Two recent antitrust decisions are of interest, one is by the Supreme Court and the other by the Court of Appeals for the Ninth Circuit.

In the Supreme Court case, State Oil v. Khan et al., the Court considered whether a provision in a contract between a gas station operator and his supplier of gasoline which had the effect of defining the maximum price at which the gasoline could be sold to the public constituted a per se antitrust violation. (The operator's lease contained a provision that if he sold gasoline at a price above the distributor's suggested retail price, then the excess was to be rebated to the distributor.) In a unanimous decision, the Court found that the provision did not constitute a per se antitrust violation and in doing so overruled its 1968 decision in the case of Albrecht v. Herald. The Court now concluded that there was insufficient economic justification for a rule that vertical maximum price fixing should be a per se violation. Henceforth such issues should be decided on a rule of reason basis. The Court noted that vertical maximum price fixing had the potential to have procompetitive interbrand effects and these need to be considered.

In our Information Letter N. S. 179, we reported a decision of the Supreme Court in Eastman Kodak Co. v. Image Technical Services, Inc. to the effect that an independent service organization that serviced Kodak photocopy equipment had an arguable case that there was a violation of the antitrust laws when Kodak refused to sell spare parts for its copiers to the independent service organization on the ground that this might impede the independent service organization's ability to service Kodak equipment in competition with Kodak's own service organization. Therefore summary judgment was not appropriate. The case then went to trial and a jury found that Kodak had engaged in monopolization and awarded substantial damages. An injunction was also granted ordering Kodak to supply spare parts to independent service organizations on "reasonable and non-discriminatory terms and prices."

The Court of Appeals for the Ninth Circut has now heard an appeal from that decision. The court set out three requirements for a claim that there was monopolization contrary to Section 2 of the Sherman Act to succeed: 1) that the alleged monopolist has market power, 2) that such market power was used "to foreclose competition, to gain a competitive advantage or destroy a competitor" and 3) that there was no legitimate business justification for the acts complained of.

On the question of market power, a plaintiff must (1) define the relevant market, (2) show that the defendant owns a dominant share of that market and (3) show that there are significant barriers to entry and show that existing competitors lack the capacity to increase their output in the short run. On the facts the court found that a monopoly existed in the present case, noting that Kodak's possession of numerous patents, control of designs and brand power established substantial entry barriers to those who might wish to enter the market.

On the question of what constitutes monopolistic use of market power, the Court noted that in general a supplier has a right to refuse to deal with anyone, but that refusal to deal "as a purposeful means of monopolizing interstate commerce" can constitute a Sherman Act violation. In the present case the court found sufficient evidence to support the jury's conclusion that Kodak had a monopoly in the service market, even though some service providers managed to continue to service some Kodak equipment.

On the final question, Kodak argued that it had a legitimate business justification for its practices in "protection of its patented and copyrighted parts". After noting the "obvious tension" between the antitrust laws on the one hand and the patent and copyright laws on the other, the court commented as follows:



This could occur in particular "if a seller exploits his dominant position in one market to expand his empire into the next." The court accepted that the refusal of a patentee or copyright owner to license its patent or copyright or sell a patented or copyrighted work "is a presumptively valid business justification for any immediate harm" that may affect consumers. The Court found that the jury at trial had not been properly instructed as to the presumption that Kodak's action in respect of patented parts was presumptively valid. However, because the number of parts that were the subject matter of intellectual property protection was only a small fraction of the total and because there was some evidence to show that the presumption in respect of patented parts might in fact have been capable of rebuttal, the court found that the lack of a proper jury instruction on this point was a harmless error.

The court therefore basically affirmed the liability decision of the trial court and remanded the case for further consideration of the damages awarded and amendment of the form of the injunction granted.