Appendix — Berkey Photo, Inc. v. Eastman Kodak Company. Eastman Kodak Company v. Berkey Photo, Inc
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FILED
SEP 14 1979
9-427
In THE
Supreme Court of the United States
OCTOBER TERM, 1979
.
Berkey Pxoto, Inc.,
Petitioner,
against
Eastman Konak Company,
Respondent.
APPENDIX TO THE PETITION FOR A WRIT OF
CERTIORARI TO THE UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
Axvin M. Stern
530 Fifth Avenue
New York, New York 10036
Attorney for Petitioner
Of Counsel:
Barry J. Bretr
Mark I. ScHLESINGER
Avrora CASSIRER
Mark D. Orren
Parker Cuaprn Fuattav & Kumeu
Neuman, WituiaMs, Anperson & OLsoNn
ee anamadenunnineiiinimeetiaeiaaaaaa
TABLE OF CONTENTS
PAGE
Appendix A—Judgment of the United States Court
of Appeals for the Second Circuit en-
tered June 25, 1979 ................ la
Appendix B—Opinion of the United States Court of
Appeals for the Second Cireuit filed
ge Sere ere 3a
Appendix C—Memorandum on Post-Trial Motions
of the United States District Court
for the Southern District of New
York dated June 16, 1978 .......... 102a
Appendix D—Opinion of the United States District
Court for the Southern District of
New York dated August 8, 1978 .... 162a
Appendix E—Jury verdict on EE ie cde uv meats 180a
Appendix F—Jury verdict on damages ........... 188a
Appendix G—Statutes involved .................. 190a
la
APPENDIX A
Judgment of the Court of Appeals
UNITED STATES COURT OF APPEALS
For tHe Seconp Circurr
At a stated Term of the United States Court of Appeals
for the Second Circuit, held at the United States Court-
house in the City of New York, on the twenty-fifth day of
June, one thousand nine hundred and seventy-nine.
Present: Hon. Irvine R. KaurmMan
Chief Judge
Hon. J. Joserx SMITH
Hon. Wituram H. Murucan
Circuit Judges
78-7445
78-7448
Berkey Puoro, Inc.,
Plaintiff-A ppellee-
Cross-Appellant,
Vv.
Eastman Kopax Company,
Defendant-A ppellant-
Cross-Appellee.
,*
if
Appeal from the United States District Court for the
Southern District of New York.
2a
Appendix A—Judgment of the Court of Appeals
This cause came on td be heard on the transcript of
record from the United States District Court for the
Southern District of New York, and was argued by counsel.
On ConsmERATION WHEREOF, it is now hereby ordered,
adjudged and decreed that the judgment of said District
Court be and it hereby is affirmed in part and reversed in
part and the action be and it hereby is remanded to said
District Court without costs in accordance with the opinion
of this court.
A. Dante, Fvsaro,
Clerk
ARTHUR HELLER
By: Arthur Heller,
Deputy Clerk
3a
APPENDIX B
Opinion of the Court of Appeals (filed June 25, 1979)
UNITED STATES COURT OF APPEALS
For tHe Seconp Circurr
Nos. 1019, 1070—August Term, 1978.
(Argued April 18, 1979
finally submitted April 30, 1979 Decided June 25, 1979.)
Docket Nos. 78-7445, 78-7448
Berkey Puoro, Ino.,
Plaintiff-A ppellee-Cross Appellant,
“V.0
Eastman Kopak Company,
Defendant-Appellant-Cross Appellee.
+ 9
Before:
Kavurman, Chief Judge,
SmirH and Muuuean, Circuit Judges.
7%
7
Appeal and cross-appeal from a judgment of the United
States District Court for the Southern District of New
York, Marvin E. Frankel, District Judge. The district
court upheld certain jury verdicts in this private antitrust
action; set aside others; entered judgment for plaintiff in
4a
Appendix B—Opinion of the Court of Appeals
the amount of $87,091,309.47, comprising attorneys’ fees,
costs, and treble damages; and decreed certain equitable
relief.
Affirmed in part, reversed in part, and remanded for
further proceedings.
’%
.
Auvin M. Sremn, New York City (Barry J.
Brett, Mark I. Schlesinger, Aurora
Cassirer, Mark D. Offen, Parker Chapin
Flattan & Klimpl, New York City;
Neuman, Williams, Anderson & Olson,
Chicago, of counsel), for Plaintiff-Ap-
pellee-Cross Appellant.
WruaM Prez, Jr., New York City (Robert
MacCrate, John L. Warden, Richard E.
Carlton, Jerrold J. Ganzfried, Philip K.
Howard, Shelley D. LaVine, William L.
Farris, Sullivan & Cromwell, New York
City, of counsel), for Defendant-Ap-
pellant-Cross Appellee.
Kavurman, Chief Judge:
INTRODUCTION
To millions of Americans, the name Kodak is virtually
Synonymous with photography. Founded over a century
ago by George Eastman, the Eastman Kodak Company
has long been the preeminent firm in the amateur photo-
graphic industry. It provides products and services cov-
ering every step in the creation of an enduring photo-
ame ee
— —— _~—
oa
Appendiz B—Opinion of the Court of Appeals
graphic record from an evanescent image. Snapshots may
be taken with a Kodak camera on Kodak film, developed
by Kodak’s Color Print and Processing Laboratories, and
printed on Kodak photographic paper. The firm has rivals
at each stage of this process, but in many of them it
stands, and has long stood, dominant. It is one of the
giants of American enterprise, with international sales of
nearly $6 billion in 1977 and pre-tax profits in excess of
$1.2 billion.
This action, one of the largest and most significant pri-
vate antitrust suits in history, was brought by Berkey
Photo, Inc., a far smaller but still prominent participant
in the industry. Berkey competes with Kodak in providing
photofinishing services—the conversion of exposed film
into finished prints, slides, or movies. Until 1978, Berkey
sold cameras as well. It does not manufacture film, but it
does purchase Kodak film for resale to its customers, and
it also buys photofinishing equipment and supplies, in-
cluding color print paper, from Kodak.
The two firms thus stand in a complex, multifaceted
relationship, for Kodak has been Berkey’s competitor in
some markets and its supplier in others. In this action,
Berkey claims that every aspect of the association has
been infected by Kodak’s monopoly power in the film,
color print paper, and camera markets, willfully acquired,
maintained, and exercised in violation of 42 of the Sher-
man Act, 15 U.S.C. §2. It also charges that Kodak con-
spired with flashlamp manufacturers in violation of $1 of
the Act, 15 U.S.C. §1. Berkey alleges that these viola-
tions caused it to lose sales in the camera and photo-
finishing markets and to pay excessive prices to Kodak
for film, color print paper, and photofinishing equipment.?
* Berkey had charged several other violations that are not be-
fore us on this appeal. During the liability trial, Berkey with-
(footnote continued on following page)
6a
Appendix B—Opinion of the Court of Appeals
A number of the charges arise from Kodak’s 1972 intro-
duction of the 110 photographic system, featuring a
“Pocket Instamatic” camera and a new color print film,
Kodacolor II, but the case is not limited to that episode.
It embraces many of Kodak’s activities for the last decade
and, indeed, from preceding years as well.
After more than four years of pretrial maneuvering,
the trial got under way in July 1977 before Judge
Marvin E. Frankel of the Southern District of New York.
Despite the daunting complexity of the case—the exhibits
numbered in the thousands—Kodak demanded a jury. Ac-
cordingly, the trial was conducted in two parts, one to
determine liability and the other to measure damages. It
ran continuously, except for a one-month hiatus between
the two segments, until the final verdict was rendered on
March 22, 1978. The liability phase of the trial by itself
consumed more than six months, and the damages aspect
required approximately another month. Except for a few
specific questions relating primarily to market definitions,
the jury was asked to render what was essentially a gen-
eral verdict on each count.
After deliberating for eight days on liability and five
on damages, the jury found for Berkey on virtually every
point, awarding damages totalling $37,620,130. Judge
(footnote continued from preceding page)
drew or the court dismissed claims under the Clayton Act §§ 3
& 7, 15 U.S.C. §§ 14 & 18, as well as allegations arising from some
of Kodak’s early acquisitions, its use of patents, its relations with
Polaroid Corp., and its other activities in the instant photography
field. Despite jury findings of § 2 liability, Berkey did not attempt
to prove damages with respect to color negative printers and chemi-
cals, and the jury found no damages with respect to amateur movie
cameras. Kodak’s purchases of flashcubes, magicubes, and flipflash
arrays led to a $245,100 jury verdict under the Robinson-Patman
Act, §2(f), 15 U.S.C. §13(f), which was set aside by Judge
Frankel because there was no evidence of injury to Berkey.
i ate aeamee
7a
Appendiz B—Opinion of the Court of Appeals
Frankel upheld verdicts aggregating $27,154,700 for lost
camera and photofinishing sales and for excessive prices
on film and photofinishing equipment, but he entered judg-
ment n.o.v. for Kodak on the remainder. Trebled and
supplemented by attorneys’ fees and costs pursuant to 44
of the Clayton Act, 15 U.S.C. $15, Berkey’s judgment
reached a grand total of $87,091,309.47, with interest, of
course, continuing to accrue.
Kodak now appeals this judgment, as well as the two
forms of equitable relief that we shall discuss below. It
challenges virtually every aspect of the district court pro-
ceedings, from the theories of liability and damages pre-
sented to the jury to the sufficiency of the evidence to
sustain them. It argues, furthermore, that J udge Franke]
committed prejudicial error in the conduct of the trial.
For its part, Berkey contends that the trial judge erred in
not entering judgment on the full amount of the jury’s
verdict and in computing improperly the costs and fees
that Berkey should recover.
Resolution of these competing claims requires us to
settle a number of important and novel issues concerning
§ 2 of the Sherman Act. We believe that the district court
committed several significant errors as it charted its course
through the complexities of this case, and we are there-
fore compelled to reverse the judgment below in certain
major respects. But we cannot accept Kodak’s contention
that a properly charged jury could not find monopolization
of any of the relevant markets and resulting damage to
Berkey. Accordingly, we remand for a new trial on
several of the claims.
I. Tae Amateur PHOTOGRAPHIC InpDustry
Before plunging into the welter of issues raised in this
appeal, we must understand the industry out of which the
8a
Appendix B—Opinion of the Court of Appeals
litigation arose. It is, of course, a basic principle in the
law of monopolization that the first step in a court’s anal-
ysis must be a definition of the relevant markets. See,
e.g., United States v. E. I. du Pont de Nemours & Co.,
301 U.S. 377, 391-93 (1956). Although Kodak does not
now challenge the jury’s delineation of the markets a sur-
vey of this terrain remains essential. The jury found
monopolization or other anticompetitive conduct in no
fewer than five distinct markets within the amateur photo-
graphic industry, and in several instances Kodak was held
to have misused its control over one market to disadvan-
tage rivals in another. Accordingly, to evaluate the ver-
dicts, it is necessary to describe not only the individual
markets but also the interrelationships among them.
The principal markets relevant here, each nationwide in
scope, are amateur conventional still cameras, conventional
photographic film, photofinishing services, photofinishing
equipment, and color print paper. The numerous tech-
nological interactions among the products and services
constituting these markets are manifest. To take an
obvious example, not only are both camera and film
required to produce a snapshot, but the two must be in
compatible “formats.” This means that the film must be
cut to the right size and spooled in a roll or cartridge that
will fit the camera mechanism. Berkey charges that
Kodak refused to supply on economical terms film usable
with camera formats designed by other manufacturers,
thereby exploiting its film monopoly to obstruct its rivals
in the camera market. Similarly, Berkey contends, since
the emulsions and other constituents of a film determine
the chemicals and processes required to develop it, Kodak
was able to project its power over film into the photo-
finishing market as well.
These and other market interactions will be discussed
in depth as we analyze the verdicts and rulings below.
A A A, a
9a
Appendix B—Opinion of the Court of Appeals
First, however, we must describe in detail the individual
markets themselves.
A. The Camera Market
The “amateur conventional stil] camera” market now
consists almost entirely of the so-called 110 and 126 in-
stant-loading cameras. These are the direct descendants
of the popular “box” cameras, the best-known of which was
Kodak’s so-called “Brownie.” Small, simple, and relatively
inexpensive, cameras of this type are designed for the
mass market rather than for the serious photographer.?
Kodak has long been the dominant firm in the market
thus defined. Between 1954 and 1973 it never enjoyed
less than 61% of the annual unit sales, nor less than 64%
of the dollar volume, and in the peak year of 1964,
Kodak cameras accounted for 90% of market revenues.
Much of this success is no doubt due to the firm’s history
of innovation. In 1963 Kodak first marketed the 126 “Tn-
stamatic” instant-loading camera,’ and in 1972 it came
out with the much smaller 110 “Pocket Instamatic.” Not
only are these cameras small and light, but they employ
film packaged in cartridges that can simply be dropped in
the back of the camera, thus obviating the need to load
and position a roll manually. Their introduction triggered
successive revolutions in the industry. Annual amateur
still camera sales in the United States averaged 3.9 mil-
* More complicated cameras, such as those in the 135 format
(‘‘35-millimeter’’) commonly used by professionals and photo-
graphic hobbyists, were found not to be part of this market. The
jury also rejected Kodak’s request to include in the definition
“‘instant’’ cameras, pioneered by the Polaroid Corporation, which
produce a finished print within minutes, or even seconds, after the
shutter is snapped.
* Instant-loading cameras are not to be confused with the ‘‘in-
stant’’ cameras referred to in the previous footnote.
10a
Appendix B—Opinion of the Court of Appeals
lion units between 1954 and 1963, with little annual vari-
ation. In the first full year after Kodak’s introduction of
the 126, industry sales leaped 22%, and they took an
even larger quantum jump when the 110 came to market.
Other camera manufacturers, including Berkey, copied
both these inventions, but for several months after each
introduction anyone desiring to purchase a camera in the
new format was perforce remitted to Kodak.
Berkey has been a camera manufacturer since its 1966
acquisition of the Keystone Camera Company, a producer
of movie cameras and equipment.‘ In 1968 Berkey began
to sell amateur still cameras made by other firms, and
the following year the Keystone Division commenced
manufacturing such cameras itself. From 1970 to 1977,
Berkey accounted for 8.2% of the sales in the camera
market in the United States,® reaching a peak of 10.2%
in 1976. In 1978, Berkey sold its camera division and
thus abandoned this market.
B. The Film Market
The relevant market for photographic film comprises
color print, color slide, color movie, and black-and-white
film. Kodak’s grip on this market is even stronger than
its hold on cameras. Since 1952, its annual sales have
*In 1967 Berkey acquired a manufacturer of amateur photo-
graphic accessories, the Atlas-Warner Corp., along with three dis-
tributors of Atlas-Warner products.
* Berkey entered into the manufacture of instant cameras in
1972, but discontinued this line in settlement of patent litigation
instituted by Polaroid Corp.
*The jury included movie film and 35-millimeter film in this
market, presumably because they are substantially identical to the
film used in amateur still cameras. Instant film, however, a product
chemically distinct from laboratory-processed film, was excluded.
lla
Appendix B—Opinion of the Court of Appeals
always exceeded 82% of the nationwide volume on a unit
basis, and 88% in revenues. Foreign competition has re-
cently made some inroads into Kodak’s monopoly, but the
Rochester firm concedes that it dominated film sales
throughout the period relevant to this case. Indeed, in his
summation, Kodak’s trial counsel told the jury that ‘‘the
film market ... has been a market where there has not
been price competition and where Kodak has been able to
price its products pretty much without regard to the pro-
ducts of competitors.’
Kodak’s monopoly in the film market is particularly im-
portant to this case, because the jury accepted Berkey’s
contention, noted above, that it had been used to disad-
vantage rivals in cameras, photofinishing, photofinishing
equipment, and other markets. Of special relevance to
this finding is the color print film segment of the indus-
try, which Kodak has dominated since it introduced
“Kodacolor,” the first amateur color print film, in 1942,"
In 1963, when Kodak announced the 126 Instamatic cam-
era, it also brought out a new, faster color print film—
Kodacolor X—which was initially available to amateur
photographers only in the 126 format.® Nine years later,
Kodak repeated this pattern with the Simultaneous in-
troduction of the 110 Pocket Instamatie and Kodacolor IT
film. For more than a year, Kodacolor IT was made only
"Kodak marketed improved versions of Kodacolor in 1945,
1949, and 1955.
* The new film was also initially sold for use in 85-millimeter
cameras, which are not part of the amateur market, It did not
replace Kodacolor in the amateur 127 and 620 sizes until one year
later. ‘‘Film speed’’ refers to an emulsion’s sensitivity to light.
Thus Kodacolor X—as compared to its predecessor—could produce
acceptable images under markedly inferior lighting conditions,
12a
Appendix B—Opinion of the Court of Appeals
for 110 cameras, and Kodak has never made any other
color print film in the 110 size.
C. Photofinishing Services and Photofinishing Equipment
Before 1954, Kodak’s Color Print and Processing Lab-
oratories (CP&P) had a nearly absolute monopoly of color
photofinishing maintained by a variety of practices. Ac-
counting for over 95% of color film sales, Kodak sold
every roll with an advance charge for processing included.
Consumers had little choice but to purchase Kodak film,
and in so doing they acquired the right to have that film
developed and printed by CP&P at no further charge.
Since few customers would duplicate their costs to pro-
cure the services of a non-Kodak photofinisher, Kodak
was able to parlay its film monopoly to achieve equiv-
alent market power in photofinishing.®
This film/processing ‘‘tie-in’’ attracted the attention of
the Justice Department, and in 1954 a consent decree
changed the structure of the color photofinishing market
drastically. Kodak was forbidden to link photofinishing to
film sales, and it agreed to make its processing technol-
ogy, chemicals, and paper available to rivals at reasonable
rates. As a result, CP&P’s share of the market plummeted
from 96% in 1954 to 69% two years later, and it has
declined sharply ever since. In 1970, CP&P accounted for
but 17% of the market, and by 1976 its share reached a
low of 10%. There are now approximately 600 independ-
ent photofinishers in the United States.
*To be sure, Kodak could not in this fashion control the market
for color reprints—production of additional prints from slides or
negatives. Here it resorted to other tactics. By refusing to sell
the special paper or chemicals necessary to produce such reprints
to rival photofinishers, it ensured—since there was no other ade-
quate source for these supplies—that even this segment of the
market did not escape its grip.
|
13a
Appendix B—Opinion of the Court of Appeals
Berkey is one of the largest of these processors. It has
been a photofinisher since 1933, but until 1954 its prin-
cipal business was developing and printing black-and-white
film.” In addition, Berkey purchased Kodak black-and-
white film, which was sold without a processing tie-in, for
resale to its photofinishing customers. After the 1954 de-
cree, Berkey applied to Kodak for the appropriate licenses
and in 1956 began to process significant amounts of color
film. It now finishes more 126 and 110 color print film
than does Kodak.
A variety of equipment is used to process film, and the
Kodak Apparatus Division (KAD) designs and produces
most of the machinery used by CP&P. Kodak also sells
some equipment to other photofinishers, but this is an in-
significant portion of its business ; indeed, until the intro-
duction of the 110 system, Kodak made still film proc-
essing equipment for its own use only. Several other
firms supply photofinishing equipment to the rival proces-
sors, and Berkey does not contend that Kodak monopo-
lized or attempted to monopolize this market.
D. The Color Paper Market
'
f
The market for color paper—that is, paper specially
treated so that images from color film may be printed on
it—effectively came into being after entry of the 1954
consent decree. Before then, Kodak was for all practical
| purposes the only color photofinisher, and its require-
ments for color paper were met entirely by the paper
division of Kodak Park Works in Rochester. The remain-
icals supplied by Ansco, Berkey was also able to produce color
prints from Kodachrome slides.
14a
Appendix B—Opinion of the Court of Appeals
ing processors, who dealt with non-Kodak color film and
used non-Kodak paper, occupied only four percent of the
color photofinishing market. Consequently, the vertical
foreclosure created by CP&P’s lock on photofinishing and
its exclusive use of Kodak color paper was virtually com-
plete.
Although the 1954 decree steadily loosened Kodak’s
grip in photofinishing, it did not immediately affect the
firm’s control of color paper. For more than a decade, the
independent photofinishers that sprang up after the decree
was entered looked only to Kodak for their paper supplies.
Indeed, although entry by both foreign and domestic
paper manufacturers has reduced Kodak’s share sub-
stantially, to a low of 60% in 1976, the firm’s color paper
operations have remained remarkably profitable. Be-
tween 1968 and 1975, while its market share was falling
from 94% to 67%, Kodak’s earnings from operations as a
percentage of sales remained virtually constant, averaging
60% for the period. Moreover, the most recent telling
event in the market has not been entry but exit: GAF
Corporation announced in 1977 that it was abandoning its
effort to sell color paper, leaving Kodak with only one
domestic and two foreign competitors.
Kodak, then, is indeed a titan in its field, and ac-
cordingly has almost inevitably invited attack under $2
of the Sherman Act. Few, if any, cases have presented so
many diverse and difficult problems of § 2 analysis. It is
appropriate, therefore, to elucidate some fundamental
principles of law relating to that statutory provision.
II. § 2 or rae SHerman Act
The Sherman Antitrust Act of 1890 has been char-
acterized as “a charter of freedom,” Appalachian Coals,
Inc. v. United States, 288 U.S. 344, 359 (1933). For nearly
ne
| 15a
Appendix B—Opinion of the Court of Appeals
ES A See
ninety years it has engraved in law a firm national
policy that the norm for commercial activity must be
robust competition. The most frequently invoked section
of the Act is the first, which forbids contracts, combina-
tions, or conspiracies in restraint of trade. But the pro-
| hibition of §1 is incomplete, Standard Oil Co. of New
Jersey v. United States, 221 U.S. 1, 60-61 (1911), for it
| only applies to conduct by two or more actors. If suffi-
ciently powerful, however, a single economic entity may
also stifle competition. 1 R. Callmann, The Law of Unfair
Competition, Trademarks, and Monopolies 341-42 (3d ed.
1967). Accordingly, in § 2 of the Sherman Act, Congress
made it unlawful to “monopolize, or attempt to monopolize,
or combine or conspire .. . to. monopolize” any part of
interstate or foreign commerce. It is § 2 to which we give
our principal attention in analyzing this case.
In passing the Sherman Act, Congress recognized that
it could not enumerate all the activities that would con-
stitute monopolization. Section 2, therefore, in effect con-
| ferred upon the federal courts “a new jurisdiction to
| apply a ‘common law’ against monopolizing.” 3 P. Areeda
& D. Turner, Antitrust Law 40 (1978). In performing that
task, the courts have enunciated certain principles that by
now seem almost elementary to any student of antitrust
law. But, because §2 must reconcile divergent and some-
times conflicting policies, it has been difficult to synthesize
the parts into a coherent and consistent whole. To provide
a framework for deciding the issues presented by this case,
therefore, we begin by stating what we conceive to be the
fundamental doctrines of § 2.
A. Monopoly Power as the Essence of the § 2 Violation
The gravamen of a charge under §1 of the Sherman
Act is conduct in restraint of trade; no fundamental alter-
l6a
Appendix B—Opinion of the Court of Appeals
ation of market structure is necessary. Thus, certain
restrictive practices among competitors, such as price
fixing, are illegal per se. That the conspirators lack the
market power to affect prices is immaterial. United States
v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940).
Section 2, by contrast, is aimed primarily not at improper
conduct but at a pernicious market structure in which the
concentration of power saps the salubrious influence of
competition.
Indeed, there is little argument over the principle that
existence of monopoly power—‘‘the power to control prices
or exclude competition,” E. I. du Pont de Nemours & Co.,
supra, 351 U.S. at 391—is “the primary requisite to a
finding of monopolization.” 1 M. Handler, Twenty-five
Years of Antitrust 691 (1973). The Supreme Court has
informed us that “monopoly power, whether lawfully or
unlawfully acquired, may itself constitute an evil and
stand condemned under § 2 even though it remains unex-
ercised.” United States v. Griffith, 334 U.S. 100, 107
(1948).
This tenet is well grounded in economic analysis. There
is little disagreement that a profit-maximizing monopolist
will maintain his prices higher and his output lower than
the socially optimal levels that would prevail in a purely
competitive market. E.g., F. Scherer, Industrial Market
Structure and Economic Performance 13-19 (1970). The
price excess represents not a reasonable return on invest-
ment but the spoils of the monopolist’s power. £.g.,
L. Sullivan, Handbook of the Law of Antitrust 25-26
(1977); 2 P. Areeda & D. Turner, supra, at 323-34.
It is not a defense to liability under § 2 that monopoly
power has not been used to charge more than a competi-
tive price or extract greater than a reasonable profit.
Learned Hand stated the rationale in the Alcoa case,
— —
17a
Appendix B—Opinion of the Court of Appeals
United States v. Aluminum Co. of America, 148 F.2d
416, 427 (2d Cir. 1945). He said in his incisive manner
that the Sherman Act is based on the belief :
that possession of unchallenged economic power
deadens initiative, discourages thrift and depresses
energy; that immunity from competition is a narcotic,
and rivalry is a stimulant, to industrial progress;
that the spur of constant stress is necessary to coun-
teract an inevitable disposition to let well enough
alone.
Judge Hand explained, in addition, that Congress was not
“actuated by economic motives alone”? in enacting §2. Id.
Considerations of political and social policy form a major
part of our aversion to monopolies, for concentration of
power in the hands of a few obstructs opportunities for
the rest.
Because, like all power, it is laden with the possibility
of abuse; because it encourages sloth rather than the
active quest for excellence; and because it tends to damage
the very fabric of our economy and our society, monopoly
power is “inherently evil.” United States vy. T *ntted Shoe
Machinery Corp., 110 F. Supp. 295, 345 (D. Mass. 1953),
aff'd per curiam, 347 U.S. 521 (1954) ; see United States
v. Grinnell Corp., 236 F. Supp. 244, 258 (D.R.I. 1964),
aff'd in part, 384 U.S. 563 (1966). If a finding of monopoly
power were all that were necessary to complete a violation
of § 2, our task in this case would be considerably lightened.
Kodak’s control of the film and color paper markets clearly
reached the level of a monopoly. And, while the issue is
a much closer one, it appears that the evidence was suf-
ficient for the jury to find that Kodak possessed such
18a
Appendix B—Opinion of the Court of Appeals
power in the camera market as well." But our inquiry
into Kodak’s liability cannot end there.
B. The Requirement of Anticompetitive Conduct
Despite the generally recognized evils of monopoly
power, it is ‘well settled,” see J. von Kalinowski, Anti-
trust Laws & Trade Regulation { 802(3), at 8-41 (1979),
that $2 does not prohibit monopoly simpliciter—or, as the
Supreme Court phrased it in the early landmark case of
Standard Oil Co. of New Jersey, supra, 221 U.S. at 62,
“monopoly in the concrete.”
Thus, while proclaiming vigorously that monopoly power
is the evil at which §2 is aimed, courts have declined to
take what would have appeared to be the next logical
step—declaring monopolies unlawful per se unless specifi-
cally authorized by law. To understand the reason for
this, one must comprehend the fundamental tension—one
might almost say the paradox—that is near the heart of
§2. This tension creates much of the confusion sur-
rounding $2. It makes the cryptic Alcoa opinion a liti-
gant’s wishing well, into which, it sometimes seems, one
may peer and find nearly anything he wishes.
The conundrum was indicated in characteristically strik-
ing prose by Judge Hand, who was not able to resolve it.
** See our discussion of the relevant markets, Part I supra.
Kodak sold approximately two-thirds of all amateur conventional
still cameras throughout most of the relevant period. The fre-
quency with which flashlamp manufacturers approached Kodak
with suggestions for joint development of products and their will-
ingness to acquiesce in arguably one-sided agreements is further
evidence of Kodak’s power in the camera market. See our dis-
cussion of Berkey’s § 1 allegations, Part V, infra. The precipitous
decline, beginning in 1976, of Kodak’s share of the camera market
was evidence that the jury could consider, although it was not
dispositive.
Pe a ee et
19a
Appendix B—Opinion of the Court of Appeals
Having stated that Congress “did not condone ‘good
trusts’ and condemn ‘bad’ ones; it forbad all,” Alcoa,
supra, 148 F.2d at 427, he declared with equal force, “The
successful competitor, having been urged to compete,
must not be turned upon when he wins,” id. at 430.
Hand, therefore, told us that it would be inherently un-
fair to condemn success when the Sherman Act itself
mandates competition. Such a wooden rule, it was feared,
might also deprive the leading firm in an industry of the
incentive to exert its best efforts. Further success would
yield not rewards but legal castigation. The antitrust laws
would thus compel the very sloth they were intended to
prevent. We must always be mindful lest the Sherman
Act be invoked perversely in favor of those who seek pro-
tection against the rigors of competition. E.g., Buffalo
Courier-Express, Inc. v. Buffalo Evening News, Inc., No.
77-7617, slip op. at 2196 (2d Cir. Apr. 16, 1979).
In Alcoa the crosscurrents and pulls and tugs of §2
law were reconciled by noting that, although the firm con-
trolled the aluminum ingot market, “it may not have
achieved monopoly; monopoly may have been thrust upon
it.” 148 F.2d at 429. In examining this language, which
would condemn a monopolist unless it is “the passive
beneficiary of a monopoly,” id. at 430, we perceive Hand
the philosopher. As an operative rule of law, however, the
“thrust upon” phrase does not suffice. It has been criti-
cized by scholars, 3 P. Areeda & D. Turner, supra, at 20;
L. Sullivan, supra, at 96-97; Handler, Some Unresolved
Problems of Antitrust, 62 Colum. L. Rev. 930, 934 (1962),
and the Supreme Court appears to have abandoned it.
See United States v. Grinnell Corp., 384 U.S. 563, 570-71
(1966); 1 M. Handler, swpra, at 692. Grinnell instructs — |
that after possession of monopoly power is found, the sec-
ond element of the §2 offense is “the willful acquisition
20a
Appendix B—Opinion of the Court of Appeals
or maintenance of that power as distinguished from growth
or development as a consequence of a superior product,
business acumen, or historic accident.” 384 U.S. at 570-71.
This formulation appears to square with the under-
standing of the draftsmen of the Sherman Act that § 2
does not condemn one “who merely by superior skill and
intelligence . . . got the whole business because nobody
could do it as well.” United Shoe Machinery Corp., supra,
110 F. Supp. at 341 (quoting legislative history). Thus the
statement in Alcoa that even well-behaved monopolies are
forbidden by $2 must be read carefully in context. Its
rightful meaning is that, if monopoly power has been ac-
quired or maintained through improper means, the fact
that the power has not been used to extract improper
benefits provides no succor to the monopolist.
But the law’s hostility to monopoly power extends
beyond the means of its acquisition. Even if that power
has been legitimately acquired, the monopolist may not
wield it to prevent or impede competition. Once a firm
gains a measure of monopoly power, whether by its own
superior competitive skill or because of such actions as re-
strictive combinations with others, it may discover that
the power is capable of being maintained and augmented
merely by using it. E.g., Lorain Journal Co. v. United
States, 342 U.S. 143 (1951). That is, a firm that has
achieved dominance of a market must find its control suf-
ficient to preserve and even extend its market share by
excluding or preventing competition. A variety of tech-
niques may be employed to achieve this end—predatory
pricing, lease-only policies, and exclusive buying arrange-
ments, to list a few.
Even if the origin of the monopoly power was innocent,
therefore, the Grinnell rule recognizes that maintaining or
extending market control by the exercise of that power is
21a
Appendix B—Opinion of the Court of Appeals
sufficient to complete a violation of §2. As we have ex-
plained only considerations of fairness and the need to
preserve proper economic incentives prevent the condem-
nation of §2 from extending even to one who has gained
his power by purely competitive means. The district court
judge correctly indicated that such a monopolist is
tolerated but not cherished. Thus, the rule of Grinnell
must be read together wit!. the teaching of Griffith, that
the mere existence of monopoly power “whether lawfully
or unlawfully acquired,” is in itself violative of § 2, “pro-
vided it is coupled with the purpose or intent to exercise
that power.” 334 U.S. at 107.
The key to analysis, it must be stressed, is the concept
of market power. Although power may be derived from
size, e.g., United States v. Swift & Co., 286 U.S. 106,
116 (1932), the two are not identical. F. Scherer, supra,
at 352. <A firm that has lawfully acquired a monopoly
position is not barred from taking advantage of scale
economies by constructing, for example, a large and effi-
cient factory. These benefits are a consequence of size and
not an exercise of power over the market.” Nevertheless,
many anticompetitive actions are possible or effecti 2 only
if taken by a firm that dominates its smaller rivals. See
Telex Corp. v. International Business Machines Corp., 510
F.2d 894, 925-26 (10th Cir.), cert. dismissed, 423 U.S.
802 (1975). <A classic illustration is an insistence that
** Nor is a lawful monopolist ordinarily precluded from charging
as high a price for its product as the market will accept. True,
this is a use of economic power; indeed, the differential between
price and marginal cost is used as an indication of the degree of
monopoly power, 2 P. Areeda & D. Turner, supra, at 323-24; see
Borden, Inc., 3 Trade Reg. Rep. (CCH) { 21,490, at 21,502-03
(FTC 1978). But high prices, far from damaging competition, in-
vite new competitors into the monopolized market. See Part IV,
infra. Excessive prices may, however, create an illegal ‘“‘price
squeeze’’ in another market. See Alcoa, supra, 148 F.2d at 439.
22a
Appendix B—Opinion of the Court of Appeals
those who wish to secure a firm’s services cease dealing
with its competitors. See, e.g., Lorain Journal Co., swpra.
Such conduct is illegal when taken by a monopolist be-
cause it tends to destroy competition, although in the hands
of a smaller market participant it might be considered
harmless, or even “honestly industrial.” Alcoa, supra,
148 F.2d at 431.
In sum, although the principles announced by the § 2
cases often appear to conflict, this much is clear. The
mere possession of monopoly power does not ipso facto
condemn a market participant. But, to avoid the proscrip-
tions of § 2, the firm must refrain at all times from con-
duct directed at smothering competition. This doctrine has
two branches. Unlawfully acquired power remains
anathema even when kept dormant. And it is no less true
that a firm with a legitimately achieved monopoly may
not wield the resulting power to tighten its hold on the
market.
C. Monopoly Power as a Lever in Other Markets
It is clear that a firm may not employ its market posi-
tion as a lever to create—or attempt to create—a monop-
oly in another market. See, e.g., Griffith, swpra; Smith-
Kline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir.),
cert. denied, 99 S. Ct. 123 (1978). Kodak, in the period
relevant to this suit, was never close to gaining control of
the markets for photofinishing equipment or services and
could not be held to have attempted to monopolize
them.** Berkey nevertheless contends that Kodak illicitly
gained an advantage in these areas by leveraging its
power over film and cameras. Accordingly, we must deter-
**The jury rejected this contention, which was submitted to
them dubitante.
23a
Appendix B—Opinion of the Court of Appeals
mine whether a firm violates § 2 by using its monopoly
power in one market to gain a competitive advantage in
another, albeit without an attempt to monopolize the sec-
ond market. We hold, as did the lower court, that it does.
This conclusion appears to be an inexorable interpreta-
tion of the antitrust laws. We tolerate the existence of
monopoly power, we repeat, only insofar as necessary to
preserve competitive incentives and to be fair to the firm
that has attained its position innocently. There is no
reason to allow the exercise of such power to the detri-
ment of competition, in either the controlled market or
any other. That the competition in the leveraged market
may not be destroyed but merely distorted does not make
it more palatable. Social and economic effects of an ex-
tension of monopoly power militate against such conduct.
The Griffith case confirms this view. There, a chain of
motion picture exhibitors operated the only theaters in a
number of towns, and used its concomitant buying power
to extract from distributors certain exclusive rights in
other localities where it faced challengers. The Court held
that monopoly power had been illegally used “to beget
monopoly,” 334 U.S. at 108. Its rationale swept more
broadly, however, for it admonished that ‘“‘the use of
monopoly power, however lawfully acquired, to foreclose
competition, to gain a competitive advantage, or to destroy
a competitor, is unlawful.” Jd. at 107.
This rule is linked to the prohibition against tying
arrangements in the sale of goods and services, See 3
P. Areeda & D. Turner, supra, at 223-24. Indeed, in North-
ern Pacific Railway v. United States, 356 U.S. 1, 11
(1958), the Supreme Court described the “vice” of ties in
language evocative of Grifith: “the use of economic
power in one market to restrict competition on the merits
in another.” And to condemn a tie, the market for the
24a
Appendix B—Opinion of the Court of Appeals
tied product need not be monopolized. It suffices that a
“substantial” amount of competition is foreclosed. Times-
Picayune Publishing Co. v. United States, 345 U.S. 594,
608-09 (1953) ; International Salt Co. v. United States, 332
U.S. 392, 396 (1947).
We need not rely solely on policy considerations or an
analysis of the Griffith dictum to support the view asserted
here. Indeed, what ever problems of murkiness may
plague the Alcoa opinion, on this point it is pellucid. The
defendant had employed its monopoly power in the ingot
market to impose a price squeeze on the manufacturers of
aluminum sheet.* Although this court expressly noted
that there was no attempt to monopolize the sheet mar-
ket, it held the challenged practice to be “an unlawful
exercise of ‘Alcoa’s’ power.” 148 F.2d at 438. A more
recent case arriving at the same conclusion is Sargent-
Welch Scientific Co. v. Ventron Corp., 567 F.2d 701,
711-13 (7th Cir.), cert. denied, 99 S.Ct. 87 (1978). There a
manufacturer of precision scientific instruments with a
monopoly in the market for electromagnetic microbalances
allegedly threatened to refuse to sell these devices to
retailers who did not stock its millibalances as well. The
court ruled that this practice would violate 42, even
though Ventron did not seek or gain a monopoly in the
market for millibalances.*®
“* That is, Alcoa sold ingot to rival sheetmakers at such a high
price that it gained a distinct competitive advantage for its own
sales of sheet.
*° We cannot accept Kodak’s argument that, read literally, § 2
prevents a plaintiff from recovering unless there was at least an
attempt to monopolize the market in which it claims to have
been injured. Since monopoly power itself is the target of § 2, it
is unreasonable to suggest that a firm that possesses such power
in one market and uses it to damage competition in another
does not ‘‘monopolize’’ within the meaning of the statute.
25a
Appendix B—Opinion of the Court of Appeals
Accordingly, the use of monopoly power attained in one
market to gain a competitive advantage in another is a
violation of § 2, even if there has not been an attempt to
moncpolige the second market. It is the use of economic
power that creates the liability. But, as we have indi-
cated, a large firm does not violate § 2 simply by reaping
the competitive rewards attributable to its efficient size,
nor does an integrated business offend the Sherman Act
whenever one of its departments benefits from association
with a division possessing a monopoly in its own market.
So long as we allow a firm to compete in several fields,
we must expect it to seek the competitive advantages of
its broad-based activity—more efficient production, greater
ability to develop complementary products, reduced trans-
action costs, and so forth. These are gains that accrue to
any integrated firm, regardless of its market share, and
they cannot by themselves be considered uses of monopoly
power.
We shall now apply to the case at bar the principles
we have set forth above.
III. Tue 110 System
We turn now to the events surrounding Kodak’s intro-
duction of the 110 photographic system in 1972. In many
respects, the factors present here are representative of
the case as a whole. They involve four of the five prin-
cipal markets and provide the basis for several of the
damages verdicts upheld by the district court, including
the largest, an award of $15,250,000, before trebling, for
lost camera sales.
We commented earlier on the camera revolution sparked
by Kodak’s introduction of the 126 Instamatic in 1963.
Ben Berkey, chairman of Berkey Photo, described the
Sesto eee
x Gp Firs ge Rip
26a
Appendix B—Opinion of the Court of Appeals
camera’s cartridge-loading feature as “foolproof” and re-
marked that the new simple system gave the industry “a
great boost.” Even before the 126 was introduced, how-
ever, Kodak had set its sights on a new, smaller line of
Instamatic cameras. The aim of Kodak’s Project 30, or
P-30, as it was often called, was a camera barely one inch
thick but capable of producing photographs as clear and
large as its bulkier cousins.
Kodak’s desire to produce large, high-quality snapshots
from a small camera created successive ripples in a num-
ber of ponds. As camera size decreases, so does the area
of film exposed when the shutter is opened. Thus the
negative must be substantially enlarged to produce a
print, and the P-30 group was concerned that the Kodak
color print film then in use, Kodacolor X, might not be
equal to the task. There was fear that it was too
“grainy”—that full-size photographs printed from tiny
Kodacolor X negatives would have an unacceptably speck-
led, pebbly appearance, reflecting the extreme magnifica-
tion of the small light-sensitive grains constituting the
film.
The early view at P-30 had been that despite this prob-
lem Kodacolor X would prove “quite adequate” for the
new format. By 1966, however, the Kodacolor Future Sys-
tem Committee, considering Kodak’s film sales in the 126
size as well as in the format being created by Project 30,
began actively to consider the possibility of developing a
new type of Kodacolor film. This engendered the second
set of ripples, for the committee realized that basic
changes in the film would require a new photofinishing
process, conducted at temperatures higher than those used
in the so-called C-22 method by which prints were made
from Kodacolor X. Some committee members, therefore,
expressed concern a}out the effect that a new process
might have on independent photofinishers, who developed
27a
Appendix B—Opinion of the Court of Appeals
Kodak film and were purchasers of Kodak equipment and
supplies. These concerns were shared by a number of
Kodak scientists, such as D.M. Zwick, who feared an “un-
ethical” attempt to create a “deliberate... incompatibility
with systems other than Kodacolor.”
Nevertheless, on May 10, 1967, the committee recom-
mended that Kodak proceed with the development of the
new film and finishing process, tentatively labeled P-118.
This recommendation was adopted at a meeting of the
Kodak management on September 20. Although manage-
ment believed that many of the film improvements were
desirable “without regard to the P-30 program,” it decided
that Kodak should consider marketing the new film in
the P-30 size for approximately one year before introduc-
ing it in the 126 format. A firm date was not set at that
time for introduction of P-118, but by 1969 Kodak decided
that P-118 should be used to help launch the P-30 camera
system in March 1972. This decision appears to have
been influenced by the views of those Kodak officers
who believed that
[w]ithout a new film, the [camera] program is not a
new advertisable system. Without the film, our
** Writing on March 9, 1967, Zwick saw ‘‘no need’’ for a new
film, which would require a higher-temperature process: “We can
make small improvements in Kodacolor X grain and sharpness,
in a film which could go through the C-22 process.’’ On the
Same day, another Kodak scientist, N.H. Groet of the Color
Photography Division, wrote that he was ‘‘convinced that Project
30 could go with the presently available Kodacolor X film.’”’ Like
Zwick, Groet conceded that a finer-grained film ‘“‘would be most
welcome for P-30,’’ but he did not believe that major changes in
Kodacolor X would be necessary. Indeed, he believed that the
new finishing process being considered by the Kodacolor Future
System Committee would raise hell in the photofinishing business,
would do little to decrease the cost of the operation, and that the
ultimate customer would not benefit.
28a
Appendix B—Opinion of the Court of Appeals
splicer and processors [for the new high-temperature
photofinishing process] are not required.
To meet this self-imposed deadline for P-118, Kodak
was required to act in great haste. Indeed, the minutes of
a Film Process Subcommittee meeting of August 29,
1969, noted that the decision for a 1972 release date
required a “crash program” by all participating divisions.
Development schedules were altered and some tests elimi-
nated altogether. Not surprisingly, then, as the target
date approached, Kodak realized that its new film was
plagued by a number of difficulties.
Shortly after initial production runs began in October
1971, Kodak recognized that “several product deficiencies”
would exist in the film, now called Kodacolor II, at the
time of introduction. Indeed, just eight days before the
joint announcement of the new camera, film, and photo-
finishing process, a technical committee listed eleven
“presently identified” problems that could affect “the cus-
tomer’s ultimate quality.’’ Not only did Kodacolor IT have
a significantly shorter shelf life than had been antici-
pated, but it also proved grainier than Kodak had orig-
inally hoped. This problem was highly significant, of
course, because low graininess was supposedly the quality
that made Kodacolor IT especially suitable for the Pocket
Instamatic cameras."
Despite these deficiencies, Kodak proceeded with its
plans for introduction of the 110 system, of which Koda-
** Kodacolor II’s grain, though disappointing, was clearly
superior to that of Kodacolor X. Berkey does not appear to dis-
pute the point. Shortly after introduction of the 110 system, a
confidential memorandum prepared by a competitor in the film
market compared Kodacolor II with Kodacolor X and found that
the new film ‘‘yields a less granular image structure and, there-
fore, better detail rendition in an enlarged color print.’’
29a
Appendix B—Opinion of the Court of Appeals
color II had became an integral part. On March 16, 1972,
amid great fanfare, the system was announced. Finally,
said Kodak, there wus a “little camera that takes big pic-
tures.” Kodacolor II was “a remarkable new film”—indeed,
the best color negative film Kodak had ever manufaciured.
There had long been other small cameras, Kodak explained:
But they weren’t like these. Now there are films fine
enough, and sharp enough, to give you big, sharp
pictures from a very small negative.
In accord with Kodak’s 1967 plan, Kodacolor II was sold
only in the 110 format for eighteen months after intro-
duction. It remains the only 110-size color print film
Kodak has ever sold."* | ;
As Kodak had hoped, the 110 system proved to be a
dramatic success. In 1972—the system’s first year—the
company sold 2,984,000 Pocket Instamatics, more than
50% of its sales in the amateur conventional still camera
market. The new camera thus accounted in large part for
a sharp increase in total market sales, from 6.2 million
units in 1971 to 8.2 million in 1972. Rival manufacturers
hastened to market their own 110 cameras, but Kodak
stood alone until Argus made its first shipment of the
“Carefree 110” around Christmas 1972. The next year,
although Kodak’s competitors sold over 800,000 110 cam-
eras, Kodak retained a firm lead with 5.1 million. Its
share of 110 sales did not fall below 50% until 1976.
Meanwhile, by 1973 the 110 had taken over most of the
amateur market from the 126, and three years later it
accounted for nearly four-fifths of all sales.
Berkey’s Keystone division was a late entrant in the
110 sweepstakes, joining the competition only in late
** Three pre-existing Kodak films were, however, sold for other
uses: Verichrome Pan for black-and-white snapshots, and Koda-
chrome X and Ektachrome X for color slides.
30a
Appendix B—Opinion of the Court of Appeals
1973. Moreover, because of hasty design, the original
models suffered from latent defects, and sales that year
were a paltry 42,000. With interest in the 126 dwindling,
Keystone thus suffered a net decline of 118,000 unit sales
in 1973. The following year, however, it recovered
strongly, in large part because improvements in its pocket
cameras helped it sell 406,000 units, 7% of all 110s sold
that year.
Berkey contends that the introduction of the 110 Sys-
tem was both an attempt to monopolize and actual
monopolization of the camera market. It also alleges that
the marketing of the new camera constituted an imper-
missible leveraging of Kodak’s film monopoly into the two
photofinishing markets, services and equipment.”®
Because the jury returned what amounted to general
verdicts for the plaintiff on each of these charges, we are
bound in the following discussion to construe the evidence
and the possible inferences in the light most favorable to
Berkey. See, e.g., Continental Ore Co. v. Union Carbide &
Carbon Corp., 370 U.S. 690, 696 & n.6 (1962). We note
en passant, however, that in large and complex cases such
as this, involving many novel legal issues, the better prac-
tice would have been to require special verdicts or the
submission of interrogatories to the jury pursuant to Fed.
R. Civ. P. 49. In that way the right to a jury trial of all
factual issues is preserved” while the probability of a la-
*The jury found Kodak guilty of leveragirg its monopoly
power into the market for photofinishing chemicals, see note 1
supra. Berkey withdrew this claim during the damages trial, citing
its inability to obtain statistical proof of its own harm.
*° Since the issue is not presented on this appeal, we need not
express our view on whether some actions may be too complex
to be tried to a jury. The relevant cases are canvassed in Note,
The Right to a Jury Trial in Complex Civil Ittigation, 92 Harv.
L. Rev. 898 (1979).
ah
———— SC tC
3la
Appendix B—Opinion of the Court of Appeals
borious and expensive retrial is reduced. See SCM Corp.
v. Xerox Corp., 463 F. Supp. 983, 988-90 & nn. 13, 15 (D.
Conn. 1978), remanded on other grounds, No. 79-8018 (2d
Cir. May 10, 1979). Certainly the already difficult task of
reviewing a case of this magnitude would have been eased ;
somewhat for this court if we knew precisely what the u
jury’s findings were on several specific factual issues. 3
_ A, Attempt to Monopolize and Monopolization
of the Camera Market
There is little doubt that the evidence supports the
jury’s implicit finding that Kodak had monopoly power in
cameras.” ‘The principal issues presented to us regarding
the effect of the 110 introduction in the camera market
are whether Kodak engaged in anticompetitive conduct
and, if so, whether that conduct caused injury to Berkey.
It will be useful at the outset to present the arguments
on which Berkey asks us to uphold its verdict:
RNR
(1) Kodak, a film and camera monopolist, was in a posi-
tion to set industry standards. Rivals could not compete
effectively without offering products similar to Kodak’s.
Moreover, Kodak persistently refused to make film avail-
able for most formats other than those in which it made
cameras. Since cameras are worthless without film, this
policy effectively prevented other manufacturers from
introducing cameras in new formats. Because of its
dominant position astride two markets, and by use of its |
film monopoly to distort the camera market, Kodak for-
feited its own right to reap profits from such innovations
without providing its rivals with sufficient advance infor-
mation to enable them to enter the market with copies of
the new product on the day of Kodak’s introduction. This
dus an, aan” Le RR Pater! hg ee tee. 6) tn eee
*1 See note 11 supra.
ee eee ee
32a
Appendix B—Opinion of the Court of Appeals
is one of several “predisclosure” arguments Berkey has
advanced in the course of this litigation.
(2) The simultaneous introduction of the 110 camera
and Kodacolor II film, together with a campaign advertis-
ing the two jointly, enabled Kodak to garner more camera
sales than if it had merely scaled down Kodacolor X to
fit the new camera. The jury could conclude that Koda-
color II was an inferior product and not technologically
necessary for the success of the 110. Im any event,
Kodak’s film monopoly prevented any other camera manu-
facturer from marketing such a film-camera “system” and |
the joint introduction was therefore anticompetitive.
(3) For eighteen months after its introduction, Koda- :
color II was available only in the 110 format. Thus it
followed that any consumer wishing to use Kodak’s “re-
markable new film” had to buy a 110 camera. Since Kodak
was the leading—and at first the only—manufacturer of
such devices, its camera sales were boosted at the expense
of its competitors. |
For the reasons explained below, we do not believe any
of these contentions is sufficient on the facts of this case
to justify an award of damages to Berkey. We therefore
reverse this portion of the judgment.
1. Prediscloswre
Through the 1960s, Kodak followed a checkered pattern
of predisclosing innovations to various segments of the in- |
dustry. Its purpose on these occasions evidently was to
ensure that the industry would be able to meet -con-
sumers’ demand for the complementary goods and services
they would need to enjoy the new Kodak products. But
predisclosure would quite obviously also diminish Kodak’s
share of the auxiliary markets. It was therefore, in the
33a
Appendix B—Opinion of the Court of Appeals
words of Walter Fallon, Kodak’s Chief Executive Officer,
“a matter of judgment on each and every occasion”
whether predisclosure would be for or against Kodak’s
self-interest. Thus, well before the 1965 introduction of
Super-8 movie films, Kodak, which had a relatively small
share of the movie camera market, provided sufficient in-
formation to companies such as Keystone and Bell &
Howell to enable them to make cameras to use the new
film. It also released processing information so that
photofinishers could develop the film. But in 1963, when
Kodak came out with Kodacolor X and the 126 Instamatic,
it kept its own counsel until the date of introduction.
As early as 1968, some Kodak employees urged that
advance warning of the P-30 system would be needed, at
least to film processors and manufacturers of photo-
finishing equipment, to give them time to prepare for
Kodacolor IT and the new high-temperature finishing proc-
ess, which was eventually labeled C-41. One memorandum
noted that “P-30 will require more changes in photofinish-
ing techniques than were required for P-13 [the 126
system]. These differences ... seem to indicate a minimum
6 months advance disclosure to other firms.’ Never-
theless, Kodak decided not to release advance information
about the new film and format. The decision was evi-
dently based on the perception of Dr. Louis K. Eilers,
Kodak’s chief executive officer at that time, that Kodak
would gain more from being first on the market for the
sale of all goods and services related to the 110 system
than it would lose from the inability of other photofin-
ishers to process Kodacolor II. An important factor in
Kilers’s thinking may have been that Kodak had already
decided to manufacture the new film initially in the 110
eT es Lebar AE Ta Fe
ee Betg gs 1
a lee, Ante ake sah age aver lt Ete
**The same memorandum also recommended six-month pre-
disclosure to competing film manufacturers.
34a
Appendix B—Opinion of the Court of Appeals
format only. Since Kodacolor II could not be used in any
pre-existing cameras, the demand for photofinishing serv-
ices and equipment in the first several months would be
within the capacities of CP&P and KAD.
Although Kodak had most seriously considered divulg-
ing advance information of the 110 system to processors
and equipment manufacturers, it was a rival camera
maker that forced a small breach in its wall of secrecy.
In the summer of 1971, Bell & Howell, implicitly
threatening legal action, began to pressure Kodak ‘“‘to
notify photographic equipment manufacturers in advance
of its introduction of new films or film formats which
require changes in equipment design.’? Harmar Brereton,
Kodak’s general counsel, insisted in letters to Bell &
Howell that such predisclosure was not necessary and
would raise legal problems of its own. Nevertheless, afraid
that the two companies “were getting ready to get into
the ring,” Kodak determined to avoid litigation if it could,
and it proposed an experimental predisclosure arrange-
ment with the 110 system. On January 3, 1972, Brereton
informed Bell & Howell that Kodak would soon introduce
“a new cartridge-loading still camera and [slide] projector
to accommodate a new film format.’’ More information,
Brereton explained, would be forthcoming only for a fee,
necessary to compensate Kodak for its “very considerable
research and development expenses” and to represent the
value of such knowledge to the recipient.
Brereton’s letter made clear that the information would
be available to other camera makers “on a nondis-
criminatory basis,’’ and within the next two weeks Kodak
explained the offer to Berkey. For a fee of $10,000
Kodak would provide a general description of the new
film format and cartridge, a view of the cartridge and
sample prints and slides, the anticipated dates of announce-
a
35a
Appendix B—Opinion of the Court of Appeals
ment and commercial introduction, and an outline of the
terms on which Kodak would further disclose “such in-
formation as we believe will enable you to design and
manufacture cameras to accept our new cartridge and film
format.’’ Berkey paid the $10,000 fee and also the supple-
mental fees, totalling $50,000, for eleven sheets of specifi-
cations and notes. For the $60,000 Berkey gained
somewhat less than two months advance knowledge of
information it needed to compete with Kodak in the sale
of 110 cameras. The jury could unquestionably conclude
that this was far from adequate to permit Berkey to be
‘fat the starting line’’ when the 110.was introduced.
Judge Frankel did not decide that Kodak should have
disclosed the details of the 110 to other camera manufac-
turers prior to introduction. Instead, he left the matter
to the jury, instructing them as follows:
Standing alone, the fact that Kodak did not give
advance warning of its new products to competitors
would not entitle you to find that this conduct was
exclusionary. Ordinarily a manufacturer has no duty
to predisclose its new products in this fashion. It is
an ordinary and acceptable business practice to keep
one’s new developments a secret. However, if you
find that Kodak had monopoly power in cameras or
in film, and if you find that this power was so great
as to make it impossible for a competitor to compete
with Kodak in the camera market unless it could
offer products similar to Kodak’s, you may decide
whether in the light of other conduct you determine
to be anticompetitive. Kodak’s failure to predisclose
was on balance an exclusionary course of conduct.
We hold that this instruction was error and that, as a
matter of law, Kodak did not have a duty to predisclose
36a
Appendix B—Opinion of the Court of Appeals
information about the 110 system to competing camera
manufacturers.
As Judge Franke! indicated, and as Berkey concedes, a
firm may normally keep its innovations secret from its
rivals as long as it wishes, forcing them to catch up on
the strength of their own efforts after the new product is
introduced. See, e.g., Kewanee Oil Co. v. Bicron Corp.,
416 U.S. 470, 481 (1974). It is the possibility of success
in the marketplace, attributable to superior performance,
that provides the incentives on which the proper function-
ing of our competitive economy rests. If a firm that has
engaged in the risks and expenses of research and devel-
opment were required in all circumstances to share with
its rivals the benefits of those endeavors, this incentive
would very likely be vitiated.
Withholding from others advance knowledge of one’s
new products, therefore, ordinarily constitutes valid com-
petitive conduct. Because, as we have already indicated, a
monopolist is permitted, and indeed encouraged, by $2 to
compete aggressively on the merits, any success that it
may achieve through “the process of invention and in-
novation” is clearly tolerated by the antitrust laws.
United Shoe Machinery Corp., swpra, 110 F. Supp. at
344.
The Supreme Court’s language in United States v. Na-
tional Lead Co., 332 U.S. 319 (1947), is instructive on
this score. There, National Lead and du Pont were found
to have engaged in an illegal patent pool that restrained
commerce in titanium products. As part of its decree, the
district court ordered the firms to make licenses available
at reasonable fees and also to make available—for a
period of three years and at a reasonable fee—certain in-
formation on processes exploiting these patents. The Su-
preme Court upheld these requirements as a reasonable
37a
Appendix B—Opinion of the Court of Appeals
remedy for the antitrust violations. Jd. at 334-35. It
squarely rejected, however, the Government’s attempt to
extend the decree by requiring the defendants to
furnish—again for only three years and at a reasonable
fee—all information desired by any applicant relating to
the methods and processes for manufacturing titanium
pigments:
‘The attempt of the Government to throw the field of
technical knowledge in the titanium pigment industry
wide-open would reduce the competitive value of the
independent research of the parties. It would dis-
courage rather than encourage competitive research.
Id. at 359.
Moreover, enforced predisclosure would cause un-
desirable consequences beyond merely encouraging the
sluggishness the Sherman Act was designed to prevent. A
significant vice of the theory propounded by Berkey lies
in the uncertainty of its application. Berkey does not con-
tend, in the colorful phrase of Judge Frankel, that
“Kodak has to live in a goldfish bowl,” disclosing every
innovation to the world at large.** However predictable in
its application, such an extreme rule would be insupport-
able. Rather, Berkey postulates that Kodak had a duty to
disclose limited types of information to certain com-
petitors under specific circumstances. But it is difficult to
comprehend how a major corporation, accustomed though
it is to making business decisions with antitrust con-
siderations in mind, could possess the omniscience to an-
ticipate all the instances in which a jury might one day
in the future retrospectively conclude that predisclosure
*8 This is apparent from the transcript of the conference to set-
tle the language of the charge to the jury.
38a
Appendix B—Opinion of the Court of Appeals
was warranted.** And it is equally difficult to discern
workable guidelines that a court might set forth to aid
the firm’s decision. For example, how detailed must the
information conveyed be? And how far must research
have progressed before it is “ripe’’ for disclosure? These
inherent uncertainties would have an inevitable chilling
effect on innovation. They go far, we believe, towards ex-
plaining why no court has ever imposed the duty Berkey
seeks to create here.
An antitrust plaintiff urging a predisclosure rule, there-
fore, bears a heavy burden in justifying his request. Ber-
key recognizes the weight of this burden. It contends that
it has been met. Kodak is not a monolithic monopolist,
acting in a single market. Rather, its camera monopoly
was supported by its activity as a film manufacturer.
Berkey therefore argues that by not disclosing the new
format in which it was manufacturing film, Kodak
unlawfully enhanced its power in the camera market. In-
deed, Kodak not only participates in but monopolizes the
film industry. The jury could easily have found that,
when Kodak introduced a new film format, rival camera
makers would be foreclosed from a substantial segment of
the market until they were able to manufacture cameras
in the new format. Accordingly, Berkey contended that
Kodak illegitimately used its monopoly power in film to
gain a competitive advantage in cameras. Thus Berkey in-
sists that the jury was properly permitted to consider
whether, on balance, the failure to predisclose the new
format was exclusionary. We disagree.
** Berkey’s argument that Kodak considered predisclosing the
110 system, and so could not be surprised when found liable for
failing to do so, is thus a two-edged sword. It illustrates the dif-
a in prediction even when the problem has been squarely
aced.
39a
Appendix B—Opinion of the Court of Appeals
We note that this aspect of Berkey’s claim is in large
measure independent of the fact that a new film, Koda-
color II, was introduced simultaneously with the new
format. It is primarily introduction of the format itself—
the size of the film and the cartridge in which it is
packaged—of which Berkey complains. Indeed, at oral ar-
gument counsel for Berkey contended that predisclosure
would have been required even had Kodak merely cut
down Kodacolor X to fit the new 110 camera and car-
tridge.
We do not perceive, however, iw Kodak’s introduction
of a new format was rende: : unlawful act of mo-
nopolization in the camera n ecause the firm also
manufactured film to fit the s. The 110 system
was in substantial part a camer: « lopment. After all,
P-30 existed long before the P-1i8 film project began,
and much of the creative energy behind it was consumed
by efforts to produce the camera itself.** Indeed, Berkey
not only argues that a new film was not necessary to in-
troduce the new pocket-cameras; it also concedes that the
early models of its own 110 cameras, brought to market
some eighteen months after it first learned of the new
format, suffered because of the haste with which they
were designed.
Clearly, then, the policy considerations militating
against predisclosure requirements for monolithic mo-
nopolists are equally applicable here. The first firm, even
a monopolist, to design a new camera format has a right
to the lead time that follows from its success. The mere
fact that Kodak manufactured film in the new format as
*° The ‘‘red-eye’’ problem experienced by the early 110 models,
see note 35 infra, does not detract from the fact that the new
camera was indeed smaller and more convenient than its pred-
ecessors.
40a
Appendix B—O pinion of the Court of Appeals
well, so that its customers would not be offered worthless
cameras, could not deprive it of that reward. Nor is this
conclusion altered because Kodak not only participated in
but dominated the film market. Kodak’s ability to pioneer
formats does not depend cn it possessing a film monop-
oly. Had the firm possessed a much smaller share of the
film market, it would nevertheless have been able to
manufacture sufficient quantities of 110-size film—either
Kodacolor X or Kodacolor II—to bring the new camera to
market. It is apparent, therefore, that the ability to in-
troduce the new format without predisclosure was solely a
benefit of integration and not, without more, a use of
Kodak’s power in the film market to gain a competitive
advantage in cameras.
Indeed, such authority as exists supports this conclu-
sion. ILC Peripherals Leasing Corp. v. International
Business Machines Corp., 458 F. Supp. 423 (N.D. Cal.
1978) (Memorex), was a case similar in some respects to
this one. IBM was the leading manufacturer of central
data processing units (CPUs) and competed with Memorex
and others to supply peripheral equipment for use in con-
junction with IBM CPUs. When IBM made changes in the
intricate interface—the “computer ‘plug’”—by which
peripherals are attached to the central system, it did not
provide advance information to Memorex, thereby forcing
its rival to learn what it could after the new CPUs were
shipped to customers. Memorex contended that to com-
pete effectively in the peripherals market it needed to
know, under some form of licensing arrangement, about
interface changes as soon as IBM announced its products.
Id. at 486-37. Noting the total absence of authority in
support of this position, the district court indicated that
plaintiff could properly be left to rely on “reverse en-
gineering’ to develop IBM-compatible equipment. IBM
4la
Appendix B—Opinion of the Court of Appeals
would thus be unchallenged for a time in the market for
certain peripherals, but “[d]epriving IBM of its lead time
would remove its incentive to invent.’? Jd. at 437.
The prediclosure demanded here is much more radical
than that sought and rejected in Memorex. Berkey claims
that it should have been given the information about
Kodak’s new film format long before product announce-
ment and without any licensing fee. Moreover, the pos-
sibility lurking in Memorex that IBM, by creating
technological incompatibilities, was tying peripherals sales
to its CPUs is not present here. Cf. Response of Carolina,
Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1330 (5th
Cir. 1976). Kodak’s new format was primarily a camera
development, and the use of Kodacolor II did not in itself
create any incompatibilities with an existing camera. Re-
gardless of whether the district court decided Memorex
correctly—a question we are pleased to leave to our col-
leagues in the Ninth Circuit—the case makes it manifest
that there is no authority for the extreme position as-
serted by Berkey.
Our analysis, however, must proceed beyond the conclu-
sion that introduction of film to meet Kodak’s new
camera format was not in itself an exercise of the com-
pany’s monopoly power in film. Berkey contends that
Kodak in the past used its film monopoly to stifle format
innovations by any other camera manufacturer. Ac-
cordingly, it argues that Kodak was barred from reaping
the benefits of such developments without making pre-
disclosure to allow its rivals to share from the beginning
in the rewards.
There is, indeed, little doubt that the jury could have
found that Kodak, by refusing to make film available on
economical terms, obstructed sales of cameras in com-
peting formats. Thus, Kodak has never supplied film to
42a
Appendix B—Opinion of the Court of Appeals
fit the Minox, a small camera* that uses a cartridge
similar to that of the Instamatics and that has been on
the market since the 1930s, or similar cameras by
Minolta and Mamiya that were also introduced before the
Kodak 126. Merchants of these cameras, including Ber-
key, made numerous requests that Kodak sell film pack-
aged in their formats, with or without the Kodak name.
As an alternative, they asked Kodak to sell bulk film
rolls large enough to permit the camera manufacturers
economically to cut the film down to the appropriate size
and spool it. Kodak denied all such appeals. Some of the
miniature cameras did survive but, as even Kodak’s own
economic expert testified, its policy drastically reduced
the ability of rival manufacturers to compete by introduc-
ing new camera formats.”
We accept the proposition that it is improper, in the
absence of a valid business policy, for a firm with mo-
nopoly power in one market to gain a competitive ad-
vantage in another by refusing to sell a rival the mo-
nopolized goods or services he needs to compete effec-
tively in the second market. Indeed, Kodak itself was the
defendant in the leading case establishing this point.
Eastman Kodak Co. v. Southern Photo Materials Co., 273
U.S. 359, 375 (1927); accord, Poster Exchange, Inc. v.
National Screen Service Corp., 431 F.2d 334, 339-40 (5th
Cir. 1970), cert. denied, 401 U.S. 912 (1971). Moreover,
as indicated by our discussion of 4 2 principles, such a use
26 The Minox ‘‘spy camera’’ was even smaller, but substantially
more expensive, than the 110.
27 Although Kodak does not manufacture cameras in the 135 for-
mat, it does sell film for them. This policy may represent a per-
ception that the 135 format competes less directly with Kodak’s
popular cameras than do the Minolta and other miniature models.
43a
Aypendix B—Opinion of the Court of Appeals
of power would be illegal regardless of whether the film
monopoly were legally or illegally acquired. It may be
that Kodak violated the Sherman Act when it refused to
sell Berkey bulk film for use in the Minolta camera, and
Berkey might well have recovered for its loss of Minolta
sales and for any additional expenses incurred because of
Kodak’s conduct.
But Berkey did not sue Kodak then for its refusal to
sell film, and it concedes that it is not now claiming a
right to damages on this basis. Rather, it contends that
Kodak’s past offenses created a continuing duty to dis-
close its new formats to competing camera manufacturers,
and that its violation of that obligation supports the
jury’s verdict. For two reasons, however, we decline to
recognize such a duty.
First, the benefits that would flow to Kodak’s rivals in
the camera market from such a rule bear no relationship
to the injury caused them by the monopolist’s refusal to
sell films for their competing camera formats. There is no
reason to suppose, for example, that the loss suffered by
Berkey because Kodak undercut Minolta sales was at all
comparable to the boon Berkey would have received had
Kodak given it the opportunity to participate from the
beginning in the 110 revolution.** Indeed, some of the
** Even if the format obstructed by Kodak were comparable to
the 110, predisclosure would not be a necessary remedy, as the
following example demonstrates. Suppose that Berkey, unaware
that Kodak is planning to bring forth the 110 camera, asks
Kodak to make film available for a new camera it has designed
that happens to be identical in all respects to the 110 except
that it requires a slightly different film format. Kodak, without
a legitimate competitive reason and solely to prevent Berkey’s
camera sales, declines to supply the film. Berkey then concludes
that marketing of its new camera would be economically unfeasi-
(footnote continued on following page)
44a
Appendix B—Opinion of the Court of Appeals
camera manufacturers who would be benefited by pre-
disclosure might not have participated in—or even con-
templated entering—the market at the time Kodak com-
mitted its alleged violations. For them, predisclosure
would be pure windfall.
Second, it would be inappropriate to hold that Kodak
should spontaneously have recognized a duty to release
advance information of its new products to its com-
petitors. It is important to note that Berkey, which no
longer sells cameras, does not advance its predisclosure
argument as part of a demand for equitable relief. Where
a firm has engaged in monopolistic practices, a court is
not limited, in fashioning prospective remedies, to an in-
junction against future violations of law. See, e.g., Schine
Chain Theatres, Inc. v. United States, 334 U.S. 110, 128
(:948). Hence the function of the court includes “undoing”’
what the monopoly achieved by its illegal acts. United
(footnote continued from preceding page)
ble. Just three months later, without predisclosure to Berkey,
Kodak introduces the 110, which is a great commercial success.
At first it might appear that in this extreme hypothetical case
Berkey has a right to share the initial profits of the 110 camera
through predisclosure. On closer examination, it becomes clear
that the wrong to Berkey is not the absence of knowledge of the
110 but exclusion from the market of its own essentially iden-
tical camera. To be sure, most of Kodak’s 110 sales would have
been captured earlier by Berkey had it not been prevented from
introducing its camera, so the volume of Kodak’s 110 sales may
assist in computation of Berkey’s damages. That, however, is the
only relevance of the 110 system to this hypothetical case. As
the premise is varied to bring the hypothetical closer to the ac-
tual case at bar—for example, by attenuating the physical simi-
larity between the two cameras or the proximity of their arrival
in the market—even this relevance disappears. Kodak’s Violation
is completed when it blocks Berkey’s new camera format;
nothing is added to the offense by its decision to introduce its
own new format without predisclosure.
45a
Appendix B—Opinion of the Court of Appeals
States v. Paramount Pictures, Inc., 334 U.S. lei, 171
(1948).
Accordingly, if Berkey were still a camera maker, it
might be able to demand that Kodak, to nullify the effect
of its monopolistic obstruction of new formais for com-
peting cameras, be required to allow its rivals to share
from the start in the business created by its own changes
in format. Even in the equitable context, Nationai Lead
would caution against a decree that might stifle future in-
novations. But Berkey, in any event, does not demand
prospective relief. Instead it asks us to condemn Kodak
retrospectively, holding that it violated §2 and so is
liable for damages, because it did not decide on its own
initiative to take unusual, self-abnegatory actions as a cor-
rective for unadjudicated prior offenses. This is without
justification.
Conclusion. We have held that Kodak did not have an
obligation, merely because it introduced film and camera
in a new format, to make any predisclosure to its camera-
making competitors. Nor did the earlier use of its film
monopoly to foreclose format innovation by those com-
petitors create of its own force such a duty where none
had existed before. In awarding Berkey $15,250,000, just
$828,000 short of the maximum amount demanded, the
jury clearly based its calculation of lost camera profits on
Berkey’s central argument that it had a right to be “at
the starting line when the whistle blew” for the new
system.” The verdict, therefore, cannot stand.
2° The three 110 damages theories, submitted to the jury in the
alterative, attempted to measure the displacement of Berkey
camera sales from the moment the 110 system was introduced.
One theory, allocating to Berkey its ‘‘fair share’’ of all Kodak
post-introduction camera sales, indicated untrebled damages of
$16,073,000. The other two theories, addressing 110 sales only,
suggested $13,668,000 and $15,835,000 respectively.
46a
Appendix B—Opinion of the Court of Appeals
2. Systems Selling
Berkey’s claims regarding the introduction of the 110
camera are not limited to its asserted right to pre-
disclosure. The Pocket Instamatic not only initiated a new
camera format, it was also promoted together with a new
film. As we noted earlier, the view was expressed at
Kodak that “[w]ithout a new film, the [camera] program
is not a new advertisable system.” Responding in large
measure to this perception, Kodak hastened research and
development of Kodacolor II so that it could be brought
to market at the same time as the 110 system. Based on
such evidence, and the earlier joint introduction of
Kodacolor X and the 126 camera, the jury could readily
have found that the simultaneous release of Kodacolor II
and the Pocket Instamatic was part of a plan by which
Kodak sought to use its combined film and camera
capabilities to bolster faltering camera sales. Berkey con-
tends that this program of selling was anticompetitive
and therefore violated § 2. We disagree.
It is important to identify the precise harm Berkey
claims to have suffered from this conduct. It cannot com-
plain of a product introduction simpliciter for the same
reason it could not demand predisclosure of the new for-
mat: any firm, even a monopolist, may generally bring its
products to market whenever and however it chooses.”
Rather, Berkey’s argument is more subtle. It claims that
by marketing the Pocket Instamatics in a system with a
8° This is not to say, of course, that new product introductions
are ipso facto immune from antitrust scrutiny, and we do not
agree with Kodak’s argument that they are, see, e.g., Sargent-
Welch Scientific Co. v. Ventron Corp., 567 F.2d 701 (7th Cir.
1977), cert. denied, 99 S. Ct. 87 (1978) (use of power over old
product to promote sale of new) ; in all such cases, however, it is
not the product introduction itself, but some associated conduct,
that supplies the violation.
47a
Appendix B—Opinion of the Court of Appeals
widely advertised new film, Kodak gained camera sales at
Berkey’s expense. And, because Kodacolor II was not
necessary to produce satisfactory 110 photographs and in
fact suffered from several deficiencies, these gains were
unlawful.”
It may be conceded that, by advertising Kodacolor IT as
a “remarkable new film’’ capable of yielding “big, sharp
pictures from a very small negative,” Kodak sold more
110 cameras than it would have done had it merely mar-
keted Kodacolor X in 110-size cartridges. The quality of
the end product—a developed snapshot—is at least as de-
pendent upon the characteristics.of the film as upon
those of the camera. It is perfectly plausible that some
customers bought the Kodak 110 camera who would have
purchased a competitor’s camera in another format had
Kodacolor II not been available and widely advertised as
capable of producing “big, sharp pictures’? from the tiny
Pocket Instamatic. Moreover, there was also sufficient evi-
dence for the jury to conclude that a new film was not
necessary to bring the new cameras to market. Walter
Fallon testified that in 1967, as manager of Kodak’s Film
Emulsion and Plate Organization, he expressed the view
that Kodacolor X “would give satisfactory pictures,
satisfactory customer results” in the P-30 format. Doc-
uments introduced at trial indicated that this opinion was
shared by at least two Kodak research scientists.*
But necessity is a slippery concept. Indeed, the two
scientists, Zwick and Groet, conceded that improvements
* To the extent that Berkey argues that Kodak’s past monop-
olization of film hindered any other firm from introducing a new
photographic system, the contention is merely a repetition of
that rejected in Part III.A.1 supra.
82 See note 16 supra.
48a
Appendix B—Opinion of the Court of Appeals
in the quality of Kodacolor X would be ‘‘most welcome.”
Even if the 110 camera would produce adequate snap-
shots with Kodacolor X, it would be difficult to fault
Kodak for attempting to design a film that could provide
better results. The attempt to develop superior products
is, as we have explained, an essential element of lawful
competition. Kodak could not have violated 4 2 merely by
introducing the 110 camera with an improved film.
Accordingly, much of the evidence at trial concerned
the dispute over the relative merits of Kodacolor II and
Kodacalor X. There was ample evidence that for some
months following the 110 introduction, Kodacolor II was
inferior to its predecessor in several respects. Most
notably, it degenerated more quickly than Kodacolor X, so
that its shelf life was shorter.** It is undisputed, however,
that the grain of Kodacolor II, though not as fine as
Kodak had hoped, was better than that of the older
film.*
In this context, therefore, the question of product
quality has little meaning. A product that commends it-
self to many users because superior in certain respects
may be rendered unsatisfactory to others by flaws they
considered fatal. Millions of consumers, for example, evi-
dently found the 110 camera highly attractive because of
its “pocketability.” Others, perhaps more concerned over
the quality of their flash pictures, found the original
models unsatisfactory because of the high incidence of
83 Testimony and documents introduced at trial indicated that
Kodacolor II lost much of its “‘speed’’, see note 8 supra, within
three to six months of manufacture. In addition, there were prob-
lems with ‘‘latent image keeping’’—the ability of the film to retain
a scene until the film was developed.
8 See note 17 supra.
49a
Appendix B—Opinion of the Court of Appeals
“red-eye.”** Similarly, some individuals would, if given the
option and aware of the relevant factors, select Koda-
color II over Kodacolor X because of its superior grain,
which was especially useful for a small camera; others
might choose Kodacolor X because the original variety of
Kodacolor II had to be used more quickly to produce at-
tractive pictures.
It is evident, then, that in such circumstances no one
can determine with any reasonable assurance whether one
product is “superior” to another. Preference is a matter of
individual taste. The only question that can be answered
is whether there is sufficient demand for a particular prod-
uct to make its production worthwhile, and the response, so
long as the free choice of consumers is preserved, can only
be inferred from the reaction of the market.
When a market is dominated by a monopolist, of
course, the ordinary competitive forces of supply may not
be fully effective. Even a monopolist, however, must
generally be responsive to the demands of customers, for
if it persistently markets unappealing goods it will invite
a loss of sales and an increase of competition.*’ If a mo-
nopolist’s products gain acceptance in the market, there-
fore, it is of no importance that a judge or jury may
later regard them as inferior, so long as that success was
not based on any form of coercion. Certainly the mere in-
troduction of Kodacolor II along with the Pocket Insta-
85 “*Red-eye’’ is the appearance of a red glint in the eye of the
snapshot’s subject on a picture taken with a flashlamp. It is a
result in large part of the small distance between the flash device
and the camera lens. Hence, it was a greater problem for the
original 110 cameras than for their larger predecessors in the 126
format.
86 See note 42 infra.
57 See 3 P. Areeda & D. Turner, supra, at 41-42.
50a
Appendix B—Opinion of the Court of Appeals
matics did not coerce camera purchasers.** Unless con-
sumers desired to use the 110 camera for its own at-
tractive qualities, they were not compelled to purchase
Kodacolor [l—especially since Kodak did not remove any
other films from the market when it introduced the new
one. If the availability of Kodacolor II spurred sales of
the 110 camera, it did so because some consumers re-
garded it as superior, at least for the smaller format.*°
Of course, Kodak’s advertising encouraged the public to
take a favorable view of both Kodacolor IT and the 110
camera, but that was not improper. A monopolist is not
forbidden to publicize its product unless the extent of this
activity is so unwarranted by competitive exigencies as to
constitute an entry barrier. See American Tobacco Co. v.
United States, 328 U.S. 781, 797 (1946); Borden, Inc., 3
Trade Reg. Rep. (CCH) { 21,490 (FTC 1978). And in its
advertising, a producer is ordinarily permitted, much like
an advocate at law, to bathe his cause in the best light
88 Similarly, it appears that the Pocket Instamatic spurred sales
of Kodak’s film at the expense of its competitors, despite a red-
eye problem that made the camera unacceptable to many con-
sumers. But it would appear unreasonable on its face to allow a
jury to conclude from this that the introduction of the 110 camera,
which millions of other customers welcomed eagerly, was improper
conduct.
8° Thus, the situation might be completely different if, upon the
introduction of the 110 system, Kodak had ceased producing film
in the 126 size, thereby compelling camera purchasers to buy a
Kodak 110 camera. Or had Kodak shifted production in all
formats from Kodacolor X to Kodacolor II before other photo-
finishers could process the new film, it would force photographers
to procure their photofinishing services from CP&P. In such a
ease the technological desirability of the product change might bear
on the question of monopolistic intent. See Response of Carolina,
Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1330 (5th Cir. 1976).
dla
Appendix B—Opinton of the Court of Appeals
possible. Advertising that emphasizes a _ product’s
strengths and minimizes its weaknesses does not, at least
unless it amounts to deception, constitute anticompetitive
conduct violative of § 2.“
We conclude, therefore, that Kodak did not contravene
the Sherman Act merely by introducing Kodacolor II si-
multaneously with the Pocket Instamatic and advertising
the advantages of the new film for taking pictures with a
small camera.
3. Restriction of Kodacolor II to the 110 Format
There is another aspect to Berkey’s claim that introduc-
tion of Kodacolor IT simultaneously. with the Pocket In-
stamatic camera was anticompetitive. For eighteen months
after the 110 system introduction, Kodacolor II was
“© Indeed, Kodak apparently did precisely that in introducing
the 110 camera. Aware of the camera’s substantial red-eye prob-
lem, the firm evidently decided ‘‘to provide enough ambient light
for exposure without flash’’ at the press conference announcing
the new system. This rather obvious ploy certainly did not amount
to the type of deception that might, as we indicate in the follow-
ing footnote, support an action under § 2.
*1There was evidence that Kodak indicated on the boxes in
which Kodocalor II was sold that the film had a shelf life of 14
months, whereas in fact the film lost half its speed within three to
six months. We need not decide whether this action amounted to
deceptive advertising, or whether and under what circumstances
such deception might amount to a violation of §2. See 3 P. Areeda
& D. Turner, supra, at 278-79. The Sherman Act is not a panacea
for all evils that may infect business life. Before we would allow
misrepresentation to buyers to be the basis of a competitor’s treble
damage action under § 2, we would at least require the plaintiff
to overcome a presumption that the effect on competition of such
a practice was de minimis. See id. Berkey, however, has failed to
provide any evidence that a significant number of Kodak 110 pur-
ehasers would have, if the Kodacolor II boxes had included ac-
curate information on the shelf life of the film, bought a Berkey
camera in a pre-existing format instead.
52a
Appendix B—Opinion of the Court of Appeals
available only in the 110 format. Since Kodak was the
first to have the 110s on the market, Berkey asserts it
lost camera sales because consumers who wished to use
the ‘‘remarkable new film’’ would be compelled to buy a
Kodak camera. This facet of the claim, of course, is not
dependent on a showing that Kodacolor II was inferior in
any respect to Kodacolor X. Quite the opposite is true.
The argument is that, since consumers were led to believe
that Kodacolor II was superior to Kodacolor X, they were
more likely to buy a Kodak 110, rather than a Berkey
camera, so that the new film could be used.
Where a course of action is ambiguous, ‘‘consideration
of intent may play an important role in divining the ac-
tual nature and effect of the alleged anticompetitive con-
duct,’’ United States v. United States Gypsum Co., 488
U.S. 422, 436 n.13 (1978); accord, e.g., Sargent-Welch
Scientific Co., supra, 567 F.2d at 712. We shall assume
arguendo that Kodak violated §2 of the Sherman Act if
its decision to restrict Kodacolor II to the 110 format
was not justified by the nature of the film but was moti-
vated by a desire to impede competition in the manu-
facture of cameras capable of using the new film. This
might well supply the element of coercion we found lack-
ing in the previous section. We shall assume also that
there was sufficient evidence for the jury to conclude that
the initial decision to market Kodacolor II exclusively in
the 110 format during its introductory period was indeed
taken for anticompetitive purposes.*
“We have already stated that in September 1967 Kodak’s
management noted that development of the new film was justified,
even if Project 30 were never brought to fruition, because of the
benefits it would yield to pre-existing formats. Kodak, however,
tentatively decided at the same meeting that Kodacolor II would
(footnote continued on following page)
53a
Appendix B—Opinion of the Court of Appeals
But to prevail, Berkey must prove more, for injury is
an element of a private treble damages action. Berkey
must, therefore, demonstrate that some consumers who
would have bought a Berkey camera were dissuaded from
doing so because Kodacolor II was available only in the
110 format. This it has failed to establish. The record is
totally devoid of evidence that Kodak or its retailers ac-
tually attempted to persuade customers to purchase the
Pocket Instamatic because it was the only camera that
could use Kodacolor II, or that, in fact, any consumers
did choose the 110 in order to utilize the finer-grained
film.
To be sure, some of Kodak’s advertisements emphasized
the superior qualities of Kodacolor II, but the gist of
these messages was merely that Kodacolor II, unlike pre-
vious films, would yield ‘‘big, sharp pictures’’ from a small
camera. in short, Kodak simply claimed to have achieved
its goal of truly developing a Pocket Instamatic system
whose color prints would be ‘‘as close as possible to the
prints currently obtained from 126-size Kodacolor X.”’
Stressing the ‘‘pocketability’’ of the 110 format, Kodak
did not emphasize Kodacolor IT as an independent reason
to choose a photography system. Little of the advertising
mentioned Kodacolor II by name. Of even greater weight
is the fact that none in any way implied that the new
film was available only in the 110 size . Accordingly, the
content of Kodak’s publicity, standing alone, would not
(footnote continued from preceding page)
at first be sold in the 110 format only. See Part ITI.A supra.
Kodak’s explanation for the initial restriction of Kodacolor II to
the 110 size is that the advantages of the new film were most use-
ful for small cameras; until the defects in Kodacolor II were
eliminated, therefore, Kodak preferred to continue selling Koda-
color X in pre-existing formats. That Kodak did not advertise
the restriction was evidence in support of its assertion that the
plan was not undertaken for an anticompetitive purpose.
d4a
Appendix B—Opinion of the Court of Appeals
permit a jury rationally to infer that Berkey was injured
by the restriction of Kodacolor IT to the 110 format.
The abstract possibility nevertheless remains that there
_ might have been some customers who would have pur-
chased a Berkey camera in one of the pre-existing for-
mats but decided to select a Kodak 110 instead because
they were aware that there was no alternative means of
using Kodacolor II, even in the absence of advertising to
that effect. Yet, although millions of amateur photog-
raphers bought Pocket Instamatics, Berkey did not pro-
duce anyone at the trial to testify that he was so moti-
vated. Nor did Berkey present the testimony of camera
dealers, or evidence of any kind, to establish that such
customers existed. Indeed, Berkey declined to challenge
the testimony of a camera dealer that he never promoted
the fact that Kodacolor II was available only in the 110
size.** We expressed our concern over the absence of such
evidence at oral argument, but Berkey’s post-argument
brief** did not point to any relevant items in the record
that we had overlooked. We conclude, therefore, that the
jury could not find that Berkey suffered more than de
minimis injury, if any, because Kodacolor II was limited
to the 110 format. Although the antitrust laws afford
latitude in permitting the factfinder to estimate ‘‘the ex-
tent of the damages’’ where precise calculation is impossi-
ble, they do not allow recovery where there has been no
showing that plaintiff suffered cognizable injury. Story
Parchment Co. v. Paterson Parchment Paper Co., 282
U.S. 555, 562-63 (1931); see Zenith Radio Corp. v. Hazel-
** Advertisements of dealers, like those of Kodak, emphasized
that Kodacolor II would yield sharp pictures but not that the film
was exclusively available in the 110 size.
** Because of the extraordinary complexity of this case, we in-
vited the parties to submit post-argument briefs on any aspect of
the case they felt merited further attention.
55a
Appendix B—Opinion of the Court of Appeals
tine Research, Inc., 395 U.S. 100, 123 (1969); Gottesman
v. General Motors Corp., 436 F.2d 1205, 1210 (2d Cir.
1971).
Voluminous discovery and a prolonged trial have al-
ready given Berkey more than ample opportunity to ad-
duce evidence, which it failed to do, in support of its
consistently maintained claim that it lost camera sales be-
cause of restriction of Kodacolor IT to the 110 format. It
would make a mockery of the adversary system in a case
of this character, where great expenditures of time and
money have been made and where the plaintiff was rep-
resented by counsel of extraordinary ability and ex-
perience, to afford a new trial so that missing elements of
proof could be produced, if, indeed, they exist.
To si:nmarize our conclusions on the 110 camera claims,
we ho.d:
1. Kodak was under no obligation to predisclose in-
formation of its new film and format to its camera-
making competitors.
2. It is no basis for antitrust liability that Kodacolor
II, despite certain deficiencies compared to Kodacolor
X, may have encouraged sales of the 110 camera.
3. Finally, altho gh the restriction of Kodacolor II to
the 110 format may have been unjustified, there was
no evidence that Berkey was injured by this course
of action.
We, therefore, reverse so much of the judgment as
awarded Berkey damages based on the introduction of the
110 camera.*®
“5 But see Part V infra, where we hold that Berkey’s claim aris-
ing from the introduction of the ‘‘flipflash’’ in 1975, the damages
for which were not considered separately but were included in the
total computation of damages for lost 110 camera sales, must be
submitted to a new trial on these damages only.
56a
Appendix B—Opinion of the Court of Appeals
B. Photofinishing and Photofinishing Equipment Markets
The introduction of the 110 system provided the foun-
dation not only for the enormous camera award but also
for the much smaller damage items—$55,700 and
$19,000, respectively, before trebling—alloted for lost
photofinishing profits and for overcharges on photo-
finishing equipment. These verdicts, moreover, were the
basis for the only injunctive relief decreed below. We re-
verse and remand for a new trial so much of the judg-
ment as was based on damages for the photofinishing and
equipment claims, and we vacate and remand the equi-
table decree for further consideration in light of the prin-
ciples set forth in this opinion.
1. Damages
Berkey’s damages claims here are based on the fact
that Kodacolor II, introduced along with the 110 camera,
required the new, high-temperature C-41 finishing process
instead of the C-22 process used for Kodacolor X and
similar films. Thus independent photofinishers could not
offer processing service for Kodacolor Il—the only color
print film Kodak ever offered in the 110 size—until they
bought new equipment and received instruction in and
supplies for C-41 processing. Moreover, Kodak did not
give advance warning to the independents that the new
film would be introduced, nor did it predisclose the C-41
process to other makers of photofinishing equipment. <Ac-
cordingly, CP&P was able to begin processing Kodacolor
II several weeks before its competitors.
Furthermore, it is urged that Berkey faced greater ex-
pense in finishing Kodacolor II than did CP&P, because
Kodak refused to divulge the formulae for chemicals used
in the C-41 process. Large photofinishers like Berkey pre-
57a
Appendix B—Opinion of the Court of Appeals
ferred to buy these compounds from chemical suppliers in
bulk, both to save money and to gain flexibility. But to
be able to process Kodacolor II, they were forced to buy
pre-mixed “kits” from Kodak at twice the price. Kodak,
meanwhile, provided all but one of the CP&P plants with
bulk chemicals.*® And, because for some time Kodak was
the only manufacturer of machinery capable of processing
the new film, the independent photofinishers were re-
quired to purchase this equipment in order to proceed at
all. The jury found that Kodak’s prices were excessive and
almost certainly found also that the equipment Kodak
sold to the independents was vastly inferior to its product
for CP&P.
Because of its early jump and greater efficiency in the
C-41 process, CP&P gained a disproportionately high
share of 110 finishing, an effect Berkey contends lasted
through the end of 1973. There was clear evidence that
Kodak was aware of the impact its conduct would have
on the business of its photofinishing rivals. One Kodak
marketing officer urged introduction of Kodacolor II along
with the 110 cameras in part to compel the independent
photofinishers to buy Kodak C-41 equipment,*’ and Kodak
engineers realized that the machinery their firm planned
to sell would not allow independents to do more than
‘‘limp through the C-22 to P-118 transition stage.’’ Not
surprisingly, one Kodak scientist noted early in the
development of the 110 system that the new process
*6 Kodak also did not inform independent photofinishers, or
even its own technical sales representatives assigned to help the
independents process Kodak films, that there were two distinct
‘*nopulations’’ of Kodacolor II with markedly different color char-
acteristics. CP&P, however, was told of this divergence as soon as
it was discovered.
‘7 See Part III.A supra.
58a
Appendix B—Opinion of the Court of Appeals
would ‘‘raise hell in the photofinishing business’’ without
benefit to the consumer.** And, shortly after Kodacolor II
came to market, a worried Kodak employee predicted that
CP&P’s announcement of its early readiness to process
the new film would ‘‘cause some photofinishing reaction
due to the fact that we are using 110 to gain business
ove~ their operations.’’
Kodak’s conduct with respect to the independent photo-
finishers perhaps may be criticized as shoddy treatment
of firms providing an essential service for Kodak prod-
ucts. Indeed, largely for that reason a number of Kodak
employees urged that photofinishers and equipment manu-
facturers be given advance warning of the C-41 process.
The purpose of the Sherman Act, however, is not to main-
tain friendly business relations among firms in the same
industry nor was it designed to keep these firms happy
and gleeful. See Kestenbaum v. Falstaff Brewing Corp.,
575 F.2d 564 (5th Cir. 1978). Moreover, it is clear that
Kodak did not monopolize or attempt to monopolize the
photofinishing or equipment markets.“® Thus, it is not
liable under $2 for the actions described above unless it
gained a competitive advantage in these markets by use
48 See td.
*° See Part IL.C. & n. 13 supra. Although Kodak was for a time
the only firm able to finish Kodacolor II, and for a longer period
the only company able to provide equipment for the C-41 process,
the new process and the machinery used in it did not define sep-
arate markets; rather, they were, like Kodacolor II and the 110
camera itself, new entries in markets of wider scope. Kodak held
a temporary monopoly in C-41 processing and equipment only in
the sense that every firm initially possesses a 100% market share
in its own innovations and the peripheral products and services
associated with it. See Telex Corp. v. International Business Ma-
chines Corp., 510 F.2d 894, 915 (10th Cir.), cert. dismissed, 423
U.S. 802 (1975) (endorsing district court statement).
59a
Appendix B—Opinion of the Court of Appeals
of the monopoly power it possessed in other segments of
the industry.
It bears emphasis that only the wielding of power will
support recovery in this context; advantages inuring to
Kodak’s photofinishing and equipment arms by virtue of
membership in an integrated firm will not. As we sug-
gested earlier, a use of monopoly power is an action that
a firm would have found substantially less effective, or
even counterproductive, if it lacked market control. Thus,
the classic example of such a use is a refusal to deal in
goods or services needed by a competitor in a second mar-
ket. E.g., Eastman Kodak Co. v. Southern Photo Mate-
rials Co., 273 U.S. 359 (1927). But, a firm without con-
trol of the market that attempts this will simply drive
the purchaser to take its patronage elsewhere.
Similarly, suppose that Kodak was aware that most
consumers would prefer Kodacolor X but nevertheless
decided to replace it by Kodacolor II, hoping thereby to
place competing photofinishers at a disadvantage. A small
film manufacturer attempting this tactic would find it in-
effective and self-destructive—the slack in C-22 films
would be filled by other firms, and consumers would have
no reason to buy a film they did not like. Kodak, by con-
trast, would face a far different calculus: consumers desir-
ing film would have little choice but to buy Kodacolor IT
and would thereby ineluctably strengthen CP&P’s hand in
photofinishing.
It is not clear, however, whether in bringing forth the
110 system Kodak did anything that.a smaller firm with
integrated capabilities but no market control might not
have done.” Kodak did not use its power to shift the en-
5° We do not, of course, intend to cast any doubt on the well-
established doctrine, which we have reaffirmed, see Part II.B supra,
(footnote continued on following page)
60a
Appendix B—Opinion of the Court of Appeals
tire photofinishing market from C-22 to the C-41 process,
for Kodacolor II was introduced only in the 110 size and
at first represented a minuscule percentage of all color
print photofinishing. Indeed, the film was not marketed
in other formats until eighteen months later, long after
the original surprise had worn off. In sum, Kodak’s
ability to gain a rapidly diminishing competitive ad-
vantage with the introduction of the 110 system may
have been attributable to its innovation of a new system
of photography and not to its monopoly power. On the
other hand, we cannot dismiss the possibility that Kodak’s
monopoly power in other markets was at least a partial
root of its ability to gain an advantage over its
photofinishing competitors and to sell them overpriced
equipment. For example, it may be that, had Kodak pos-
sessed only a small portion of the film market, other
manufacturers would have found it more feasible to bring
out their C-22 films in the 110 size. CP&P would then
have had no competitive advantage for a large percentage
of 110 photofinishing. Moreover, absent a Kodak film mo-
nopoly, the independent photofinishers might not have
(footnote continued from preceding page)
that certain actions may violate § 2 when taken by a monopolist
even though they would be perfectly legitimate in the hands of a
firm lacking market conirol. Rather, our consideration rests on a
simple proposition: if an action that gains a firm a competitive
advantage is effective because of the company’s efficiency, prestige,
and innovativeness, and not because of its control over the market,
the action is not a use of power.
51 In 1972, fewer than one-tenth as many rolls of Kodacolor film
were processed in the 110 format as were finished in the 126 size,
and CP&P processed only about 15% of the 110 rolls. Even in
1973, photofinishers processed more than three times as many 126
Kodacolor rolls—nearly all of it Kodacolor X—as Kodacolor rolls
in the 110 format, and CP&P’s share in the 110 size fell to ap-
proximately 6%.
6la
Appendix B—Opinion of the Court of Appeals
felt an urgent need to buy expensive equipment for the
C-41 process.”
We cannot resolve this ambiguity. The instructions to
the jury did not draw with sufficient sharpness the dis-
tinction between exercises of power and the natural bene-
fits of size and integration. Nor is the record so clear
that we can say with certainty on which side of this de-
marcation the facts fall. The parties quite naturally gave
relatively little attention to this aspect of the case, in
light of the comparatively small sums involved. If the
parties wish to pursue these claims to a final determina-
tion, therefore, a new trial will be necessary.
2. Equitable Relief
Although Berkey’s claim for damages in the photo-
finishing market was limited to the events surrounding
the 110 introduction, the plaintiff also made extensive
allegations that Kodak had used its control over other
markets to disadvantage photofinishing competitors. For
example, Berkey complained about Kodak’s policy, evi-
dently discontinued after the commencement of this suit,
in the sale of color paper. The emulsions on each pro-
duction run of paper are slightly different, yielding a var-
iance of color characteristics. Because tests and machinery
adjustments are necessary each time a roll of paper from
a new “emulsion run” is used, large photofinishers like
Berkey naturally wish to buy as many rolls as possible
from a single run. Kodak, however, refused to sell more
52 We do not hold that Kodak, which did not have a monopoly
in photofinishing equipment, was required to provide such ma-
chinery for other photofinishers. But a violation might be found
if Kodak’s ability to market equipment at an excessive price was
attributable to its monopoly power in other areas.
62a
Appendix B—Opinion of the Court of Appeals
than 400 rolls from any one run to each photofinisher.
Given Kodak’s monopoly power in color paper, this
refusal to deal would, unless justified by a valid business
reason, appear to violate §2 and form the basis for a
grant of equitable relief.
Citing several examples of what he considered to be
uses of Kodak’s “spectrum of monopoly powers” as a lever
in the photofinishing field, Judge Frankel issued a wide-
ranging decree that requires the defendant, as he ex-
plained, “to treat all photofinishers, including CP&P, alike
in relevant respects.” Accordingly, any technical informa-
tion made available by any other branch of Kodak to
CP&P must also be offered promptly—on the payment of
a $200 annual fee to cover postage, printing, and han-
dling—to all domestic firms providing amateur photo-
finishing services.
It is evident from our discussion, however, that this de-
cree forecloses not only the use of monopoly power but
the legitimate benefits of integration as well. Although an
injunction need not be limited to prohibiting repetition of
past misconduct, it does not lie within the discretion of
the trial judge to restructure a market that Kodak has
neither monopolized nor attempted to monopolize. Cf.
Schine Chain Theatres, Inc., supra, 334 U.S. 125-30;
Paramount Pictures, Inc., swpra, 334 U.S. at 166-75. This
portion of the judgment must therefore be vacated. On
remand the district court may consider whether a nar-
rower decree, limited to the prevention of uses of mo-
nopoly power, may be appropriate. In this regard, the
court should consider to what extent the erosion of Kodak’s
share in the camera and color paper markets lessens the
need for injunctive relief.
The decree also mandated the sale of color paper with-
out a Kodak backprint, at the option of the purchaser.
63a
Appendix B—Opinion of the Court of Appeals
Judge Frankel indicated that Kodak’s insistence on placing
its backprint on the paper “was, or could be found to
be, a device to force Kodak’s photofinishing rivals to
advertise their competition.” Judge Frankel did not ex-
pressly consider whether his prohibition was a justifiable
curtailinent of Kodak’s trademark rights. Whatever the
merits of such a decree may be in the abstract—and the
judge himself indicated at one point that its primary im-
pact would be to benefit Kodak’s color paper competitors”
—the need for it is nullified by Judge Frankel’s own ob-
servation that Berkey’s purchases of Kodak paper fell
in 1977 to 7% of its requirements. We therefore direct that
the “backprint” relief be eliminated from any decree to be
entered on remand.
VI. Frm anv Coror Paper Ciams
The second and third largest jury awards were those
for monopolization of film and color paper, $11,500,000 and
$8,803,000, respectively. Judge Frankel upheld the film
verdict but granted judgment n.o.v. for Kodak on color
paper. Kodak therefore appeals the former judgment
and Berkey the latter. In each of these claims Berkey’s
contention is that it paid an excessive price for Kodak
products. They therefore raise similar issues and we shall
discuss them together. We remand both claims for retrial.
It is clear that Kodak possessed a monopoly in the film
and color paper markets during the period relevant to
this suit. Berkey contends that this power, which enabled
Kodak to overcharge its customers, was acquired and
maintained, at least in part, by anticompetitive conduct.
88 Judge Frankel’s opinion appears to contradict itself on this
point. Compare Berkey Photo, Inc. v. Eastman Kodak Co., 457
F. Supp. 404, 425 (S.D.N.Y. 1978) with id. at 433.
64a
Appendix B—Opinion of the Court of Appeals
Some of the evidence introduced by Berkey in support of
its claims concerned events that occurred many years ago.
In particular, Berkey succeeded in introducing a 1915 de-
cision—which was to play a dramatic role in an unfor-
tunate incident near the close of the liability trial’*—hold-
ing inter alia that Kodak, by illegal acquisitions and other
improper conduct, had monopolized the photographic
paper market. Judge Frankel admitted this evidence as
“background” only. Over Berkey’s objection, he instructed
the jury that it could not base liability on anticompetitive
actions that Kodak had committed earlier than the begin-
ning of the limitations period on January 29, 1969, four
years before the commencement of suit.
Berkey contends, however, that Kodak has also bolstered
its power since 1969 by numerous exclusionary means.
In upholding the film verdict against Kodak’s motion for
judgment n.o.v., Judge Frankel pointed to two particular
tactics that he considered to be exclusionary. Most im-
portantly, he held that there was sufficient evidence for the
jury to conclude that the introduction of the 110 system
illegitimately buttressed Kodak’s film sales. The judge
also indicated that Kodak improperly stifled film competi-
tion by preventing CP&P, its photofinishing arm, from
servicing non-Kodak films.
Judge Frankel concluded, with some hesitation, that
the evidence of anticompetitive conduct within the limita-
tions period was sufficient to support the entire liability
award. The trial judge also had misgivings about his
instruction to the jury on the measure of film damages, in
which he explained that Berkey could recover the dif-
ference between Kodak’s monopoly price and the price it
would have paid for film in a competitive market. Never-
** See Part V infra.
65a
Appendix B—Opinion of the Court of Appeals
theless, he denied Kodak’s motion for judgment n.o.v.,
sustaining the award of damages in toto.
Berkey’s color paper claim did not fare as well in Judge
Frankel’s hands, however. As with the film claim, Berkey
presented numerous instances of conduct that, it con-
tended, was anticompetitive. Kodak, it charged, manip-
ulated the structure of the photofinishing market to in-
hibit color paper competition and used its monopoly
power in film to advantage its paper sales, designing its
films so that they would not be as compatible with com-
petitors’ paper as with Kodak’s. Moreover, CP&P re-
ceived instructions to buy only Kodak paper, even though
competing products offered advantages in both cost and
quality. Judge Frankel surveyed these and other allega-
tions and concluded that in each case either Kodak’s con-
duct was perfectly proper, or that there was insufficient
proof that it was tainted by anticompetitive purpose or
effect, or that it had no impact on the color paper market.
Accordingly, although there was clear evidence that
Kodak’s monopoly power had enabled it to maintain its
color paper prices at a high level, the judge granted
Kodak’s motion for judgment n.o.v. on this claim.
Excessive prices, maintained through exercise of a mo-
nopolist’s control of the market, constituted one of the
primary evils that the Sherman Act was intended to cor-
rect. Letwin, Congress and the Sherman Antitrust Law:
1887-1890, 23 U. Chi, L. Rev. 221, 249-52 (1956). Where
a monopolist has acquired or maintained its power by an-
ticompetitive conduct, therefore, a direct purchaser may
recover the overcharge caused by the violation of § 2.
E.g., Ilanover Shoe, Inc. v. United Shoe Machinery Corp.,
392 U.S. 481, 487-94 (1968).
But unless the monopoly has bolstered its power by
wrongful actions, it will not be required to pay damages
66a
Appendix B—Opinion of the Court of Appeals
merely because its prices may later be found excessive.
Setting a high price may be a use of monopoly power,
but it is not in itself anticompetitive. Indeed, although a
monopolist may be expected to charge a somewhat higher
price than would prevail in a competitive market, there is
probably no better way for it to guarantee that its dom-
inance will be challenged than by greedily extracting the
highest price it can. See, e.g., L. Sullivan, supra, at 117;
3 P. Areeda & D. Turner, supra, at 41-42. If a firm has
taken no action to destroy competition, it may be unfair
to deprive it of the ordinary opportunity to set prices at
a profit-maximizing level. Thus, no court has required a
lawful monopolist to forfeit to a purchaser three times
the increment of its price over that which would prevail
in a competitive market. 1 M. Handler, supra, at 56-57.
Indeed, as one commentator who might favor such a rule
concedes, such judicial oversight of pricing policies would
place the courts in a role akin to that of a public reg-
ulatory commission. Jd. We would be wise to decline that
function unless Congress clearly bestows it upon us. See
L. Sullivan, supra, at 117-18.
For a purchaser to recover damages under § 2, there-
fore, it must demonstrate that the monopolist has en-
gaged in some anticompetitive conduct. The further ques-
tions must be resolved, however, to give shape to the pur-
chaser’s treble damage suit:
1. If an overcharge paid during the limitations period
was caused by the defendant’s monopoly power, may
a plaintiff satisfy the conduct element of the § 2 offense
by proving anticompetitive actions that occurred more
than four years prior to the commencement of suit?
2. If a defendant has violated § 2, may a purchaser
recover the excess of its price over a competitive price,
or merely the increment attributable to its anticompeti-
tive conduct?
67a
Appendix B—Opinion of the Court of Appeals
We hold that Judge Frankel erred in Kodak’s favor on
the first of these questions but that he was overly gen-
erous to Berkey on the second.
A. Conduct Prior to the Limitations Period
By statute, 15 U.S.C. §15b, a four-year period of lim-
itations applies in private antitrust suits. The plaintiff,
therefore, clearly can recover only for overcharges suf-
fered since the beginning of the limitations period. It re-
mains to be decided, however, whether the conduct element
of the offense may be satisfied by wrongful action occurring
before the limitations period but that nevertheless made an
enduring contribution to the monopolist’s ability to charge
an excessive price. Judge Frankel, without articulating
reasons, concluded that § 15b requires a negative answer.
Unless tolled, that provision requires suit to be “‘com-
menced within four years after the cause of action ac-
crued.” In effect, therefore, the judge held that the cause
of action of a purchaser seeking to recover an illegal over-
charge accrues when the defendant engages in the anti-
competitive conduct that is a prerequisite for suit. We
believe that the purchaser’s claim cannot accrue until it
actually pays the overcharge. Accordingly, Judge Frankel’s
ruling was erroneous.
It is “plain from the treble-damage statute itself [15
U.S.C. $15]” that “a cause of action accrues and the
statute begins to run when a defendant commits an act
that injures a plaintiff’s business.” Zenith Radio Corp v.
Hazeltine Research, Inc., 401 U.S. 321, 338 (1971). Al-
though the business of a monopolist’s rival may be injured
at the time the anticompetitive conduct occurs, a purchaser,
by contrast, is not harmed until the monopolist actually
exercises its illicit power to extract an excessive price.
The case of predatory pricing illustrates the point clearly.
68a
Appendix B—Opinion of the Court of Appeals
As soon as the dominant firm commences such a policy,
other producers, who may be driven out of the market,
are injured. But, clearly, purchasers are not, for they re-
ceive the temporary boon of artificially low prices. It is
only when the monopolist, having devoured its smaller
rivals, enjoys the spoils of its conquest by boosting its
price to excessive levels that a purchaser “feels the adverse
impact” of the violation. Jd. at 339. And if the monopolist
never consummates its scheme by taking this final step,
the purchaser has no cause of action.
So long as a monopolist continues to use the power it
has gained illicitly to overcharge its customers, it has no
claim on the repose that a statute of limitations is in-
tended to provide. Thus, in this setting, as in “the con-
text of a continuing conspiracy to violate the antitrust
laws, . . . each time a plaintiff is injured by an act of the
defendants a cause of action accrues to him to recover
the damages caused by that act. . . . [A]s to those dam-
ages, the statute of limitations runs from the commission
of the act.” Id. at 338.
Untoward consequences would follow were we to hold
that the anticompetitive conduct itself triggered the run-
ning of the limitations period. As the Supreme Court
stated in Zenith Radio:
[I]t is hornbook law, in antitrust actions as in others,
that even if injury and a cause of action have ac-
crued as of a certain date, further damages that
might arise from the conduct sued on are unre-
coverable if the fact of their accrual is speculative or
their amount and nature unprovable. Id. at 339.
Plainly, at the time a monopolist commits anticompeti-
tive conduct it is entirely speculative how much damage
that action will cause its purchasers in the future. Indeed,
69a
Appendix B—Opinion of the Court of Appeals
some of the buyers who will later feel the brunt of the
violation may not even be in existence at the time. Cf.
Continental Ore Co., supra, 370 U.S. at 709-10. Not until
the monopolist actually sets an inflated price and its cus-
tomers determine the amount of their purchases can a
reasonable estimate be made. The purchaser’s cause of ac-
tion, therefore, accrues only on the date damages are
“suffered”’:
Otherwise future damages that could not be proved
within four years of the conduct from which they
flowed would be forever incapable of recovery, con-
trary to the congressional purpose that private ac-
tions serve “as a bulwark of antitrust enforcement,”
Perma Life Mufflers, Inc. v. International Parts
Corp., 392 U.S. 134, 139 ....
Zenith Radio Corp., supra, 401 U.S. at 340.
Our view is supported by the fundan:ental principles of
§2 that we outlined earlier in this opimon. Monopoly
power, we indicated, is itself the primary target of § 2.
To be sure, a showing of anticompetitive conduct is nec-
essary to support liability for damages, for otherwise the
law would be unfair to a firm that has gained success
solely by fair means. But there can be no unfairness in
preventing a monopolist that has established its dominant
position by unlawful conduct from exercising that power
in later years to extract an excessive price. After all, it is
only a pristine “origin,” Alcoa, supra, 148 F.2d at 429,
that may save a monopoly—so long as it continues to re-
frain from anticompetitive activity—from the condemna-
tion of 42. The taint of an impure origin does not dis-
sipate after four years if a monopolist continues to ex-
tract excessive prices because of it.
70a
Appendix B—Opinion of the Court of Appeals
Moreover, it would undercut enforcement of the Sher-
man Act to hold that, if a monopolist merely retains its
illicit market control for four years after its last anti-
competitive action, it may charge an exorbitant price until
its power is eviscerated in an appropriate suit for equi-
table relief.°* The rule urged by Kodak would mean that,
as the Supreme Court has indicated in a related context:
those who had unlawfully built their empires could
preserve them intact. They could retain the full divi-
dends of their monopolistic practices and profit from
the unlawful restraints of trade which they had in-
flicted on competitors. Such a course would make en-
forcement of the Act a futile thing unless perchance
the United States moved in at the incipient stages of
the unlawful project. Schine Chain Theatres, Inc.,
supra, 334 U.S. at 128.
An unlawful monopolist must be “deprived of the fruits”
of its wrongful conduct, id. at 129, and one of the forbid-
den fruits is an excessive price. In Grinnell, Judge
Wyzanski also used the biological metaphor: §2 requires
“the rooting out of a plant . . . [that] represents an ulti-
mate growth from seeds which have been declared unlaw-
ful.” 236 F. Supp. at 258. So long as a monopolist enjoys
“the flower of evil,” 7d., at the expense of its customers,
those victims must have a remedy.
We hold, therefore, that a purchaser suing a monopolist
for overcharges paid within the previous four years may
8 Tf, as the Ninth Circuit has held in International Telephone &
Telegraph Corp. v. General Telephone & Electronics Corp., 518
F.2d 913, 922 (9th Cir. 1975), dissolution or divestiture may only
be ordered in a Government suit—a question that we of course do
we = rule for which Kodak argues would be even less
tolerable.
Tla
Appendix B—Optnion of the Court of Appeals
satisfy the conduct prerequisite to recovery by pointing to
anticompetitive actions taken before the limitations pe-
riod. It should not be inferred that this ruling grants
antitrust plaintiffs a license to embark on a search for
Ichthyosauria—that is, on a time-warped fishing expedi-
tion. A trial court in its discretion may always “set a rea-
sonable cut-off date, evidence before which point is to be
considered too remote to have sufficient probative value
to justify burdening the record with it.” Continental Ore
Co., supra, 370 U.S. at 710. Moreover, the trial court
might not be without flexibility to limit the proof where
delay in bringing suit may have caused injustice to the
defendants. See 3 P. Areeda & D. Turner, supra, at 93.
B. Damages to a Monopolist’s Purchaser
Assuming that a purchaser establishes a monopolist’s
liability to it for an unlawful price, two potential rules of
damages come into view. Judge Frankel apparently stated,
and in any event the jury clearly acted upon, what may
be called the competitve price theory—that a purchaser
may recover for the entire excess of the monopolist’s
price over that which would prevail in a competitive mar-
ket. We believe that this was error, and that the true
measure of damages, which we shall refer to as the
wrongful conduct rules, is the price increment caused by
the anticompetitive conduct that originated or augmented
the monopolist’s control over the market.
There is a dearth of cases on point. Indeed, the only
citation in Judge Frankel’s discussion of this point is to a
rather vague dictum in Alcoa. The reason for this lack of
authority is that in most successful monopolization suits
brought by purchasers the § 2 violation was merely a con-
72a
Appendix B—Opinion of the Court of Appeals
sequence of a 41 offense that provided the rule of
damages. Often, for example, the § 2 violation consists of
a price-fixing conspiracy among firms controlling a large
share of the market. The measure of the damages to one
of the conspirators’ customers is the difference between
the price actually paid and the one at which the product
would have sold absent the conspiracy. E.g., Reiter v.
Sonotone Corp., 47 U.S.L.W. 4672, 4674 (U.S. June 11,
1979); Chattanooga Foundry & Pipe Works v. City of
Atlanta, 203 U.S. 390, 396 (1906). In such a case, the
monopoly price is entirely attributable to the anticom-
petitive conduct. The two alternative rules of § 2 damages
therefore merge and it is impossible to tell which would
apply if the monopoly power, and hence the excessive
price, resulted only in part from wrongful conduct.
5° To the extent that any inference may be gleaned from the ex-
tended Hanover Shoe litigation, it favors the wrongful conduct
rule. After the Supreme Court affirmed Judge Wyzanski’s judg-
ment in the celebrated United Shoe case, Hanover, a United ecus-
tomer, brought an action to recover illegal overcharges. The
calculation of Hanover’s damages was based on ‘‘the excess of
leasing costs over what it would have cost to own the same machines
had they been available for purchase,’’ Hanover Shoe, Inc. v.
United Shoe Machinery Corp., 245 F. Supp. 258 (M.D.Pa. 1965) ;
see Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S.
481, 487 (1968). Significantly, the hypothetical purchase prices
for prior years were determined from the actual prices for 1955—
the first year the lease-only machines were offered for sale and
clearly, as later litigation would demonstrate, a period in which
United retained its monopoly. See United States v. United Shoe
Machinery Corp., 266 F. Supp. 328, 331 (D.Mass. 1967), rev’d on
other grounds, 391 U.S. 244 (1968). Moreover, United’s anti-
competitive leasing policy was only a partial source of its monopoly
power; the other roots were, as Judge Wyzanski indicated in his
original opinion, ‘‘plainly beyond reproach.’’ 110 F. Supp. at 344.
It appears, therefore, that damages in Hanover Shoe were limited
to the price excess caused by United’s wrongful conduct.
73a
Appendix B—Opinion of the Court of Appeals
Without any clear precedent to guide us, we must de-
termine the proper measure of damages in a §2 case by
juxtaposing the basic rule for antitrust damages with the
fundamental principles of law under § 2 that we outlined
earlier in this opinion. The basic rule was set forth in
Brunswick Corp. v. Pweblo Bowl-O-Mat, Inc., 429 U.S. 477,
489 (1977), where the Supreme ‘Court declared that plain-
tiffs in an antitrust action must prove ‘‘injury of the type
the antitrust laws were intended to prevent and that flows
from that which makes defendants’ acts unlawful.” It is
true, as we have previously indicated, that excessive prices
are ‘“‘injury of the type the antitrust laws were intended
to prevent.” See Part II.A supra. It is equally evident,
however, that more than monopoly power is necessary to
make the charging of a noncompetitive price unlawful.
Accordingly, a purchaser may recover only for the price
increment that “flows from” the distortion of the market
caused by the monopolist’s anticompetitive conduct.
Were the law otherwise, it would establish an unneces-
sary and unwarranted trigger mechanism. See 3 P. Areeda
& D. Turner, supra, at 86-87. <A pristine monopolist,
we have held, may charge as high a rate as the market
will bear. But under the competitive price rule, if it com-
mitted any anticompetitive conduct—beyond a de minimis
level—it would suddenly be held liable for three-fold the
entire excess of its price over a competitive price. In
effect, instead of being required simply to compensate its
customers for the consequences of its wrongful action,
it would be required to forfeit its legitimately acquired
advantages. But the Sherman Act does, as we have said,
tolerate the lawfully acquired and maintained monopoly,
This principle would be undercut if a monopolist whose
position has for the most part been attained legitimately
is required to forfeit all fruits of its success because
74a
Appendix B—Opinion of the Court of Appeals
its power has merely been supplemented by improper
conduct.”
We recognize that if the monopolist, but for its illegi-
timate actions, would have had little or no market power,
the wrongful conduct and competitive price rules may yield
very similar results. The proper standard, though, is
one that bases damages on the monopolist’s actual record
of misconduct.®
C. Summary and Dispositions
The two issues we have discussed above establish the
framework for a purchaser’s action under $2 of the Sher-
man Act. We believe this structure is not only compelled
by law but sensible as well. The wrongful conduct rule
indicates that a purchaser can recover for an overcharge
paid to a violator of §2 only to the extent that the price
he paid exceeds that which would have been charged in
the absence of anticompetitive action. An intermediate
step in the analysis may be an attempt to estimate what
the monopolist’s market share would likely have been but
5? The situation might be different in a Government equity ac-
tion. It is interesting to note that Areeda and Turner would allow
the break-up of a persistent monopoly in such a suit even in the
absence of exclusionary conduct, 3 P. Areeda & D. Turner, supra,
at 63-64. They strongly advocate the position we are asserting
here, however—that ‘‘an injured plaintiff is not entitled to have
damages based on the excess of the monopoly price over the com-
petitive price but only to the price increment reasonably attrib-
utable to actionable behavior.’’ Jd. at 73; see id. at 99.
58 We express no view on how the trial judge should allocate the
burden of proving this causal relation, or lack of it, when plain-
tiff makes a preliminary showing of persistent monopoly power
and a substantial history of anticompetitive conduct. Cf. Ohio
Valley Electric Corp. v. General Electric Co., 244 F. Supp. 914,
946 (S.D.N.Y. 1965).
75a
Appendix B—Opinion of the Court of Appeals
for the illegitimate conduct; it would then be possible to
gauge approximately what price the defendant would have
been able to charge with that degree of market control.
In any event, courts applying this rule must be aware of
the practical limits of the burden of proof that may be
demanded of treble damage plaintiffs. See Zenith Radio
Corp., supra, 395 U.S. at 123; Bigelow v. RKO Radio Pic-
tures, Inc., 327 U.S. 251, 264-65 (1946) ; Story Parchment
Co., supra, 282 U.S. at 563.
It may, of course, be difficult for a purchaser to dem-
onstrate that conduct occurring many years before the
commencement of suit contributed to an overcharge that
it paid within the limitations period. That, however, is no
reason for denying it the opportunity to do so. The treble
damage provision, 15 U.S.C. $15, was intended in large
part as an inducement to encourage potential plaintiffs to
endure the considerable expense and labor of seeking re-
covery against violators of the antitrust laws. E.g., Reiter,
supra, 47 U.S.L.W. at 4675-76.
It is clear from our holdings that we believe both the
film and color paper claims must be remanded for retrial.
Judge Frankel upheld the film award for the entire excess
of Kodak’s prices over a hypothetical competitive price,
although the only two examples of post-1969 conduct that
he believed were wrongful could not have had a very
large impact on Kodak’s film prices. The verdict therefore
cannot stand, but Berkey has a right to establish at a
new trial that anticompetitive conduct, both before and
after 1969, enhanced the price it paid for Kodak film.
Similarly, the judgment for Kodak on the color paper
claim must be vacated. Judge Frankel did not allow the
jury to consider pre-1969 conduct as a foundation for the
verdict—despite the concession by Kodak’s own economic
expert, to be discussed later, that the company’s unlawful
activities in years past may still have had a bearing on
76a
Appendix B—Opinion of the Court of Appeals
its power in the photographic paper market. Because
Judge Frankel erred by instructing the jury on the com-
petitive price theory of damages, however, we could not
simply reinstate the large color paper award, even if we
were to hold that the jury may validly have found that
Kodak committed anticompetitive conduct in that market
since 1969.
We have no occasion to consider the parties’ arguments
concerning the numerous other Kodak activities that, Ber-
key contends, were anticompetitive. Because of the gen-
eral form of the verdicts, we have no way of knowing
what the jury’s findings were on these matters or which
actions were believed to be anticompetitive. Nor do we
know what the findings will be on retrial, if this litiga-
tion should continue. Indeed, now that we have set forth
the broad outlines of principles in this area we earnestly
hope that able counsel on both sides will find a way to
dispose of this mammoth lawsuit without consuming more
court time or incurring more legal expenses. If so, it will
not be necessary to resolve any of the lesser questions. If
not, there will be no need to retry the issue of monopoly
power. Judge Frankel’s instruction on this point appears
to have been essentially correct, and there was clear evi-
dence supporting the jury’s implicit finding that Kodak
held such power in the film and color paper markets.
V. Tue Section 1 Cuarms
Our discussion thus far has centered around interpreta-
tion and application of the provision of the Sherman Act
to actions taken by Kodak alone. Berkey claims in addi-
tion, however, that Kodak engaged in two separate con-
spiracies, with the General Electric Company and Sylvania
Electric Products, Inc., to restrain trade in the use of new
flash devices with amateur cameras.
77a
Appendix B—Opinion of the Court of Appeals
A. Background
Amateur photography performed in dim lighting or-
dinarily requires separate illumination so the scene may
be captured on film. This is usually achieved by affixing
some type of flash device to the camera. Its purpose is to
produce a brief, high-intensity burst of light when the
shutter is released.
Kodak does not make such devices. For approximately
fifteen years, however, it has engaged in three separate
‘joint development programs” with lamp manufacturers to
ensure that the desired lighting innovations would be
compatible with Kodak cameras. In 1963, Sylvania Elec-
tric Products, Inc. approached Kodak with a prototype of
a new battery-powered light device—the flashcube*—and a
modified Kodak 126 camera to fire it. Berkey argued that
although Kodak did not make meaningful technical con-
tributions to the flashcube, it nevertheless required Syl-
vania not to disclose its invention to any other camera
manufacturer. Accordingly, for some time after the flash-
cube was introduced along with a line of Kodak flasheube
cameras in 1965, Kodak was the only manufacturer able
to sell cameras to use the device.”
5° The flashcube contains four flashbulbs mounted on the face
of a small cube, each containing its own reflector. The cube is
rotated after each shot, so four flash pictures may be taken without
the need to change cubes.
6° Several other camera makers complained bitterly to Sylvania
following this episode. They were particularly disturbed that Syl-
vania had assigned its camera patents to Kodak, keeping only its
lamp patents. One Sylvania official wrote:
Also during the past years the royalties other camera manu-
facturers have paid to EK to use Sylvania flasheubes on their
equipment have disturbed them deeply. They keep telling us
that the flasheube was a Sylvania development . . . why did
they have to pay royalties?
78a
Appendix B—Opinion of the Court of Appeals
Berkey is barred by the statute of limitations from
seeking damages for what it terms the “flashcube con-
spiracy,” but it urges that the events in 1963-65 do much
to illuminate two more recent incidents. Viewed in the
light most favorable to Berkey, as we have indicated the
law requires us to do at this appellate juncture, the evi-
dence established that in 1967 Sylvania came to Kodak
with another flash invention—the magicube. This device
was similar to the flashcube in appearance but did not re-
quire batteries. Instead, each of the four lamps in the
cube was ignited by percussion, much as a bullet is fired
when the firing pin strikes the cartridge. This was a ma-
jor advance over the flashcube, eliminating dead batteries
and other electrical malfunctions that were major causes
of lamp failures and consequent missed pictures.
Once more, the two firms entered into a joint project
to exploit the Sylvania invention. Over Sylvania’s pro-
tests, Kodak insisted again that details of the new device
be withheld from the public and the trade. Kodak, Berkey
contended, maintained this position until just two months
before magicubes and magicube cameras were ready for
shipment.” Sales of Kodak magicube cameras commenced
* As Kodak’s trial counsel conceded, there was conflicting evi-
dence concerning the terms of the secrecy agreement. The writ-
ten agreement permitted disclosure to ‘‘other responsible camera
manufacturers,’’ but Sylvania never made disclosure to anyone
but Polaroid, which only manufactured instant cameras and was
thus not a competitor of Kodak’s. In October 1968, Sylvania
pressed Kodak for an early announcement to the trade, but Kodak
resisted, in part to ‘‘make sure that our foreign manufacturing
plants could change to the new system.’’ Kodak then instituted
a “crash program’’ to get to market before, as the jury could have
found, Sylvania unilaterally decided to disclose its invention to
the trade.
In March 1970, Sylvania again complained to Kodak about
delay, noting that rumors of the Kodak-Sylvania project had
(footnote continued on following page)
79a
Appendix B—Opinion of the Court of Appeals
in July 1970. Berkey, it appears, was the first competitor
to offer its own magicube cameras, reaching the market
in October, but its production capacity was at first limited.
It was not until late 1971 that Berkey’s magicube cameras
were truly competitive with Kodak’s.
Kodak’s joint flash programs, however, were not con-
fined to Sylvania. In 1969, the General Electric Company
approached Kodak with proposals for several new flash
devices. One was a percussion lamp similar to the
magicube; another used a small crystal that could be eco-
nomically built into a camera and that would, when struck,
produce an electrical current sufficient to ignite flash
material. The latter device, called “piezo” or “PE”
because it used a piezoelectric crystal, provides the focus
for the second conspiracy charged by Berkey.
Kodak was troubled by the GE proposal. It was already
committed to Sylvania on the magicube project, and there
was abundant evidence from which the jury could con-
clude that Kodak did not wish to introduce two new flash
systems at approximately the same time.® Rather, its
marketing strategy was, as we noted in connection with
our discussion of the 110 system, to withhold introduction
of improved camera models until the maximum benefit
from the prior model had been reaped. The jury’s verdict
could reflect its belief that Kodak embarked on a care-
(footnote continued from preceding page)
caused other camera manufacturers to press Sylvania for dis-
closure. Kodak agreed to a limited form of disclosure, but refused
to permit release of, inter alia, the design of the camera socket into
which the magicube would fit.
62 In addition to the evidence adduced in connection with the
110 camera that Kodak had a policy of cyclical product introduc-
tion, a Kodak official testified that if the piezo would not be ready
for the initial 110 introduction, Kodak could not use it for another
two or three years.
80a
Appendix B—Opinion of the Court of Appeals
fully balanced campaign. Kodak desired to cool GE’s ardor
for its inventions sufficiently to delay introduction of the
piezo device for several years, and, at the same time, to
avoid the appearance of deferment so that the lamp manu-
facturer would not seek another camera maker to exploit
its invention.
After several years of intermittent discussion, Kodak
and GE decided to move forward with the piezo device.
In a contract executed on October 31, 1972, they agreed
to aim for a Spring 1975 introduction of GE piezo flash-
lamps and Kodak cameras designed to fire them. Dis-
closure beforehand to other lamp and camera manufac-
turers was forbidden. At a joint press conference in April
1975, the two firms announced the GE “flipflash’’* and
two new lines of Kodak 110 cameras designed to accom-
modate it. Kodak had the field to itself for several
months. This time, however, Berkey was not the first
non-Kodak camera manufacturer to enter the arena. It
did not market its own flipflash cameras until early 1976,
months after Japanese and Chinese models had begun to
appear.
B. Joint Development Projects and § 1
Berkey contends that Kodak’s agreements with the
magicube and flipflash manufacturers violated §1 of the
Sherman Act. In particular, it charges that although
Kodak did not make any meaningful technological con-
68’ For example, at a time when Kodak was committed to Syl-
vania and had shelved its own piezo plans, it complimented GE on
its devices and urged them to continue development.
64 This device was a rectangular array of eight bulbs, set in four
rows of two. The top four bulbs would be fired and the array
would then be ‘‘flipped’’ and the remaining bulbs, now on top,
would be used.
8la
Appendix B—Opinion of the Court of Appeals
tribution to either system, the secrecy agreements it ex-
tracted from GE and Sylvania prevented other camera
makers from competing in the production of cameras that
could cooperate with the new flash devices. Evaluating all
the evidence presented on these issues, the jury found
Kodak’s conduct to be unreasonable restraints of trade.
Kodak’s challenge to these verdicts is relatively simple.
It argues that both projects “involved millions of dollars
of research and development expense by Kodak,” and “led
directly to the introduction of innovative new products’’
that “gained wide success.” Accordingly, it urges, Berkey’s
§1 claims are nothing more than “a mirror image” of the
§ 2 predisclosure arguments we rejected in Part II of this
opinion.
There is a vast difference, however, between actions
legal when taken by a single firm and those permitted for
two or more companies acting in concert. To repeat a
simple example, a monopolist may, assuming he acquired
his power legally, charge any nonpredatory price for his
product, but agreements among competitors to raise prices
have been recognized as per se violations of the Sherman
Act since Socony-Vacuwm. See Part II supra. We have
stated that we respect innovation, and we have construed
§ 2 of the Act to avoid an interpretation that would stifle
it. But this is toto caelo different from an agreement
among a few firms to restrict to themselves the rewards
of innovation. Such conduct is not immune to examina-
tion under $1. Citing a case we believe to be inapposite,”
Kodak contends that it is “not a ‘restraint of trade,’
reasonable or unreasonable, jointly to develop a new prod-
°° United States v. Citizens & Southern National Bank, 422 US.
86 (1978), involved the antitrust implications of an attempt to
evade Georgia’s branch banking laws and has nothing to do with
joint development ventures by firms in complementary markets.
82a
Appendix B—Opinion of the Court of Appeals
uct.’”’ Where a participant’s market share is large, how-
ever, we believe joint development projects have sufficient
anticompetitive potential to invite inquiry and thus stand
on a different footing.
Joint development programs can benefit competition,
see United States v. Line Material Co., 333 U.S. 287, 310
(1948), but they are not without their costs. In analyzing
joint research by direct competitors, one commentator has
suggested that if several substantial firms in an industry
join in research at a scale the remaining firms could not
attain, and if the others are not permitted to join the
group, the favored competitors might obtain a decisive
and unjustified advantage over the rest. L. Sullivan, supra,
at 298-303. The benefits and detriments of joint research
will vary with the circumstances, Sullivan suggests, and
the market power of the participant firms is likely to be
the most significant factor. Id.; accord, Turner, Patents,
Antitrust and Innovation, 28 U. Pitt. L. Rev. 151, 158-59
(1966).
Kodak and GE, of course, are not direct competitors,
and Kodak and Sylvania were at best potential com-
petitors when the magicube was being developed.
Nevertheless, because of Kodak’s market power over
cameras, the exclusionary potential of horizontal research
pools was present. In the case of the flipflash, for
°° Until 1962, Argus Camera was operated as a division of Syl-
vania. In May of that year, Sylvania sold Argus for a small
amount of cash and $7.8 million in promissory notes. Over the
next seven years, as a resu't of recapitalizations of Argus, Sylvania
was, at various times, a major creditor, common shareholder, and
preferred shareholder of its former division, on occasion placing
a nominee on Argus’s Board of Directors, Berkey contended that
Sylvania’s relationship with Argus permitted the jury to infer
that the lamp manufacturer was a potential camera competitor as
well.
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Appendix B—Opinion of the Court of Appeals
example, GE indicated early in 1971 that it could be at
maximum production in two years. Kodak, however,
counselled delay, at one point urging GE project officials
to make a show of progress, “even if all you do is ‘paint
the red base black,’’’ so that “we’ll feel free to work with
you.” Otherwise, Kodak said, GE could not be assured of
being part of Kodak’s future flash plans, for “we would
then have to ask all [lamp] manufacturers” to submit
ideas. A few months later, the two firms executed the
formal agreement binding them to joint development of
flipflash and nondisclosure to rival lamp and camera
manufacturers. From this and other evidence, the jury
could have found in the verdict it returned that, without
any technological justification, GE kept a desirable in-
novation off the market for two years solely to suit
Kodak’s convenience. There is a hollow ring to a claim of,
justification by appeal to the need to promote innovation,
where the result of the conduct was such a clear loss to
consumers.
We hasten to add that we do not hold that joint de-
velopment agreements between a monopolist and a firm
in a complementary market are per se violations of $1. It
may be, for example, that the market structure is such
that only a dominant firm will have the resources
necessary to exploit the complementary technology being
offered. If such were the case, the alternative to joint
development could be no development at all. Accordingly,
Judge Frankel appropriately rejected Berkey’s request for
a per se charge. See generally Continental T.V., Inc. v.
GTE Sylvania, Inc., 433 U.S. 34, 49-50 & n.16 (1977).
Nevertheless, as Areeda and Turner have noted, joint
ventures involving a monopolist have sufficient anti-
competitive potential that they must be scrutinized with
care lest they be permitted to fortify the already sub-
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Appendix B—Opinion of the Court of Appeals
stantial entry barriers inherent in a monopolized market.
3 P. Areeda & D. Turner, supra, at 114. The relevant
variables might include: the size of the joint venturers;
their share of their respective markets; the contributions
of each party to the venture and the benefits derived; the
likelihood that, in the absence cf the joint effort, one or
both parties would undertake a similar project, either
alone or with a smaller firm in the other market; the
nature of the ancillary restraints imposed and the
reasonableness of their relationship to the purposes of the
venture. This list is not intended to be exhaustive, nor do
we suggest that each element applies to every case. In
analyzing joint development agreements, as elsewhere in
§1, “the factfinder [must] weigh all of the circumstances
of a case in deciding whether a restrictive practice should
be prohibited as imposing an unreasonable restraint on
competition.’’ Continental T. V., supra, 433 U.S. at 49.
On the record before us, we have little doubt that a
properly instructed jury could find that the magicube and
flipflash agreements violated $1. It remains, therefore,
to examine Kodak’s challenges to the charge to the jury.
Kodak asserts that Judge Frankel erred in instructing the
jury to consider whether (1) Sylvania’s substantial inter-
est in Argus Camera Co. rendered it a potential camera
** In particular, there was in each instance evidence that Kodak
used its camera monopoly to extract secrecy agreements from the
lamp manufacturers, and that the benefits it derived from the
agreements far exceeded the value of its technological contribu-
tions. We note, in passing, that Kodak contends that Berkey
should be barred from recovery because a Berkey official once told
an officer of GE that Berkey was not interested in innovation, pre-
ferring to copy Kodak designs. The evidence concerning this con-
versation was conflicting, however, and we must assume the jury
resolved the conflict in Berkey’s favor. Accordingly, we need not
determine the effect such a Berkey policy would have on its right
to complain of Kodak’s illicit agreements with the lamp makers.
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Appendix B—Op
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