Opinion ID: 368855
Heading Depth: 2
Heading Rank: 4

Heading: film and color paper claims

Text: 135 The second and third largest jury awards were those for monopolization of film and color paper, $11,500,000 and $8,803,000, respectively. Judge Frankel upheld the film verdict but granted judgment n. o. v. for Kodak on color paper. Kodak therefore appeals the former judgment and Berkey the latter. In each of these claims Berkey's contention is that it paid an excessive price for Kodak products. They therefore raise similar issues and we shall discuss them together. We remand both claims for retrial. 136 It is clear that Kodak possessed a monopoly in the film and color paper markets during the period relevant to this suit. Berkey contends that this power, which enabled Kodak to overcharge its customers, was acquired and maintained, at least in part, by anticompetitive conduct. Some of the evidence introduced by Berkey in support of its claims concerned events that occurred many years ago. In particular, Berkey succeeded in introducing a 1915 decision which was to play a dramatic role in an unfortunate incident near the close of the liability trial 54 holding Inter alia that Kodak, by illegal acquisitions and other improper conduct, had monopolized the photographic paper market. Judge Frankel admitted this evidence as background only. Over Berkey's objection, he instructed the jury that it could not base liability on anticompetitive actions that Kodak had committed earlier than the beginning of the limitations period on January 29, 1969, four years before the commencement of suit. 137 Berkey contends, however, that Kodak has also bolstered its power since 1969 by numerous exclusionary means. In upholding the film verdict against Kodak's motion for judgment n. o. v., Judge Frankel pointed to two particular tactics that he considered to be exclusionary. Most importantly, he held that there was sufficient evidence for the jury to conclude that the introduction of the 110 system illegitimately buttressed Kodak's film sales. The judge also indicated that Kodak improperly stifled film competition by preventing CP&P, its photofinishing arm, from servicing non-Kodak films. 138 Judge Frankel concluded, with some hesitation, that the evidence of anticompetitive conduct within the limitations period was sufficient to support the entire liability award. The trial judge also had misgivings about his instruction to the jury on the measure of film damages, in which he explained that Berkey could recover the difference between Kodak's monopoly price and the price it would have paid for film in a competitive market. Nevertheless, he denied Kodak's motion for judgment n. o. v., sustaining the award of damages In toto. 139 Berkey's color paper claim did not fare as well in Judge Frankel's hands, however. As with the film claim, Berkey presented numerous instances of conduct that, it contended, were anticompetitive. Kodak, it charged, manipulated the structure of the photofinishing market to inhibit color paper competition and used its monopoly power in film to advantage its paper sales, designing its films so that they would not be as compatible with competitors' paper as with Kodak's. Moreover, CP&P received instructions to buy only Kodak paper, even though competing products offered advantages in both cost and quality. Judge Frankel surveyed these and other allegations and concluded that in each case either Kodak's conduct was perfectly proper, or that there was insufficient proof that it was tainted by anticompetitive purpose or effect, or that it had no impact on the color paper market. Accordingly, although there was clear evidence that Kodak's monopoly power had enabled it to maintain its color paper prices at a high level, the judge granted Kodak's motion for judgment n. o. v. on this claim. 140 Excessive prices, maintained through exercise of a monopolist's control of the market, constituted one of the primary evils that the Sherman Act was intended to correct. Letwin, Congress and the Sherman Antitrust Law: 1887-1890, 23 U.Chi.L.Rev. 221, 249-52 (1956). Where a monopolist has acquired or maintained its power by anticompetitive conduct, therefore, a direct purchaser may recover the overcharge caused by the violation of § 2. E. g., Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 487-94, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). 141 But unless the monopoly has bolstered its power by wrongful actions, it will not be required to pay damages merely because its prices may later be found excessive. Setting a high price may be a use of monopoly power, but it is not in itself anticompetitive. Indeed, although a monopolist may be expected to charge a somewhat higher price than would prevail in a competitive market, there is probably no better way for it to guarantee that its dominance will be challenged than by greedily extracting the highest price it can. See, e. g., L. Sullivan, Supra, at 117; 3 P. Areeda & D. Turner, Supra, at 41-42. If a firm has taken no action to destroy competition it may be unfair to deprive it of the ordinary opportunity to set prices at a profit-maximizing level. Thus, no court has required a lawful monopolist to forfeit to a purchaser three times the increment of its price over that which would prevail in a competitive market. 1 M. Handler, Supra, at 56-57. Indeed, as one commentator who might favor such a rule concedes, such judicial oversight of pricing policies would place the courts in a role akin to that of a public regulatory commission. Id. We would be wise to decline that function unless Congress clearly bestows it upon us. See L. Sullivan, Supra, at 117-18. 142 For a purchaser to recover damages under § 2, therefore, it must demonstrate that the monopolist has engaged in some anticompetitive conduct. Two further questions must be resolved, however, to give shape to the purchaser's treble damage suit: 143 1. If an overcharge paid during the limitations period was caused by the defendant's monopoly power, may a plaintiff satisfy the conduct element of the § 2 offense by proving anticompetitive actions that occurred more than four years prior to the commencement of suit? 144 2. If a defendant has violated § 2, may a purchaser recover the excess of its price over a competitive price, or merely the increment attributable to its anticompetitive conduct?We hold that Judge Frankel erred in Kodak's favor on the first of these questions but that he was overly generous to Berkey on the second.
145 By statute, 15 U.S.C. § 15b, a four-year period of limitations applies in private antitrust suits. The plaintiff, therefore, clearly can recover only for overcharges suffered since the beginning of the limitations period. It remains to be decided, however, whether the conduct element of the offense may be satisfied by wrongful action occurring before the limitations period but that nevertheless made an enduring contribution to the monopolist's ability to charge an excessive price. Judge Frankel, without articulating reasons, concluded that § 15b requires a negative answer. 146 Unless tolled, that provision requires suit to be commenced within four years after the cause of action accrued. In effect, therefore, the judge held that the cause of action of a purchaser seeking to recover an illegal overcharge accrues when the defendant engages in the anticompetitive conduct that is a prerequisite for suit. We believe that the purchaser's claim cannot accrue until it actually pays the overcharge. Accordingly, Judge Frankel's ruling was erroneous. 147 It is plain from the treble-damage statute itself (15 U.S.C. § 15) that a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct. 795, 806, 28 L.Ed.2d 77 (1971). Although the business of a monopolist's rival may be injured at the time the anticompetitive conduct occurs, a purchaser, by contrast, is not harmed until the monopolist actually exercises its illicit power to extract an excessive price. The case of predatory pricing illustrates the point clearly. As soon as the dominant firm commences such a policy, other producers, who may be driven out of the market, are injured. But, clearly, purchasers are not, for they receive the temporary boon of artificially low prices. It is only when the monopolist, having devoured its smaller rivals, enjoys the spoils of its conquest by boosting its price to excessive levels that a purchaser feels the adverse impact of the violation. Id. at 339, 91 S.Ct. 795. And if the monopolist never consummates its scheme by taking this final step, the purchaser has no cause of action. 148 So long as a monopolist continues to use the power it has gained illicitly to overcharge its customers, it has no claim on the repose that a statute of limitations is intended to provide. Thus, in this setting, as in the context of a continuing conspiracy to violate the antitrust laws. . . . each time a plaintiff is injured by an act of the defendants a cause of action accrues to him to recover the damages caused by that act. . . . . (A)s to those damages, the statute of limitations runs from the commission of the act. Id. at 338, 91 S.Ct. at 806. 149 Untoward consequences would follow were we to hold that the anticompetitive conduct itself triggered the running of the limitations period. As the Supreme Court stated in Zenith Radio: 150 (I)t is hornbook law, in antitrust actions as in others, that even if injury and a cause of action have accrued as of a certain date, further damages that might arise from the conduct sued on are unrecoverable if the fact of their accrual is speculative or their amount and nature unprovable. Id. at 339, 91 S.Ct. at 806. 151 Plainly, at the time a monopolist commits anticompetitive conduct it is entirely speculative how much damage that action will cause its purchasers in the future. Indeed, some of the buyers who will later feel the brunt of the violation may not even be in existence at the time. Cf. Continental Ore Co., supra, 370 U.S. at 709-10, 82 S.Ct. 1404. Not until the monopolist actually sets an inflated price and its customers determine the amount of their purchases can a reasonable estimate be made. The purchaser's cause of action, therefore, accrues only on the date damages are suffered:Otherwise future damages that could not be proved within four years of the conduct from which they flowed would be forever incapable of recovery, contrary to the congressional purpose that private actions serve as a bulwark of antitrust enforcement. Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 1984, 20 L.Ed.2d 982 (1968). . . . . 152 Zenith Radio Corp., supra, 401 U.S. at 340, 91 S.Ct. at 807. 153 Our view is supported by the fundamental principles of § 2 that we outlined earlier in this opinion. Monopoly power, we indicated, is itself the primary target of § 2. To be sure, a showing of anticompetitive conduct is necessary to support liability for damages, for otherwise the law would be unfair to a firm that has gained success solely by fair means. But there can be no unfairness in preventing a monopolist that has established its dominant position by unlawful conduct from exercising that power in later years to extract an excessive price. After all, it is only a pristine origin, Alcoa, supra, 148 F.2d at 429, that may save a monopoly so long as it continues to refrain from anticompetitive activity from the condemnation of § 2. The taint of an impure origin does not dissipate after four years if a monopolist continues to extract excessive prices because of it. 154 Moreover, it would undercut enforcement of the Sherman Act to hold that, if a monopolist merely retains its illicit market control for four years after its last anticompetitive action, it may charge an exorbitant price until its power is eviscerated in an appropriate suit for equitable relief. 55 The rule urged by Kodak would mean that, as the Supreme Court has indicated in a related context: 155 those who had unlawfully built their empires could preserve them intact. They could retain the full dividends of their monopolistic practices and profit from the unlawful restraints of trade which they had inflicted on competitors. Such a course would make enforcement of the Act a futile thing unless perchance the United States moved in at the incipient stages of the unlawful project. 156 Schine Chain Theatres, Inc., supra, 334 U.S. at 128, 68 S.Ct. at 957. An unlawful monopolist must be deprived of the fruits of its wrongful conduct, Id. at 129, and one of the forbidden fruits is an excessive price. In Grinnell, Judge Wyzanski also used the biological metaphor: § 2 requires the rooting out of a plant . . . (that) represents an ultimate growth from seeds which have been declared unlawful. 236 F.Supp. at 258. So long as a monopolist enjoys the flower of evil, Id., at the expense of its customers, those victims must have a remedy. 157 We hold, therefore, that a purchaser suing a monopolist for overcharges paid within the previous four years may satisfy the conduct prerequisite to recovery by pointing to anticompetitive actions taken before the limitations period. It should not be inferred that this ruling grants antitrust plaintiffs a license to embark on a search for Ichthyosauria that is, on a time-warped fishing expedition. A trial court in its discretion may always set a reasonable cut-off date, evidence before which point is to be considered too remote to have sufficient probative value to justify burdening the record with it. Continental Ore Co., supra, 370 U.S. at 710, 82 S.Ct. at 1416. Moreover, the trial court might not be without flexibility to limit the proof where delay in bringing suit may have caused injustice to the defendants. See 3 P. Areeda & D. Turner, Supra, at 93.
158 Assuming that a purchaser establishes a monopolist's liability to it for an unlawful price, two potential rules of damages come into view. Judge Frankel apparently stated, and in any event the jury clearly acted upon, what may be called the competitive price theory that a purchaser may recover for the entire excess of the monopolist's price over that which would prevail in a competitive market. We believe that this was error, and that the true measure of damages, which we shall refer to as the wrongful conduct rule, is the price increment caused by the anticompetitive conduct that originated or augmented the monopolist's control over the market. 159 There is a dearth of cases on point. Indeed, the only citation in Judge Frankel's discussion of this point is to a rather vague Dictum in Alcoa. The reason for this lack of authority is that in most successful monopolization suits brought by purchasers the § 2 violation was merely a consequence of a § 1 offense that provided the rule of damages. Often, for example, the § 2 violation consists of a price-fixing conspiracy among firms controlling a large share of the market. The measure of the damages to one of the conspirators' customers is the difference between the price actually paid and the one at which the product would have sold absent the conspiracy. E. g., Reiter v. Sonotone Corp., --- U.S. ----, ----, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979); Chattanooga Foundry & Pipe Works v. City of Atlanta, 203 U.S. 390, 396 (1906). In such a case, the monopoly price is entirely attributable to the anticompetitive conduct. The two alternative rules of § 2 damages therefore merge and it is impossible to tell which would apply if the monopoly power, and hence the excessive price, resulted only in part from wrongful conduct. 56 160 Without any clear precedent to guide us, we must determine the proper measure of damages in a § 2 case by juxtaposing the basic rule for antitrust damages with the fundamental principles of law under § 2 that we outlined earlier in this opinion. The basic rule was set forth in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), where the Supreme Court declared that plaintiffs in an antitrust action must prove injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. It is true, as we have previously indicated, that excessive prices are injury of the type the antitrust laws were intended to prevent. See Part II.A Supra. It is equally evident, however, that more than monopoly power is necessary to make the charging of a noncompetitive price unlawful. Accordingly, a purchaser may recover only for the price increment that flows from the distortion of the market caused by the monopolist's anticompetitive conduct. 161 Were the law otherwise, it would establish an unnecessary and unwarranted trigger mechanism. See 3 P. Areeda & D. Turner, Supra, at 86-87. A pristine monopolist, we have held, may charge as high a rate as the market will bear. But under the competitive price rule, if it committed any anticompetitive conduct beyond a De minimis Level it would suddenly be held liable for threefold the entire excess of its price over a competitive price. In effect, instead of being required simply to compensate its customers for the consequences of its wrongful action, it would be required to forfeit its legitimately acquired advantage. But the Sherman Act does, as we have said, tolerate the lawfully acquired and maintained monopoly. This principle would be undercut if a monopolist whose position has for the most part been attained legitimately is required to forfeit all fruits of its success because its power has merely been supplemented by improper conduct. 57 162 We recognize that if the monopolist, but for its illegitimate actions, would have had little or no market power, the wrongful conduct and competitive price rules may yield very similar results. The proper standard, though, is one that bases damages on the monopolist's actual record of misconduct. 58
163 The two issues we have discussed above establish the framework for a purchaser's action under § 2 of the Sherman Act. We believe this structure is not only compelled by law but sensible as well. The wrongful conduct rule indicates that a purchaser can recover for an overcharge paid to a violator of § 2 only to the extent that the price he paid exceeds that which would have been charged in the absence of anticompetitive action. An intermediate step in the analysis may be an attempt to estimate what the monopolist's market share would likely have been but for the illegitimate conduct; it would then be possible to gauge approximately what price the defendant would have been able to charge with that degree of market control. In any event, courts applying this rule must be aware of the practical limits of the burden of proof that may be demanded of treble damage plaintiffs. See Zenith Radio Corp., supra, 395 U.S. at 123, 91 S.Ct. 795; Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264-65, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Story Parchment Co., supra, 282 U.S. at 563, 51 S.Ct. 248. 164 It may, of course, be difficult for a purchaser to demonstrate that conduct occurring many years before the commencement of suit contributed to an overcharge that it paid within the limitations period. That, however, is no reason for denying it the opportunity to do so. The treble damage provision, 15 U.S.C. § 15, was intended in large part as an inducement to encourage potential plaintiffs to endure the considerable expense and labor of seeking recovery against violators of the antitrust laws. E. g., Reiter, supra, --- U.S. at ----, 99 S.Ct. 2326. 165 It is clear from our holdings that we believe both the film and color paper claims must be remanded for retrial. Judge Frankel upheld the film award for the entire excess of Kodak's prices over a hypothetical competitive price, although the only two examples of post-1969 conduct that he believed were wrongful could not have had a very large impact on Kodak's film prices. The verdict therefore cannot stand, but Berkey has a right to establish at a new trial that anticompetitive conduct, both before and after 1969, enhanced the price it paid for Kodak film. 166 Similarly, the judgment for Kodak on the color paper claim must be vacated. Judge Frankel did not allow the jury to consider pre-1969 conduct as a foundation for the verdict despite the concession by Kodak's own economic expert, to be discussed later, that the company's unlawful activities in years past may still have had a bearing on its power in the photographic paper market. Because Judge Frankel erred by instructing the jury on the competitive price theory of damages, however, we could not simply reinstate the large color paper award, even if we were to hold that the jury may validly have found that Kodak committed anticompetitive conduct in that market since 1969. 167 We have no occasion to consider the parties' arguments concerning the numerous other Kodak activities that, Berkey contends, were anticompetitive. Because of the general form of the verdicts, we have no way of knowing what the jury's findings were on these matters or which actions were believed to be anticompetitive. Nor do we know what the findings will be on retrial, if this litigation should continue. Indeed, now that we have set forth the broad outlines of principles in this area we earnestly hope that able counsel on both sides will find a way to dispose of this mammoth lawsuit without consuming more court time or incurring more legal expenses. If so, it will not be necessary to resolve any of the lesser questions. If not, there will be no need to retry the issue of monopoly power. Judge Frankel's instruction on this point appears to have been essentially correct, and there was clear evidence supporting the jury's implicit finding that Kodak held such power in the film and color paper markets.