OCTOBER TERM, 1991
Syllabus
EASTMAN KODAK CO.
v. IMAGE TECHNICAL SERVICES, INC., ET
AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No. 90-1029. Argued December 10, 1991-Decided June 8, 1992
After respondent independent service organizations (ISO's) began
servicing copying and micrographic equipment manufactured by
petitioner Eastman Kodak Co., Kodak adopted policies to limit the
availability to ISO's of replacement parts for its equipment and to
make it more difficult for ISO's to compete with it in servicing
such equipment. Respondents then filed this action, alleging,
inter alia, that Kodak had unlawfully tied the sale of
service for its machines to the sale of parts, in violation of § 1
of the Sherman Act, and had unlawfully monopolized and attempted to
monopolize the sale of service and parts for such machines, in
violation of § 2 of that Act. The District Court granted summary
judgment for Kodak, but the Court of Appeals reversed. Among other
things, the appellate court found that respondents had presented
sufficient evidence to raise a genuine issue concerning Kodak's
market power in the service and parts markets, and rejected Kodak's
contention that lack of market power in service and parts must be
assumed when such power is absent in the equipment market.
Held:
1. Kodak has not met the requirements of Federal Rule of Civil
Procedure 56(c) for an award of summary judgment on the § 1 claim.
Pp. 461-479.
(a) A tying arrangement-i.
e., an agreement by a party to
sell one product on the condition that the buyer also purchases a
different (or tied) product, or at least agrees that he will not
purchase that product from any other supplier-violates § 1 only if
the seller has appreciable economic power in the tying product
market. Pp.461-462.
(b) Respondents have presented sufficient evidence of a tying
arrangement to defeat a summary judgment motion. A reasonable trier
of fact could find, first, that service and parts are two distinct
products in light of evidence indicating that each has been, and
continues in some circumstances to be, sold separately, and,
second, that Kodak has tied the sale of the two products in light
of evidence indicating that it would sell parts to third parties
only if they agreed not to buy service from ISO's. Pp. 462-463.
452
Syllabus
(c) For purposes of determining appreciable economic power in
the tying market, this Court's precedents have defined market power
as the power to force a purchaser to do something that he would not
do in a competitive market, and have ordinarily inferred the
existence of such power from the seller's possession of a
predominant share of the market. P.464.
(d) Respondents would be entitled under such precedents to a
trial on their claim that Kodak has sufficient power in the parts
market to force unwanted purchases of the tied service market,
based on evidence indicating that Kodak has control over the
availability of parts and that such control has excluded service
competition, boosted service prices, and forced unwilling
consumption of Kodak service. Pp. 464-465.
(e) Kodak has not satisfied its substantial burden of showing
that, despite such evidence, an inference of market power is
unreasonable. Kodak's theory that its lack of market power in the
primary equipment market precludes-as a matter of law-the
possibility of market power in the derivative aftermarkets rests on
the factual assumption that if it raised its parts or service
prices above competitive levels, potential customers would simply
stop buying its equipment. Kodak's theory does not accurately
describe actual market behavior, since there is no evidence or
assertion that its equipment sales dropped after it raised its
service prices. Respondents offer a forceful reason for this
discrepancy: the existence of significant information and switching
costs that could create a less responsive connection between
aftermarket prices and equipment sales. It is plausible to infer
from respondents' evidence that Kodak chose to gain immediate
profits by exerting market power where locked-in customers, high
information costs, and discriminatory pricing limited, and perhaps
eliminated, any long-term loss. Pp.465-478.
(f) Nor is this Court persuaded by Kodak's contention that it is
entitled to a legal presumption on the lack of market power because
there is a significant risk of deterring procompetitive conduct.
Because Kodak's service and parts policy is not one that appears
always, or almost always, to enhance competition, the balance tips
against summary judgment. Pp.478-479.
2. Respondents have presented genuine issues for trial as to
whether Kodak has monopolized, or attempted to monopolize, the
service and parts markets in violation of § 2. Pp. 480-486.
(a) Respondents' evidence that Kodak controls nearly 100% of the
parts market and 80% to 95% of the service market, with no readily
available substitutes, is sufficient to survive summary judgment on
the first element of the monopoly offense, the possession of
monopoly power. Kodak's contention that, as a matter of law, a
single brand of a product
453
or service can never be a relevant market contravenes cases of
this Court indicating that one brand of a product can constitute a
separate market in some instances. The proper market definition in
this case can be determined only after a factual inquiry into the
commercial realities faced by Kodak equipment owners. Pp.
481-482.
(b) As to the second element of a § 2 claim, the willful use of
monopoly power, respondents have presented evidence that Kodak took
exclusionary action to maintain its parts monopoly and used its
control over parts to strengthen its monopoly share of the service
market. Thus, liability turns on whether valid business reasons can
explain Kodak's actions. However, none of its asserted business
justifications-a commitment to quality service, a need to control
inventory costs, and a desire to prevent ISO's from free-riding on
its capital investment-are sufficient to prove that it is entitled
to a judgment as a matter of law. Pp. 482-486.
903 F.2d
612, affirmed.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and WHITE, STEVENS, KENNEDY, and SOUTER, JJ.,
joined. SCALIA, J., filed a dissenting opinion, in which O'CONNOR
and THOMAS, JJ., joined,
post, p. 486.
Donn P. Pickett argued the cause for petitioner. With him on the
briefs were Daniel M. Wall, Alfred C. Pfeiffer, Jr., and Jonathan W
Romeyn.
Assistant Attorney General Rill argued the cause for the United
States as amicus curiae urging reversal. With him on the brief were
Solicitor General Starr, Deputy Solicitor General Wallace,
Christopher
J. Wright, Catherine G. O'Sullivan, and Robert
B. Nicholson.
James A. Hennefer argued the cause for respondents.
With him on the brief were A. Kirk McKenzie, Douglas E.
Rosenthal, Jonathan M. Jacobson, and Elinor R. Hoffmann.
*
*Briefs of amici curiae urging reversal were filed for the
Computer and Business Equipment Manufacturers Association by Simon
Lazarus III; for Digital Equipment Corp. et al. by Kurt W Melchior,
Robert A. Skitol, James A. Meyers, Marcia Howe Adams, Ivor Gary
Armistead III, Ronald A. Stern, Stephen Wasinger, James W Olson,
Garter G. Phillips, Ralph I. Miller, and Florinda
J.
Iascone; for the Motor Vehicle Manufacturers Association of the
United States, Inc., by Thomas B. Leary, William H.
454
JUSTICE BLACKMUN delivered the opinion of the Court. This is yet
another case that concerns the standard for summary judgment in an
antitrust controversy. The
Crabtree, and
Charles H. Lockwood II; and for the
National Electrical Manufacturers Association by
James S.
Dittmar and
James L. Messenger.
Briefs of
amici curiae urging affirmance were filed for
the State of Ohio et al. by
Lee Fisher, Attorney General of
Ohio,
Simon Karas, and
Elizabeth H. Watts and
Marc
B. Bandman, Assistant Attorneys General,
James H. Evans,
Attorney General of Alabama, and
Marc Givhan, Assistant
Attorney General,
Charles E. Cole, Attorney General of
Alaska, and
James Forbes, Assistant Attorney General,
Grant Woods, Attorney General of Arizona, and
Jeri K.
Auther, Assistant Attorney General,
Winston Bryant,
Attorney General of Arkansas, and
Royce Griffin, Deputy
Attorney General,
Daniel E. Lungren, Attorney General of
California,
Roderick E. Walston, Chief Assistant Attorney
General,
Sanford N. Gruskin, Assistant Attorney General, and
Kathleen E. Foote, Deputy Attorney General,
Richard
Blumenthal, Attorney General of Connecticut, and
Robert M.
Langer, Assistant Attorney General,
Robert A.
Butterworth, Attorney General of Florida, and
Jerome W
Hoffman, Assistant Attorney General,
Warren Price III,
Attorney General of Hawaii,
Robert A. Marks, Supervising
Deputy Attorney General, and
Ted Clause, Deputy Attorney
General,
Larry EchoHawk, Attorney General of Idaho,
Roland W Burris, Attorney General of Illinois,
Rosalyn
Kaplan, Solicitor General, and
Christine Rosso, Senior
Assistant Attorney General,
Bonnie J.
Campbell, Attorney General of Iowa, and
John R.
Perkins, Deputy Attorney General,
Robert T. Stephan,
Attorney General of Kansas, and
Mary Ann Heckman, Assistant
Attorney General,
Frederic J. Cowan, Attorney
General of Kentucky, and
James M. Ringo, Assistant Attorney
General,
William J. Guste, Jr., Attorney
General of Louisiana, and
Anne F.
Benoit, Assistant
Attorney General,
Michael E. Carpenter, Attorney General of
Maine, and
Stephen L. Wessler, Deputy Attorney General,
J. Joseph Curran, Jr., Attorney General of Maryland,
and
Robert N. McDonald and
Ellen S.
Cooper,
Assistant Attorneys General,
Scott Harshbarger, Attorney
General of Massachusetts, and
George K. Weber, Assistant
Attorney General,
Frank J. Kelley, Attorney
General of Michigan,
Hubert H. Humphrey III, Attorney
General of Minnesota,
Thomas F.
Pursell, Deputy
Attorney General, and
James P. Spencer and
Susan C.
Gretz, Special Assistant Attorneys General,
Frankie Sue
Del Pappa, Attorney General of Nevada, and
Rob Kirkman,
Deputy Attorney General,
Robert J. Del Tufo,
Attorney General of New Jersey, and
Laurel A. Price, Deputy
Attorney General,
Robert Abrams, Attorney General of New
York, O.
Peter Sherwood, Solici-
455
principal issue here is whether a defendant's lack of market
power in the primary equipment market precludes-as a matter of
law-the possibility of market power in derivative aftermarkets.
Petitioner Eastman Kodak Company manufactures and sells
photocopiers and micrographic equipment. Kodak also sells service
and replacement parts for its equipment. Respondents are 18
independent service organizations (ISO's) that in the early 1980's
began servicing Kodak copying and micrographic equipment. Kodak
subsequently adopted policies to limit the availability of parts to
ISO's and to make it more difficult for ISO's to compete with Kodak
in servicing Kodak equipment.
tor General, and
George W Sampson, Assistant Attorney
General,
Lacy H. Thornburg, Attorney General of North
Carolina,
James C.
Gulick, Special Deputy Attorney
General, and
K. D. Sturgis, Assistant Attorney General,
Dan Morales, Attorney General of Texas,
Will Pryor,
First Assistant Attorney General,
Mary F.
Keller,
Deputy Attorney General, and
Mark Tobey, Assistant Attorney
General,
R. Paul Van Dam, Attorney General of Utah, and
Arthur M. Strong, Assistant Attorney General,
Jeffrey L.
Amestoy, Attorney General of Vermont, and
Geoff Yudien,
Assistant Attorney General,
Kenneth O.
Eikenberry,
Attorney General of Washington, and
Carol A. Smith,
Assistant Attorney General, and
Mario J.
Palumbo, Attorney General of West Virginia, and
Donna
S.
Quesenberry, Assistant Attorney General; for the
Automotive Warehouse Distributors Association et al. by
Donald
A. Randall, Louis R. Marchese, Robert J.
Verdisco, and
Basil J. Mezines; for
Bell Atlantic Business Systems Services, Inc., by
Richard G.
Taranto, Joel I. Klein, and
John M. Kelleher; for
Grumman Corporation by
Patrick Q Killian; for the National
Association of State Purchasing Officials et al. by
Richard D. M
onkman; for the National Office Machine Dealers Association et
al. by
Mark P. Cohen; for the National Retail Federation by
Michael J. Altier; for Public Citizen by
Alan B. Morrison; for State Farm Mutual Automobile Insurance
Co. et al. by
Melvin Spaeth, James F.
Fitzpatrick,
and
Melvin C.
Garbow.
Briefs of
amici curiae were filed for the California
State Electronics Association et al. by
Richard I. Fine; for
Computer Service Network International by
Ronald S.
Katz; and for the National Electronics Sales and Service
Dealers Association by
Ronald S.
Katz.
456
Respondents instituted this action in the United States District
Court for the Northern District of California, alleging that
Kodak's policies were unlawful under both § 1 and § 2 of the
Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. §§ 1 and 2 (1988
ed., Supp. II). After truncated discovery, the District Court
granted summary judgment for Kodak. The Court of Appeals for the
Ninth Circuit reversed. The appellate court found that respondents
had presented sufficient evidence to raise a genuine issue
concerning Kodak's market power in the service and parts markets.
It rejected Kodak's contention that lack of market power in service
and parts must be assumed when such power is absent in the
equipment market. Because of the importance of the issue, we
granted certiorari. 501 U. S. 1216 (1991).
I A
Because this case comes to us on petitioner Kodak's motion for
summary judgment, "[t]he evidence of [respondents] is to be
believed, and all justifiable inferences are to be drawn in [their]
favor."
Anderson v.
Liberty Lobby, Inc., 477 U. S. 242, 255
(1986);
Matsushita Electric Industrial Co. v.
Zenith
Radio Corp., 475
U. S. 574, 587 (1986). Mindful that respondents' version of any
disputed issue of fact thus is presumed correct, we begin with the
factual basis of respondents' claims. See
Arizona v.
Maricopa County Medical Society, 457 U. S. 332, 339
(1982).
Kodak manufactures and sells complex business machines-as
relevant here, high-volume photocopiers and micrographic
equipment.1 Kodak equipment is unique; micro-
1 Kodak's micrographic equipment includes four different product
areas.
The first is capture products such as microfilmers and
electronic scanners, which compact an image and capture it on
microfilm. The second is equipment such as microfilm viewers and
viewer/printers. This equipment is used to retrieve the images. The
third is Computer Output Microform (COM) recorders, which are
data-processing peripherals that record
457
graphic software programs that operate on Kodak machines, for
example, are not compatible with competitors' machines. See App.
424-425, 487-489, 537. Kodak parts are not compatible with other
manufacturers' equipment, and vice versa. See
id., at
432,413-415. Kodak equipment, although expensive when new, has
little resale value. See
id., at 358-359,
424-425,427-428,467,505-506,519-521.
Kodak provides service and parts for its machines to its
customers. It produces some of the parts itself; the rest are made
to order for Kodak by independent original-equipment manufacturers
(OEM's). See
id., at 429, 465, 490, 496. Kodak does not sell
a complete system of original equipment, lifetime service, and
lifetime parts for a single price. Instead, Kodak provides service
after the initial warranty period either through annual service
contracts, which include all necessary parts, or on a per-call
basis. See
id., at 98-99; Brief for Petitioner 3. It
charges, through negotiations and bidding, different prices for
equipment, service, and parts for different customers. See App.
420-421, 536. Kodak provides 80% to 95% of the service for Kodak
machines. See
id., at 430.
Beginning in the early 1980's, ISO's began repairing and
servicing Kodak equipment. They also sold parts and reconditioned
and sold used Kodak equipment. Their customers were federal, state,
and local government agencies, banks, insurance companies,
industrial enterprises, and providers of specialized copy and
microfilming services. See
id., at 417, 419-421, 492-493,
499, 516, 539. ISO's provide service at a price substantially lower
than Kodak does. See
id., at 414, 451, 453-454, 469,
474-475, 488, 493, 536-537; Lodging 133. Some customers found that
the ISO service was of higher quality. See App. 425-426,
537-538.
computer-generated data onto microfilm. The fourth is Computer
Assisted Retrieval (CAR) systems, which utilize computers to locate
and retrieve micrographic images. See App. 156-158.
458
Some ISO customers purchase their own parts and hire ISO's only
for service. See Lodging 144-147. Others choose ISO's to supply
both service and parts. See
id., at 133. ISO's keep an
inventory of parts, purchased from Kodak or other sources,
primarily the OEM's.2 See App. 99, 415-416, 490.
In 1985 and 1986, Kodak implemented a policy of selling
replacement parts for micrographic and copying machines only to
buyers of Kodak equipment who use Kodak service or repair their own
machines. See Brief for Petitioner 6; App. 91-92, 98-100, 140-141,
171-172, 190, 442-447, 455456, 483-484.
As part of the same policy, Kodak sought to limit ISO access to
other sources of Kodak parts. Kodak and the OEM's agreed that the
OEM's would not sell parts that fit Kodak equipment to anyone other
than Kodak. See
id., at 417, 428-429, 447, 468, 474, 496.
Kodak also pressured Kodak equipment owners and independent parts
distributors not to sell Kodak parts to ISO's. See
id., at
419-420, 428-429, 483484, 517-518, 589-590. In addition, Kodak took
steps to restrict the availability of used machines. See
id., at 427-428, 465-466, 510-511, 520.
Kodak intended, through these policies, to make it more
difficult for ISO's to sell service for Kodak machines. See
id., at 106-107, 171,516. It succeeded. ISO's were unable to
obtain parts from reliable sources, see
id., at 429, 468,
496, and many were forced out of business, while others lost
substantial revenue. See
id., at 422, 458-459, 464, 468,
475477, 482-484, 495-496, 501, 521. Customers were forced to switch
to Kodak service even though they preferred ISO service. See
id., at 420-422.
2 In addition to the OEM's, other sources of Kodak parts include
(1) brokers who would buy parts from Kodak, or strip used Kodak
equipment to obtain the useful parts and resell them, (2) customers
who buy parts from Kodak and make them available to ISO's, and (3)
used equipment to be stripped for parts. See
id., at 419,
517; Brief for Petitioner 38.
459
B
In 1987, the ISO's filed the present action in the District
Court, alleging,
inter alia, that Kodak had unlawfully tied
the sale of service for Kodak machines to the sale of parts, in
violation of § 1 of the Sherman Act, and had unlawfully monopolized
and attempted to monopolize the sale of service for Kodak machines,
in violation of § 2 of that Act.3
Kodak filed a motion for summary judgment before respondents had
initiated discovery. The District Court permitted respondents to
file one set of interrogatories and one set of requests for
production of documents and to take six depositions. Without a
hearing, the District Court granted summary judgment in favor of
Kodak. App. to Pet. for Cert.29B.
As to the § 1 claim, the court found that respondents had
provided no evidence of a tying arrangement between Kodak equipment
and service or parts. See
id., at 32B-33B. The court,
however, did not address respondents' § 1 claim that is at issue
here. Respondents allege a tying arrangement not between Kodak
equipment and service, but between Kodak
parts and
service. As to the § 2 claim, the District Court concluded that
although Kodak had a "natural monopoly over the market for parts it
sells under its name," a unilateral refusal to sell those parts to
ISO's did not violate § 2.
3 Section 1 of the Sherman Act states in relevant part: "Every
contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal." 15 U.
S. C. § 1 (1988 ed., Supp. II).
Section 2 of the Sherman Act states: "Every person who shall
monopolize, or attempt to monopolize, or combine or conspire with
any other person or persons, to monopolize any part of the trade or
commerce among the several States, or with foreign nations, shall
be deemed guilty of a felony, and, on conviction thereof, shall be
punished by fine not exceeding $10,000,000 if a corporation, or, if
any other person, $350,000, or by imprisonment not exceeding three
years, or by both said punishments, in the discretion of the
court." 15 U. S. C. § 2 (1988 ed., Supp. II).
460
The Court of Appeals for the Ninth Circuit, by a divided vote,
reversed.
903 F.2d
612 (1990). With respect to the § 1 claim, the court first
found that whether service and parts were distinct markets and
whether a tying arrangement existed between them were disputed
issues of fact.
Id., at 615-616. Having found that a tying
arrangement might exist, the Court of Appeals considered a question
not decided by the District Court: Was there "an issue of material
fact as to whether Kodak has sufficient economic power in the tying
product market [parts] to restrain competition appreciably in the
tied product market [service]."
Id., at 616. The court
agreed with Kodak that competition in the equipment market might
prevent Kodak from possessing power in the parts market, but
refused to uphold the District Court's grant of summary judgment
"on this theoretical basis" because "market imperfections can keep
economic theories about how consumers will act from mirroring
reality."
Id., at 617. Noting that the District Court had
not considered the market power issue, and that the record was not
fully developed through discovery, the court declined to require
respondents to conduct market analysis or to pinpoint specific
imperfections in order to withstand summary judgment.4 "It is
enough that [respondents] have presented evidence of actual events
from which a reasonable trier of fact could conclude that ...
competition in the [equipment] market does not, in reality, curb
Kodak's power in the parts market."
Ibid.
4 Specifically, the Court of Appeals explained that the District
Court had denied the request for further discovery made by
respondents in their opposition to Kodak's summary judgment motion:
"For example, [respondents] requested to depose two ISO customers
who allegedly would not sign accurate statements concerning Kodak's
market power in the parts market. Not finding it necessary to reach
the market power issue in its decision, the district court, of
course, had no reason to grant this request." 903 F. 2d, at 617, n.
4.
461
The court then considered the three business justifications
Kodak proffered for its restrictive parts policy: (1) to guard
against inadequate service, (2) to lower inventory costs, and (3)
to prevent ISO's from free-riding on Kodak's investment in the
copier and micrographic industry. The court concluded that the
trier of fact might find the product quality and inventory reasons
to be pretextual and that there was a less restrictive alternative
for achieving Kodak's qualityrelated goals.
Id., at 618-619.
The court also found Kodak's third justification, preventing ISO's
from profiting on Kodak's investments in the equipment markets,
legally insufficient.
Id., at 619.
As to the § 2 claim, the Court of Appeals concluded that
sufficient evidence existed to support a finding that Kodak's
implementation of its parts policy was "anticompetitive" and
"exclusionary" and "involved a specific intent to monopolize."
Id., at 620. It held that the ISO's had come forward with
sufficient evidence, for summary judgment purposes, to disprove
Kodak's business justifications.
Ibid.
The dissent in the Court of Appeals, with respect to the § 1
claim, accepted Kodak's argument that evidence of competition in
the equipment market
"necessarily precludes power in the
derivative market."
Id., at 622 (emphasis in original). With
respect to the § 2 monopolization claim, the dissent concluded
that, entirely apart from market power considerations, Kodak was
entitled to summary judgment on the basis of its first business
justification because it had "submitted extensive and undisputed
evidence of a marketing strategy based on high-quality service."
Id., at 623.
II
A tying arrangement is "an agreement by a party to sell one
product but only on the condition that the buyer also purchases a
different (or tied) product, or at least agrees that he will not
purchase that product from any other supplier."
Northern Pacific
R. Co. v.
United States, 356 U. S. 1, 5-6
462
(1958). Such an arrangement violates § 1 of the Sherman Act if
the seller has "appreciable economic power" in the tying product
market and if the arrangement affects a substantial volume of
commerce in the tied market.
Fortner Enterprises, Inc. v.
United States Steel Corp., 394 U. S. 495, 503
(1969).
Kodak did not dispute that its arrangement affects a substantial
volume of interstate commerce. It, however, did challenge whether
its activities constituted a "tying arrangement" and whether Kodak
exercised "appreciable economic power" in the tying market. We
consider these issues in turn.
A
For respondents to defeat a motion for summary judgment on their
claim of a tying arrangement, a reasonable trier of fact must be
able to find, first, that service and parts are two distinct
products, and, second, that Kodak has tied the sale of the two
products.
For service and parts to be considered two distinct products,
there must be sufficient consumer demand so that it is efficient
for a firm to provide service separately from parts.
Jefferson
Parish Hospital Dist. No. 2 v.
Hyde, 466 U. S. 2, 21-22 (1984).
Evidence in the record indicates that service and parts have been
sold separately in the past and still are sold separately to
self-service equipment owners.5 Indeed, the development of the
entire high-technology service industry is evidence of the
efficiency of a separate market for service.6
5 The Court of Appeals found: "Kodak's policy of allowing
customers to purchase parts on condition that they agree to service
their own machines suggests that the demand for parts can be
separated from the demand for service."
Id., at 616.
6 Amicus briefs filed by various service
organizations attest to the magnitude of the service business. See,
e. g., Brieffor Computer Service Network
International as
Amicus Curiae; Brief for National
Electronics Sales and Service Dealers Association as
Amicus
Curiae; Brief for Cali-
463
Kodak insists that because there is no demand for parts separate
from service, there cannot be separate markets for service and
parts. Brief for Petitioner 15, n. 3. By that logic, we would be
forced to conclude that there can never be separate markets, for
example, for cameras and film, computers and software, or
automobiles and tires. That is an assumption we are unwilling to
make. "We have often found arrangements involving functionally
linked products at least one of which is useless without the other
to be prohibited tying devices."
Jefferson Parish, 466 U.
8., at 19, n.30.
Kodak's assertion also appears to be incorrect as a factual
matter. At least some consumers would purchase service without
parts, because some service does not require parts, and some
consumers, those who self-service for example, would purchase parts
without service.7 Enough doubt is cast on Kodak's claim of a
unified market that it should be resolved by the trier of fact.
Finally, respondents have presented sufficient evidence of a tie
between service and parts. The record indicates that Kodak would
sell parts to third parties only if they agreed not to buy service
from 180's.8
fornia State Electronics Association et al. as
Amici
Curiae; Brief for N ational Office Machine Dealers et al. as
Amici Curiae.
7 The dissent suggests that parts and service are not separate
products for tying purposes because all service may involve
installation of parts.
Post, at 494-495, n. 2. Because the
record does not support this factual assertion, under the approach
of both the Court and the concurrence in
Jefferson Parish
Hospital Dist. No.2 v.
Hyde, 466 U. S. 2 (1984), Kodak
is not entitled to summary judgment on whether parts and service
are distinct markets.
8 In a footnote, Kodak contends that this practice is only a
unilateral refusal to deal, which does not violate the antitrust
laws. See Brief for Petitioner 15, n. 4. Assuming,
arguendo,
that Kodak's refusal to sell parts to any company providing service
can be characterized as a unilateral refusal to deal, its alleged
sale of parts to third parties on condition that they buy service
from Kodak is not. See 903 F. 2d, at 619.
464
B
Having found sufficient evidence of a tying arrangement, we
consider the other necessary feature of an illegal tying
arrangement: appreciable economic power in the tying market. Market
power is the power "to force a purchaser to do something that he
would not do in a competitive market."
Jefferson Parish, 466
U. S., at 14.9 It has been defined as "the ability of a single
seller to raise price and restrict output."
Fortner, 394 U.
S., at 503;
United States v.
E. 1.
du Pont de
Nemours &
Co., 351 U. S. 377, 391
(1956). The existence of such power ordinarily is inferred from the
seller's possession of a predominant share of the market.
Jefferson Parish, 466 U. S., at 17;
United States v.
Grinnell Corp., 384 U. S. 563, 571 (1966);
Times-Picayune
Publishing Co. v.
United States, 345 U. S. 594, 611-613
(1953).
1
Respondents contend that Kodak has more than sufficient power in
the parts market to force unwanted purchases of the tied market,
service. Respondents provide evidence that certain parts are
available exclusively through Kodak. Respondents also assert that
Kodak has control over the availability of parts it does not
manufacture. According to respondents' evidence, Kodak has
prohibited independent manufacturers from selling Kodak parts to
ISO's, pressured Kodak equipment owners and independent parts
distributors to deny ISO's the purchase of Kodak parts, and taken
steps to restrict the availability of used machines.
9 "[T]he essential characteristic of an invalid tying
arrangement lies in the seller's exploitation of its control over
the tying product to force the buyer into the purchase of a tied
product that the buyer either did not want at all, or might have
preferred to purchase elsewhere on different terms. When such
'forcing' is present, competition on the merits in the market for
the tied item is restrained and the Sherman Act is violated."
Jefferson Parish, 466 U. S., at 12.
465
Respondents also allege that Kodak's control over the parts
market has excluded service competition, boosted service prices,
and forced unwilling consumption of Kodak service. Respondents
offer evidence that consumers have switched to Kodak service even
though they preferred ISO service, that Kodak service was of higher
price and lower quality than the preferred ISO service, and that
ISO's were driven out of business by Kodak's policies. Under our
prior precedents, this evidence would be sufficient to entitle
respondents to a trial on their claim of market power.
2
Kodak counters that even if it concedes monopoly
share of
the relevant parts market, it cannot actually exercise the
necessary market
power for a Sherman Act violation. This is
so, according to Kodak, because competition exists in the equipment
market.lO Kodak argues that it could not have
10 In their brief and at oral argument, respondents argued that
Kodak's market share figures for high-volume copy machines, CAR
systems, and micrographic-capture equipment demonstrate Kodak's
market power in the equipment market. Brief for Respondents 16-18,
32-33; Tr. of Oral Arg.28-31.
In the Court of Appeals, however, respondents did not contest
Kodak's assertion that its market shares indicated a competitive
equipment market. The Court of Appeals believed that respondents
"do not dispute Kodak's assertion that it lacks market power in the
[equipment] markets." 903 F. 2d, at 616, n. 3. Nor did respondents
question Kodak's asserted lack of market power in their brief in
opposition to the petition for certiorari, although they
acknowledged that Kodak's entire case rested on its understanding
that respondents were not disputing the existence of competition in
the equipment market. Brief in Opposition 8.
Recognizing that on summary judgment we may examine the record
de novo without relying on the lower courts' understanding,
United States v.
Diebold, Inc., 369 U. S. 654, 655
(1962), respondents now ask us to decline to reach the merits of
the questions presented in the petition, and instead to affirm the
Ninth Circuit's judgment based on the factual dispute over market
power in the equipment market. We decline respondents' invitation.
We stated in
Oklahoma City v.
Tuttle, 471 U. S. 808, 816
(1985):
"Our decision to grant certiorari represents a commitment of
scarce judi-
466
the ability to raise prices of service and parts above the level
that would be charged in a competitive market because any increase
in profits from a higher price in the aftermarkets at least would
be offset by a corresponding loss in profits from lower equipment
sales as consumers began purchasing equipment with more attractive
service costs.
Kodak does not present any actual data on the equipment,
service, or parts markets. Instead, it urges the adoption of a
substantive legal rule that "equipment competition precludes any
finding of monopoly power in derivative aftermarkets." Brief for
Petitioner 33. Kodak argues that such a rule would satisfy its
burden as the moving party of showing "that there is no genuine
issue as to any material fact" on the market power issueY See Fed.
Rule Civ. Proc. 56(c).
Legal presumptions that rest on formalistic distinctions rather
than actual market realities are generally disfavored
cial resources with a view to deciding the merits of one or more
of the questions presented in the petition." Because respondents
failed to bring their objections to the premise underlying the
questions presented to our attention in their opposition to the
petition for certiorari, we decide those questions based on the
same premise as the Court of Appeals, namely, that competition
exists in the equipment market.
11 Kodak argues that such a rule would be
per se, with no
opportunity for respondents to rebut the conclusion that market
power is lacking in the parts market. See Brief for Petitioner
30-31 ("There is nothing that respondents could prove that would
overcome Kodak's conceded lack of market power");
id., at 30
(discovery is "pointless" once the "dispositive fact" of lack of
market power in the equipment market is conceded);
id., at
22 (Kodak's lack of market power in the equipment market "dooms any
attempt to extract monopoly profits" even in an allegedly imperfect
market);
id., at 25 (it is "impossible" for Kodak to make
more total profit by overcharging its existing customers for
service).
As an apparent second-best alternative, Kodak suggests elsewhere
in its brief that the rule would permit a defendant to meet its
summary judgment burden under Federal Rule of Civil Procedure
56(c); the burden would then shift to the plaintiffs to "prove ...
that there is specific reason to believe that normal economic
reasoning does not apply." Brief for Petitioner 30. This is the
United States' position. See Brief for United States as
Amicus
Curiae 10-11.
467
in antitrust law. This Court has preferred to resolve antitrust
claims on a case-by-case basis, focusing on the "particular facts
disclosed by the record."
Maple Flooring Manufacturers Assn.
v.
United States, 268 U. S. 563, 579
(1925);
Du Pont, 351 U. S., at 395, n. 22;
Continental
T. V:,
Inc. v.
GTE Sylvania Inc., 433 U. S. 36, 70 (1977)
(WHITE, J., concurring in judgment).12 In determining the existence
of market power, and specifically the "responsiveness of the sales
of one product to price changes of the other,"
Du Pont, 351
U. S., at 400; see also
id., at 394-395, and 400-401, this
Court has examined closely the economic reality of the market at
issue.13
Kodak contends that there is no need to examine the facts when
the issue is market power in the aftermarkets. A legal presumption
against a finding of market power is warranted in this situation,
according to Kodak, because the existence of market power in the
service and parts markets absent power in the equipment market
"simply makes no economic sense," and the absence of a legal
presumption would deter procompetitive behavior.
Matsushita,
475 U. S., at 587;
id., at 594-595.
Kodak analogizes this case to
Matsushita, where a group
of American corporations that manufactured or sold consumer
electronic products alleged that their 21 Japanese counterparts
were engaging in a 20- year conspiracy to price
12 See generally Business Electronics Corp. v. Sharp Electronics
Corp.,
485 U. S.
717, 723-726 (1988); FTC v. Indiana Federation of Dentists,
476 U. S. 447,
458-459 (1986); National Collegiate Athletic Assn. v. Board of
Regents of Univ. of Okla.,
468 U. S. 85, 100-104
(1984); Continental T.
v., Inc. v. GTE Sylvania Inc., 433 U.
S., at 59.
13 See,
e. g., Jefferson Parish, 466 U. S., at 26-29;
United States v.
Connecticut National Bank, 418 U. S. 656, 661-666
(1974);
United States v.
Grinnell Corp., 384 U. S. 563, 571-576
(1966);
International Boxing Club of New York, Inc. v.
United States, 358 U. S. 242, 250-251
(1959); see also
Jefferson Parish, 466 U. S., at 37, n. 6
(O'CONNOR, J., concurring) (citing cases and describing the careful
consideration the Court gives to the particular facts when
determining market power).
468
below cost in the United States in the hope of expanding their
market share sometime in the future. After several years of
detailed discovery, the defendants moved for summary judgment.
Id., at 577-582. Because the defendants had every incentive
not to engage in the alleged conduct which required them to sustain
losses for decades with no foreseeable profits, the Court found an
"absence of any rational motive to conspire."
Id., at 597.
In that context, the Court determined that the plaintiffs' theory
of predatory pricing made no practical sense, was "speculative,"
and was not "reasonable."
Id., at 588, 590, 593, 595, 597.
Accordingly, the Court held that a reasonable jury could not return
a verdict for the plaintiffs and that summary judgment would be
appropriate against them unless they came forward with more
persuasive evidence to support their theory.
Id., at
587-588, 595-598.
The Court's requirement in
Matsushita that the
plaintiffs' claims make economic sense did not introduce a special
burden on plaintiffs facing summary judgment in antitrust cases.
The Court did not hold that if the moving party enunciates
any economic theory supporting its behavior, regardless of
its accuracy in reflecting the actual market, it is entitled to
summary judgment.
Matsushita demands only that the nonmoving
party's inferences be reasonable in order to reach the jury, a
requirement that was not invented, but merely articulated, in that
decision.14 If the plaintiff's theory is eco-
14 See,
e. g., Anderson v.
Liberty Lobby, Inc.,
477 U. S. 242,
248 (1986) ("[S]ummary judgment will not lie ... if the evidence is
such that a reasonable jury could return a verdict for the
nonmoving party");
Monsanto Co. v.
Spray-Rite Service
Corp., 465 U. S.
752, 768 (1984) (to survive summary judgment there must be
evidence that "reasonably tends to prove" plaintiff's theory);
First National Bank of Arizona v.
Cities Service Co.,
391 U. S. 253, 288-289 (1968) (defendant meets his burden under
Rule 56(c) when he "conclusively show[s] that the facts upon which
[the plaintiff] relied to support his allegation were not
susceptible of the interpretation which he sought to give them");
Eastman Kodak Co. of New York v.
Southern Photo Materials
Co., 273 U. S.
359,375 (1927). See also
H. L. Hayden
469
nomically senseless, no reasonable jury could find in its favor,
and summary judgment should be granted.
Kodak, then, bears a substantial burden in showing that it is
entitled to summary judgment. It must show that despite evidence of
increased prices and excluded competition, an inference of market
power is unreasonable. To determine whether Kodak has met that
burden, we must unravel the factual assumptions underlying its
proposed rule that lack of power in the equipment market
necessarily precludes power in the aftermarkets.
The extent to which one market prevents exploitation of another
market depends on the extent to which consumers will change their
consumption of one product in response to a price change in
another, i.
e., the "cross-elasticity of demand." See
Du
Pont, 351 U. S., at 400; P. Areeda & L. Kaplow, Antitrust
Analysis, 342(c) (4th ed. 1988).15 Ko-
Co. of New York, Inc. v.
Siemens Medical Systems,
Inc., 879 F.2d
1005,
1012 (CA2 1989) ("[O]nly
reasonable
inferences can be drawn from the evidence in favor of the nonmoving
party") (emphasis in original);
Arnold Pontiac-GMC, Inc. v.
Budd Baer, Inc., 826 F.2d
1335, 1339
(CA3 1987) (Matsushita directs us "'to
consider whether the inference of conspiracy is reasonable' ");
Instructional Systems Development Corp. v.
Aetna
Casualty &
Surety Co., 817 F.2d
639, 646 (CAlO 1987) (summary judgment not appropriate under
Matsushita when defendants "could reasonably have been
economically motivated").
15 What constrains the defendant's ability to raise prices in
the service market is "the elasticity of demand faced by the
defendant-the degree to which its sales fall ... as its price
rises." Areeda & Kaplow' 342(c), p.576.
Courts usually have considered the relationship between price in
one market and demand in another in defining the relevant market.
Because market power is often inferred from market share, market
definition generally determines the result of the case. Pitofsky,
New Definitions of Relevant Market and the Assault on Antitrust, 90
Colum. L. Rev. 1805, 18061813 (1990). Kodak chose to focus on
market power directly rather than arguing that the relationship
between equipment and service and parts is such that the three
should be included in the same market definition. Whether
considered in the conceptual category of "market definition" or
"market power," the ultimate inquiry is the same-whether
competition
470
dak's proposed rule rests on a factual assumption about the
cross-elasticity of demand in the equipment and aftermarkets: "If
Kodak raised its parts or service prices above competitive levels,
potential customers would simply stop buying Kodak equipment.
Perhaps Kodak would be able to increase short term profits through
such a strategy, but at a devastating cost to its long term
interests." 16 Brief for Petitioner 12. Kodak argues that the Court
should accept, as a matter of law, this "basic economic realit[y],"
id., at 24, that competition in the equipment market
necessarily prevents market power in the aftermarketsP
Even if Kodak could not raise the price of service and parts one
cent without losing equipment sales, that fact would not disprove
market power in the aftermarkets. The sales of even a monopolist
are reduced when it sells goods at a monopoly price, but the higher
price more than compensates for the loss in sales. Areeda &
Kaplow" 112 and 340(a). Kodak's claim that charging more for
service and parts would be "a short-run game," Brief for Petitioner
26, is based on the false dichotomy that there are only two
prices
in the equipment market will significantly restrain power in the
service and parts markets.
16 The United States as
amicus curiae in support of Kodak
echoes this argument: "The ISOs' claims are implausible because
Kodak lacks market power in the markets for its copier and
micrographic equipment. Buyers of such equipment regard an increase
in the price of parts or service as an increase in the price of the
equipment, and sellers recognize that the revenues from sales of
parts and service are attributable to sales of the equipment. In
such circumstances, it is not apparent how an equipment
manufacturer such as Kodak could exercise power in the aftermarkets
for parts and service." Brief for United States as
Amicus Curiae
8.
17 It is clearly true, as the United States claims, that Kodak
"cannot set service or parts prices without regard to the impact on
the market for equipment."
Id., at 20. The fact that the
cross-elasticity of demand is not zero proves nothing; the disputed
issue is how much of an impact an increase in parts and service
prices has on equipment sales and on Kodak's profits.
471
that can be charged-a competitive price or a ruinous one. But
there could easily be a middle, optimum price at which the
increased revenues from the higher priced sales of service and
parts would more than compensate for the lower revenues from lost
equipment sales. The fact that the equipment market imposes a
restraint on prices in the aftermarkets by no means disproves the
existence of power in those markets. See Areeda & Kaplow'
340(b) ("[T]he existence of significant substitution in the event
of
further price increases or even at the
current
price does not tell us whether the defendant
already
exercises significant market power") (emphasis in original). Thus,
contrary to Kodak's assertion, there is no immutable physical
law-no "basic economic reality"-insisting that competition in the
equipment market cannot coexist with market power in the
aftermarkets.
We next consider the more narrowly drawn question: Does Kodak's
theory describe actual market behavior so accurately that
respondents' assertion of Kodak market power in the aftermarkets,
if not impossible, is at least unreasonable? 18 Cf.
Matsushita
Electric Industrial Co. v.
Zenith Radio Corp., 475 U. S. 574 (1986).
18 Although Kodak repeatedly relies on
Continental T. V.
as support for its factual assertion that the equipment market will
prevent exploitation of the service and parts markets, the case is
inapposite. In
Continental T. v., the Court found
that a manufacturer's policy restricting the number of retailers
that were permitted to sell its product could have a procompetitive
effect. See 433 U. S., at 55. The Court also noted that any
negative effect of exploitation of the intrabrand market (the
competition between retailers of the same product) would be checked
by competition in the interbrand market (competition over the same
generic product) because consumers would substitute a different
brand of the same product. Unlike
Continental T. v.,
this case does not concern vertical relationships between parties
on different levels of the same distribution chain. In the relevant
market, service, Kodak and the ISO's are direct competitors; their
relationship is horizontal. The interbrand competition at issue
here is competition over the provision of service. Despite
petitioner's best effort,
472
To review Kodak's theory, it contends that higher service prices
will lead to a disastrous drop in equipment sales. Presumably, the
theory's corollary is to the effect that low service prices lead to
a dramatic increase in equipment sales. According to the theory,
one would have expected Kodak to take advantage of lower priced ISO
service as an opportunity to expand equipment sales. Instead, Kodak
adopted a restrictive sales policy consciously designed to
eliminate the lower priced ISO service, an act that would be
expected to devastate either Kodak's equipment sales or Kodak's
faith in its theory. Yet, according to the record, it has done
neither. Service prices have risen for Kodak customers, but there
is no evidence or assertion that Kodak equipment sales have
dropped.
Kodak and the United States attempt to reconcile Kodak's theory
with the contrary actual results by describing a "marketing
strategy of spreading over time the total cost to the buyer of
Kodak equipment." Brief for United States as
Amicus Curiae
18; see also Brief for Petitioner 18. In other words, Kodak could
charge subcompetitive prices for equipment and make up the
difference with supracompetitive prices for service, resulting in
an overall competitive price. This pricing strategy would provide
an explanation for the theory's descriptive failings-if Kodak in
fact had adopted it. But Kodak never has asserted that it prices
its equipment or parts subcompetitively and recoups its profits
through service. Instead, it claims that it prices its equipment
comparably to its competitors and intends that both its equipment
sales and service divisions be profitable. See App. 159-161, 170,
178, 188. Moreover, this hypothetical pricing strategy is
inconsistent with Kodak's policy toward its self-service customers.
If Kodak were underpricing its equipment, hoping to lock in
customers and recover its losses in the service
repeating the mantra "interbrand competition" does not transform
this case into one over an agreement the manufacturer has with its
dealers that would fall under the rubric of
Continental T.
V.
473
market, it could not afford to sell customers parts without
service. In sum, Kodak's theory does not explain the actual market
behavior revealed in the record.
Respondents offer a forceful reason why Kodak's theory, although
perhaps intuitively appealing, may not accurately explain the
behavior of the primary and derivative markets for complex durable
goods: the existence of significant information and switching
costs. These costs could create a less responsive connection
between service and parts prices and equipment sales.
For the service-market price to affect equipment demand,
consumers must inform themselves of the total cost of the "package"
-equipment, service, and parts-at the time of purchase; that is,
consumers must engage in accurate lifecycle pricing.19 Life-cycle
pricing of complex, durable equipment is difficult and costly. In
order to arrive at an accurate price, a consumer must acquire a
substantial amount of raw data and undertake sophisticated
analysis. The necessary information would include data on price,
quality, and availability of products needed to operate, upgrade,
or enhance the initial equipment, as well as service and repair
costs, including estimates of breakdown frequency, nature of
repairs, price of service and parts, length of "downtime," and
losses incurred from downtime.20
Much of this information is difficult-some of it impossible-to
acquire at the time of purchase. During the life of a product,
companies may change the service and parts prices, and develop
products with more advanced features, a
19 See Craswell, Tying Requirements in Competitive Markets: The
Consumer Protection Issues, 62 B. U. L. Rev. 661, 676 (1982);
Beales, Craswell, & Salop, The Efficient Regulation of Consumer
Information, 24 J. Law & Econ. 491, 509-511 (1981);
Jefferson Parish, 466 U. S., at 15.
20 In addition, of course, in order to price accurately the
equipment, a consumer would need initial purchase information such
as prices, features, quality, and available warranties for
different machinery with different capabilities, and residual value
information such as the longevity of product use and its potential
resale or trade-in value.
474
decreased need for repair, or new warranties. In addition, the
information is likely to be customer specific; lifecycle costs will
vary from customer to customer with the type of equipment, degrees
of equipment use, and costs of downtime.
Kodak acknowledges the cost of information, but suggests, again
without evidentiary support, that customer information needs will
be satisfied by competitors in the equipment markets. Brief for
Petitioner 26, n. 11. It is a question of fact, however, whether
competitors would provide the necessary information. A competitor
in the equipment market may not have reliable information about the
lifecycle costs of complex equipment it does not service or the
needs of customers it does not serve. Even if competitors had the
relevant information, it is not clear that their interests would be
advanced by providing such information to consumers. See 2 P.
Areeda & D. Turner, Antitrust Law'
J"OJ"bl (1978).21
Moreover, even if consumers were capable of acquiring and
processing the complex body of information, they may choose not to
do so. Acquiring the information is expensive. If the costs of
service are small relative to the equipment price, or if consumers
are more concerned about equipment capabilities than service costs,
they may not find it cost efficient to
21 To inform consumers about Kodak, the competitor must be
willing to forgo the opportunity to reap supracompetitive prices in
its own service and parts markets. The competitor may anticipate
that charging lower service and parts prices and informing
consumers about Kodak in the hopes of gaining future equipment
sales will cause Kodak to lower the price on its service and parts,
canceling any gains in equipment sales to the competitor and
leaving both worse off. Thus, in an equipment market with
relatively few sellers, competitors may find it more profitable to
adopt Kodak's service and parts policy than to inform the
consumers. See 2 Areeda & Turner, Antitrust Law'
404bl;
App. 177 (Kodak, Xerox, and IBM together have nearly 100% of
relevant market).
Even in a market with many sellers, anyone competitor may not
have sufficient incentive to inform consumers because the increased
patronage attributable to the corrected consumer beliefs will be
shared among other competitors. Beales, Craswell, & Salop, 24
J. Law & Econ., at 503-504, 506.
475
compile the information. Similarly, some consumers, such as the
Federal Government, have purchasing systems that make it difficult
to consider the complete cost of the "package" at the time of
purchase. State and local governments often treat service as an
operating expense and equipment as a capital expense, delegating
each to a different department. These governmental entities do not
lifecycle price, but rather choose the lowest price in each market.
See Brief for N ational Association of State Purchasing Officials
et al. as
Amici Curiae; Brief for State of Ohio et al. as
Amici Curiae; App. 429-430.
As Kodak notes, there likely will be some large-volume,
sophisticated purchasers who will undertake the comparative studies
and insist, in return for their patronage, that Kodak charge them
competitive lifecycle prices. Kodak contends that these
knowledgeable customers will hold down the package price for all
other customers. Brief for Petitioner 23, n. 9. There are reasons,
however, to doubt that sophisticated purchasers will ensure that
competitive prices are charged to unsophisticated purchasers, too.
As an initial matter, if the number of sophisticated customers is
relatively small, the amount of profits to be gained by
supracompetitive pricing in the service market could make it
profitable to let the knowledgeable consumers take their business
elsewhere. More importantly, if a company is able to price
discriminate between sophisticated and unsophisticated consumers,
the sophisticated will be unable to prevent the exploitation of the
uninformed. A seller could easily price discriminate by varying the
equipment/parts/service package, developing different warranties,
or offering price discounts on different components.
Given the potentially high cost of information and the
possibility that a seller may be able to price discriminate between
knowledgeable and unsophisticated consumers, it makes little sense
to assume, in the absence of any evidentiary support, that
equipment-purchasing decisions are based
476
on an accurate assessment of the total cost of equipment,
service, and parts over the lifetime of the machine.22
Indeed, respondents have presented evidence that Kodak practices
price discrimination by selling parts to customers who service
their own equipment, but refusing to sell parts to customers who
hire third-party service companies. Companies that have their own
service staff are likely to be highvolume users, the same companies
for whom it is most likely to be economically worthwhile to acquire
the complex information needed for comparative lifecycle
pricing.
A second factor undermining Kodak's claim that supracompetitive
prices in the service market lead to ruinous losses in equipment
sales is the cost to current owners of switching to a different
product. See Areeda & Turner' 519a.23 If the cost of switching
is high, consumers who already have purchased the equipment, and
are thus "locked in," will tolerate some level of service-price
increases before changing equipment brands. Under this scenario, a
seller profitably could maintain supracompetitive prices in the
aftermarket if the switching costs were high relative to the
increase in service prices, and the number of locked-in customers
were high relative to the number of new purchasers.
Moreover, if the seller can price discriminate between its
locked-in customers and potential new customers, this strategy is
even more likely to prove profitable. The seller could simply
charge new customers below-marginal cost on the equipment and
recoup the charges in service, or offer pack-
22 See Salop & Stiglitz, Bargains and Ripoffs: A Model of
Monopolistically Competitive Price Dispersion, 44 Rev. Econ.
Studies 493 (1977); Salop, Information and Market
Structure-Information and Monopolistic Competition, 66 Am. Econ.
Rev. 240 (1976); Stigler, The Economics of Information, 69 J. Pol.
Econ. 213 (1961).
23 A firm can exact leverage whenever other equipment is not a
ready substitute. F. Scherer & D. Ross, Industrial Market
Structure and Economic Performance 16-17 (3d ed. 1990).
477
ages with lifetime warranties or long-term service agreements
that are not available to locked-in customers.
Respondents have offered evidence that the heavy initial outlay
for Kodak equipment, combined with the required support material
that works only with Kodak equipment, makes switching costs very
high for existing Kodak customers. And Kodak's own evidence
confirms that it varies the package price of
equipment/parts/service for different customers.
In sum, there is a question of fact whether information costs
and switching costs foil the simple assumption that the equipment
and service markets act as pure complements to one another.24
We conclude, then, that Kodak has failed to demonstrate that
respondents' inference of market power in the service and parts
markets is unreasonable, and that, consequently, Kodak is entitled
to summary judgment. It is clearly reasonable to infer that Kodak
has market power to raise prices and drive out competition in the
aftermarkets, since respondents offer direct evidence that Kodak
did SO.25 It is also plausible, as discussed above, to infer that
Kodak chose to gain immediate profits by exerting that market power
where locked-in customers, high information costs, and
discriminatory pricing limited and perhaps eliminated any long-
24 The dissent disagrees based on its hypothetical case of a tie
between equipment and service. "The only thing lacking" to bring
this case within the hypothetical case, states the dissent, "is
concrete evidence that the restrictive parts policy was ...
generally known."
Post, at 492. But the dissent's "only
thing lacking" is the crucial thing lacking-evidence. Whether a tie
between parts and service should be treated identically to a tie
between equipment and service, as the dissent and Kodak argue,
depends on whether the equipment market prevents the exertion of
market power in the parts market. Far from being "anomalous,"
post, at 492-493, requiring Kodak to provide evidence on
this factual question is completely consistent with our prior
precedent. See,
e. g., n. 13,
supra.
25 Cf.
Instructional Systems, 817 F. 2d, at 646 (finding
the conspiracy reasonable under
Matsushita because its goals
were in fact achieved).
478
term loss. Viewing the evidence in the light most favorable to
respondents, their allegations of market power "mak[e] ... economic
sense." Cf.
Matsushita, 475 U. S., at 587.
Nor are we persuaded by Kodak's contention that it is entitled
to a legal presumption on the lack of market power because, as in
Matsushita, there is a significant risk of deterring
procompetitive conduct. Plaintiffs in
Matsushita attempted
to prove the antitrust conspiracy "through evidence of rebates and
other price-cutting activities."
Id., at 594. Because
cutting prices to increase business is "the very essence of
competition," the Court was concerned that mistaken inferences
would be "especially costly" and would "chill the very conduct the
antitrust laws are designed to protect."
Ibid. See also
Monsanto Co. v.
Spray-Rite Service Corp., 465 U. S. 752, 763 (1984)
(permitting inference of concerted action would "deter or penalize
perfectly legitimate conduct"). But the facts in this case are just
the opposite. The alleged conduct-higher service prices and market
foreclosure-is facially anticompetitive and exactly the harm that
antitrust laws aim to prevent. In this situation,
Matsushita
does not create any presumption in favor of summary judgment for
the defendant.
Kodak contends that, despite the appearance of
anticompetitiveness, its behavior actually favors competition
because its ability to pursue innovative marketing plans will allow
it to compete more effectively in the equipment market. Brief for
Petitioner 40-41. A pricing strategy based on lower equipment
prices and higher aftermarket prices could enhance equipment sales
by making it easier for the buyer to finance the initial
purchase.26 It is undisputed that competition is enhanced when a
firm is able to offer various marketing options, including bundling
of support and maintenance service with the sale of equipment. Nor
do such ac-
26 It bears repeating that in this case Kodak has never claimed
that it is in fact pursuing such a pricing strategy.
479
tions run afoul of the antitrust laws.27 But the procompetitive
effect of the specific conduct challenged here, eliminating all
consumer parts and service options, is far less clear.28
We need not decide whether Kodak's behavior has any
procompetitive effects and, if so, whether they outweigh the
anticompetitive effects. We note only that Kodak's service and
parts policy is simply not one that appears always or almost always
to enhance competition, and therefore to warrant a legal
presumption without any evidence of its actual economic impact. In
this case, when we weigh the risk of deterring procompetitive
behavior by proceeding to trial against the risk that illegal
behavior will go unpunished, the balance tips against summary
judgment. Cf.
Matsushita, 475 U. S., at 594-595.
For the foregoing reasons, we hold that Kodak has not met the
requirements of Federal Rule of Civil Procedure 56(c). We therefore
affirm the denial of summary judgment on respondents' § 1
claim.29
27 See
Jefferson Parish, 466 U. S., at 12 ("Buyers often
find package sales attractive; a seller's decision to offer such
packages can merely be an attempt to compete effectively-conduct
that is entirely consistent with the Sherman Act"). See also Yates
& DiResta, Software Support and Hardware Maintenance Practices:
Tying Considerations, The Computer Lawyer, Vol. 8, No.6, p. 17
(1991) (describing various service and parts policies that enhance
quality and sales but do not violate the antitrust laws).
28 Two of the largest consumers of service and parts contend
that they are worse off when the equipment manufacturer also
controls service and parts. See Brief for State Farm Mutual
Automobile Insurance Co. et al. as
Amici Curiae; Brief for
State of Ohio et al. as
Amici Curiae.
29 The dissent urges a radical departure in this Court's
antitrust law. It argues that because Kodak has only an "inherent"
monopoly in parts for its equipment,
post, at 489-490, the
antitrust laws do not apply to its efforts to expand that power
into other markets. The dissent's proposal to grant
per se
immunity to manufacturers competing in the service market would
exempt a vast and growing sector of the economy from antitrust
laws. Leaving aside the question whether the Court has the
authority to
480
III
Respondents also claim that they have presented genuine issues
for trial as to whether Kodak has monopolized, or at-
make such a policy decision, there is no support for it in our
jurisprudence or the evidence in this case.
Even assuming, despite the absence of any proof from the
dissent, that all manufacturers possess some inherent market power
in the parts market, it is not clear why that should immunize them
from the antitrust laws in another market. The Court has held many
times that power gained through some natural and legal advantage
such as a patent, copyright, or business acumen can give rise to
liability if "a seller exploits his dominant position in one market
to expand his empire into the next."
TimesPicayune Publishing
Co. v.
United States, 345 U. S. 594, 611
(1953); see,
e. g., Northern Pacific R. Co. v.
United
States, 356 U. S.
1 (1958);
United States v.
Paramount Pictures,
Inc., 334 U. S.
131 (1948);
Leitch Mfg. Co. v.
Barber Co.,
302 U. S. 458,
463 (1938). Moreover, on the occasions when the Court has
considered tying in derivative aftermarkets by manufacturers, it
has not adopted any exception to the usual antitrust analysis,
treating derivative aftermarkets as it has every other separate
market. See
International Salt Co. v.
United States,
332 U. S. 392
(1947);
International Business Machines Corp. v.
United
States, 298 U. S.
131 (1936);
United Shoe Machinery Corp. v.
United
States, 258 U. S.
451 (1922). Our past decisions are reason enough to reject the
dissent's proposal. See
Patterson v.
McLean Credit
Union, 491 U. S.
164,172-173 (1989) ("Considerations of
stare decisis
have special force in the area of statutory interpretation, for
here, unlike in the context of constitutional interpretation, the
legislative power is implicated, and Congress remains free to alter
what we have done").
Nor does the record in this case support the dissent's proposed
exemption for aftermarkets. The dissent urges its exemption because
the tie here "does not permit the manufacturer to project power
over a class of consumers distinct from that which it is already
able to exploit (and fully) without the inconvenience of the tie."
Post, at 498. Beyond the dissent's obvious difficulty in
explaining why Kodak would adopt this expensive tying policy if it
could achieve the same profits more conveniently through some other
means, respondents offer an alternative theory, supported by the
record, that suggests Kodak
is able to exploit some
customers who in the absence of the tie would be protected from
increases in parts prices by knowledgeable customers. See
supra, at 475-476.
At bottom, whatever the ultimate merits of the dissent's theory,
at this point it is mere conjecture. Neither Kodak nor the dissent
have provided
481
tempted to monopolize, the service and parts markets in
violation of § 2 of the Sherman Act. "The offense of monopoly under
§ 2 of the Sherman Act has two elements: (1) the possession of
monopoly power in the relevant market and (2) the willful
acquisition or maintenance of that power as distinguished from
growth or development as a consequence of a superior product,
business acumen, or historic accident."
United States v.
Grinnell Corp., 384 U. S., at 570-571.
A
The existence of the first element, possession of monopoly
power, is easily resolved. As has been noted, respondents have
presented a triable claim that service and parts are separate
markets, and that Kodak has the "power to control prices or exclude
competition" in service and parts.
Du Pont, 351 U.
S., at 391. Monopoly power under § 2 requires, of course, something
greater than market power under § 1. See
Fortner, 394 U. S.,
at 502. Respondents' evidence that Kodak controls nearly 100% of
the parts market and 80% to 95% of the service market, with no
readily available substitutes, is, however, sufficient to survive
summary judgment under the more stringent monopoly standard of § 2.
See
National Collegiate Athletic Assn. v.
Board of
Regents of Univ. of Okla., 468 U. S. 85, 112 (1984).
Cf.
United States v.
Grinnell Corp., 384 U. S., at
571 (87% of the market is a monopoly);
American Tobacco Co.
v.
United States, 328 U. S. 781, 797 (1946)
(over two-thirds of the market is a monopoly).
Kodak also contends that, as a matter of law, a single brand of
a product or service can never be a relevant market under the
Sherman Act. We disagree. The relevant mar-
any evidence refuting respondents' theory of forced unwanted
purchases at higher prices and price discrimination. While it may
be, as the dissent predicts, that the equipment market will prevent
any harms to consumers in the aftermarkets, the dissent never makes
plain why the Court should accept that theory on faith rather than
requiring the usual evidence needed to win a summary judgment
motion.
482
ket for antitrust purposes is determined by the choices
available to Kodak equipment owners. See
Jefferson Parish,
466 U. S., at 19. Because service and parts for Kodak equipment
are not interchangeable with other manufacturers' service and
parts, the relevant market from the Kodak equipment owner's
perspective is composed of only those companies that service Kodak
machines. See
Du Pont, 351 U. S., at 404 ("The market is
composed of products that have reasonable interchangeability").3o
This Court's prior cases support the proposition that in some
instances one brand of a product can constitute a separate market.
See
National Collegiate Athletic Assn., 468 U. S., at
101-102, 111-112;
International Boxing Club of New York,
Inc. v.
United States, 358 U. S. 242, 249-252
(1959);
International Business Machines Corp. v.
United
States, 298 U. S.
131 (1936).31 The proper market definition in this case can be
determined only after a factual inquiry into the "commercial
realities" faced by consumers.
United States v.
Grinnell
Corp., 384 U. S., at 572.
B
The second element of a § 2 claim is the use of monopoly power
"to foreclose competition, to gain a competitive advan-
30 Kodak erroneously contends that this Court in
Du Pont
rejected the notion that a relevant market could be limited to one
brand. Brief for Petitioner 33. The Court simply held in
Du
Pont that one brand does not
necessarily constitute a
relevant market if substitutes are available. 351 U. S., at 393.
See also
Boxing Club, 358 U. S., at 249-250. Here
respondents contend there are no substitutes.
31 Other courts have limited the market to parts for a
particular brand of equipment. See,
e. g., International
Logistics Group, Ltd. v.
Chrysler Corp., 884 F.2d
904, 905, 908
(CA6 1989) (parts for Chrysler cars is the
relevant market), cert. denied, 494 U. S. 1066 (1990);
Dimidowich v.
Bell & Howell,
803 F.2d
1473, 1480-1481, n. 3
(CA9 1986), modified,
810 F.2d
1517 (1987) (service for Bell & Howell equipment is the
relevant market);
In re General Motors Corp., 99 F. T. C.
464, 554, 584 (1982) (crash parts for General Motors cars is the
relevant market);
Heatransfer Corp. v.
Volkswagenwerk A.
G., 553 F.2d
964 (CA5 1977) (air conditioners for Volkswagens is the
relevant market), cert. denied, 434 U. S. 1087 (1978).
483
tage, or to destroy a competitor."
United States v.
Griffith, 334
U. S. 100, 107 (1948). If Kodak adopted its parts and service
policies as part of a scheme of willful acquisition or maintenance
of monopoly power, it will have violated § 2.
Grinnell
Corp., 384 U. S., at 570-571;
United States v.
Aluminum Co. of America, 148 F.2d 416, 432 (CA2 1945);
Aspen Skiing Co. v.
Aspen Highlands Skiing Corp.,
472 U. S. 585,
600-605 (1985).32
As recounted at length above, respondents have presented
evidence that Kodak took exclusionary action to maintain its parts
monopoly and used its control over parts to strengthen its monopoly
share of the Kodak service market. Liability turns, then, on
whether "valid business reasons" can explain Kodak's actions.
Id., at 605;
United States v.
Aluminum Co. of
America, 148 F. 2d, at 432. Kodak contends that it has three
valid business justifications for its actions: "(1) to promote
interbrand equipment competition by allowing Kodak to stress the
quality of its service; (2) to improve asset management by reducing
Kodak's inventory costs; and (3) to prevent ISOs from free-riding
on Kodak's capital investment in equipment, parts and service."
Brief for Petitioner 6. Factual questions exist, however, about the
validity and sufficiency of each claimed justification, making
summary judgment inappropriate.
Kodak first asserts that by preventing customers from using
ISO's, "it [can] best maintain high quality service for its
sophisticated equipment" and avoid being "blamed for an equipment
malfunction, even if the problem is the result of improper
diagnosis, maintenance or repair by an ISO."
Id., at 6-7.
Respondents have offered evidence that ISO's provide quality
service and are preferred by some Kodak equipment owners. This is
sufficient to raise a genuine issue of
32 It is true that as a general matter a firm can refuse to deal
with its competitors. But such a right is not absolute; it exists
only if there are legitimate competitive reasons for the refusal.
See
Aspen Skiing Co., 472 U. S., at 602-605.
484
fact. See
International Business Machines Corp. v.
United States, 298 U. S., at 139-140 (rejecting IBM's claim
that it had to control the cards used in its machines to avoid
"injury to the reputation of the machines and the good will of" IBM
in the absence of proof that other companies could not make quality
cards);
International Salt Co. v.
United States, 332
U. S. 392, 397-398 (1947) (rejecting International Salt's claim
that it had to control the supply of salt to protect its leased
machines in the absence of proof that competitors could not supply
salt of equal quality).
Moreover, there are other reasons to question Kodak's proffered
motive of commitment to quality service; its quality justification
appears inconsistent with its thesis that consumers are
knowledgeable enough to lifecycle price, and its self-service
policy. Kodak claims the exclusive-service contract is warranted
because customers would otherwise blame Kodak equipment for
breakdowns resulting from inferior ISO service. Thus, Kodak
simultaneously claims that its customers are sophisticated enough
to make complex and subtle life cycle-pricing decisions, and yet
too obtuse to distinguish which breakdowns are due to bad equipment
and which are due to bad service. Kodak has failed to offer any
reason why informational sophistication should be present in one
circumstance and absent in the other. In addition, because
self-service customers are just as likely as others to blame Kodak
equipment for breakdowns resulting from (their own) inferior
service, Kodak's willingness to allow self-service casts doubt on
its quality claim. In sum, we agree with the Court of Appeals that
respondents "have presented evidence from which a reasonable trier
of fact could conclude that Kodak's first reason is pretextual."
903 F.2d, at 618.
There is also a triable issue of fact on Kodak's second
justification-controlling inventory costs. As respondents argue,
Kodak's actions appear inconsistent with any need to control
inventory costs. Presumably, the inventory of parts
485
needed to repair Kodak machines turns only on breakdown rates,
and those rates should be the same whether Kodak or ISO's perform
the repair. More importantly, the justification fails to explain
respondents' evidence that Kodak forced OEM's, equipment owners,
and parts brokers not to sell parts to ISO's, actions that would
have no effect on Kodak's inventory costs.
Nor does Kodak's final justification entitle it to summary
judgment on respondents' § 2 claim. Kodak claims that its policies
prevent ISO's from "exploit[ing] the investment Kodak has made in
product development, manufacturing and equipment sales in order to
take away Kodak's service revenues." Brief for Petitioner 7-8.
Kodak does not dispute that respondents invest substantially in the
service market, with training of repair workers and investment in
parts inventory. Instead, according to Kodak, the ISO's are
freeriding because they have failed to enter the equipment and
parts markets. This understanding of free-riding has no support in
our case law.33 To the contrary, as the Court of Appeals noted, one
of the evils proscribed by the antitrust laws is the creation of
entry barriers to potential competitors by requiring them to enter
two markets simultaneously.
Jefferson Parish, 466 U. S., at
14;
Fortner, 394 U. S., at 509.
None of Kodak's asserted business justifications, then, are
sufficient to prove that Kodak is "entitled to a judgment as
33Kodak claims that both
Continental T. V. and
Monsanto support its free-rider argument. Neither is
applicable. In both
Continental T. V., 433 U. S., at 55, and
Monsanto, 465 U. S., at 762-763, the Court accepted
free-riding as a justification because without restrictions a
manufacturer would not be able to induce competent and aggressive
retailers to make the kind of investment of capital and labor
necessary to distribute the product. In
Continental T. V.
the relevant market level was retail sale of televisions and in
Monsanto retail sales of herbicides. Some retailers were
investing in those markets; others were not, relying, instead, on
the investment of the other retailers. To be applicable to this
case, the ISO's would have to be relying on Kodak's investment in
the service market; that, however, is not Kodak's argument.
486
SCALIA, J., dissenting
a matter of law" on respondents' § 2 claim. Fed. Rule Civ. Proc.
56(c).
IV
In the end, of course, Kodak's arguments may prove to be
correct. It may be that its parts, service, and equipment are
components of one unified market, or that the equipment market does
discipline the aftermarkets so that all three are priced
competitively overall, or that any anticompetitive effects of
Kodak's behavior are outweighed by its competitive effects. But we
cannot reach these conclusions as a matter of law on a record this
sparse. Accordingly, the judgment of the Court of Appeals denying
summary judgment is affirmed.
It is so ordered.
JUSTICE SCALIA, with whom JUSTICE O'CONNOR and JUSTICE THOMAS
join, dissenting.
This is not, as the Court describes it, just "another case that
concerns the standard for summary judgment in an antitrust
controversy."
Ante, at 454. Rather, the case presents a very
narrow-but extremely important-question of substantive antitrust
law: whether, for purposes of applying our
per se rule
condemning "ties," and for purposes of applying our exacting rules
governing the behavior of would-be monopolists, a manufacturer's
conceded lack of power in the interbrand market for its equipment
is somehow consistent with its possession of "market," or even
"monopoly," power in wholly derivative aftermarkets for that
equipment. In my view, the Court supplies an erroneous answer to
this question, and I dissent.
I
Per se rules of antitrust illegality are reserved for
those situations where logic and experience show that the risk of
injury to competition from the defendant's behavior is so
pronounced that it is needless and wasteful to conduct the usual
judicial inquiry into the balance between the behavior's pro-
487
competitive benefits and its anticompetitive costs. See,
e. g., Arizona v.
Maricopa County Medical
Society, 457 U.
S. 332, 350-351 (1982). "The character of the restraint
produced by [behavior to which a
per se rule applies] is
considered a sufficient basis for presuming unreasonableness
without the necessity of any analysis of the market context in
which the [behavior] may be found."
Jefferson Parish Hospital
Dist. No.2 v.
Hyde, 466 U. S. 2, 9 (1984). The
per se rule against tying is just such a rule: Where the
conditions precedent to application of the rule are met, i.
e., where the tying arrangement is backed up by the
defendant's market power in the "tying" product, the arrangement is
adjudged in violation of § 1 of the Sherman Act, 15 U. S. C. § 1
(1988 ed., Supp. II), without
any inquiry into the
practice's actual effect on competition and consumer welfare. But
see
United States v.
Jerrold Electronics Corp., 187
F. Supp. 545, 560 (ED Pa. 1960), aff'd,
365 U. S. 567 (1961)
(per curiam) (accepting affirmative defense to
per se
tying allegation).
Despite intense criticism of the tying doctrine in academic
circles, see,
e. g., R. Bork, The Antitrust Paradox
365-381 (1978), the stated rationale for our
per se rule has
varied little over the years. When the defendant has genuine
"market power" in the tying product-the power to raise price by
reducing output-the tie potentially enables him to extend that
power into a second distinct market, enhancing barriers to entry in
each. In addition:
"[T]ying arrangements may be used to evade price control in the
tying product through clandestine transfer of the profit to the
tied product; they may be used as a counting device to effect price
discrimination; and they may be used to force a full line of
products on the customer so as to extract more easily from him a
monopoly return on one unique product in the line." Fortner
Enterprises, Inc. v. United States Steel Corp., 394 U. S. 495, 513-514
(1969) (Fortner I) (WHITE, J., dissenting) (footnotes
omitted).
488
SCALIA, J., dissenting
For these reasons, as we explained in
Jefferson Parish,
"the law draws a distinction between the exploitation of market
power by merely enhancing the price of the tying product, on the
one hand, and by attempting to impose restraints on competition in
the market for a tied product, on the other." 466 U. S., at 14.
Our § 2 monopolization doctrines are similarly directed to
discrete situations in which a defendant's possession of
substantial market power, combined with his exclusionary or
anticompetitive behavior, threatens to defeat or forestall the
corrective forces of competition and thereby sustain or extend the
defendant's agglomeration of power. See
United States v.
Grinnell Corp., 384 U. S. 563, 570-571
(1966). Where a defendant maintains substantial market power, his
activities are examined through a special lens: Behavior that might
otherwise not be of concern to the antitrust laws-or that might
even be viewed as procompetitive-can take on exclusionary
connotations when practiced by a monopolist. 3 P. Areeda & D.
Turner, Antitrust Law , 813, pp. 300-302 (1978) (hereinafter 3
Areeda & Turner).
The concerns, however, that have led the courts to heightened
scrutiny both of the "exclusionary conduct" practiced by a
monopolist and of tying arrangements subject to
per se
prohibition, are completely without force when the participants
lack market power. As to the former, "[t]he [very] definition of
exclusionary conduct," as practiced by a monopolist, is "predicated
on the existence of substantial market power."
Id.,' 813, at
301; see,
e. g., Walker Process Equipment, Inc. v.
Food
Machinery &
Chemical Corp., 382 U. S. 172, 177-178
(1965) (fraudulent patent procurement);
Standard Oil Co. of New
Jersey v.
United States, 221 U. S. 1, 75 (1911)
(acquisition of competitors); 3 Areeda & Turner , 724, at
195-197 (vertical integration). And with respect to tying, we have
recognized that bundling arrangements not coerced by the heavy hand
of market power can serve the procompetitive functions of
facilitating new entry into cer-
489
tain markets, see,
e. g., Brown Shoe Co. v.
United
States, 370 U. S. 294, 330 (1962), permitting "clandestine
price cutting in products which otherwise would have no price
competition at all because of fear of retaliation from the few
other producers dealing in the market,"
Fortner I, supra, at
514, n. 9 (WHITE, J., dissenting), assuring quality control, see,
e. g., Standard Oil Co. of Cal. v.
United States,
337 U. S. 293,
306 (1949), and, where "the tied and tying products are
functionally related, ... reduc[ing] costs through economies of
joint production and distribution."
Fortner I, supra, at
514, n. 9 (WHITE, J., dissenting). "Accordingly, we have [only]
condemned tying arrangements [under the
per se rule] when
the seller has some special ability-usually called 'market power'
-to force a purchaser to do something that he would not do in a
competitive market."
Jefferson Parish, supra, at 13-14.
The Court today finds in the typical manufacturer's inherent
power over its own brand of equipment-over the sale of distinctive
repair parts for that equipment, for examplethe sort of "monopoly
power" sufficient to bring the sledgehammer of § 2 into play. And,
not surprisingly in light of that insight, it readily labels
single-brand power over aftermarket products "market power"
sufficient to permit an antitrust plaintiff to invoke the
per
se rule against tying. In my opinion, this makes no economic
sense. The holding that market power can be found on the present
record causes these venerable rules of selective proscription to
extend well beyond the point where the reasoning that supports them
leaves off. Moreover, because the sort of power condemned by the
Court today is possessed by every manufacturer of durable goods
with distinctive parts, the Court's opinion threatens to release a
torrent of litigation and a flood of commercial intimidation that
will do much more harm than good to enforcement of the antitrust
laws and to genuine competition. I shall explain, in Parts II and
III, respectively, how neither logic
nor experience
suggests, let alone compels, ap-
490
SCALIA, J., dissenting
plication of the
per se tying prohibition and
monopolization doctrine to a seller's behavior in its single-brand
aftermarkets, when that seller is without power at the interbrand
level.
II
On appeal in the Ninth Circuit, respondents, having waived their
"rule of reason" claim, were limited to arguing that the record,
construed in the light most favorable to them,
Anderson v.
Liberty Lobby, Inc., 477 U. S. 242, 255
(1986), supported application of the
per se tying
prohibition to Kodak's restrictive parts and service policy. See
903 F.2d
612, 615, n. 1 (1990). As the Court observes, in order to
survive Kodak's motion for summary judgment on this claim,
respondents bore the burden of proffering evidence on which a
reasonable trier of fact could conclude that Kodak possesses power
in the market for the alleged "tying" product. See
ante, at
464;
Jefferson Parish, 466 U. S., at 13-14.
A
We must assume, for purposes of deciding this case, that
petitioner is without market, much less monopoly, power in the
interbrand markets for its micrographic and photocopying equipment.
See
ante, at 465-466, n. 10;
Oklahoma City v.
Tuttle, 471 U.
S. 808, 816 (1985). In the District Court, respondents did, in
fact, include in their complaint an allegation which posited the
interbrand equipment markets as the relevant markets; in
particular, they alleged a § 1 "tie" of micrographic and
photocopying equipment to the parts and service for those machines.
App. 22-23. Though this allegation was apparently abandoned in
pursuit of §§ 1 and 2 claims focused exclusively on the parts and
service aftermarkets (about which more later), I think it helpful
to analyze how that claim would have fared under the
per se
rule.
Had Kodak-from the date of its entry into the micrographic and
photocopying equipment markets-included a lifetime parts and
service warranty with all original equip-
491
ment, or required consumers to purchase a lifetime parts and
service contract with each machine, that bundling of equipment,
parts, and service would no doubt constitute a tie under the tests
enunciated in
Jefferson Parish, supra. Nevertheless, it
would be immune from
per se scrutiny under the antitrust
laws because the
tying product would be
equipment, a
market in which (we assume) Kodak has no power to influence price
or quantity. See
id., at 13-14;
United States Steel
Corp. v.
Fortner Enterprises, Inc., 429 U. S. 610, 620 (1977)
(Fortner II); Northern Pacific R. Co. v.
United
States, 356 U. S.
1, 6-7 (1958). The same result would obtain, I think, had
Kodak-from the date of its market entryconsistently pursued an
announced policy of limiting parts sales in the manner alleged in
this case, so that customers bought with the knowledge that
aftermarket support could be obtained only from Kodak. The
foreclosure of respondents from the business of servicing Kodak's
micrographic and photocopying machines in these illustrations would
be undeniably complete-as complete as the foreclosure described in
respondents' complaint. Nonetheless, we would inquire no further
than to ask whether Kodak's
market power in the equipment
market effectively forced consumers to purchase Kodak micrographic
or photocopying machines subject to the company's restrictive
aftermarket practices. If not, that would end the case insofar as
the
per se rule was concerned. See
Jefferson Parish,
supra, at 13-14; 9 P. Areeda, Antitrust Law' 1709c5, pp.
101-102 (1991); Klein & Saft, The Law and Economics of
Franchise Tying Contracts, 28 J. Law & Econ. 345, 356 (1985).
The evils against which the tying prohibition is directed would
simply not be presented. lnterbrand competition would render Kodak
powerless to gain economic power over an additional class of
consumers, to price discriminate by charging each customer a
"system" price equal to the system's economic value to that
customer, or to raise barriers to entry in the interbrand equipment
markets. See 3 Areeda & Turner' 829d, at 331-332.
492
SCALIA, J., dissenting
I have described these illustrations as hypothetical, but in
fact they are not far removed from this case. The record below is
consistent-in large part-with just this sort of bundling of
equipment on the one hand, with parts and service on the other. The
restrictive parts policy, with respect to micrographic equipment at
least, was not even alleged to be anything but prospective. 8ee
App. 17. As respondents summarized their factual proffer below:
"Under this policy, Kodak cut off parts on new products to Kodak
micrographics [independent service organizations] 180s. The effect
of this, of course, was that as customers of Kodak micrographics
180s obtained new equipment, the 180s were unable to service the
equipment for that customer, and, service for these customers was
lost by the Kodak 180s. Additionally, as equipment became obsolete,
and the equipment population became all "new equipment" (post April
1985 models), Kodak micrographics 180s would be able to service no
equipment at all." Id., at 360.
As to Kodak copiers, Kodak's restrictive parts policy had a
broader foundation: Considered in the light most favorable to
respondents, see
Anderson, supra, at 255, the record
suggests that, from its inception, the policy was applied to new
and existing copier customers alike. But at least all post1985
purchasers of micrographic equipment, like all post1985 purchasers
of new Kodak copiers, could have been aware of Kodak's parts
practices. The only thing lacking to bring all of these purchasers
(accounting for the vast bulk of the commerce at issue here)
squarely within the hypotheticals we have described is concrete
evidence that the restrictive parts policy was announced or
generally known. Thus, under the Court's approach the existence
vel non of such evidence is determinative of the legal
standard (the
per se rule versus the rule of reason) under
which the alleged tie is examined. In my judgment, this makes no
sense. It is
493
quite simply anomalous that a manufacturer functioning in a
competitive equipment market should be exempt from the
per
se rule when it bundles equipment with parts and service, but
not when it bundles parts with service. This vast difference in the
treatment of what will ordinarily be economically similar phenomena
is alone enough to call today's decision into question.
B
In the Court of Appeals, respondents sought to sidestep the
impediment posed by interbrand competition to their invocation of
the
per se tying rule by zeroing in on the parts and service
"aftermarkets" for Kodak equipment. By alleging a tie of
parts to service, rather than of
equipment to parts
and service, they identified a tying product in which Kodak
unquestionably held a near-monopoly share: the parts uniquely
associated with Kodak's brand of machines. See
Jefferson
Parish, 466 U. S., at 17. The Court today holds that such a
facial showing of market share in a single-brand aftermarket is
sufficient to invoke the
per se rule. The existence of even
vibrant interbrand competition is no defense. See
ante, at
470-471.
I find this a curious form of market power on which to premise
the application of a
per se proscription. It is enjoyed by
virtually every manufacturer of durable goods requiring aftermarket
support with unique, or relatively unique, goods. See P. Areeda
& H. Hovenkamp, Antitrust Law' 525.1, p. 563 (Supp. 1991).
"[S]uch reasoning makes every maker of unique parts for its own
product a holder of market power
no matter how unimportant its
product might be in the market." Ibid. (emphasis added).l
Under
1 That there exist innumerable parts and service firms in such
industries as the automobile industry, see Brief for Automotive
Warehouse Distributors Association et al. as
Amici Curiae
2-3, does not detract from this point. The question whether power
to control an aftermarket exists is quite distinct from the
question whether the power has been exercised. Manufacturers in
some markets have no doubt determined that exc1usion-
494
SCALIA, J., dissenting
the Court's analysis, the
per se rule may now be applied
to single-brand ties effected by the most insignificant players in
fully competitive interbrand markets, as long as the arrangement
forecloses aftermarket competitors from more than a
de
minimis amount of business,
Fortner I, 394 U. S., at
501. This seems to me quite wrong. A tying arrangement "forced"
through the exercise of such power no more implicates the
leveraging and price discrimination concerns behind the
per
se tying prohibition than does a tie of the foremarket brand to
its aftermarket derivatives, which-as I have explained-would not be
subject to
per se condemnation.2 As implemented, the Kodak
arrangement challenged
ary intrabrand conduct works to their disadvantage at the
competitive interbrand level, but this in no way refutes the
self-evident reality that control over unique replacement parts for
single-branded goods is ordinarily available to such manufacturers
for the taking. It confounds sound analysis to suggest, as
respondents do, see Brief for Respondents 5, 37, that the asserted
fact that Kodak manufactures only 10% of its replacement parts, and
purchases the rest from original equipment manufacturers, casts
doubt on Kodak's possession of an inherent advantage in the
aftermarkets. It does no such thing, any more than Kodak's
contracting with others for the manufacture of all constituent
parts included in its original equipment would alone suggest that
Kodak lacks power in the
interbrand micrographic and
photocopying equipment markets. The suggestion implicit in
respondents' analysis-that if a seller chooses to contract for the
manufacture of its branded merchandise, it must permit the
contractors to compete in the sale of that merchandise-is plainly
unprecedented.
2 Even
with interbrand power, I may observe, it is
unlikely that Kodak could have incrementally exploited its position
through the tie of parts to service alleged here. Most of the
"service" at issue is inherently associated with the parts, i.
e., that service involved in incorporating the parts into
Kodak equipment, and the two items tend to be demanded by customers
in fixed proportions (one part with one unit of service necessary
to install the part). When that situation obtains, "'no revenue can
be derived from setting a higher price for the tied product which
could not have been made by setting the optimum price for the tying
product.''' P. Areeda & L. Kaplow, Antitrust Analysis' 426(a),
p. 706 (4th ed. 1988) (quoting Bowman, Tying Arrangements and the
Leverage Problem, 67 Yale L. J. 19 (1957)). These observations
strongly suggest that Kodak
495
in this case may have implicated truth-in-advertising or other
consumer protection concerns, but those concerns do not alone
suggest an antitrust prohibition. See,
e. g., Town Sound and
Custom Tops, Inc. v.
Chrysler Motors Corp., 959
In the absence of interbrand power, a seller's predominant or
monopoly share of its single-brand derivative markets does not
connote the power to raise derivative market prices
generally by reducing quantity. As Kodak and its principal
amicus, the United States, point out, a rational consumer
considering the purchase of Kodak equipment will inevitably factor
into his purchasing decision the expected cost of aftermarket
support. "[B]oth the price of the equipment and the price of parts
and service over the life of the equipment are expenditures that
are necessary to obtain copying and micrographic services." Brief
for United States as
Amicus Curiae 13. If Kodak set
generally supracompetitive prices for either spare parts or repair
services without making an offsetting reduction in the price of its
machines, rational consumers would simply turn to Kodak's
competitors for photocopying and micrographic systems. See,
e.
g., Grappone, Inc. v.
Subaru of New England, Inc.,
858 F.2d
792, 796-798 (CA1 1988). True, there are-as the Court notes,
see
ante, at 474-4 75-the occasional irrational consumers
that consider only the hardware cost at the time of purchase (a
category that regrettably includes the Federal Government, whose
"purchasing system," we are told, assigns foremarket purchases and
aftermarket purchases to different entities). But
parts and the service involved in installing them should not be
treated as distinct products for antitrust tying purposes. See
Jefferson Parish Hospital Dist. No.2 v.
Hyde,
466 U. S. 2, 39
(1984) (O'CONNOR, J., concurring in judgment) ("For products to be
treated as distinct, the tied product must, at a minimum, be one
that some consumers might wish to purchase separately
without
also purchasing the tying product") (emphasis in original)
(footnote omitted); Ross, The Single Product Issue in Antitrust
Tying:
A Functional Approach, 23 Emory L. J. 963, 1009-1010 (1974).
496
SCALIA, J., dissenting
we have never before premised the application of antitrust
doctrine on the lowest common denominator of consumer.
The Court attempts to counter this theoretical point with a
theory of its own. It says that there are "information costs" -the
costs and inconvenience to the consumer of acquiring and processing
life-cycle pricing data for Kodak machines-that "could create a
less responsive connection between service and parts prices and
equipment sales."
Ante, at 473. But this truism about the
functioning of markets for sophisticated equipment cannot create
"market power" of concern to the antitrust laws where otherwise
there is none. "Information costs," or, more accurately, gaps in
the availability and quality of consumer information, pervade
real-world markets; and because consumers generally make do with
"rough cut" judgments about price in such circumstances, in
virtually any market there are zones within which otherwise
competitive suppliers may overprice their products without losing
appreciable market share. We have never suggested that the
principal players in a market with such commonplace informational
deficiencies (and, thus, bands of apparent consumer pricing
indifference) exercise market power in any sense relevant to the
antitrust laws. "While [such] factors may generate 'market power'
in some abstract sense, they do not generate the kind of market
power that justifies condemnation of tying."
Jefferson
Parish, 466 U. S., at 27; see,
e. g., Town Sound and Custom
Tops, Inc. v.
Chrysler Motors Corp., supra.
Respondents suggest that, even if the existence of interbrand
competition prevents Kodak from raising prices
generally in
its single-brand aftermarkets, there remain certain consumers who
are necessarily subject to abusive Kodak pricing behavior by reason
of their being "locked in" to their investments in Kodak machines.
The Court agrees; indeed, it goes further by suggesting that even a
general policy of supracompetitive aftermarket prices might
be profitable over the long run because of the "lock-in"
phenomenon. "[A]
497
seller profitably could maintain supracompetitive prices in the
aftermarket," the Court explains, "if the switching costs were high
relative to the increase in service prices, and the number of
locked-in customers were high relative to the number of new
purchasers."
Ante, at 476. In speculating about this latter
possibility, the Court is essentially repudiating the assumption on
which we are bound to decide this case, viz., Kodak's lack of any
power whatsoever in the interbrand market. If Kodak's
general increase in aftermarket prices were to bring the
total "system" price above competitive levels in the interbrand
market, Kodak would be wholly unable to make further foremarket
sales-and would find itself exploiting an ever-dwindling
aftermarket, as those Kodak micrographic and photocopying machines
already in circulation passed into disuse.
The Court's narrower point, however, is undeniably true.
There will be consumers who, because of their capital investment
in Kodak equipment, "will tolerate some level of service-price
increases before changing equipment brands,"
ibid.; this is
necessarily true for "every maker of unique parts for its
own product." Areeda & Hovenkamp, Antitrust Law' 525.1b, at
563. But this "circumstantial" leverage created by consumer
investment regularly crops up in smoothly functioning, even
perfectly competitive, markets, and in most-if not all-of its
manifestations, it is of no concern to the antitrust laws. The
leverage held by the manufacturer of a malfunctioning refrigerator
(which is measured by the consumer's reluctance to walk away from
his initial investment in that device) is no different in kind or
degree from the leverage held by the swimming pool contractor when
he discovers a 5-ton boulder in his customer's backyard and demands
an additional sum of money to remove it; or the leverage held by an
airplane manufacturer over an airline that has "standardized" its
fleet around the manufacturer's models; or the leverage held by a
drill press manufacturer whose customers have built their
production lines around the
498
SCALIA, J., dissenting
manufacturer's particular style of drill press; or the leverage
held by an insurance company over its independent sales force that
has invested in company-specific paraphernalia; or the leverage
held by a mobile home park owner over his tenants, who are unable
to transfer their homes to a different park except at great
expense, see generally
Yee v.
Escondido, 503 U. S. 519 (1992).
Leverage, in the form of
circumstantial power, plays a role
in each of these relationships; but in none of them is the leverage
attributable to the dominant party's
market power in any
relevant sense. Though that power can plainly work to the injury of
certain consumers, it produces only "a brief perturbation in
competitive conditions-not the sort of thing the antitrust laws do
or should worry about."
Parts &
Elec. Motors,
Inc. v.
Sterling Elec., Inc., 866
F.2d 228, 236 (CA7 1988) (Posner, J., dissenting).
The Court correctly observes that the antitrust laws do not
permit even a
natural monopolist to project its monopoly
power into another market, i.
e., to "'exploi[t] his
dominant position in one market to expand his empire into the
next.'"
Ante, at 480, n. 29 (quoting
Times-Picayune
Publishing Co. v.
United States, 345 U. S. 594, 611
(1953)). However, when a manufacturer uses its control over
single-branded parts to acquire influence in single-branded
service, the monopoly "leverage" is almost invariably of no
practical consequence, because of perfect identity between the
consumers in each of the subject aftermarkets (those who need
replacement parts for Kodak equipment and those who need servicing
of Kodak equipment). When that condition exists, the tie does not
permit the manufacturer to project power over a class of consumers
distinct from that which it is already able to exploit (and fully)
without the inconvenience of the tie. Cf.,
e. g.,
Bowman, Tying Arrangements and the Leverage Problem, 67 Yale L. J.
19, 21-27 (1957).
We have never before accepted the thesis the Court today
embraces: that a seller's inherent control over the unique
499
parts for its own brand amounts to "market power" of a character
sufficient to permit invocation of the
per se rule against
tying. As the Court observes,
ante, at 479-481, n. 29, we
have applied the
per se rule to manufacturer ties of
foremarket equipment to aftermarket derivatives-but only
when the manufacturer's monopoly power in the equipment, coupled
with the use of derivative sales as "counting devices" to measure
the intensity of customer equipment usage, enabled the manufacturer
to engage in price discrimination, and thereby more fully exploit
its interbrand power. See
International Salt Co. v.
United States, 332 U. S. 392 (1947);
International Business Machines Corp. v.
United States,
298 U. S. 131 (1936);
United Shoe Machinery Corp. v.
United States, 258 U. S. 451 (1922).
That sort of enduring opportunity to engage in price discrimination
is unavailable to a manufacturer-like Kodak-that lacks power at the
interbrand level. A tie between two aftermarket derivatives does
next to nothing to improve a competitive manufacturer's ability to
extract monopoly rents from its consumers.3
3 The Court insists that the record in this case suggests
otherwise, i.
e., that a tie between parts and service
somehow
does enable Kodak to increase overall monopoly
profits. See
ante, at 479-481, n. 29. Although the Court
does not identify the record evidence on which it relies, the
suggestion, apparently, is that such a tie facilitates price
discrimination between sophisticated, "high-volume" users of Kodak
equipment and their unsophisticated counterparts. The sophisticated
users (who, the Court presumes, invariably self-service their
equipment) are permitted to buy Kodak parts without also purchasing
supracompetitively priced Kodak service, while the unsophisticated
are-through the imposition of the tiecompelled to buy both. See
ante, at 475-476.
While superficially appealing, at bottom this explanation lacks
coherence. Whether they self-service their equipment or not,
rational foremarket consumers (those consumers who are not yet
"locked in" to Kodak hardware) will be driven to Kodak's
competitors if the price of Kodak equipment, together with the
expected cost of aftermarket support, exceeds competitive levels.
This will be true no matter how Kodak distributes the total system
price among equipment, parts, and service. See
500
SCALIA, J., dissenting
Nor has any court of appeals (save for the Ninth Circuit panel
below) recognized single-branded aftermarket power as a basis for
invoking the
per se tying prohibition. See
Virtual
Maintenance, Inc. v.
Prime Computer, Inc., 957 F.2d
1318, 1328 (CA6 1992) ("Defining the market by customer demand
after the customer has chosen a single supplier fails to
take into account that the supplier ... must compete with other
similar suppliers to be designated the
supra, at 495. Thus, as to these consumers, Kodak's lack
of interbrand power wholly prevents it from employing a tie between
parts and service as a vehicle for price discrimination. Nor does a
tie between parts and service offer Kodak incremental exploitative
power over those consumers-sophisticated or not-who have the
supposed misfortune of being "locked in" to Kodak equipment. If
Kodak desired to exploit its circumstantial power over this
wretched class by pressing them up to the point where the cost to
each consumer of switching equipment brands barely exceeded the
cost of retaining Kodak equipment and remaining subject to Kodak's
abusive practices, it could plainly do so without the inconvenience
of a tie, through supracompetitive parts pricing alone. Since the
lockedin
sophisticated parts purchaser is as helpless as the
locked-in
unsophisticated one, I see nothing to be gained by
price discrimination in favor of the former. If such price
discrimination were desired, however, it would not have to be
accomplished indirectly, through a tie of parts to service. Section
2(a) of the Robinson-Patman Act, 15 U. S. C. § 13(a), would prevent
giving lower parts prices to the sophisticated customers only
"where the effect of such discrimination may be substantially to
lessen competition or tend to create a monopoly in any line of
commerce, or to injure, destroy, or prevent competition with any
person who either grants or knowingly receives the benefit of such
discrimination, or with customers of either of them .... "
Ibid.; see,
e. g., Falls City Industries, Inc. v.
Vanco Beverage, Inc., 460 U. S. 428, 434-435
(1983). That prohibited effect often occurs when
price-discriminated goods are sold for resale (i.
e., to
purchasers who are necessarily in competition with one another).
E. g., FTC v.
Morton Salt Co., 334 U. S. 37, 47 (1948);
see P. Areeda & L. Kaplow, Antitrust Analysis , 600, p. 923
(1988) ("Secondary-line injury arises [under the Robinson-Patman
Act] when a powerful firm buying supplies at favorable prices
thereby gains a decisive advantage over its competitors that are
forced to pay higher prices for their supplies"). It rarely occurs
where, as would be the case here, the price-discriminated goods are
sold to various businesses for consumption.
501
sole source in the first place");
Grappone, Inc. v.
Subaru of New England, Inc., 858 F. 2d, at 798 ("[WJe do not
see how such dealer investment [in facilities to sell Subaru
products] ... could easily translate into Subaru market power of a
kind that, through tying, could ultimately lead to higher than
competitive prices for consumers");
A. 1.
Root Co. v.
Computer/Dynamics, Inc., 806 F.2d
673, 675-677, and n. 3 (CA6 1986) (competition at "small
business computer" level precluded assertion of computer
manufacturer's power over software designed for use only with
manufacturer's brand of computer);
General Business Systems
v.
North American Philips Corp., 699 F.2d
965, 977 (CA9 1983) ("To have attempted to impose significant
pressure to buy [aftermarket hardware] by use of the tying service
only would have hastened the date on which Philips surrendered to
its competitors in the small business computer market"). See also
Parts &
Elec. Motors, Inc. v.
Sterling Elec.,
Inc., 866 F. 2d, at 233 (law-of-the-case doctrine compelled
finding of market power in replacement parts for single-brand
engine).
We have recognized in closely related contexts that the
deterrent effect of interbrand competition on the exploitation of
intrabrand market power should make courts exceedingly reluctant to
apply rules of
per se illegality to intrabrand restraints.
For instance, we have refused to apply a rule of
per se
illegality to vertical nonprice restraints "because of their
potential for a simultaneous reduction of intrabrand competition
and stimulation of interbrand competition,"
Continental T.
V:,
Inc. v.
GTE Sylvania Inc., 433 U. S. 36, 51-52
(1977), the latter of which we described as "the primary concern of
antitrust law,"
id., at 52, n. 19. We noted, for instance,
that "new manufacturers and manufacturers entering new markets can
use the restrictions in order to induce competent and aggressive
retailers to make the kind of investment of capital and labor that
is often required in the distribution of products unknown to the
consumer," and that "[e]stablished manufacturers can use them
502
SCALIA, J., dissenting
to induce retailers to engage in promotional activities or to
provide service and repair facilities necessary to the efficient
marketing of their products."
Id., at 55. See also
Business Electronics Corp. v.
Sharp Electronics
Corp., 485 U. S.
717, 726 (1988). The same assumptions, in my opinion, should
govern our analysis of ties alleged to have been "forced" solely
through intrabrand market power. In the absence of interbrand
power, a manufacturer's bundling of aftermarket products may serve
a multitude of legitimate purposes: It may facilitate manufacturer
efforts to ensure that the equipment remains operable and thus
protect the seller's business reputation, see
United States
v.
Jerrold Electronics Corp., 187 F. Supp., at 560; it may
create the conditions for implicit consumer financing of the
acquisition cost of the tying equipment through
supracompetitively-priced aftermarket purchases, see,
e.
g., A. Oxenfeldt, Industrial Pricing and Market Practices
378 (1951); and it may, through the resultant manufacturer control
of aftermarket activity, "yield valuable information about
component or design weaknesses that will materially contribute to
product improvement," 3 Areeda & Turner' 733c, at 258-259; see
also
id., , 829d, at 331-332. Because the interbrand market
will generally punish intrabrand restraints that consumers do not
find in their interest, we should not-under the guise of a
per
se rule-condemn such potentially procompetitive arrangements
simply because of the antitrust defendant's inherent power over the
unique parts for its own brand.
I would instead evaluate the aftermarket tie alleged in this
case under the rule of reason, where the tie's
actual
anticompetitive effect in the tied product market, together with
its potential economic benefits, can be fully captured in the
analysis, see,
e. g., Jefferson Parish, 466 U. S., at 41
(O'CONNOR, J., concurring in judgment). Disposition of this case
does not require such an examination, however, as respondents
apparently waived any rule-of-reason claim they
503
may have had in the District Court. I would thus reverse the
Ninth Circuit's judgment on the tying claim outright.
III
These considerations apply equally to respondents' § 2 claims.
An antitrust defendant lacking relevant "market power" sufficient
to permit invocation of the
per se prohibition against tying
a fortiori lacks the monopoly power that warrants heightened
scrutiny of his allegedly exclusionary behavior. Without even so
much as asking whether the purposes of § 2 are implicated here, the
Court points to Kodak's control of "100% of the parts market and
80% to 95% of the service market," markets with "no readily
available substitutes,"
ante, at 481, and finds that the
proffer of such statistics is sufficient to fend off summary
judgment. But this showing could easily be made, as I have
explained, with respect to virtually any manufacturer of
differentiated products requiring aftermarket support. By
permitting antitrust plaintiffs to invoke § 2 simply upon the
unexceptional demonstration that a manufacturer controls the
supplies of its single-branded merchandise, the Court transforms §
2 from a specialized mechanism for responding to extraordinary
agglomerations (or threatened agglomerations) of economic power to
an all-purpose remedy against run-of-themill business torts.
In my view, if the interbrand market is vibrant, it is simply
not necessary to enlist § 2's machinery to police a seller's
intrabrand restraints. In such circumstances, the interbrand market
functions as an infinitely more efficient and more precise
corrective to such behavior, rewarding the seller whose intrabrand
restraints enhance consumer welfare while punishing the seller
whose control of the after markets is viewed unfavorably by
interbrand consumers. See
Business Electronics Corp., supra,
at 725;
Continental T. V:,
Inc., supra, at 52, n. 19,
54. Because this case comes to us on the as-
504
SCALIA, J., dissenting
sumption that Kodak is without such interbrand power, I believe
we are compelled to reverse the judgment of the Court of Appeals. I
respectfully dissent.
Comments
Be the first to comment
Leave a Comment