Kodak loses decision in lawsuitover third-party service

Vendor could be liable for $74 million in damages

A federal court jury last week ruled that Eastman Kodak violatedantitrust laws by restricting access to spare parts for its photocopiersand other products. The ruling is a major victory for independentservice organizations trying to remove barriers to maintainingequipment manufactured by OEMs.

The verdict was delivered Sept. 18 by a jury in U.S. DistrictCourt in San Francisco. The case, Image Technical Services v.Eastman Kodak, was filed in 1987 by a group of 11 ISOs who chargedthat Kodak violated the Sherman Antitrust Act by refusing to sellthem spare parts for photocopiers and micrographics equipment.

ISOs have long charged that OEMs who restrict access to spareparts are engaging in monopolistic practices, and the medicalimaging industry has seen several drawn-out battles between ISOsand OEMs, such as recent litigation between Picker Internationaland Imaging Equipment Services (SCAN 9/13/95).

The Kodak case became a proving ground for ISO allegationsas it wound through the court system. The lawsuit was initiallythrown out but was appealed to the U.S. Supreme Court, which establishedin a landmark ruling that antitrust rules apply to the equipmentservice market (SCAN 6/17/92).

The Supreme Court ruling gave the plaintiffs the green lightto sue Kodak, and after a two-and-a-half-month trial, the ISOswon their case. The jury ruled that Kodak violated antitrust lawsand awarded the plaintiffs $23.9 million, an award that was trebledunder a section of antitrust law that provides for treble damagesin civil antitrust cases. The damages could total $71.7 millionif the award is upheld on appeal.

Kodak was unbowed by the jury's ruling and said it would appealthe case, using elements of the Supreme Court ruling to overturnthe jury verdict.

"We believe we had no duty to sell patented parts,"said Gary VanGraafeiland, Kodak general counsel. "We're confidentthat the Court of Appeals will find that plaintiffs failed toprove what they promised the Supreme Court and that the decisionwill be reversed."

Kodak could be in for more legal trouble, however, due to aclass-action lawsuit related to the service issue. That trialwill benefit from last week's ruling under the legal principleof collateral estoppel, which does not require the plaintiffsin the second suit to demonstrate again that Kodak was guiltyof illegal practices.

ITS attorney Jim Hennefer said his strategy in the case wasto demonstrate to the jury that competition in equipment serviceis good for consumers.

"The consumer benefits from competition," Hennefersaid. "It makes the manufacturer sharpen his pencil and bemore responsive. They benefit because if they don't like the manufacturerthey have other choices for service."

In the wake of the ruling, legal observers have speculatedthat the case could spark more litigation between ISOs and OEMs.Hennefer, however, believes the opposite could be true as vendorschange their policies to avoid monopolistic practices that couldget them into legal hot water.

"I think some of the vendors have backed off, and that'shad a beneficial effect," Hennefer said.