EASTMAN KODAK CO. v. IMAGE TECHNICAL SERVICES, INC.
Legal provision: Federal Rules of Civil Procedure, including Appellate Procedure (or relevant rules of a circuit court)
Argument of Donn P. Pickett
Chief Justice Rehnquist: We'll hear argument now in No. 90-1029, the Eastman Kodak Company v. Image Technical Services, Inc.--
Mr. Pickett: Mr. Chief Justice, and may it please the Court:
Kodak's lack of market power is central to the resolution of this case.
Kodak lacks market power because interbrand equipment competition disciplines Kodak's conduct in the derivative after-markets for parts and service.
Without evidence of market power, respondent's claims fail, and Kodak has no duty to sell them parts.
Kodak's copiers and micrographics equipment, like most durable goods, require regular service and maintenance.
Kodak chose to provide this service itself, through an in-house service organization, subject to uniform training, practices, and procedures.
Kodak did not have to choose this course.
It could have used independent service outlets, as many manufacturers do.
But in deciding what would work best in highly competitive interbrand markets, Kodak chose an equipment marketing strategy that would stress the highest-quality service available in the industry.
And to make good on that promise, Kodak invested in the best in-house service organization it could develop.
Kodak saw the rise of independent service organizations as a threat to its interbrand equipment marketing strategy and to the investments which had been made to support it.
So when ISO's demanded that Kodak provide them with parts, tools, service manuals, diagnostic equipment, which would be used solely to provide service in competition with Kodak, Kodak said no.
It said what any competitor, in a competitive market, ought to be able to say to another competitor.
Unknown Speaker: Mr. Pickett, may I ask a question?
I'm unclear about these things that the respondents wanted to buy from Kodak.
Are they things manufactured by Kodak, or does Kodak, in turn, buy these things from other suppliers?
Mr. Pickett: In the great majority of instances, they are things that are manufactured by Kodak.
In some small percentage of times, there are other equipment manufacturers who will manufacture a part for Kodak to be used in a copier, or in a component of a micrographics system.
Unknown Speaker: So the only source of supply would have to be from Kodak, if the respondents were to buy these parts?
Mr. Pickett: Well, unless they made them themselves, or unless they disassembled used equipment, or unless they sought other sources.
But the lack of market power that Kodak has, does not come from the source... availability of sources to ISO's; it comes from the interbrand competition and the effects.
Unknown Speaker: Mr. Pickett, I had thought when we took this case, that the absence of market power in the equipment market was a given.
But apparently it's not.
Mr. Pickett: --It is a given, Your Honor, absolutely.
This was never challenged, even in the petitions for certiorari, from the very first--
Unknown Speaker: Am I mistaken that it's challenged in the briefs here?
Mr. Pickett: --It is for the very first time in the briefs on the merit.
But the fact is the evidence in the district court, which, of course, controls the resolution in this case, was only evidence put in by Kodak.
It was un-rebutted with a single iota of evidence by respondents.
And even on a de novo review, there is absolutely no reading of that evidence.
These are the declarations of Mr. Lacy and Mr. Murray, that one could conclude interbrand equipment competition does not exist.
Unknown Speaker: What about the response to the petition for cert?
Was there a challenge to the--
Mr. Pickett: No, none whatsoever in the response to the petition for cert.--
Unknown Speaker: --Because your question does... your question presented in the petition is does a vertically integrated equipment manufacturer that lacks market power in fiercely competitive interbrand competition violate Sherman Act, et cetera, et cetera.
Mr. Pickett: --And that--
Unknown Speaker: So I had assumed that that's what we were going to talk about today.
Mr. Pickett: --Absolutely, and that is what I will talk about today.
That was not challenged at all in the response to the petition for cert.--
Unknown Speaker: Mr. Pickett, may I just go back to an issue of fact in your earlier answer?
Is the actual manufacturing of the parts done primarily by Kodak or primarily by independents?
Mr. Pickett: --Primarily by Kodak.
Unknown Speaker: What's the relative share?
Do you know?
Mr. Pickett: The relative share is something on the order of 75 percent by Kodak.
Kodak said to these ISO's--
Unknown Speaker: Was that in the record?
Mr. Pickett: --That is in the record in the declarations provided by Kodak in the summary judgment.
Kodak said to the ISO's what any competitor ought to be able to say: we will not help you, help yourself.
Compete with us if you will, but by making the same investments and taking the same risks as we have.
This Court has previously recognized, in GTE Sylvania, and again in Sharp Electronics, that interbrand competition is at the core of vertical restraints analysis.
Interbrand competition is the primary concern of the antitrust laws and provides a significant check on intrabrand competition.
Interbrand competition also governs the analysis of this case.
The core of Kodak's motion for summary judgment was its evidence that Kodak faced robust interbrand competition in the markets for copiers and micrographics equipment, from the likes of Xerox, 3M, Bell & Howell, Canon, Minolta, Fuji, and a host of other Japanese manufacturers.
Kodak must conform its conduct to the demands of that robust, interbrand competition.
Unknown Speaker: Mr. Pickett, you're giving us kind of a narrative account of things.
And yet this did come up on a motion for summary judgment, where all disputed facts are to be resolved against you.
Mr. Pickett: Yes, Your Honor.
Unknown Speaker: I hope you'll be careful when you give the narrative account to make sure that you limit yourself to the sort of things you're justified in arguing on this posture.
Mr. Pickett: That's right, Mr. Chief Justice.
Respondents did not even challenge Kodak's evidence on interbrand competition.
Unknown Speaker: Well, so on whom is the burden of proof in that situation in the trial court?
Mr. Pickett: Well, the burden of proof, of course, is on plaintiffs.
And under the Celotex case, the fact that Kodak has presented evidence in its initial motion for summary judgment does place the burden on them to come forward with significant, probative evidence--
Unknown Speaker: Since they... you say they had the burden of proof.
There were affidavits in opposition to them?
Mr. Pickett: --Well, they would have the obligation to put forward those affidavits.
Unknown Speaker: Yes.
Mr. Pickett: They did not do so.
And therefore, they failed to meet their burden.
Unknown Speaker: Do you take the position that it necessarily follows that if there was competition in the equipment market, that there could... the same degree of competition in the parts market?
Mr. Pickett: I'm sorry?
Unknown Speaker: Does your argument about the original equipment market necessarily mean that there's the same amount of competition in the parts market?
Mr. Pickett: It necessarily means that the manufacturer's dominant... the answer is no.
It necessarily means--
Unknown Speaker: So shouldn't we focus our attention on the parts market?
Mr. Pickett: --No, because the interbrand equipment market plays a dominant role on the derivative after-markets for parts and service.
Kodak's... the manufacturer's--
Unknown Speaker: Is that undisputed too?
Mr. Pickett: --That is undisputed, absolutely.
Kodak's dominant incentive in this case, to use the words of Justice Scalia in the Sharp Electronics case, is to sell equipment.
And its dominant incentive--
Unknown Speaker: Well, it also wants to sell parts, doesn't it?
Mr. Pickett: --It wants to sell as much of its total package of goods, and therefore it must price its total package of goods at a competitive price.
Unknown Speaker: Well, I understand that argument.
But are you saying as a matter of law, the fact that there's competition in the... well, you are, I guess... in the original equipment market, means there's an equal amount of competition in the parts market?
Mr. Pickett: No, no.
I'm not saying that.
I'm saying that--
Unknown Speaker: Well, is it conceivable that there could be, say, patented parts, for example, which there could be no competition?
Mr. Pickett: --Certainly there could be patented parts.
But even in the case of a patented part, the competition at the interbrand equipment level would offer those consumers the choices that they want in that market.
And they would choose among the various packages that are offered by the various manufacturers.
Manufacturers have options.
They can choose service by themselves; they can choose service offered by ISO's.
It's those options that can... in the competitive process... will win or fail, as consumers decide.
And as manufacturers like Kodak come up with product offerings of equipment, parts, and service, that are designed in various innovative ways, it's the... it's the manufacturer's freedom to design those particular packages that offers the competitive process to work.
Unknown Speaker: Well, how do we know?
This is a law of nature or a law of economics?
Mr. Pickett: It is certainly a law of economics.
It is also--
Unknown Speaker: Because this case comes up to us after very little discovery.
And it just seems hard for me to, I would imagine, writing an opinion setting forth all the propositions you make, without some factual background to support what I'm... what you're saying.
Your Honor, we put in a fully detailed, factual background, in our motion for summary judgment.
The fact is, that that was not rebutted at all by respondents.
Moreover, as to discovery, Judge Schwarzer told respondents that they should go out and take discovery on the issue of market power, which is what we're arguing about today.
They took extended depositions.
They took complete document discovery.
They went back to Judge Schwarzer and he allowed them more depositions--
--Market power in the equipment sales area or in the parts and service area... or all three?
Mr. Pickett: --All three, they were entitled to.
The fact is, they never sought discovery in the equipment market area.
But it's no... they are not--
Unknown Speaker: I take it, their theory of the case is they don't have to, because there's a separate market for parts and services.
Mr. Pickett: --Well, if one defines a separate market, or attempts to, one has to overlook the connection between interbrand equipment market and the derivative after-market for parts and service.
There's no evidence that could isolate that parts and service market from the activity going on in the equipment market in this case.
Unknown Speaker: Well, there certainly is.
There's evidence... as I understand the record... that there were independent organizations that sold parts and services separately from your company, for a period of time, until you changed your policy.
Isn't that right?
Mr. Pickett: There is evidence that there were some sales of that.
But the important--
Unknown Speaker: And a substantial sales, at a competitive... they were under-cutting your price, weren't they?
Mr. Pickett: --They were under-cutting the price at times.
But the total package price offered by Kodak--
Unknown Speaker: Well, they weren't selling the total package.
They were selling parts and service.
Mr. Pickett: --They were selling... they were selling parts and service, correct.
Unknown Speaker: So they can be... at least conceivably, that's evidence that indicates they can be sold separately from the original equipment, isn't it?
Mr. Pickett: Well, they can be sold separately, Your Honor, But that doesn't mean that they can be sold in isolation from the impact of the interbrand equipment market.
The interbrand equipment market is the one in which the various product offerings of manufacturers are tested.
Kodak chose a vertically integrated distribution system, for example.
It didn't go to retail--
Unknown Speaker: Yes, but before it made that choice, there were these separate competitors out there.
Mr. Pickett: --No, Your Honor, there's no evidence of that.
The record shows that ISO's developed in 1982, at the very earliest.
They chose a vertical--
Unknown Speaker: And when did... when did you adopt the policy at issue in this case?
Mr. Pickett: --For the copier market in 1975, when Kodak introduced copiers, and for micrographics, in 1985... but prospectively.
Unknown Speaker: Well, there's a 3-year period where there was a history of competition.
Mr. Pickett: Yes, but prospectively, for micrographics, so that it didn't apply to the older micrographics equipment.
Unknown Speaker: Well, but I'm just... it was 3 years in one of your products.
Mr. Pickett: Yes, and parts are continued to be sold to ISO's for the micrographics equipment that was in existence at that time.
Kodak chose a vertically integrated distribution system.
It didn't have to.
Other manufacturers use resellers, for example.
Kodak chose a vertically integrated service offering.
It didn't have to.
Other manufacturers chose other ways to do it.
But Kodak's view was that it could provide the best distribution for its products, itself.
And that it could service those products best, itself.
And it stressed the quality of its service in marketing the equipment.
Other manufacturers chose other strategies.
It so happened that Kodak's strategies have worked well.
And Kodak's successful entry, for example, in the copier market, a market dominated by Xerox, was highly procompetitive.
Buyers were given greater choices; competition was enhanced, since Kodak was free to offer its product offering in an innovative way.
Manufacturers should be free to offer their equipment with service options that cover the gamut... from long-term warranties, on the one-hand, included in the initial price, to very low equipment prices, with higher service charges down the road; from service offered by manufacturers, alone, on the one hand, to manufacturers who rely entirely on independent service organizations.
Unknown Speaker: Mr. Pickett, maybe you're right as a matter of policy.
What is... what case do you think supports your position from this Court, most strongly?
Mr. Pickett: The case that most strongly supports our position is Sharp Electronics, Your Honor.
In Sharp Electronics, a price cutter, retailer price cutter, was terminated in part due to the manufacturer's dominant incentive to ensure the provision of service, and customer support at the retail level.
If that can be done in combination with another retailer, surely it can be done by Kodak, itself.
In this case, competition--
Unknown Speaker: As I understand it, Mr. Pickett, your argument is not that... not that people can't enter a separate market and make a go of a business in the parts and service market alone.
Mr. Pickett: --That's correct.
Unknown Speaker: But your point is that you could not monopolize that market without paying the price in your original equipment market, that the two are connected to that extent?
Mr. Pickett: Absolutely.
On this record, raising the price of service and parts to supercompetitive levels, would have the same effect as raising equipment prices.
And Kodak would lose equipment sales, which is its dominant incentive in this marketplace, and on this record.
Unknown Speaker: But wasn't there evidence in the record that Kodak sometimes charged twice as much for its service as ISO's?
Mr. Pickett: There was evidence in the record that Kodak competed with ISO's, yes, for price at various times.
But that's not to say that the fact that Kodak set a particular part of its package... that is service in this instance, at one level, and someone could come in and undercut that, that doesn't mean that the total, competitive return that Kodak receive on equipment, parts, and service, is not at a competitive level.
In fact, in this case, competition works on this record, because Kodak is restrained from charging supercompetitive prices at the service and parts levels.
If it charged supercompetitive prices, it would quickly lose equipment sales; it would quickly be out of business.
Unknown Speaker: Give away the camera to sell the film.
Isn't that the motto that the old Kodak used to use, years--
Mr. Pickett: --Excuse--
Unknown Speaker: --You're saying that they were doing the same here.
That you may have charged a lot for the service; you gave away the machines in order to service them.
And that's where you were making your money.
Mr. Pickett: It's just like that.
It's just like the cheap financing and the expensive homes that were involved in the Fortner case, in which this Court ruled.
And it's just like the razors and blades that are brought up in the Solicitor General's brief.
Unknown Speaker: Doesn't your argument make the assumption that the buyers are all just as well informed about the long-range costs as Eastman is?
Mr. Pickett: Excuse me?
Unknown Speaker: Doesn't your basic argument make the assumption that the buyers are as well informed in the long range about costs... price of costs and service of its equipment as you are?
Mr. Pickett: Yes, and these are very sophisticated buyers--
Unknown Speaker: And why, then, do you... why then, do you allow the most sophisticated customers who are able to service their own equipment to buy the parts, whereas you don't allow the less-sophisticated ones--
Mr. Pickett: --It's self-servicers who are allowed to buy the parts.
They are not necessarily--
Unknown Speaker: --And aren't they presumably the most sophisticated customers?
Mr. Pickett: --No, they are simply the ones who use the most equipment.
Unknown Speaker: But can anybody fix this equipment, or don't you have to have a fairly sophisticated engineering department?
Mr. Pickett: You go through a Kodak training program.
If there are--
Unknown Speaker: Do you give that training program to your customers?
Mr. Pickett: --Yes, absolutely.
And if there are no further questions, I'd like to reserve my remaining time.
Unknown Speaker: Very well, Mr. Pickett.
Mr. Rill, we'll hear now from you.
Argument of James F. Rill
Mr. Rill: Mr. Chief Justice, and may it please the Court:
There are two, central points to the argument of the United States in this case.
First, the ISO claim that Kodak can possess and exploit market power in the parts and service market, when it lacks market power in the equipment market, is implausible, as a matter of antitrust law and economic theory.
Second, when a plaintiff, seeking to avoid summary judgment, attempts to put forward an implausible argument, or argument based on an implausible theory, it is required under rule 56 and under this Court's decision in the Matsushita case, to come forward with particularly persuasive, probative, and substantial evidence in support of a cogent theory of antitrust liability.
Unknown Speaker: You say then that Matsushita, or Matsushita, as you pronounce it, laid down a different rule as to summary judgment for antitrust cases than prevails in the rest of the legal area?
Mr. Rill: No, Mr. Chief Justice, I do not.
The rule for summary judgment is, of course, prescribed in rule 56 of the Federal Rules of Civil Procedure; and in particular, rule 56(e).
Matsushita stands for the proposition that this Court recognized that in antitrust cases, where conduct can be often ambiguous and can permit an inference of procompetitive as well as anticompetitive conduct, it is particularly appropriate to use the vehicle of summary judgment to prevent the deterrence of procompetitive conduct that would result from the threat of costly, time-consuming, antitrust trials, particularly where they proceed on a per se theory.
Unknown Speaker: Well, the court of appeals, as I understand its opinion here, took the position that maybe things wouldn't work out in the real world, so to speak, the same way they do in economic theory.
And while the district court might have been justified in granting summary judgment as a matter of pure economic models, that was not necessarily controlling, so far as summary judgment would be concerned.
Mr. Rill: Yes, Your Honor, it's the position of the United States that the court of appeals erred in reversing summary judgment on the grounds of some generalized... with all respect... speculation with respect to market imperfections that might exist.
When Kodak came forward and set out the point that it was not contested, that it lacked market power in the equipment market, it became incumbent upon the ISO's under rule 56 and under Matsushita, to come forward with specific, substantial, probative evidence that raised a genuine issue as to a cogent theory of antitrust liability.
Unknown Speaker: Mr. Rill, the issue wasn't whether there was competition in the equipment market.
The issue is whether market power in the parts market.
Isn't that correct?
Mr. Rill: Justice Stevens, the answer is yes.
There is an issue as to whether there is market power in the parts market.
The absence of market power in the equipment market, however, makes it implausible... as that term is used in Matsushita... for Kodak to be able to exercise market power in the parts market.
Unknown Speaker: And why is that?
Why is it that... is it conceivable they have market power in the parts market?
How do you define them?
What is your definition of the relevant market in this case?
Mr. Rill: As this case was presented to the court of appeals, and came up upon review before this Court, there's been a concession that the parts market can be a relevant market.
Unknown Speaker: The parts market can?
Mr. Rill: The parts market can be a relevant market, as this case is presented.
However, the absence of market power in the primary market, the equipment market, makes it impossible--
Unknown Speaker: No, not impossible, you said implausible.
Mr. Rill: --Implausible.
I stand corrected.
Unknown Speaker: It's surely not impossible.
Mr. Rill: I stand corrected, Justice Stevens, quite right... implausible for Kodak to exercise market power in the parts market.
Now, it could have argued--
Unknown Speaker: Even if it has market power in the parts market.
Mr. Rill: --It could have argued below... well, no, we're saying it's implausible that it has market power in the parts market--
Unknown Speaker: Oh.
Mr. Rill: --and it could well have argued below, that if it were--
Unknown Speaker: The reason being... why don't you spell out the reason why that is?
That is, because, if it raises its prices too high for servicing and parts, people won't buy Kodak machines.
Mr. Rill: --Well, that's correct, Justice Scalia, because the... the Ninth Circuit acknowledged--
Unknown Speaker: Because they can buy other machines because of the primary market--
Mr. Rill: --The--
Unknown Speaker: --which is competitive.
Mr. Rill: --That's correct, Justice Scalia.
The Ninth Circuit acknowledged at the... that the customers make a parts, equipment, and service price assessment as a package at the time they purchase the equipment.
Unknown Speaker: That all customers do this?
Mr. Rill: The Ninth Circuit acknowledged that customers do it.
The mere fact that the customers--
Unknown Speaker: Well, what if only a few customers did it.
Would that make a difference?
Mr. Rill: --The fact of the matter is there's no claim in this record that Kodak discriminated among customers who made that assessment and did not make that a system... assessment.
Kodak would be required, in the competitive equipment market, to price the total package competitively, or suffer a very severe runoff of equipment sales to its competitors in the equipment market.
Since Kodak needs to sell equipment to sell parts and service, it's going to have to package--
Unknown Speaker: It would, if all the customers are fully informed.
Mr. Rill: --No, no, Justice Stevens, the fact of the matter is that the Ninth Circuit acknowledged that customers made that assessment.
The fact that customers make that assessment requires Kodak to behave competitively in the equipment market.
Unknown Speaker: Did they tell us how many customers make that assessment, how many--
Mr. Rill: There's nothing in the record, Justice Stevens, that tells us that--
Unknown Speaker: --You don't think that's relevant, either, I don't suppose.
Mr. Rill: --as the case is presented to this Court.
The Ninth Circuit acknowledged that customers make that comparison at the time they purchase equipment.
Unknown Speaker: It doesn't have to be all of them, Mr. Rill, does it?
Mr. Rill: --No, it does not.
Unknown Speaker: It's one of the advantages of a free market, that the sophisticated customer helps the unsophisticated, right?
Mr. Rill: That is--
Unknown Speaker: Sharp cheese is very expensive.
My wife calls this the sharp cheese theory.
You can always tell which cheese is sharp.
It's the one that costs more.
Mr. Rill: --My wife and I had a discussion of sharp cheese as well.
Unknown Speaker: --the sophisticated buyers are the one that lead the market.
So you don't have to know whether cheese is sharp or not.
Mr. Rill: Because manufacturers will behave in a manner consistent with the sophisticated buyers' behaving competitively makes it implausible and self-defeating for manufacturers to attempt to exploit the parts and service market, because they're going to behaving... behave competitively--
Unknown Speaker: --Mr. Rill--
--Is that why they left the xxx market?
--there is a certain amount of very theoretical approach to your presentation, that this is the way the market is going to behave, without any real, empirical evidence, it seems to me.
Mr. Rill: --Mr. Chief Justice, the argument proceeds very logically, and very practically from the Hyde decision.
Unknown Speaker: It is... I agree it's very logical.
But I am still not totally persuaded that there wasn't something in what the Ninth Circuit said.
How can we know, at this stage, that this is the way it would work out in practice?
Mr. Rill: Well, if Kodak had attempted to tie service to equipment, clearly that would fall under the Court's decision in the Hyde case, because it lacks market power in the equipment market.
Why should a stricter standard be applied to Kodak when, in fact, it has exercised a less-restrictive policy of tying service to parts?
It needs to sell equipment in order to sell parts and service.
It needs to present a competitively priced package to customers who make comparison, and to behave competitively in the equipment market.
Unknown Speaker: I'm not sure that's consistent with your earlier concession that there's a separate market for parts.
What is it, in your view, that's the bare minimum that these plaintiffs would have had to show to survive summary judgment in this... in this case?
Mr. Rill: Justice Kennedy, they would have had to show a triable issue.
They would have had to show a genuine dispute as to the issue of market power in the equipment market in order to go to trial in this case.
Unknown Speaker: If we disagree with that.
If we say that the parts and the service market are separate markets, as to which a separate standard of competitive conduct is required; then must we reverse?
Mr. Rill: You would then have to still make a determination that market power would have to exist in the equipment market, because in the absence of market power in the equipment market, it is implausible for Kodak to attempt to exercise market power in the parts market, so as to create a service parts tie.
With respect to your market definition question, I will certainly say that this case could have come up, could have come up on the issue of whether parts is a separate, relevant market.
Unknown Speaker: Well, I thought we were proceeding on the assumption... for argument purposes... that there was a separate market in parts?
Mr. Rill: For purposes of the way this case is before the Court now, it's the position of the United States, we're willing to accept a separate market and say that it cannot be exploited in the absence of market power in the equipment market.
Thank you, Mr. Chief Justice.
Unknown Speaker: Thank you, Mr. Rill.
Mr. Hennefer, we will hear from you.
Argument of James A. Hennefer
Mr. Hennefer: Mr. Chief Justice, and may it please the Court:
The questions of the Court and Mr. Pickett and Mr. Rill's response, highlight the fundamental problem with Kodak's case: that is, that there are hotly contested, factually disputed issues which plaintiffs should be allowed to proceed on.
Let's take some of these issues.
The market power in the basic equipment market is hotly debated.
You look just at the admissions, the declarations of Kodak's--
Unknown Speaker: Excuse me, why didn't you debate that in the response to the petition for certiorari?
Because frankly, I was not interested in considering whether there is market power in this primary market.
That's not the question we took this for.
Mr. Hennefer: --Well, because this was one of many factors, and we didn't consider it the most important factor on why the... why power in the basic equipment market does not discipline prices and power in the parts and service markets.
Unknown Speaker: It was the premise of the whole question presented, question number one presented: Does a vertically integrated equipment manufacturer that lacks market power in fiercely competitive interbrand equipment markets violate the Sherman Act by declining to sell replacement parts?
Given that that's the question, it seems to me if you were choosing to contest the question of whether they lack market power or not, you should have done it in your response.
Mr. Hennefer: We didn't feel that this was fundamental to defending the judgment in the Ninth Circuit, as--
Unknown Speaker: Well, maybe it isn't.
Mr. Hennefer: --Yes.
Unknown Speaker: --to listen to whatever other arguments you have, but not to that one.
Oh, and... I thought the Ninth Circuit proceeded on the assumption that there wasn't any issue about the equipment market?
Mr. Hennefer: Well, the Ninth Circuit--
Unknown Speaker: Isn't that right?
Mr. Hennefer: --Yes, it proceeded that there was some market share and some market power.
Unknown Speaker: Well, you didn't make an issue out of it before them, apparently.
Mr. Hennefer: There was an issue, Your Honor, presented in Kodak's own declarations as to whether--
Unknown Speaker: Well, are you defending... are you defending the... the court of appeals' decision and its rationale?
Mr. Hennefer: --Yes, we are arguing that--
Unknown Speaker: Well, you don't need this other argument, then, do you?
Mr. Hennefer: --We don't have to have that argument.
Unknown Speaker: Well, are you with... are you withdrawing any concessions that you've made previously in the case?
Mr. Hennefer: Well, no, we have not made a concession to Kodak.
Unknown Speaker: Or are you contesting issues now that you did not contest earlier?
Mr. Hennefer: --Yes.
Unknown Speaker: The answer is yes?
Mr. Hennefer: --Mr.... yes.
Unknown Speaker: Well, what issues are those that you're contesting now that you didn't contest earlier?
Mr. Hennefer: Well, we did not contest the issue of market power because it was not essential to our case... market power, that is, in the equipment market.
This Court, Chief Justice Rehnquist, however, is entitled to make a de novo review of the record and all facts that are on the record.
Unknown Speaker: But what we're entitled to do may... is one thing.
What we're willing to do may be another.
In our recent change of rules in our opinion of Oklahoma City against Tuttle says if you don't raise... if you don't make an objection in your brief in opposition to... as to why a question raised in a petition for certiorari can't be reached by us, your objections are waived.
Are you familiar with that rule?
Mr. Hennefer: No, I'm not, Your Honor.
Unknown Speaker: Well, next time you have a response here, you probably ought to read it.
Mr. Hennefer: Okay.
Unknown Speaker: I suggest that you not go too heavily into that point, since I think it's waived.
Mr. Hennefer: --Other issues of fact which are hotly contested, and were at the district court as well, are whether parts are manufactured by Kodak or by outside vendors.
Mr. Pickett stated that it was a 75 percent/25 percent ratio.
Our declarations show that it's a 10 percent/90 percent ratio... Kodak manufacturing only 10 percent of the parts.
And as a matter of fact, an interrogatory was asked to Kodak on this, and they refused to answer it.
And the district court refused to allow a motion to compel the answer on that particular issue.
Mr. Pickett stated another factual issue, and that was that Kodak took all service for its equipment in-house.
That is not the case.
That's a hotly contested factual issue.
Unknown Speaker: Well, even if you were correct that somebody other than Kodak makes the parts, then couldn't your clients buy parts from those other people?
Mr. Hennefer: We put evidence on the record, yes, they could, but that we tried to buy those parts.
And the evidence shows that the OEM's said Kodak will not allow us to sell them to you.
Kodak's own documents say that they have instructed these people not to sell them to us.
Unknown Speaker: Well, I thought the district court found there was no conspiracy--
Mr. Hennefer: --The district--
Unknown Speaker: --between Kodak and the suppliers of parts.
Mr. Hennefer: --The district court ignored that evidence, said that that evidence was not admissible evidence, even though in--
Unknown Speaker: But that was the finding, right?
Mr. Hennefer: --Yes, that was the finding.
Unknown Speaker: And you didn't petition for cert on that.
Yet, you want to argue that finding was erroneous.
Mr. Hennefer: No, we contested... we do contest this issue, because we contest that Kodak did not control the parts market.
And control of the parts market, and the ability to control price and people in that marketplace involves a question of whether you can get outside supply sources.
And that issue was clearly raised by us.
Whether there is a parts market, and whether Kodak has power in that parts market, has, as an essential component, whether or not you can get source of supply, as well as whether higher prices will allow you to substitute under the duPont rule of substitutability, whether there's price substitutability or whether there's demand substitutability.
Unknown Speaker: Of course, none of that would matter if Kodak's principal point is correct.
Mr. Hennefer: Yes.
Unknown Speaker: --if you... their principal point is, you know, we're cutting off our nose to spite our face if we try to monopolize the... and exact a monopoly rent in the parts requirement.
Mr. Hennefer: That is--
Unknown Speaker: All of these facts become quite irrelevant.
Mr. Hennefer: --That is correct.
If there's a one-to-one correlation or a close to one-to-one correlation between raising the prices in the equipment market, and... or in the parts market and people not buying equipment, that's correct.
But of course it's our primary contention here, that that kind of a per se rule of immunity should not be accepted.
Unknown Speaker: Well, they're not saying it's a per se rule.
What the argument is about is whether that should be assumed to be the norm, and you have to come up with some evidence on the motion for summary judgment to say why the world is not as it seems; or rather, whether your theory should be the norm, and they would have to come in to show why the world is not as it seems.
Mr. Hennefer: Well, it's more than a norm.
They want to say once a defendant comes up with proof that there is competition in the basic equipment market, then the case is over.
Because you cannot, as a matter of law, then, in the parts or service market, have any market power or dominance of those markets.
Unknown Speaker: I don't understand them to be saying that.
I understand them to be saying only that you have to come up with something to show why this particular market has an imperfection.
For instance, if you could have shown that the purchasers of the parts, and of the service, don't take into account the life... the life cost of equipment plus service... if you could have shown that, I don't think they're contesting that the case couldn't have gone forward.
What they're saying is, you didn't come up with anything that wouldn't... that would give anybody any reason to believe that this market doesn't operate the way a market operates.
Mr. Hennefer: Your Honor, in fact, we did come up with substantial record evidence of this.
It's Kodak who did not come up with any record evidence.
Let me give you a few examples.
We came up with evidence of a purchaser, a copy shop, Mr. Hernandez, who buys photocopy machines and who is aware of the price of service, because he also was giving some outside service... who bought Kodak's machines knowing that they were charging two to three times the price that a private servicer would charge for it.
In that situation, certainly it's hard evidence that a knowing purchaser takes something else into account besides the cost of the parts or service.
Let me give a--
Unknown Speaker: Why... what does that prove?
Mr. Hennefer: --Okay.
Unknown Speaker: He knows that they're charging twice as much for the service, but they're charging half as much for the machine.
Did he say I don't care what the total cost of the machine plus service is?
Mr. Hennefer: If there's no record evidence as to the cost of the machine.
Kodak has not come forward.
Unknown Speaker: Okay, so you didn't come up with something that would show that the market has a lack of information.
Mr. Hennefer: Justice Scalia, in other situations... if I may give a few more examples.
For example, the purchasers of the Federal Government, one group on a capital budget will purchase machines without any regard to how the service for those machines are going to be paid for.
That will then be given to a particular department.
And then that department, on its operating budget, has to pay for those... that service.
Now there's a totally separate situation: one purchaser for the machines, who is not taking into account the cost of service.
How can you say, in this case, there would be a one-to-one correlation?
Unknown Speaker: You show that Kodak had pieced out the market, that it could discriminate among buyers, that it could discriminate among those buyers who did take lifetime value into account and those who didn't--
Mr. Hennefer: Exactly.
Unknown Speaker: --Did you introduce evidence to that effect?
Mr. Hennefer: Yes... yes, we did.
This is Justice Stevens' point, and a very good one.
And that is, that Kodak, where they have very sophisticated buyers like Top Copy in Boston, which have several photocopy machines, would allow them to self-service.
There's a sophisticated buyer who's saying I'd like to buy the machine, but your service is high, so they're allowed to self-service.
And then Kodak did something even more with Top Copy--
Unknown Speaker: Excuse me, only those buyers?
I think your... your brother has contested that.
He said they'd allow all buyers to do that.
Mr. Hennefer: --No... well, any buyer--
Unknown Speaker: Any buyer.
Mr. Hennefer: --any buyer who came to them, sophisticated enough to say I will... I will have my own self-service.
And this self-service is going to be cheaper than Kodak's.
I'd like to buy the machine, but I don't want to pay the high price.
They even offered Top Copy... and this is record evidence... a block of service at a lower rate than they normally sell it to other people, because Top Copy was going to service their own machines, and they were going to lose $ 300, 000 worth of service business.
Unknown Speaker: Mr. Hennefer, on whom do you think the burden of proof is as to this particular issue that you're talking about with Justice Scalia?
Mr. Hennefer: We... Chief Justice Rehnquist, we have come forward with specific facts in this marketplace that show... and it's... the burden is on us, initially, to come forward with specific facts on the record.
After that, Kodak has to come forward with specific facts on their affirmative defense... if they want to prove an affirmative defense... to show that that works, which they haven't done.
We have, in fact--
Unknown Speaker: Are you talking about an affirmative defense denominated as such in the antitrust laws or just in the summary judgment process?
Mr. Hennefer: --This comes by way of an affirmative defense, because we have shown, under 80 years of antitrust jurisprudence, that we have section 1 Sherman and section 2 Sherman violations.
Unknown Speaker: Well, if it's an affirmative defense, I would think you'd say the burden of proof was on Kodak.
Mr. Hennefer: --That's correct, on the... on that issue.
Unknown Speaker: On that issue.
Mr. Hennefer: Yes.
Unknown Speaker: And so then it's not up to you to negate anything; it's up to them to prove something beyond any triable issue.
Mr. Hennefer: That's correct.
It's up to--
Unknown Speaker: Of course, once they introduce affidavits showing facts on those issues, you can't stand mute.
You have to... you have to come forward with affidavits showing facts to the contrary.
Mr. Hennefer: --Yes, that is... that is correct.
Unknown Speaker: And they came forward with evidence showing that there was no market power in the equipment field, which is what we are assuming is established here.
Mr. Hennefer: No, they came forward with affidavits that showed that they had substantial percentages in two or three markets, which they defined as such.
Their own admissions show some power.
But on the next issue of whether that power... or lack of power... in the basic equipment markets transfers over to the parts and service markets, they came forward with only a single blanket statement that... saying generally consumers consider the costs.
It doesn't... and they... they offered a trade journal article that said here are the factors you need to consider when buying a photocopy machine, which included not just cost... which they didn't give a specific number for but which included features of the machine, and the name of the company, and all of the other factors as pointed out in the Public Citizens' brief, that... that customers consider when they're buying a machine.
You cannot know, on buying one of these machines, what the cost of the service is going to be for the life of the machine.
Kodak only gives a 1-year warranty.
These are at least 7-year life machines.
We came forward with evidence that showed there was no connection between power in the interbrand market and power in the parts and service market, that specific evidence, in fact, showed that while Kodak was charging supercompetitive prices... two and three times competitive prices for parts and service... Kodak was not losing the customers.
If Kodak's theory were true, they ought to be losing the customers in the equipment market, when they're pricing supercompetitively in the parts and service market.
Unknown Speaker: It depends how much they're selling the equipment for.
If they're selling the equipment very cheaply, they wouldn't be losing customers.
Mr. Hennefer: But if they were selling the equipment very cheaply, why would they allow self-servicers?
Because they would be losing money on the equipment, and they could no gain it back in the service market, from the people who were self-servicing.
They'd lose it both ways.
It doesn't make--
Unknown Speaker: Is volume an answer?
Mr. Hennefer: --I'm sorry?
Unknown Speaker: Is volume an answer... the buyers who are sophisticated enough to do self-service buy lots of machines?
Mr. Hennefer: But if they're buying lots of machines, they would be losing lots of money under Justice Scalia's particular scenario.
Unknown Speaker: You mean they'd be losing more, is what I'm saying.
Mr. Hennefer: Well, certainly it doesn't make sense that Kodak would be losing money on the machines, and then also letting somebody self-service, so they couldn't regain the money on the service.
And, in fact, Kodak has come forward with no evidence that they are pricing these machines below cost.
In fact, their declarations say we price these machines in the marketplace the same way our competitors do.
Another issue that--
Unknown Speaker: I don't think they'd sell them below cost, but they'd... they'd sell them below the degree of profit that their competitors are getting.
I think that's their argument.
Mr. Hennefer: --In a situation where consumers are benefitting the most in a vertically integrated distribution network, each item in that network ought to be priced with relation to marginal cost.
It is not in the best consumer welfare to allow somebody to have a... control over a derivative market.
For example, Kodak does make this argument, that we're entitled to the profits in these derivative markets.
Does that mean that automobile manufacturers are entitled to the profits in the gasoline market, because gasoline was required to have an automobile go.
I don't think so.
Unknown Speaker: Let's see whether it's in the consumer welfare or not.
Suppose you have a new entrant in this field.
Let's assume it's a field that just has a few, big companies.
And you have a new entrant.
And he says boy, it's going to be hard to break into this market.
I'm going to do it by offering a really low price for my machine.
I'm barely going to cover costs on it.
And I'm going to... exclusive service, though.
You have to do service with me.
And I'm going to charge a lot for that.
And I'll tell all my customers.
In effect, I'm giving you a loan.
I'm willing to take less now, but I'll get more later.
There'll be a good number of customers who'll want to do that.
And therefore, I'll be able to break into this market.
Why is that against the consumer welfare to have somebody be able to enter the market that way?
Mr. Hennefer: It isn't.
I think in that case, Justice Scalia, you're correct.
That... for example, the Subaru automobile in the Grappone case.
In order to break into the market with a very small market share, and a very small, installed base, it makes very good sense for a competitor to say I'm... I'm not only going to price the car low, I'm also going to try to keep the service and parts in-house.
That's not our case here.
We have a situation where Kodak has, in some markets, over 50 percent of the market share, and has significant enough power to be able to continue to sell the basic equipment, yet charge two to three times the competitive price for parts and service.
What we're seeing here in this case, on the small record we have, is that Kodak is able to do this.
In the 1985 through 1987 period, Kodak was gaining market share in the photocopy sales.
Yet, they were charging, as we see on the face of the record, from our declarations, two to three times, for... to the State of California, what the competitive rate of service was.
Now, they shouldn't be gaining market share under that circumstance.
They should be losing customers by the droves.
The same in the micrographics area.
Unknown Speaker: Depends on the price of their equipment.
Mr. Hennefer: Certainly, if they were pricing the equipment very low, which there's no evidence of at all.
And that's Kodak's burden on that, to come forward with the evidence that shows that that's how they were pricing, that that's how they're going to defend this action, that there is a connection, a good, solid connection, that allows a per se... in effect, per se rule, when you show competition in the basic equipment market, but you can't have markets or market power in the service and parts market.
Unknown Speaker: You're making a lot of arguments that are just based upon normal human behavior and how we interpret normal, economic behavior to be.
It seems to me they're just doing the same thing.
They're saying that what you're just proposing is crazy, that they would be losing the market if they tried to compel people to buy their service, and then over-price the service.
People say never mind, I'll buy somebody else's machine.
It makes no sense.
Mr. Hennefer: Well, Kodak wasn't doing this in this case, and to apply a theory that is contradictory to the facts presented by plaintiffs in a case, is, in effect, Matsushita.
The Matsushita situation is 100 miles from this situation.
They are polar opposites.
In Matsushita, consumers were getting low prices.
And the plaintiffs in the case were saying wait.
Consumer welfare will be hurt.
Prices will go up.
Here, the prices are high.
And Kodak is saying, wait.
We can't be doing this, but if we are, it will be... suicidal.
Moreover, in the Matsushita case, this was decided on an extensive record, with the Third Circuit having reviewed all of the evidence on a pretrial, just basic... at the edge of trial type of evidence.
And it was fully explored, whether there was a connection between the economic theory and the realities of the marketplace.
That is not the case here.
There have been material issues of fact that have been raised... very substantial material issues of fact... and controverted.
We have... we have shown how consumers behave.
We have shown how consumers buy new equipment without considering the costs of the life cycle of that equipment.
We have shown that consumers... that a company may, with a small market share, price that equipment, and tie it to parts without the problems that we have.
Unknown Speaker: Before you finish, could you give... just tell me what your theory is about... on the monopolization issue?
I take it there still is an issue of monopolization in the case.
Mr. Hennefer: Yes, there is.
Unknown Speaker: And the charge is that Kodak is monopolizing the market for its own parts?
Mr. Hennefer: Yes, Kodak... Kodak, in order to keep those parts from getting to the service companies that were competing fiercely with them, did a number of things.
The first thing they did was to go to their original equipment parts manufacturers and say don't sell them to these ISO's so they can't have parts.
The second thing they did was to say--
Unknown Speaker: But it is a theory that they're... a company can monopolize the market for its own parts that it makes?
Mr. Hennefer: --Well, it is not making these parts; 90 percent of these... at least we have presented record evidence that 90 percent of these parts are made by outside people.
Unknown Speaker: Well, what if they are?
Nevertheless, Kodak sells them as their parts.
Mr. Hennefer: Kodak then has to go to these people and make an agreement with them.
And there's an agreement there, at least a rule of reason agreement... a conspiracy, if you will... evidence of that agreement.
They didn't... excuse me, Justice White.
They did several other things in addition to that.
They went to people they sold parts to and said we will sell you these parts, so long as you don't let an ISO get a hold of them so they can compete.
Unknown Speaker: Yeah, I know.
I know that.
What was the... what... did they have an agreement with their... with the suppliers of parts to Kodak?
Mr. Hennefer: Yes.
Unknown Speaker: What was... what was it?
Mr. Hennefer: The agreement, at least from what we were able to see in the record of it, and there's a Kodak document that says that they told Acme Electric not to sell those parts to the ISO who was trying to get those parts.
Unknown Speaker: And Acme Electric was supplying parts to Kodak?
Mr. Hennefer: That's correct, Justice White.
Unknown Speaker: Can you tell me a little bit more about percentages?
My understanding from the petitioner was that 75 percent of the parts, I think, in question... I'll interpolate that... were made by Kodak.
Is... so, are the 90 percent of the parts that you're referring to 90 percent of that 25 percent balance?
Mr. Hennefer: No.
It was our understanding on this meager record, that 10 percent of the parts are made by Kodak, not 75 percent.
Unknown Speaker: Ten percent of all parts--
Mr. Hennefer: The actual parts.
Unknown Speaker: --that are sold to--
Mr. Hennefer: Yes, yes.
Unknown Speaker: --to owners of equipment?
Mr. Hennefer: That is correct.
And that's in one of the declarations.
And specific... to specifically pin this down, we asked an interrogatory that asked for Kodak to give us a list of the parts for photocopy machines, and to specify which of those parts were manufactured by Kodak, and which of those parts were manufactured by OEM's, to pin it down.
Kodak refused to answer that.
The district judge refused to allow us to make a motion to compel that.
And so we don't have the benefit of Kodak's own, inside information on that.
Unknown Speaker: And are we talking about 95 percent in terms of dollar volume, or in terms of the actual number of components?
Mr. Hennefer: Number... my understanding was in number of parts, actual parts.
Unknown Speaker: Now, leaving aside the percentages, as I understand it, the district court found that you had presented, and had not explained that you might later be able to present any admissible evidence that indicated a conspiracy between Kodak and the... either the 25 or the 90 percent manufacturers.
Am I right on that?
Mr. Hennefer: Yes, the district court looked at--
Unknown Speaker: Yeah, now did you... do you claim that you had admissible evidence or indicated that you could have?
I didn't understand that from your brief, but I may be wrong.
Mr. Hennefer: --Yes, we did.
We presented a rule 56(f) motion, which said we are presenting evidence from our plaintiffs, that they have approached these OEM companies and asked them.
And, if given the opportunity to take the depositions that we would like of these companies, then that hearsay evidence could be converted to admissible evidence.
And that was refused.
We were allowed, initially, four, and then an additional two... so a total of six depositions and chose, because of the limited focus--
Unknown Speaker: But you didn't cross-appeal on that, did you?
Mr. Hennefer: --Did not cross-appeal?
Unknown Speaker: Did you cross-appeal on that?
Mr. Hennefer: Yes, we did.
We raised the issue that there was insufficient discovery, and that that insufficient discovery did not allow us sufficient opportunity to prove that issue.
Unknown Speaker: Is there a... I always hate cases where lawyers can't agree on what the record contains.
Do you agree that your opponent has something in the record that says that 75 percent of the parts are made by original... by Kodak rather than original equipment--
Mr. Hennefer: I don't recall a statement like that in the record, Justice Stevens.
Unknown Speaker: --May I ask one other question?
In the other 70 percent of this industry... assuming the figures are as your opponent describes them... what do most of the competitors do?
Do they follow a similar policy like Kodak, or do they allow independents to get into the business?
Mr. Hennefer: As was lodged with the court, and the court was asked to take judicial notice of it, Xerox, who is Kodak's main... actual only... competitor now, virtually their only competitor... there is a duopoly in high-speed copiers... initially, in 1987... up until 1987... had a policy where they would allow ISO's.
And we presented record evidence... that on the basis of that, Xerox's prices for an equivalent machine to Kodak's, for service, for a yearly contract, were one-third of what Kodak's services were.
Xerox, after Kodak, adopted its policy in cutting off parts, and putting ISO servicers in the photocopy business, out of business... adopted the same policy that Kodak adopted, in the United States and Canada.
And the equivalent of the Federal Trade Commission in Canada took exception with this and ruled against Xerox and said that Xerox cannot monopolize and cut off these parts under these circumstances.
Unknown Speaker: This was evidence before the trial court, Mr. Hennefer?
Mr. Hennefer: This was not before the trial court.
It occurred after the summary judgment motion.
And we have lodged that, and requested the Court to take judicial notice of it.
Unknown Speaker: So it was not before the trial court?
Mr. Hennefer: It was not before the trial court.
Unknown Speaker: Was it before the court of appeals?
Mr. Hennefer: Some of the facts, Chief Justice Rehnquist, were before the trial court.
The fact that Xerox was competitive on service was before the trial court.
It's in a declaration.
The fact that Xerox was charging one-third, under a freely competitive market, of what Kodak was charging for service, was before the district court.
The fact that Xerox then changed its policy, which occurred after 1987, was not before the trial court.
And the fact of the Canadian Federal Trade Commission was not before the trial court, either.
Unknown Speaker: You've also said they're a duopoly.
Does the record tell us, as of the date of the rulings... forgetting, for a moment, the subsequent lodgings... how many companies made up the other 70 percent of the market?
Mr. Hennefer: Yes, it does.
Kodak's own admissions, their own declarations, which we depend on for factual evidence on the market power issue, shows that there were primarily three, in the marketplace for high-speed copiers: Xerox, Kodak, and IBM.
Unknown Speaker: --So Xerox and IBM were 70 percent, and Kodak was 20 or 30 percent?
Mr. Hennefer: About 30 percent.
And we have submitted to the Court, and asked for judicial notice, that since the district... since the district court opinion, Kodak has acquired Xerox, and it's now over 50 percent market share in the high-speed copier market.
They acquired IBM, so it's... Kodak acquired IBM and it's now just Kodak--
Unknown Speaker: Acquired part of IBM.
Mr. Hennefer: --Yes, and Xerox... part, yes, I'm terribly sorry.
They're big, but not that big, yet.
I would like to say that I don't think that this Court should adopt a per se rule of legality, or at least one that gives a presumption to Kodak and immunize Kodak and other basic equipment manufacturers from section 1 and section 2 Sherman violations.
I don't think you should do so in light of this Court's experience with the trilogy of cases in White Motor and Schwinn, and in GTE Sylvania.
I don't think this Court should do so in light of the profoundly regulatory intervention into the service market that this kind of an... immunization from section 1 and section 2 Sherman would put into effect.
Unknown Speaker: Thank you, Mr. Hennefer.
Mr. Hennefer: I thank the Court.
Unknown Speaker: Mr. Pickett, you have 4 minutes remaining.
Rebuttal of Donn P. Pickett
Mr. Pickett: Mr. Chief Justice, I'd like to clear up one point, with respect to your question concerning affirmative defenses and burden.
Market power is an essential element of both respondents' tying claim, and their monopolization claims.
As an essential element, respondents had the burden of proof on that element.
Unknown Speaker: Well, do you have a... case authority for that?
Mr. Pickett: --Certainly, every monopolization and market power... Jefferson Parish for tying, and Aspen or any other monopolization case, says that there must be the requisite economic power on the part of respondents.
Now, Kodak presented evidence on this case, first of significant, robust, interbrand equipment competition in its declarations.
Second, that buyers--
Unknown Speaker: May I ask, sir--
Mr. Pickett: --Sure.
Unknown Speaker: --Do you agree with his characterization of the remainder of the market?
Is it just two or three other companies?
Mr. Pickett: No, he's left out the Japanese manufacturers, who are significant.
Unknown Speaker: What percentage do they represent?
Do they show?
Mr. Pickett: --Back in 1986, they represented in the high-volume segment of copiers, approximately 10 percent; in the lower-volume areas, they were the dominant competitors, along with Xerox.
Kodak presented evidence of interbrand competition.
It presented evidence that the sophisticated buyers take into account those future service and parts costs.
And it took... and it presented evidence that Kodak sets its prices for parts and service, based on what those sophisticated buyers will do in the interbrand market.
Now, in response to that, what did respondents do, and what more could Kodak have done to present its motion for summary judgment?
Respondents failed to take discovery on market power, for the most part, although they were given many opportunities by Judge Schwarzer, over the remaining 6 months that this summary judgment motion was on file.
They didn't rebut that evidence at all.
They presented a single theory.
Unknown Speaker: May I just ask this question?
They didn't offer theoretical evidence.
But the Ninth Circuit relied on kind of folksy evidence, that, in fact, the service was less expensive, provided by the competitors, and that sort of things, at pages 10 and 11 in their opinion.
Does that evidence... is that evidence at least raise an issue of fact?
Mr. Pickett: Well, they presented a couple of anecdotes in declarations--
Unknown Speaker: Right.
Mr. Pickett: --about incidences in which they've been able to offer service.
But that doesn't begin to rebut the implausibility of the case, in which--
Unknown Speaker: Oh, but if those were typical examples, and if the competitors' prices were roughly half of yours, isn't that some... at least a scintilla of evidence that maybe there was some market power in the service market?
Mr. Pickett: --Although it may be a scintilla of evidence, it's not the significant, probative evidence that's required under--
Unknown Speaker: So the question goes as to how much weight to give to that evidence, not whether there's any there at all.
Mr. Pickett: --They didn't present any evidence, not even a scintilla, of a fundamental change in the workings of the marketplace that would separate the equipment market from the parts and service market... non that showed how that would work.
Their only theory was a lock-in theory.
That was the only theory they presented to Judge Schwarzer.
And as this Court held in Jefferson Parish, the proper time to assess market power in that instance is at the time of purchase, since that's when... that's when the competing offers are being considered by the purchasers.
Unknown Speaker: You... you and your colleague on the other side have quite a different notion about what percentage of the parts that Kodak makes and what percentage does it buy.
Mr. Pickett: --Yes, Your Honor.
Unknown Speaker: You say 75 percent; he says 10 percent.
Mr. Pickett: I... on page 293, of the joint appendix, Kodak presents evidence that it has over 10,000 parts in copiers, and over 20,000 parts in micrographics.
It does not say what percentage, at that point.
And I'm unable at this point to find that reference.
However, I submit it makes no difference, what percentage, whether it's 75 or 10.
Unknown Speaker: Well, I know your time is up, but--
Mr. Pickett: Excuse me.
Unknown Speaker: --Was there a charge that Kodak had an arrangement or an agreement with the... its parts suppliers not to sell to ISO's?
Mr. Pickett: There was... there was some inadmissible hearsay evidence of a--
Unknown Speaker: Is that part of the charge?
Mr. Pickett: --Part of the charge of a vertical... only arrangement between Kodak and its suppliers.
And in any event, they have no market power.
Unknown Speaker: Well, I know, but I ask you whether... is there a charge that you had an arrangement with your parts suppliers not to sell to ISO's?
Mr. Pickett: Yes, that for proprietary information for Kodak parts, it would not be provided.
Unknown Speaker: Well, let's assume that... let's assume that they could prove that you had this arrangement with your parts' suppliers not to sell to ISO's.
You would be in sort of a lot of trouble, wouldn't you?
Mr. Pickett: No, Your Honor, for two reasons.
Unknown Speaker: Well, why not?
Mr. Pickett: One is that it's a vertical arrangement only.
Unknown Speaker: Vertical?
Mr. Pickett: --Yes, they are not horizontal competitors.
Unknown Speaker: Well, I agree with that--
Mr. Pickett: Second--
Unknown Speaker: --I agree with that.
But you are... have an agreement with somebody else to exclude somebody from the service market.
Mr. Pickett: --Yes, much like in the Sharp Electronics case with the retailers.
And in any event, there'd be no market power.
Unknown Speaker: Thank you, Mr. Pickett.
Mr. Pickett: Thank you.
Chief Justice Rehnquist: The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 90-1029, Eastman Kodak Company against Image Technical Services, Inc. will be announced by Justice Blackmun.
Argument of Justice Blackmun
Mr. Blackmun: This litigation which comes to us from the Ninth Circuit is an anti-trust case.
The respondents brought this lawsuit alleging that Kodak unlawfully had tied the sale of service for its machines to the sale of parts in violation of Section One of the Sherman Act, and had monopolized the sale of service in parts for those machines in violation of Section 2 of that Act.
The District Court granted summary judgment for Kodak but the Court of Appeals reversed.
It ruled that the plaintiffs had presented enough evidence to raise a genuine issue concerning Kodak's market power in the service and parts markets.
It also rejected Kodak's contention that lack of market power in service and parts must be assumed when such power is absent in the equipment market.
In an opinion filed with the Clerk today, we affirm that judgment.
We rule that Kodak has not met the requirements of the rules of civil procedure for an award of summary judgment on the Section 1 claim, and we also hold that plaintiffs have presented genuine issues per trial as to whether Kodak had monopolized the service and parts market in violation of Section 2.
Justice Scalia has filed a dissenting opinion and is joined therein by Justices O'Connor and Thomas.