US v. Eastman Kodak Co.

• Decision Date: 20 May 1994
• Docket Number: No. 93-MC-45.,93-MC-45.
• Citation: 853 F. Supp. 1454
• Parties: UNITED STATES of America, Plaintiff, v. EASTMAN KODAK COMPANY, Defendant. UNITED STATES of America, Petitioner, v. EASTMAN KODAK COMPANY, a Corporation of New Jersey, and Eastman Kodak Company, a Corporation of New York, and Others, Defendants.
• Court: U.S. District Court — Western District of New York

853 F. Supp. 1454

UNITED STATES of America, Plaintiff, v. EASTMAN KODAK COMPANY, Defendant.

UNITED STATES of America, Petitioner, v. EASTMAN KODAK COMPANY, a Corporation of New Jersey, and Eastman Kodak Company, a Corporation of New York, and Others, Defendants.

No. 93-MC-45.

United States District Court, W.D. New York.

May 20, 1994.

COPYRIGHT MATERIAL OMITTED

Sanford M. Adler, Nora W. Terres, U.S. Dept. of Justice, Antitrust Div., Washington, DC, for plaintiff U.S.

David M. Lascell, Hallenbeck, Lascell & Pineo, Rochester, NY, for defendant Eastman Kodak Co.

TELESCA, Chief Judge.

Pending before this Court are motions brought by Eastman Kodak Company ("Kodak") for modification or termination of two antitrust consent decrees entered into in 1921 (Civil Action No. A-51) and in 1954 (Civil Action No. 6450), respectively. Also pending is Kodak's motion filed before trial for summary adjudication of the legal standard to be applied in a proceeding for modification of an antitrust decree.

INTRODUCTION

Events during the historical growth of the photographic industry spanning almost a century provide the basis for two antitrust consent decrees. These decrees were intended to remedy Kodak's dominance in the marketing of film and in photofinishing by prohibiting Kodak from participating in the private label film market and from selling film with photo processing costs included. Kodak claims that it has complied with all of the requirements of the 1921 decree decades ago and the continuing prohibition to sell private label film is unfair because of drastic changes in market conditions and competition. Also, the main purpose of the 1954 decree, which was to end Kodak's technological advantage in color film processing and create a market where there had been none, has been totally achieved and, therefore, its restrictions should be terminated. Kodak argues that the restraints imposed by both decrees are obsolete because of drastic changes in the photographic industry and the global economy, that now provide marketing opportunities to others which are denied to Kodak. Kodak also argues that its dominance in the photographic industry has long since ended and the restraints of both the 1921 decree and the 1954 decree prevent the marketing of newly developed technical improvements and adaptations in the photographic industry.

Therefore, the central issue presented is whether the change of circumstances since 1921 and 1954 warrant either modification or termination of both decrees. The Government, voicing the arguments of various competitors in the photographic industry, objects to any major modification of either decree. The consistent theme of that objection is that, notwithstanding an increased competitive atmosphere in the photographic industry, Kodak's dominance is still directly related to the economic advantage it gained prior to the enactment of both decrees and, therefore, the restraints of both decrees should remain in place. To accept that argument would require me to ignore critical historical changes of the past 73 years, both economic and legal. For the reasons set forth herein, I hold that dramatic changes have taken place in the development of the photographic industry, the global economy and in legal precedent which warrant termination of both the 1921 and 1954 decrees.

BACKGROUND

On August 24, 1915, the Honorable John R. Hazel, a member of this Court, issued a decision after an extensive trial, which produced more than 3,000 printed pages of testimony and three volumes of exhibits. That decision found that George Eastman and the Eastman Kodak Company had monopolized the amateur photography industry between 1895 and 1910. United States v. Eastman Kodak Co., 226 F. 62 (W.D.N.Y.1915) appeal dismissed, 255 U.S. 578, 41 S.Ct. 321, 65 L.Ed. 795 (1921). Judge Hazel described the history of the industry and the conduct which he found had violated the antitrust laws. Certain aspects of those findings require restatement.

1. Eastman's Early Innovations

In 1878, George Eastman entered the field of photography by selling collodion plates, commonly known as wet plates, which were used to make photographic negatives. Soon afterward in 1881, he organized the Eastman Dry Plate Company and began producing dry plates, a process which involved suspending photosensitive silver halides in gelatin and applying the suspension to a glass plate. While continuing to produce dry plates, Eastman researched more manageable and inexpensive media to support the photosensitive emulsions.

In 1884 and 1885, Eastman and a partner, William H. Walker, completed research into, and were granted patents for, a system which used a roll of paper to support the photosensitive emulsions and a mechanism to hold that roll within the camera. Although Eastman hoped that this system would gain immediate public acceptance, it was not until 1888 when Eastman produced a camera—the "Kodak"—which was commercially successful.

Although the Kodak camera finally brought photography into the amateur realm, the paper roll was difficult to process, because the paper needed to be detached from the back of the photographic emulsion before the positive image could be transferred to photographic paper. Eastman attempted to produce a transparent negative film that required neither glass nor paper to support the emulsions. Eastman originated the first commercially successful nitrocellulose roll film system by borrowing from and refining the ideas of Rev. Hannibal Goodwin. Eastman and one of his employees, Henry Reichenbach, received patents for this system in 1892. The implementation of celluloid roll film was a major advance in the film industry because it simplified the use of the camera, made processing easier, and finally made photography fully accessible to the general public. The amateur photographic industry was born.

2. Eastman Kodak's Antitrust Violations

Eastman's success with the roll film camera and the general public's increasing demand for the product inevitably brought competition. In the 1890s, competitors began to produce cameras implementing refinements to the film and the camera apparatus developed by Eastman. In addition to improving its cameras and films, Eastman Kodak also worked to enhance the marketing of its products, making them more available to consumers by encouraging drug stores to carry them as a side line. Innovative refinements and increased competition resulted in lowered prices which brought new consumers into the amateur photography market.

Kodak then began to acquire its camera and film competitors. The Boston Camera Company was acquired in 1895, the American Camera Manufacturing Company in 1898, and the Blair Camera Company in 1899. In his decision of 1915, Judge Hazel found nothing unlawful in the acquisitions of these three companies, although he found that they were the "nucleus from which arose the intention to bring other companies manufacturing and dealing in photographic supplies under its control." 226 F. at 70.

At approximately the same time, Kodak began to purchase photographic paper suppliers. Kodak purchased at least nine paper companies between 1894 and 1898, and consolidated most of these companies into the General Aristo Company, which remained a subsidiary of Kodak.

Far more significant in Judge Hazel's decision, however, was the 1898 agreement between Kodak and the General Paper Company of Brussels (which was, at the time, the principal supplier of raw stock for photography paper for the entire world) that, in essence, gave Kodak control of all paper imported into the United States by the General Paper Company. Ultimately and by 1908, Kodak quickly came to control the raw paper industry in the United States.

Kodak also purchased and consolidated several dry plate manufacturers, stock houses engaged in selling photographic supplies, and plate camera manufacturers between 1890 and 1905. Judge Hazel found that these acquisitions were made with the intent to monopolize. Based upon this finding, Judge Hazel ordered that an antitrust decree be entered remedying Kodak's violation of the antitrust laws.

3. The 1921 Decree

Judge Hazel considered all available remedies under the antitrust laws and decided that the relief should forbid future violations of the antitrust laws and also abrogate the illegal monopoly which he had found that Kodak had acquired. Judge Hazel entered a final decree on January 20, 1916, which Kodak thereafter appealed to the Supreme Court. In 1921, Kodak withdrew its appeal and agreed with the Government on the terms of the consent decree which ultimately was issued by Judge Hazel on February 1, 1921 ("the 1921 decree").

The decree, as drawn, had two essential functions. The first function, which has been satisfied, was short-term relief. Kodak was ordered to sell portions of businesses that it had acquired between 1890 and 1910. These terms of the 1921 decree were satisfied decades ago, and subsequent amendments to the decree reflect Kodak's full compliance.

The 1921 decree also placed artificial restraints on Kodak's participation in the market in order to "effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about." United States v. Eastman Kodak Co., 226 F. at 81 (quoting Standard Oil Co. v. United States, 221 U.S. 1, 78, 31 S.Ct. 502, 523, 55 L.Ed. 619 (1911)). Most prominent among these provisions is Section X, which prohibits Kodak from selling "so-called fighting brands" and requires that all articles and supplies shall "be labeled in such a manner as to show clearly that the same is manufactured" by Kodak. This has effectively prevented Kodak from selling "private label" film, which is color film marketed under the brand of a retail outlet. The two other continuing provisions of the...