Opinion ID: 368855
Heading Depth: 2
Heading Rank: 1

Heading: the amateur photographic industry

Text: 8 Before plunging into the welter of issues raised in this appeal, we must understand the industry out of which the litigation arose. It is, of course, a basic principle in the law of monopolization that the first step in a court's analysis must be a definition of the relevant markets. See, e. g., United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 391-93, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). Although Kodak does not now challenge the jury's delineation of the markets, a survey of this terrain remains essential. The jury found monopolization or other anticompetitive conduct in no fewer than five distinct markets within the amateur photographic industry, and in several instances Kodak was held to have misused its control over one market to disadvantage rivals in another. Accordingly, to evaluate the verdicts, it is necessary to describe not only the individual markets but also the interrelationships among them. 9 The principal markets relevant here, each nationwide in scope, are amateur conventional still cameras, conventional photographic film, photofinishing services, photofinishing equipment, and color print paper. The numerous technological interactions among the products and services constituting these markets are manifest. To take an obvious example, not only are both camera and film required to produce a snapshot, but the two must be in compatible formats. This means that the film must be cut to the right size and spooled in a roll or cartridge that will fit the camera mechanism. Berkey charges that Kodak refused to supply on economical terms film usable with camera formats designed by other manufacturers, thereby exploiting its film monopoly to obstruct its rivals in the camera market. Similarly, Berkey contends, since the emulsions and other constituents of a film determine the chemicals and processes required to develop it, Kodak was able to project its power over film into the photofinishing market as well. 10 These and other market interactions will be discussed in depth as we analyze the verdicts and rulings below. First, however, we must describe in detail the individual markets themselves.
11 The amateur conventional still camera market now consists almost entirely of the so-called 110 and 126 instant-loading cameras. These are the direct descendants of the popular box cameras, the best-known of which was Kodak's so-called Brownie. Small, simple, and relatively inexpensive, cameras of this type are designed for the mass market rather than for the serious photographer. 2 12 Kodak has long been the dominant firm in the market thus defined. Between 1954 and 1973 it never enjoyed less than 61% Of the annual unit sales, nor less than 64% Of the dollar volume, and in the peak year of 1964, Kodak cameras accounted for 90% Of market revenues. Much of this success is no doubt due to the firm's history of innovation. In 1963 Kodak first marketed the 126 Instamatic instant-loading camera, 3 and in 1972 it came out with the much smaller 110 Pocket Instamatic. Not only are these cameras small and light, but they employ film packaged in cartridges that can simply be dropped in the back of the camera, thus obviating the need to load and position a roll manually. Their introduction triggered successive revolutions in the industry. Annual amateur still camera sales in the United States averaged 3.9 million units between 1954 and 1963, with little annual variation. In the first full year after Kodak's introduction of the 126, industry sales leaped 22%, and they took an even larger quantum jump when the 110 came to market. Other camera manufacturers, including Berkey, copied both these inventions but for several months after each introduction anyone desiring to purchase a camera in the new format was perforce remitted to Kodak. 13 Berkey has been a camera manufacturer since its 1966 acquisition of the Keystone Camera Company, a producer of movie cameras and equipment. 4 In 1968 Berkey began to sell amateur still cameras made by other firms, and the following year the Keystone Division commenced manufacturing such cameras itself. From 1970 to 1977, Berkey accounted for 8.2% Of the sales in the camera market in the United States, 5 reaching a peak of 10.2% In 1976. In 1978, Berkey sold its camera division and thus abandoned this market.
14 The relevant market for photographic film comprises color print, color slide, color movie, and black-and-white film. 6 Kodak's grip on this market is even stronger than its hold on cameras. Since 1952, its annual sales have always exceeded 82% Of the nationwide volume on a unit basis, and 88% In revenues. Foreign competition has recently made some inroads into Kodak's monopoly, but the Rochester firm concedes that it dominated film sales throughout the period relevant to this case. Indeed, in his summation, Kodak's trial counsel told the jury that the film market . . . has been a market where there has not been price competition and where Kodak has been able to price its products pretty much without regard to the products of competitors. 15 Kodak's monopoly in the film market is particularly important to this case, because the jury accepted Berkey's contention, noted above, that it had been used to disadvantage rivals in cameras, photofinishing, photofinishing equipment, and other markets. Of special relevance to this finding is the color print film segment of the industry, which Kodak has dominated since it introduced Kodacolor, the first amateur color print film, in 1942. 7 In 1963, when Kodak announced the 126 Instamatic camera, it also brought out a new, faster color print film Kodacolor X which was initially available to amateur photographers only in the 126 format. 8 Nine years later, Kodak repeated this pattern with the simultaneous introduction of the 110 Pocket Instamatic and Kodacolor II film. For more than a year, Kodacolor II was made only for 110 cameras, and Kodak has never made any other color print film in the 110 size. 16
17 Before 1954, Kodak's Color Print and Processing Laboratories (CP&P) had a nearly absolute monopoly of color photofinishing maintained by a variety of practices. Accounting for over 95% Of color film sales, Kodak sold every roll with an advance charge for processing included. Consumers had little choice but to purchase Kodak film, and in so doing they acquired the right to have that film developed and printed by CP&P at no further charge. Since few customers would duplicate their costs to procure the services of a non-Kodak photofinisher, Kodak was able to parlay its film monopoly to achieve equivalent market power in photofinishing. 9 18 This film/processing tie-in attracted the attention of the Justice Department, and in 1954 a consent decree changed the structure of the color photofinishing market drastically. Kodak was forbidden to link photofinishing to film sales, and it agreed to make its processing technology, chemicals, and paper available to rivals at reasonable rates. As a result, CP&P's share of the market plummeted from 96% In 1954 to 69% Two years later, and it has declined sharply ever since. In 1970, CP&P accounted for but 17% Of the market, and by 1976 its share reached a low of 10%. There are now approximately 600 independent photofinishers in the United States. 19 Berkey is one of the largest of these processors. It has been a photofinisher since 1933, but until 1954 its principal business was developing and printing black-and-white film. 10 In addition, Berkey purchased Kodak black-and-white film, which was sold without a processing tie-in, for resale to its photofinishing customers. After the 1954 decree, Berkey applied to Kodak for the appropriate licenses and in 1956 began to process significant amounts of color film. It now finishes more 126 and 110 color print film than does Kodak. 20 A variety of equipment is used to process film, and the Kodak Apparatus Division (KAD) designs and produces most of the machinery used by CP&P. Kodak also sells some equipment to other photofinishers, but this is an insignificant portion of its business; indeed, until the introduction of the 110 system, Kodak made still film processing equipment for its own use only. Several other firms supply photofinishing equipment to the rival processors, and Berkey does not contend that Kodak monopolized or attempted to monopolize this market.
21 The market for color paper that is, paper specially treated so that images from color film may be printed on it effectively came into being after entry of the 1954 consent decree. Before then, Kodak was for all practical purposes the only color photofinisher, and its requirements for color paper were met entirely by the paper division of Kodak Park Works in Rochester. The remaining processors, who dealt with non-Kodak color film and used non-Kodak paper, occupied only four percent of the color photofinishing market. Consequently, the vertical foreclosure created by CP&P's lock on photofinishing and its exclusive use of Kodak color paper was virtually complete. 22 Although the 1954 decree steadily loosened Kodak's grip in photofinishing, it did not immediately affect the firm's control of color paper. For more than a decade, the independent photofinishers that sprang up after the decree was entered looked only to Kodak for their paper supplies. Indeed, although entry by both foreign and domestic paper manufacturers has reduced Kodak's share substantially, to a low of 60% In 1976, the firm's color paper operations have remained remarkably profitable. Between 1968 and 1975, while its market share was falling from 94% To 67%, Kodak's earnings from operations as a percentage of sales remained virtually constant, averaging 60% For the period. Moreover, the most recent telling event in the market has not been entry but exit: GAF Corporation announced in 1977 that it was abandoning its effort to sell color paper, leaving Kodak with only one domestic and two foreign competitors. 23 Kodak, then, is indeed a titan in its field, and accordingly has almost inevitably invited attack under § 2 of the Sherman Act. Few, if any, cases have presented so many diverse and difficult problems of § 2 analysis. It is appropriate, therefore, to elucidate some fundamental principles of law relating to that statutory provision.