Opinion ID: 1303239
Heading Depth: 1
Heading Rank: 7

Heading: Unlawful Nature of Arrangement

Text: Not unlike § 59-801, the Sherman Antitrust Act provides: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. 15 U.S.C. § 1 (1988). Section 2 of the act, much like § 59-802, declares: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.... 15 U.S.C. § 2. A tying arrangement violates § 1 of the Sherman Antitrust Act if the seller has `appreciable economic power' in the tying product market and if the arrangement affects a substantial volume of commerce in the tied market. Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451,___, 112 S.Ct. 2072, 2079, 119 L.Ed.2d 265 (1992). See Fortner Enterprises v. U.S. Steel, 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969), appeal after remand, 452 F.2d 1095 (6th Cir.1971), cert. denied, 406 U.S. 919, 92 S.Ct. 1773, 32 L.Ed.2d 119 (1972). Therefore, a plaintiff alleging an unlawful tying arrangement must produce some evidence of the following elements: (1) the existence of two distinct products or services; (2) sufficient economic power on the part of the defendant in the tying market to appreciably restrain competition in the tied product market, combined with the exercise of such power to coerce the purchaser to buy both items; and (3) that the amount of commerce affected is not insubstantial. See Eastman Kodak Co., supra . (It should perhaps be noted at this point that although the U.S. Supreme Court has approved several elements of this test, it has never articulated a complete test of its own. The circuit courts have assembled their tests from various statements contained in different Supreme Court opinions. These courts have developed a five-part test; however, some circuits combine some of the elements to consider a three-part test. In operation, the tests are virtually identical in that both require that (1) there must be separate tying and tied products, (2) there must be evidence of actual coercion by the seller that in fact forced the buyer to accept the tied product, (3) the seller must possess sufficient economic power in the tying product market to coerce purchaser acceptance of the tied product, (4) there must be anticompetitive effects in the tied market, and (5) there must be involvement of a not insubstantial amount of interstate commerce in the tied product market. Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice § 10.1 (1994).) The recent case of Eastman Kodak Co., supra, in which the U.S. Supreme Court affirmed the reversal of a summary judgment to Eastman Kodak, provides helpful insight as to the analysis to be used here. The record therein established that Eastman Kodak manufactured and sold high-volume photocopiers and also sold replacement parts and service for its equipment, some of which were produced by Eastman Kodak and others of which were made by outside fabricators. Eastman Kodak parts were not interchangeable with parts made by other copying equipment manufacturers. In the early 1980's, independent service organizations began servicing Eastman Kodak equipment. Eastman Kodak did not sell a complete system of machines, lifetime service, and lifetime parts for a single price. Instead, it provided service after the initial warranty period either on a per-call basis or through annual service contracts which included all necessary parts. Eastman Kodak negotiated different prices with its customers and provided 80 to 95 percent of the service required by its machines. Some of the independents' customers purchased their own parts and hired the independents for service only. Others chose the independents to supply both parts and service. The independents kept an inventory of parts which they purchased from Eastman Kodak, outside manufacturers of original Eastman Kodak equipment, parts brokers, or Eastman Kodak customers. In other instances, the independents stripped used Eastman Kodak equipment for parts. Eastman Kodak later implemented a policy of selling replacement parts for its machines only to buyers of its equipment who either repaired their own machines or used Eastman Kodak service. In addition, Eastman Kodak sought to limit the independents' access to other sources of its parts. Eastman Kodak and the outside fabricators of its original equipment agreed that the latter would not sell parts that fit Eastman Kodak equipment to anyone other than Eastman Kodak. Eastman Kodak also pressured its equipment owners and parts brokers not to sell Eastman Kodak parts to the independents. In addition, Eastman Kodak took steps to restrict the availability of its used machines. As a result, the independents sued Eastman Kodak, alleging that it had, among other things, unlawfully tied the sale of service for its machines to the sale of parts, in violation of § 1 of the Sherman Antitrust Act, and had unlawfully monopolized and attempted to monopolize the sale of parts and service for such machines, in violation of § 2 of the act. With Eastman Kodak Co. in mind, we turn our attention to the three elements of an unlawful tying arrangement set forth earlier. First, service and parts must be such that they can be considered to be two distinct products. In order to be such, there must be sufficient consumer demand that it is feasible for a seller to provide one separately from the other. Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984). The Eastman Kodak Co. Court concluded that because service and parts had been sold separately to self-service owners, the two were separate and distinct products. Here, Heath sold service and parts separately to its end users. In addition, Heath testified that others compete with Heath to repair its equipment, a matter further illustrated by the fact the Michigan repair service has access to Heath parts notwithstanding that it is not an end user. Thus, the record reasonably raises an inference that Heath service and parts are two distinct products. Second, Heath must be shown to have sufficient economic power over parts and repairs as to appreciably restrain competition in that market and be shown to have exercised that power so as to coerce purchasers to buy both items from it. Appreciable economic power in the tying market concerns market power, which is the power to force a purchaser to do something that he would not do in a competitive market. Jefferson Parish Hospital Dist. No. 2, 466 U.S. at 14, 104 S.Ct. at 1559. Market power is `the ability of a single seller to raise price and restrict output.' Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451,___, 112 S.Ct. 2072, 2081, 119 L.Ed.2d 265 (1992). Accord Fortner Enterprises v. U.S. Steel, 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969), appeal after remand, 452 F.2d 1095 (6th Cir.1971), cert. denied, 406 U.S. 919, 92 S.Ct. 1773, 32 L.Ed.2d 119 (1972). The existence of such power ordinarily is inferred from the seller's possession of a predominant share of the market. Jefferson Parish Hospital Dist. No. 2, supra . The evidence is that Heath is the only manufacturer of Heath parts. While there is evidence that some of these parts may be replicated through the configuration of generic parts, some repair work cannot be accomplished without buying Heath assemblies, and the record demonstrates that Heath has exercised its power so as to coerce its end users to purchase Heath service. Moreover, the Eastman Kodak Co. Court concluded it was not significant that there are other makers of photocopying equipment. There is no immutable physical law, no basic economic reality, insisting that competition in the equipment market cannot coexist with market power in the aftermarkets. Eastman Kodak Co., supra . Therefore, competition in Heath's primary or equipment market does not mean that it lacks market power in the parts and service aftermarket. Consequently, the record supports an inference that the second element of an unlawful tying arrangement existed. Third, the amount of commerce affected must not be insubstantial. Tie-ins are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a not insubstantial amount of interstate commerce is affected. Northern Pac. R. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). In Fortner Enterprises, supra, the U.S. Supreme Court stated that the relevant figure is the total volume of sales tied by the sales policy under challenge, that is, the total amount of sales by all parties affected by the sales policy and not just the portion of the total sales accounted for by the particular plaintiff. Given the extent of Heath's operation, it cannot be said as a matter of law that the record does not raise at least an inference that a substantial amount of commerce is involved.