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From Antitrust Law Daily, March 26, 2015

Kodak’s ink pricing policy properly banned in tying suit

By Greg Hammond, J.D.

A preliminary injunction was properly granted against Eastman Kodak Co. for allegedly creating an ink pricing policy that amounted to illegal tying under Section 1 of the Sherman Act. The U.S. Court of Appeals in Cincinnati affirmed the order for preliminary injunction, entered by the federal district court in Cincinnati, finding that the evidence suggests Kodak sold ink at a loss, that there is a realistic possibility that Kodak’s competitor will face irreparable harm absent the injunction, and that the competitor is sufficiently likely to succeed on the merits of its tying claim (Collins Inkjet Corp. v. Eastman Kodak Co., March 25, 2015, Rogers, J.).

Background. Kodak manufactures Versamark printers that it sells to printing companies, along with Versamark printheads and refurbished printheads. Collins Inkjet Corp. competes with Kodak in selling ink for Versamark printers. In September 2013, Collins filed a complaint against Kodak, alleging that Kodak unlawfully tied the purchase of ink to the purchase of refurbished printheads for Versamark printers and engaged in deceptive trade practices and unfair competition in coercing customers into purchasing Kodak ink. The district court granted a preliminary injunction against Kodak, based on the tying claim, finding a strong likelihood that Kodak’s pricing policy was a non-explicit tie that coerced Versamark owners into buying Kodak ink and that Kodak possessed sufficient market power in the market for refurbished printheads to make the tie effective.

Kodak appealed the lower court’s order, challenging the court’s determinations concerning tying, market power, likelihood of irreparable harm to Collins, and the public interest served by a preliminary injunction.

Price differentiation. Collins demonstrated a sufficient likelihood of success on the merits of both central elements of a tying claim, including market power in the tying product market and coercion of buyers to purchase the tied product.

The court first applied the discount attribution standard to the present case, noting that a tie is not unlawful unless the differential pricing is the economic equivalent of selling the tied product below the defendant’s cost. In the instant case, Kodak’s ink pricing policy—in which Kodak raised the cost of replacing Versamark printheads, but only for customers not purchasing Kodak ink—appeared to be predatory, because Kodak’s profits decreased whenever a customer switched to Kodak ink. Kodak admitted in its appellate brief that it stood to make more money if customers bought ink from Collins and paid Kodak’s unmatched printhead refurbishment price than if they bought Kodak ink. Collins therefore had a likelihood of success on the coercion prong of its tying claim because the record suggested that Kodak was selling ink below its incremental cost.

There also was a strong likelihood of Collins’ success on a finding that Kodak had sufficient market power over printheads to sustain a tying arrangement with ink, the court determined. Kodak conceded that it has a 100 percent share of the refurbished printhead market. Information costs—the availability of information about aftermarket pricing in the primary market—were deemed high in this case because consumers have been locked into high aftermarket prices without prior warning. Additionally, switching costs—the difficulty of switching to a different primary market supplier—were also found to be high, which could dampen primary market reactions to an increase in printhead costs.

Harm, public interest. Given Kodak’s significant power in the printhead market, the court concluded that there was at least a reasonable prospect that Kodak’s ink pricing policy would eventually succeed in cutting into Collins’ market share, demonstrating irreparable harm to Collins. Further, the threat of harm to Kodak, arising from the preliminary injunction, was negligible because it was deemed “highly unlikely” that the injunction would have the effect of preventing Kodak from competing with Collins. The public interest would also be served by the injunction, the court concluded, because the terms of the preliminary injunction are pro-competitive.

The case number is 14-3306.

Attorneys: Marc G. Schildkraut (Cooley LLP) for Eastman Kodak Co. W.B. Markovits (Markovits, Stock & DeMarco, LLC) for Collins Inkjet Corp.

Companies: Collins Inkjet Corp.; Eastman Kodak Co.

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