Joint FTC-DoJ Hearings
on Section 2 of the Sherman Act
Testimony of Patrick M. Sheller
Chief Compliance Officer
Eastman Kodak Company
February 13, 2007
Kodak and Section 2 of the Sherman Act
Kodak Business Model Evolution
|Focus on Consumables
Cameras + Film, Paper
|Hardware + Service
units + Aftermarket
Printers + Media/Ink +
Sensors + Software +
+ Aftermarket Service
1880s-1970s 1970s-1990s 2000s-?
Critical Success Factors to Digital Model
Speed of innovation and technology development
Cross licensing of intellectual property
Ability to sell solutions
Potential Section 2 Impediments
Delayed recognition of market changes
Line between tying and bundling has blurred
Obstacles to IP protection and licensing
- ITS v. Kodak (9thCircuit)
- European Commission precedent
Uncertainty in the Wake of LePages
Above cost bundled discounts can be exclusionary under Section 2
- BrookeGroup does not apply
- Exclusionary effect = harm to "one significant competitor"
Clearly permissible discounting practices?
- Single product volume discounts
- Discounts linking products across multiple markets
- Discounts linking products within a single line
- E.g. branded and private label tape
No Coherent Standard to Evaluate Bundled Pricing
Alternative Approaches to Bundling
Concord Boat (8thCircuit)
- Above cost single-product discounts are not exclusionary (apply Brooke Group)
Ortho Diagnostic Systems (S.D.N.Y.)
- Could an equally efficient competitor to the monopolist profitably match its bundled discounts?
To prohibit above-cost discounting creates intolerable
risks of chilling legitimate price-cutting.Brooke Group
Split Among the Circuits on IP Rights
9thCircuit in ITS v. Kodak (1997)
- Presumptively valid business justification for refusing to license/sell IP rights can be rebutted by evidence that justification was a pretext for anticompetitive motives
Federal Circuit in Xerox v. CSU(2001)
- Absent tying, fraud or sham litigation, "we will not inquire into the patentee's motivations for asserting his statutory right to exclude."
- Same rationale extended to refusals to license copyright protected works
Impact of Section 2 Uncertainty on Digital Model
Uncertainty and risk:
- Can Kodak offer retailers bundled discounts on kiosks, media and service?
- Can we include digital camera discounts in bundle?
- Can Kodak refuse to license patented parts, diagnostic software, service manuals to ISOs?
Digital Camera IP
- Can Kodak refuse to license digital camera patents to competitors?
- Can licenses be bundled with discounted Kodak software?
On-line Photo Service
- Can Kodak Gallery offer discounts on photo fulfillment services to customers who store a fixed number images on our servers?
- Can Kodak Graphic Communications offer a workflow solution that combines digital equipment, software, consumables and consulting services at a bundled price?