Argus Inc. v. Eastman Kodak Co.

• Citation: 801 F.2d 38
• Decision Date: 08 September 1986
• Docket Number: No. 670,D,670
• Parties: , 1986-2 Trade Cases 67,274 ARGUS INCORPORATED and Interphoto Corporation, Plaintiffs-Appellants, v. EASTMAN KODAK CO., Defendant-Appellee. ocket 85-7549.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 38

801 F.2d 38

55 USLW 2190, 1986-2 Trade Cases 67,274

ARGUS INCORPORATED and Interphoto Corporation, Plaintiffs-Appellants, v. EASTMAN KODAK CO., Defendant-Appellee.

No. 670, Docket 85-7549.

United States Court of Appeals Second Circuit.

Argued Jan. 6, 1986.

Decided Sept. 8, 1986.

David R. Taxin, New York City (Earnest Allen Cohen, Marchi Jaffe Cohen Crystal Rosner & Katz, New York City, of counsel), for plaintiff-appellant Interphoto Corp.

Myles J. Ambrose, Washington, D.C. (O'Connor & Hannan, Washington, D.C., of counsel), for plaintiff-appellant Argus Inc.

Abner P. Slatt, New York City, for plaintiff-appellant Argus Inc.

Robert MacCrate, New York City (John L. Warden, William L. Farris, Marcy Engel, Sullivan & Cromwell, New York City, of counsel), for defendant-appellee.

Before FEINBERG, Chief Judge, FRIENDLY, ^* and WINTER, Circuit Judges.

WINTER, Circuit Judge.

This action involves a claim based on the conduct of defendant Eastman Kodak Corporation ("Kodak") held to be an antitrust violation in Berkey Photo Inc. v. Eastman Kodak Co., 603 F.2d 263, 301-04 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980). It was brought by Argus Incorporated ("Argus"), a licensor of the trademark "Argus" for use on camera equipment, and Interphoto Corporation ("Interphoto"), a wholesale distributor of cameras and camera equipment controlled by Argus. They seek monetary damages under the Clayton and Sherman Acts, 15 U.S.C. Secs. 1, 15(a) (1982). Plaintiffs appeal from Judge Pollack's granting of Kodak's motion for summary judgment. 612 F.Supp. 904 (S.D.N.Y.1985). Because a reasonable trier of fact could not find that Kodak caused the damages claimed by Argus and Interphoto, we affirm.

1. History and Prior Proceedings

This case involves the evolution of new flash devices for cameras. In 1965, Kodak introduced the flashcube, a four-sided device that rotated after each shot, allowing four flash pictures to be taken without changing flashbulbs. The next innovation, the magicube, was introduced in 1970. The magicube resembled the flashcube but did not require batteries. However, the flashcube and the magicube suffered from a problem known as "red-eye," which produced red dots in the eyes of the photographer's subject. In 1972, Kodak contracted with General Electric Company to develop a new flash device that would eliminate "red-eye." The agreement forbade disclosure of the project's existence or progress to other lamp or camera manufacturers ("confidentiality agreement"). On April 10, 1975, Kodak and General Electric announced the new product, the flipflash, along with two compatible versions of the Kodak 110 amateur pocket camera. Flipflash moved the flash away from the lens center to eliminate "red-eye" and included a new method to ignite the flash lamp, the "piezo crystal system." Because the flipflash could not be used with cameras designed for the flashcube or magicube and because the confidentiality agreement ensured that Kodak's competitors would not begin to develop compatible cameras before the Kodak announcement, Kodak had no significant competition in flipflash cameras for several months after the announcement. Meanwhile, however, other companies had begun in 1974 to market a 110 camera with an internal flash. Interphoto and Kodak did not begin to sell such cameras until 1976 and 1978, respectively.

The confidentiality agreement between Kodak and General Electric with regard to flipflash was the basis for the successful antitrust claim in Berkey. Berkey charged that, although Kodak did not make any meaningful contribution to the development of flipflash, the confidentiality agreement with General Electric prevented other camera makers from competing in the production of cameras compatible with flipflash. The jury found that the confidentiality agreement violated Section 1 of the Sherman Act. We affirmed. 603 F.2d at 304.

Plaintiffs filed the present action on August 27, 1979, two months after we decided Berkey. The complaint alleged numerous claims against Kodak, most of which have disappeared from the case. The parties have stipulated that "no recovery shall be had for any damages sustained prior to April 10, 1975," the date Kodak and General Electric announced the flipflash. Plaintiffs have also waived all claims against Kodak except those "for damages sustained by reason of the [Confidentiality] Agreement." Plaintiffs' claim, as now asserted, is thus based solely on the secrecy of the flipflash development.

Prior proceedings have also clarified Kodak's defenses. Judge Gagliardi, who was originally assigned to this case, held that Kodak was collaterally estopped to deny the violation of Section 1 of the Sherman Act. Argus Inc. v. Eastman Kodak Co., 552 F.Supp. 589, 605 (S.D.N.Y.1982). No issue is taken with his ruling on this appeal. Kodak also abandoned its statute of limitations defense to the flipflash claim and entered into the stipulation regarding the damage period described supra.

The issues as narrowed are twofold. First, did the secrecy of the flipflash development cause the damages claimed by Argus and Interphoto? Second, do the plaintiffs have standing to raise this claim under applicable antitrust doctrine? After Kodak moved for summary judgment, Judge Pollack answered both questions in the negative. He found that neither plaintiff had shown, "by specific probative evidence, the existence of standing to sue or a proximate causal link between the violation and the alleged injuries." Argus Inc. v. Eastman Kodak Co., 612 F.Supp. 904, 906 (S.D.N.Y.1985). He also held that the damage claims were too speculative to support a recovery. Id. at 923. Plaintiffs appeal from this judgment. Because we agree with the district court that plaintiffs failed to present a triable issue of fact on the element of causation of the particular damages claimed, we do not reach the standing issue.

2. Plaintiffs' Claim for Damages

At all pertinent times, Interphoto, which was controlled by Argus, was a wholesale distributor of a wide range of photographic equipment, including a 110 magicube camera marketed under the "Argus" name. Argus licensed its trademark to Interphoto. Interphoto in turn purchased cameras and other photographic equipment, labeled them "Argus," and resold them to retailers. Interphoto paid Argus a 1.5% royalty on all Interphoto sales of "Argus" merchandise.

Plaintiffs' claim for damages posits the following scenario. Interphoto had built its business plan for 1975 around the promotion of the Argus 110 magicube camera as its "lead product." (The Argus 110 was to have replaced the Yashica 35 millimeter camera in this role.) A lead product, or "lead line," is a distinctive item of sufficient popularity to cause buyers, here retailers of camera equipment, to purchase both it and other more fungible products offered by the wholesaler. But for the lead line these latter sales would not be made. As a result of the introduction of Kodak's 110 flipflash camera, 110 cameras using magicube flash systems, such as the Argus 110, were made obsolete. Moreover, the secret development of the flipflash and compatible Kodak camera prevented Interphoto from offering a flipflash camera as a "lead line" until after the 1975 Christmas selling season. Interphoto thus lacked a popular lead line camera at a critical moment and suffered as aconsequence a decline in sales of its entire range of products. A downward spiral in Interphoto's business followed as customers, salesmen, suppliers, and creditors took their trade elsewhere. Interphoto was forced into "liquidation mode" and, in 1980, out of the wholesale photographic business.

Argus' claim is entirely derivative of Interphoto's claim, namely that the damage done to Interphoto's sales of the entire line of Argus-brand photo equipment deprived Argus of trademark royalties that it had expected to earn.

In March 1984, the parties entered into a stipulation that plaintiffs would supply "a form of pretrial order setting forth," inter alia, "a statement of factual contentions they intend to prove, including damages theories and contentions." Plaintiffs then provided estimates of what Interphoto's total sales, Interphoto's sales of Argus products, Interphoto's total and Argus-related profits, and Argus' royalties would have been absent the confidentiality agreement. ¹ Because Interphoto did not specify a contention as to what portion of its total alleged lost profits reflected losses in sales of Argus 110 magicube cameras, the item in direct competition with the flipflash, it abandoned any claim of damages for loss of 110 sales alone. Similarly, lost profits from lost sales of other individual products of the line were not specified.

Plaintiffs' contentions as to damages thus consist solely of lost profits on sales of Interphoto's and Argus' entire line of products, resulting in their commercial demise. The only damage award a trier of fact could make on the basis of plaintiffs' contentions, therefore, is for that entire line, not for any lesser claim for lost profits on particular items in the line. Essentially, therefore, we must thus decide whether Kodak's actions caused the destruction of plaintiffs' businesses.

3. Discussion

Causation in fact is, of course, a necessary element of any claim for relief under Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, which provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor." Discussions of the causal nexus between economic injury and an antitrust violation may also implicate issues such as standing or proximate cause since not every party injured may assert an antitrust claim. See, e.g., Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 535-36 & n. 31, 103 S.Ct. 897, 907-08 & n. 31, 74 L.Ed.2d 723 (1983). However, lack of causation in...