Petition for Writ of Certiorari — Eastman Kodak Co. v. Image Technical Services, Inc.

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971298 FEBS 1998.

No. 97-___

In The

Supreme Court of the United States

October Term, 1997

EASTMAN KODAK COMPANY,

Petitioner,

IMAGE TECHNICAL SERVICES, INC., J-E-S-P

COMPANY, INC., SHIELDS BUSINESS MACHINES,

INC., MICROGRAPHIC SERVICES, INC., OMNI

MICRO-GRAPHIC SERVICES, INC., ATLANTA

GENERAL MICROFILM CO., INC., DATEK LTD.,

B.C.S. TECHNICAL SERVICES, INC., CPO LTD., INC.,

ADVANCED SYSTEMS SERVICE, INC., AND

AMTECH EQUIPMENT MAINTENANCE, INC.,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Donn P. Pickett

Counsel of Record

HERBERT HOVENKAMP DanieL M. WALL

University of Iowa ALFRED C. PFEIFFER, JR.

College of Law McCutcHen, Dove, BROWN

407 Boyd Law Building & Enersen, LLP

University of Iowa Three Embarcadero Center

Iowa City, Iowa 52242 San Francisco, California

Telephone: (319) 335-9079 94111

Of Counsel Telephone: (415) 393-2000

Attorneys for Petitioner

February 5, 1998

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Whether Section 2 of the Sherman Antitrust Act

limits the statutory rights of a patent or copyright owner,

acting unilaterally, to refuse to sell or license its protected

works to competitors, and, if so, whether such rights are lost

or compromised because of the mental state that accompanied

the refusal to deal, i.e., because the refusal to deal was

anticompetitively motivated.

2. Whether a firm may be found to have violated Sec-

tion 2 of the Sherman Act by refusing to provide competitors

with goods or services that were not proven to be (a) monopo-

lized, (b) elsewhere unavailable to competitors, or (c) essen-

tial to their competitive viability.

3. Whether, under Eastman Kodak Co. v. Image Techni-

cal Services, Inc., 504 U.S. 451 (1992), monopoly power in

an aftermarket for the service of a single branded good may

be found notwithstanding that (a) the defendant lacks monop-

oly power in the primary equipment markets, and (b) there is

no evidence that it raised prices to supracompetitive levels

following an opportunistic policy change.

LIST OF PARTIES AND RULE 29.6 LIST

The caption of this petition identifies all parties in the

lower court. Petitioner Eastman Kodak Company has no par-

ent corporation. Kodak’s subsidiaries, other than wholly

owned subsidiaries, are listed below:

Beijing Imagetek Information Co., Ltd.

Chinon Industries, Inc.

Chinon Insurance Co., Ltd.

Hermes Precisa Pty., Ltd.

HPA (Old) Pty., Ltd.

HPA Unit Trust

Imagetek International, Ltd.

K.H. Optical Co., Ltd.

Kodak India, Ltd.

NanoSystems L.L.C.

Union Fotografica Venezolana II, C.A.

lil

TABLE OF CONTENTS

Page

oy ky 9 |) i

LIST OF PARTIES AND RULE 29.6 LIST........... ii

ee sk acd s pce ceases ee seaae l

STATEMENT OF JURISDICTION ................... l

STATUTORY PROVISIONS INVOLVED ............. l

SiAlomen: OF THE CASE ...... cc cccscccccccces I

REASONS FOR GRANTING THE PETITION ........ 7

I. The Petition Shouid Be Granted To Resolve Con-

flicting Decisions As To Whether Antitrust Law

Restricts The Rights Of Patent And Copyright

Owners To Refuse To Deal With Rivals ......... 9

A. Unilateral Refusals to Share Intellectual Prop-

erty Have Been Historically Exempt from Anti-

ee er cake eek awed ines 10

B. Intellectual Property Rights Are Not Subject to

Antitrust “Business Justification” Doctrine... 12

II. The Petition Should Be Granted To Resolve Wide-

spread Confusion On The Elements Of A Monopo-

we baadaeeaecs 16

A. The Requirements of Monopoly, Unavailability

OO EE Pee er ere 16

B. The Ninth Circuit’s “More General” Refusal-

ee ay wa ae ee 19

III. The Petition Should Be Granted To Clarify The

Conditions Under Which A Derivative Aftermarket

May Be Deemed A Relevant Antitrust Market ... 24

ee ib sake es ap wk eh bs aod eee omens 30

TABLE OF CONTENTS - Continued

Page

APPENDIX:

A. Opinion of the Court of Appeals................ 1A

B. Opinion and Order of the District Court........ 80B

C. Order of the Court of Appeals Denying

IEE 600 abs a ode sd USE Oe eee beer 97C

FE ee eer CORee Tere TS 99D

E. List of Aftermarket Monopoly Cases Active

ee SE ios ke vhd dena beds edereee ceases 104E

TABLE OF AUTHORITIES

Page

CASES

Abcor Corp. v. AM Int'l, Inc., 916 F.2d 924 (4th Cir.

FOES $0.5 + win stance dew Mew eeu eiae en Kaainieasdcs 21

Advanced Computer Servs. v. MAI Sys. Corp., 845 F.

OD. Se: Te i Dei seiko vives ck aks ce. 1]

Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d

536 (9th Cir. 1991), cert. denied, 503 U.S. 977

ROMs Vid 40 kab Sooo euas ee ee eee 18, 19

American Bearing Co., Inc. v. Litton Indus., Inc., 729

F.2d 943 (3d Cir.), cert. denied, 469 U.S. 854

Eo SP pe Peep epee ete ek Ral wt. Ryton Se. 29

Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,

OFe 5A: Se MRO o aicen Ouse steaetiaeees passim

Blue Cross & Blue Shield United v. Marshfield Clinic,

65 F.3d 1406 (7th Cir. 1995), cert. denied, 116 S.

GA, Cae SEE van ca bed ed waucee cee 18, 19, 30

Brown Shoe Co. v. United States, 370 U.S. 294 (1962) .... 20

City of Anaheim v. Southern Cal. Edison Co., 955

ae SaEe RO Oe ss uae voc oh oe, 18

Collins v. International Dairy Queen, Inc., 980 F.

weep. base CHEE. Ge, FOOT) 4g oovnchketeeec eed 26

Data Gen. Corp. v. Grumman Sys. Support Corp., 36

sf Bi ses) os 2) | nnn 9, 12, 13, 14

Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S.

EO TONES: 66s UE aa oe we wee deen ee 10

Digital Equip. Corp. v. Unig Digital Tech., Inc., 73

Y.56 TOO Cth Cir. 1996)... 2.0000 csccecs 26, 27, 28, 30

Eastman Kodak Co. v. Image Technical Servs., Inc.,

Pe Was WOE CP ho heb e eee passim

TABLE OF AUTHORITIES — Continued

Page

Eastman Kodak Co. v. Southern Photo Materials Co..,

rye ie Me. OR, y ee ere 17, 22

Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir.

1977), cert. denied, 436 U.S. 956 (1978)............ 18

In re British Oxygen Co., 86 F.T.C. 1241 (1975), rev'd

on other grounds, BOC Int'l Ltd. v. FTC, 557 F.2d

BS Ce Ge is hi ic hk a naked 04 Rk ee a 20

In re Indep. Serv. Orgs. Antitrust Litig., ___F. Supp.

__, 1997 WL 805237 (D. Kan. 1997)....... dine ae

Key Enters. of Del., Inc. v. Venice Hosp., 919 F.2d

1550 (11th Cir. 1990), cert. denied, 511 U.S. 1126

CTDPED cick shedkds betestenG ease el eee 23

Laurel Sand & Gravel, Inc. v. CSX Transp., Inc., 924

F.2d 539 (4th Cir.), cert. denied, 502 U.S. 814

CESOEY . ons vkc thoes Sa ea ee eee 17

Lee v. Life Insur. Co. of N. Am., 23 F.3d 14 (Ist Cir.),

cert. denied, 513 U.S. 964 (1994) ...............27, 30

Lorain Journal Co. v. United States, 342 U.S. 143

by) 2 rr tty oe Er cree en 17, 22

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700

frog: (ee 89 e?l corr ee. 13

MCI Communications v. AT&T Corp., 708 F.2d 1081

(7th Cir.), cert. denied, 464 U.S. 891 (1983) ..... 17, 18

Miller Insituform, Inc. v. Insituform of North Amer-

ica, Inc., 830 F.2d 606 (6th Cir. 1987), cert. denied,

SSG UB. Se icc cs ss 0 bare ee tees 1}

Olympia Equip. Leasing Co. v. Western Union Tel.

Co., 797 F.2d 370 (7th Cir. 1986), cert. denied, 480

oh Me 2 og ee rr ee ae 14, 19, 21, 22

a ee

vii

TABLE OF AUTHORITIES —- Continued

Page

Otter Tail Power Co. v. United States, 410 U.S. 366

| ES Sen ae re en get erg a RE 17, 22

Professional Real Estate Investors, Inc. v. Columbia

Pictures Indus., Inc., 508 U.S. 49 (1993).... 2, 8, 9, 15

PSI Repair Serv., Inc. v. Honeywell, Inc., 104 F.3d

811 (6th Cir.), cert. denied, 117 S. Ct. 2434 (1997) 28, 30

Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124

Pie ee Ae REL BOERS suds bide k acd beauie. 26, 27, 30

SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958 (10th

Cir. 1994), cert. denied, 515 U.S. 1152 (1995)....... 23

Service & Training, Inc. v. Data Gen. Corp., 963 F.2d

Pe Re tins nav koa. bse bie oc vee |

SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d Cir.

1981), cert. denied, 455 U.S. 1016 (1982)........ 10, 12

Sony Corp. of Am. v. Universal City Studios, Inc., 464

Meee Se BON oS reese Vee: voces one cWabxce. 10, 15

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447

LP SU Mie wid Cha eee Whe VCREC ANGE ence eek 6 evan os 8

Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d

1330 (9th Cir. 1995), cert. denied, 116 S. Ct. 1015

GE Win dice Ondo ea b a 5 KCC EPO eek 13

Tricom, Inc. v. Electronic Data Sys. Corp., 902 F.

supp. 741 (B.D. Mick. 1995)... ...cccccccccscccecss 1]

Twin Lab., Inc. v. Weider Health & Fitness, 900 F.2d

Se Se es Re ee ht 18, 19

United States v. Colgate, 250 U.S. 300 (1919)......... 17

United States v. Grinnell Corp., 384 U.S. 563 (1966).... 20

United States v. Terminal R.R. Ass'n, 224 U.S. 383

ES 5 RE CP ity GER AER REN, LAN Ny eR ie OPE ons 17

i il

TABLE OF AUTHORITIES - Continued

Page

United States v. Univis Lens Co., Inc., 316 U.S. 241

SES ee Pe ke rn er ON eee wire rhea 10

United States v. Westinghouse Elecs. Corp., 648 F.2d

8, De Me |) eer rres Serre curr Trier 11

Valley Prods. Co., Inc. v. Landmark, Div. of Hosp.

Franchise, Inc., 128 F.3d 398 (6th Cir. 1997)........ 26 |

Virtual Maintenance, Inc. v. Prime Computer, Inc., 11 |

F.3d 660 (6th Cir. 1993), cert. dismissed, 512 U.S.

SE as Riek 000 e ORES a ae 116d Erk aaeee 26

Wilson v. Mobil Oil, __ F. Supp. __, 1997 WL

ee Be 8 es eer ee err ee 26

Zenith Radio Corp. v. Hazeltine Research, Inc., 395

ba. 2) Re rer et reer re cer re 10, 13

STATUTES

BU eR er ean ney mney eeper ype S i

ye fi ok 2 Ferrer rerrrrr ve Torre rT TT rs l

et 8 ae) eer ey rey heer er or rrr Try 10

28 U.S.C. § 1254(1) .. ee cece eee eee eee eee e eee ees l

Be Se Eg on pe eae ee bad ep ecaeraene Ke wee 1, 10

Te Ua. Oh BT a ch occ tetis eve teccdoncvsnts sas 1, 10

OTHER AUTHORITIES

ABA Antitrust Section, Antitrust Law Developments

(Parts (IOPED vacncctseccss PTET ery Tee . aaa ee

Areeda, Phillip E. & Hovenkamp, Herbert, Antitrust

CN TIES barks yas sees eves oeeiass 57, te. 89, 23, 2S

TABLE OF AUTHORITIES - Continued

Page

Areeda, Phillip, Essential Facilities: An Epithet in

Need of Limiting Principles, 58 Antitrust L.J. 841

Sy EE SEO eee ne ee 16

Arthur, Thomas C., The Costly Quest for Perfect

Competition: Kodak and Nonstructural Market

Oe WONT e Bis GUS BD CHD nick vncccs ccc ceees 24

Bork, Robert H., The Antitrust Paradox: A Policy at

War with Itself (revised ed. 1993)................05. 25

Boudin, Michael, Antitrust Doctrine and the Sway of

Metaphor, 75 Geo. L.J. 395 (1986) ................. 17

Carlton, Dennis W. & Perloff, Jeffrey M., Modern

Industrial Organization (2d ed. 1994) ............... 30

Easterbrook, Frank H., On Identifying Exclusionary

Conduct, 61 Notre Dame L. Rev. 972 (1986)........ 23

FTC Staff Report: Competition Policy in the New

High-Tech, Global Marketplace, 64 Antitrust L.J.

Pe a ag 6 C8 Bai pa bk 8 as bind ds 4 Kir a le ¥ vox 9

Gifford, Daniel J., The Damaging Impact of the East-

man Kodak Precedent Upon Product Competition:

Antitrust Law in Need of Correction, 72 Wash. U.

ne re Oe arn ae 24, 25

Glazer, Kenneth L. & Lipsky, Abbott B., Jr., Uni-

lateral Refusals to Deal Under Section 2 of the

Sherman Act, 63 Antitrust L.J. 749 (1995)........ 16, 17

Hovenkamp, Herbert, Market Power in Aftermarkets:

Antitrust Policy and the Kodak Case, 40 U.C.L.A.

ae Se I I vn 0c os 0s hee RE orld cannes 24

Kauper, Thomas, Antitrust in 1992: The Year of the

Storyteller, 61 Antitrust L.J. 347 (1993)........... 8, 27

TABLE OF AUTHORITIES - Continued

Klein, Benjamin, Market Power in Antitrust: Eco-

nomic Analysis After Kodak, 3 Sup. Ct. Econ. Rev.

2: SERS Rear Om mE annie tert ae

Krattenmaker, Thomas G. & Salop, Steven C., Anti-

competitive Exclusion: Raising Rivals’ Costs To

Achieve Power Over Price, 96 Yale L.J. 209 (1986)

Kumar, Salil, Comment, Parts and Service Included:

An Information-Centered Approach to Kodak and

the Problem of Aftermarket Monopolies, 62 U. Chi.

in: SAGE. SES COR Sta cSic ew ek nbs vsdvce wens sc

Lazaroff, Daniel E., Reflections on Eastman Kodak

Co. v. Image Technical Services, Inc.: Continued

Confusion Regarding Tying Arrangements and

Antitrust Jurisprudence, 69 Wash. L. Rev. 10!

PNG 445 ba creda kane Caven seca ken LeNeaetaee

Ponsoldt, James F., Refusals to Deal in “Locked-in”

Health Care Markets Under Section 2 of the Sher-

man Act After Eastman Kodak Co. v. Image Techni-

cal Services, 1995 Utah L. Rev. 503 (1995).....

Porter, Michael E., Competitive Advantage (1985) ..

Post-Chicago Analysis After Kodak: Interview With

Professor Steven C. Salop, Antitrust, Fall/Winter

OIE io ands: i aa a Sea is nak alain hee ace. ke ae a ew 8

Shapiro, Carl, Aftermarkets and Consumer Welfare:

Making Sense of Kodak, 63 Antitrust L.J. 483

Sere re pe ne er re ree eee

The Supreme Court, 1991 Term: Leading Cases, 106

Sere. 3. Bee Ge CO saa . Sexe Wek eee edewdccs

Page

26 fw

ere

> a |

TABLE OF AUTHORITIES — Continued

Page

Tom, Willard K. & Newberg, Joshua A., Antitrust and

Intellectual Property: From Separate Spheres to

Unified Field, 66 Antitrust L.J. 167 (1997)........... 9

U.S. Dept. of Justice & Fed. Trade Comm’n, Antitrust

Guidelines for the Licensing of Intellectual Prop-

erty (April 6, 1995), reprinted in 4 Trade Reg. Rep.

oo ek Pr errr mere Sh Far emee _

OPINIONS BELOW

The Ninth Circuit’s decision is reported at 125 F.3d 1195

and is reproduced in the Appendix (“App.”) at 1A-79A. The

district court’s unreported permanent injunction order is at

App. 80B-85B, and its post-judgment memorandum on

motion for permanent injunction, reported at 1996-2 Trade

Cas. (CCH) J 71,624 and 1996 WL 101173, is at App.

86B-96B. The Court of Appeals’ unreported order denying

Kodak’s petition for rehearing is at App. 97C-98C.

STATEMENT OF JURISDICTION

The Court of Appeals entered judgment on August 26,

1997, and denied rehearing on November 7, 1997. App. 1A;

97C. This Court has jurisdiction under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The statutes involved are 15 U.S.C. § 2, 35 U.S.C. §§ 154

& 271(d)(4), and 17 U.S.C. § 106. They appear verbatim at

App. 99D-103D.

STATEMENT OF THE CASE

In the name of Eastman Kodak Co. v. Image Technical

Services, Inc., 504 U.S. 451 (1992) (“Kodak I”), a prior

decision in this case, the Ninth Circuit has stripped all objec-

tive content from the antitrust doctrine governing monopolis-

tic refusals to deal. It has held that a refusal to deal may be

found unlawful without inquiry into whether (a) defendant

monopolized the specific competitive inputs plaintiffs

demanded, (b) plaintiffs had no alternative sources for those

inputs, or (c) access to those inputs from defendant was

essential to plaintiffs’ competitive survival. By eliminating

the objective elements other circuits use to evaluate refusal-

to-deal claims, the court affirmed an absurd, anticompetitive

result: that Kodak monopolized by refusing to inventory for

competitors parts they could get elsewhere.

So sweeping is the Ninth Circuit’s new doctrine that it

even forces Kodak to share patented and copyrighted parts

ime

with competitors, thus nullifying explicit statutory rights. It

was settled that patent and copyright owners, even monopol-

ists, had unconstrained rights to exclusive use of their inven-

tions, and thus could refuse to share their works with

competitors. The Ninth Circuit simply changed this rule,

holding that an anticompetitively motivated refusal to sell or

license intellectual property is unlawful. This decision — from

the Court of Appeals that covers America’s principal technol-

ogy centers — conflicts with every other decision on point,

especially Professional Real Estate Investors, Inc. v. Colum-

bia Pictures Industries, Inc., 508 U.S. 49, 64 (1993), which

held that conditioning the exercise of a copyright “upon a

demonstrated lack of anticompetitive intent would upset the

notion of copyright as a ‘limited grant’ of ‘monopoly privi-

leges." ”

Moreover, this all concerns a fictitious monopoly that

nearly all manufacturers of durable goods have: a monopoly

over the service of Kodak’s own products. In Kodak I, this

Court (over the dissent of Justices Scalia, O’Connor and

Thomas), held that a derivative aftermarket could be a rele-

vant antitrust market, even for a firm that does not monopol-

ize the equipment foremarket. But there were limits to the

Court’s willingness to entertain “aftermarket monopoly”

claims, the most important being an evidentiary requirement

of “installed-base opportunism” leading to supracompetitive

price increases. The First, Sixth and Seventh Circuits under-

stood this, but the } e' did not. It affirms a finding of

monopoly power that is «« onomic nonsense, as indicated most

ironically by Kodak’s exit from the copier business (sales and

service) because of consistent unprofitability shortly after

being condemned as a monopolist.

The common thread in this petition is that monopoliza-

tion law must have objective content, lest jury evaluations of

what is “reasonable” and “intended” expose all competitive

business conduct, even the exercise of intellectual property

rights, to potential liability. The Ninth Circuit chose a differ-

ent path. The result shows how unrestrained monopolization

law can have distinctly anticompetitive effects.

<a re ee

1. Factual Background. Kodak manufactures high-vol-

ume photocopiers and micrographics equipment. “Competi-

tion in these markets is strong.” App. 3A. Kodak’s primary

copier competition came from Xerox, which dominates the

industry. /d.; ER-112; 311. Plaintiffs calculated Kodak’s

copier market share at under 20%. ER-323. Kodak’s highest

market share in any micrographics market is under 30%.

ER-185-188. These businesses have been minimally profita-

ble, earning (on the combined business of equipment, parts

and service) rates of return below Kodak’s cost of capital.

Because these products require constant service, service

and support policies are a principal product-selection factor

for most consumers. ER-110-111; 144; 159. In fact, most

“service” is sold in the same transactions through which

customers acquire equipment. Tr.489-93; 5083. Customers are

routinely informed about both equipment and service costs

before they make a purchase decision, and most are copying

or “image management” professionals. ER-116-126.

Since the mid-1980s, independent service organizations

(“ISOs”) have competed with Kodak for service contracts. To

compete, ISOs need inventories of Kodak-compatible replace-

ment parts. Kodak does too, and its service organization

developed a state-of-the-art parts logistics system by collect-

ing parts from hundreds of third-party parts suppliers, from

salvage, and, for about 20% of the parts, from Kodak manu-

facturing. ER-172. Kodak also developed sophisticated diag-

nostic software and service manuals to increase the

productivity of its service technicians. CR-438; ER-324: 163:

171. Kodak acquired substantial intellectual property rights as

a result of its investments. Some 65 parts are patented, and all

of Kodak’s service software and publications are copyrighted.

ER-173-176.

This case is based on Kodak’s reactions to the ISO

competition that arose in the 1980s. Those reactions, as

proven, do not include most of the conduct once alleged by

plaintiffs and addressed by the Court in Kodak I. See 504 U.S.

at 458. Plaintiffs’ case changed radically after this Court’s

decision, in three principal ways.

First, Kodak I was primarily about tying, /.e., the claim

that Kodak sold parts to customers “only if they agreed not to

buy service from ISOs.” /d. at 463. The Court reviewed this

claim as a potential per se violation of Section 1 of the

Sherman Act. But, in fact, Kodak did not engage in tying, and

plaintiffs abandoned that allegation during trial. ER-217. The

case went to the jury solely on a unilateral refusal-to-deal

claim under Section 2 of the Sherman Act.

Second, in Kodak I, plaintiffs’ claims were about access

to parts in the tangible, physical sense, as distinguished from

the service of warehousing parts for when they are needed.

Plaintiffs said they were willing to warehouse parts, as an

investment “in the service market.” /d. at 485. But, allegedly,

they could not do so because Kodak had cut off all available

sources of parts. Id. at 458, 463.

At trial, plaintiffs’ focus changed 180 degrees. They

claimed problems getting only a few parts, and admitted

“[t]here never was a machine these plaintiffs couldn't fix

because they didn’t have a part.” ER-223. They argued, how-

ever, “that is not the issue in this case,” because antitrust law

required Kodak to provide them with a one-stop “assured

source” of all parts, including parts available elsewhere.

ER-223; CR-568 at 23 (“an assured source of all of the parts,

available all of the time”). This claim that Kodak must ware-

house a full line of parts for ISOs was the centerpiece of

plaintiffs’ closing:

You have to have an assured supply of parts, and

that’s what these plaintiffs are saying to you. Only

by opening up Kodak’s parts coffers can they be

assured that they can go out to customers and say to

them: “I, with confidence, can service your

machine, because I know that no matter what part I

need, I can get that part to service your machine. I

can service your machine because I have an assured

supply of parts.” ER-223.

Kodak had refused to be the ISOs’ “assured supply of

parts,” among other reasons because the request inherently

asked for a “free ride” on Kodak’s investments in parts logis-

tics. Notably, the Ninth Circuit affirmed the judgment even

niniieians

though it agreed that ordering Kodak to sell “all parts” to ISOs

“promotes free-riding.” App. 67A (modifying injunction).

Third, Kodak I was about the alleged exploitation of

“locked-in” Kodak equipment owners by (a) an unexpected

change of service policies that (b) allowed Kodak to raise

“lifecycle prices” to supracompetitive levels. 504 U.S. at

473-77. Plaintiffs also abandoned this theory, for good reason.

First, as Justice Scalia pointed out in his Kodak I] dissent, 504

U.S. at 492, Kodak never “changed” its copier parts policy;

its management declined the ISOs’ requests for copier parts

the first time it was an issue. ER-101; 108-109. Moreover,

Kodak changed its micrographics parts policy only prospec-

tively, for new micrographics products introduced after 1986.

ER-148. Kodak continued selling parts for then-existing

micrographics products. It therefore did nothing to upset the

expectations of already “locked-in” consumers.

Even more importantly, there was no supracompetitive

service price increase; not to “service” nor to lifecycle prices.

ER-115; 120; 129; 135-136; 150; 159; 192-193. This critical

allegation was false.

2. The Trial Court's Decisions: Trial began in June

1995. Two disputed jury instructions are relevant here. One

concerned the relevance of Kodak’s patents and copyrights.

After eliciting extensive testimony about its investments in

service technology, Kodak requested an instruction that

“Kodak may not be found to have willfully maintained

monopoly power by refusing to sell its patented parts to the

plaintiffs,” or by “exercising the rights that accompany a

lawful copyright,” including “the exclusive right to copy and

distribute” a copyrighted work. CR-459. The court, however,

adopted plaintiffs’ essentially antithetical instructions, and

told the jury that “the fact that some of the replacement parts

are patented or copyrighted does not provide Kodak with a

defense against any of [plaintiffs’] claims.”! CR-463.

! The Court also refused to instruct that the exercise of intellectual

property rights was an “ordinary means of competition.” The instructions

iis a ik

The parties also disputed the basic elements of plaintiffs’

refusal-to-deal claim. Plaintiffs’ instruction, based loosely on

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 US.

585 (1985), stated that it was “unlawful . . . for a monopolist

to engage in conduct, including refusals to deal, that unneces-

sarily excludes or handicaps competitors in order to maintain

a monopoly.” CR-463. Kodak proposed to give the jury objec- |

tive factors for determining when a refusal to deal “unneces-

sarily excludes or handicaps competitors,” specifically that:

(1) Kodak has monopoly power over specific parts plaintiffs

sought, (2) “plaintiffs have no feasible alternatives to obtain-

ing these parts from Kodak,” and (3) the parts are essential to

the plaintiffs’ competitive survival. CR-459. The court

refused, ruling that “unnecessarily excludes or handicaps

competitors” was specific enough.

The jury found Kodak liable for monopolizing two

Kodak service markets. Plaintiffs were awarded $23,950,300,

ER-340, which was trebled. Motions for judgment as a matter

of law and for a new trial were denied. CR-588. A judgment

of liability entered on January 18, 1996, CR-589, followed by

a permanent injunction requiring Kodak to sell to ISOs all

parts, service manuals and service tools on “reasonable and

nondiscriminatory” terms, including patented and copyrighted

items, and parts Kodak buys from others. App. 80B, 83B.

3. The Court of Appeals Decision: The Ninth Circuit

affirmed liability, reversed and remanded one half of the

damages award, and modified the injunction. App. 74A.

a. Intellectual Property: The court acknowledged that

“no reported case . . . has imposed antitrust liability for a

unilateral refusal to sell or license a patent[ed] or copy-

right[ed]” work. App. 43A. It held the district court abused its

discretion by failing to protect Kodak’s intellectual property

rights. App. 49A. However, the court held the error harmless

by speculating that a properly instructed jury would have

found that the desire to “profit from its intellectual property

were so absolute that, in closing, plaintiffs’ counsel simply read them and

said, “[S]o much for the whole argument of patents.” ER-224.

—

” 66

rights” “played no part in [Kodak’s] decision” not to deal

with ISOs. Jd. at S1A, 52A. Thus, based on intent, the Ninth

Circuit became the first court to “impose[ ] antitrust liability”

for a unilateral refusal to share intellectual property. App.

43A.

b. Refusal-to-Deal Standards: The court held that

refusal-to-deal claims are governed by the unavailability and

essentiality elements Kodak proposed only if the plaintiff

pleads the “essential facilities” doctrine. App. 26A. Alter-

natively, plaintiff may plead “monopoly leveraging” and

attack any refusal to deal that is intentionally “to the detri-

ment of competitors,” that “unnecessarily excludes or hand-

icaps competitors,” and is not subjectively motivated by a

legitimately competitive business justification. Jd. at

24A-25A; 30A-31A. The court based this “more general

application of § 2 principles tc refusal-to-deal cases” on

Aspen and footnote 32 of Kodak I. App. 31A.

c. Aftermarket Monopoly: The court found sufficient

proof of monopoly power in Kodak’s high service-market

shares, and evidence regarding switching costs, “information

imperfections,” and profitability. App. 32A-33A. It did not

address the absence of evidence that Kodak raised service

prices opportunistically.

REASONS FOR GR4NTING THE PETITION

No issues are more important in today’s technology-

dominated economy than the scope of the rights to control

one’s intellectual property and the legitimate competitive

advantages from investment in superior means of production,

distribution or support. The Ninth Circuit’s highly visible

decision eviscerates those rights by eliminating all objectivity

from a critical antitrust doctrine. The decision contradicts

most other circuits and upsets settled law. Review is needed

to provide critical guidance for intellectual property owners

and all who choose not to share the fruits of their investments

with competitors. Three specific errors warrant review.

First, the decision effectively amends statutes that

expressly permit patent and copyright owners to refuse uni-

laterally to sell or license their intellectual property. It makes

intent, which is particularly ill-suited for summary adjudica-

tion or meaningful appellate review, a dispositive issue. It

conflicts with all prior cases, including this Court’s decision

in Professional Real Estate Investors.

Second, the decision eliminates from the evaluation of

allegedly monopolistic refusals to deal the objective require-

ments that each asset demanded be monopolized, elsewhere

unavailable and essential. Because Section 2 applies to uni-

lateral conduct, “the most common conduct in the economy,”

App. 46A-47A, “this Court [has] been careful to avoid con-

structions of § 2 which might chill competition, rather than

foster it.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,

458 (1993). But here, relying on heavily criticized portions of

Aspen and Kodak I,? the Ninth Circuit stripped the content out

of refusal-to-deal law, shedding elements that are fixtures in

other circuits. This clear conflict needs to be addressed.

Third, the decision undermines Kodak | by allowing

proof of ubiquitous economic conditions — a manufacturer

servicing most of its own products and “market imperfec-

tions” — to sustain a finding of monopoly. Other circuits have

limited Kodak | to the key allegation, abandoned at trial, that

Kodak opportunistically raised service prices to locked-in

customers. An aberrant Court of Appeals decision in the

seminal case should not be allowed to stand.

2 On Aspen, see Thomas G. Krattenmaker & Steven C. Salop,

Anticompetitive Exclusion: Raising Rivals’ Costs To Achieve Power Over

Price, 96 Yale L.J. 209, 213 (1986) (Aspen “lack[s] a coherent analytical

framework”), and Thomas Kauper, Antitrust in 1992: The Year of the

Storyteller, 61 Antitrust L.J. 347, 359 (1993) (Aspen’s conduct analysis

“mystifying”). On Kodak I, see Kauper, supra, at 357 (calling the Court's

conduct analysis “cursory”), and The Supreme Court, 1991 Term: Leading

Cases, 106 Harv. L. Rev. 163, 328, 337 (1992).

ss. - ey es ee Te

I. The Petition Should Be Granted To Resolve Conflict-

ing Decisions As To Whether Antitrust Law Restricts

The Rights Of Patent And Copyright Owners To

Refuse To Deal With Rivals.

Competition is increasingly driven by technological inno-

vation. The relationship between the laws promoting innova-

tion, principally patent and copyright law, and the

proscriptions of antitrust law is therefore more important than

ever.

It is exceptionally problematic then, that the decision

below upsets what was one of the few settled issues in this

area: that an intellectual property owner, acting unilaterally,

may refuse to license or sell protected works to competitors.

The Ninth Circuit acknowledged the correct rule, changed it,

and adopted the worst, most unpredictable alternative: that

the legality of a unilateral refusal to share intellectual prop-

erty turns on the defendant’s mental state, i.e., its intent.

Literally no authority supports this position, and it flaunts

Professional Real Estate Investors, which held that condition-

ing intellectual property rights “upon a demonstrated lack of

anticompetitive intent” is improper. 508 U.S. at 64.

The cause of this error presents an especially compelling

case for certiorari. The decision below is the second recent

decision (following Data General Corp. v. Grumman Systems

Support Corp., 36 F.3d 1147 (1st Cir. 1994)), in which courts

have essentially made up new, case-specific ways of harmo-

nizing antitrust and intellectual property laws. Such judicial

legislating can only add uncertainty to the law, and it has:

Data General and the decision below address the same issue

differently, and reach opposite conclusions. But results aside,

+ See Willard K. Tom & Joshua A. Newberg, Antitrust and

Intellectual Property: From Separate Spheres to Unified Field, 66 Antitrust

L.J. 167 (1997); FTC Staff Report: Competition Policy in the New High-

Tech, Global Marketplace, 64 Antitrust L.J. 791, 791 (1996); U.S. Dept. of

Justice & Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of

Intellectual Property (April 6, 1995) [hereinafter “/P Guidelines”),

reprinted in 4 Trade Reg. Rep. (CCH) ¥ 13,132.

individual federal courts ought not be balancing antitrust and

intellectual property interests ad hoc. They should defer to

the balance Congress struck, by respecting the unilateral

exercise of explicit intellectual property rights.

A. Unilateral Refusals to Share Intellectual Property

Have Been Historically Exempt from Antitrust

Scrutiny.

The purpose of the intellectual property laws is “to moti-

vate the creative activity of authors and inventors by the

provision of a special reward.” Sony Corp. of Am. v. Univer-

sal City Studios, Inc., 464 U.S. 417, 429 (1984). This reward

is in the nature of “a limited monopoly, the exercise of which

will enable [the inventor] to secure the financial rewards for

his invention.” United States v. Univis Lens Co., Inc., 316

U.S. 241, 250 (1942).

“The heart of [the] legal monopoly” is the package of

exclusive rights defined by statute. Zenith Radio Corp. vy.

Hazeltine Research, Inc., 395 U.S. 100, 135 (1969); accord

Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215

(1980). Patent holders may “exclude others from making,

using, offering for sale, or selling [a patented] invention

throughout the United States” for a specified period of time.

35 U.S.C. § 154. Copyright owners have the exclusive right to

“distribute copies ... of the copyrighted work to the public.”

17 U.S.C. § 106(3). The doctrine of “misuse” restricts the

monopoly, but “refus[ing] to license or use any rights to the

patent” is, by statute, not misuse. 35 U.S.C. § 271(d)(4).

Private litigants have often tried to condition intellectual

property rights on compliance with general antitrust doctrine,

but in the case of unilateral refusals to deal, never suc-

cessfully. The Ninth Circuit could “find no reported case in

which a court has imposed antitrust liability for a unilateral

refusal to sell or license a patent or copyright.” App. 43A.

Many cases refuse to impose such liability. The leading

ones are SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1209 (2d

Cir. 1981) (liability for refusal to license would “severely

trample upon the incentives provided by our patent laws”),

cert. denied, 455 U.S. 1016 (1982); Miller Insituform, Inc. v.

Insituform of North America, Inc., 830 F.2d 606, 609 (6th Cir.

1987) (“the holder of a patent retains the power to exclude

others from manufacturing, using, and selling his inventions

without running afoul of the antitrust laws”), cert. denied,

484 U.S. 1064 (1988); Service & Training, Inc. v. Data

General Corp., 963 F.2d 680, 686 (4th Cir. 1992) (no duty to

license diagnostic software to ISO); and United States v.

Westinghouse Electronics Corp., 648 F.2d 642, 647 (9th Cir.

1981) (“right to . . ~ refuse to license at all, is ‘the untram-

meled right’ of the patentee”). For Kodak, a frustrating exam-

ple of the correct ruling is In re Independent Service

Organizations Antitrust Litigation, __ F. Supp. __, 1997 WL

805237 (D. Kan. 1997), in which a district court, expressly

repudiating the Ninth Circuit’s decision, granted Xerox —

Kodak’s much larger copier rival — partial summary judgment

on claims that it monopolized by refusing to sell patented

parts or license copyrighted software to ISOs.4 The Depart-

ment of Justice and the Federal Trade Commission agree that

monopoly power does not “impose on the intellectual prop-

erty owner an obligation to license the use of that property to

others.” /P Guidelines, supra note 3, § 2.2.

This historic uniformity reflects judicial deference to

Congress’ judgment that intellectual property rights promote

competition over the long run. /d. § 1.0. Therefore, exercising

such rights does not reduce competition. See Miller Insit-

uform, 830 F.2d at 609 (refusal to deal had “no adverse effect

on competition since, as a patent monopolist, [the patent

holder] had [the] exclusive right to manufacture, use, and sell

his invention”). This yields a simple, reliable rule: there can

be no antitrust liability for merely doing “that which the

patent [or copyright] laws authorize.” Westinghouse, 648 F.2d

* Accord Tricom, Inc. v. Electronic Data Sys. Corp., 902 F. Supp. 741,

743 (E.D. Mich. 1995); Advanced Computer Servs. v. MAI Sys. Corp., 845

F. Supp. 356 (E.D. Va. 1994).

at 647. As the Second Circuit put it in SCM, “conduct permis-

sible under the patent laws cannot trigger any liability under

the antitrust laws.” 645 F.2d at 1206.

B. Intellectual Property Rights Are Not Subject to

Antitrust “Business Justification” Doctrine.

The Ninth Circuit did not defer to Congress’ judgment

that intellectual property owners need not share their works.

Instead, it turned a legislative policy issue into a case-specific

jury issue. This was wrong from the start, as individual

federal courts have no business upsetting explicit statutory

rights. The end, an unprecedented rule conditioning patent

and copyright privileges on a pure heart, is indefensible.

Data General inspired the Ninth Circuit’s decision. There

(as here), an ISO claimed that an equipment manufacturer

monopolized by refusing to license specialized service soft-

ware to ISOs. The software was copyrighted, and another

court had ruled that Data General did not have to share it with

competitors. Service & Training, 963 F.2d at 686, 688. The

First Circuit ultimately agreed, but in a lengthy dictum dis-

cussed, as if it were an issue of first impression, the relation-

ship between intellectual property and antitrust laws. It then

announced a brand new way of harmonizing the two “as best

we can.” Data General, 36 F.3d at 1187. The court said that

“a monopolist’s unilateral refusal to license” a copyrighted

work is subject to antitrust proscriptions, but that “an author’s

desire to exclude others from use of its copyrighted work is a

presumptively valid business justification for any immediate

harm to consumers.” Jd. This was the first time any court even

suggested that intellectual property ownership created only a

qualified right to refuse to license, or that business justifica-

tion doctrine was relevant.

The Ninth Circuit’s opinion expands Data General’s new

doctrine by (1) applying business justification principles to

patents as well as copyrights, and (2) making intent a critical

issue. App. 48A, SOA-51A. The court holds that a patent or

Z ah

De Vile A TRA 2 Ath Hi a ADEN BI te AL PAI it ON

Se ee. rs os a OA

deal “was not actually motivated by protecting [the defen-

dant’s] intellectual property rights,” but was instead “a

scheme to monopolize.” App. 51A; 52A.

1. The root problem with both Data General and this

decision is that the right to exclude others from using one’s

intellectual property is far more than a conditional, rebuttable

“justification defense” to an antitrust claim. Business justi-

fications in the antitrust sense are case-specific factors that

help courts decide whether particular refusals to deal “are

fairly characterized as exclusionary.” Aspen, 472 U.S. at 602.

Intellectual property rights, in contrast, are explicit statutory

rights. It is always justified to assert unilaterally a valid

patent or copyright, unless there has been “misuse” or a

violation of some other limitation on the right that Congress

established. Absent claims of invalidity or misuse, there is

nothing case-specific to consider. And it makes no sense to

consider whether the assertion of the right is “fairly charac-

terized as ‘exclusionary,’ ” Aspen, 472 U.S. at 602, because

exclusion is the essence, “[t]he heart of,” every assertion of

an intellectual property right. Zenith Radio, 395 U.S. at 135.

Instead, courts must respect the Congressional judgment

that whatever short-term competitive losses result from the

exercise of patents and copyrights are outweighed by the

long-term gains from increased innovation. Ironically, Data

General says it best: “We cannot require antitrust defendants

to prove and reprove the merits of this legislative assumption

in every case.” 36 F.3d at 1187.

There was no claim of misuse here, nor of invalidity.

There was only a claim that Kodak leveraged its intellectual

property rights into the “wrong” market (service), but without

regard to how patent or copyright law would define the scope

of Kodak’s rights. See Mallinckrodt, Inc. v. Medipart, Inc.,

976 F.2d 700, 708-09 (Fed. Cir. 1992) (patent extends to any

market “reasonably within the patent grant”); Triad Systems

Corp. v. Southeastern Express Co., 64 F.3d 1330, 1337 (9th

Cir. 1995) (diagnostic software copyright “extend[s] to the

service market”), cert. denied, 116 S. Ct. 1015 (1996). The

court compromised Kodak’s rights solely under antitrust doc-

trine.> That is unprecedented and wrong.

The danger of letting courts make their own judgments as

to when it is socially acceptable to exercise intellectual prop-

erty rights is seen in the fact that the First and Ninth Circuits

are now in conflict not only with other circuits, but with each

other. Under Data General, only copyright privileges are at

risk, the key issue is whether refusals to license “frustrate the

objectives of the Copyright Act,” 36 F.3d at 1187 n.64, and “a

search for an overriding ‘antisocial’ motivation,” is imma-

terial. Jd. at 1188-89. The Ninth Circuit rule covers patents

and copyrights, and makes intent dispositive. Two departures

from a settled rule; two conflicting tests.

2. The Ninth Circuit’s test presents two important ques-

tions. First, even if business justification analysis were to

apply, why should an objectively justified refusal to deal be

condemned on intent alone? Consider the result in this case:

Kodak indisputably has valid intellectual property rights and

the Court of Appeals held that the ISOs’ demand for “an

assured supply of parts” “promotes free-riding.” ER-223;

App. 67A. Kodak thus had two objectively valid objections to

the ISOs’ demands. Yet because of a cryptic hint in Kodak |

of pretextualness as a basis for invalidating a business justi-

fication, 504 U.S. at 484, Kodak stands condemned.

The Court cannot have intended this result. It is too

arbitrary, and contradicts Aspen’s holding that intent is

“merely relevant to the question whether the challenged con-

duct is fairly characterized as ‘exclusionary’ ” — which cannot

be when there are objectively valid justifications for a refusal

to deal. 472 U.S. at 602. It also reverses a strong trend in

antitrust law away from the vagaries of intent determinations

towards more objective analyses. Olympia Equip. Leasing Co.

> See App. 46A & 47A (“liability depends largely on [antitrust]

market definition” principles and “the legitimacy of the asserted business

justifications”). The court acknowledged but ignored the misuse standards

of intellectual property law. Jd. at 44A.

ember ne

i |

v. Western Union Tel. Co., 797 F.2d 370, 379 (7th Cir. 1986)

(Posner, J.), cert. denied, 480 U.S. 934 (1987).

Second, even if Kodak I meant to permit intent findings

to undermine some business justifications, that cannot be the

rule for intellectual property. This Court foreclosed intent-

based nullifications of intellectual property rights in Profes-

sional Real Estate Investors. 508 U.S. at 64. There, Columbia

Pictures sued PRE for copyright infringement. PRE counter-

claimed in antitrust, claiming the suit was a “sham” because,

even though there was admittedly probable cause to bring it,

Columbia acted with a “predatory motive.” Jd. at 56. This

Court held that a “showing of malice alone” would not under-

mine Columbia’s right to enforce its copyright. Jd. at 63. And

it rooted its decision in the policies of the copyright laws:

“[T]o condition a copyright upon a demonstrated lack of

anticompetitive intent would upset the notion of a copyright

as a ‘limited grant’ of ‘monopoly privileges’ intended simul-

taneously ‘to motivate the creative activity of authors’ and ‘to

give the public appropriate access to their work product.’ ” Id.

at 64 (quoting Sony Corp. of Am. v. Universal City Studios,

Inc., 464 U.S. 417, 429 (1984)).

The arbitrariness of an intent rule is evident in the Ninth

Circuit’s “harmless error” ruling. The Court relied primarily

on the testimony of one Kodak “parts manager” that patents

were not in his mind when he decided not to supply parts to

ISOs. App. 51A. But he and others also testified that the

desire to protect Kodak’s “very large investment in research

and development” had motivated them. Tr.4182. The point of

the intellectual property system, of course, is to protect the

investment. But the Ninth Circuit drew an illusory distinction

between the desire to profit from investments in intellectual

property and intellectual property rights per se, and thus

found (without jury input) Kodak’s “defense” pretextual.

App. 52A. This is utterly capricious, and has already been

repudiated in the identical Xerox case. See In re Indep. Serv.

Orgs. Antitrust Litig., ___ F. Supp. __, 1997 WL 805237, at

*9 (Ninth Circuit’s standard “makes it very difficult for a

jury, a judge, or even the patent holder, to distinguish

between” lawful and unlawful refusals to deal).

The Ninth Circuit erred by not deferring to the Congres-

sional judgment about refusals to share intellectual property,

by making the issue turn on case-specific business justifica-

tion analysis, and especially by conditioning intellectual

property rights upon the absence of anticompetitive intent.

The conflict with other circuits and decisions of this Court is

manifest, as is the potential to chill innovation. Before other

intellectual property owners have their rights compromised

through the type of mind-reading exercise that condemned

Kodak, the Court should grant review.

II. The Petition Should Be Granted To Resolve Wide-

spread Confusion On The Elements Of A Monopolis-

tic Refusal To Deal.

Courts and commentators decry the confusing state of

unilateral refusal-to-deal law. A recent article notes that while

“courts have developed specialized rules for [most] distinct

categories of monopolizing conduct, . . . the category . . .

known as the ‘unilateral refusal to deal’ has not given rise to

such a specific and well-structured framework of analysis.”

Kenneth L Glazer & Abbott B. Lipsky, Jr., Unilateral

Refusais to Deal Under Section 2 of the Sherman Act, 63

Antitrust L.J. 749-50 (1995). The late Phillip Areeda called

the “essential facilities” doctrine, as refusal-to-deal law is

sometimes known, “less a doctrine than an epithet.” Phillip

Areeda, Essential Facilities: An Epithet in Need of Limiting

Principles, 58 Antitrust L.J. 841 (1990). He saw no case “that

provides a consistent rationale for the doctrine or that

explores the social costs and benefits or the administrative

costs of requiring the creator of an asset to share it with a

rival.” Jd. This case illustrates the uncertainty and provides an

ideal vehicle for this Court to supply the needed guidance.

A. The Requirements of Monopoly, Unavailability

and Essentiality.

The notion that a monopolist might have a duty to share

assets with rivals sprang from five decisions of this Court, not

one of which stated objective conditions for the imposition of

oe ene ed

such a duty. Despite “its embarrassing weakness,”? the doc-

trine spread. And without clear Supreme Court guidance, the

lower courts splintered. A minority -— a dwindling minority

until this case — adopted an “intent test” rooted in dictum in

United States v. Colgate, 250 U.S. 300, 307 (1919). See ABA

Antitrust Section, Antitrust Law Developments (Fourth) 271-76

(1997) (“ALD”). There the Court spoke of the right not to deal

with others “[iJn the absence of any purpose to create or

maintain a monopoly.” Colgate, 250 U.S. at 307. This implied

that a refusal to deal “in pursuance of a purpose to monopol-

ize” was actionable. Southern Photo, 273 U.S. at 375.

Most courts see that the intent test “fails to provide

specific guidance for particular cases,” and that objective stan-

dards are needed. See Glazer & Lipsky, 63 Antitrust L.J. at

755. These courts have articulated the conditions that define an

objectively anticompetitive refusal to deal. See ALD at 276-82.

The leading case is MCI Communications v. AT&T Corp., 708

F.2d 1081, 1132-33 (7th Cir.), cert. denied, 464 U.S. 891

(1983), in which the Seventh Circuit adopted objective stan-

dards for evaluating refusal-to-deal claims. The MC/ test,

embraced in various forms by most circuits, includes elements

of monopoly, unavailability, and essentiality.8

Monopoly and Unavailability: Most cases require plaintiff

to show that defendant “possessed monopoly power over [the]

essential facility” (or other competitive input), to the point that

it is not practically available to the plaintiff elsewhere. Laurel

Sand & Gravel, Inc. v. CSX Transp., Inc., 924 F.2d 539, 544

concerted refusal to deal); Eastman Kodak Co. v. Southern Photo Materials

Co., 273 U.S. 359 (1927); Lorain Journal Co. v. United States, 342 U.S.

143, 152 (1951); Otter Tail Power Co. v. United States, 410 US. 366

(1973); Aspen Skiing, 472 U.S. 585.

7 Michael Boudin, Antitrust Doctrine and the Sway of Metaphor, 75

Geo. L.J. 395, 402 (1986).

8 Many courts and commentators use the term “essentiality” to

encompass all three of these elements. See IIIA Phillip E. Areeda &

Herbert Hovenkamp, Antitrust Law J 773b1 (1996). Kodak’s proposed jury

instructions separated the concept into its analytically distinct components.

(4th Cir.), cert. denied, 502 U.S. 814 (1991); MCI, 708 F.2d at

1132; Blue Cross & Blue Shield United v. Marshfield Clinic, 65

F.3d 1406, 1413 (7th Cir. 1995), cert. denied, 116 S. Ct. 1288

(1996); Twin Lab., Inc. v. Weider Health & Fitness, 900 F.2d 566,

568 (2d Cir. 1990) (“At the very least, a plaintiff must demonstrate

that ‘duplication of the facility would be economically infeasible’

”) (quoting Hecht v. Pro-Football, Inc., 570 F.2d 982, 992 (D.C.

Cir. 1977), cert. denied, 436 U.S. 956 (1978)); IIIA Phillip E.

Areeda & Herbert Hovenkamp, Antitrust Law { 773, at 208 (1996)

(“Areeda & Hovenkamp”] (“the alleged facility must be shown to

dominate a properly defined relevant market”).9

These are common sense requirements. The issue is

whether a refusal to deal “extend[s] monopoly power from

one stage of production to another.” MC/, 708 F.2d at 1132:

Anaheim, 955 F.2d at 1380 (whether an asset “can be and is

used to improperly interfere with competition”). An input that

is not monopolized carries no power to “extend.” And criti-

cally, neither do inputs that are monopolized, i.e., the defen-

dant has monopoly power over them, if they are still

elsewhere available to rivals.!° Indeed, there is a particularly

strong policy basis for rejecting claims based on monopo-

lized-but-available inputs, since “requiring the defendant to

share actually perpetuates the monopoly by reducing the

incentive for development of realistically available competi-

tive alternatives.” Areeda & Hovenkamp § 771b, at 176.!!

° Previous Ninth Circuit cases agreed. See City of Anaheim vy.

Southern Cal. Edison Co., 955 F.2d 1373, 1380 (9th Cir. 1992) (if an item

“can be reasonably or practically duplicated it is highly unlikely, even

impossible, that it will be found to be essential”): Alaska Airlines, Inc. vy.

United Airlines, Inc., 948 F.2d 536, 544 (9th Cir. 199] ), cert. denied, 503

U.S. 977 (1992).

'0 For example, where the demand by service providers for a

particular part is only a fraction of the total demand for that part, the

monopolist’s rivals might easily satisfy it.

'! See also id. | 773b2, at 203-04. In another striking inconsistency,

the Ninth Circuit held that the “all parts” injunction “unnecessarily

entrenches Kodak as the only parts supplier to ISOs.” App. 67A.

ig Letnnatn:

Essentiality: Only assets “vital to the plaintiff’s competi-

tive viability,” that is, its survival, ought to be subjected to

forced dealing. Areeda & Hovenkamp { 773b1, at 202. Other-

wise Section 2 may be used to appropriate the legitimate

competitive advantages from investment in superior produc-

tion facilities, distribution networks, supply sources, and, as

here, service capabilities. See generally Michael E. Porter,

Competitive Advantage 39-40 (1985). These investments may,

and indeed are intended to, capture business. But, since

investments in quality capture business by catering to con-

sumer preferences, they are not anticompetitive, and there is

no antitrust justification for interfering with the natural cycle

of investment-reward. “The suggestion that the price of being

‘best’ is to be brought under the regulatory aegis of antitrust

law and stripped of your power to decide whom to do busi-

ness with does not identify an interest that the antitrust laws

protect.” Marshfield Clinic, 65 F.3d at 1413.

The Circuits have defined “essentiality” in different

ways. The Seventh Circuit states that an asset must be “indis-

pensable to effective competition,” Olympia, 797 F.2d at 379;

the Second and D.C. Circuits state that an asset’s denial must

impose a “severe handicap,” Twin Lab., 900 F.2d at 568;

Hecht, 570 F.2d at 992: and the Ninth (before this case)

referred to an asset’s “power to eliminate competition.”

Alaska Airlines, 948 F.2d at 544. But the point is the same:

except in the extraordinary case where meaningful competi-

tion would otherwise cease to exist, a defendant’s property

rights in competitive assets it developed should not be dis-

turbed.

B. The Ninth Circuit’s “More General” Refusal-to-

Deal Doctrine.

The ISOs had good reason to oppose an objective refusal-

to-deal doctrine. Most (if not all) of the parts they sought

were not monopolized by Kodak and were available else-

where. Nor did Kodak’s refusal to deal eliminate ISO compe-

tition. Plaintiffs admitted “[t]here never was a machine these

plaintiffs couldn’t fix because they didn’t have a part,”

ER-223, and ISO service grew notwithstanding Kodak’s poli-

cies. Plaintiffs’ micrographics service revenues doubled in the

first five years of the parts policy, ER-321, and the only

significant copier plaintiff grew twenty-fold between 1986

and 1994. ER-312. There has also been successful new entry.

ER-14; 37; 86; 177.

Nevertheless, the Ninth Circuit accepted plaintiffs’ claim

that Kodak should be liable because ISOs were “handicapped”

to some unstated degree by Kodak’s policies. But without

objective guideposts, how can anyone know whether the lack

of “an assured supply of parts” was a sufficient “handicap,”

and a handicap rooted in Kodak’s monopoly power, to warrant

this most extraordinary form of antitrust intervention? A

careful look at the jury instructions shows that plaintiffs were

required to prove nothing about the specific competitive

inputs they demanded from Kodak.

e Plaintiffs were not required to prove that Kodak

monopolized specific parts. Instead, they were allowed to

claim that Kodak monopolized “all parts,” which is imma-

terial, since even a monopolist need not share inputs it does

not monopolize.'? Worse, the Ninth Circuit held that it was

sufficient if Kodak had merely close-to-monopoly power over

'2 The court’s ruling that there was a relevant antitrust market for “all

parts” was plainly incorrect. The jury had been properly instructed that a

relevant market is composed of reasonably interchangeable products. But

no two replacement parts are interchangeable, any more than a carburetor

and an oil filter are. Nonetheless, the court found that because service

providers “need” all parts, there could be an all-parts “cluster market.” See

United States v. Grinnell Corp., 384 U.S. 563, 572 (1966). This is not a

proper basis for finding a cluster market, even if the issue had been

tendered to the jury. Jn re British Oxygen Co., 86 F.T.C. 1241, 1369 (1975)

(“complementarity in end use . . . does not establish” cluster market), rev'd

on other grounds, BOC Int'l Ltd. v. FTC, 557 F.2d 24 (2d Cir. 1977).

Alternatively, the court held “all parts” might be a relevant “submarket.”

That is no better, since by definition “submarkets” exist within the contours

of a market defined by reasonable interchangeability. Brown Shoe Co. vy.

United States, 370 U.S. 294, 325 (1962). It is clearly wrong to link non-

interchangeable products into a broader “submarket.”

eeetehe oo ARID ROL, Sanat

“all parts.” App. 20A-21A. This was the first-ever articulation

of a “less-than-monopoly leveraging” doctrine, and explicitly

expands the scope of liability by subjecting non-monopolists

to mandatory dealing.

e Plaintiffs were not required to prove unavailability:

neither that they could not get specific parts elsewhere, nor

that they could not practically duplicate Kodak’s warehousing

operations, the “parts coffers” to which they were seeking

access. What is especially remarkable is that after it affirmed

the finding of liability, the Ninth Circuit removed from the

permanent injunction Kodak’s obligation to sell ISOs parts

made by others because it is “unnecessary and anticompeti-

tive” to force Kodak to sell parts for which “ISOs have an

alternative source.” App. 67A. That is exactly Kodak’s point,

and why plaintiffs’ claims should fail as a matter of law. See

Abcor Corp. v. AM Int'l, Inc., 916 F.2d 924, 929 (4th Cir.

1990) (rejecting ISO access to manufacturer’s parts depots).

e Plaintiffs were not required to prove essentiality, i.e.,

that getting any or all parts from Kodak was “indispensable to

effective competition.” Olympia, 797 F.2d at 379. That bar

was lowered all the way to “unnecessarily restricts or hand-

icaps competitors,” a vacuous conclusion that allowed plain-

tiffs to posit “less restrictive alternatives” to Kodak’s policies

and the ubiquitous prospect in any monopolization case of a

“more competitive” market.!3

Trial under these instructions turned on the jury’s view of

the legitimacy and genuineness of Kodak’s business reasons

for not assisting its competitors. That produced its own

bizarre result: the Ninth Circuit affirmed liability even though

it found Kodak had a meritorious “free-riding” objection to

the demand for “all parts,” App. 66A-67A, and a presump-

tively valid intellectual property “defense.” App. 48A. Thus,

'3 Kodak sought an instruction that the existence of less restrictive

alternatives does not undermine a refusal to deal. Plaintiffs opposed on the

ground that the “unnecessarily restrictive” standard requires a comparison

of the defendant’s business practices to available alternatives. Tr.6700. The

district court rejected Kodak’s instruction and, based on Aspen, the Ninth

Circuit affirmed. App. 34A-36A.

at the end of the day, intent — the least predictable most

consistently criticized basis for resolving antitrust disputes —

was dispositive. See Olympia, 797 F.2d at 379-80.

Most troubling is the court’s reliance on Aspen and

Kodak I. App. 26A (“relying on Kodak and Aspen Skiing, we

endorse the ISOs’ theory”). This suggests other courts not

only could, but must, follow the Ninth Circuit’s lead. But if

Aspen and Kodak I support this decision, it is solely through

the unintended consequences of imprecise language. This

Court could not have meant to adopt a refusal-to-deal law

devoid of meaningful standards.

The Ninth Circuit divined three unintended messages

from Aspen. The first was that because the Court discussed

Aspen Skiing’s refusal to deal “without referencing the essen-

tial facilities doctrine,” App. 28A, it must have wanted

refusals to deal analyzed without reference to the elements

established in essential-facilities cases. App. 30A. This is

simply wrong. Every Supreme Court decision addressing

refusals to deal, including Aspen, has stressed monopoly,

unavailability and essentiality. E.g., Aspen, 472 U.S. at

594-95, 607-08 (plaintiff was unable “to develop a substitute

product” and saw its market share drop from 20.5% to 11%):

Kodak I, 504 U.S. at 458 (“ISOs were unable to obtain parts

from reliable sources”); Otter Tail, 410 U-S. at 377 (defendant

controlling natural monopoly foreclosed plaintiff “from

obtaining electric power from outside sources of supply”);

Lorain Journal, 342 U.S. at 152 (99% monopoly made news-

paper “an indispensable medium of advertising”); Southern

Photo, 273 U.S. at 377 (plaintiff “otherwise . . . could not

purchase or secure the goods necessary in the conduct of its

business”).

Second, the court found that Aspen requires monopolists

to justify all “change[s] [in] established pattern[s] of distribu-

tion to the detriment of competitors.” App. 30A (citing 472

U.S. at 603).'4 But Aspen does not require justifications for

'* This, regrettably, has been evident in several cases interpreting

Aspen, and has led to another split of authority. Compare Olympia, 797

Pe ee

Cee a Rc BALAI On Pelt Seg Nb ln SEH: AR satin

refusing to share non-essential or otherwise available inputs.

Essentiality and unavailability are “initial condition[s] that

must be satisfied before a court can even contemplate forcing

a defendant to provide access.” Areeda & Hovenkamp { 773b,

at 201. They were proven in Aspen. And change, which is to

be expected whenever a monopolist is tested by entry, is not a

substitute for proof of unavailability and essentiality.

Responding to emerging competition by refusing to share

superior but duplicable competitive resources does not offend

antitrust policy, even if it involves change.

Third, and most importantly, the court found that by

approving the jury instructions used in Aspen, 472 U.S. at

597, this Court intended to excuse plaintiffs from proving

essentiality and unavailability. App. 30A. Many commenta-

tors have criticized the generality of those instructions.!5 But

until this case, few if any courts thought this Court was

endorsing them for all refusal-to-deal cases, and to the exclu-

sion of more specific, objective instructions.'!© One would not

see the dozens of post-Aspen cases applying the MCI criteria

if that were so. The Ninth Circuit’s expansive reading of

Aspen is therefore a major development.

Perhaps the Ninth Circuit was right, and this Court wants

refusals to deal condemned without objective analysis, and

F.2d at 376 (a monopolist does not incur antitrust liability by withdrawing a

“helping hand”), with Key Enters. of Del., Inc. v. Venice Hosp., 919 F.2d

1550, 1558 (11th Cir. 1990) (change requires defendant to come forward

with valid business reasons), cert. denied, 511 U.S. 1126 (1994), and

SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 971 (10th Cir. 1994)

(stressing change), cert. denied, 515 U.S. 1152 (1995).

'S See Areeda & Hovenkamp { 772, at 190 (“virtually any act of a

monopolist might be condemned under the jury instruction that Aspen

approved”); Frank H. Easterbrook, On Identifying Exclusionary Conduct,

61 Notre Dame L. Rev. 972, 978 (1986) (“A fog-bound instruction of the

sort given in Aspen ensures that confusion and random results will

emerge’’).

'© In fact, though lengthy, the discussion of the jury instructions in

Aspen is entirely dicta, since the petitioner did not “criticize the trial court's

instructions” regarding monopoly conduct. 472 U.S. at 596.

merely on a jury’s view of what was “necessary” and

“intended.” But we doubt it. It seems much more plausible

that the Ninth Circuit’s decision is the unintended result of

Aspen’s and Kodak I’s less disciplined passages. The clear

conflict with so many post-Aspen cases Supports this view.

But if this does explain this decision, then we respectfully

submit that this Court bears a special obligation to review this

case. It is intolerable that such an empty refusal-to-deal doc-

trine should proliferate in the name of this Court.

III. The Petition Should Be Granted To Clarify The Con-

ditions Under Which A Derivative Aftermarket May

Be Deemed A Relevant Antitrust Market.

The holding that made Kodak J the most Significant and

controversial antitrust decision in decades was that “market

imperfections,” in particular switching and information costs,

can support a finding of market or monopoly power over the

service of a single manufacturer’s products, even if the manu-

facturer lacks power over the primary product. See 504 U.S.

at 460, 465-79. Because the decision threatens practically all

manufacturers of durable goods with monopolization claims,

it has drawn extensive criticism. !7 Judge Bork’s comments are

typical:

The majority’s style of reasoning can be applied to

all antitrust questions, and it is capable of driving

rational economic analysis once more from the law.

It is always possible to posit “market imperfec-

tions” that may result in markets working contrary

to the predictions of economics. Those “imperfec-

tions” are typically, as they were in Kodak, both

'7 See, e.g., Daniel J. Gifford, The Damaging Impact of the Eastman

Kodak Precedent Upon Product Competition: Antitrust Law in Need of

Correction, 72 Wash. U. L.Q. 1507 (1994); Thomas C. Arthur, The Costly

Quest for Perfect Competition: Kodak and Nonstructural Market Power,

69 N.Y.U. L. Rev. 1 (1994); Herbert Hovenkamp, Market Power in

Aftermarkets: Antitrust Policy and the Kodak Case, 40 U.C.L.A. L. Rev.

1447 (1993); Benjamin Klein, Market Power in Antitrust: Economic

Analysis After Kodak, 3 Sup. Ct. Econ. Rev. 43 (1993).

PS ee

ingenious and imaginary. The result of reintroduc-

ing them into the law is lengthy trials on baseless

claims and with unpredictable outcomes.

Robert H. Bork, The Antitrust Paradox: A Policy at War with

Itself 438 (revised ed. 1993).

Much of the criticism of Kodak I stems from the fact that

it is not clear whether the decision is procedural, about the

standards for summary judgment, or substantive, in that the

Court intended to embrace widespread findings of aftermarket

monopolies based on proof of “market imperfections.”!8 But

the overwhelming majority of commentators have focused on

the potentially boundless ability of the decision to support

aftermarket monopoly findings, and have all but pled for

limits. E.g., X Areeda & Hovenkamp ¥ 1740; Salil Kumar,

Comment, Parts and Service Included: An Information-Cen-

tered Approach to Kodak and the Problem of Aftermarket

Monopolies, 62 U. Chi. L. Rev. 1521 (1995); Gifford, 72

Wash. U. L.Q. at 1535 (“the opinion fails to satisfy that

standard of clarity which the legal profession has a right to

expect of all Supreme Court antitrust decisions”); Carl Shap-

iro, Aftermarkets and Consumer Welfare: Making Sense of

Kodak, 63 Antitrust L.J. 483 (1995).

The reach and ramifications of Kodak I have indeed

proven to be vast. The “torrent” of aftermarket litigation that

the dissent predicted (504 U.S. at 489) did in fact ensue, as

dozens of private plaintiffs sued single-brand “monopolists.”

See App. 104E-105E. And Kodak I’s impact goes far beyond

relations between equipment manufacturers and ISOs. There

has been a spate of antitrust cases involving franchising, with

plaintiffs basing claims on monopolies over the likes of pizza

18 See Daniel E. Lazaroff, Reflections on Eastman Kodak Co. v.

Image Technical Services, Inc.: Continued Confusion Regarding Tying

Arrangements and Antitrust Jurisprudence, 69 Wash. L. Rev. 101, 151

(1994) (“Arguably the most critical uncertainty engendered by Kodak is

whether the case is properly viewed as merely a procedural decision

regarding the propriety of summary judgment rather than as a far-reaching,

substantive ruling that changes the face of antitrust jurisprudence.”); X

Areeda & Hovenkamp, supra note 8, J 1733f2, at 35-37.

dough, paper napkins and soap;'? arguments based on Kodak |

are transforming health care antitrust litigation;2° and

numerous “mundane commercial case[s]” now include Kodak

/-inspired antitrust claims. E.g., Digital Equip. Corp. vy. Uniq

Digital Tech., Inc., 73 F.3d 756, 762-63 (7th Cir. 1996).

As “Kodak claims” increase, the lower courts are divided

on how broadly this Court intended to permit aftermarket

monopoly claims. One line sees Kodak ] as a general rebuke

to the widely accepted economic theory that competitive

foremarkets protect consumers from aftermarket exploitation.

Under this view, the existence of Switching and information

costs alone points powerfully toward a finding of a relevant

aftermarket, and there is no requirement of so-called “oppor-

tunism,” i.e., conduct, such as an unexpected price increase,

that makes consumers worse off than they expected to be

when choosing the defendant's products over alternatives.

Examples of this school are Virtual Maintenance, Inc. y.

Prime Computer, Inc., 11 F.3d 660, 664 (6th Cir. 1993), cert.

dismissed, 512 U.S. 1216 (1994) where an aftermarket

defined as “the sale of software revisions and support of

software necessary to do business with Ford Motor Company”

was approved, and Collins v. International Dairy Queen, 980

F. Supp. at 1254, where evidence of information and switch-

ing costs supported a market of “food products and supplies

to Dairy Queen franchisees.”

Other courts have limited Kodak | by stressing exactly

what the ISOs stressed when they were in this Court. It is, in

'9 See, e.g., Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d

430, 439-41 (3d Cir. 1997); Valley Prods. Co., Inc. v. Landmark, Div. of

Hosp. Franchise, Inc., 128 F.3d 398, 407 (6th Cir. 1997); Collins y.

International Dairy Queen, Inc., 980 F. Supp. 1252 (M.D. Ga. 1997);

Wilson v. Mobil Oil, __ F. Supp. ___, 1997 WL 675326, at *11 (E.D. La.

1997).

20 See James F. Ponsoldt, Refusals to Deal in “Locked-in” Health

Care Markets Under Section 2 of the Sherman Act After Eastman Kodak

Co. v. Image Technical Services, 1995 Utah L. Rev. 503 (1995).

WN sel a

substance, the economic concept of installed-base opportu-

nism.?!

Plaintiffs claimed in Kodak | that Kodak had exploited

market imperfections by first unexpectedly changing its poli-

cies toward ISOs from cooperation to exclusion, and then

surprising “captive Kodak equipment owners who bought

equipment prior to 1985” with an unanticipated service-price

increase. Respondents’ 9/20/91 Supreme Court Brief at 20-22:

ER-1-4. This was the theory the Court held made “economic

sense,” and the alleged price increase was critical to the

Court’s conclusion. See 504 U.S. at 465 (Kodak “boosted

service prices”), 469 (Kodak had to overcome “evidence of

increased prices”), 472 (“Service prices have risen for Kodak

customers”). Indeed, Professor Kauper has said that “[t]he

Court’s analysis begins, and in a sense ends” with the price

increase, for it put Kodak in “the unenviable position of

countering what the Court accepted . .. as evidence of

adverse price and output effects with a purely theoretical”

argument. Kauper, 61 Antitrust L.J. at 355.

Sophisticated courts picked up on this and, beginning

with Lee v. Life Insurance Co. of North America, 23 F.3d 14,

20 (Ist Cir.), cert. denied, 513 U.S. 964 (1994), stressed “the

timing of the ‘lock-in’ at issue in Kodak.” See also Digital

Equip. Corp., 73 F.3d at 762-63; Queen City, 124 F.3d at 440

(2-1 decision affirming dismissal of complaint). In Digital,

Judge Easterbrook honed in specifically on the alleged ser-

vice-price increase: “The Court held that evidence in the

record that prices had increased prevented a grant of summary

judgment. * * * The material dispute that called for a trial

was whether the change in policy enabled Kodak to extract

supra-competitive prices from customers who had already

1 See Shapiro, 63 Antitrust L.J. at 487, 504. The economist who

developed the theory has identified it as installed-base opportunism. See

Post-Chicago Analysis After Kodak: Interview With Professor Steven C.

Salop, Antitrust, Fall/Winter 1992, at 20-21.

purchased its machines.” 73 F.3d at 762. Since an Opportunis-

tic price increase was lacking, Digital received summary

judgment. /d. at 763.

In PSI Repair Service, Inc. y. Honeywell, Inc., 104 F.3d

811 (6th Cir.), cert. denied, 117 S. Ct. 2434 (1997), a case

essentially identical to this one was dismissed because there

was no opportunistic policy change. Honeywell would not sell

circuit boards to ISOs that serviced its industrial control

equipment. But it had never done so, and it had been gener-

ally “forthcoming about its pricing structure and service poli-

cies.” Id. at 822. Based on those two facts, the court affirmed

summary judgment. /d. It held that “the change in policy in

Kodak was the crucial factor in the Court’s decision,” since

“the evil condemned by the Court” was the exploitation of the

installed base subsequent to that change. /d. at 820. Without

an opportunistic policy change, there is, accordingly, no rele-

vant aftermarket. Jd. at 820.

There is no evidence that Kodak raised prices oppor-

tunistically after either changing its micrographics parts pol-

icy or rejecting the ISOs’ demand for an “assured supply” of

copier parts. To repeat:

parts. Its 1985 policy change was prospective only, and there-

fore did not disrupt the ability of ISOs to service the existing

installed base.

¢ Kodak never changed copier parts policies — no mat-

ter what the Ninth Circuit says. App. 4A. Kodak chose not to

sell parts to copier ISOs the first time it was an issue, and

when there were only one or two copier ISOs in the country.22

There is no evidence that pre-1986 consumers bought Kodak

copiers expecting ISO service.

¢ Kodak did not increase service prices oppor-

tunistically. Plaintiffs’ economist admitted that Kodak “cus-

tomers were not suddenly confronted with a price increase”

after Kodak decided not to be the ISOs’ assured source of

22 These one or two ISOs bought a few copier parts before there was

any policy. This could not have affected overall consumer expectations.

LORNA 8h Vn

ia ore aa ne Mihalis Sie!

supply. Tr.1621. The core allegation of the Kodak / analysis

was entirely false.

The district court nonetheless denied Kodak’s motion for

a new trial, and the Ninth Circuit affirmed in a paragraph.

App. 32A-33A. Erroneously applying a “plain error” standard

of review,?? the court said it was enough that plaintiffs had

presented evidence that: (1) Kodak had high service-market

shares in servicing its own machines, which virtually all

manufacturers do, and which begs the question whether those

are relevant shares; (2) ISOs were adversely affected by the

refusal to deal, which would be true whether or not Kodak

had monopoly power; (3) Kodak customers experienced

switching and information costs, which durable equipment

customers always do;*4 (4) “Kodak’s market share in the

equipment markets further limits choices by consumers,” an

unexplained and unexplainable statement since the court else-

where recognized the “strong competition” in those markets;

and (5) that “Kodak earns supracompetitive profits,” a wholly

23 The Ninth Circuit held that Kodak waived any appeal based on the

denial of its motion for judgment as a matter of law, because Kodak failed

to raise the aftermarket monopoly issue at the close of evidence. App. 32A.

Kodak disagrees there was waiver, but it need not concern this Court.

Kodak timely moved for a new trial, and timely appealed the denial of that

motion. Thus the court should have considered whether the district court

abused its discretion by upholding the verdict where there was no evidence

on a key element of plaintiffs’ case. E.g., American Bearing Co., Inc. v.

Litton Indus., Inc., 729 F.2d 943, 948-49 (3d Cir.), cert. denied, 469 U.S.

854 (1984). In any event, it is plain error to uphold a jury finding of

aftermarket monopoly on the record in this case.

24 There is no doubt that Kodak's aftermarket prices are “generally

known” to consumers, which all members of the Kodak I Court agreed

should result in judgment for Kodak. 504 U.S. at 477 n.24 (majority

opinion), 492 (Scalia, J., dissenting). The great majority of Kodak’s

customers — 88% of copier purchasers and over two thirds of micrographics

purchasers — are repeat purchasers, and thus have personal experience that

helps them estimate lifecycle prices. ER-133; 152; 191; 315; 317. Further,

Kodak routinely provides consumers “total cost of ownership” data in sales

proposals. ER-104; 117; 133-134; 153-154.

unsupported statement that is immaterial if Kodak’s profits

did not result from opportunism.25 App. 33A.

However, the court simply excluded from the analysis the

most important point: “whether the change in policy enabled

Kodak to extract supra-competitive prices from customers

who had already purchased its machines.” Digital, 73 F.3d at

763. The result, again, is that limiting principles have been

excised from the law, and ubiquitous characteristics of real-

world markets for durable goods lead to findings of monop-

oly.

At a minimum, this decision conflicts with PSI/, Digital,

Lee, and Queen City. But this is no ordinary circuit split,

because the minority position reflected in this decision is on

remand from Kodak |. That surely gives it heightened visi-

bility, and possibly persuasiveness. It should not be the last

word in this historic case.

CONCLUSION

The Petition for a Writ of Certiorari should be granted.

Respectfully submitted,

Donn P. Pickett

Counsel of Record

HERBERT HOvENKAMP DanieL M. Watt

University of Iowa ALFRED C. Preirrer, Jr.

College of Law McCutcuen, Doyie, Brown

407 Boyd Law Building & Enersen, LLP

University of Iowa Three Embarcadero Center

Iowa City, Iowa 52242 San Francisco, California

Of Counsel 94111

Attorneys for Petitioner

2 The only evidence of these alleged profits was testimony about

Kodak's gross margins on service and systems. There is, however, no

useful correlation between gross margins and monopoly power. See Blue

Cross & Blue Shield United v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th

Cir. 1995), cert. denied, 116 S. Ct. 1288 (1996); Dennis W. Carlton &

Jeffrey M. Perloff, Modern Industrial Organization 342 (2d ed. 1994).

at Pe RR NN DRE Paes et § a dle onal iD aula eee aiaes

FOR PUBLICATION

Volume 1 of 2

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IMAGE TECHNICAL SERVICES, INC.;

J-E-S-P Company, INc.; SHIELDS

Business MACHINES, INc.; MiIcRo-

GRAPHIC SErRvICES, INC.; OMNI

Micro-Grapuic SERvICcES, INC.;

ATLANTA GENERAL MICROFILM Co.,

Inc.; Datek Ltp; B.C.S. TecHNicar

Services, INc.; CPO Lrtp, INnc.;

ADVANCED SysTEMS SERVICE, INC.;

AMTECH EQuIPMENT MAINTENANCE,

INc.,

Plaintiffs-Appellees,

EASTMAN Kopak Co.,

Defendant-Appellant.

Nee eee ee eee eee eee eee eee

Nos. 96-15293

96-15296

D.C. No.

CV-87-01686-AWT

OPINION

Appeal from the United States District Court

for the Northern District of California

A. Wallace Tashima, District Judge, Presiding

Argued and Submitted

September 19, 1996 - San Francisco, California

Filed August 26, 1997

Before: Robert R. Beezer and David R. Thompson,

Circuit Judges, Helen W. Gillmor, District Judge.**

Opinion by Judge Beezer; Partial Concurrence and

Partial Dissent by Judge Gillmor

COUNSEL

Donn P. Pickett and Daniel M. Wall, McCutchen, Doyle,

Brown & Enersen, San Francisco, California, for the

defendant-appellant.

Maxwell M. Blecher, Blecher & Collins, Los Angeles, Cali-

fornia, for the plaintiffs-appellees.

OPINION

BEEZER, Circuit Judge:

Plaintiffs-Appellees Image Technical Services, and

ten other independent service organizations (“ISOs”) that

service Kodak photocopiers and micrographic equipment

sued the Eastman Kodak Co. (“Kodak”) for violations of

the Sherman Act. The ISOs alleged that Kodak used its

monopoly in the market for Kodak photocopier and

micrographic parts to create a second monopoly in the

equipment service markets. A jury verdict awarded treble

damages totaling $71.8 million. The district court denied

Kodak’s post trial motions and entered a ten year perma-

nent injunction requiring Kodak to sell “all parts” to

ISOs. Kodak filed a timely appeal, challenging the jury’s

verdict, the ISOs’ evidence, the jury instructions, the

** The Honorable Helen W. Gillmor, United States District

Judge for the District of Hawaii, sitting by designation.

‘4 Seeks a du

damage awards and the permanent injunction. Kodak

also seeks reversal on the basis of an alleged biased juror.

This appeal raises questions relating to the applica-

tion of antitrust principles upon a finding that a monopo-

list unilaterally refused to deal with competitors. We also

address overlapping patent and copyright issues and

their significance in the antitrust context.

We have jurisdiction pursuant to 28 U.S.C. § 1291 and

we affirm in part, reverse in part and remand with

instructions to amend the injunction.

Kodak manufactures, sells and services high volume

photocopiers and micrographic (or microfilm) equipment.

Competition in these markets is strong. In the photo-

copier market Kodak’s competitors include Xerox, IBM

and Canon. Kodak’s competitors in the micrographics

market include Minolta, Bell & Howell and 3M. Despite

comparable products in these markets, Kodak’s equip-

ment is distinctive. Although Kodak equipment may per-

form similar functions to that of its competitors, Kodak’s

parts are not interchangeable with parts used in other

manufacturers’ equipment.

Kodak sells and installs replacement parts for its

equipment. Kodak competes with ISOs in these markets.

Kodak has ready access to all parts necessary for repair

services because it manufactures many of the parts used

in its equipment and purchases the remaining necessary

parts from independent original-equipment manufac-

turers. In the service market, Kodak repairs at least 80%

of the machines it manufactures. ISOs began servicing

Kodak equipment in the early 1980’s, and have provided

cheaper and better service at times, according to some

customers. ISOs obtain parts for repair service from a

variety of sources, including, at one time, Kodak.

As ISOs grew more competitive, Kodak began

restricting access to its photocopier and micrographic

parts. In 1985, Kodak stopped selling copier parts to ISOs,

and in 1986, Kodak halted sales of micrographic parts to

ISOs. Additionally, Kodak secured agreements from their

contracted original-equipment manufacturers not to sell

parts to ISOs. These parts restrictions limited the ISOs’

ability to compete in the service market for Kodak

machines. Competition in the service market requires that

service providers have ready access to all parts.

Kodak offers annual or multi-year service contracts

to its customers. Service providers generally contract

with equipment owners through multi-year service con-

tracts. ISOs claim that they were unable to provide simi-

lar contracts because they lack a reliable supply of parts.

Some ISOs contend that the parts shortage forced them

out of business.

In 1987, the ISOs filed this action against Kodak,

seeking damages and injunctive relief for violations of the

Sherman Act. The ISOs claimed that Kodak both: (1)

unlawfully tied the sale of service for Kodak machines

with the sale of parts in violation of § 1 of the Sherman

Act, and (2) monopolized or attempted to monopolize the

sale of service for Kodak machines in violation of § 2 of

the Sherman Act.

Ee ee Bn.) re

Kodak moved for summary judgment prior to dis-

covery. The district court allowed brief discovery and

then granted summary judgment in Kodak’s favor. Image

Technical Serv., Inc. v. Eastman Kodak Co., 1988 WL 156332

(N.D. Cal.). We reversed. Image Technical Serv., Inc. v.

Eastman Kodak Co., 903 F.2d 612 (9th Cir. 1990).

Kodak appealed to the Supreme Court, which

affirmed the denial of summary judgment. The Court

held that the record disclosed sufficient factual disputes

to survive summary judgment on both the § 1 and § 2

claims. Eastman Kodak Co. v. Image Technical Serv., Inc., 504

U.S. 451 (1992). The Supreme Court also held that

Kodak’s lack of market power in the market for high

volume photocopiers and micrographic equipment did

not preclude, as a matter of law, the possibility of market

power in the derivative aftermarkets for parts and ser-

vice. Id. at 477. The Court recognized that resolution of

other key issues required a more complete record. The

Court concluded:

In the end, of course, Kodak’s arguments may

prove to be correct. It may be that its parts,

service, and equipment are components of one

unified market, or that the equipment market

does discipline the aftermarkets so that all three

are priced competitively overall, or that any

anticompetitive effects of Kodak’s behavior are

outweighed by its competitive effects. But we

cannot reach these conclusions as a matter of

law on a record this sparse.

504 U.S. at 486.

After remand, the case proceeded to trial in the dis-

trict court. Before closing arguments, the ISOs withdrew

their § 1 tying and conspiracy claims. The remaining § 2

attempted monopolization and monopolization claims

were submitted to the jury. A unanimous verdict awarded

damages to the ISO’s totaling $71.8 million after trebling.!

Ten ISOs were awarded damages covering lost service

profits in the amount of $12,172,900 (before trebling) and

six ISOs were awarded damages covering lost profits for

used equipment sales totaling $11,775,400 (before tre-

bling).

After accepting the verdict, the district court crafted

a ten year injunction requiring Kodak to sell all parts to

ISOs on “reasonable and nondiscriminatory terms and

prices.” The injunction required Kodak to sell: (1) all

parts for Kodak equipment; (2) all parts described in

Kodak’s Parts Lists; (3) all parts of supply items that are

field replaceable by Kodak technicians; (4) all service

manuals and price lists; and (5) all tools or devices

“essential to servicing Kodak equipment.”

Section 2 of the Sherman Act prohibits monopolies,

attempts to form monopolies, as well as combinations

and conspiracies to do so. 15 U.S.C. § 2.2 The ISOs pre-

sented evidence in support of two § 2 theories: attempted

’ The district court excused two jurors during deliberations

and thus only ten jurors deliberated on the final verdict. One

juror was dismissed, over Kodak’s objection, for disrupting the

jury’s deliberations. A second juror was dismissed by

agreement of both parties and the district court.

* Section 2 of the Sherman Act reads in relevant part:

“Every person who shall monopolize, or attempt to monopolize,

or combine or conspire with any other persons, to monopolize

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monopolization and monopolization. They alleged, and

the jury concluded, that Kodak used its monopoly over

Kodak photocopier and micrographic parts to attempt to

create and actually create a second monopoly over the

service markets.

To prevail on a § 2 attempt claim, the ISOs were

required to establish: “(1) a specific intent to control

prices or destroy competition; (2) predatory or anticom-

petitive conduct directed at accomplishing that purpose;

(3) a dangerous probability of achieving ‘monopoly

power,’ and (4) causal antitrust injury.” Rebel Oil Co., Inc.

v. Atlantic Richfield, Co., 51 F.3d 1421, 1434 (9th Cir.)

(citing McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th

Cir. 1988)), cert. denied, 116 S. Ct. 515 (1995). The require-

ments of a § 2 monopolization claim are similar, differing

primarily in the requisite intent and the necessary level of

monopoly power. See California Computer Products, Inc. v.

International Business Machines Corp., 613 F.2d 727, 736-37

(9th Cir. 1979). To prevail on a § 2 monopoly claim the

ISOs were required to prove that Kodak: (1) possessed

monopoly power in the relevant market and (2) willfully

acquired or maintained that power. Kodak, 504 U.S. at 481

(citing United States v. Grinnell Corp., 384 U.S. 563, 570-71

(1966)). Section 2 plaintiffs must also establish antitrust

injury. See Cost Management Services, Inc. v. Washington

Natural Gas Co., 99 F.3d 937, 949 (9th Cir. 1996).

Kodak primarily attacks the ISQs’ monopoly claim

because success would likely upset the “attempt” verdict

any part of the trade or commerce . . . [commits a felony].” 15

USC. § 2.

as well. We now address Kodak’s appeal against the

background of the Supreme Court’s opinion in Kodak and

the extensive record developed at trial.

A. Market Power

Kodak first attacks the ISOs’ monopoly power theory

and its supporting evidence. Monopoly power is “the

power to control prices or exclude competition.” Grinnell,

384 U.S. at 571 (quoting United States v. E.I. du Pont De

Nemours & Co., 351 U.S. 377, 391 (1956)). As noted, § 2

monopoly claims require a showing of monopoly power,

commonly referred to as market power. See Cost Manage-

ment Services, 99 F.3d at 950 n.15. Market power can be

proven by either direct or circumstantial evidence. Rebel

Oil, 51 F.3d 1421, 1434. The ISOs offered proof of market

power by both means. We hold that there is sufficient

proof of market power by circumstantial evidence. We

need not consider the ISOs’ direct evidence.

To demonstrate market power by circumstantial evi-

dence, a plaintiff must: “(1) define the relevant market,

(2) show that the defendant owns a dominant share of

that market, and (3) show that there are significant bar-

riers to entry and show that existing competitors lack the

capacity to increase their output in the short run.” Id. at

1434 (citations omitted). We review these requirements in

turn.

We begin with the relevant market determination.

The relevant market is the field in which meaningful

competition is said to exist. See United States v. Continental

Can Co., 378 U.S. 441, 449 (1964). Generally, the relevant

market is defined in terms of product and geography. See

Rebel Oil, 51 F.3d at 1434; see, e.g., Oahu Gas Service, Inc. v.

Pacific Resources, Inc., 838 F.2d 360, 364-65 (9th Cir. 1988)

(all propane sales in Hawaii). In Rebel Oil Co., Inc. v.

Atlantic Richfield Co., we defined “market” as the group of

sellers or producers who have the “actual or potential

ability to deprive each other of significant levels of busi-

ness.” 51 F.3d at 1434 (quoting Thurman Industries, Inc. v.

Pay 'N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir. 1989)).

Without a proper definition of the relevant market, it is

impossible to determine a party’s influence over that

market. Id. Ultimately what constitutes a relevant market

is a factual determination for the jury. Id. at 1435.

In Kodak, the Supreme Court noted two guiding prin-

ciples pertinent to the relevant market definition here.

First, the Court held that service and parts could consti-

tute separate markets. Kodak, 504 U.S. at 462-63, 481-82.

Second, the Supreme Court held that a single brand could

constitute a separate market. Id. at 482. Thus, as to the

market for Kodak parts, the ISOs proceeded on the theory

that Kodak held monopolies over two relevant parts mar-

kets: the Kodak photocopier parts market and the Kodak

micrographic parts market. Both markets, the ISOs

argued, consisted of the entirety of necessary Kodak parts

for that field of equipment.

Kodak disagrees and argues that the district court

erred in denying its renewed motion for judgment as a

matter of law, because the ISOs’ “all parts” market theory,

upon which the jury relied to define the market, has no

support in existing antitrust precedent. We review de

10A

novo the district court’s denial of Kodak’s renewed

motion of judgment as a matter of law. Acosta v. City &

County of San Francisco, 83 F.3d 1143, 1145 (9th Cir.), cert.

denied, 117 S. Ct. 514 (1996). We would be required to

reverse the district court’s denial of Kodak’s motion if the

evidence, construed in the light most favorable to the

ISO’s, permits only one reasonable conclusion, and that

conclusion is contrary to that of the jury’s. Id.

On appeal and in their renewed motion for judgment

as a matter of law, Kodak proposes a segmented parts

market. It argues that because no two parts are inter-

changeable, the relevant markets for parts consist of the

market for each individual part for Kodak photocopiers

and each single part for Kodak micrographics equipment.

Under Kodak’s theory there are not two relevant parts

markets, but thousands of individual “part” markets.

Kodak contends that the ISOs should have been required

to demonstrate that they could not obtain particular non-

patented parts and that the failure to obtain that particu-

lar part resulted in a Kodak monopoly over service. We

reject Kodak’s market definition.

Kodak’s market definition focuses exciusively on the

interchangeability of the parts although ignoring the

“commercial realities” faced by ISOs and end users.

Kodak, 504 U.S. at 482. In Kodak, the Supreme Court rea-

soned that:

Because service and parts for Kodak equipment

are not interchangeable with other manufac-

turers’ service and parts, the relevant market

from the Kodak equipment owner’s perspective

is composed of only those companies that ser-

vice Kodak machines.

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11A

Id. The Court also recognized however, that the market

definition here could “be determined only after a factual

inquiry into the ‘commercial realities’ faced by con-

sumers.” Id. (citing Grinnell, 384 U.S. at 572). Consider-

ation of the “commercial realities” in the markets for

Kodak parts compels the use of an “all parts” market

theory. The “commercial reality” faced by service pro-

viders and equipment owners is that a service provider

must have ready access to all parts to compete in the

service market. As the relevant market for service “from

the Kodak equipment owner’s perspective is composed of

only those companies that service Kodak machines,” id.,

the relevant market for parts from the equipment owners’

and service providers’ perspective is composed of “all

parts” that are designed to meet Kodak photocopier and

micrographics equipment specifications. The makers of

these parts “if unified by a monopolist or a hypothetical

cartel, would have market power in dealing with” ISOs

and end users. Rebel Oil, 51 F.3d at 1436 (quoting Areeda

& Hovenkamp, Antitrust Law, { 518.1b, at 534 (Supp.

1993)) (defining relevant “market”).

Kodak argues that service providers’ need for all

parts is not pertinent to the relevant market determina-

tion. Kodak, citing In re British Oxygen Co., 86 F.T.C. 1241

(1975), rev'd on other grounds, BOC Intern., Lae. & ie. C..,

557 F.2d 24 (2nd Cir. 1977), analogizes to the automotive

supplies market, arguing that the fact that automobile

owners need tires, oil and gasoline does not mean that

these elements constitute a single relevant market. The

market for Kodak parts is distinguishable. First, Kodak

parts, unlike tires, oil or gasoline, are not interchangeable

with parts for other brands or equipment: the market for

—<—$—$ —————

12A

Kodak parts is a highly limited and specialized one.

Second, the commercial reality for auto parts consumers

does not necessitate that a retailer of tires, for example,

also sell either gasoline or oil, or both. In the market for

Kodak parts, a ready supply of all parts is needed to

satisfy service contracts. See, e.g., Grinnell, 384 U.S. at 572

(“Central station companies recognize that to compete

effectively, they must offer all or nearly all types of

service.”). The ISOs argue that through its anticompeti-

tive conduct Kodak has ensured that it will possess the

only inventory of all parts for Kodak high volume photo-

copiers and micrographic equipment.

Kodak’s argument that the Supreme Court did not

Squarely address the relevant market issue presented

here is well taken. However, nothing in the Kodak opinion

indicates that the Court envisaged any relevant market

other than “all parts.” The Court analyzed three markets

for photocopiers and micrographic equipment: equip-

ment, parts and service. The Court referred to Kodak’s

“parts monopoly,” 504 U.S. at 483, not its “parts monopo-

lies,” and nothing in the opinion suggests that the Court

labored under the misconception that all parts were inter-

changeable.

Other factors compel our acceptance of an “all parts”

market. In Brown Shoe Co. v. United States, the Supreme

Court teaches that the boundaries of a relevant market:

may be determined by examining such practical

indicia as industry or public recognition of the

submarket as a separate economic entity, the

Product’s peculiar characteristics and uses,

unique production facilities, distinct customers,

OAD DOPE et red et ane

13A

distinct prices, sensitivity to price changes, and

specialized vendors.

370 U.S. 294, 325 (1962) (defining “line of commerce” for

the purposes of § 7 of the Clayton Act).3 The Brown Shoe

factors applied here, particularly the lack of consumer

recognition of individual part markets, the unique and

specialized nature of the equipment and the singular use

of “all parts” to service Kodak equipment, weigh in favor

of an “all parts” market. Kodak does not point to record

evidence which supports a contrary conclusion.

The Supreme Court, relying on Brown Shoe, has held

that groups of non-interchangeable products and services

may be aggregated to form a single relevant market. See

Grinnell, 384 U.S. at 572. In United States v. Philadelphia

National Bank, for example, the Supreme Court coupled

various banking services, including checking accounts,

trust administration and credit functions, under the cate-

gory of “commercial banking” in defining the relevant

“line of commerce” under the Clayton Act. 374 U.S. 321,

356 (1963). In JBL Enterprises, Inc. v. Jhirmack Enterprises,

we likewise endorsed a relevant market defined as “the

sale of beauty products” to “beauty salons and other

professional outlets.” 698 F.2d 1011, 1016 (9th Cir.) (quot-

ing JBL Enterprises, Inc. v. Jhirmack Enterprises, 509 F.

Supp. 357, 369 (N.D. Cal. 1981)). In that holding, we

rejected the plaintiff's efforts to define the relevant mar-

ket more narrowly as relating to specific beauty products

+ The Supreme Court has held that its precedent relating to

the “line of commerce” under § 7 of the Clayton Act applies to

market definition under the “part of commerce” language in the

Sherman Act. Grinnell, 384 U.S. at 573.

14A

at either the wholesale or the retail level. Id. at 1016. We

commented that a “cluster approach is appropriate where

the product package is significantly different from, and

appeals to buyers on a different basis from, the individual

products considered separately.” Id. at 1016-17. The mar-

ket for Kodak parts is similarly amenable to this “cluster

approach.” Kodak service customers view service pro-

viders with the assumption that such providers will be

able to obtain any part necessary to complete the needed

repairs.

Kodak argues that the “cluster market” theory is

inapplicable because in the market for Kodak parts no

single competitor or manufacturer produces all the parts

for Kodak photocopiers or micrographic equipment and

thus “all parts” is not a relevant market.4 This argument

is unpersuasive. Both ISOs and Kodak inventory and sell

parts to self-service customers. Even if this were not true,

that all providers do not offer the same “package” or

cluster of goods or services is irrelevant. In United States

v. Grinnell Corp., the Supreme Court held that the market

for central alarm station services constituted a relevant

market even though not all firms offered the same menu

of alarm services. 384 U.S. at 572-73, n.6. The Supreme

* Kodak also argues, citing American Bearing Co., Inc. v.

Litton Indus., 729 F.2d 943, 950 (3d Cir. 1984), that the ISOs

waived any theory regarding “cluster markets” by failing to

submit a jury instruction covering this “exception” to the

interchangeability requirement. In American Bearing, the Third

Circuit rejected the appellant’s attempt to argue a different

market theory on appeal. The ISOs do not posit a different

market theory here; they continue to rely on their “all parts”

theory.

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15A

Court noted: “[w]Je see no barrier to combining in a single

market a number of different products or services where

that combination reflects commercial realities.” Id. at 572.

Kodak next contends, citing United States v. AT & T,

524 F. Supp. 1336 (D.D.C. 1981), that because it makes

some of the parts exclusively and does not make some

parts at all, disparate market shares preclude aggregation

of “all parts” for the purpose of the parts market. The

district court in AT&T, held that:

[i]f aggregating markets leads to the appearance

of a causal link between defendants’ anticom-

petitive conduct and their monopoly power

which disappears the moment the markets are

treated separately, then clearly the aggregation

would be improper.

Id. at 1376 (citing 3 Areeda & Turner, { 627b, 84). The

AT&T court did not preclude aggregation of the markets

in question because the anticompetitive conduct at issue

transcended individual products; the anticompetitive

conduct at issue extended to the “whole equipment spec-

trum.” Id. The district court concluded that “[i]n the

interests of avoiding duplicative evidence and useless

overburdening of the plaintiff” it was not necessary to

require the plaintiff to prove the defendant’s anticompeti-

tive conduct in relation to “each piece of telecommunica-

tions equipment without close substitutes.” Id.

Disaggregation is also unnecessary here because Kodak

either manufactures or otherwise controls a monopoly

share in most of the necessary parts. See Brown Shoe, 370

U.S. at 327-28 (aggregating shares in similar submarkets

because “whether considered separately or together, the

picture ... is the same.”).

16A

Aggregating the individual parts into a single “all

parts” market for photocopiers and a single “all parts”

market for micrographics equipment is also necessary for

administrative convenience. Kodak photocopiers and

micrographic equipment require thousands of individual

parts and a supply of all parts is necessary in order to

fulfill service contracts. To require the ISOs to prove that

Kodak has monopoly power in thousands of markets

would be both unduly burdensome and pointless. See id.

at 327 (“Further division does not aid us... . ”). More-

over, aggregation does not prejudice Kodak because ser-

vice providers need all parts to compete in the service

market, and Kodak’s 100% monopoly power over the 30%

of parts it manufactures suggests the same potential for

control of the service market under an individual part

market theory that the jury found using the “all parts”

market. Kodak “can point to no advantage it would enjoy

were finer divisions . . . employed.” Id.

Last, Kodak suggests that measuring market share in

an “all parts” market could prove significantly over or

under inclusive. Kodak argues that a firm believed to be

monopolist could have a high aggregate share of the

market that disguises the availability of alternative

sources, or its seemingly small market share could con-

ceal monopoly power over one crucial part. This argu-

ment, however, only demonstrates why the Supreme

Court in Kodak emphasized the factual nature of the rele-

vant market inquiry. 504 U.S. at 482. Each case is bur-

dened with its unique facts that affect the parameters of

the relevant market. Kodak has both undisputed 100%

monopoly shares for certain parts and an alleged monop-

oly share in the entire parts market.

dbl

17A

Next we turn to the second monopoly power ele-

ment: market share. A plaintiff relying on circumstantial

evidence to establish a § 2 monopolization claim must

show that the defendant owned a “dominant share” of

the market. Rebel Oil, 51 F.3d at 1434. Calculation of the

market share allows for a proper understanding of the

defendant’s influence and relative power in the relevant

market. A dominant share of the market often carries

with it the power to control output across the market, and

thereby control prices. Id. at 1437. Courts generally

require a 65% market share to establish a prima facie case

of market power. See American Tobacco Co. v. United States,

328 U.S. 781, 797 (1946).

In Kodak, the Supreme Court stated that Kodak’s

possession of monopoly power was “easily resolved.” 504

U.S. at 481. The Court relied on its earlier discussion of

the § 1 claim, where it held that the ISOs had “presented

a triable claim that Kodak ha[d] the ‘power to control

prices or exclude competition’ in service and parts.” Id.

Noting that “monopoly power” under § 2 requires “some-

thing greater than market power under § 1,” the Court

held that the “evidence that Kodak controls nearly 100%

of the parts market and 80% to 95% of the service market,

with no readily available substitutes . . . sufficient to

survive summary judgment... . ” Id.

Kodak challenges the district court’s market share

instruction and the ISOs’ market share evidence. Speci-

fically, Kodak objects to the calculation of its market

18A

share by the aggregation of the percentage of parts manu-

factured by Kodak with the percentage of parts manufac-

tured by original-equipment manufacturers. At trial the

ISOs asserted that Kodak controls the entire parts market

for its high volume photocopier and micrographics

equipment by refusing to sell the parts it manufactures,

30% of the total parts needed, and by imposing restric-

tions on both the independent original-equipment manu-

facturers and end users. Kodak argues that because the

ISOs withdrew their conspiracy claim they are precluded

from adding the shares held by the allegedly restricted

original-equipment manufacturers to Kodak’s market

share.

We need not consider Kodak’s challenge to Jury

Instruction No. 27, the controlling instruction, as Kodak

failed to object to that instruction and thus did not pre-

serve this argument for appeal. Failure to object to an

instruction waives review. Hammer v. Gross, 932 F.2d 842,

847-48 (9th Cir. 1991) (no plain error exception exists in

civil cases in this circuit). Instruction No. 27 states in

relevant part:

Among other factors [indicative of monopoly

power], you may wish to consider . . . whether

Kodak restricts, directly or indirectly, the ability

of its supplier to sell to others... .

Instruction No. 27 allows for the aggregation of Kodak’s

market share with the market shares of the restricted

original-equipment manufacturers. Kodak also agreed to

Instruction No. 26, which required the jury to find a 65%

market share in order to find monopoly power.

PU bil lap i Nie Sate bln sitters:

19A

We review Kodak’s sufficiency of the evidence claim

under the controlling instruction. We review a jury’s ver-

dict for substantial evidence. Davis v. Mason County, 927

F.2d 1473, 1486 (9th Cir. 1991). Substantial evidence is

such relevant evidence as reasonable minds might accept

as adequate to support a conclusion even if it is possible

to draw two inconsistent conclusions from the evidence.

Maynard v. City of San Jose, 37 F.3d 1396, 1404 (9th Cir.

1994). We hold that substantial evidence supports the

jury’s finding that Kodak controlled a monopoly share in

the market for Kodak parts through: (1) its own manufac-

ture of Kodak parts (30%); (2) its control of original-

equipment manufacturers’ sale of Kodak parts to ISOs

through tooling clauses (20-25%), engineering clauses and

other proprietary arrangements (exact percentage

unknown); and (3) its discouragement of self-servicing

and resale of parts by end users. The ISOs provided

substantial evidence that the dearth and poor quality of

used parts and replacement parts, not manufactured or

stitutes.

Kodak maintains, unpersuasively, that the ISOs failed

to prove that parts were absolutely unavailable. Accord-

ing to Kodak, for each ISO that could not get a part,

another could, and consequently, the ISO’s anecdotal evi-

dence was insufficient to demonstrate market share. The

record proves otherwise. The record contains substantial

evidence showing that parts were virtually unavailable

for post-1986 models and often difficult to obtain for

older models. Kodak itself admitted that the availability

of parts was “limited.” That one ISO acquired parts by

buying Kodak equipment and stripping them for parts, as

20A

Kodak contends, does little to rebut Kodak’s monopoly

power in the parts markets. The ISOs were not required

to prove that Kodak had total control over every new and

used part.

The record also establishes the following: Alan Conk-

lin, who supervised the acquisition of parts for Kodak’s

photocopier and micrographics equipment, testified that

Kodak manufactured roughly 30% of its own parts.

Kodak argues that other manufacturers also produced

substitutes for these parts, but its reference to the record

merely shows that original-equipment manufacturers

could, if Kodak chose, make almost all of Kodak’s parts.

Kodak also acknowledges that suppliers would not sell

“proprietary” parts and Conklin testified that all parts

which original-equipment manufactures produce for

Kodak must meet specifications. The jury could rationally

conclude that the oft-used term “proprietary” covered

most if not all parts made for Kodak. ISO owners and

employees testified that they could not purchase parts

from independent original-equipment manufacturers.

Several testified that they could not obtain any parts for

post-1986 photocopiers and micrographic equipment.

Kodak’s argument that its tooling and engineering

clauses were routine and legal is irrelevant. Legal actions,

when taken by a monopolist, may give rise to liability if

anticompetitive. See Greyhound Computer v. International

Business Machines, 559 F.2d 488, 499 (9th Cir. 1977).

Kodak correctly argues that the ISOs never precisely

quantified Kodak’s parts market shares. In his closing,

counsel for the ISOs based Kodak’s market share on its

30% manufacturing share, its 20% share controlled by

tooling clauses and an unquantified share of production

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21A

which was restricted by engineering clauses. Nonethe-

less, given the state of the record, a reasonable jury could

conclude that Kodak had a share of the markets for

photocopier and micrographic equipment parts of 65% or

more. Moreover, even if the ISOs only succeeded in pro-

ving a share near 50%, this would suffice to support a

jury finding of market power for the purposes of the

ISOs’ attempted monopolization claim. Rebel Oil, 51 F.3d

at 1438, n.10 (declining to adopt bright line 50% threshold

for attempt). In Rebel Oil, we held that a 44% market

share demonstrates market power “if entry barriers are

high and competitors are unable to expand their output

in response to supracompetitive pricing.” Id.

The third and final monopoly power factor concerns

barriers to market entry and barriers to expansion.° Rebel

Oil, 51 F.3d at 1439. A § 2 plaintiff, establishing monopoly

power by circumstantial evidence, must establish more

than just market share. Even a 100% monopolist may not

exploit its monopoly power in a market without entry

barriers. See Los Angeles Land Co. v. Brunswick Corp., 6 F.3d

1422, 1427 (9th Cir. 1993) (citation omitted). A § 2 plaintiff

must show that new competitors face high market bar-

riers to entry and that current competitors lack the ability

5 Contrary to the ISOs’ argument, the Kodak Court's

criticism of simultaneous entry barriers to parts and service did

not lessen the requirements for showing market power; rather,

the Court’s statement foreclosed Kodak’s argument that

prevention of ISO free-riding on its investment in parts justified

its actions as a matter of law. 504 U.S. at 485.

22A

to expand their output to challenge a monopolist’s high

prices. Rebel Oil, 51 F.3d at 1439. Barriers to entry “must

be capable of constraining the normal operation of the

market to the extent that the problem is unlikely to be

self-correcting.” Id. 51 F.3d at 1439 (citing United States v.

Syufy Enterprises, 903 F.2d 659, 663 (9th Cir. 1990)). Com-

mon entry barriers include: patents or other legal

licenses, control of essential or superior resources,

entrenched buyer preferences, high capital entry costs

and economies of scale. Id.

Kodak argues that the ISOs failed to prove meaning-

ful entry barriers. The record proves otherwise. Kodak

has 220 patents and controls its designs and tools, brand

name power and manufacturing capability. Kodak con-

trols original-equipment manufacturers through various

contract arrangements. Kodak has consistently main-

tained a high share of the service market. These factors

together with the economies of scale, support a finding of

high barriers to entry by new manufacturers and to

increased output by established suppliers. See Reazin v.

Blue Cross and Blue Shield of Kansas, Inc., 899 F.2d 951, 968

(10th Cir. 1990) (“Entry barriers may include high capital

costs or regulatory or legal requirements such as patents

or licenses.”).

Kodak fails to rebut this evidence. Kodak focuses on

the testimony of an ISO witness who stated: “[y]ou could

get in my business tomorrow if you had the expertise.”

That witness, however, also identified capital and con-

sumer demand as other significant barriers to market

entry. Although some new entry was possible, the record

reflects substantial evidence of entry barriers sufficient to

prevent Kodak’s monopoly share from self-correcting. See

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23A

Rebel Oil, 51 F.3d at 1440-41 (“Barriers may still be ‘signif-

icant’ if the market is unable to correct itself despite the

entry of small rivals.”). Kodak claims that the same wit-

ness testified that he could make any part if ISOs servic-

ing a total of 2,000 machines would buy the part. The

witness actually only agreed that he would “supply more

Kodak parts,” if there were 2,000 machines needing them.

We reject Kodak’s sufficiency of the evidence claim.

B. Use of Monopoly Power

The second element of a § 2 monopoly claim, the

“conduct” element, is the use of monopoly power “to

foreclose competition, to gain a competitive advantage, or

to destroy a competitor.” Kodak, 504 U.S. at 482-83 (quot-

ing United States v. Griffith, 334 U.S. 100, 107 (1948)). The

ISOs proceeded under a “monopoly leveraging” theory,

alleging that Kodak used its monopoly over Kodak parts

to gain or attempt to gain a monopoly over the service of

Kodak equipment. The Supreme Court endorsed this the-

ory in Kodak noting: “If Kodak adopted its parts and

service policies as part of a scheme of willful acquisition

or maintenance of monopoly power, it will have violated

§ 2.” Id. (citations omitted). “Willful acquisition” or

“maintenance of monopoly power” involves “exclusion-

ary conduct,” not power gained “from growth or devel-

opment as a consequence of a superior product, business

acumen, or historic accident.” Grinnell, 384 U.S. at 570-71.

Kodak attacks the district court’s monopoly conduct

jury instructions as well as the ISOs’ evidence establish-

ing Kodak’s exclusionary conduct. A challenge to a jury

instruction on the grounds that it misstates the relevant

24A

elements is a question of law reviewed de novo. Caballero

v. Concord, 956 F.2d 204, 206 (9th Cir. 1992). As noted, the

jury’s verdict will stand if supported by substantial evi-

dence.

Kodak’s chief complaint with the monopoly power

jury instructions lies with Jury Instruction No. 29. That

Instruction, entitled “Monopolization - Monopoly Con-

duct,” states in relevant part:

[a] company with monopoly power in a relevant

market has no general duty to cooperate with its

business rivals and may refuse to deal with

them or with their customers if valid business

reasons exist for such refusal. It is unlawful,

however, for a monopolist to engage in conduct,

including refusals to deal, that unnecessarily

excludes or handicaps competitors in order to main-

tain a monopoly.

(emphasis added). Kodak argues that this instruction

lacks objective standards and improperly includes within

the prohibited activities a lawful monopolist’s “aggres-

sive” competition.

Specifically, Kodak challenges Instruction No. 29’s

“unnecessarily excludes or handicaps competitors” lan-

guage. Kodak says that this language is based on a form

of “monopoly leveraging” that we previously rejected in

Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536,

543 (9th Cir. 1991). In Alaska Airlines we did reject the

Second Circuit’s holding in Berkey Photo, Inc. v. Eastman

Kodak Co., 603 F.2d 293 (2d Cir. 1979). Berkey Photo recog-

nized liability under § 2 of the Sherman Act on a theory

eS Se Nees

25A

of monopoly leveraging involving a firm which used “its

monopoly power in one market to gain a competitive

advantage in another, albeit without an attempt to

monopolize the second market.” 603 F.2d at 275. In Alaska

Airlines, we held that “monopoly leveraging” could not

exist as a basis for § 2 liability in the absence of the

defendant using its monopoly in one market to monopol-

ize or attempt to monopolize the downstream market. 948

F.2d at 547. We characterized Berkey Photo’s downstream

monopoly requirement - “to gain a competitive advan-

tage” — as too “loose.” Alaska Airlines, 948 F.2d at 546.

Kodak accuses the district court of incorporating

Berkey Photo’s repudiated language into the court's

instructions. We disagree. Instruction No. 29 required the

jury to find that Kodak’s monopoly conduct be under-

taken “in order to maintain a monopoly” in the down-

stream market. Berkey Photo’s watered-down standard

does not go this far. Instruction No. 29 makes clear that

the monopolies at issue are Kodak’s alleged service

monopolies and the Instruction required the jury to find

that Kodak acted in furtherance of maintaining its service

monopolies. Instruction No. 29’s “unnecessarily excludes

or handicaps competitors” language does not come from

Berkey Photo, but from the jury instruction endorsed by

the Supreme Court in Aspen Skiing Co. v. Aspen Highlands

Skiing Corp., 472 U.S. 585, 597, 611 (1985).

Kodak also objects to the attempted monopolization

and monopolization jury instructions on the grounds that

they fail to describe adequately the “essential facilities”

26A

doctrine, which Kodak contends is the controlling law in

unilateral refusal to deal cases. Kodak asserts that this

doctrine is the sole legal theory which could require

Kodak to sell “all parts.” Kodak argues that the essential

facilities doctrine required the jury to find that Kodak’s

parts monopoly carries “the power to eliminate competi-

tion.”

Kodak’s challenge raises a novel issue: whether a

monopolist is liable under § 2 of the Sherman Act for an

anticompetitive refusal to deal only under an “essential

facilities” theory, that is, only when the refusal involves

something “essential” to the survival of competitors. As

noted, Kodak would answer affirmatively; we reject this

theory. Instead, relying on Kodak and Aspen Skiing, we

endorse the ISOs’ theory that § 2 of the Sherman Act

prohibits a monopolist from refusing to deal in order to

create or maintain a monopoly absent a legitimate busi-

ness justification. We need not apply the essential facili-

ties doctrine.

Section 2 of the Sherman Act prohibits a monopolist’s

unilateral action, like Kodak’s refusal to deal, if that

conduct harms the competitive process in the absence of a

legitimate business justification. See Kodak, 504 U.S. at 483

n.32 (citing Aspen Skiing, 472 U.S. at 602). Unilateral

refusals to deal often concern an “essential” facility. See

Otter Trail Power Co. v. United States, 410 U.S. 366 (1973).

In Alaska Airlines, we defined the essential facilities doc-

trine, generally, as: imposing “liability when one firm,

which controls an essential facility, denies a second firm

reasonable access to a product or service that the second

firm must obtain to compete with the first.” 948 F.2d 542.

A facility is “essential” if it is otherwise unavailable and

27A

cannot be “reasonably or practically duplicated.” Anaheim

v. Southern California Edison Co., 955 F.2d 1373, 1380 (9th

Cir. 1992).

In Otter Trail Power Co. v. United States, the Supreme

Court held that the defendant, Otter Trail Power, used its

electrical utility equipment, an “essential facility,” to gain

monopoly power over all commercial electrical services.

410 US. at 377-79. Otter Trail Power generally sold both

wholesale and retail electrical services. Later it refused to

provide only wholesale electrical services to several

municipalities which intended to supply retail electrical

services to the ultimate customers. The Court held that

Otter Trail Power’s refusal to supply “only wholesale”

services eliminated competition in the downstream mar-

ket for retail services as Otter Trail Power owned the only

“facility” capable of supplying these services. The Court

held that such “exclusionary” conduct violated § 2 of the

Sherman Act. Id.

In Alaska Airlines, we interpreted Otter Trail as requir-

ing plaintiffs proceeding under the “essential facilities”

doctrine to establish that the controlled facility “carries

with it the power to eliminate competition in the down-

stream market.” 948 F.2d at 544; see, e.g., Twin Laboratories,

Inv. v. Weider Health & Fitness, 900 F.2d 566, 569 (2d Cir.

1990) (“A successful ‘essential facilities’ plaintiff must

prove that denial of access has caused it ‘severe handicap’

lin the market].”). Kodak faults the district court for

failing to instruct the jury that to be liable under § 2,

Kodak’s exclusionary conduct must have “eliminated

competition” in the downstream service market.

28A

The Supreme Court has never explicitly held that a

§ 2 refusal to deal claim can only be established under the

“essential facilities” rubric. In Kodak the Supreme Court

never discussed the essential facilities doctrine; nor do

any of the cases cited by the Court employ the essential

facilities analysis. See 504 U.S. at 483 (citing Grinnell

Corp., 384 U.S. at 570-71; United States v. Aluminum Co. of

America, 148 F.2d 416, 432 (2d Cir. 1945), and Aspen Skiing,

472 U.S. at 600-605). Rather in discussing a firm’s right to

“refuse to deal with its competitors,” the Supreme Court

noted, citing Aspen Skiing, that this right “exists only if

there are legitimate competitive reasons for the refusal.”

Kodak, 504 U.S. at 483 n.32.

The Supreme Court considered a refusal to deal claim

in Aspen Skiing without referencing the essential facilities

doctrine. Aspen Skiing involved a § 2 challenge by one

Aspen ski resort against the owner of the remaining three

ski resorts in Aspen, a monopolist in the recreational ski

market. The plaintiff proceeded under an essential facili-

ties theory alleging that a previously available “all-

Aspen” ski pass, granting the holder access to all four

Aspen ski areas, was an essential facility. The jury agreed

and awarded damages. The Tenth Circuit affirmed. Aspen

Highlands Skiing Corp. v. Aspen Skiing Co., 738 F.2d 1509,

1517-23 (10th Cir. 1984). The Supreme Court also

affirmed, but did not rely on the “essential facilities”

doctrine. Aspen Skiing, 472 U.S. at 611 n.44 (“Given our

conclusion that the evidence amply supports the verdict

under the instructions as given by the trial court, we find

it unnecessary to consider the possible relevance of the

‘essential facilities’ doctrine... . ”).

29A

The Supreme Court began its analysis in Aspen Skiing

with a discussion of the “right to refuse to deal,” a right

the Court characterized as highly valued but not

“unqualified.” Id. at 601. The Court, quoting extensively

from Lorain Journal Co. v. United States, 342 U.S. 143, 155

(1951), held that the right to refuse to deal was “neither

absolute nor exempt from regulation” and when used “as

a purposeful means of monopolizing interstate com-

merce” the exercise of that right violates the Sherman

Act. Aspen Skiing, 472 U.S. at 602. Thus “the long recog-

nized right . . . [to] freely [ ] exercise [one’s] own inde-

pendent discretion as to parties with whom he will deal”

does not violate the Sherman Act “[iJn the absence of any

purpose to create or maintain a monopoly.” Id. (quoting

Lorain Journal 342 U.S. at 155) (emphasis in the original)

(citations omitted). In Aspen Skiing the Court noted that a

defendant’s refusal to deal was evidence of its’ [sic]

intent “relevant to the question whether the challenged

conduct is fairly characterized as ‘exclusionary’ or ‘anti-

competitive’ - to use the words in the trial court's

instructions — or ‘predatory,’ to use a word that scholars

seem to favor.” Id.

Next, the Court reasoned that a monopolist’s refusal

to deal was not limited to the specific facts of Lorain

Journal, but also covered the Aspen Skiing defendant-

monopolist’s election “to make an important change in a

pattern of distribution that had originated in a competi-

tive market and had persisted for several years.” Id. at

603. The Court noted that competitors in other markets

continued to use interchangeable lift tickets and thus

inferred that “such tickets satisfy consumer demand in

free competitive markets.” Id. The Court concluded that

30A

although such conduct was not “necessarily anticompeti-

tive,” the posture of the case and the strength of the

evidence presented compelled the Court to uphold the

jury’s finding of liability. The Court noted that the chal-

lenged instructions correctly required the jury to distin-

guish “between practices which tend to exclude or

restrict competition on the one hand, and the success of a

business which reflects only a superior product, a well-

run business, or luck, on the other.” Jd. Other instructions

properly informed the jury that the defendant's refusal to

deal “does not violate Section 2 if valid business reasons

exist for that refusal.” Id. at 605. By ignoring the essential

facilities doctrine in Aspen Skiing, the Supreme Court

endorsed the application of traditional § 2 principles to

unilateral refusal to deal cases.

Jury Instructions Nos. 28 and 29 here covered the

requirements set forth in Aspen Skiing.® Like the Supreme

Court in Aspen Skiing, we are faced with a situation in

which a monopolist made a conscious choice to change an

established pattern of distribution to the detriment of

competitors. Id. at 603. Although the service market prior

Exclusionary conduct refers to practices that

unreasonably or unnecessarily impede fair

competition; that is, conduct that impairs the efforts

of others to compete for customers in an

unnecessarily restrictive way. Such conduct does not

refer to ordinary means of competition, like offering

better products or services, exercising superior skill

or business judgment, utilizing more efficient

technology, or exercising natural competitive

advantages.

view

31A

to Kodak’s parts policy had not “originated in a competi-

tive market and persisted for several years,” id., the ISO

service market had existed for three years and was grow-

ing rapidly before Kodak implemented its parts policy.

Our case is factually distinguishable from Aspen Skiing in

several respects: here there are no readily comparable

competitive markets; ISO profits were not halved after

the imposition of the anticompetitive policies; and there

are two markets at issue, rather than only one. Further,

unlike most essential facilities cases and this case, Aspen

Skiing did not involve the effects of a supplier’s refusal to

deal with its customers in order to control a downstream

market. Notwithstanding these distinctions, both the

analysis in Aspen Skiing and Kodak footnote 32 suggest

that Aspen Skiing applies here. Like the First Circuit in

Data General v. Grumman Systems Support, 36 F.3d 1147

(1st Cir. 1994), we believe the Supreme Court, in Aspen

Skiing, endorsed a more general application of § 2 princi-

ples to refusal to deal cases. See Data General, 36 F.3d at

1183-84 (plaintiff alleging § 2 refusal to deal claim “need

not tailor its argument to a preexisting ‘category’ of uni-

lateral refusals to deal.”). The district court’s Jury Instruc-

tion No. 29 was proper.

Kodak next attacks the jury’s verdict on the grounds

that the ISOs failed to present a theory of aftermarket

monopoly that makes economic sense as required by

Kodak. Kodak contends that at trial the ISOs dropped the

economic theory they advanced before the Supreme

Court, and under their new theory they failed to prove

aaa aie aii

32A

that the equipment market does not discipline the after-

markets in such a way as to prevent monopoly power.

We review Kodak’s claim only for plain error because

Kodak failed to move for judgment as a matter of law

under Federal Rule of Civil Procedure Rule 50(a) at the

close of the evidence. Cabrales v. County of Los Angeles, 864

F.2d 1454, 1459 (9th Cir. 1988), vacated on other grounds,

490 U.S. 1087 (1989). We strictly adhere to the require-

ments of Rule 50(b), which prohibit a party from moving

for a judgment as a matter of law after the jury’s verdict

unless that motion was first presented at the close of

evidence. Sloman v. Tadlock, 21 F.3d 1462, 1473 (9th Cir.

1994).

Kodak, relying on out-of-circuit authority, argues that

a party need not move for judgment as a matter of law

when such a motion would be futile. See Pittsburgh-Des

Moines Steel Co. v. Brookhaven Manor Water Co., 532 F.2d

572, 577 (7th Cir. 1976); Albrecht v. Herald Co., 452 F.2d

124, 127 (8th Cir. 1971). We have explicitly rejected the

Seventh Circuit’s subjective approach to Rule 50. Farley

Transp. Co., Inc. v. Santa Fe Trail Transp. Co., 786 F.2d 1342,

1346 n.2 (9th Cir. 1985). Further, the district court’s denial

of Kodak’s motion for summary judgment on this issue

did not render a Rule 50(a) motion futile because, as

Kodak repeatedly argues, the ISOs did not present the

same evidence at trial that both the Supreme Court and

district court considered at summary judgment.

The record discloses that the ISOs presented suffi-

cient evidence to establish Kodak’s monopoly power in

the service market. Under the plain error standard we

inquire no further. We reverse under plain error only if

33A

“there is an absolute absence of evidence to support the

jury’s verdict.” Cabrales, 864 F.2d at 1459. The record

reflects the following: Kodak has a 95% share of the

Kodak high volume photocopier service market and an

88% share of the Kodak micrographic service market.

Several ISOs withdrew from the Kodak service market or

substantially restricted their service due to the lack of

available parts, although other ISOs made substantial

profits and continued to grow steadily. Some ISOs could

not obtain any parts for newer models, indicating that the

current ISO service market may last only as long as the

pre-1986 models survive. Kodak equipment customers

experienced the “lock-in” and information imperfections

as described in Kodak, 504 U.S. at 477 (“there is a question

of fact whether information costs and switching costs foil

the simple assumption that the equipment and service

markets act as pure complements to one another.”).

Kodak’s market share in the equipment market further

limits choices by consumers. Finally, although Kodak crit-

icizes their methodology, the ISOs presented evidence

that Kodak earns supracompetitive profits in service, and

overall. Substantial evidence supports the jury’s verdict

on the issue of Kodak’s service market monopoly.

Ill

Our conclusion that the ISOs have shown that Kodak

has both attained monopoly power and exercised exclu-

sionary conduct does not end our inquiry. Kodak’s con-

duct may not be actionable if supported by a legitimate

business justification. When a legitimate business justi-

fication supports a monopolist’s exclusionary conduct,

that conduct does not violate § 2 of the Sherman Act. See

34A

Kodak, 504 U.S. at 483; Oahu Gas, 838 F.2d at 368. A

plaintiff may rebut an asserted business justification by

demonstrating either that the justification does not legit-

imately promote competition or that the justification is

pretextual. See Kodak, 504 U.S. at 483-84 (citing Kodak, 903

F.2d at 618). Kodak asserts that the protection of its

patented and copyrighted parts is a valid business justi-

fication for its anticompetitive conduct and argues that

the district court’s erroneous jury instructions made it

impossible for the jury to properly consider this justifica-

tion. Kodak attacks the district court’s failure both to

provide a “less restrictive alternatives” instruction, and

to instruct as to Kodak’s intellectual property rights. Jury

instructions “must be formulated so that they fairly and

adequately cover the issues presented, correctly state the

law, and are not misleading.” Knapp v. Ernst & Whinney,

90 F.3d 1431, 1437 (9th Cir. 1996), cert. denied, 117 S.Ct. 952

(1997). To the extent that Kodak alleges error in the

district court’s formulation of the instructions, we con-

sider the instructions as a whole and apply an abuse of

discretion standard to determine if they are “misleading

or inadequate.” Id. (citation omitted). To the extent that

Kodak argues that the district court misstated the ele-

ments the ISOs were required to prove at trial, we review

the instructions de novo. Id.

A. Least Restrictive Alternatives

Kodak argues that the district court erred by failing

to instruct the jury that it was not to consider whether

Kodak could have accomplished its business objectives

through less restrictive alternatives. Kodak also questions

the sufficiency of the ISOs’ pretext evidence. The ISOs

i ii i ls a et

a ee Oe res

ati Whe

35A

counter that Kodak waived its arguments regarding busi-

ness justifications by failing to move for judgment as a

matter of law. We disagree. To the extent that Kodak’s

arguments focus on the jury instructions and not the

general sufficiency of the evidence, Rule 50(b) does not

apply.

Kodak argues that monopolization, unlike tying,

does not require consideration of whether the defendant

could have achieved its aims through less restrictive

alternatives. Kodak, however, cites no authority mandat-

ing an instruction requiring that the jury not consider

“less restrictive alternatives.” Kodak’s argument rests on

the combination of the district court’s refusal to use

Kodak’s requested language and Kodak’s disagreement

with the “unnecessarily excludes or handicaps competi-

tors” language of Jury Instruction Nos. 29 and 34. As a

result of this combination, Kodak argues, the ISOs were

able to argue a “necessity” standard and ask the jury to

weight [sic] what Kodak did “against the alternatives.”

As discussed above, the “unnecessarily excluded or

handicaps” language was permissible under Aspen Skiing.

Moreover, the district court’s instruction here, Instruction

No. 28, was very similar to both the language proposed

by Kodak and the language endorsed by the Supreme

Court in Aspen Skiing, 472 U.S. at 597. Jury Instruction

No. 28 defines “exclusionary conduct” as impairing “the

efforts of others to compete for customers in an unneces-

sarily restrictive way.” The district court also instructed

that: (1) Kodak could refuse to deal if valid business

reasons existed and (2) the jury could not “second guess

whether Kodak’s business judgment was wise or correct

in retrospect.” Under these instructions the jury could not

36A

consider “less restrictive alternatives” without “second

guessing” Kodak and thus violating the jury instructions.

We presume that the jury followed the court’s instruc-

tions. United States v. Alston, 974 F.2d 1206, 1210 (9th Cir.

1992).

Kodak next argues that the ISOs’ primary arguments

refuting Kodak’s business justifications were “less restric-

tive alternative” arguments. Kodak focuses on the ISOs’

attack on Kodak’s quality control justification as one such

“less restrictive alternative” argument. Kodak argues that

because “the legitimacy of quality control is beyond

reproach,” the ISOs were forced to establish this justifica-

tion, and others, were pretextual. The ISOs did establish

pretext: they attacked Kodak’s quality control justifica-

tion on the grounds that it was pretextual, not because it

was the least restrictive alternative. Counsel for the ISOs

argued that Kodak’s quality control justification was “a

joke” because ISOs do not interfere with the quality of

Kodak’s service. We hold that the district court did not

err in its instructions.

Kodak has waived its insufficiency of evidence claim

on this issue by failing to move for judgment as a matter

of law at trial. We review only for plain error. Cabrales,

864 F.2d at 1459. The ISOs’ evidence suffices to support

the jury’s rejection of Kodak’s business justifications, as

the record reflects evidence of pretext. The ISOs pre-

sented evidence that: (1) Kodak adopted its parts policy

only after an ISO won a contract with the State of Califor-

nia; (2) Kodak allowed its own customers to service their

machines; (3) Kodak customers could distinguish break-

downs due to poor service from breakdowns due to parts;

and (4) many customers preferred ISO service.

37A

B. Intellectual Property Rights

Kodak also attacks the district court’s business justi-

fications instructions for their failure to properly detail

Kodak’s intellectual property rights. Kodak argues that

the court failed to instruct the jury that Kodak’s

numerous patents and copyrights provide a legitimate

business justification for Kodak’s alleged exclusionary

conduct. Kodak holds 220 valid United States patents

covering 65 parts for its high volume photocopiers and

micrographics equipment, and all Kodak diagnostic soft-

ware and service software are copyrighted. The jury

instructions do not afford Kodak any “rights” or “privi-

leges” based on its patents and copyrights: all parts are

treated the same. In Jury Instruction No. 37, the court told

the jury:

[i]f you find that Kodak engaged in monopoliza-

tion or attempted monopolization by misuse of

its alleged parts monopoly . . . then the fact that

some of the replacement parts are patented or

copyrighted does not provide Kodak with a

defense against any of those antitrust claims.

In Jury Instruction No. 28, the court stated, over Kodak’s

objection, that:

[s]uch [exclusionary] conduct does not refer to

ordinary means of competition, like offering bet-

ter products or services, exercising superior skill

or business judgment, utilizing more efficient

technology, or exercising natural competitive

advantages.

Kodak proposed to include “exercising lawful patents

and copyrights” amongst the list of non-exclusionary

38A

conduct in Instruction No. 28, but the district court

rejected that language.

Kodak’s challenge raises unresolved questions con-

cerning the relationship between federal antitrust, copy-

right and patent laws. In particular we must determine

the significance of a monopolist’s unilateral refusal to sell

or license a patented or copyrighted product in the con-

text of a § 2 monopolization claim based upon monopoly

leveraging. This is a question of first impression.

We first identify the general principles of antitrust,

nize these statutory schemes in responding to Kodak’s

challenge.

Antitrust law seeks to promote and protect a compet-

itive marketplace for the benefit of the public. See Stan-

dard Oil Co. v. United States, 221 U.S. 1, 58 (1911); SCM

Corp. v. Xerox Corp., 645 F.2d 1195, 1203 (2d Cir. 1981). The

Sherman Act, the relevant antitrust law here, prohibits

efforts both to restrain trade by combination or conspir-

acy and the acquisition or maintenance of a monopoly by

exclusionary conduct. 15 U.S.C. §§ 1, 2.

Patent law seeks to protect inventions, while induc-

ing their introduction into the market for public benefit.

SCM Corp., 645 F.2d at 1203. Patent laws “reward the

inventor with the power to exclude others from making,

using or selling [a patented] invention throughout the

39A

United States.” Id.7 Meanwhile, the public benefits both

from the faster introduction of inventions, and the result-

ing increase in market competition. Legally, a patent

amounts to a permissible monopoly over the protected

work. See Zenith Padio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 135 (1969). Patent laws “are in pari materia with

the antitrust laws and modify them pro tanto (as far as the

patent laws go).” Simpson v. Union Oil Co., 377 U.S. 13, 24

(1964).

Federal copyright law “secure[s] a fair return for an

author’s creative labor” in the short run, while ultimately

seeking “to stimulate artistic creativity for the general

public good.” Twentieth Century Music Corp. v. Aiken, 422

7 In 1988, Congress amended the patent laws to provide

that “[n]o patent owner otherwise entitled to relief for

infringement . . . of a patent shall be denied relief or deemed

guilty of misuse or illegal extension of the patent right by reason

of . . . (4) [the patent owner’s] refus[al] to license or use any

rights to the patent.” 35 U.S.C. § 271(d) (1988).

The First Circuit has observed that this amendment “may

even herald the prohibition of all antitrust claims . . . premised

on a refusal to license a patent.” Data General, 36 F.3d at 1187

(citing Richard Calkins, “Patent Law: The Impact of the 1988

Patent Misuse Reform Act and Noerr-Pennington Doctrine on

Misuse Defenses and Antitrust Counterclaims,” 38 Drake L.Rev.

175, 192-97 (1988-89)). The amended statutory language does

not compel this result, and Calkins and other commentators

agree that § 271(d)(4) merely codified existing law. See Calkins,

38 Drake L.Rev. at 197; 5 Donald S. Chisum, Patents, § 19.04[1] at

19-295 (1992) (“The ‘refusal to license’ provision received little

attention in the floor statements, primarily because the

Provision was intended to codify existing law.”). The

amendment does, however, indicate congressional intent to

protect the core patent right of exclusion.

40A

U.S. 151, 156 (1975) (internal quotations omitted). The

sive right to distribute the protected work. 17 U.S.C.

§ 106. This right encompasses the right to “refrain from

vending or licensing,” as the owner may “content [itself]

with simply exercising the right to exclude others from

using [its] property.” Data General, 36 F.3d at 1186 (quot-

ing Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932)); see

Stewart v. Abend, 495 U.S. 207, 228-29 (1990) (“nothing in

the copyright statutes would prevent an author from

hoarding all of his works during the term of the copy-

right.”)

Clearly the antitrust, copyright and patent laws both

overlap and, in certain situations, seem to conflict. This is

not a new revelation. We have previously noted the

“obvious tension” between the patent and antitrust laws:

“[o]ne body of law creates and protects monopoly power

while the other seeks to proscribe it.” United States v.

Westinghouse Electric Corp., 648 F.2d 642, 646 (9th Cir.

1981) (citations omitted). Similarly, tension exists between

the antitrust and copyright laws. See Data General, 36 F.3d

at 1187.

Two principles have emerged regarding the interplay

between these laws: (1) neither patent nor copyright

holders are immune from antitrust liability, and (2) patent

and copyright holders may refuse to sell or license pro-

tected work. First, as to antitrust liability, case law sup-

ports the proposition that a holder of a patent or

contractual behavior that threatens competition.” Id. at

1185 n.63 (citation omitted). In Kodak, the Supreme Court

noted:

41A

[we have] held many times that power gained

through some natural advantage such as a pat-

ent, copyright, or business acumen can give rise

to liability if ‘a seller exploits his dominant posi-

tion in one market to expand his empire into the

next.’

904 U.S. at 480 n.29 (quoting Times-Picayune Publishing Co.

v. United States, 345 U.S. 594, 611 (1953) and citing North-

ern Pacific R. Co. v. Usited States, 356 U.S. 1 (1958); United

States v. Paramount Pictures, Inc., 334 U.S. 131 (1948);

Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 463 (1938)).

Case law also supports the right of a patent or copy-

right holder to refus> to sell or license protected work.

See Westinghouse, 648 F.2d at 647. In United States v. West-

inghouse Electric Corp, we held that “[t]he right to license

[a] patent, exclusively or otherwise, or to refuse to license

at all, is the ‘untrammeled right’ of the patentee.” Id.

(quoting Cataphote Co:poration v. DeSoto Chemical Coatings,

Inc., 450 F.2d 769, 774 (9th Cir. 1971)); see Zenith Radio

Corp., 395 U.S. at 135(the patent holder has the “right to

invoke the State’s power to prevent others from utilizing

[the] discovery witheut [the patent holder’s] consent”)

(citations omitted); Ticom Inc. v. Electronic Data Systems

Corp., 902 F.Supp. 741, 743 (E.D. Mich.1995) (“Under pat-

ent and copyright law, [the owner] may not be compelled

to license . . . to anyone.”) (citations omitted).

Next we lay out the problem presented here. The

Supreme Court touched on this question in Kodak, i.e., the

effect to be given a monopolist’s unilateral refusal to sell

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or license a patented or copyrighted product in the con-

text of a § 2 monopoly leveraging claim. In footnote 29,

previously discussed, the Supreme Court in Kodak refutes

the argument that the possession by a manufacturer of

“inherent power” in the market for its parts “should

immunize [that manufacturer] from the antitrust laws in

another market.” 504 U.S. at 480 n.29. The Court stated

that a monopolist who acquires a dominant position in

one market through patents and copyrights may violate

§ 2 if the monopolist exploits that dominant position to

enhance a monopoly in another market. Although foot-

note 29 appears in the Court’s discussion of the § 1 tying

claim, the § 2 discussion frequently refers back to the § 1

discussion, and the Court’s statement that

“exploit[ing][a] dominant position in one market to

expand [the] empire into the next” is broad enough to

cover monopoly leveraging under § 2. Id.* By responding

8 The cases cited by the Supreme Court also support this

conclusion. In Times-Picayune, the Court addressed both a § 1

tying claim and a § 2 monopolization claim. 345 U.S. at 611.

Regarding the § 1 claim, the Court found insufficient power in the

relevant market to support “dominance.” Id. Later in addressing

the § 2 claim, the Supreme Court held that “[t]his case does not

demonstrate an attempt by a monopolist established in one area

to nose into a second market. . . . ” Id. at 626.

Also relevant to the relationship between § 1 and § 2, the

Court in Leitch Manufacturing held that it made no difference

that the defendant had not expanded its monopoly “by

contract.” 302 U.S. at 463. The Court held:

[T]he owner of the patent monopoly, ignoring the

limitation ‘inherent in the patent grant,’ sought by its

method of doing business to extend the monopoly to

unpatented material

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in this fashion, the Court in Kodak supposed that intellec-

tual property rights do not confer an absolute immunity

from antitrust claims.

The Kodak Court, however, did not specifically

address the question of antitrust liability based upon a

unilateral refusal to deal in a patented or copyrighted

product. Kodak and its amicus correctly indicate that the

right of exclusive dealing is reserved from antitrust lia-

bility. We find no reported case in which a court has

imposed antitrust liability for a unilateral refusal to sell

or license a patent or copyright.? Courts do not generally

view a monopolist’s unilateral refusal to license a patent

as “exclusionary conduct.” See Data General, 36 F.3d at

1186 (citing Miller Instituform, Inc. v. Instituform of North

America, 830 F.2d 606, 609 (6th Cir. 1987) (“A patent

.... [This is unlawful] whatever the nature of the

device by which the owner of the patent seeks to

effect such unauthorized extension of the monopoly.

Id. (citation omitted); see also Mercoid Corp. v. Mid-Continent

Investment Co., 320 U.S. 661, 665 (1943) (“The method by which

the monopoly is sought to be extended is immaterial.”)

The particular patent misuse issues addressed in Leitch and

Mercoid are now controlled by 35 U.S.C. § 271, Dawson Chem. Co.

v. Rohm & Haas, 448 U.S. 176 (1980), but this does not alter the

application of their reasoning here.

* The ISOs correctly observe that this case involves a

selective refusal to sell products protected by patents and

copyrights, not an absolute refusal to license. This distinction

makes no difference. See Westinghouse, 648 F.2d at 647 (“the right

to license . . . exclusively or otherwise . . . is the ‘untrammeled

right’ of the patentee.”). The ISOs offer no rationale for a

distinction between discriminatory licensing and

discriminatory sales.

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holder who lawfully acquires a patent cannot be held

liable under Section 2 of the Sherman Act for maintaining

the monopoly power he lawfully acquired by refusing to

license the patent to others.”); Westinghouse, 648 F.2d at

647 (finding no antitrust violation because “Westinghouse

has done no more than to license some of its patents and

refuse to license others”); SCM Corp., 645 F.2d at 1206

(“where a patent has been lawfully acquired, subsequent

conduct permissible under the patent laws cannot trigger

any liability under the antitrust laws.”).

This basic right of exclusion does have limits. For

example, a patent offers no protection if it was

unlawfully acquired. Data General, 36 F.3d at 1186 (citing

SCM Corp., 645 F.2d at 1208-09). Nor does the right of

exclusion protect an attempt to extend a lawful monopoly

beyond the grant of a patent. See Mercoid, 320 U.S. at 665.

Section 2 of the Sherman Act condemns exclusionary

conduct that extends natural monopolies into separate

markets. Much depends, therefore, on the definition of

the patent grant and the relevant market.

The relevant market for determining the patent or

law. See, e.g., id. at 666 (the patent's grant “is limited to

the invention which it defines.”). The relevant markets

for antitrust purposes are determined by examining eco-

nomic conditions. See Kodak, 504 U.S. at 462 (citing Jeffer-

son Parish Hospital Dist. No. 2. v. Hyde, 466 U.S. 2, 21-22

(1984)). We recently noted the distinction between copy-

right market definition and antitrust market definition in

Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330

(9th Cir. 1995). There, the plaintiff, Southeastern, argued

that the copyright of the defendant, Triad, did not

45A

“extend to the service market” for Triad computers. We

disagreed stating:

Triad invented, developed, and marketed its

software to enable its customers and its own

technicians to service Triad computers. South-

eastern is getting a free ride when it uses that

/ software to perform precisely the same service.

Triad is entitled to licensing fees from South-

: eastern and other [SOs. .. .

Id. at 1337. Rather than merely requiring Southeastern to

pay for future use, the district court enjoined South-

eastern from servicing the computers that had licensed

software. See id. at 1334. We never reached Southeastern’s

antitrust counterclaims, as they had not yet been tried. Id.

at 1338 (district court properly bifurcated the copyright

and antitrust claims). Neither did we refer to antitrust

principles in defining the reach of Triad’s copyright.

: Parts and service here have been proven separate

markets in the antitrust context, but this does not resolve

the question whether the service market falls “reasonably

within the patent [or copyright] grant” for the purpose of

determining the extent of the exclusive rights conveyed.

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708-09

(Fed. Cir. 1992). These are separate questions, which may

result in contrary answers. At the border of intellectual

property monopolies and antitrust markets lies a field of

dissonance yet to be harmonized by statute or the

Supreme Court.

When an owner of intellectual property takes con-

certed action in violation of § 1, this dissonance does not

46A

threaten his core right of exclusion.!° See Brownell v. Ket-

cham Wire & Manufacturing Co., 211 F.2d 121, 129 (9th Cir.

1954) (listing acts giving rise to antitrust liability). Con-

trary to the ISOs’ arguments, there is an important differ-

ence between § 1 tying and § 2 monopoly leveraging: the

limiting principles of § 1 restrain those claims from mak-

ing the impact on intellectual property rights threatened

by § 2 monopoly leveraging claims. Where, as here, the

claim involves a failure to act that is at the heart of the

property right, liability depends largely on market defini-

tion and lacks the limiting principles of § 1. Under § 2,

“[bJehavior that might otherwise not be of concern to the

antitrust laws — or that might even be viewed as procom-

petitive — can take on exclusionary connotations when

practiced by a monopolist.” Kodak, 504 U.S. at 488 (Scalia,

J. dissenting) (citing 3 Areeda & Turner, I 813, at

300-302); see also Greyhound Computer v. International Busi-

ness Machines, 559 F.2d 488, 498 (9th Cir. 1977) (otherwise

lawful conduct may be exclusionary when practiced by a

monopolist). Harmonizing antitrust monopoly theory

with the monopolies granted by intellectual property law

requires that some weight be given to the intellectual

property rights of the monopolist.

The effect of claims based upon unilateral conduct on

the value of intellectual property rights is a cause for

serious concern. Unilateral conduct is the most common

10 The ISOs withdrew their tying claim. The ISOs’ Amici,

National Electronics Service Dealers Association and

Professional Service Association, argue that the record reflects

concerted action by Kodak, but the jury instructions do not

define such action and we should not presume that it was

found.

ine ae ones

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conduct in the economy. After Kodak, unilateral conduct

by a manufacturer in its own aftermarkets may give rise

to liability and, in one-brand markets, monopoly power

created by patents and copyrights will frequently be

found. Under current law the defense of monopolization

claims will rest largely on the legitimacy of the asserted

business justifications, as evidenced by the jury instruc-

tions approved in Aspen Skiing.

Without bounds, claims based on unilateral conduct

will proliferate. The history of this case demonstrates that

such claims rest on highly disputed factual questions

regarding market definition. Particularly where treble

damages are possible, such claims will detract from the

advantages lawfully granted to the holders of patents or

copyrights by subjecting them to the cost and risk of

lawsuits based upon the effect, on an arguably separate

market, of their refusal to sell or license. The cost of such

suits will reduce a patent holder’s “incentive . . . to risk

the often enormous costs in terms of time, research, and

development.” Kawanee Oil Co. v. Bicron Corp., 416 U.S.

470, 480 (1974). Such an effect on patent and copyright

holders is contrary to the fundamental and complemen-

tary purposes of both the intellectual property and anti-

trust laws, which aim to “encourag[e] innovation,

industry and competition.” Atari Games Corp. v. Nintendo

of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990) (citing

Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 876-77, (Fed.

Cir. 1985)).1}

11 That antitrust claims may cut into the core rights

conferred by patents and copyrights is illustrated by the

injunction imposed by the district court here. The injunction

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We now resolve the question detailed above. Under

the fact-based approaches of Aspen Skiing and Kodak,

some measure must guarantee that the jury account for

the procompetitive effects and Statutory rights extended

by the intellectual property laws. To assure such consid-

eration, we adopt a modified version of the rebuttable

presumption created by the First Circuit in Data General,

and hold that “while exclusionary conduct can include a

monopolist’s unilateral refusal to license a [patent or]

monopolist’s “desire to exclude others from its [pro-

tected] work is a presumptively valid business justifica-

tion for any immediate harm to consumers.” Data General,

36 F.3d at 1187.

This presumption does not “rest on formalistic dis-

tinctions” which “are generally disfavored in antitrust

laws;” rather it is based on “actual market realities.”

Kodak, 504 U.S. at 466-67. This presumption harmonizes

the goals of the relevant statutes and takes into account

the long term effects of regulation on these Purposes. The

Presumption should act to focus the factfinder on the

primary interest of both intellectual property and anti-

trust laws: public interest. Mercoid, 320 U.S. at 665 (cita-

tion omitted) (“It is the public interest which is dominant

requires that Kodak supply all ISOs with its patented and

copyrighted materials at “reasonable prices.” Even the ISOs do

not dispute that Kodak is entitled to reap monopoly prices from

the sale or licensing of these materials.

reece ermine remem cmmener ar

49A

in the patent system.”); Standard Oil, 221 U.S. at 58 (anti-

trust

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