As trial testimony in the Berkey Photo Inc. antitrust suit against rival Eastman Kodak Co. would to a conclusion in early January with the last witness undergoing cross-examination, Presiding Judge Marvin Frankel observed that "this normally placid case has suddenly started to be mildly explosive."
Detonating the judge's remark was the teluctant and surprise introduction of a letter - composed in 1974 by Kodak's final witness - which attorneys for K in 1974 by Kodak's final witness - which attorneys for Berkey claimed had been "deliberately withheld" from them by Kodak's lawyers, and which on introduction served to undermine the testimony of the expert witness, Yale economics professor Merton Peck.
Representing Kodak was one of New York's largest and most prestigious law firms, Donovan, Leisure, Newton & Irvine, a specialist in antitrust litigation, and the firm's trial-council, John Doar, the former counsel for the House Judiciary Committee who had meticulously assembled the case for President Nixon's impeachment.
Events in the six-month trial grew considerably more bizarre the following Monday morning, Jan. 9, when a chagrined Doar informed the judge than an entire suitcase of material that Peck had sent to Donovan Leisure, and which a senior partner of the firm had sworn in a court affidavit had been destroyed, turned out to be intact.
Access to the material had been requested by Berkey's firm, Parker, Chapin, Flattau & Klimpl, as part of the pretrial discovery process.
The case, in which Berkey accused Kodak of illegally monopolizing the amateur photographic market, was being tried, at Kodak's request, before a jury - highly unusual in an antitrust trial, and particularly one in which the technological and economic issues were so complex.
When it came for the final summation, Berkey chief counsel Alvin Stein used the withheld material to full effect.
"Late last week . . . and again on Monday, you heard defendant's $70,000 Yale expert," Stein told the jury of two men and eight women. "That sordid spectable of dissembling, evasiveness, deception and concealment disgrave the dignity of this court, this proceeding, and you jurors.
"I am sure you vivdly recall the reprehensible failure of that witness to produce until the next-to-last day of this trial, and then only on cross examination, that key document, Exhibit 666, the letter of Nov. 25, 1974," he continued.
"And there is no doubt," Stein added, "and no one dare argue, but that the letter vitally contradicted that man's testimony given here under oath."
When his turn came, Doar had little response but to be apologetic. "During the last two days of this trial, a very unfortunate circumstance, an uncontradicted circumtance, a simply incredible circumstance, happened," Doar told the jury.
"This court and the plaintiff were told by (Peck) that certain documents that Kodak's lawyers had said had been destroyed had in fact not been destroyed," he added. "I am certain that you never expected to hear anything so extraordinary. The fact is, the documents were not destroyed."
The irony of Doar's position was considerable.
"The dramatic introduction of the letter created the appearnace of na 'smoking gun'," noted one Wall Street analyst with a reference to Doar's former judiciary commettee role.
On Janu. 22, after nine days of deliberation, the jury found that Kodak, the world's largest photographic company with 1977 sales of $6 billion, had illegally monopolized the U.S. market for amateur cameras, film and color print paper. It further found that Kodak had illegally conspired with its flash bulb suppliers, Sylvania and General Electric, to get preferential price treatment and that this undercut competitors.
Two months later, the same jury awarded Berkey, with annual sales of just over $200 million damages of $37.6 million. This is automatically trebled under antitrust laws to $112.8 million.
And, in the final phase of the trial, Berkey last week petitioned Judeger Frankel to force Kodak to divest itself of its photographic apparatus, film processing and film printing divisions except those which relate only to professional photography.
Kodak will respond and then the judge has broad discretion to grant the relief he feels is appropriate to bar further monopolistic practices by Kodak and to restore competition in the amateur photography business.
For Kodak, which based its defense on the argument that its overwhelming share of the U.S. market was based on its ability to innovate rather than on any illegal or predatory practices, the decisions so far are devastating. And the relief could be worse still, even if the judge does not near the drastic remedies Berkey is seeking.
After the initial verdict, Kodak immediately indicated it would appeal.
"We believe that the court applied an incorrect standard of law in the case," Kodak Chairman Walter Fallon declared. "The process of appeal is available to us and we shall use that process to bring the case to what we are confident will be a favorable conclusion."
But interestingly, Kodak appears to believe that its best chance for a reversal or new trial rests not so much with the issues as with an appeal based on the damaging behaviour of the sinior partner of its outside law firm, Donovan Leisure, who had withheld the suitcase of documents. The company is expected to argue that Judge Frankel's decision to allow Berkey's attorneys to raise the withholding issues before the jury improperly prejudiced the outcome of the case because the mistakes were the law firm's and not Kodak.
Two weeks ago, Kodak announced that it was dropping Donovan Leisure for purposes of appeal in the case because of a"conflict of interest" and was replacing them with Sullivan & Cromwell, another large New York law firm that had done antitrust work for the photographic firm.
"Since Berkey used the withholding of documents to challenge the credibility of Kodak's defense before the jury, the incident raised a possible conflict of interest between the company and its law firm regarding this aspect of the case," Kodak general counsel Kendall stated.
He noted that "Neither Kodak nor Doar was aware that the documents in question had been retained and withheld."
Mahlon Perkins Jr., 59, the partner who had given the sworn affidavit, resigned on March 20.
Last week it was disclosed that Judge Frankel has referred the incident to the U.S. attorney's office for investigation and a possible prejury prosecution. Perkins, who also faces possible disbarment, has retained Harold Tyler Jr., a former federal judge and the deputy to Ford administration attorney general Edward Levy, to represent him.
Donovan Leisure also hired a law firm- Winthrop, Stimson, Putnam and Roberts. "Anyone who acts as his own lawyer has a fool for a client," commented John Tobin, a senior partner at Donovan Leisure.
"Aside from the regertable incident involving Mr. Perkins' handling of the Peck documents, we are confident that our frim has not engaged in any kind of improper conduct," Tobin said in a statement. "Specifically, Mr. Doar's performnace with the highest professional standards."
For the firm, fifth largest in New York, the action by its client of 30 years came as a devastating blow following on the embarrassing disclosure of a senior parner's falsely sworn affidavit. Kodak's action is especially damaging because Donovan Leisure's principal reputating as a corporate law firm is for expertise in litigation, especially antitrust litigation.
Of Donovan Leisure's 184 lawyers, at least half are inlitigation, and about 30 were working on the Kodak case alone, according to Tobin. But he insisted that "we have not and we will not" let any lawyers go as result of the Kodak business loss, but would reassign attorneys to other ongoing cases.
(The Donovan in the firm's name, incidentally was the late "Wild" Bill Donovan, head of the World War II Office of Strategic Services (OSS), the precursor to the CIA.)
For straight-arrow John Doar, the Kodak trial was his first antitrust case, and he came to Donovan Leisure at the begining of 1975 just after his judiciary committee stint.
In the mid-1960s, Doar for a time was head of the Justice Department's civil rights division. In 1968, he headed the New York City School Board during the bitter confrontational teacher's strike that centered on community control of schools. He was also in charge of the Bedford-Stuyvesant Development and Services Corp., an urban renewal project in New York which has been created by Robert Kennedy.
"Doar is not used to losing, and he's taking it very hard," according to one associate. "John had given it his typical treatment - he always does - 100 percent service and effort," this colleague noted. Doar had gone so far as to establish a Donovan Leisure office during the trial across from the federal courthouse in downtown Manhattan where a sleeping cot was set up and where Doar frequently worked until midnight on the case and rose at daybreak to continue preparation.
Some onservers believe, however> that Doar may have been out of his depth on the tricky antitrust case and "not all of the points that could have been made on behalf of Kodak were made," even before the disastrous events of the final week, according to one Wall Street analyst who follows the photographic industry and who sat in a number of the court sessions in the plodding antitrust trial.
"If Kodak had a clear line for reversal on appeal on any other ground, they would not have dropped Donovan Leisure," commented Columbia University Law School Professor Harvey Goldschmid, an expert in antitrust who also followed the trial. (Donovan Leisure is still representing Kodak in the last stages of the case prior to the appaeal.)
Doar declined any comment on the developments.
Whether Kodak has a good chance to reverse the jury's verdict on the basis of its law firm's actions and the judge's decision to permit the matter to come before the jury is, of course, subject to dispute.
Professor Goldschmid said that in his view reversible error did not occur.
According to transcripts,the judge allowed the matter to come before the jury only reluctantly and after he determined that the Exhibit 666 letter, which dealt with a 1915 antitrust decree against Kodak that its attorneys were trying to keep out of the case, in fact went to the burden of Prefessor Peck's testimony and therefore his credibility.
The Yale professor had been arguing in his testimony that Kodak's business success and market share were based on inovation.It was not "found on buying out competitors' business," he saidM which would have given Kodak more permanent advantage over competitors.
However, the 1915 antitrust decree against Kodak did involve acquisitions. And in th 1974 letter which surfaced, Professor Peck expressed reservation about unqualifiedly backing the innovation explanation in light of earlier court decree.
In a session with attorneys in his robing chamber on Jan. 11, Judge Frankel acknowledged that, if Kodak prove that the subject of the withheld documents wea inadmisable, "then it would be reversible error and it may be the best thing that ever happened to Kodak in his case."
The previously sealed transcript of that session, along with other documents, was made part of the public court recrod last week at the request of both Kodak and Donovan Leisure. It reveals an annual series of developments.
At the outset, Doar moved for a mistrial, on the basis that the judge had committed prejudicial error in allowing Peck to be cross-examined on "statements concerning the documents which had been withheld by Perkins.
At that point another lawyer intervened on behalf of Kodak - Simon Rifkind, a partner in Paul Weiss, Rifkind, Wharton and Garrison, and one of the most distinguished, members of the New York city bar.
The judge said he would hear Rifkind "with great reluctance" because of the late stage of the trial and Rifkind's cursory knowledge of the events.
"You are intervening - I think if it were almost anyone else I would say intruding - upon the scene, where two great law firms have been in contention before me for over four years," Judge Frankel said.
Rifkind said his appearance on 24 hours notice "springs from the concurrent preception by both Eastman Kodak and Donovan Leisure that there may well be a conflict between the client and its attorneys with respect to the lately rediscovered papers which had alledgely been destroyed."
Rifkind said he was seeking some "safeguard" for Kodak against the possibility that "the conduct on the part of one or more of its lawyers should not adversely affects its fate in this very important litigation." Pressed by the judge, however, Rifkind declined to assert that Frankel should not have placed the material before the jury, which provoked a testy reaction from Frankel.
"Kodak is going to have to take the consequences of what its sundry lawyers say," he told the group. "One just came before me and made a motion for a mistrial, and another one is before me saying that a jury would be entitled to be drawing some adverse inferences from this business, in which event it had an appropriate place before the jury. And I won't let Kodak, because it has two sets of lawyers, have it two days."
Frankel then brusquely dismissed Rifkind's request for a continuance, claiming he had not come prepared with the proper affidavits.
Doar, however, got high praise from all quarters at the Jan. 11 session. Rifkind called him "virtue personified" and Judge Frankel said "that Brother Doar would lay himself down before a railroad train for this or any other client."
Privately, Doar is telling friends that it was his undeviating moral standards that led him to announce to the court as soon as he learned about it that the documents Perkins claimed were destroyed did in fact exist. And he is indicating that other lawyers in the dog-eat-dog litigation atmosphere that exists in New York City may not have been as forthcoming.
"The standard of ithics among New York law firms in discovery is unique - it's abysmally low," one lawyer who was defending Doar observed. "Not many people would disclose to the judge what Doar did."
Others vigorously dispute this low description of the New York law firms's behavior in discovery. And they question whether Doar was completely forthcoming, especially with respect to the crucial Exhibit 666 which he had in his possession but did not disclose to the judge and the opposing counsel until Professor Peck alluded under cross-examination to the possible existence of such a document.
Judge Frankel expressed doubt at another session about "the effort of Mr. Perkins to monopolize the blame."
And, indicating he was troubled by Doar's action in holding back the Peck letter and with other aspects of the defense's conduct, Judge Frankel said it reflected "a kind of single-minded interest in winning, winning, winning without hte limited qualification of that attitude that the court, I think, is entitled to expect and which I feel must have infected Perkins and has infected certain aspects of this case from time to time in ways I find upsetting."
Berkey attorney Stein also said that "to suggest what happened here was a voluntary unburdening by the defendant us just wrong."
Berkey's attorneys meanwhile are concerned that the developments of the final week of the trial are obscuring the record they feel they established, to the jury's satisfaction, that Kodak over the years illegally monopolized the amateur photography business.
"By saying this event had a significant effect on the outcome of the case tends to turn attention from what went on for six months before," Stein noted.
But as another trial observer pointed out: "For Kodak, this could ultimately turn out to be of the greatest benefit to them.