of the antitrust laws along with AT & T while others were not. Further, since under the law a corporation is not automatically liable for the antitrust violations of its affiliates, there is no basis, it is said, for imposing liability upon entities (i.e., the Operating Companies) which have not been or may not be found to have been at fault. Finally, citing Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981), several intervenors argue that the plan violates the “rule” against contribution for antitrust damages. All of these arguments miss the mark. Until the time the reorganization takes effect, the Bell System is legally a single enterprise, with a single claim to the System’s assets and a single responsibility for the System’s liabilities. It is erroneous, therefore, to pose the problem in terms of imposing liability upon parts of the enterprise based upon fault or lack of fault; at the time the acts complained of occurred there was only one entity (the Bell System), and should there be a judgment in any particular case, that entity will have been found to be at fault. The evidence at the trial of this case did not isolate specifically whether the fault for particular activities which allegedly violated the antitrust laws lay with personnel assigned to AT & T headquarters or with personnel working for an Operating Company; and, of course, there was no adjudicated final judgment by which such fault could have been parceled out. In view of the commingling and transfers of personnel between AT & T’s central divisions (e.g., Western Electric) and the Operating Companies, it may be that no such decision could ever have been made. This basic problem with the theory advanced by the intervenors is not cured by the circumstance that some Operating Companies are defendants in some of the pending private antitrust lawsuits while others are not. The decisions of antitrust plaintiffs as to which Operating Companies, if any, should be named as defendants in the private suits appear to have most often been dictated by such non-substantive matters as jurisdiction, venue, and ease of discovery. Such choices were available to the plaintiffs in the various actions because they knew that the cost of any judgment would be shared by AT & T and all Operating Companies regardless whether or not a particular Operating Company was a party to the proceeding in which liability was determined. In short, the identity of the particular Bell defendants played no real substantive part in pre-divestiture lawsuits or judgments, and it would make no sense to regard it as the determinative factor with respect to the payment of judgments based on pre-divestiture conduct which are entered or become final after divestiture actually occurs. More broadly, it is incorrect to view the plan’s allocation of contingent liabilities as an attempt to impose upon this Court the responsibility for making findings concerning fault or for imposing liability with respect to lawsuits pending in other forums. The plan of reorganization does not purport to assign fault; all that is involved here is that, as part of its review of the decree and of the plan of reorganization of the Bell System, the Court has been presented with a proposed contractual arrangement whereby the Operating Companies and AT & T will share in the payment of liabilities arising from pre-divestiture operations regardless of fault — in effect a form of self-insurance. See p. 1073 infra. The intervenors’ reliance upon Texas Industries, Inc. v. Radcliff Materials, Inc., supra, as an obstacle to this procedure is misplaced. In that case the Supreme Court held merely that there is no right to contribution in antitrust cases; it did not decide, nor was its decision based on the premise, that contribution is contrary to the policies underlying the antitrust laws. Texas Instruments thus does not invalidate either the liability sharing arrangement which presently exists (and has long existed) among the Bell System’s components for that System’s liabilities or the contractual arrangement proposed for the future by the plan of reorganization. B. Method of Apportionment The plan of reorganization proceeds on the basis that the residual risks of the Bell System’s pre-divestiture operations should be shared by the entities of the System on the same basis as their receipt of the System’s assets and equity. This method of apportionment is challenged by several intervenors who suggest a division of contingent liabilities based on a “benefit” or “line of business” approach rather than the “relative net investment” approach provided for by the plan. While this suggestion appears abstractly to have some merit, it is faulty if only because it suffers from serious, indeed insuperable, difficulties in administration. It may well be doubtful that the Operating Companies benefitted quite as much from the activities challenged in the various pending antitrust suits as AT & T now claims; but it would also surely be incorrect to say that the Operating Companies’ past and future lines of business received no benefits. For example, activities which adversely affected competitors of AT & T in the CPE business probably benefitted not only AT & T “headquarters” but also the Operating Companies’ own CPE business, and the effects of these activities may even linger so as to continue to provide the local companies with a benefit after divestiture. Further, evidence at the trial of this case indicated significant involvement of the Operating Company personnel in the so-called “procurement” portion of the case, i.e., that dealing, among other things, with CPE. Likewise, because the Operating Companies received a substantial portion of revenues from interexchange services through the division of revenues process, and because it appears that they stood to lose revenues to the extent that long distance traffic was handled by one of AT & T’s competitors, it is difficult to say that they did not benefit from Bell System activities claimed to be unlawful which affected the interexchange market. For these reasons, several intervenors candidly acknowledge that it is not possible, at least not without lengthy proceedings, to conclude that the Operating Companies received no benefit from the conduct challenged in pending antitrust actions or precisely how such benefits might be allocated between them and AT & T. The Court will go further. In its view, to attempt to trace benefits from conduct challenged in lawsuits not yet decided to lines of business which will be engaged in at a later time by entities which do not yet exist would involve the Court in an impossible, almost metaphysical task, and it is one which, for that reason, it will not undertake. More affirmatively, the assumption underlying the plan’s allocation of contingent liabilities that, as a matter of equity, the contingent liabilities should be shared proportionately by all entities which “succeed” to the assets of the Bell System, is not unreasonable. Under the current division of revenues and costs within the Bell System, antitrust liabilities are liabilities of the entire System. Contingent antitrust liabilities — just as the other contingent liabilities not challenged by the intervenors — do not encumber particular assets or particular lines of business; they encumber all of the System’s assets and equity. Because the decree provides that the Operating Companies and AT & T will each receive a portion of the consolidated debt and equity of the Bell System, it is reasonable for each of the post-divestiture entities also to receive a corresponding portion of the System’s predivestiture business risks which encumber the equity. The proof of that proposition lies in an examination of the alternatives. If AT & T had decided to settle, insure, or self-insure all contingent liabilities prior to divestiture, the costs of these liabilities would have been reflected now in the Bell System’s debt and equity accounts, and there would have been no need for making provision in the plan of reorganization for the allocation of contingent liabilities. These other options were apparently considered by AT & T and the Operating Companies, and the choice was made that each Operating Company would take on a portion of the Systern’s consolidated equity as well as all assodated business risks. In furtherance of that decision, all Bell System Companies are, in essence, insuring one another against the possibility that the contingent liabilities will become certain after divestiture. The chief executives of the Regional Companies have informed the Court that, with but one exception, they agree with the choice made in the plan for allocating the contingent liabilities. For these reasons, the Court rejects the objections to the treatment accorded in the plan of reorganization to the contingent liabilities, and it will approve that portion of the plan as part of its overall disposition of the parties’ motions. The Court notes that it is entirely unlikely that the contingent liabilities could realistically threaten the viability of the Operating Companies. AT & T has suggested that $25 billion in additional liabilities might become certain after divestiture, but it has since hastened to concede that this possibility is extremely remote. Even if this outside contingency came to pass, the Operating Companies could finance their shares with debt, and their debt ratios would then increase from 45 percent to the 50 percent range — still the typical debt ratio of independent telephone companies and electrical utilities. Ill Bell Name and Logo [6] The plan of reorganization originally submitted by AT & T provided that upon the divestiture both AT & T and the Operating Companies could continue to use the “Bell” name. Complex provisions were made with respect to the Bell trademarks, and the plan further provided that if, in light of the Justice Department’s opposition to the AT & T approach, the Court were to disapprove it, AT & T “will adopt the alternative ... [to] retain all uses of the Bell name, including all Bell trademarks, the Bell logo or seal, the blue and ochre stripes, and other graphics and all uses of Bell in corporate names” (emphasis added) The Department of Justice did not oppose the second alternative, but with respect to the first it proposed an amendment which AT & T accepted. It is this Department of Justice version (Amendment No. 15), described in more detail below, which is now before the Court. Under Amendment No. 15, although the Operating Companies would have exclusive rights to the Bell logo in the United States, they could use it only in connection with the provision of exchange telecommunications services, exchange access services, and printed directory advertising. The Operating Companies would be prohibited from using the Bell logo in connection with the marketing of any customer premises equipment (even that supplied by AT & T and its affiliates). As concerns the “Bell” name, the Operating Companies would be permitted to use it only in connection with services other than the sale of equipment and only when explicitly modified by a geographic designation of an area less than national in scope (e.g., Southwestern Bell); AT & T, on the other hand, could use the name “Bell” on a national basis for all these purposes if preceded by the word “American.” A. Use of the “Bell” Name by both AT & T and the Operating Companies Would Be Confusing The Department of Justice apparently considered that the original AT & T plan was unacceptable because it could lead to consumer confusion and mutual promotion (i.e., cross subsidization). The proposal presently before the Court is as flawed in those respects as the first plan — if not more so — and it therefore cannot be approved. There is no question but that the proposal, if implemented, would be confusing as to the relationship between AT & T and the Operating Companies: contrary to fact, it would lead consumers to believe that there is a continuing close connection between these entities or, worse, that they are all still components of the same company. The proposed system — AT & T’s use of the “Bell” name preceded by the word “American” and the Operating Companies’ use of the “Bell” name preceded by the designation of some smaller geographic area — inevitably suggests that each of the Operating Companies provides service in a particular region of the country while AT & T provides the national service which ties all of the components together into one integrated Bell System. As one of the intervenors correctly points out, for AT & T to suggest that consumers will not likely think that “Illinois Bell” is part of “American Bell” is as preposterous as it is that consumers would not think Illinois to be part of America. This implication, that there is a continuing link between AT & T and the Operating Companies, would have several significant anticompetitive effects: in the market for intercity telecommunications services it would imply that AT & T is the natural or “official” long distance company to be used in conjunction with the local services provided by the several Bell Operating Companies; in the market for consumer premises equipment it would lead consumers to believe that the local system maintained by a “Bell” Operating Company calls for “American Bell” (i.e., AT & T) equipment, or at a minimum, that American Bell equipment is made for and works better than the equipment of other manufacturers when hooked up to the local Bell network; and it would suggest that the local Bell Operating Companies will warrant, service, and repair the equipment of the national Bell company (i.e., AT & T). It is only to belabor the obvious to record that with respect to each of these areas, AT & T’s competitors would, in terms of consumer perception, come off distinctly second best. None of them could claim a similarly close relationship with the local Operating Companies. Sprint and MCI would inevitably be regarded as not as well suited as AT & T to render long distance service in. partnership with the local circuits of the Bell Operating Companies; and Tandy and ITT would constantly have to strive to overcome the perception that, even if their equipment could be connected at all to the local Bell Operating Company loops, it would not operate as smoothly and naturally with them as would AT & T’s, and that, again unlike AT & T’s equipment, it would not be locally serviced. The implication of a continuing relationship between AT & T and the Operating Companies is thus inconsistent with the bedrock principles underlying the decree. The principal purpose of the decree was to introduce fair and equitable competition in the telecommunications markets. This was to be achieved by separating the Operating Companies from AT & T so as to ensure that purchasing decisions regarding AT & T’s competitive services and equipment would be unaffected by the position of the Operating Companies as the providers of local monopoly exchange and exchange access services. It was, in brief, the decree’s purpose to give AT & T’s competitors the opportunity to compete with AT & T on equal terms without artificial impediments. The proposal for joint use of the “Bell” name substantially, if not fatally, undercuts these objectives. Moreover, as long as AT & T and the Operating Companies both used the “Bell” name, there would also be subsidization between them to the detriment of the other existing and potential competitors. Any promotional efforts by either AT & T or an individual Operating Company would accrue to the benefit of the other, transmitting overtly or subliminally the message that Bell is a single, dominant supplier of telecommunications services and equipment. When an Operating Company advertised under the “Bell” name, it would necessarily also promote the products and services of AT & T marketed under the “American Bell” label, and vice versa. The long-standing consumer association of the “Bell” name with all aspects of the Bell System’s local, long distance, and equipment operations would not only persist; it would actually be reinforced. The decree is designed to effect a radical separation of the Operating Companies from AT & T; it will hardly do to continue to have the various divested entities of the Bell System hold themselves out as if they were all still part of the same complex. The plan proposed by AT & T would create the impression to the consuming public that the divestiture had never taken place. The Court did not approve a decree breaking up the Bell System to have that system rise again, phoenix-like, in the plan of reorganization. For these reasons, the “Bell” name and the Bell logo must belong either to AT & T or to the Operating Companies — but not to both. B. AT & T Is Not Entitled to the “Bell” Name and Logo as a Matter of Right Since the concurrent use by AT & T and the Operating Companies of the name “Bell” cannot be approved, it remains to be decided which entity or entities should inherit that name — and along with it the logo — as part of the divestiture. Before proceeding to determine whether AT & T or the Operating Companies should, consistently with the decree’s principles, be assigned the Bell tradename and trademark, consideration must be given to several preliminary arguments made by AT & T. First. AT & T contends that it owns the “Bell” name, from which it would presumably follow that it cannot be deprived thereof without its acquiescence. That argument is not well taken. All of the assets of the combined Bell System are the property of AT & T yet some — indeed the majority — of these assets are being assigned by the decree to the Operating Companies. If AT & T had a veto power stemming from general principles of property law with respect to the “Bell” name, it would have the same kind of power with regard to all other Bell System assets. Obviously that is not so, in the context of a distribution of assets and liabilities stemming from a break-up of the corporation under a court-approved decree. The question actually is a much more simple and direct one: how should the assets represented by the “Bell” name and logo be distributed in order to effectuate the provisions and principles of the decree — an issue which is considered in Part C below. Second. AT & T next claims that the “Bell” name is part of the heritage of AT & T, and that customers who have purchased Bell telephones and services and who may want to patronize Bell System companies in the future are entitled to know, post-divestiture, which companies “are historically related to those products and services they have enjoyed for a hundred years.” But not only is that name as much a part of the heritage of the Bell Operating Companies as that of AT & T, but, in the public mind, “Bell” may well be said to stand primarily for the local companies, for that is where the public has traditionally obtained its telephones and its service. It was the Operating Company to which one turned with a malfunction, a complaint, a request for new or altered service, a billing inquiry, and the like. The function of a trademark or tradename is to indicate the party which “puts the goods on the market and accepts the responsibility or plaudits for their acceptability or quality.” E. Vandenburgh, Trademark Law and Procedure at 34 (2d ed. & 1979 Supplement). In this instance, that means, more than any other entity, the Operating Companies. Third. AT & T contends that the name “Bell” is assigned to it by the plan of reorganization and that this assignment should not be disturbed because it allegedly is not inconsistent with the provisions of the decree. It is true that the Department of Justice has capitulated to this argument, stating that it could find no basis for overturning the AT & T decision. But the provisions of the plan drawn by AT & T are entitled to much less weight here than in other circumstances, since it is clear from the submissions of the designated chief executives of the Regional Companies that a number of them oppose the proposed disposition of the Bell name and logo. Beyond that, as the Court has had occasion to explain a number of times, the plan of reorganization, to be approved, must be consistent not only with the provisions of the decree but also with the underlying principles. For the substantive reasons discussed below, an assignment of the “Bell” name and logo, or either, to AT & T would not be consistent with these principles. C. Use of the Bell Name and Logo Are More Appropriately Assigned to the Operating Companies than to AT & T Both the original plan and the proposed Department of Justice amendment would deny to the Operating Companies the use of the Bell name and logo in marketing customer premises equipment (CPE). The former would have severely limited this use; the latter would preclude it altogether. It is this aspect which has drawn the widest criticism — from the States, the interexchange carriers, the manufacturers of CPE, and the Operating Companies themselves. In the view of the Court, the critics are entirely correct. The decree as ultimately entered expressly authorized the Operating Companies to market customer premises equipment. The Court fully explained why it required this modification as a condition of its approval of the decree: As against [the] relatively slight risks to competition from Operating Company involvement in the marketing of CPE must be weighed the very substantial contribution these companies could make to vigorous competition in the customer premises equipment market.... The Operating Companies, with their existing relationship to telephone users, are more likely than any other competitive entity to provide an effective counter-balance to AT & T’s market strength and thereby to promote a genuinely competitive market. 552 F.Supp. at 192 (footnotes omitted). To deprive the Operating Companies of the use of the Bell logo and the Bell name in the CPE area would effectively cripple their efforts to become viable competitors in this market. The Court approved the decree in the expectation that the Operating Companies would be able to use their “existing relationship to telephone subscribers” in marketing equipment as a counter to AT & T’s market strength. The various Operating Company officials who provided comments to the Court on this aspect of the plan of reorganization attested to the fact that their principal strength in the marketplace for customer premises equipment (and other potential services which may be approved by the Court) [is their] long and solid reputation for quality products and excellent service. Our ability to trade on that hard earned reputation is important and should not be compromised by denying us the ability to use the Bell logo and marks as legitimate reminders of who we are. Several executives of the' new Regional Companies have stated that they might have to stay out of the equipment market entirely (or limit themselves to the sale of large-scale equipment) if they were prevented from using the Bell name and logo in connection with equipment marketing. See testimony of Thomas Bolger, June 2, 1983, transcript at 25601-02; see also, Wall Street Journal, Some Bell Companies May Stop Supplying Residential Phones as Competition Grows, June 17, 1983. It would not be similarly inimical to the purposes and principles of the decree to preclude AT & T from the use of the Bell name and logo. One principle underlying the decree is that both AT & T and the Operating Companies shall be in a position to be vigorous competitors with each other and with others in the marketing of customer premises equipment. To that end, the decree sets up a carefully balanced structure, as follows. AT & T will retain all embedded CPE; it will retain the Bell System retail outlets; and it will retain the ability both to manufacture and to market CPE. The decree further takes into account in this regard that, by comparison with the individual Operating Companies, AT & T will be a giant, with financial and other resources far overshadowing those of the local entities. The Operating Companies, on the other hand, will come out of the divestiture with relatively limited. CPE-related resources and functions. They will be prohibited from manufacturing CPE; they will be deprived in part of their existing customer base by the assignment of existing CPE to AT & T; they will lack the ready-made outlet .of existing retail stores; and they will not have the benefit of Bell personnel experienced in the marketing of CPE. Insofar as such marketing is concerned, these companies will essentially be limited to their proximity to the local customer base in addition to the goodwill inherent in the “Bell” name and logo (if these are assigned to them). In short, in competitive terms, the assignment of the Bell name and logo to the Operating Companies rather than to AT & T can hardly be characterized as unfair to the latter. The true situation is that, without the name and logo the local companies’ right, under the decree, to market CPE would be defeated, while AT & T’s right to do so would only be minimally affected. It is appropriate, finally, to quote from the representations which were made to the Court by AT & T’s counsel at last year’s public interest hearing. On June 29, 1982, counsel stated in response to comments made by an attorney representing a competitor that ... The problem is not the logo, the yellow and blue stripes and that sort of thing .... We do not want to get into that fight and we have already agreed ... that the Bell that you know, the stripes that you have come to know they will go to the BOCs. Trucks that get repainted will be the Long Lines trucks, [not?] the BOC trucks. The only thing left then is the names. I think Tandy’s counsel was very appropriate in saying that after all, you’re breaking up the Bell System... . What he objected to was concurrent use of the same corporate names. I stand before you and say there will be no such concurrent use of the same corporate name after the split. When the Court suggested that this understanding had best be incorporated in the decree, AT & T’s counsel replied that this was not necessary because [t]he question has been raised about these common names, the Court Reporter is recording this and there is a record of this hearing that should well outlast all of us, I suppose. Transcript at 25214-15. To be sure, it could be argued that these statements are not without some ambiguity. Yet the overwhelming sense of the representation, particularly when juxtaposed against the arguments made by counsel for one of AT & T’s competitors and that of the Department of Justice, was that AT & T was content to have the Operating Companies inherit the Bell logo and name. For the reasons stated, the Court will refuse to approve the plan of reorganization unless it is amended to provide for use of the “Bell” name and logo by the Operating Companies (except as provided in Part D infra) and for a prohibition on AT & T’s use after January 1, 1984, of the “Bell” name or the word “Bell” in any existing or new corporate name or in connection with the manufacture or marketing of any product or service, or for any other purpose. D. Limitations on the Operating Companies The use which the Operating Companies may make of the Bell name and logo requires additional discussion. First. Under the current version of the plan of reorganization, the “Bell” trademarks are to be assigned to the Central Staff Organization. However, if the CSO were to receive the assignment of the name and logo, it might also have to administer centrally a program of quality control, for-lack of reasonable “quality control” could be regarded as working an abandonment of the licensor’s registration of its trademark. See Lanham Act, 15 U.S.C. § 1051 et seq.; Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358, 367 (2d Cir.1959). Such monitoring of the Operating Companies by the CSO would run counter to the notion that it is the Operating Companies which control the CSO, not vice versa. Moreover, each Regional Company must have individual responsibility for giving meaning to the products or services it offers under the name Bell, consistent with trademark and antitrust law. Accordingly, the Court will require that the tradename and trademarks shall pass directly to the Regional Companies, without intervention of the CSO. Second. With respect to exchange telecommunications, exchange access, and directory advertising, the Operating Companies and the Regional Companies will, by definition, be limited to clearly defined geographic areas, and they will therefore use the name “Bell” only in conjunction with a geographic designation indicating the relevant territory. Likewise, in their corporate names, the Operating and Regional Companies will use “Bell” only in conjunction with a geographic prefix. In the marketing of equipment, however, these companies may wish to compete in places beyond their service territories, particularly with respect to the sale of large-scale telecommunications equipment to business customers. There is no reason why such competition should be precluded by the imposition of territorial restrictions. To the extent that an Operating Company sold CPE within its own geographic area, there might be no problem. Confusion would result, however, if hypothetically, Southern Bell, Northwestern Bell, and Pennsylvania Bell all marketed equipment in, say, Chicago, simply as “Bell” products, or if they stamped only the Bell logo on the equipment they sold there. The name “Bell” would in that case have little meaning; both it and the logo might be of dubious legitimacy under trademark law; and each company would run the risk of being sued by Illinois Bell for unfair competition. Accordingly, an Operating Company wishing to trade in another’s territory shall not use the name “Bell” without a trade modifier, nor may it use the logo standing alone. See, e.g., Standard Oil Company v. Standard Oil Company, 252 F.2d 65 (10th Cir. 1958); Mister Donut of America, Inc. v. Mr. Donut, Inc., 418 F.2d 838 (9th Cir.1969). IV Patents The issue before the Court is not, as it is with regard to the Bell name and logo, whether the Bell system patents should be assigned to AT & T or to the Operating Companies. AT & T will, in any event, retain ownership of all the patents. The question to be decided is the extent to which the Operating Companies will share in the patents by being granted licenses thereto, and what right these companies should have to grant sublicenses to others. A. Meaning of the Decree The plan of reorganization provides that the Operating Companies will be granted royalty-free licenses to use patents now owned by AT & T or to be issued to AT & T within five years after divestiture, to the extent that they relate to exchange, exchange access, and printed directory advertising services. Under the plan, the Operating Companies will not, however, be granted licenses to patents relating (1) to any services which the decree prohibits them from offering (such as inter-LATA service) and (2) to the provision of customer premises equipment. To justify these limitations, AT & T and the Department of Justice rely upon section 1(A)(1) of the decree, which provides, inter alia, for the transfer from AT & T ... to the BOCs ... of sufficient ... rights to technical information to permit the BOCs to perform, independently of AT & T, exchange telecommunications and exchange access functions and on section VIII(B) which provides that all facilities, personnel, systems, and rights to technical information owned by AT & T ... which are necessary for the production, publication, and distribution of printed advertising directories shall be transferred to the separated BOCs. In the view of these parties, no patent rights need to be granted to the Operating Companies on any basis other than these explicit provisions contained within the “four corners” of the decree. This is erroneous. When the Court approved the proposed decree on August 11, 1982, it made the approval contingent upon the adoption by the parties of a number of modifications. These modifications, it was made clear at the time, were required only for the most substantial changes or clarifications; with respect to other subjects, the Court stated that it was content to rely upon the parties’ representations and promises and its own authority to give them effect during the implementation proceedings, including by its authority to approve or disapprove of the plan of reorganization. Thus, the August 11, 1982 Opinion explained With respect to a number of subjects, the proposed decree establishes merely general principles and objectives, leaving the specific implementing details for subsequent action, principally by the plan of reorganization.... The parties have also made informal promises, either to each other or to the Court, as to how they intend to interpret or implement various provisions. The Court has decided that its public interest responsibilities require that it establish a process for determining whether the plan of reorganization and other, subsequent actions by AT & T actually implement these principles and promises in keeping with the objectives of the judgment.... For that reason, the Court is requiring that the judgment be modified ... to provide for a proceeding ... in which the Court will determine whether the plan of reorganization is consistent with the decree’s general principles and promises (emphasis added). 552 F.Supp. at 224-25. One of these promises concerned patents. In its August 11, 1982 Opinion, the Court took note of the fact that AT & T has proposed granting to the Operating Companies, on a royalty-free basis, all existing patents and all patents issued for a period of five years following approval of the proposed decree. 552 F.Supp. at 177 (emphasis added). This statement was not conjured up by the Court; it reflects repeated representations made to it both by AT & T and by the Department of Justice. For example, the Department stated in its Response to Public Comments of May 20, 1982 at 132 that the reorganization plan will require AT & T to grant royalty-free licenses to the BOCs for all of its existing patents, and for all patents issued for a period of five years following entry of the proposed modification (emphasis added). See also Department of Justice Response to Public Comments, May 20, 1982, at 38; AT & T Reply to Comments, May 21, 1982, at 123; and see note 105 infra. These various representations, said the Court in its August 11, 1982 Opinion, are adequate to support the conclusion that the Operating Companies will possess the necessary patent and technical information resources. The arguments now made by AT & T and the Department of Justice in support of their claim that the word “all” in their several representations to the Court did not really mean “all,” and that in context they meant something else, are disingenuous to say the least. Both parties base their narrow interpretations on the circumstance that the representations were made at a time when the proposed decree would have limited the Operating Companies to exchange telecommunications and exchange access services. While this is an accurate depiction of their timing, it does not in the least support the conclusion that the promises were or reasonably should have been regarded as limited to patents which related to these lines of business. These promises, whatever their timing, were relevant not only to the question of what resources were required to be transferred to the Operating Companies to implement the exchange telecommunications and access service provisions of section 1(A)(1), but also to two other issues— whether the Operating Companies should receive licenses to patents which they had in substantial part financed, and whether AT & T should be relieved of the obligation, imposed by the 1956 decree, to license its patents to all applicants on a nondiscriminatory basis. First. There were numerous references throughout the Tunney Act proceedings to the fact that the Operating Companies, by means of the licensing contracts, had contributed substantial amounts to the cost of the research which led to the patents, and this was always regarded by all as at least a possible basis for awarding licenses to the patents to these companies. See, e.g., Department of Justice Response to Public Comments, May 20, 1982, at 38. Second. The Department of Justice took the position during the Tunney Act proceedings that it was reasonable and in the public interest to relieve AT & T of the patent provisions of the 1956 decree which required it to grant licenses to all comers, foreign and domestic. One basic argument made to buttress the claim of reasonableness was that the fruits of the Bell system research would not simply be lost to the world because the reorganization plan would still require AT & T to grant royalty-free licenses to the Operating Companies for all of its existing patents and for all patents issued for a period of five years following entry of the decree. The Department explained that the effect of such a grant would be that the BOCs will have the right to sublicense these patents for their own use, including the manufacture of equipment for the BOCs’ purchase. Thus, as a practical matter, many AT & T patents issued within the next several years must also be licensed to AT & T’s competitors notwithstanding entry of the proposed modification. Because of the existence of requirements that AT & T license patents heretofore issued or issued during the next five years, and in view of the BOCs’ sublicensing rights, it is apparent that a significant portion, if not all, of such ‘work in progress’ patents will be licensed.... [T]here is no reason to believe that entry of the proposed modification will result in the removal of ‘work in progress’ patents from the pool of AT & T patents generally available to industry. This expansive description of the proposed distribution of patent rights was not in any way limited, explicitly or implicitly, to section 1(A)(1) of the decree or to intraLATA services. The Justice Department’s reference was to the effect of the proposed decree on the mandatory licensing provisions of the 1956 decree — and these provisions clearly applied to all Bell System patents (including, of course, the CPE patents). There is, in view of that history, no reasonable basis for the conclusion that the various references by AT & T and the Department of Justice to “all” patents did not mean just that, or that CPE patents in particular were meant to be withheld from the Operating Companies. Thus, when the decree was modified to authorize the Operating Companies to provide CPE, there was no need again to specify the patent rights incidental to this modification — rights which were already guaranteed to the Operating Companies by the parties’ representations and by the Court’s retention of jurisdiction to give effect thereto. As the Court said with reference to patents and technical information, When [the plan of reorganization] is submitted . .. the Court will evaluate [that plan] to make certain that [the appropriate details] conform to the general principles implied by these assurances. 552 F.Supp. at 177. AT & T next contends that, if it were required to license all the Bell System patents to the Operating Companies which would then have the right to sublicense these patents to others, it would be required to “give away its technology” (emphasis added). That formulation misstates the issue. Because of their financing of much Bell System research through the licensing contracts, what the Operating Companies will be receiving cannot fairly be described as AT & T’s technology; that technology is as much theirs as it is AT & T’s. See 552 F.Supp. at 177. Also, as the Court has already noted (see Part II above) all of the assets and all of the liabilities of the Bell System are being distributed between AT & T and the Operating Companies. AT & T cannot assert that, in the context of that distribution, the patents are “its” technology unless it is also prepared to live with the proposition that the liabilities of the Bell System are “its” liabilities. In short, it is entirely appropriate under the decree for the Operating Companies to receive licenses to the existing patents and to those which will be issued within the next five years. AT & T and the Department of Justice finally argue that under this rule, the Operating Companies would receive licenses to patents for services which the decree currently prohibits them from offering, and that there could be no justification for such an action. It is not true, however, that even with respect to such subjects as interLATA services, the Operating Companies will be entirely barred from entry; they will be in these lines of business as of the very date of divestiture, albeit on a limited scale, and they will therefore be able legitimately to make use of the pertinent patents and the technology they represent. Additionally, the line of business restrictions which will initially apply might in the future be lifted by the Court pursuant to section VIII(C) of the decree, and the patents would be useful to the Operating Companies at that time. B. Sublicensing by the Operating Companies It is thus clear that, in view of the representations made by the parties and accepted by the Court as part of