Reference no: EM133505985

Case Study: Eastman Kodak Co. (Kodak) manufactures and sells photocopiers and micrographic equipment. In addition, Kodak provides customers with service and replacement parts for its equipment. Kodak produces some of the parts itself. The other parts are made to order for Kodak by independent original equipment manufacturers (OEMs). Rather than selling a complete system of original equipment, lifetime parts, and lifetime service for a single price, Kodak furnishes service after an initial warranty period, either through annual service contracts or on a per-call basis. Kodak provides between 80 and 95 percent of the service for Kodak machines. In the early 1980s, independent service organizations (ISOs) began repairing and servicing Kodak equipment, as well as selling parts for it. ISOs kept an inventory of parts, purchased either from Kodak or from other sources (primarily OEMs). In 1985, Kodak adopted policies designed to limit ISOs' access to parts and to make it more difficult for ISOs to compete with Kodak in servicing Kodak equipment. Kodak began selling replacement parts only to Kodak equipment buyers who used Kodak service or repaired their own machines (i.e., buyers who did not use ISOs for service). In addition, Kodak sought to limit ISO access to other sources of Kodak parts by working out agreements with OEMs that they would sell parts for Kodak equipment to no one other than Kodak, and by pressuring Kodak equipment owners and independent parts distributors not to sell Kodak parts to ISOs.

Question 1: Eighteen ISOs sued Kodak, claiming that these policies amounted to unlawful tying of the sale of service for Kodak machines to the sale of parts, in violation of Sherman Act § 1. A federal district court granted summary judgment in favor of Kodak on each of these claims. The Ninth Circuit Court of Appeals reversed, holding that summary judgment was inappropriate because there were genuine issues of material fact regarding the ISOs' claims. The U.S. Supreme Court granted certiorari. For purposes of the § 1 tying claim presented in this case, are service and parts two distinct products? If so, do the facts make it reasonable to infer that Kodak possessed sufficient market power in the parts market to force unwanted purchases of service? How did the Supreme Court rule?

Question 2: The facts in the question involves a practice by Kodak which limited the ability of Independent Service Organizations to obtain Kodak parts necessary to repair and maintain photocopiers. As a result of Kodak's practices, anyone who purchased Kodak photocopiers would also have to purchase service and parts from Kodak rather than ISOs. The ISOs sued Kodak claiming that its practices amounted to an unlawful tying agreement in violation of Section 1 of the Sherman Act. Tying Agreements as well as the Suture express Inc. Case. could help. Identify and describe the test used by the court to determine if a tying agreement violated Section 1. In addition, it should apply the test to the facts in the question to reach a conclusion. The question asks how the Supreme Court ruled in the case; however, a conclusion based on the application of the test used by the court would be good.