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FOREWORD ...........................................................- I - INTRODUCTION .......................................................... I EXECUTIVE SUMMARY: KODAK REWRITING HISTORY ..................... iii A. "Privatizing Protection": Fiction Based On Mistaken Facts, Misleading Facts, Or No Facts At All .........................................4 1. The consultant's report: wrong, wrong, and wrong again ...........5 2. Retailer complaints as evidence of collusion and conspiracy ........5 3. Mischaracterizations .......................................6 4. Allegations with no support ..................................7 B. Fujifilm In Japan: No Systematic Anticompetitive Activities ............7 1. The alleged core distribution system ...........................8 2. The Asanuma non-incident ..................................9 3. The remarkably unremarkable rebates .........................10 4. The paper distribution "bottleneck" theory .....................12 5. The alleged exclusionary practices ...........................13 6. The pricing paradox .......................................14 C. Government Of Japan: No Encouragement Or Toleration Of Systematic Anticompetitive Behavior ........................................15 1. MITI did not encourage anticompetitive conduct ................15 2. The JFTC has strictly enforced the Antimonopoly Act with respect to Fujifilm ................................................16 3. Fujifilm and its tokuyakuten are not part of the Mitsui keiretsu .....18 D. Kodak In Japan: Limited Market Share As The Expected Consequence of Insufficient Investment, Inadequate Attention, And Ineffective Marketing 19 1. The mirror image problem ..................................19 2. The profit sanctuary myth ..................................20 3. Kodak shut the "window" opened by liberalization ..............21 4. Missed opportunities and missing products: Kodak from 1985 to the p .......................21 5. Too little, too late .........................................23 E. Treaty Violations: Old Allegations Do Not Improve With Age ..........24 F. Kodak In The U.S. Market: A Critical Benchmark Against Which To Judge Kodak's Allegations About Fujifilm ...............................24 1. Historical context: Kodak's century-long entanglement with antitrust law .........................................25 2. Old habits that never change ................................27 a. Kodak's exclusive dealing arrangements .................27 i b. Kodak's exclusionary practices have been very successful ...28 3. Kodak has used its leverage in the film market to dominate photofinishing and color paper ..............................29 4. U.S. Government toleration: inexplicable non-enforcement of the antitrust consent decrees restricting Kodak .....................32 5. Fujifilm's enormous efforts in the U.S. market far exceed Kodak's commitment in Japan ......................................32 6. Kodak urges the U.S. Government to apply double standard .......34 CONCLUSION: THROUGH A LOOKING-GLASS ......................35 I. KODAK'S ALLEGATIONS ARE BASED ON FACTUAL MISSTATEMENTS, MISCHARACTERIZATIONS, AND MISLEADING OMISSIONS .......... xxxvi A. The Distribution System .........................................36 B. Rebate Programs ...............................................43 C. Price Competition ..............................................45 D. MITI Involvement ..............................................48 E. JFTC Enforcement .............................................53 F. Kodak's Market Share ...........................................57 G. The Profit Sanctuary ..........................................58 H. Liberalization Countermeasures ...................................59 I. Kodak's Efforts To Compete ......................................61 J. The Past Decade ...............................................62 II. FUJIFILM HAS NOT ENGAGED IN SYSTEMATIC ANTI-COMPETITIVE ACTIVITIES IN THE JAPANESE MARKET ............................ lxiv A. Fujifilm Has Not Created An Exclusionary Market Structure, Either Through Its Distribution System Or Through Its Rebates .......................65 1. Fujifilm's use of independent single-brand distributors is not anticompetitive ..........................................67 a. The development of Fujifilm's current distribution system was unrelated to alleged efforts to block Kodak's access to the market .................................................70 b. The move toward single-brand distribution was a general industry trend, not led by Fujifilm ......................71 (1) Kodak/Nagase ...............................72 (2) Konica .....................................74 (3) Camera manufacturers .......................75 ii c. Kodak's claim that lack of access to Fujifilm's tokuyakuten has crippled its efforts in Japan is disingenuous ...............76 d. Fujifilm's tokuyakuten are independent businesses not under Fujifilm's control ...................................78 (1) Fujifilm's tokuyakuten compete with each other ..79 (2) Fujifilm's tokuyakuten are reasonably profitable by industry standards .............................80 e. Kodak has completely mischaracterized the leverage exerted by Fujifilm's tokuyakuten ...............................82 f. Secondary dealers offer unimpeded access to small retail outlets .................................................84 2. Fujifilm's rebate programs are not exclusionary .................86 a. Fujifilm's use of progressive target volume rebates has been very limited for at least 20 years, and was substantially reduced recently ...........................................86 (1) Rebates to tokuyakuten .......................87 (2) Rebates to retailers ...........................88 (3) Color paper rebates ..........................90 b. Fujifilm does not manipulate rebates to restore tokuyakuten to profitability at the end of the fiscal year ..................90 3. There is no distribution bottleneck for color film ................91 a. The examples of major Tokyo retailers show that Kodak's market share is not a function of access to consumers ...............92 b. The rise of gray market imports and private label brands shows that there is no distribution bottleneck ...................93 c. The only segment of the market in which Kodak's access may be limited is small shops with insufficient shelf space to carry multiple brands .....................................94 4. There is no distribution bottleneck for color paper ...............97 5. The allegedly exclusionary practices complained about by Kodak are normal competitive practices worldwide .......................99 a. Single-brand or direct distribution of film is the worldwide norm .................................................99 b. Forward integration into photofinishing is the worldwide norm ................................................100 B. Fujifilm Has Not Suppressed Price Competition .....................102 1. Market trends show that the Japanese market is increasingly sensitive to price ..................................................103 iii a. The level, trend, and distribution of retail prices are inconsistent with the existence of resale price maintenance .................................104 b. The rise of discount stores, gray market imports, and private label brands demonstrates that the market responds to price .107 2. Kodak's conspiracy theories are based on misstatements and factual distortions .............................................108 3. Fujifilm does not monitor resale prices in order to control them ..........................112 4. Fujifilm's rebate programs do not inhibit price competition .......113 III. THERE HAS BEEN NO GOVERNMENT TOLERATION OF SYSTEMATIC ANTICOMPETITIVE CONDUCT .....................................115 A. The Japanese Government Did Not Encourage The Creation Of An Exclusionary Market Structure To Block Kodak .....................116 1. MITI's distribution guidelines were irrelevant to the development of Fujifilm's distribution system ...............................117 a. MITI did not encourage tokuyakuten to deal only with Fujifilm ................................................118 b. MITI did not encourage expanded use of rebates .........120 c. MITI did not encourage the creation of a bottleneck .......121 2. The Japanese Government had no involvement in investments by Mitsui entities in Fujifilm .......................................121 a. Fujifilm and its tokuyakuten are not part of the Mitsui Group ................................................122 b. Government support for the stock market had nothing to do with investments by Mitsui entities in Fujifilm ...............123 c. The issue of cross-shareholding between Fujifilm and financial institutions is completely irrelevant to Kodak's performance in the Japanese market ................................124 B. The JFTC Actively Enforces The Japanese Antimonopoly Act, And Has Subjected Fujifilm To Particular Scrutiny ...........................125 1. The JFTC uses a variety of formal and informal methods to enforce the Antimonopoly Act strictly .................................125 a. A complete history shows the Antimonopoly Act has been strengthened significantly over time ...................126 (1) JFTC enforcement of the Antimonopoly Act became much more aggressive in the 1970s ..............126 (2) The Oil Cartel Cases demonstrate JFTC independence from MITI, and the primacy of the Antimonopoly Act over MITI guidance ..........................128