Ruling Bans Monopolies on Repairs : Antitrust: In a closely watched case, the U.S. Supreme Court says manufacturers can’t force consumers to return to them for parts and service.
In a victory for consumers of products ranging from television sets to cars, the Supreme Court ruled Monday that manufacturers can be sued for antitrust violations if they try to force owners of their products to buy spare parts and service from them.
The 6-3 decision came in a closely watched dispute between Eastman Kodak, which makes high-priced photocopiers, and dozens of independent dealers who compete to repair those copiers.
The justices rebuffed an effort by major manufacturers, including Kodak, and the Bush Administration to shield the companies from charges that they tried to monopolize parts and service for their products.
“This shows antitrust law is still alive,” said Los Angeles lawyer Richard I. Fine, who filed a brief on behalf of the California State Electronics Assn. in support of the independent dealers. “It is a massive rejection of the Bush Administration’s move to limit the law.”
A 1988 study cited by the association estimated that $250 billion a year is spent nationwide for servicing high-tech products from computers to medical equipment. In the auto industry, consumers spend an estimated $155 billion a year for service and repairs.
The Kodak lawyers had argued that manufacturing, distribution and servicing of a product are all one market--an economic and legal theory popularized at the University of Chicago by antitrust experts such as Robert H. Bork, the failed Supreme Court nominee.
Because Kodak faces competition in selling its copiers, the company cannot be guilty of illegally restraining competition in the service sector, its attorneys argued. American makers of automobiles, computers and other high-tech equipment joined Kodak in urging the justices to exempt them from antitrust charges involving service and repairs.
The case arose in 1986 when Kodak announced that it no longer would sell spare parts to dozens of independent service dealers. Although the copier maker said it was seeking “quality control,” independent dealers and some customers alleged that the company was trying to restrain trade so it could make big profits on repairs and service.
Customers who paid $75,000 for a Kodak copier found themselves forced to pay higher prices for Kodak’s repairs and service while the independent dealers faced extinction, the suit said.
They argued that Kodak had violated the Sherman Act, which prohibits monopolies and anti-competitive practices, by engaging in an illegal “tie-in” arrangement for servicing of its products.
But a federal judge in San Francisco dismissed the lawsuit without a trial. He ruled that a company such as Kodak cannot violate antitrust laws in servicing products if it faces competition in the initial sale.
Had the Supreme Court accepted that view, legal experts said Monday, makers of products as diverse as computers, automobiles and consumer appliances would have been free to insist that buyers obtain service and spare parts only from authorized dealers.
Instead, Justice Harry A. Blackmun declared that service is a distinct market in which competition must be preserved.
Kodak’s alleged practice of closing the market and charging higher prices is “anti-competitive and exactly the harm that the antitrust laws aim to prevent,” Blackmun wrote in the case (Eastman Kodak vs. Image Technical Services, 90-1029).
The ruling sends the case back to San Francisco for trial on whether Kodak sought to monopolize the service market. If so, the company could be forced to pay millions of dollars in damages.
Georgetown University law professor Robert Pitofsky, an antitrust expert, called the ruling “tremendously important” and said it “rejects the whole University of Chicago approach.”
“Had the court accepted it, we could have had a system here like what Japan used to have--where the few manufacturers at the top of the pyramid determine how products are distributed and serviced,” Pitofsky said. “In this country, we have always had competition at the distribution and service level.”
In a sharp dissent, Justice Antonin Scalia argued that a “rational consumer” will consider the price of service and spare parts in the original purchase decision. As long as manufacturers must compete for original sales, they need not allow independent competitors in the service sector, he contended. His dissent was joined by Justices Clarence Thomas and Sandra Day O’Connor.
