Eastman Kodak is to cameras what Interntional Business Machines is to computers and American Telephone and Telegraph is to phones.
All three firms virtually monopolize their industries (and many peripheral industries as well) They are also technological leaders and, not so incidentally, are the targets of myriad antitrust suits, private and federal.
IBM and the federal government are locked in what so far is the most ponderous and lengthy antitrust trial in history. When the Justice Department and AT&T finally go to trial - the suit was filed five years ago - IBM's dubious record likely will be eclipsed.
The cases are different and all are enormously complex. But a theme that dances through all, sometimes at center stage but seldom merely in the wings, is technology. To what extent can a monopolist introduce new technology that puts its smaller competitors at a disadvantage and in the process temporarily or permanently gains the monopolist a bigger shares of the market and profits?
In an important ruling Monday, the 2nd Circuit Court of Appeals said that even a monopolist - as long as the company gained its dominance by producing a better product and not by unlawful means - has the right to make techological innovations and introduce new products even if its competitors are left in the dust or even in bankruptcy court.
The case involved Eastman Kodak, a $7 billion company that is the world's largest producer of amateur cameras (as opposed to those used by hobbyists ad professionals), color film and related photographic equipment and supplies. Kodak is also an important processor of color film, although a 1954 consent decree knocked Kodak out of a processing monopoly by forbidding the company to include the cost of developing and printing in the price of the film.
In the decision, Chief Judge Irving R. Kaufman - writing for a unanimous three-judge panel that included J. Joseph Smith and William H. Mulligan - reversed more than half of an $87.1 million award Berkey Photo won in its suit more than a year ago.
The judges also ordered new trials on most of the other counts, although they upheld nearly $1 million of the original award.
Berkey, a $200 million company, competes with Kodak in several areas and buys from Kodak in others. Until last year, Berkey sold cameras.
The suit, using a fancy variation of anti-trust theory under the Sherman Act, charged that Kodak violated the law when is simultaneously introduced a new camera (the Pocket Instamatic) and a new, supposedly better film (Kodacolor II) that was manufactured in cartridges that would fit only the new camera.
Berkey alleged, and a 10-member federal jury agreed, that by introducing two new, complimentary products that were incompatible with existing products produced by competitors, the Rochester, N.Y., gaint abused its monopoly position by not letting its competitors in early on the details.
Because Kodak is the only important manufacturer of color film used by amateurs, its competitors in the camera-making business have to tailor their products to acept Kodak film cartridges.
Since the new film was touted as being superior (Kodak experts were afraid the older Koadcolor X was too grainy to be used in the smaller Pocket Instamatic), Kodak's competitors were left at the gate and had to scramble to make new cameras that would take the film. Kodak for a while did not market the new film (that at least at first was not as good as hoped, the judge said) in any other size than 110 to fit the new camera.
The claim is similar to one made by Memorex in its suit against IBM.
Memorex makes equipment that can be plugged into a main computer to do the processing and data storage that companies or other users of computers require. IBM makes most of the computers and is also a major seller of so-called peripheral equipment, but companies like Memorex and California Computer Products (who lost an appeal in its antitrust suit against IBM last week) found a profitable niche in the industry making only the peripheral equipment.
Then IBM came out with a new computer that was incompatible with Memorex products. Memorex sued and demanded that IBM tell it and other peripheral equipment makers, under some licensing arrangement, how to make products compatible with the new computer.
A mistrial was declared (with the jury vote 9-2 in Memorex's favor) but a federal district judge ordered a direct verdict in IBM's favor. The case is on appeal in California.
Although the Justice Department suit against AT&T is far from trial stage, one of the issues the government has talked about in trying to break up the Ma Bell monopoly is "predatory innovation." Western Electric, a wholly owned subsididary of AT&T, is also the largest manufacturer of phone equipment in the world.
The decision this week is the first at the appellate level to examine thoroughly the responsibilities of an innovating monopolist. It surely will set a precedent for other courts examining similar issues (even Schick is suing Gillette for making a new razor that won't take Schick Cartridges).
The bottom line, the appeals court said, is that monopolists may pursue normal competitive actions such as innovating without telling its rivals in advance, or else companies will lost the motivation to make technological advances and consumers, in the end, would lose the benefits of innovation.
Antitrust laws are meant to ensure competition and vigor. The judges said that if the laws are used to penalize competitive market behavior by a monopolist, the laws would "compel the very sloth they were intended to prevent."