Source: http://tn.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20150316_0000274.C06.htm/qx
Timestamp: 2017-05-25 06:48:56
Document Index: 495891062

Matched Legal Cases: ['§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 43', '§ 1125']

| Collins Inkjet Corp. v. Eastman Kodak Co.
Collins Inkjet Corp. v. Eastman Kodak Co.
COLLINS INKJET CORPORATION, Plaintiff-Appellee,v.EASTMAN KODAK CO., Defendant-Appellant.
Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 1:13-cv-00664--Michael R. Barrett, District Judge.
ARGUED: Marc G. Schildkraut, COOLEY LLP, Washington, D.C., for Appellant.
W.B. Markovits, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, for Appellee.
ON BRIEF: Marc G. Schildkraut, COOLEY LLP, Washington, D.C., Celia Goldwag Barenholtz, COOLEY LLP, New York, New York, James E. Burke, KEATING MUETHING & KLEKAMP PLL, Cincinnati, Ohio, for Appellant.
W.B. Markovits, Christopher D. Stock, Paul M. DeMarco, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, for Appellee.
Before: DAUGHTREY, ROGERS, and DONALD, Circuit Judges. ROGERS, J., delivered the opinion of the court in which DONALD, J., joined. DAUGHTREY, J., delivered a separate concurring opinion.
In a tying arrangement, a seller requires buyers of a product over which it has market power--the " tying product" -- also to purchase a product over which it seeks to gain market power--the " tied product." A tying arrangement can be prohibited under § 1 of the Sherman Act even if the tie is not explicit in the seller's contracts, but instead is enforced through informal constraints or pricing policies. This appeal primarily concerns the question of when differential pricing--charging more for the tying product when the customer does not also purchase the tied product--in itself constitutes an unlawful tying arrangement. In short, the answer is that it does so only when the price differential in effect discounts the tied product below the seller's cost. In this case, the possibility that such a showing could be made warranted a preliminary injunction.
Eastman Kodak Company appeals the district court's grant of Collins Inkjet Corporation's motion for a preliminary injunction requiring Kodak to cease charging customers at different rates for Kodak's refurbished printer components depending on whether the customers buy Kodak ink. Collins is Kodak's competitor for selling ink for Versamark printers manufactured by Kodak. Users of Versamark printers must periodically replace a printer component called a printhead; Kodak is the only provider of replacement " refurbished printheads" for such printers. In July 2013, Kodak adopted a pricing policy that raised the cost of replacing Versamark printheads, but only for customers not purchasing Kodak ink. Collins filed suit, arguing that this amounts to a tying arrangement prohibited under § 1 of the Sherman Act, 15 U.S.C. § 1, because it is designed to monopolize the Versamark ink market. Collins sought a preliminary injunction barring Kodak from charging Collins' customers a higher price for refurbished printheads. The district court issued the preliminary injunction, finding a Page 268
strong likelihood that Kodak's pricing policy was a non-explicit tie that coerced Versamark owners into buying Kodak ink and that Kodak possessed sufficient market power in the market for refurbished printheads to make the tie effective.
On appeal, Kodak challenges both the legal standard the district court applied to find whether customers were coerced into using Kodak ink and the district court's preliminary factual findings. In evaluating the likelihood of success on the merits, the district court applied a standard that unduly favored Collins to determine whether customers were coerced into buying Kodak ink. The court examined whether the policy made it likely that all or almost all customers would switch to Kodak ink, but did not examine whether this would be the result of unreasonable conduct on Kodak's part. A tying arrangement enforced entirely through differential pricing of the tying product contravenes the Sherman Act only if the pricing policy is economically equivalent to selling the tied product below cost. The record makes it difficult to determine conclusively Kodak's ink production costs, but the available evidence suggests that Kodak was worse off when customers bought both products, meaning that it was in effect selling ink at a loss. Thus, Collins was likely to succeed on the merits even under the correct standard. Furthermore, the district court was correct in its consideration of the other factors for a preliminary injunction. Accordingly, the preliminary injunction was not an abuse of discretion.
I. Kodak's pricing policy for Versamark refurbished printheads and ink
A. Versamark Printers, Kodak, and Collins
Kodak is a printing and imaging company that offers a wide range of products and services, including Versamark printers. Collins is a business that manufactures inkjet ink for industrial printing systems. Versamark printers are used by commercial printing companies and can cost in excess of $200,000; a full printing system using Versamark printers can cost ten times that. Kodak sold its last Versamark printer in 2009. It has since introduced a new line of printers under the name " Prosper," intended to replace Versamark. Users of Versamark printers must periodically purchase ink specially formulated for use in Versamark printers and replace specialized printer components, called printheads, through which the ink flows onto the page. Printheads are available in multiple sizes, and ink must be formulated specifically for each type of printhead. Prices for both printheads and ink vary based on the printhead's type, and also (in the ink's case) on the ink's composition. Kodak and Collins both manufacture Versamark ink, but Kodak is the only source of replacement " refurbished" printheads. Customers send old printheads to Kodak, which then refurbishes them and sends them back. Customers are highly sensitive to the total cost of printing, and take into account both the initial purchase price and subsequent costs in making decisions about printers.
B. The history of cooperation and competition between Kodak and Collins
Until 2001, Collins and Kodak's predecessor Scitex competed to sell Versamark ink. From 2001 until 2011, Collins and Kodak operated together in the Versamark ink market under a series of Supply and Reseller Agreements. Under these agreements, Collins manufactured ink under both its own name and Kodak's brand, and Kodak sold Collins ink on Collins'
behalf. Collins attempted to terminate the last such agreement in 2011 due to concerns about Kodak's financial situation, but was prevented by a court injunction from doing so. The agreement terminated as scheduled in May 2012.
As soon as the agreement terminated in May 2012, Kodak announced that Collins was no longer an approved Versamark ink supplier and that it was implementing a new pricing policy with higher refurbished printhead prices, and no equipment warranty, for Collins ink users. Kodak never actually implemented the policy, apparently because of customer complaints.
C. The pricing policy at issue
In July 2013, Kodak announced a new pricing policy that is the subject of Collins' present tying claim. Under this policy, the difference between what Collins ink customers and Kodak ink customers would pay for refurbished printheads decreased relative to the May 2012 policy, but did not disappear. Kodak ink customers (" matched customers" ) received a discount on refurbished printheads, while non-Kodak ink customers (" unmatched customers" ) paid more. Kodak's refurbishment pricing structure used a base charge followed by a calculation based on hourly rates for " run hours" in different amounts, making calculation of the exact price difference difficult. However, in two of the three policy announcements sent to customers in the record, Kodak offered " matched" customers a 4% discount, while raising prices for " unmatched" customers by roughly 30%. In the third announcement, the discount for matched customers appeared to be slightly over 6%, while the price increase for unmatched customers appeared to be over 5%. Kodak delayed implementation until November 1, 2013, and even then some large customers received rebates making up for the price increases in the unmatched rates. In at least some cases, these rebates were granted because the customers made a verbal commitment to switch to Kodak ink. Collins sued, seeking to enjoin the enforcement of this policy.
On September 19, 2013, Collins brought suit against Kodak, alleging a violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (for tying), a violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125 (for false statements about the quality of Collins ink made in justification of its pricing policies), a violation of state deceptive trade practices law (for the same), defamation (for the same), and tortious interference with prospective contractual relations (for both the anticompetitive conduct and the false statements). At the same time, Collins moved for a preliminary injunction preventing Kodak from charging Collins ink customers higher prices for refurbished printheads and from making false statements about Collins. After expedited discovery and a three-day evidentiary hearing, the district court found that Collins had not demonstrated a likelihood ...