EASTMAN KODAK CO. V. IMAGE TECHNICAL SERVICES, INC. 504 U.S. 451 (1992) Justice Blackmun delivered the opinion of the Court. {454} This is yet another case that concerns the standard for summary judgment in an antitrust controversy. The principal issue here is whether a defendant's lack of market power in the primary equipment market precludes—as a matter of law—the possibility of market power in derivative aftermarkets. {454-55} Petitioner Eastman Kodak Company manufactures and sells photocopiers and micrographic equipment. Kodak also sells service and replacement parts for its equipment. Respondents are 18 independent service organizations (ISO's) that in the early 1980's began servicing Kodak copying and micrographic equipment. Kodak subsequently adopted policies to limit the availability of parts to ISO's and to make it more difficult for ISO's to compete with Kodak in servicing Kodak equipment. {455} I. A. Kodak does not sell a complete system of original equipment, lifetime service, and lifetime parts for a single price. Instead, Kodak provides service after the initial warranty period either through annual service contracts, which include all necessary parts, or on a per-call basis. {457} Kodak provides 80% to 95% of the service for Kodak machines. {457} Beginning in the early 1980's, ISO's began repairing and servicing Kodak equipment. They also sold parts ... ISO's provide service at a price substantially lower than Kodak does. ... Some customers found that the ISO service was of higher quality. {457} In 1985 and 1986, Kodak implemented a policy of selling replacement parts for micrographic and copying machines only to buyers of Kodak equipment who use Kodak service or repair their own machines. {458} Kodak and the OEM's agreed that the OEM's would not sell parts that fit Kodak equipment to anyone other than Kodak. {458} Kodak intended, through these policies, to make it more difficult for ISO's to sell service for Kodak machines. It succeeded. ISO's were unable to obtain parts from reliable sources ... and many were forced out of business, while others lost substantial revenue. ... Customers were forced to switch to Kodak service even though they preferred ISO service. {458} B. In 1987, the ISO's filed the present action in the District Court, alleging, inter alia, that Kodak had unlawfully tied the sale of service for Kodak machines to the sale of parts, in violation of § 1 of the Sherman Act, and had unlawfully monopolized and attempted to monopolize the sale of service for Kodak machines, in violation of § 2 of that Act. {459} II. +-------+ | TYING | +-------+ A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Such an arrangement violates § 1 of the Sherman Act if the seller has "appreciable economic power" in the tying product market and if the arrangement affects a substantial volume of commerce in the tied market. {461-62} A. +--------------+ | TWO PRODUCTS | +--------------+ [A] reasonable trier of fact must be able to find, first, that service and parts are two distinct products, and, second, that Kodak has tied the sale of the two products. {462} For service and parts to be considered two distinct products, there must be sufficient consumer demand so that it is efficient for a firm to provide service separately from parts. {462} Kodak insists that because there is no demand for parts separate from service, there cannot be separate markets for service and parts. By that logic, we would be forced to conclude that there can never be separate markets, for example, for cameras and film, computers and software, or automobiles and tires. That is an assumption we are unwilling to make. "We have often found arrangements involving functionally linked products at least one of which is useless without the other to be prohibited tying devices." {463} +-----+ | TIE | +-----+ [R]espondents have presented sufficient evidence of a tie between service and parts. The record indicates that Kodak would sell parts to third parties only if they agreed not to buy service from ISO's. {463} B. +--------------------------------------------------+ | MARKET POWER IN THE TYING PRODUCT MARKET = PARTS | +--------------------------------------------------+ [W]e consider the other necessary feature of an illegal tying arrangement: appreciable economic power in the tying market. Market power is the power "to force a purchaser to do something that he would not do in a competitive market. It has been defined as "the ability of a single seller to raise price and restrict output. The existence of such power ordinarily is inferred from the seller's possession of a predominant share of the market." {464} 1. [The ISOs] contend that Kodak has more than sufficient power in the parts market to force unwanted purchases of the tied market, service. {464} [The ISOs] provide evidence that certain parts are available exclusively through Kodak. [The ISOs] also assert that Kodak has control over the availability of parts it does not manufacture. {465} +--------------------------------------------------+ | EXCLUSIONARY EFFECT IN THE TIED MARKET = SERVICE | +--------------------------------------------------+ [The ISOs] also allege that Kodak's control over the parts market has excluded service competition, boosted service prices, and forced unwilling consumption of Kodak service. [The ISOs] offer evidence that consumers have switched to Kodak service even though they preferred ISO service, that Kodak service was of higher price and lower quality than the preferred ISO service, and that ISO's were driven out of business by Kodak's policies. {465} 2. [Kodak] urges the adoption of a substantive legal rule that "equipment competition precludes any finding of monopoly power in derivative aftermarkets." {466} Legal presumptions that rest on formalistic distinctions rather than actual market realities are 467 generally disfavored *467 in antitrust law. {467} Kodak's proposed rule rests on a factual assumption about the cross-elasticity of demand in the equipment and aftermarkets: "If Kodak raised its parts or service prices above competitive levels, potential customers would simply stop buying Kodak equipment. Perhaps Kodak would be able to increase short term profits through such a strategy, but at a devastating cost to its long term interests." {469-70} The fact that the equipment market imposes a restraint on prices in the aftermarkets by no means disproves the existence of power in those markets. ... [T]here is no immutable physical law—no "basic economic reality"—insisting that competition in the equipment market cannot coexist with market power in the aftermarkets. {471} To review Kodak's theory, it contends that higher service prices will lead to a disastrous drop in equipment sales. ... Service prices have risen for Kodak customers, but there is no evidence or assertion that Kodak equipment sales have dropped. {472} Respondents offer a forceful reason why Kodak's theory, although perhaps intuitively appealing, may not accurately explain the behavior of the primary and derivative markets for complex durable goods: the existence of significant information and switching costs. These costs could create a less responsive connection between service and parts prices and equipment sales. {473} For the service-market price to affect equipment demand, consumers must inform themselves of the total cost of the "package"—equipment, service, and parts—at the time of purchase. {473} Given the potentially high cost of information and the possibility that a seller may be able to price discriminate between knowledgeable and unsophisticated consumers, it makes little sense to assume, in the absence of any evidentiary support, that equipment-purchasing decisions are based on an accurate assessment of the total cost of equipment, service, and parts over the lifetime of the machine. {475-76} A second factor undermining Kodak's claim that supracompetitive prices in the service market lead to ruinous losses in equipment sales is the cost to current owners of switching to a different product. If the cost of switching is high, consumers who already have purchased the equipment, and are thus "locked in," will tolerate some level of service-price increases before changing equipment brands. Under this scenario, a seller profitably could maintain supracompetitive prices in the aftermarket if the switching costs were high relative to the increase in service prices, and the number of locked-in customers were high relative to the number of new purchasers. {476} Moreover, if the seller can price discriminate between its locked-in customers and potential new customers, this strategy is even more likely to prove profitable. {476} [The ISOs] have offered evidence that the heavy initial outlay for Kodak equipment, combined with the required support material that works only with Kodak equipment, makes switching costs very high for existing Kodak customers. {477} It is clearly reasonable to infer that Kodak has market power to raise prices and drive out competition in the aftermarkets, since respondents offer direct evidence that Kodak did so. {477} III. +----------------+ | MONOPOLIZATION | +----------------+ [The ISOs] also claim that they have presented genuine issues for trial as to whether Kodak has monopolized, or attempted to monopolize, the service and parts markets in violation of § 2 of the Sherman Act. "The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." {480-81} A. +----------------+ | MONOPOLY POWER | +----------------+ [The ISO's] evidence that Kodak controls nearly 100% of the parts market and 80% to 95% of the service market, with no readily available substitutes, is, however, sufficient to survive summary judgment under the more stringent monopoly standard of § 2. {481} Kodak also contends that, as a matter of law, a single brand of a product or service can never be a relevant market under the Sherman Act. We disagree. The relevant market for antitrust purposes is determined by the choices available to Kodak equipment owners. {481-82} B. +----------------------+ | EXCLUSIONARY CONDUCT | +----------------------+ As recounted at length above, respondents have presented evidence that Kodak took exclusionary action to maintain its parts monopoly and used its control over parts to strengthen its monopoly share of the Kodak service market. {483} Liability turns, then, on whether "valid business reasons" can explain Kodak's actions. {483} +-------------------------+ | BUSINESS JUSTIFICATIONS | +-------------------------+ Kodak contends that it has three valid business justifications for its actions: "(1) to promote interbrand equipment competition by allowing Kodak to stress the quality of its service; (2) to improve asset management by reducing Kodak's inventory costs; and (3) to prevent ISOs from free-riding on Kodak's capital investment in equipment, parts and service." Brief for Petitioner 6. Factual questions exist, however, about the validity and sufficiency of each claimed justification, making summary judgment inappropriate. {483} +--------------------+ | #1 QUALITY CONTROL | +--------------------+ [The ISOs] have offered evidence that ISO's provide quality service and are preferred by some Kodak equipment owners. {483} Kodak simultaneously claims that its customers are sophisticated enough to make complex and subtle lifecycle- pricing decisions, and yet too obtuse to distinguish which breakdowns are due to bad equipment and which are due to bad service. Kodak has failed to offer any reason why informational sophistication should be present in one circumstance and absent in the other. {484} +----------------------+ | #2 INVENTORY CONTROL | +----------------------+ Presumably, the inventory of parts needed to repair Kodak machines turns only on breakdown rates, and those rates should be the same whether Kodak or ISO's perform the repair. {484-85} +----------------+ | #3 FREE RIDING | +----------------+ [A]ccording to Kodak, the ISO's are freeriding because they have failed to enter the equipment and parts markets. This understanding of free-riding has no support in our case law. {485} DISSENT Justice Scalia, with whom Justice O'Connor and Justice Thomas join, dissenting. I. Where a defendant maintains substantial market power, his activities are examined through a special lens: Behavior that might otherwise not be of concern to the antitrust laws—or that might even be viewed as procompetitive—can take on exclusionary connotations when practiced by a monopolist. {488} The Court today finds in the typical manufacturer's inherent power over its own brand of equipment—over the sale of distinctive repair parts for that equipment, for example— the sort of "monopoly power" sufficient to bring the sledgehammer of § 2 into play. ... Moreover, because the sort of power condemned by the Court today is possessed by every manufacturer of durable goods with distinctive parts, the Court's opinion threatens to release a torrent of litigation and a flood of commercial intimidation that will do much more harm than good to enforcement of the antitrust laws and to genuine competition. {489} II. A. Had Kodak—from the date of its entry into the micrographic and photocopying equipment markets—included a lifetime parts and service warranty with all original equipment, or required consumers to purchase a lifetime parts and service contract with each machine, that bundling of equipment, parts, and service would no doubt constitute a tie under the tests enunciated in Jefferson Parish, supra. Nevertheless, it would be immune from per se scrutiny under the antitrust laws because the tying product would be equipment, a market in which (we assume) Kodak has no power to influence price or quantity. See id., at 13-14; United States Steel Corp. v. Fortner Enterprises, Inc., 429 U. S. 610, 620 (1977) (Fortner II); Northern Pacific R. Co. v. United States, 356 U. S. 1, 6-7 (1958). The same result would obtain, I think, had Kodak—from the date of its market entry— consistently pursued an announced policy of limiting parts sales in the manner alleged in this case, so that customers bought with the knowledge that aftermarket support could be obtained only from Kodak. {490-91} The only thing lacking to bring all of these purchasers (accounting for the vast bulk of the commerce at issue here) squarely within the hypotheticals we have described is concrete evidence that the restrictive parts policy was announced or generally known. {492} B. "[S]uch reasoning makes every maker of unique parts for its own product a holder of market power no matter how unimportant its product might be in the market." {493-94} Under the Court's analysis, the per se rule may now be applied to single-brand ties effected by the most insignificant players in fully competitive interbrand markets, as long as the arrangement forecloses aftermarket competitors from more than a de minimis amount of business. {494} The leverage held by the manufacturer of a malfunctioning refrigerator (which is measured by the consumer's reluctance to walk away from his initial investment in that device) is no different in kind or degree from the leverage held by the swimming pool contractor when he discovers a 5-ton boulder in his customer's backyard and demands an additional sum of money to remove it; or the leverage held by an airplane manufacturer over an airline that has "standardized" its fleet around the manufacturer's models; or the leverage held by a drill press manufacturer whose customers have built their 498 production lines around the manufacturer's particular style of drill press; or the leverage held by an insurance company over its independent sales force that has invested in company- specific paraphernalia; or the leverage held by a mobile home park owner over his tenants, who are unable to transfer their homes to a different park except at great expense, see generally Yee v. Escondido, 503 U. S. 519 (1992). Leverage, in the form of circumstantial power, plays a role in each of these relationships; but in none of them is the leverage attributable to the dominant party's market power in any relevant sense. Though that power can plainly work to the injury of certain consumers, it produces only "a brief perturbation in competitive conditions —not the sort of thing the antitrust laws do or should worry about." Parts & Elec. Motors, Inc. v. Sterling Elec., Inc., 866 F. 2d 228, 236 (CA7 1988) (Posner, J., dissenting). [497-98] III. But this showing [of high market shares] could easily be made, as I have explained, with respect to virtually any manufacturer of differentiated products requiring aftermarket support. By permitting antitrust plaintiffs to invoke § 2 simply upon the unexceptional demonstration that a manufacturer controls the supplies of its single-branded merchandise, the Court transforms § 2 from a specialized mechanism for responding to extraordinary agglomerations (or threatened agglomerations) of economic power to an all-purpose remedy against run-of-the mill business torts. {503}