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McCaw Lawsuit Circles AT&T Wireless
In the investing world, some lawsuits are like volcanoes: You can safely ignore them for years -- unless, of course, they decide one day to erupt.

That's the situation faced by AT&T Wireless (AWE:NYSE - commentary - research), the chief defendant in an obscure legal battle it inherited in a 1994 acquisition.

So far, AT&T Wireless has successfully avoided liability in the case, rooted in events that took place 14 years ago.

But an eight-week-long trial stemming from the case -- a trial which is expected to go to the jury this week -- provides an opportunity for significant financial damage to the wireless carrier. As AT&T Wireless reported in a Securities and Exchange Commission filing earlier this year, the plaintiffs in the case have asserted claims for damages totaling $8.2 billion.

Though damages that large are rarely awarded in civil cases -- and even more rarely upheld on appeal -- damages even a fraction of that amount wouldn't exactly be welcome news for AT&T Wireless shareholders. A damages award of $400 million -- another figure apparently kicked around in the case -- would more than erase the $357 million in net income, available to common shareholders, that the carrier reported in the first half of 2003.

Yet the outcome of the trial -- final arguments are scheduled for Tuesday -- remains far from certain. AT&T Wireless, in fact, prevailed at an earlier trial in the case, though that decision was reversed when an appeals court indicated that certain issues that had been decided by the trial judge needed to be resolved by a jury.

"We firmly believe that the case has no merit," an AT&T Wireless spokesman said Tuesday, "and we're optimistic the jury will agree."

AT&T Wireless shares, which have ranged between $4.91 and $9.18 over the past year, fell 15 cents Tuesday to close at $8.12.

The company is scheduled to release third-quarter financial results after Wednesday's market close.

The cast of characters in the case -- being heard in DuPage County Circuit Court in Illinois -- reads almost like the answers to a telecom industry trivia quiz

One party in the lawsuit is In-Flight Phone Corp., a company founded by Jack Goeken -- not only a co-founder of MCI in the 1960s, but also a co-founder of airplane telephone pioneer Airfone in the 1980s. Goeken started In-Flight Phone after selling Airfone to GTE (now part of Verizon (VZ:NYSE - commentary - research)).

Another player is McCaw Cellular Communications, a cellular-telephone empire built by Craig McCaw and sold to AT&T (T:NYSE - commentary - research).

The plaintiffs in the case -- a shareholder group that took over the case from In-Flight -- allege that McCaw Cellular stole trade secrets from In-Flight Phone in 1990 as the two companies, and others, prepared to apply for Federal Communications Commission licenses enabling further airplane-to-ground phone calls.

Following up on a complaint originally filed in 1993, a 1996 amended complaint alleges that McCaw Cellular expressed interest in making an investment in In-Flight. After McCaw Cellular signed a confidentiality agreement, In-Flight provided McCaw with proprietary business, financial, marketing, operating and engineering information so that McCaw could conduct due diligence before making such an investment, according to the complaint.

After In-Flight made this information available to McCaw Cellular, according to the complaint, McCaw announced it wouldn't invest in In-Flight. Instead, allege the plaintiffs, McCaw Cellular used the information it had gained to file a separate application for an FCC license in a partnership with Hughes Network Systems, creating unfair competition for In-Flight.

Goeken subsequently sold In-Flight to MCI, while the McCaw-Hughes partnership, Claircom, ended up at AT&T when Ma Bell bought McCaw Cellular.