Amicus Curiae Brief — Eastman Kodak Co. v. Image Technical Services, Inc.

Court, USP

LLED

SEP 10 91

EASTMAN KODAK COMPANY,

Petitioner,

vs.

IMAGE TECHNICAL SERVICES, INC., et al,

Respondents.

On Writ Of Certioreri

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF OF AMICUS CURIAE PUBLIC CITIZEN

IN SUPPORT OF KESPONDENTS

Leslie A. Brueckner

Alan B. Morrison

(Counsel of Record)

Public Citizen Litigation Group

2000 P Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 833-3000

Attorneys for Amicus Curiae

Public Citizen

September 20, 1991

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TABLE OF CONTENTS

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INTEREST OF PUBLIC CITIZEN

TOT sethariiibecicinssittennipincuiinilascintnsisccdannidneaniniitdesiabiainialins 3

SUMMARY OCF ARGUMENT

ARGUMENT

THE DECISION REVERSING THE GRANT OF

SUMMARY JUDGMENT MUST BE AFFIRMED

BECAUSE THE MARKET POWER ISSUE ISA

FACT QUESTION THAT CANNOT BE

RESOLVED BY APPLICATION OF A PER SE

POU CO COIET Es BE EV ESE MESIIe ccccenscsnnsevcccchosnscesescsssseness )

A. KODAK’S ATTEMPT TO RESOLVE THE

MARKET POWER ISSUE BY APPLICATION

OF A PER SE RULE OF COMPETITIVENESS

IGNORES THE COMPLEXITY OF

CONSU MER DECISION-MAKING. ...0 ee 1]

|. Kodak Incorrectly Assumes That All

Consumers Consider The Costs Of Parts

And Service When Selecting Equipment

Kodak’s Attempt To Deny The Existence

Of “Lock In” Also Assumes T00 Much. ............ 13

KODAK FAILED TO MEET ITS BURDEN

OF ESTABLISHING NO GENUINE ISSUE AS

TO THE MARKET POWER QUESTION. ............ 15

EA POUL A LPUEEET snsccsccnvenessseniinisteabtininidaslecainiiatandaamapapiaantiiaaand Is

TABLE OF AUTHORITIES

Cases: Page:

Board of Education, Island Trees Union Free School

District No. 26 v. Pico, 457 U.S. 853 (1982) ......cccccceee. 12

Federal Trade Commission v. Indiana Federation

fe Ok | 6 | ee 10

Fortner Enterprises v. U.S. Steel Corp..,

CE

Image Technical Services, Inc. v. Eastman Kodak,

903 F.2d 612 (9th Cir. 1990) .................... 5, 6, 13, 14, 17

Jefferson Parish Hospital District No. 2 v. Hyde,

I a. cemsenesostioonseunsonesenmanosuna 9

Matsushita Electric Ind. Co. v. Zenith Radio,

ES ET 16, 17

NCAA v. Board of Regents,

TT screens cctcccensenensenesnnniabinniens 1-2, 10

United States v. Diebold, Inc..

369 U.S. 654 (1962) .oecccecccesccccccsecsseccssesssecssssssssssscessseeensen 3

United States v. EI. du Pont de Nemours & Co..

Be FF 0 BOD cettcncscnsetonesscssnnes 7S Re 9, 15

WM

Statutes:

Sherman Act. IS US. SS | ef sey 1YX2 |. 4. 5, ], Y

No. 90-1029

In The

Supreme Court of the United States

October Term, 199]

fF ASTMAN KODAK COMPANY,

Petitioner,

VS.

IMAGE TECHNICAL SERVICES, INC., et al.,

Respondents.

On Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF OF AMICUS CURIAE PUBLIC CITIZEN

IN SUPPORT OF RESPONDENTS

INTEREST OF PUBLIC CITIZEN

This briet is filed, with the written consent of the parties,

on behalt of Public Citizen, a non-profit public interest or-

ganization whose membership includes over 100,000 con-

sumers. This case arises under the Sherman Act, 15 U.S.C. 8&§

| et seq. (1982), which was designed by Congress specifically

to protect consumer welfare. See NCAA v. Board of Regents,

468 U.S. 85, 107 (1984). Part of Public Citizen's mission ts to

ensure that the nation’s antitrust laws are entorced tor the

benefit of consumers. In addition, Public Citizen ts interested

in this case because, as the lessee of three photocopiers

manutactured by petitioner Eastman Kodak Company

(“Kodak”), Yt is directly and adversely affected by Kodak's

anti-competitive practices.

This case involves a successful attempt by Kodak, a

manufacturer, marketer, and servicer of photocopiers and

micrographic equipment, as well as a supplier of the parts for

such equipment, to corner the market for Kodak replace-

ment parts and to leverage that situation into a stranglehold

on the market for service of Kodak equipment, thereby

destroving the businesses of a number of independent service

organizations that compete with Kodak in this market. Public

Citizen, as a representative of consumers generally, is inter-

ested in this case because the ultimate price of Kodak's

activities has been, and will continue to be, paid by consum-

ers, especially existing owners of Kodak equipment, who

have been forced to obtain parts and service from Kodak at

inflated prices. Moreover, consumers of other equipment

will be injured if other manufacturers are permitted to mimic

Kodak's strategy and extract monopoly rents in the after-

markets tor their products.

A central issue in this case is Kodak's ability to control

the service market by virtue of its power over the market for

Kodak replacement parts. This issue in turn hinges on a

factual question concerning consumer behavior in the mar-

ketplace for photocopiers and micrographics equipment.

Due to Public Citizen's expertise on consumer behavior and

its position as a consumer of Kodak equipment, it is able to

offer a different perspective than that of the respondents.

STATEMENT

This case involves a concerted attempt by Kodak to limit

the supply of Kodak replacement perts and, in so doing, to

gain control over the market for servicing Kodak equipment.

Since there has been no trial in this case, and only limited

discovery, all factual doubts must be resolved against Kodak,

the party that moved tor summary judgment. See United

States v. Diebold, Inc., 369 U.S.654, 655 (1962). Accordingly,

this statement sets forth the facts as respondents allege they

can be established at trial.

Kodak's illegal activities started in mid-1985, when it

embarked on a campaign to take control of the market for

Kodak parts and drive independent service organizations

(“ISOs”) out of the service business for Kodak equipment.

Prior to that ttme, Kodak had an open sales policy for Kodak

parts, and did not attempt to prevent [SOs from competing

with it in the service market for Kodak equipment. Joint

Appendix (“JA”) 99; JA 152; JA 349-50; JA 415-16; JA 435.

Kodak utilized a two-step strategy to control the mar-

kets for Kodak parts and service. The first step was to cut off

[SOs from potential supplies of Kodak parts by effectively

making Kodak the sole source of supply for replacement

parts. This was accomplished by: (1) agreeing with inde-

pendent original equipment manufacturers (“OEMs”), which

supply Kodak with 90% of parts for Kodak equipment, that

the OEMs would not sell any parts that fit Kodak equipment

to anyone other than Kodak (JA 428-29; JA 468; JA 496}: (2)

pressuring Kodak equipment owners not to sell Kodak parts

to ISOs (JA 428-29); (3) pressuring independent parts dis- ,

tributors not to sell Kodak parts to ISOs (JA 517-18; Docu-

ments lodged with Clerk with the filing of the Joint Appendix

A“L") 140; L 143); and (4) effectively closing the used ma-

chine market, including as a parts source. JA 423; JA 427-28:

JA 510-11; JA 650.

The second step in Kodak’s scheme was to utilize its

newly achieved control over Kodak replacement parts to

drive ISOs out of the service business. This was accomplished

in part by conditioning the sale of parts to its customers on

their agreement to refuse to deal with ISOs, thereby effec-

tively “tying” Kodak service to Kodak parts, on which Kodak

now held a virtual monopoly. JA 428-29; L 163. Kodak also

required ISOs who wanted to buy Kodak parts from Kodak to

stop servicing any Kodak equipment other than their own and

to stop selling used Kodak machines. L 143; L 159.

By 1987, Kodak had largely succeeded in controlling the

supply of Kodak parts and driving many [SOs out of the

service business. JA 422; JA 463. Remaining ISOs have

suffered the loss of substantial revenues and accounts (JA

458-59: JA 495-96; JA 501-02), and consumers of Kodak

equipment have also suffered by being forced to pay higher

prices for inferior service. JA 420-22; JA 425-27; JA 474-75:

JA 514

A complaint was filed on April 14, 1987, on behalf of 18

small [SOs that, among other things, repaired, serviced, and

sold parts for Kodak equipment (“respondents”). JA411;JA

449: JA 462; JA 470-71; JA 504. The complaint alleged, inter

alia, that Kodak violated Sections | and 2 of the Sherman Act,

1SU.S.C. $§ 1 et seq.( 1982), by monopolizing the Kodak parts

market, conspiring with others to deny Kodak parts to re-

spondents, monopolizing an aftermarket for Kodak service

and reconditioned equipment, and restraining trade through

agreements tying the sale of Kodak service to Kodak parts.

JA 5-37.

Kodak moved for summary judgment before respon-

dents had even initiated discovery, arguing that the “material

facts with respect to the challenged business practices . . . are

not seriously disputed.” JA 91. Over respondents’ objec

tions, the district court permitted only very limited discovery

(JA 255-98: JA 315-25), and then, on April 18, 1988, granted

Kodak's motion, and dismissed the action

On appeal, respondents argued that they had raised a

number of triable issues including: (1) whether Kodak’s re-

fusal to sell parts to equipment owners, unless they agree not

to use ISOs, constitutes a tying arrangement violative of

Section | of the Sherman Act;' and (2) whether Kodak’s

refusal to sell parts to [SOs, in combination with its other

efforts to control the market for Kodak parts and service, is

an act Of monopolization violative of Section 2 of the Sher-

man Act. See Image Technical Serv., Inc. v. Eastman Kodak,

903 F.2d 612, 614 (9th Cir. 1990).

On May |, 1990, a divided panel reversed the order of

dismissal, finding that triable issues of tact existed with re-

spect to both the Section | tying claim and the Section 2

monopolization claim. With respect to the tying claim, the

Court rejected Kodak’s theory that, since it allegedly does not

have market power in the interbrand markets for copier or

micrographic equipment, it cannot as a matter of law have

sutficient economic power in the parts market to result in an

illegal tying arrangement.’ The Court stated that, whether it

is possible for a firm in a competitive basic equipment market

to charge supra-competitive prices for equipment parts, is

not a question that should be decided “on a theoretical basis.”

Id. at 617. The Court further noted the absence of a fully

developed record on the market power issue due to the “very

limited discovery” that was permitted by the district court. /d.

Despite the absence of full discovery, however, the Court

stated that respondents had presented evidence that Kodak

' Respondents specifically argued that whether the tying ar-

rangement is a per se violation of the Sherman Act, or merely an

unreasonable restraint of competition under the rule of reason,

its legality requires a factual development. JA 746-47.

7In order to establish a per se iilegal tying arrangement, it is

necessary to demonstrate sufficient economic power with respect

to the tying product (parts) to restrain competition appreciably

inthe tied product (service). See Fortner Enterprises v. U.S. Steel

Corp., 994 US, 495, 499 (1969).

a

6

may in fact have used its power in the parts market to leverage

an unfair advantage in the service market. /d. Such evidence,

ruled the Court, is sufficient to raise a material issue of fact as

to whether Kodak has sufficient power in the parts market to

sustain a tying claim. /d. at 618. With respect to the monopo-

lization claim, the Court rejected Kodak’s argument that it

could not have monopoly power in the service market since

it allegedly lacks market power in the interbrand market. Jd.

at 621. As with the tying claim, the Court held that Kodak’s

theory simply did not “mirror[ ] reality.” /d.

The dissent disagreed on both counts. As to the tying

claim, the dissent wrote that Kodak’s “lack of power in the

interbrand market necessarily precludes power in the deriva-

tive market....” /d. at622 (emphasis in original). The dissent

rejected respondents’ evidence that Kodak, in fact, does

exert power in the aftermarkets for Kodak parts, stating that

“[n]Jo amount of evidence of pricing in the derivative market”

can overcome the presumption raised by Kodak’s alieged

lack of power in the interbrand market. /d. Thus, the dissent

concluded that respondents had failed to raise any genuine

issues of material fact with regard to Kodak’s market power

in the market for replacement parts. /d. at 623. As to the

monopolization claim, the dissent wrote that summary judg-

ment was proper because Kodak had demonstrated a legiti-

mate business reason for its behavior. /d. at 621.3

3In so ruling, the dissent ignored a fundamental tension in

Kodak’s defense. On the one hand, Kodak claimed that its

alleged lack of market power in the interbrand equipment market

proved that it could not, as a matter of law, have attempted to

monopolize the markets for Kodak parts or service. Under this

theory, which Kodak embraces exclusively in this Court,

whether Kodak had a legitimate justification for its acts is legally

irrelevant. At the same time, however, Kodak strained to excuse

(continued . . .)

SUMMARY OF ARGUMENT

Both of respondents’ Sherman Act claims hinge on a

factual question concerning the extent of Kodak’s economic

power in the aftermarkets for parts and service. Kodak

attempts to transform this fact question into a legal one by

arguing that an equipment manufacturer lacking interbrand

market power cannot, as a matter of law, wield sufficient

power in aftermarkets for parts or service to create either

tying or monopolization ligpility. In this way, Kodak urges the

Court to adopt a rule of per se competitiveness in after-

markets for parts and service whenever an absence of market

power in the product market is demonstrated.

Kodak's approach should be rejected because it ignores

numerous fact questions concerning consumer behavior that

bear dircctly on the market power issue. The central assump-

tion underlying Kodak’s theory is that any significant price in-

creases in aftermarkets will inevitably reduce demand for

Kodak equipment because the rational consumer necessarily

considers the costs of parts and service when choosing among

competing equipment sellers. This characterization by an

interested manufacturer of the rational consumer, however,

fails to recognize that some consumers might not have access

to sufficient information about parts and service at the time

of equipment purchase, might not be able to use the informa-

tion they have, or might make purchasing decisions solely

based on equipment cost, performance, availability, and the

(. . . continued)

its attempt to monopolize the parts and service markets by

offering purported justifications for its actions. Since the

existence of any justification necessarily involves the factual

question of pretext, it would be improper to decide that issue on

summary judgment, especially given the limited discovery

allowed here.

like, deferring decisions concerning parts and service until

the need arises. Moreover, even assuming that price in-

creases In aftermarkets would, as Kodak suggests, reduce

demand for Kodak equipment, Kodak might, under some

circumstances, still be able to exploit existing, “locked-in”

owners of Kodak equipment who have no option other than

to purchase Kodak equipment and service at inflated prices.

Thus, Kodak might be able to sustain long-term, anti-com-

petitive strategies in parts and service aftermarkets notwith-

standing an absence of market power in the interbrand

equipment market.

The extent of Kodak’s power in the markets for replace-

ment parts and service, then, hinges on a number of fact

questions about consumer behavior that cannot be resolved

without further development of the record. Kodak's Sugges-

tion that this Court should apply a per se rule of competitive-

ness whenever an absence of interbrand market power is

demonstrated assumes these critical fact questions out of

existence. As this Court has recognized, it is improper to use

per Se rules to create antitrust liability in complex cases such

as this one; it is equally improper to preclude antitrust liability

when the record presents serious questions about how the

market really works.

Given the presence of a genuine factual dispute with

respect to the market power issue, the Court of Appeals

properly reversed the district court’s decision g granting sum-

mary judgment in Kodak’s favor. The only “proof” offered by

Kodak on the market power issue concerned its alleged lack

of power in the interbrand equipment pret ra proof

falls far short of the mark, since even if Kodak does lack

power in the equipment market (an issue that is itself the

subject of dispute), this does not by any means dictate a

finding that Kodak lacks power in the parts and service

aftermarkets. Thus, Kodak did not even meet its initial

burden of demonstrating an absence of disputed facts with

respect to the market power issue. Moreover, even if Kodak

had met its initia! burden under the summary judgment

standard, respondents have offered more than sufficient

evidence of Kodak's actual power in the parts and service

aftermarkets to withstand a motion for summary judgment.

ARGUMENT

THE DECISION REVERSING THE GRANT OF

SUMMARY JUDGMENT MUST BE AFFIRMED

BECAUSE THE MARKET POWER ISSUE IS A

FACT QUESTION THAT CANNOT BE RESOLVED

BY APPLICATION OF A PER SE RULE

OF COMPETITIVENESS.

To establish tying liability under Section 1, it is necessary

to demonstrate that “the seller has some special ability --

usually called ‘market power’ -- to force a purchaser to do

something that he would not do in a competitive market.”

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 13-14

(1984) (citations omitted). To establish monopolization lia-

‘bility under Section 2, it is necessary to demonstrate the

~ power to control prices or exclude competition” in the rele-

vant market. United States v. E.1. du Pont de Nemours & Co..

351 U.S. 377, 391-92 (1956). Thus, determining the extent of

Kodak's market power is central to both of respondents’

claims..

Kodak’s primary argument in this Court is that an equip-

ment manufacturer lacking interbrand market power cannot,

as a matter of law, wield sufficient power in aftermarkets for

parts or service to create either tying or monopolization

liability. See Petitioner’s Brief on the Merits (“PB”) at 16-27.

Absent interbrand market power, theorizes Kodak. any at-

tempt to raise prices to noncompetitive levels in aftermarkets

for parts or service would simply serve to drive off customers.

both old and new. In the long-run, the argument goes, the

price of survival in the interbrand market would be the

restoration of competitive prices in aftermarkets. Thus.

absence of interbrand market power in equipment markets is

said automatically to preclude long-term, supra-competitive

pricing and other anti-competitive tactics in aftermarkets for

parts and service.

This theory reflects a tidy vision of consumer practices

that is not born out by the facts or the law. In effect, Kodak

is urging this Court to ignore the factual complexities of

consumer behavior and instead apply a rule of perse competi-

tiveness in aftermarkets whenever an absence of market

power in the product market is demonstrated. However, as

this Court has recognized, per se rules are a crude and inexact

way to dispense with antitrust cases that raise questions about

how markets really work. See, e.g., Federal Trade Comm. v.

Indiana Fed. of Dentists, 476 U.S. 447, 458-59 (1986) (noting

the Court’s “reiuctance to extend per se analysis to restraints

imposed in the context of business relationships where the

economic impact of certain practices is not immediately

obvious”); see also NCAA v. Board of Regents, 468 U.S. 85,

100-01 (1984). Although Kodak’s theory may be an accurate

predictor of consumer behavior under some circumstances,

the market power issue is fundamentally a fact question that

should only be resolved after a full and fair opportunity for

discovery and, perhaps, trial.

es

I!

A. KODAK’S ATTEMPT TO RESOLVE THE

MARKET POWER ISSUE BY APPLICATION

OF A PER SE RULE OF COMPETITIVENESS

IGNORES THE COMPLEXITY OF CONSUMER

DECISION-MAKING.

1. Kodak Incorrectly Assumes That All Consumers

Consider The Costs Of Parts And Service When

Selecting Equipment.

Kodak’s theory, as outlined above, is based on a number

of over-simplified assumptions about consumer behavior.

The first concerns the effect of price increases in parts and

service markets on potential new purchasers of Kodak equip-

ment. Kodak argues that any significant price increases in

aftermarkets will inevitably reduce demand for Kodak equip-

ment because the rational consumer necessarily considers

the cost of parts and service when choosing among competing

equipment sellers. Put another way, Kodak treats the prod-

uct purchased by all new consumers as not just the equip-

ment, but a single unbundled unit of present equipment and

future parts and service needs.

This approach is wrong, not because it may not accord

with reality in some cases, but rather because it assumes a

serious factual question out of existence. Notwithstanding

Kodak’s claims to the contrary, the reality may well be that

many consumers do not base their purchasing decisions on

the combined cost of equipment, parts, and service.‘

”

*For the reasons stated by respondents, the Court of Appeals

incorrectly found that respondents do not dispute that equipment

purchasers consider the cost of parts and services when deciding

on equipment. See Respondents’ Brief on the Merits (“RB’’) at

Statement of the Case (E). Evenif respondents had conceded this

(continued .. .)

12

For example, some customers might not have access to

information about the availability and price of parts and

service at the time of equipment purchase. Contrary to

Kodak’s claims, this would make perfect “economic sense”

(PB at 29) given the obvious disincentives for equipment

sellers (such as Kodak) to make full disclosure of their past

repair histories and costs, and the absence of anything resem-

bling a Consumers’ Reports on commercial copiers and

micrographics equipment and their service costs. Unlike

what is available for televisions and dishwashers. independ-

ent, dependable projecticns of the costs of parts and service

are not readily available for these products.

_ Even assuming sufficient access to information about

parts and service at the time of equipment purchase, even

sophisticated consumers may not be able to make good use of

such information due to the difficulty of predicting the type of

repairs that might be required, whether the costs will be

principally service or parts, and how frequently they should

expect major service problems for which there can be sub-

stantial differences in the prices of the parts and/or the

service.

Still other customers might not even attempt to evaluate

the markets for parts and service when making their initia]

decision to lease or purchase a Kodak machine. For example,

a buyer of Kodak equipment that has entered into a mainte-

nance agreement with Kodak for the term of the warranty

might not consider the availability of parts or service beyond

the initial warranty period. Or a lessee of Kodak equipment,

with an option to purchase, might defer consideration of the

(.. . continued)

issue, this Court performs its own review of the record and is not

constrained by the errors of parties. See Board of Educ., lsland

Trees Union Free School Dist. No. 26 v. Pico, 457 U.S. 853. 872.-

73 (1982).

Vee

13

cost of parts and service until the option is ripe -- at which time

the sunk costs in the machine might compel a purchase,

notwithstanding Kodak’s inflated prices for parts and service.

in short, a host of factors suggest that, from the stand-

point of the consumer in the market for a photocopier or

micrographic equipment, the costs to be considered when

making a purchasing decision might not encompass service or

parts at the time the equipment purchase decision is made.

For such consumers, supra-competitive pricing in aftermarkets

for service and parts would not affect the decision whether to

purchase equipment from Kodak or from one of its competi-

tors. In this scenario, Kodak could exploit consumers of

Kodak parts and service notwithstanding an absence of market

power in the equipment market.

Thus, Kodak oversimplifies consumer behavior by as-

suming that all consumers in the market for Kodak equip-

ment evaluate parts and service costs at the time of equip-

ment purchase. In fact, the actual behavior of consumers

under the circumstances presented in this case is a factual

question that cannot be resolved on the record before this

Court.

2. Kodak’s Attempt To Deny The Existence Of

“Lock In” Also Assumes Too Much.

The second suspect assumption in Kodak’s theory of

consumer behavior concerns existing owners of Kodak equip-

ment. As the Court of Appeals noted, the record shows that

some owners of large Kodak equipment packages will pay

higher prices for Kodak service rather than switch to com-

petitors’ systems. 903 F.2d at 617. For these “locked-in”

owners, then, Kodak is able to charge monopoly prices for

parts and service notwithstanding its alleged lack of power in

the interbrand equipment market.

Kodak’s argument against the existence of lock-in has a

tamiliar but hollow ring to it. According to Kodak, absent

a eeeenmmmmnmmreemes oe ~—

14

market power in the market for interbrand equipment, no

company could successfully exploit locked-in customers by

charging monopoly prices for service and parts. Todo so, says

Kodak, merely would drive away new and re peat purchasers.

See PB at 25-26. Kodak goes on to Suggest that a lock-in

strategy is “impossible” in this case, since Kodak would never

make more total profit by overcharging its existing Customers

than it would lose as equipment sales dry up. Id.

This argument again assumes too much. First, as dis-

cussed above, it is not at all clear that the cost of service and

parts plays a significant role in decisions to purchase new

equipment, even among customers that already have Kodak

equipment. This is a factual question that cannot be resolved

on the present record.

Second, the argument assumes that Kodak must offer

service to new and repeat customers on the same terms it

charges to existing, locked-in, customers. But Kodak could

insulate new or repeat customers from price increases by a

variety of strategies, such as offering special maintenance

agreements or service contracts that do not reflect the mon-

opoly prices charged to locked-in customers. In this way,

Kodak could exploit existing customers without driving off

important new business.

Third, the lock-in effect may vary depending on the

extent of a consumer’s investment in Kodak equipment. For

example, the lock-in effect is likely to differ for those who own

one copier, that readily can be replaced, and those, like the

clients that respondents and other ISOs serve, who own a

large number of copiers and for whom switching to a new

brand might not be a feasible option. The lock-in effect for

bulk consumers undoubtedly is made worse by the fact that

any attempt to break the lock by replacing worn-out Kodak

copiers with competitors’ machines as the need arises would

likely result in non-uniformity of brands within a single com-

pany, especially tor those owners who, like many customers of

respondents, own many machines rather than one or two.

15

Such customers might be locked-in to paying higher prices for

service to Kodak because the burden and expense of operat-

ing and maintaining different equipment brands prevents

them from taking advantage of interbrand competition. Thus,

itis quite possible that Kodak could charge monopoly rents to

locked-in customers notwithstanding its alleged lack of power

in the interbrand market.

The market power issue, then, cannot be resolved ab-

sent an inquiry into how these consumers really behave and

how these markets really work. The validity of Kodak’s

theory must be tested by examining, for example, the extent

to which its customers consider the availability and cost of

parts and service when deciding whether to purchase Kodak

equipment, the availability of information to consumers in

the market for Kodak equipment, the extent of “lock-in,” and

the like. These are precisely the sort of fact questions that

cannot and should not be resolved by application of per se

rules. Cf. United States v. E.I. du Pont de Nemours & Co.. 351

U.S. 377 (1956) (conducting extensive factual inquiry to de-

termine relevant market for purposes of analyzing a mon-

opolization claim).

B. KODAK FAILED TO MEET ITS BURDEN OF

ESTABLISHING NO GENUINE ISSUE AS TO

THE MARKET POWER QUESTION.

The Ninth Circuit properly found that Kodak failed to

establish the absence of any genuine issue of fact as to

whether Kodak wields sufficient power in the market for

Kodak parts to sustain tying and monopolization liability.

Kodak claims, erroneously, that it met its burden of proof on

this issue by demonstrating Kodak’s lack of power in the

interbrand equipment market. See PB at 27-32. Having done

so, says Kodak, the burden shifted to respondents to rebut

Kodak's “proof” that it lacks sufficient power in derivative

aftermarkets.

16

This argument fails on several counts. First, Kodak’s

claim to lack market power in the interbrand equipment

market is in fact a hotly contested issue in this case. See, e.g.,

RB at Statement of the Case (H) (demonstrating that Kodak

has substantial market power in at least three of seven

interbrand basic equipment markets). Kodak’s attempt to

assume away this essential fact question should be rejected.

Second, even assuming that Kodak does lack power in

the equipment market, this does not dictate a finding that it

lacks economic power in the parts market. See discussion

supra at A. Thus, Kodak did not even meet its initial burden

of demonstrating an absence of disputed facts with respect to

the market power issue. To do so, at the very least Kodak

would have to prove that the new equipment market will

work as it suggests, .e., that consumers in the market for

copiers and micrographic equipment obtain relevant infor-

mation about the cost of parts and service and use it during

the negotiation for the price of the equipment. Kodak would

also have to establish it cannot successfully exploit locked-in

customers, /.¢., thatexisting Kodak equipment owners would,

if faced with inflated prices in parts and service aftermarkets,

switch to other equipment brands.

Since Kodak did not even meet its initial burden on the

market power issue, the summary judgment standard enun-

ciated by this Court in Matsushita Elec. Ind. Co. v. Zenith

Radio, 475 U.S.574 (1986), does not apply in this case. There,

the Court held that, when the moving party has carried its

burden under Rule 56(c) of the Federal Rules of Civil Proce-

dure, “its opponent must do more than simply show that there

is some metaphysical doubt as to the maierial facts.” Jd. at

586 (citations omitted). The Court went on to state that, in an

antitrust case, conduct as consistent with permissible compe-

tition as with illegal conspiracy does not, standing alone,

support an inference of antitrust conspiracy. Id. at 588.

Contrary to Kodak’s claim, this standard does not apply

here hecause Kodak never met its initial burden of establish-

:

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17

ing the absence of any genuine issue on the market power

question. However, even if Kodak had met its burden with

respect to the market power issue, respondents have satisfied

the Matsushita standard. As the Court of Appeals recog-

nized, respondents cast more than a “metaphysical doubt” as

to the facts; the record shows, for example, that Kodak

charges up to twice as much as respondents for service that is

of lower quality than that provided by respondents. 903 F.2d

at 617. This evidence would be sufficient to withstand a

motion for summary judgment even under the Matsushita

standard, since evidence of supra-competitive pricing is cer-

tainly not as consistent with permissible competition as with

illegal monopolization. By Kodak’s own theory, no competi-

tor in its right mind lacking interbrand market power would

engage in a strategy as self-defeating as charging monopoly

prices in derivative aftermarkets, but that appears to be what

happened here. In any event, even if Kodak might be able to

demonstrate that its supra-competitive pricing is occurring

within the context of a competitive marketplace, the exis-

tence of such a market is a genuine fact issue that cannot be

resolved by summary judgment at this stage of the litigation.

CONCLUSION

For the foregoing reasons, the judgment of the Court of

Appeals should be affirmed.

September 20, 199]

Respectfully submitted,

Leslie A. Brueckner

Alan B. Morrison

(Counsel of Record)

Public Citizen Litigation Group

2000 P Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 833-3000

Attorneys for Amicus Curiae

Public Citizen