Opinion ID: 368855
Heading Depth: 3
Heading Rank: 2

Heading: Photofinishing and Photofinishing Equipment Markets

Text: 122 The introduction of the 110 system provided the foundation not only for the enormous camera award but also for the much smaller damage items $55,700 and.$19,000, respectively, before trebling allotted for lost photofinishing profits and for overcharges on photofinishing equipment. These verdicts, moreover, were the basis for the only injunctive relief decreed below. We reverse and remand for a new trial so much of the judgment as was based on damages for the photofinishing and equipment claims, and we vacate and remand the equitable decree for further consideration in light of the principles set forth in this opinion.
123 Berkey's damages claims here are based on the fact that Kodacolor II, introduced along with the 110 camera, required the new, high-temperature C-41 finishing process instead of the C-22 process used for Kodacolor X and similar films. Thus independent photofinishers could not offer processing service for Kodacolor II the only color print film Kodak ever offered in the 110 size until they bought new equipment and received instruction in and supplies for C-41 processing. Moreover, Kodak did not give advance warning to the independents that the new film would be introduced, nor did it predisclose the C-41 process to other makers of photofinishing equipment. Accordingly, CP&P was able to begin processing Kodacolor II several weeks before its competitors. 124 Furthermore, it is urged that Berkey faced greater expense in finishing Kodacolor II than did CP&P, because Kodak refused to divulge the formulae for chemicals used in the C-41 process. Large photofinishers like Berkey preferred to buy these compounds from chemical suppliers in bulk, both to save money and to gain flexibility. But to be able to process Kodacolor II, they were forced to buy pre-mixed kits from Kodak at twice the price. Kodak, meanwhile, provided all but one of the CP&P plants with bulk chemicals. 46 And, because for some time Kodak was the only manufacturer of machinery capable of processing the new film, the independent photofinishers were required to purchase this equipment in order to proceed at all. The jury found that Kodak's prices were excessive and almost certainly found also that the equipment Kodak sold to the independents was vastly inferior to its product for CP&P. 125 Because of its early jump and greater efficiency in the C-41 process, CP&P gained a disproportionately high share of 110 finishing, an effect Berkey contends lasted through the end of 1973. There was clear evidence that Kodak was aware of the impact its conduct would have on the business of its photofinishing rivals. One Kodak marketing officer urged introduction of Kodacolor II along with the 110 cameras in part to compel the independent photofinishers to buy Kodak C-41 equipment, 47 and Kodak engineers realized that the machinery their firm planned to sell would not allow independents to do more than limp through the C-22 to P-118 transition stage. Not surprisingly, one Kodak scientist noted early in the development of the 110 system that the new process would raise hell in the photofinishing business without benefit to the consumer. 48 And, shortly after Kodacolor II came to market, a worried Kodak employee predicted that CP&P's announcement of its early readiness to process the new film would cause some photofinishing reaction due to the fact that we are using 110 to gain business over their operations. 126 Kodak's conduct with respect to the independent photofinishers perhaps may be criticized as shoddy treatment of firms providing an essential service for Kodak products. Indeed, largely for that reason a number of Kodak employees urged that photofinishers and equipment manufacturers be given advance warning of the C-41 process. The purpose of the Sherman Act, however, is not to maintain friendly business relations among firms in the same industry nor was it designed to keep these firms happy and gleeful. See Kestenbaum v. Falstaff Brewing Corp., 575 F.2d 564 (5th Cir. 1978). Moreover, it is clear that Kodak did not monopolize or attempt to monopolize the photofinishing or equipment markets. 49 Thus, it is not liable under § 2 for the actions described above unless it gained a competitive advantage in these markets by use of the monopoly power it possessed in other segments of the industry. 127 It bears emphasis that only the wielding of power will support recovery in this context; advantages inuring to Kodak's photofinishing and equipment arms by virtue of membership in an integrated firm will not. As we suggested earlier, a use of monopoly power is an action that a firm would have found substantially less effective, or even counterproductive, if it lacked market control. Thus, the classic example of such a use is a refusal to deal in goods or services needed by a competitor in a second market. E. g., Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684 (1927). But, a firm without control of the market that attempts this will simply drive the purchaser to take its patronage elsewhere. 128 Similarly, suppose that Kodak was aware that most consumers would prefer Kodacolor X but nevertheless decided to replace it by Kodacolor II, hoping thereby to place competing photofinishers at a disadvantage. A small film manufacturer attempting this tactic would find it ineffective and self-destructive the slack in C-22 films would be filled by other firms, and consumers would have no reason to buy a film they did not like. Kodak, by contrast, would face a far different calculus: consumers desiring film would have little choice but to buy Kodacolor II and would thereby ineluctably strengthen CP&P's hand in photofinishing. 129 It is not clear, however, whether in bringing forth the 110 system Kodak did anything that a smaller firm with integrated capabilities but no market control might not have done. 50 Kodak did not use its power to shift the entire photofinishing market from C-22 to the C-41 process, for Kodacolor II was introduced only in the 110 size and at first represented a minuscule percentage of all color print photofinishing. Indeed, the film was not marketed in other formats until eighteen months later, long after the original surprise had worn off. 51 In sum, Kodak's ability to gain a rapidly diminishing competitive advantage with the introduction of the 110 system may have been attributable to its innovation of a new system of photography, and not to its monopoly power. On the other hand, we cannot dismiss the possibility that Kodak's monopoly power in other markets was at least a partial root of its ability to gain an advantage over its photofinishing competitors and to sell them overpriced equipment. For example, it may be that, had Kodak possessed only a small portion of the film market, other manufacturers would have found it more feasible to bring out their C-22 films in the 110 size. CP&P would then have had no competitive advantage for a large percentage of 110 photofinishing. Moreover, absent a Kodak film monopoly, the independent photofinishers might not have felt an urgent need to buy expensive equipment for the C-41 process. 52 130 We cannot resolve this ambiguity. The instructions to the jury did not draw with sufficient sharpness the distinction between exercises of power and the natural benefits of size and integration. Nor is the record so clear that we can say with certainty on which side of this demarcation the facts fall. The parties quite naturally gave relatively little attention to this aspect of the case, in light of the comparatively small sums involved. If the parties wish to pursue these claims to a final determination, therefore, a new trial will be necessary.
131 Although Berkey's claim for damages in the photofinishing market was limited to the events surrounding the 110 introduction, the plaintiff also made extensive allegations that Kodak had used its control over other markets to disadvantage photofinishing competitors. For example, Berkey complained about Kodak's policy, evidently discontinued after the commencement of this suit, in the sale of color paper. The emulsions on each production run of paper are slightly different, yielding a variance of color characteristics. Because tests and machinery adjustments are necessary each time a roll of paper from a new emulsion run is used, large photofinishers like Berkey naturally wish to buy as many rolls as possible from a single run. Kodak, however, refused to sell more than 400 rolls from any one run to each photofinisher. Given Kodak's monopoly power in color paper, this refusal to deal would, unless justified by a valid business reason, appear to violate § 2 and form the basis for a grant of equitable relief. 132 Citing several examples of what he considered to be uses of Kodak's spectrum of monopoly powers as a lever in the photofinishing field, Judge Frankel issued a wide-ranging decree that requires the defendant, as he explained, to treat all photofinishers, including CP&P, alike in relevant respects. Accordingly, any technical information made available by any other branch of Kodak to CP&P must also be offered promptly on the payment of a $200 annual fee to cover postage, printing, and handling to all domestic firms providing amateur photofinishing services. 133 It is evident from our discussion, however, that this decree forecloses not only the use of monopoly power but the legitimate benefits of integration as well. Although an injunction need not be limited to prohibiting repetition of past misconduct, it does not lie within the discretion of the trial judge to restructure a market that Kodak has neither monopolized nor attempted to monopolize. Cf. Schine Chain Theatres, Inc.,supra, 334 U.S. 125-30, 68 S.Ct. 947; Paramount Pictures, Inc., supra,334 U.S. at 166-75, 68 S.Ct. 915. This portion of the judgment must therefore be vacated. On remand the district court may consider whether a narrower decree, limited to the prevention of uses of monopoly power, may be appropriate. In this regard, the court should consider to what extent the erosion of Kodak's share in the camera and color paper markets lessens the need for injunctive relief. 134 The decree also mandated the sale of color paper without a Kodak backprint, at the option of the purchaser. Judge Frankel indicated that Kodak's insistence on placing its backprint on the paper was, or could be found to be, a device to force Kodak's photofinishing rivals to advertise their competition. Judge Frankel did not expressly consider whether his prohibition was a justifiable curtailment of Kodak's trademark rights. Whatever the merits of such a decree may be in the abstract and the judge himself indicated at one point that its primary impact would be to benefit Kodak's color paper competitors 53 the need for its is nullified by Judge Frankel's own observation that Berkey's purchases of Kodak paper fell in 1977 to 7% Of its requirements. We therefore direct that the backprint relief be eliminated from any decree to be entered on remand.