Eastman Kodak Is Found to Be in Violation of the Sherman Act Summary

  • Last updated on November 10, 2022

In one of many antitrust suits brought against the Eastman Kodak Company, the U.S. Supreme Court found the firm guilty of enforcing exclusive contracts.

Summary of Event

Passage of the federal Sherman Antitrust Act Sherman Antitrust Act (1890) in 1890 coincided with American industry’s increasing resort to combination, that is, to organization as mergers, amalgamations, conglomerates, and trusts. The structuring of businesses along these lines was most notable among firms with capitalizations in excess of one million dollars. Of the roughly 220 such combinations effected between 1890 and 1900, an important minority were trusts. A trust puts the stocks of various companies into a central pool, to be controlled by a board of trustees. The companies then act in concert for their mutual benefit rather than competing. The rate of trust formation slackened after 1900, but this type of combination continued on a large scale until 1904. Trusts were epitomized by United States Steel (the world’s first billion-dollar corporation) as well as by the original trust, Standard Oil, in company with American Tobacco, Du Pont, Northern Securities, and International Harvester. Their names translated as “monopolies” in public and in political parlance. These were also chief among the organizations whose sheer size or practices gave impetus to the first serious Sherman Act prosecutions, which were begun during the presidency of Theodore Roosevelt and increased through the administrations of William Howard Taft and Woodrow Wilson. [kw]Eastman Kodak Is Found to Be in Violation of the Sherman Act (Feb. 21, 1927) [kw]Kodak Is Found to Be in Violation of the Sherman Act, Eastman (Feb. 21, 1927) [kw]Violation of the Sherman Act, Eastman Kodak Is Found to Be in (Feb. 21, 1927) [kw]Sherman Act, Eastman Kodak Is Found to Be in Violation of the (Feb. 21, 1927) [kw]Act, Eastman Kodak Is Found to Be in Violation of the Sherman (Feb. 21, 1927) Eastman Kodak Company Antitrust legislation Supreme Court, U.S.;antitrust and corporate regulation [g]United States;Feb. 21, 1927: Eastman Kodak Is Found to Be in Violation of the Sherman Act[06840] [c]Trade and commerce;Feb. 21, 1927: Eastman Kodak Is Found to Be in Violation of the Sherman Act[06840] [c]Laws, acts, and legal history;Feb. 21, 1927: Eastman Kodak Is Found to Be in Violation of the Sherman Act[06840] Eastman, George Goodwin, Hannibal W. Edison, Thomas Alva

There were some modestly capitalized trusts that seemed less menacing in the eyes of reformers, muckrakers, and the public. Their degrees of market power nevertheless often equaled or exceeded those of their more prominent and notorious counterparts. Reorganized as a trust in 1901 with a capitalization of about twenty-seven million dollars, the Eastman Kodak Company was one of these smaller trusts. The astuteness of its leader, its innovative edge, its control over patents, and its exclusionary marketing strategies allowed it to control nearly 90 percent of its market, a higher proportion than U.S. Steel, American Tobacco, or International Harvester controlled of their respective markets and about equal to the market power exercised by Du Pont, Pullman, and Singer. Moreover, the Eastman Kodak Company attained this measure of power within just a few years after its restructuring as a trust. A conjunction of inventiveness, scientific curiosity, artistic imagination, risk taking, business acumen, public interest, and ready markets contributed to making this ascendancy over the photographic industry possible.

By the last quarter of the nineteenth century, photography had evolved in many of its dimensions beyond the seminal contributions made earlier by Louis Jacques Mandé Daguerre, William Henry Fox Talbot, and scores of ingenious chemists, opticians, physicists, and amateur photographers. Photography;history Because of the weight, bulk, awkwardness, and fragility of the glass plates on which photography relied as a base for its light-sensitive materials, the international search for improvements from the 1860’s onward centered on contriving an unbreakable, lightweight, flexible, and still sensitive film. Experimentation in the United States and Western Europe initially involved various wet collodion processes as well as the gelatinous silver bromide dry process. Uses of celluloid soon showed great promise, thanks to the work of John Hyatt in the late 1860’s and, two decades later, to discoveries by John Carbutt and Hannibal W. Goodwin. Goodwin, a Newark, New Jersey, Episcopal clergyman and amateur photographer, was in 1887 the first American to apply for a patent for the production of flexible, transparent film, in the form of light-sensitive, celluloid-like, collodion strips. The patent was not granted until 1898. It covered an area in which George Eastman, who was also working assiduously on the manufacture of films and roll films, was to be credited with pioneering advances. Photographic film

Eastman was born in a small town in northern New York in 1854 and at the age of six moved with his family to Rochester, where his father established a commercial school. His father’s death forced fourteen-year-old George to leave school to help his mother. At the age of twenty, believing he had been cheated out of a promotion, he left a well-paying bank job to devote himself to photography, formerly a hobby.

After several years of experiments informed by his studies of photography advances reported in American, British, and European journals and by later consultative journeys to England, he began manufacturing dry plates, first at home and then in a small factory. By 1879, he had devised a dependable formula for producing emulsions for coating glass plates. He soon patented a machine that performed this task. Having solicited the financial backing of investor Henry A. Strong Strong, Henry A. and the camera-making expertise of William H. Walker, Walker, William H. Eastman founded the Rochester-based Dry Plate & Film Company in 1884 for the manufacturer of a hand camera with roll film. Eastman heavily advertised his handy box camera, featuring a roll holder and stripping film combined within it. He trademarked his product “Kodak,” a nonsense word, in 1888. Improvements in the quality and varieties of film as well as in the camera itself thereafter were patented swiftly by Eastman and his chemist, Henry Reichenbach. Reichenbach, Henry Low price and simplicity paved the way for the Kodak’s immense commercial success.

Eastman guarded his firm’s novelties and quality in many ways. He helped block the patent application filed by Goodwin, securing similar patents under his and Reichenbach’s names. Goodwin subsequently sued after his own film and camera company came under control of the Ansco Company. Ansco Company Years later, the courts ordered Eastman to pay millions of dollars in damages to Ansco, thus acknowledging Goodwin’s invention of the celluloid base for roll films. Eastman also licensed important patents and eventually bought some of them outright. Eastman produced Thomas Alva Edison’s “first motion-picture camera” and manufactured most projection film then used by the rapidly growing motion-picture industry. Eastman joined leaders of that fledgling industry in crowding out competitors.

By 1913, the Eastman Kodak Company had fallen foul of the Sherman Act. Federal courts alleged that it enjoyed a monopoly of the manufacture, sale, and distribution of photographic supplies, that it had bought out a score of competitors, and that it had acquired sole rights to sell domestic and foreign-made paper suitable for photography. Further, the government contended that Eastman had engaged in price fixing and had entered exclusive dealings arrangements. All of these activities were deemed harmful to competition. The company was ordered to dissolve its monopoly. The litigious affair of consents and decrees dragged on until 1935.

In the meantime, a small Georgia wholesaler that had dealt in Eastman products for many years, Southern Photo Materials, won its case against Kodak before the U.S. Supreme Court, which handed down its decision on February 21, 1927. The case arose when Kodak sought to purchase all competing wholesalers in Georgia, Southern Photo Materials included. That company refused the offer. Eastman then cut off sales to it except at retail prices. At the time, Kodak manufactured more than nine-tenths of American motion-picture film. By entering agreements with its customers through an association of laboratories making motion-picture prints, it also prevented firms such as Southern Photo Materials from purchasing imported film.

Having already been deemed an illegal combination in 1916, and under federal decrees to present plans for its dissolution in 1916, 1921, and 1926, Eastman Kodak in 1927 was found guilty before the U.S. Supreme Court of exclusionary practices, discrimination, and the “forward integration” of competitors, or buying up customers of its products to avoid having to compete to sell to them and to final customers for its products.

Significance

For nearly half a century following its initial conviction under the Sherman Act in 1913, and for more than twenty years after its 1927 conviction by the Supreme Court, the Eastman Kodak Company maintained an estimated 90 percent share of its market, with no measurable change. It remained America’s largest manufacturer of cameras, photographic and motion-picture film, and supplies. Its branches were international. If antitrust prosecutions had any effect on it, they were most discernible in what experts defined as the medium ease of entry by others into Eastman’s fields of enterprise. By most criteria, Eastman’s advantages were enormous, muted only by litigation.

Irrespective of its business practices, Eastman Kodak in major respects ranked as one of the world’s most enlightened and progressive firms, exactly as George Eastman intended. His employees were made shareholders in the company and were recipients of generous welfare, benefit, promotion, and pension plans. Eastman, who never married, treated Rochester and other communities as beneficiaries of his wealth, favoring education, the arts, and propagation of the music he loved. Before his unusual suicide in 1932—it was simply the rational decision of a satisfied man—he disposed of nearly all his wealth, contributing to philanthropies almost one billion dollars as measured in 1990 purchasing power.

Carl Ackerman, Eastman’s definitive biographer, notes that Eastman was disciplined and temperate. He was deservedly liked and was accorded respect by his associates, scientists, employees, and the communities with which he dealt. Before his retirement in 1929, he had stamped his organization with his own admirable personality. Neither Eastman nor his organization conformed with the popular stereotypes of his day of “robber barons,” tycoons, or captains of industry. From the perspective of the 1990’s, business consultant Peter F. Drucker cited Eastman Kodak as one of a handful of “long-pull performers,” successful because of its concentration on a single market and single technology.

Whatever the internal organizational excellence of Eastman Kodak and the wisdom of its business strategies, the company again found itself challenged when its performance was assessed by federal authorities. In the 1950’s, depicted as an aggressive near monopoly in its dealings with competitors, inventors, and consumers alike, it was again charged by the Antitrust Division of the Department of Justice with violations of sections 1, 2, and 3 of the Sherman Act.

Eastman Kodak, according to the complaint, had sold its Kodachrome and Kodacolor films on the understanding that it obtain all processing business connected with the films. It therefore marketed Kodachrome and Kodacolor at prices that included Eastman’s subsequent processing charges. In so doing, Eastman foreclosed competitive processing. Moreover, as consumers generally expected the film developer to develop at least one set of prints, Eastman was charged further with illegally tying its sale of film to the making of Kodacolor prints. In addition, it was alleged that Eastman illegally fixed the resale price of these films beyond “fair trade” price exemptions to the Sherman Act as set by other federal statutes.

The consent judgment entered against Eastman Kodak required the company to cancel its fair trade contracts relative to the resale price maintenance (setting a minimum price that all sellers would charge) of Kodachrome and Kodacolor products and to abstain from entering into similar contracts for controlling the price of its color films. Amateur users of Eastman’s color film were also freed thereafter to obtain the benefits of open competition for the film’s processing.

Federal authority further compelled Eastman Kodak to grant reasonable royalty licenses for numerous related patents and to distribute manuals describing its commercial color film processing technology, with annual supplements for seven years. The company was also ordered to provide the services of a technical representative to any recipient of these manuals who needed further instruction. If necessary, Eastman Kodak’s major eastern processing plants were to be opened to these recipients to observe and learn the technology employed. Finally, within seven years the company was to divest itself of any facilities in excess of 50 percent of the current domestic capacity for processing its color film.

Operating in a legally complex field, Eastman Kodak and the U.S. attorney general agreed, immediately upon filing of the government’s consent judgment, to negotiate a settlement. The parties resolved their difficulties over the bargaining table rather than in court. Unlike its previous experiences in bringing an end to antitrust proceedings against Eastman Kodak, federal authorities, at modest expense, procured what they described as an equitable judgment achieved by reasonable cooperation between business and government.

Dominating much of the technology of its industry, Eastman Kodak traditionally had wielded its edge in the market until competitors’ or consumers’ complaints snarled it in the often illusory web of antitrust technicalities. Many American businesses had pursued similar courses. Beginning in 1947, Edwin H. Land, inventor of the Polaroid instant camera, had also seized and maintained his market advantage while he could, exclusive of competition. Polaroid, Eastman Kodak, and other manufacturers understood that when antitrust laws were invoked against them they faced a Justice Department that was politically vulnerable, understaffed, and otherwise short of the resources for lengthy legal battles. Rational settlements with which all parties could live, that opened the marketplace somewhat and arguably redounded to the public good, were justifications enough for America’s singular antitrust tradition. Eastman Kodak Company Antitrust legislation Supreme Court, U.S.;antitrust and corporate regulation

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Ackerman, Carl W. George Eastman. London: Constable, 1930. Well-written and exhaustive biography places both Eastman and his firm in specific context. Includes notes, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Coe, Brian. George Eastman and the Early Photographers. London: Priory Press, 1973. Essay with excellent photos places Eastman in the tradition of his hobby and craft. Focuses on his work, not on his business practices. Includes chronology, glossary, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Eder, Josef Maria. History of Photography. New York: Columbia University Press, 1945. Massive, scholarly history includes discussion of Eastman’s interests, career, and contributions in chapters 47 through 49. Dense but invaluable. Includes notes and index.
  • citation-type="booksimple"

    xlink:type="simple">Gernsheim, Helmut, and Alison Gernsheim. The History of Photography. 2d ed. London: Thames and Hudson, 1969. Less exhaustive and more readable than Eder’s book (cited above) and a supplement to it for the post-1945 period. A fine work with good perspective on Eastman’s main contributions. Includes interesting photos, notes, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Peritz, Rudolph J., Jr. Competition Policy in America, 1888-1992: History, Rhetoric, Law. Rev. ed. New York: Oxford University Press, 2001. A history of federal government policies relating to antitrust issues. Includes a substantial bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Sandler, Martin W. Photography: An Illustrated History. New York: Oxford University Press, 2002. Presents a chronological overview of the major figures in the history of photography and their artistic and technical contributions. Includes many photographs as well as a chronology, a bibliography, and a list of photography museums around the world and Web sites devoted to photography.
  • citation-type="booksimple"

    xlink:type="simple">Shepherd, William G. The Treatment of Market Power: Antitrust, Regulation, and Public Enterprise. New York: Columbia University Press, 1975. Written by a former U.S. Justice Department antitrust expert, this is a novel clinical diagnosis of market power into which Eastman Kodak has been fit. Excellent discussion of the difficulties of applying antitrust policies. Includes notes, graphs, charts, tables, appendixes, and index.

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