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Slide 1
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
Slide 2
Kodak and Section 2 of the Sherman Act
[D]
Slide 3
Kodak Business Model Evolution
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Focus on Consumables
Cameras + Film, Paper
& Chemicals |
Hardware + Service
Copiers/Micrographics
units + Aftermarket
Service |
Solution Sales
Printers + Media/Ink +
Sensors + Software +
Professional Services
+ Aftermarket Service |
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1880s-1970s 1970s-1990s 2000s-?
Slide 4
Critical Success Factors to Digital Model
Speed of innovation and technology development
Cross licensing of intellectual property
Ability to sell solutions
 
Slide 5
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
Slide 6
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
At risk:
- Discounts linking products across multiple markets
- Discounts linking products within a single line
- E.g. branded and private label tape
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No Coherent Standard
to Evaluate Bundled Pricing
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Slide 7
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?
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To prohibit above-cost
discounting creates “intolerable
risks of chilling legitimate price-cutting.”Brooke Group
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Slide 8
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
Slide 9
Impact of Section 2 Uncertainty on Digital Model
Uncertainty and risk:
| Hypothetical Transactions |
Photo Kiosks
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- 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?
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Digital Camera IP
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- Can Kodak refuse to license digital camera patents to competitors?
- Can licenses be bundled with discounted Kodak software?
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On-line Photo Service
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- Can Kodak Gallery offer discounts on photo fulfillment services
to customers who store a fixed number images on our servers?
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Graphics Solution
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- Can Kodak Graphic Communications offer a workflow solution that
combines digital equipment, software, consumables and consulting
services at a bundled price?
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Slide 10
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