Berkey Photo, Inc. v. Eastman Kodak Co.

• Decision Date: 25 June 1979
• Docket Number: D,Nos. 1019,1070,s. 1019
• Citation: 603 F.2d 263
• Parties: , 1979-1 Trade Cases 62,718 BERKEY PHOTO, INC., Plaintiff-Appellee-Cross Appellant, v. EASTMAN KODAK COMPANY, Defendant-Appellant-Cross Appellee. ockets 78-7445, 78-7448.
• Court: U.S. Court of Appeals — Second Circuit

Page 263

603 F.2d 263

53 A.L.R.Fed. 768, 1979-1 Trade Cases 62,718

BERKEY PHOTO, INC., Plaintiff-Appellee-Cross Appellant, v. EASTMAN KODAK COMPANY, Defendant-Appellant-Cross Appellee.

Nos. 1019, 1070, Dockets 78-7445, 78-7448.

United States Court of Appeals, Second Circuit.

Argued April 18, 1979.

Submitted April 30, 1979.

Decided June 25, 1979.

Alvin M. Stein, New York City (Barry J. Brett, Mark I. Schlesinger, Aurora Cassirer, Mark D. Offen, Parker, Chapin, Flattau & Klimpl, New York City, Neuman, Williams, Anderson & Olson, Chicago, Ill., of counsel), for plaintiff-appellee-cross appellant.

William Piel, Jr., New York City (Robert MacCrate, John L. Warden, Richard E. Carlton, Jerrold J. Ganzfried, Philip K. Howard, Shelley D. LaVine, William L. Farris, Sullivan & Cromwell, New York City, of counsel), for defendant-appellant-cross appellee.

Before KAUFMAN, Chief Judge, and SMITH and MULLIGAN, Circuit Judges.

IRVING R. KAUFMAN, Chief Judge:

INTRODUCTION

To millions of Americans, the name Kodak is virtually synonymous with photography. Founded over a century ago by George Eastman, the Eastman Kodak Company has long been the preeminent firm in the amateur photographic industry. It provides products and services covering every step in the creation of an enduring photographic record from an evanescent image. Snapshots may be taken with a Kodak camera on Kodak film, developed by Kodak's Color Print and Processing Laboratories, and printed on Kodak photographic paper. The firm has rivals at each stage of this process, but in many of them it stands, and has long stood, dominant. It is one of the giants of American enterprise, with international sales of nearly $6 billion in 1977 and pre-tax profits in excess of.$1.2 billion.

This action, one of the largest and most significant private antitrust suits in history, was brought by Berkey Photo, Inc., a far smaller but still prominent participant in the industry. Berkey competes with Kodak in providing photofinishing services the conversion of exposed film into finished prints, slides, or movies. Until 1978, Berkey sold cameras as well. It does not manufacture film, but it does purchase Kodak film for resale to its customers, and it also buys photofinishing equipment and supplies, including color print paper, from Kodak.

The two firms thus stand in a complex, multifaceted relationship, for Kodak has been Berkey's competitor in some markets and its supplier in others. In this action, Berkey claims that every aspect of the association has been infected by Kodak's monopoly power in the film, color print paper, and camera markets, willfully acquired, maintained, and exercised in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. It also charges that Kodak conspired with flashlamp manufacturers in violation of § 1 of the Act, 15 U.S.C. § 1. Berkey alleges that these violations caused it to lose sales in the camera and photofinishing markets and to pay excessive prices to Kodak for film, color print paper, and photofinishing equipment. ¹ A number of the charges arise from Kodak's 1972 introduction of the 110 photographic system, featuring a "Pocket Instamatic" camera and a new color print film, Kodacolor II, but the case is not limited to that episode. It embraces many of Kodak's activities for the last decade and, indeed, from preceding years as well.

After more than four years of pretrial maneuvering, the trial got under way in July 1977 before Judge Marvin E. Frankel of the Southern District of New York. Despite the daunting complexity of the case the exhibits numbered in the thousands Kodak demanded a jury. Accordingly, the trial was conducted in two parts, one to determine liability and the other to measure damages. It ran continuously, except for a one-month hiatus between the two segments, until the final verdict was rendered on March 22, 1978. The liability phase of the trial by itself consumed more than six months, and the damages aspect required approximately another month. Except for a few specific questions relating primarily to market definitions, the jury was asked to render what was essentially a general verdict on each count.

After deliberating for eight days on liability and five on damages, the jury found for Berkey on virtually every point, awarding damages totalling $37,620,130. Judge Frankel upheld verdicts aggregating $27,154,700 for lost camera and photofinishing sales and for excessive prices on film and photofinishing equipment, but he entered judgment n. o. v. for Kodak on the remainder. Trebled and supplemented by attorneys' fees and costs pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, Berkey's judgment reached a grand total of $87,091,309.47, with interest, of course, continuing to accrue.

Kodak now appeals this judgment, as well as the two forms of equitable relief that we shall discuss below. It challenges virtually every aspect of the district court proceedings, from the theories of liability and damages presented to the jury to the sufficiency of the evidence to sustain them. It argues, furthermore, that Judge Frankel committed prejudicial error in the conduct of the trial. For its part, Berkey contends that the trial judge erred in not entering judgment on the full amount of the jury's verdict and in computing improperly the costs and fees that Berkey should recover.

Resolution of these competing claims requires us to settle a number of important and novel issues concerning § 2 of the Sherman Act. We believe that the district court committed several significant errors as it charted its course through the complexities of this case, and we are therefore compelled to reverse the judgment below in certain major respects. But we cannot accept Kodak's contention that a properly charged jury could not find monopolization of any of the relevant markets and resulting damage to Berkey. Accordingly, we remand for a new trial on several of the claims.

I. THE AMATEUR PHOTOGRAPHIC INDUSTRY

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.

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.

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.

A. The Camera Market

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

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.

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...