Chester Carlson (1906-68) invented xerography.  Eastman Kodak validated antitrust lawsuits against photocopier lessors (and others) that tie parts and service to the lease.

Eastman Kodak lives!  The Ninth Circuit today applied Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 41 (1992), to validate an antitrust complaint against a copier leasing company for hindering a competitor’s efforts to steal its customers.  Newcal Industries, Inc. v. IKON Office Solution, No. 05-16208 (9th Cir. Jan. 24, 2008).

The decision turned on whether Newcal Industries defined a proper "product market" under the Sherman Act.  Newcal alleged that IKON deceptively used contract extensions to prevent its lessees from taking their business elsewhere after their copier leases expired.  The "submarket" for supplying post-expiration replacement copiers and copier services, Newcal asserted, qualified as a relevant product market under Eastman Kodak, which upheld a product market consisting of competition for — ta da! — post-sale servicing of (Kodak) copying machines.

Contracts can’t define the product market.  IKON tried to distinguish Newcal’s complaint from the one in Eastman Kodak by citing two intervening court of appeals opinions — Queens City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3d Cir. 1997), and Forsyth v. Humana, Inc., 114 F.3d 1467 (9th Cir. 1997).  The courts in Queens City and Forsyth both rejected product markets that existed only because the defendants (Domino’s and Humana) contractually required their customers (franchisees and health insurance policyholders) to buy goods (pizza ingredients) or services (acute hospital care) exclusively from them.  The courts believed that the packaging of benefits and burdens in the contractual relationships between the sellers and customers precluded treatment of the exclusivity requirements as establishing a relevant product market for antitrust purposes.

The Ninth Circuit found Newcal’s case "more like Eastman Kodak" than Queens City and Forsyth.  The panel said:

[T]he aftermarket here [for post-lease-expiration replacement copiers and copier services] is wholly derivative from and dependent on the primary market [for leasing new copiers].  The markets for pizza ingredients and paper cups would exist whether or not there was a market for pizza chain franchises, and the market for acute care hospitals would exist whether or not there was a market for health insurance.  But the market for durable micrographic equipment parts and services would not exist without the market for durable micrographic equipment, and the market for replacement copiers and lease-end services would not exist without the market for copier leases and copier services.

Newcal, slip op. at 982-83.  The crucial distinction appears to have consisted in the fact that IKON’s customers didn’t agree at the outset to buy a replacement copier or services from IKON after their leases expired.  The competition for that business thus could consitute a relevant product market.

What to do?  Newcal signals the continuing vitality of the Eastman Kodak doctrine and therefore the viability of antitrust claims against suppliers that strongarm customers into buying goods and services they could get cheaper from a competitor.

Two classes of people could bring such claims — (1) a businss that lost customers or sales as a result of the antitrust violation and (2) the violator’s customers, who overpaid because the violation hindered competition on price, quality, or other features.

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