TABLE OF CONTENTS PAGE 1. Fujifilm's Distribution System ...€¦ · 1. Fujifilm's Distribution...

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TABLE OF CONTENTS

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1. Fujifilm's Distribution System Did Not Thwart Kodak's 1986 "Invasion" . . . . . . . . . 1

2. Tokuyakuten Are Not Required To Be Single-Brand Distributors . . . . . . . . . . . . . . . 2

3. Fujifilm Is Not A Member of The Mitsui Keiretsu Through Shares And Loans . . . . 3

4. Mitsui Trust And Sakura Bank Are Not Fujifilm's Main Banks . . . . . . . . . . . . . . . . . 4

5. Fujifilm Does Not Help Tokuyakuten Borrow From Banks . . . . . . . . . . . . . . . . . . . . 5

6. Mitsui Banks' Lending Does Not Make Tokuyakuten Part Of The MitsuiKeiretsu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

7. Sumitomo's Lending To Ohmiya Does Not Make Ohmiya A Member Of TheMitsui Keiretsu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

8. Tokuyakuten Performance Is Consistent With Japanese Wholesale IndustryPerformance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

9. Fujifilm Does Not Manipulate The Tokuyakuten's Financial Performance WithAfter-The-Fact Rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

10. Move To Single-Brand Distribution Was An Industry Trend . . . . . . . . . . . . . . . . . 10

11. Kodak Distorts The Time Period Over Which Tokuyakuten BecameSingle-Brand Distributors For Fujifilm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

12. Tokuyakuten Have No History Of Cutting Off Customers That Fail ToMaintain Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

13. Kodak Distorts Time Period Of Forward Integration Into Photofinishing . . . . . . . . 15

14. Labs Do Not Depend On Fujifilm For Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

15. Fujifilm's Rebates On Film Have Never Been Tied To Paper Purchases . . . . . . . . . 18

16. Fujifilm's 1982 Response to Increased Supply: Increase Total Demand . . . . . . . . . 19

17. Fujifilm's Response To Private Label Film Has Been To Lower Its Prices . . . . . . . 21

TABLE OF CONTENTS - Cont'd

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18. PSMA Is Not A Forum For Price Maintenance Activities . . . . . . . . . . . . . . . . . . . . 22

19. Zenren's Membership Is Not Limited To Traditional Retailers Affiliated WithFujifilm and Konica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

20. Zenren's Reaction To Nihon Jumbo Was Not To Participate In AnticompetitivePrice Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

21. Zenren Colluding With Kodak? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

22. Shashoren Is Not A Forum For Resale Price Maintenance . . . . . . . . . . . . . . . . . . . 26

23. Zenlaboren Is Not A Forum For Resale Price Maintenance . . . . . . . . . . . . . . . . . . . 27

24. Fair Trade Promotion Council's Limited Powers Do Not Include CurbingExcessive Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

25. Fair Trade Promotion Council's Policies Do Not Include Resale PriceMaintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

26. Fair Trade Councils Assist In The Enforcement Of The Premiums Law . . . . . . . . . 32

27. Sanrenkyo No Longer Exists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

28. Fuji Color Tomo-No Kai Has Not "Facilitated" Price Increases . . . . . . . . . . . . . . . 35

29. Zenren Did Not Call For "Concrete Price Measures" To Counter Nihon Jumbo . . . 37

30. Zenren Opposition To Increases In Camera Prices Was Not Collusion ToMaintain Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

31. Zenren's Response To 9 Yen Prints Did Not Involve Collusion On Price . . . . . . . . 39

32. Member's Plea For Help Is Not Evidence Of Zenren Policy To Rig Prices . . . . . . . 40

33. Zenren's Response To Supermarket Chain A's Low Prices Was Not To EnforceResale Price Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

34. Tokuyakuten Compete With Each Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

35. Tokuyakuten Do Not Control Competition Among Secondary Wholesalers . . . . . . 44


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36. Fujifilm's Suggested Retail Prices Do Not Constitute Resale Price Maintenance . . 45

37. Fujifilm's Marketing Headquarters Does Not Forbid Transactions WithDiscounters Or Warn Them If Prices Are Too Low . . . . . . . . . . . . . . . . . . . . . . . . . 46

38. Fujifilm Does Not Monitor Pricing "Abnormalities or Deviations" . . . . . . . . . . . . . 47

39. Zenren's Reaction To Article Claiming Abolition Of Suggested Retail Price . . . . . 48

40. Kodak Is Completely Wrong About Fujifilm's Rebate System . . . . . . . . . . . . . . . . 50

41. Postmen Are Not Spies For Fujifilm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

42. Fuji Color Ladies And Fuji Promotion Ladies Are Not Retail Price Monitors . . . . . 52

43. Labs Do Not Monitor Prices On Behalf Of Fujifilm . . . . . . . . . . . . . . . . . . . . . . . . 53

44. Zenlaboren and Fujifilm Did Not Apply Pressure To "Maverick Retailers," AndZenren Did Not Request Them To Do So . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

45. Zenren And Zenlaboren Do Not Expel Members For Discounting . . . . . . . . . . . . . 56

46. MITI's Recommendations Regarding The Distribution Sector Were NotAnticompetitive "Countermeasures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

47. MITI Did Not Separate The Liberalization Of Manufacturing And Distribution . . . 59

48. MITI Did Not Endorse The Use of Rebates As A Means Of ControllingWholesalers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

49. JFTC Actively Enforced The Antimonopoly Act In The 1970s. . . . . . . . . . . . . . . . 61

50. The JFTC's 1969 Report Did Not Find "Price Fixing" . . . . . . . . . . . . . . . . . . . . . . . 62

51. MITI's 1970 Report Did Not Substantiate Or Defend Price Fixing . . . . . . . . . . . . . 63

52. JFTC Investigations And Findings Against Labs Were Not "Quiescent" . . . . . . . . . 65

53. Government Entities Were Not Involved In The Increase In Mitsui Bank'sShareholding In Fujifilm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67


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54. MITI's Gradual Liberalization Policy Was Not An "Investment-RelatedCountermeasure" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

55. Laws Were Not Revised At MITI's Request To Restrict Foreign Acquisitions . . . . 70

56. MITI's 1970 Distribution Guidelines Were Procompetitive . . . . . . . . . . . . . . . . . . . 71

57. Forward Integration Into Photofinishing Was Not A "LiberalizationCountermeasure" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

58. 1964 Meeting With Labs Had Nothing To Do With Liberalization . . . . . . . . . . . . . 76

59. MITI Did Not Mastermind An Exclusionary Distribution System . . . . . . . . . . . . . . 77

60. Kashimura's Move To Become A Single-Brand Distributor For Fujifilm WasNot A "Liberalization Countermeasure" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

61. Ohmiya's and Misuzu's Decisions to Become Single-Brand Distributors ForFujifilm Were Not "Liberalization Countermeasures" . . . . . . . . . . . . . . . . . . . . . . . 79

62. Fujifilm Did Not Coerce Asanuma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

63. Government Entities Did Not Fund Investments By Fujifilm In Distribution . . . . . 82

64. Tightening of Payment Terms Was Reasonable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

65. MITI's Distribution Guidelines Were Not Criticized By One Of Their Authors . . . 84

66. Fujifilm Did Not Introduce Volume-Based Rebates To Minimize CompetitionAmong Tokuyakuten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

67. Tokuyakuten Have Not Used A Camera-Film Link To Suppress Black MarketChannels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

68. Manufacturers Did Not Collude To Enforce Price Maintenance In Response ToSupermarket Chain A's Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

69. Fujifilm's And Konica's Resistance To Lowering Their Prices To Labs In TheFace Of Increased Costs Did Not Constitute Resale Price Maintenance . . . . . . . . . 89


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70. Zenren Meeting In Response To Supermarket Chain A Resulted In Efforts ToObtain Lower Prices From Labs, Not Collusion To Increase Prices . . . . . . . . . . . . 91

71. Nagase's Failure To Inform Kodak About Asanuma's Overtures . . . . . . . . . . . . . . . 92

72. Fujifilm's 1976 Direct Contracts With Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

73. Fujifilm Did Not Adopt Production Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

74. Zenren's Statements Of Basic Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

75. JFTC Has Not Delegated Any Authority To The FTPC . . . . . . . . . . . . . . . . . . . . . . 98

76. JFTC And FTC's Enforcement Of The Premiums Law Is Not Resale PriceMaintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

77. Enforcement Of Premiums Law Is Not Resale Price Maintenance . . . . . . . . . . . . . 100

78. There Was No Anticompetitive Interference With Nagase's VR Campaign . . . . . . 101

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APPENDIX

KODAK'S MYTHS VERSUS THE FACTS:

Fujifilm's Response To Specific Claims In"Privatizing Protection"

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EXHIBITS

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1. Fujifilm's Distribution System Did Not Thwart Kodak's 1986 "Invasion"

KODAK CLAIM:

"`Fuji's distribution system prevents entry by foreign firms. . . . The invasion ofthe Japanese market in 1986 went into full gear as Nihon Kodak was established,among other things. But, with many obstacles included in Fuji Film's distributionroutes all the way down to their {photoprocessing} companies, the foreign firmscan do no better than step up their sales to the minilabs and maintain a marketshare of approximately 10%.'"

"Privatizing Protection" at 9.

Source: Firm Control of Distribution, Nikkei Business, June 28, 1993, 16-19.

FUJIFILM'S RESPONSE:

Kodak omits a revealing passage in the quoted article regarding its "invasion" of theJapanese market. The paragraph immediately following the one cited by Kodak states as follows:

The Head Office of Kodak in the U.S. `has been increasing film prices by 5 - 6%every year' (Nomura Research Institute). `If Kodak were to offer even lowerprices in Japan, those lower prices would find their way back into the U.S. andother countries, collapsing the international price structure of Kodak products'(Kodak Japan). So Kodak cannot stage a price offensive. As a result of Kodak'sprice strategy, Fuji Photo Film can maintain its domestic prices without muchconcern.

This omitted material belies Kodak's claim that it mounted a full scale campaign to penetrate theJapanese market.

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2. Tokuyakuten Are Not Required To Be Single-Brand Distributors

KODAK CLAIM:

All of Fuji's film is distributed through the four tokuyakuten (primary wholesalers,Asanuma, Misuzu, Kashimura, Omiya) who distribute Fuji's film exclusively.


Source: None.


There are seven tokuyakuten: Asanuma, Misuzu, Kashimura, Ohmiya, Ueda, Shikishima,and Okinawa Fuji Film Hanbai. While these wholesalers are single-brand distributors in thesense that they currently carry only Fuji brand film, they are not contractually or otherwiserequired to follow this single-brand policy. Each tokuyakuten's decision to distribute only onebrand of film was based on business reasons, not on a desire to exclude Kodak from the Japanesemarket. See Rebuttals 10 and 59-62. Moreover, the tokuyakuten do not follow a single-brandpolicy where doing so does not make business sense. For example, the tokuyakuten carrymultiple camera and accessory brands.

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3. Fujifilm Is Not A Member of The Mitsui Keiretsu Through Shares And Loans

KODAK CLAIM:

"Fuji Photo Film is a member of the Mitsui keiretsu, a vast bank-led financialgroup bound together by cross shareholdings and complex lending relationships."


Source: None.


Fujifilm is not a member of the Mitsui keiretsu. Fujifilm is an independent entity and doesnot belong to any "vast bank-led financial group." Attached is a complete listing of Mitsui Groupcompanies as of March 31, 1993. The list is based on a 1994 JFTC study of corporate groups.Fujifilm is not on the list.

Fujifilm is not "bound together" with Mitsui companies through "cross shareholdings andcomplex lending relationships." Sakura Bank and Mitsui Trust Bank hold 4.5 and 5.8 percent,respectively, of Fujifilm's total outstanding shares. Fujifilm holds only 1.3 percent of MitsuiTrust Bank shares and a minuscule 0.5 percent of Sakura Bank shares. These amounts do notprovide control to the shareholders and thus do not "bind" Fujifilm to the Mitsui keiretsu.

Finally, there is no "complex lending relationship" between Fujifilm and these banks.Fujifilm has not borrowed from these banks since 1984.

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4. Mitsui Trust And Sakura Bank Are Not Fujifilm's Main Banks

KODAK CLAIM:

"Mitsui Trust and the Sakura Bank are considered to be Fuji's `main banks' and arealso the second and third largest shareholders in Fuji, respectively."


Source: None.


There is no basis for considering either Mitsui Trust Bank or Sakura Bank to be Fujifilm's"main bank." Neither Sakura Bank nor Mitsui Trust Bank has any loans outstanding to, ormaintains any other financial relationship with, Fujifilm. Neither bank has any personnel onFujifilm's board of directors or in Fujifilm's management. Furthermore, Fujifilm's largestshareholder, Nippon Life Insurance Company, is unrelated to the Mitsui group and in fact is amember of a competing keiretsu, the Sanwa Group. Finally, non-Mitsui banks collectively holdsome 10.3 percent of Fujifilm's shares.

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5. Fujifilm Does Not Help Tokuyakuten Borrow From Banks

KODAK CLAIM:

"Fuji helps its tokuyakuten borrow from banks, asking its main banks to lendmoney to distributors when they are short of cash."


Source: None.


Fujifilm has never requested any bank to extend loans to its tokuyakuten. Any lendingby such financial institutions is undertaken based on the bank's own criteria. Moreover, thetokuyakuten's financing decisions are also made independently of Fujifilm. Two of the fourtokuyakuten have clearly stronger relationships with Daiichi Kangyo Bank and Sumitomo Bank,respectively, than with any Mitsui banks.

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6. Mitsui Banks' Lending Does Not Make Tokuyakuten Part Of The Mitsui Keiretsu

KODAK CLAIM:

"The two Mitsui Banks are also the main banks for Asanuma, Misuzu, andKashimura. Mitsui Group financial institutions provide for 39, 29 and 53 percentof these firms' total long-term borrowings, respectively, as shown in Figure 14."


Source: Text states generally that the information comes from publicly available credit reportsfor 18 Japanese film wholesalers.


Kodak cites these figures to support its theory that the tokuyakuten are members of theMitsui keiretsu. What Kodak fails to mention is that Mitsui Trust Bank and Sakura Bank, asidefrom being members of the Mitsui keiretsu, are also two of the largest banks in Japan. It isridiculous to suggest that every company borrowing from these banks thereby becomes a memberof the Mitsui keiretsu.

Moreover, Asanuma's largest lender is Daiichi Kangyo Bank. Similarly, Kashimura'ssecond largest lender is Fuji bank (not related to Fujifilm), and Misuzu's second largest bank isDaiichi. Under Kodak's theory of keiretsu, therefore, these tokuyakuten would be members ofcompeting "vast bank-led groups."

A more reasonable indication of membership in a keiretsu is shared directors on companyboards and transferred management-level employees. The fact is, however, that no Mitsui TrustBank or Sakura Bank directors or managers work with the tokuyakuten. Moreover, accordingto Asanuma's current President, a managing director of Asanuma is a former official of DaiichiKangyo Bank. Under this criterion Asanuma would therefore be a member of a competingkeiretsu.

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7. Sumitomo's Lending To Ohmiya Does Not Make Ohmiya A Member Of The MitsuiKeiretsu

KODAK CLAIM:

"The Sumitomo Bank provides 42 percent of Omiya's total borrowing; SakuraBank accounts for another 13 percent. Sumitomo Bank also holds a 2.9 percentequity position in Fuji Photo Film and is tied to another institution for the rank offourth largest equity shareholder."


Source: Text states generally that the information comes from publicly available credit reportsfor 18 Japanese film wholesalers.


Sumitomo Bank is not related to the Mitsui keiretsu in any way. Thus, Kodak's assertionthat Ohmiya does 42 percent of its borrowing from Sumitomo Bank, which in turns owns 2.9percent of Fujifilm, has nothing to do with membership in the Mitsui keiretsu, nor does it provethat Fujifilm thereby controls Ohmiya. Basically, Kodak's allegation is a non sequitur.

In fact, under Kodak's theory of keiretsu relationships, Sumitomo's ownership of Fujifilmshares and lending relationship with Ohmiya would make both Fujifilm and Ohmiya membersof the Sumitomo keiretsu. This theory would also be supported by the fact that Sumitomo MarineInsurance is the largest shareholder in Ohmiya.

Further, under Kodak's theory, Imagica, Nagase, and Kodak Japan are also part of theSumitomo keiretsu due to their significant dealings with Sumitomo Bank. The two largestshareholders in Nagase Sangyo, Kodak's exclusive agent in Japan until 1986 and now its partner,are Sumitomo Bank and Sumitomo Trust. The latter is also Nagase's primary bank. Accordingto Kodak's criteria for what constitutes a keiretsu relationship, Kodak, through its affiliation withNagase, is a member of the same keiretsu as Ohmiya.

Finally, under Kodak's theory, Fujifilm and the four tokuyakuten appear to be membersof at least three vast bank-led groups -- Mitsui, Sumitomo, and Daiichi Kangyo. Obviously,Kodak's analysis has gone awry.

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8. Tokuyakuten Performance Is Consistent With Japanese Wholesale IndustryPerformance

KODAK CLAIM:

"Each of the tokuyakuten consistently earns a net profit which almost perfectlyequates with zero -- that is, they neither make a measurable profit nor suffer a loss,year in and year out, notwithstanding the fluctuations and vicissitudes of thebusiness cycle."


Source: None.


Analysis of actual data shows the falsity of Kodak's claim that the tokuyakuten aremanipulated by Fujifilm into a marginal financial position. It is true that the four tokuyakuten'saverage ordinary income expressed as a percentage of sales tends to around 0.5 percent in 1990.See Exhibit 3. The four tokuyakuten's performance, however, is comparable to the experienceof Japanese wholesalers generally. It is important to remember that, in whatever country,wholesalers typically experience very low returns on sales. For example, the average ordinaryreturn on sales for Japanese wholesalers in 1990 was 1.10 percent, compared to 0.54 percent forthe tokuyakuten. Nevertheless, since wholesalers generally are not capital intensive, they can usehigh turnover to earn a healthy return on assets or capital. For this reason return on sales tendsto be a deceptive indicator of financial performance for wholesalers.

A better measure of financial performance for wholesalers is return on capital. In thislight, the tokuyakuten's performance looks very respectable. Again, using 1990 as an example,Fujifilm's four tokuyakuten in that year averaged net income of 5.19 percent as a percent ofcapital, compared to 8.16 percent for all Japanese wholesalers. See Exhibit 3.

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9. Fujifilm Does Not Manipulate The Tokuyakuten's Financial Performance WithAfter-The-Fact Rebates

KODAK CLAIM:

"On several occasions, tokuyakuten suppliers have noted in their annual reportsthat they would have suffered losses during the preceding year but for year-endrebates provided by Fuji."

"Privatizing Protection" at 35-39.

Source: None.


Kodak's suggestion that Fujifilm grants rebates based on the year-end results of eachtokuyakuten to "make good" their losses and/or to "extract" excess profits ("PrivatizingProtection" at 35) is completely false. Fujifilm's rebates are not determined after-the-fact, nor isthe amount of any rebate modified depending on the profit/loss performance of the tokuyakuten.Fujifilm's rebate rates and formulas are known to the tokuyakuten at the start of each rebateperiod (usually six months) and the amount of rebate can be easily estimated by the tokuyakutenfor planning and management purposes.

Kodak's allegation did not include a cite to any specific annual report. Fujifilm's ownreview of the tokuyakuten's annual reports from 1990-1994 did not discover any such statements.

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10. Move To Single-Brand Distribution Was An Industry Trend

KODAK CLAIM:

"Thirty-five years ago, with the exception of Kashimura, the tokuyakuten were allindependent firms whose influence extended throughout the industry. . . . Theirrelationship to Fuji was arm's-length, and some (like Asanuma) occasionally tookcommercial initiatives that cut directly against Fuji's interests. In the early 1960swhen the United States began urging Japan to open its market for photographicmaterials, Fuji began to press the tokuyakuten to become exclusive distributors ofFuji film and to drop competing brands, including Kodak."


Source: Fuji Film: Asanuma, Misuzu, Ohmiya, and Kashimura: Fuji's New Policy Based on Four`Tokuyakutens,' Nihon Shashin Kogyo Tsushin (hereinafter "NSKT"), October 1, 1964, 18.


Kodak's alleged link between Fujifilm's move to single-brand distribution and U.S. effortsto open the Japanese market is entirely unsubstantiated. Kodak's cited sources do not support itsproposition. The article cited, for example, only mentions that Fujifilm intends to develop itsbusiness with the four tokuyakuten. The article discusses mainly Fujifilm's review of transactionsinvolving black and white film. It contains no mention that Fujifilm "began to press thetokuyakuten to become its `exclusive' distributors."

Moreover, the fact that the four tokuyakuten started to focus on Fujifilm's products wasreflective of a historical development within the industry in which wholesalers attempted tostrengthen their relationships with a single manufacturer. See Distribution Networks . . ., ZenrenTsuho, May 1964, 5 (describing industry trend and benefits to wholesalers and manufacturers).Until the 1960s, camera manufacturers as well as film manufacturers sold through multibrandwholesalers. However, in the mid-1960s, the camera manufacturers began to establish their owndirect distribution systems. See, e.g., id. (citing move by distributor to drop Konica and becomesingle-brand distributor for another camera brand.) Thus, the wholesalers, whose main businessuntil this point had been camera products, began strengthening their ties with film manufacturers.In fact, Konica was also acquiring other tokuyakuten and moving to build its own directdistribution system. See, e.g., id. ("the move {by Misuzu to establish a separate department forFuji products} was in response to moves of Konishiroku-Haruna and Daiwa {Konicadistributors}".) Kodak's agent in Japan, Nagase, followed this lead, acquiring Kuwada as itsdistributor in 1967. Clearly, the move by the tokuyakuten to become single-brand dealersreflected a general industry trend taking place in the Japanese market at the time. See alsoRebuttals 59-62.

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This trend was not related to liberalization. First, it substantially preceded liberalization.See Rebuttals 11 and 56-61. Second, the trend is evident in the camera industry as well, anindustry that did not face formidable foreign competition.

Finally, from the manufacturers' point of view (whether in cameras, film, etc.), this wasa favorable trend -- not as part of some exclusionary strategy, but simply as good marketing. Thebenefits to manufacturers were described in a 1964 article as follows:

"Products that are purchased by a merchant are the products of themerchant. The merchant's sales efforts will not change dependingon the brand of the products. It would be nonsense as businessmanagement if a merchant bought products from A and makesefforts to sell A's products while leaving other products in thecorner of his warehouse. . . . Thus even if A made efforts todifferentiate his products from other makers' products, thisdifferentiation would disappear in the commercial scene." This isproblematic for makers. Therefore, they have a great interest indistribution.

Id. (citation omitted). This simple rule of marketing not only explains Fujifilm's interest insingle-brand distribution, but also explains Kodak's pattern of using direct distribution in marketsworldwide.

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11. Kodak Distorts The Time Period Over Which Tokuyakuten Became Single-BrandDistributors For Fujifilm

KODAK CLAIM:

"This process {of exclusive Fuji film distribution by the four tokuyakuten} beganin 1963, when Kashimura announced it would limit its handling of photographicmaterials to Fuji products, and was completed in 1975, when Asanuma droppedKodak products and became an exclusive supplier for Fuji."


Source: Distribution Networks (Keiretsu) Gaining Strength -- As Shown By Fuji's SpecialContract Shops, Zenren Tsuho, May 1964, 5; Wholesale: Dissolution of the Special ContractualAgreement Between Kodak and Asanuma; The Finishing Touch to Fuji's Distribution Section,NSKT, March 1, 1975, 8.


Kodak relies on a distorted chronology to support its claim that the move of Fujifilm's fourmain tokuyakuten to become single-brand distributors was designed to exclude Kodak from theJapanese market. The correct chronology refutes Kodak's claim.

Of the four major tokuyakuten, two -- Kashimura and Ohmiya -- have not carried Kodakfilm since the end of World War II. See Rebuttals 60 and 61. Kashimura dropped Konica, notKodak, in 1963; Ohmiya did the same in 1964. Thus, Kodak has never sold to two of Fujifilm'sfour major tokuyakuten during the postwar era. These two alone account for almost half of allFujifilm's color film sales made through tokuyakuten.

Misuzu carried multiple brands until 1968, when it became a single-brand distributor ofFujifilm's products. Articles cited by Kodak specifically note that Misuzu's strengthening of tieswith Fujifilm were prompted by similar moves by Konica's distributors to become single-branddistributors for Konica. See Rebuttals 10 (describing industry trend) and 61 (Misuzu's move tosingle-brand distribution). Moreover, in 1968 the Japanese market was still heavily protected by40 percent tariffs on color film. There is nothing in Misuzu's move to suggest a "liberalizationcountermeasure."

Only Asanuma dropped Kodak and became a single-brand distributor for Kodak duringliberalization. To portray the "Asanuma incident" as a countermeasure, however, Kodak is forcedto distort the facts. First, Kodak conveniently omits its own role in the matter. Theseinconvenient facts include Kodak's designation of Nagase as its sole importer in 1960, Nagase'sacquisition of Kuwada in 1967, Kodak's rejection of Asanuma's overtures to re-establish directsales in 1973, and Nagase's inaction prior to Asanuma's decision to become a single-brand

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distributor for Fujifilm in 1975. See Section II.A. Second, Kodak portrays Asanuma, one of thelargest wholesalers, as having been "coerced" by Fujifilm into its decision. Asanuma, however,was not coerced by Fujifilm. See Rebuttal 62.

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12. Tokuyakuten Have No History Of Cutting Off Customers That Fail To MaintainPrices

KODAK CLAIM:

"The tokuyakuten have a history of cutting off business dealings with secondarywholesalers and retailers that do not follow the commercial practices which theyspecify."


Source: Wholesale: Rumors of Massive Bad Debts; Reflux of Film Due to Strong Yen, NSKT,February 10, 1986, 8.


Kodak distorts the cited article to suggest that the tokuyakuten cut off business tosecondary dealers and retailers that do not follow their alleged anticompetitive pricing direction.In fact, the article reports a trend of bankruptcies in the photo wholesale industry since the endof 1985. The article suggests that this trend is due to lax credit terms by wholesalers andinadequate research on the creditworthiness of their customers.

It is in this context that the article mentions tokuyakuten's terminating or reducing theirdealings with secondary dealers and retailers. Specifically, the article reports that somewholesalers had terminated or reduced their dealings with certain customers to avoid bad debtrisks when these customers did not improve their management practices. The managementpractices in question are those relating to delays in payment, promissory notes with long sightperiods, etc. -- not the failure to maintain wholesaler-dictated price levels.

Thus, the alleged "history of cutting off" secondary dealers and retailers has nothing todo with anticompetitive activities. All that really occurred were efforts by wholesalers to avoidaccruing large bad debt balances. This is an entirely natural and normal policy employed inmarkets around the world.

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13. Kodak Distorts Time Period Of Forward Integration Into Photofinishing

KODAK CLAIM:

"This system {group of affiliated laboratories} was built up in the 1970s and1980s as Fuji systematically acquired a financial interest in formerly independentlaboratories, generally as they fell into financial difficulty."


Source: Labs: Management System Equipment, NSKT, August 10, 1981, 8; Masayuki Ono, EizoMedia o Sogosuru Fuji Shashin Film (Japan: Kaisha Series, 1980).


Kodak deliberately misstates the time period during which these events occurred in anattempt to portray this development as a "countermeasure" designed to exclude Kodak from themarket. Kodak claims that Fujifilm's system of laboratories was built up in the 1970s and 1980s.In fact, Fujifilm's investment in photoprocessing began in 1946, with the establishment of FujiTennenshoku Shashin Kabushiki Kaisha, and accelerated in the early to mid-1960s, well beforemarket liberalization. Indeed, half of the existing Fujifilm-related primary labs were already inexistence with Fujifilm participation by 1965.

Not only did this process begin in earnest well before the period alleged by Kodak, it wasalso not a Fujifilm-specific strategy. Forward integration by film manufacturers intophotofinishing is a general industry norm around the world. See Rebuttal 57 (describingdifferences in Fujifilm's and Kodak's forward integration in Japan).

Kodak cites two sources for its claim. Neither source, however, states or suggests in anyway that Fujifilm relied on the financial difficulties of labs to acquire formerly independentwholesale labs. Kodak's allegation is both false and entirely unsupported by the cited sources.

Moreover, Kodak omits relevant facts which do not support its theory. For example,Kodak fails to mention that Fujifilm has no equity participation in certain of its "primary"laboratories, i.e., labs providing delivery and collection services to unrelated retailers. These labscan and have switched from Fujifilm to Kodak at their own discretion. For example, Kodak doesnot mention that Tokyo Color switched from Fujifilm to Kodak paper in 1966, and YokohamaGenzosho switched from Fujifilm to Kodak paper in 1974. These examples demonstrate that thislaboratory system was not intended to, and does not, exclude Kodak from the Japanese market.

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Finally, even labs in which Fujifilm holds an equity interest have switched brands. Onerecent example illustrates this point. Doi, in which Fujifilm held a significant equity interest,began using Kodak paper in 1989. Most recently, in 1994 Doi switched to Kodak paperexclusively, following an equity investment by Kodak. Clearly, Fujifilm's equity participationin laboratories does not serve to prevent such laboratories from changing suppliers. Moreover,even after this switch, Doi continues to supply Fujifilm products (e.g., film, camera, and paper)in its retail/wholesale business.

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14. Labs Do Not Depend On Fujifilm For Loans

KODAK CLAIM:

"They {photoprocessing laboratories} depend on Fuji for outright financialassistance in the form of loans."


Source: 1993-1994 U.S. Antidumping Investigation.


Kodak's allegation is not true. Fujifilm has not lent significant amounts to photofinishersin over a decade and had no outstanding loans as of the end of 1994.

Kodak cites entirely irrelevant information in support of this assertion. Having allegedthat Fujifilm provides loans to the laboratories, Kodak cites as support, at note 45, the following:

Fuji's submissions in the 1993-94 U.S. antidumping investigationstated that Fuji provides 21 types of rebates on paper sales tophotoprocessing laboratories, including programs named the"common strategy making rebate" and "account switch rebate."

Obviously, rebates are not loans. Thus, this citation entirely fails to support Kodak's claim.

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15. Fujifilm's Rebates On Film Have Never Been Tied To Paper Purchases

KODAK CLAIM:

"In addition, Fuji provides rebates on film sales {five percent of the value of thefilm} to laboratory chains that utilize Fuji paper. This rebate is cut off if and whenthe chains shift to non-Fuji paper."


Source: Industry sources (1994).


Kodak's allegation is not true. Fujifilm's paper business is separate from its film business.Fujifilm does not provide rebates on film that are tied to the purchase of Fujifilm paper or viceversa. Accordingly, laboratories and retailers that purchase Fuji brand film, but do not purchaseFuji brand paper, get all the applicable rebates for film.

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16. Fujifilm's 1982 Response to Increased Supply: Increase Total Demand

KODAK CLAIM:

"Fuji's Director of Corporate Sales, Motohiko Nakamura stated in 1982 that: `Ofcourse, retail prices must be reasonable. {If} reasonable profits of the retailers arenot secured, prosperity of the industry will be impossible. For that reason, I thinkthat two iron clad rules should be, first, prices should be systematically reasonable,and second, they should be as stable as possible. In Fuji Film's case, in particular,as long as we are the leading manufacturer, irresponsible policies in regard toshare and competition would be highly negative for the entire industry.'"


Source: There are Many Ways to Enjoy It - Demand Can Still Be Expanded, NSKT January 1,1982, 8-11.


This article is quoted as proof that Fujifilm continuously "jawbones" retailers andphotofinishers into maintaining high prices and avoiding competition. To achieve this effect,Kodak takes Mr. Nakamura's comments out of context.

The article is reporting on an interview with Mr. Nakamura and focuses on Fujifilm'spolicies for the new year. As the title of the article indicates, the principal policy initiative is toseek ways to expand demand for photographic products. In a portion not quoted by Kodak, Mr.Nakamura states as follows:

Accordingly, the largest issue we face for the year 1982 is how toincrease total demand as a response to the growth in supplycapacity, based on our understanding that it is not possible tocontrol the increase in the number of suppliers. We must make aconcerted effort to create higher demand growth to meet thiscapacity increase.

Thus, Mr. Nakamura specifically acknowledges the inability to control increased competition andsuggests increasing demand as the appropriate response.

Kodak implies that Fujifilm's "iron clad rules" for "systematically reasonable" and "stable"prices are an effort to control price at the retail level. In fact, however, they refer to Fujifilm'spricing at the wholesale level. Specifically, Mr. Nakamura is quoted in the article as saying "Weourselves {Fujifilm} had many lessons from the silver shock. We realized that, aside from itscause, the instability of the price before and after the incident caused a big negative effect from

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the industry perspective . . .." Mr. Nakamura is here responding to laboratories' complaints aboutwholesale price fluctuations as a result of the silver shock.

Mr. Nakamura later states, regarding retail prices, that "Of course retail prices must bereasonable." While Kodak suggests that this statement reflects efforts at price maintenance, infact Mr. Nakamura was stating no more than a basic principle of business, i.e., prices must be ata level which, while satisfactory to customers, allow retailers a sufficient margin. That this hasnothing to do with price maintenance is also shown by the fact that no measures for pricemaintenance were taken following Mr. Nakamura's statement. In fact, prices went down after thesilver shock.

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17. Fujifilm's Response To Private Label Film Has Been To Lower Its Prices

KODAK CLAIM:

"In early 1995, Mr. Tomagashi {sic}, Section Chief of Photosensitive Materialsfor Fuji Photo Film, commented in an industry journal about the company's viewsof the problems posed by low-priced private brand label (PB) film sales: `It hasbeen a year tormented by price breakdowns since PB film began, but I think weas well have learned quite a lot from PB's experiences. This year, we must fostera market that seeks to establish prices and move away from price breakdowns asan industry.'"


Source: Fuji Lags Behind in Launching of Policy for Specialty Stores, Shukan Shashin Sokuho,March 3, 1995, 5.


This article is quoted as proof that Fujifilm continuously "jawbones" retailers andphotofinishers into maintaining high prices and avoiding competition. In fact, however, thestatement is not an unsolicited pronouncement by Fujifilm, but a response to the complaints ofcamera stores in which Fujifilm acknowledges the problems higher-priced camera stores havein competing with discount retailers with private brands. The article discusses the issue of theprice differential between Fuji brand films and low-price private label films.

Mr. Togashi's statement reflected concerns about the fairness of different prices fordifferent categories of customers:

It is true that camera stores raised complaints and dissatisfaction. Although we usea different sales system for each type of business, there should be no unfairnessbetween different business categories. We believe that Fujifilm must set up asystem that allows motivated camera stores to run a sound business.

Kodak implies that Fujifilm is referring to a price maintenance system. In fact, however, Fujifilmcannot and does not control the retailers offering private brands. Accordingly, Mr. Togashiproposes specific efforts to "build a market" (i.e., strengthen demand) such as the introductionof APS, expansion of digital business, and an aggressive television advertising campaign.

Finally, as a factual matter, Fujifilm's response to competition by private label film hasbeen to lower its prices at the wholesale level.

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18. PSMA Is Not A Forum For Price Maintenance Activities

KODAK CLAIM:

"Kanzai Kogyokai (KKK), Photosensitive Materials Industry Association {sic}.This group consists of Japanese manufacturers of photographic film and paper --Fuji, Konica, Mitsubishi, and Oriental."


Source: None.


Kanzai Kogyokai's official English name is" "The Photo Sensitized MaterialsManufacturers' Association" ("PSMA"). PSMA's membership consists of companies producingphotosensitive products in Japan. Kodak's allegation that PSMA is a forum for anticompetitivepractices is groundless. As detailed in Section III, the JFTC has not been hesitant to investigatesuspected violations of the Antimonopoly Act, or to punish those in the industry found to haveviolated the Act. See also Rebuttal 49 (describing raids and findings against photofinishinglaboratories). Yet despite this strict scrutiny, there has never been a finding that PSMA was everengaged in "horizontal price stabilization." ("Privatizing Protection" at 43).

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19. Zenren's Membership Is Not Limited To Traditional Retailers Affiliated WithFujifilm and Konica

KODAK CLAIM:

"Zenren (All Japan Federation of Photo Dealers). The Zenren consists oftraditional photographic retailers affiliated with Konica and Fuji."


Source: None.


First, neither Fujifilm nor Konica have "affiliated" retailers. Second, Zenren'smembership is not limited to "traditional photographic retailers." Zenren's membership includeswell-known large retailers such as Yodobashi, Doi, Sakuraya, and Kimura, all retailers that carrymultiple brands of film and that are not affiliated with a particular manufacturer.

Zenren is not the all powerful, price-controlling organization that Kodak alleges. In fact,today Zenren members number only some 7,000 out of approximately 280,000 film outlets inJapan. See Photo Market 1995 at 129 (table showing total number of outlets by type). Moreover,articles cited elsewhere by Kodak specifically mention the fact that Zenren is continuously losingmembers that feel that Zenren has nothing to offer them. See "Privatizing Protection" at 47, note60, (citing Zenren Board Meeting ..., Zenren Tsuho, April 1994, 11-13).

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20. Zenren's Reaction To Nihon Jumbo Was Not To Participate In AnticompetitivePrice Maintenance

KODAK CLAIM:

"Following a 1993 meeting to discuss the challenge posed by Nihon Jumbo's saleof 9-yen prints, an industry journal reported that Zenren offered its comments. .. . `When raising price, we must sell at a price which matches the quality andspecialized knowledge we possess.' These comments express the opinion that theindustry ought not to hurry to adopt easy, inexpensive price competition. . . .Whatever the case, a variety of courses of action to maintain prices are now beingproposed.'"


Source: Signs Offering Y5 and Y9 Prints Mark Low Price Battle for Consumers' Loyalties,Camera Times, December 21, 1993, 2.


Whatever was meant by Zenren's statements, the fact is that today Nihon Jumbo offers 4yen prints. This simple fact illustrates that prices have not been controlled.

Nevertheless, Kodak's characterization of Zenren's reaction deserves rebuttal. Kodakomits the article's listing of the ways to "maintain prices" envisioned by Zenren:

Meanwhile, a variety of courses of action to maintain prices are now beingproposed, such as to "respond with time competition by introduction of mini-labs;sophisticated handling of customers at store fronts; photo-taking advice by print checks;conduct enlargement campaigns; stabilize customers by promotional "goodies", salespromotion, and point system; send customers actively to photo seminars or picture takinggatherings sponsored by manufacturers or laboratories; sponsor many photo taking eventsor contests by the association {Zenren} to differentiate {camera stores} from others; andappeal to the joy of photos through specialty knowledge."

These are clearly not the price maintenance activities that Kodak would like to imply.

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21. Zenren Colluding With Kodak?

KODAK CLAIM:

"In 1995, when Kodak began selling film under private brand label with the CooperativeStores the Zenren decided that `we will ask them to consider our position.'"


Source: Zenren Directors' Meeting, Shashin Kogyo Junpo, April 10, 1995, 6.


It is unclear what Kodak is attempting to imply by the above statement. Throughout itsbrief Kodak cites instances in which Zenren members claim they have "approached," or will"approach," Fujifilm, using these statements as "evidence" of Fujifilm's collusion with theretailers to engage in anticompetitive practices. Employing Kodak's own reasoning, the quotedstatement would thus be evidence that Kodak, in this instance, was colluding with Zenrenmembers. Kodak should find such a conclusion as ludicrous as Fujifilm has found Kodak'sallegations of collusion.

Further, if the statement above has been quoted as an indication of Zenren's attempt atcontrolling the market, any such attempts have surely been unsuccessful. The fact that Kodakcontinues to sell private label film, and that private label sales in general have increasedthroughout Japan indicates as much. Moreover, there has never been a boycott of theCooperative Stores nor of any other chain offering private label film. In fact, despite theirmarketing of Kodak private label film, Cooperative Stores continue today to offer Fuji brand film,supplied by one of the tokuyakuten through a Fujifilm-affiliated laboratory.

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22. Shashoren Is Not A Forum For Resale Price Maintenance

KODAK CLAIM:

"Shashin Ryutsu Shosha Denmokai {sic} ("Shashin" {sic}) (Photo Distributors'Association). This is an association of major photographic supplywholesale/distribution companies. Its membership of about 20 firms includesAsanuma, Misuzu, Kashimura, Omiya, Canon Hanbai, and Minolta Hanbai."


Source: None.


The correct name of the Photo Distributors Association is "Shashin Ryutsu ShoshaRengokai" or "Shashoren." Shashoren consists of 19 members, including wholesalers forFujifilm, Konica, Oriental, Mitsubishi, and various camera manufacturers. According toShashoren's rules, Kodak would be free to become a member at any time. In fact, Kodak'stokuyakuten, Kuwada and Chiyoda, were formerly members of Shashoren, but terminated theirmemberships when Kuwada was absorbed by Nagase and Chiyoda ceased its operations.Shashoren's members compete directly with one another, and do not use Shashoren as a forumfor price maintenance activities.

Kodak includes Shashoren among the entities which it alleges operate as forums for pricemaintenance activities. However, Kodak has provided absolutely no evidence of such activities.

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23. Zenlaboren Is Not A Forum For Resale Price Maintenance

KODAK CLAIM:

"Zen Nihon Karaa Rabo Kyokai Rengokai (Zenraboren) {sic} (All JapanFederation of Color Lab Associations). This is a national organizationrepresenting color photoprocessing laboratories. It has served as a forum forcoordinated efforts by photoprocessing laboratories to raise the price ofphotoprocessing services and prints to Japanese consumers."

"Privatizing Protection" at 45; see also p. 111-112.

Source: Focus on the Color Developing and Processing Problem -- Future Policy of the ZenrenBoard of Directors -- Color Developing and Processing, NSKT February 20, 1974, 14-15.


Kodak correctly states that Zenlaboren is a national organization of color photoprocessinglabs. It omits, however, the fact that Zenlaboren members include discounters, such as NihonJumbo, and Kodak-affiliated laboratories.

Kodak's only support for its proposition that Zenlaboren is a forum for price coordinationis an article reporting a meeting by Zenren, not Zenlaboren. The statements in the articlesuggesting collusive price increases by the labs are the statements of Zenren members at theirassociation meeting. The article is from 1974, in the aftermath of the 1973 oil crisis. The articlediscusses the negative reaction of Zenren members to recent price increases by photofinishinglabs -- price increases which were prompted by the increased costs at the manufacturing level dueto the oil crisis. Clearly, Zenren members can be relied upon to complain about increases inprices by photofinishers.

These complaints did not go unnoticed by the JFTC. As discussed in Rebuttal 52, thesuspicion that the labs' price increases were collusive led to dramatic simultaneous raids ofphotofinishing labs and Zenlaboren headquarters by the JFTC in 1974. The JFTC examinedminutes of meetings and other documents, and questioned lab association members regarding theprice increases. Zenlaboren was not found to have colluded to raise prices.

Kodak, in this allegation, gives credence to reports by Zenren members while discountingthe JFTC's conclusions after extensive investigations. Kodak cites no reports of anticompetitivepractices by Zenlaboren after 1974.

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24. Fair Trade Promotion Council's Limited Powers Do Not Include Curbing ExcessiveCompetition

KODAK CLAIM:

"Fair Trade Promotion Council (Kosei Torihiki Suishin Kyogikai). This is a grouping ofsix organizations formed in 1982 to draft and enforce "Fair Competition Codes" in theindustry. It includes the KKK {sic}, the Zenren, the Shashin {sic}, the Zenraboren {sic}and the Camera Manufacturers' Association. The real purpose of the Conference was tocurb `excessive competition (in the past known as underselling)' through the adoption ofan agreed set of norms governing competitive behavior."


Source: Wholesale: Improved Climate Even for Large Photographic Developing MaterialsWholesalers, NSKT, December 20, 1982, 8.


The Fair Trade Promotion Council ("FTPC") does not operate to fix prices in thephotographic materials market. It was created 1982 by six photographic products industryassociations involved in the production and sales of cameras. It developed a Code, reviewed bythe JFTC, which deals with practices affecting camera sales. Specifically, the Code addressesonly two issues: (1) the practice by camera retailers of forcing camera manufacturers to dispatchsales personnel to retail outlets; and (2) excessive demands by retailers for promotional moneyfrom camera manufacturers and wholesalers. See attached translation of FTPC Code.

Section 1 of the Code establishes standards to regulate the practice of retailers forcingmanufacturers to dispatch sales personnel to retail shops. It states that retail shops may notrequire manufacturers or wholesalers to dispatch personnel to retailers for sales promotionactivities or physical inventory of goods not sold. Section 2 of the Code establishes standardsto regulate the practice of retailers demanding the payment of commissions by the manufactureror wholesalers. The Code states that a retail shop may not demand a sales promotion contributionto be used in the promotion of goods unrelated to the products sold by the manufacturer orwholesaler. These are the only "regulations" enforced by the FTPC.

The FTPC's actions go beyond this Code only to rectify or eliminate trade practices whichmight mislead consumers. See Rebuttal 25.

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The NSKT article quoted by Kodak was written at the time the FTPC first came intoexistence. The author expresses his hope that the new organization will help curb "excessivecompetition." This hope, however, was never realized, since the FTPC's code dealt only with thelimited issues described above, and its actions beyond its code dealt only with efforts to avoidmisleading consumers.

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25. Fair Trade Promotion Council's Policies Do Not Include Resale Price Maintenance

KODAK CLAIM:

"At its inception, members {of the FTPC} adopted a set of `Fundamental Policies' whichincluded the following commitment: "We will continue our untiring efforts to deepencooperation among our members...and to stabilize market prices while ensuringreasonable profits."


Source: Six Trade Organizations to Promote Self-Regulation and Emphasize Normalization ofTrade -- Annual Meeting of the Federation of Photo Distributors, NSKT, May 1, 1982, 10.


Kodak ascribes the "Fundamental Policies" to the wrong association. The quoted articledoes not describe the "Fundamental Policies" of the FTPC; it describes, instead, the policies ofthe Photo Distributors' Association ("Shashoren"). Two of Nagase's tokuyakuten, Kuwada andChiyoda, were members of Shashoren. The article quoted by Kodak notes that Shashoren calledfor the establishment of the FTPC in order to rectify unfair trade practices, but not to controlprices.

As noted above, the FTPC is not involved in any anticompetitive price maintenanceactivities. The FTPC's Code is narrowly focused on very specific non-price-related unfairpractices by retail shops. See attached translation of the FTPC's "Self-Regulation" Code.Moreover, beyond its Code, the FTPC has only addressed issues which involve protectingconsumers from misleading trade practices. For example, the FTPC proposed a standard practicefor the disclosure of developing and printing charges to consumers. This proposal was intendedto rectify the practice of luring customers with a low print price, without ever disclosing theaccompanying high developing cost. See NSKT, May 20, 1984, 10. The article quotes Mr.Fujimori, Chairman of FTPC, on the purpose of this standardized disclosure form as follows:

The display standard is intended to clarify items like color printing charges, developingcharges and finishing time. Prices are at the sole discretion of the stores themselves. This{standard} is not intended to control prices. It will not regulate the display method either.However, if possible, FTPC is considering making a model form that would be distributedfor a fee (emphasis added).

This example illustrates that not only are the FTPC's activities unrelated to price maintenance,but that the FTPC goes out of its way to ensure that its actions are not misunderstood as such.

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26. Fair Trade Councils Assist In The Enforcement Of The Premiums Law

KODAK CLAIM:

"The JFTC approved this {Fair Competition} code and has subsequently takenactions against retailers which offer certain discount and promotional incentivesand advertising for film and prints, such as the offer of a free photo album with thepurchase of prints or the display of an advertisement depicting film offered at adiscount from the "fixed domestic" price. The Council itself monitors retailers,serves as a clearinghouse for reports of unauthorized promotional sales, and warns"violators" to cease their activities. Prefectural governments are also authorizedto enforce the codes against discounters."


Source: Fair Trade Promotion Council {sic} MITI and Fair Trade Commission ExchangeOpinions on Trend Toward Increasingly Meaningless Camera Pricing, Zenren Tsuho, March,1988, 8-9; "Fair Trade Promotion Council Strictly Monitors Violations by Non-Members andRequires Guidance to be Provided to Local Government offices," Zenren Tsuho, May 1988, 13.


Kodak has confused its sources and incorrectly attributed actions by the Camera RetailersFair Trade Council to the Fair Trade Promotion Council (FTPC). The Camera Retailers FairTrade Council is separate and distinct from the FTPC. See Rebuttal 25 (describing the FTPC).The Camera Retailers Fair Trade Council (FTC) is an organization of retailers whose sole purposeis to assist in the enforcement of the "Premiums Law." The Premiums Law contains standardsregarding the use of premiums (i.e., promotional "freebies") and misleading representations (e.g.,false or misleading advertising) in connection with transactions involving goods or services. Thepurpose of these standards is to protect consumers and ensure fair competition. See attached copyof Premiums Law (Article 1).

Three "Fair Trade Councils" were established for the camera industry by industryassociations: the Camera Manufacturers Fair Trade Council, the Camera Wholesalers Fair TradeCouncil, and the Camera Retailers Fair Trade Council. The Manufacturers and WholesalersCouncils were established in 1967, although the Wholesalers Council is inactive. Kodak Japanis a member of the Camera Manufacturers Fair Trade Council. The Camera Retailers Fair TradeCouncil was established in 1987. Since many Zenren members are also camera retailers, theCamera Retailers Fair Trade Council also includes some Zenren members.

The reason for the establishment of these three Camera related Fair Trade Councils wasto enforce the Premiums Law and the Fair Trade Code for Cameras approved by the Japan FairTrade Commission in 1965. See attached copy of Restriction on Premium Offers in Camera

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Industry, FTC Notification No. 33 of 1965. This Code was established under the procedures ofthe Premiums Law. See attached copy of Premiums Law (Article 9.2). Each of the three Camerarelated Fair Trade Councils described above is charged with monitoring violations of thePremiums Law and the Fair Trade Code and referring violations to the prefectural governmentsand/or the JFTC. Under the provision for enforcement by prefectural governments, the Governorof a prefecture can instruct the violators to cease the practices deemed to violate the PremiumsLaw. See attached copy of Premiums Law (Article 9-2).

The articles cited by Kodak deal with the Camera Retailers Fair Trade Council and itsactivities relating to the enforcement of Premiums Law standards regarding misrepresentations.See Rebuttal 76. They have nothing to do with the FTPC. Furthermore, these articles make nomention of any anticompetitive practices by the Camera Retailers Fair Trade Council.

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27. Sanrenkyo No Longer Exists

KODAK CLAIM:

"Sanrenkyo (Cooperative of Three Associations). In the immediate postwar era,the market for photographic products in Japan became `chaotic,' that is, it was abuyers' market, not a sellers' market. Under these circumstances, associationsrepresenting the manufacturers, the wholesalers, and retailers, respectively, beganconvening regularly `to hold discussions and cooperate together' in the Sanrenkyo(The KKK, the Shashin, and the Zenren). The Sanrenkyo meetings becameespecially important during periods of turmoil (e.g., intensified price competition)as a forum in which `the industry's leaders from each level. . . . create a placewhere they can openly exchange views saying what is honestly on their mindswithout keeping opinions to themselves.'"


Source: Meeting Between Zenren Board of Directors and Association Presidents, NSKT, August1, 1980, 12.


Sanrenkyo was abolished in the mid-1970s, when the JFTC began more aggressiveenforcement of the Antimonopoly Act. The article cited by Kodak makes it abundantly clear thatthe Sanrenkyo no longer exists. Therefore, Kodak's characterization of Sanrenkyo as an existing"instrument of market control" ("Privatizing Protection" at 42) is blatantly deceptive.

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28. Fuji Color Tomo-No Kai Has Not "Facilitated" Price Increases

KODAK CLAIM:

"Fuji Color Tomo-no Kai ("Friends of Fuji Color"). The Tomo-no Kai consists oflocal chapters representing laboratories, retail outlets and regular consumers ofFuji products. Dedicated to the promotion and use of Fuji products, the Tomo-noKai has engaged in a wide range of educational and motivational activities, mostof which has emphasized the promotion of photography. However, it has alsoserved as a forum for preventing market chaos and for identifying alternatives toprice wars. In at least one instance the Tomo-no Kai were credited withfacilitating price increases for film and paper."


Source: Lab: Actual Print Price Increase: A Problem of Trust and Understanding BetweenIndividual Dealers, NSKT, July 10, 1980, 8. (Kodak incorrectly lists year as 1989)


Fuji Color Tomo-no Kai was a sales promotion program aimed at attracting customers andproviding a stable customer base for member stores and labs. Under this program, registeredconsumers could receive certain promotional "freebies," such as T-shirts, calendars, cups, andother items, in exchange for points earned by using photofinishing services at member shops.The program was terminated in 1993.

This program was available to interested stores and labs, at their discretion. As such, theTomo-no Kai was simply an option available for member stores and labs as a sales promotionmethod. Membership in Tomo-no Kai did not entitle a store to different film or paper salesconditions. The program was terminated because Fujifilm determined that the administrativeburdens of the program (setting member store dues and arranging for "freebies") outweighed thebenefits.

Tomo-no Kai never operated as a forum for price maintenance activities. Several localadministrative offices and a headquarters office were established. These offices, however, servedonly to select and distribute promotional merchandise and collect dues.

Kodak's claim that Tomo-no Kai was credited for facilitating price increases "in at leastone instance" is based on a serious misunderstanding of the article Kodak cites. In fact, thearticle cited makes no mention of any instance in which the Tomo-no Kai was connected withfacilitating price increases. At most, the author of the article expresses his own hope that Tomo-no Kai will serve to increase the understanding among laboratories, retailers and consumers

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whose interests, he recognizes, conflict with each other. This author notes, however, that "thepurpose of `Tomo-no Kai' should be solely limited to `mutual friendship' and `mutual trust.'"

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29. Zenren Did Not Call For "Concrete Price Measures" To Counter Nihon Jumbo

KODAK CLAIM:

"In 1994 at the Zenren Board meeting, Vice Director Suzuki called for concrete pricemeasures from Zenren to somehow counter the low prices of prints being offered byNihon Jumbo."

"Privatizing Protection" at 47 (note 60).

Source: Zenren Board Meeting ..., Zenren Tsuho, April 1994, 11-13.


Kodak misquotes the cited article. Mr. Suzuki, Vice-Director of Zenren, did not ask forconcrete price measures at this meeting. Rather, his comment regarding 9 yen prints was asfollows:

Stores with high prices provide quick and high quality {service}. Stores with lowprices require longer days {for processing}. Therefore, I do not think that thereis so much pressure for a lower price.

Thus, the statement is not one that calls for "concrete measures" to counter Nihon Jumbo's prices.It is a statement that suggests that the stores need not compete on the basis of price because theirhigher prices are justified by better service and shorter processing time. Furthermore, the articlealso quotes Managing Director Ueno as saying that "prices will go down sooner or later."

Kodak fails to mention that today Nihon Jumbo offers 4 yen prints. This simple factdemonstrates that prices have not been controlled.

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30. Zenren Opposition To Increases In Camera Prices Was Not Collusion To MaintainPrices

KODAK CLAIM:

"The Zenren's Board of Directors meeting on July 21, 1992, for example, wasaddressed by Chairman Shimoyama of the Camera Industry Council who calledfor `price increases for securing profit.' He stated that `the current chaos in marketprices requires us to firmly divide the high volume stores and revise prices. . . .'"

"Privatizing Protection" at 47 (note 60).

Source: Manufacturers Put Effort Into Rebuilding Market Prices, Zenren Tsuho, August 1992,8.


Kodak has entirely misrepresented the contents of the article cited. Every item of Kodak'sallegation is untrue:

Mr. Shimoyama of the Camera Industry Council did not address Zenren'sboard of directors. In fact, Zenren does not allow manufacturers to addressZenren meetings or even participate in discussions at such meetings. Itwas Mr. Suzuki, Zenren's camera division manager, that addressed Zenrenin the quoted article.

Statements of both Messrs. Shimoyama and Suzuki were about cameraprices, not film or photofinishing prices.

Mr. Shimoyama, in another forum, had suggested that manufacturers raise camera pricesto increase profits. Mr. Suzuki, addressing Zenren, opposed such an increase. Yet Kodak hasreferred to Mr. Suzuki's opposition to Mr. Shimoyama's statement as an example of "endorsingmarket stabilization" ("Privatizing Protection" at 46). Clearly this characterization is utterlybaseless.

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31. Zenren's Response To 9 Yen Prints Did Not Involve Collusion On Price

KODAK CLAIM:

"{I}n October 1993 the Photo Materials/D&P Division of the Zenren met andagreed to jointly devise a solution to the "problem" of prints sold for 9 yen: `. . . .we are working toward solutions. In particular, with regard to the ¥9 printproblem, we are addressing the issue as we consider how it is impacting othermanufacturers. Regarding the development of mini labs and the establishment ofautomated sales facilities for film, we are meeting with the manufacturers involvedand are trying to make adjustments in the market.'"


Source: Business Plans for 1995: Dealing with the Severe Environment; Promoting EffortsAmong Each Group, NSKT, October 10, 1993, 8-9.


Although Zenren's intention is unclear in the statement, the fact is that today Nihon Jumbooffers 4 yen prints. Therefore, as a simple factual matter, whatever Zenren did, it did not enforceprice maintenance.

Moreover, Kodak mischaracterizes the statements quoted. It is Kodak's theory that thestatement "we are addressing the issue {of 9 yen prints} as we consider how it is impacting othermanufacturers" suggests that Zenren will appeal to other manufacturers to raise prices. In fact,it is much more likely that Zenren is suggesting that other manufacturers will be impacted byhaving to reduce their prices so that they will be able to compete.

Contrary to the impression left by Kodak's mischaracterization, the article states that themeeting concluded with the agreement that "{s}pecialty stores should seek to provide enhancedservice and higher quality." This clearly does not lead to ominous price maintenance conclusionKodak suggests.

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32. Member's Plea For Help Is Not Evidence Of Zenren Policy To Rig Prices

KODAK CLAIM:

"{O}n July 21, 1993, following Nihon Jumbo's introduction of 9 yen prints, theZenren held a meeting of regional retailers' associations at which it was stated that:`{W}e understand that we should not dango (rig) prices. Doesn't fairness alsodictate that one make the price on which it is impossible to make a living into aprice on which it is possible to make a living?'"


Source: Report: The Developing Printing (DP) Market in Each Region of Japan; Zenren'sSession Opens Amid Difficult Circumstances in the Industry, NSKT, August 1, 1993, 12.


Kodak uses this quote to suggest that despite recognizing the illegality of price fixing,Zenren nevertheless pursues such illegal activities. In fact, however, the statement quoted byKodak proves the exact opposite of what Kodak suggests. It shows that even a desperate retailerfaced with severe price competition recognizes that Zenren has no power to rig prices.

In addition, Kodak omits a pertinent part of the article. In another passage a representativefrom a local association stated: "We asked the film makers but in vain. We asked for advicefrom the JFTC, but were advised that this {9 yen prints} is not `dumping'." This statement makesit clear that whatever Zenren's members may desire, they are not getting any cooperation fromthe JFTC or the manufacturers.

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33. Zenren's Response To Supermarket Chain A's Low Prices Was Not To EnforceResale Price Maintenance

KODAK CLAIM:

"In March 1994, for example, the Zenren, alarmed over an NHK television storyabout the Daiei supermarket chain's low-prices for film and prints, convened ameeting: `At the Zenren meeting, there was a heated discussion over the issues oflow-priced prints and private-brand films proposed by Daiei. However, theseissues cannot be resolved easily by the retail side, and it was decided that a specialcommittee on DP and films will be established to unify Zenren's views whileconducting a thorough exchange of opinions with manufacturers andlaboratories.'"


Source: Private Brand Films and Low Price Development and Print: March 10, Zenren CouncilMeeting, NSKT, March 20, 1994, 12.


Kodak assumes that the proposed discussions with manufacturers and laboratories wouldinvolve efforts at price maintenance. In fact, Zenren's principal approach has been to requestmanufacturers to lower their prices to the small retailers, to reduce the differential between pricesoffered to large and small retailers, and to assist with promotional and other activities to expanddemand at small retail outlets. This point is well illustrated in a portion of the article omitted byKodak. Zenren's Film/DP Division Manager is quoted in the article as follows:

Regarding nine yen prints, it is desired that we can provide cheaply to consumersby as much rationalizing as possible. But we think that, as specialty stores, weneed to provide good quality and service at a reasonable price.

Once again, it is clear that the focus of Zenren is not on discouraging discounting, but instead onefforts to assist small specialty stores to compete with discounters based on quality and service.See also Rebuttal 44 ("National DP Festival").

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34. Tokuyakuten Compete With Each Other

KODAK CLAIM:

"{A}lthough all of the tokuyakuten handle Fuji film, they have segmented theirsales by product category to larger accounts so that they do not compete with eachother at accounts which they jointly serve. At Yodobashi Camera, for example,in 1991: `each wholesaler is supplying different kinds of products and no supplyduplication has been occurred. This situation is the same at the other major largecamera stores. Although Fuji Photo Film said that the company has never directedthem to take this system due to the possibility of anti-monopoly law infringements,it is considered that minimal arrangements have been taken, based on someprinciple.'"


Source: Consultant's Report, 1992.


Kodak's Consultant's Report is wrong. Fujifilm's tokuyakuten do, indeed, compete forsales of the same products to major accounts. In fact, based on shipment information providedto Fujifilm by the tokuyakuten, 60 of Fujifilm's top 100 film outlets purchase Fuji film frommultiple tokuyakuten. Hence, for the majority of large outlets the tokuyakuten do, in fact,compete with each other for the sale of color film.

Indeed, Fujifilm's marketing strategy relies on the competition between the tokuyakuten.A recent article makes this point as follows:

The `Four Specials' {Fuji's four main tokuyakuten} are basically independenttrading houses for photosensitive materials. They do not divide marketing areasby region. For this reason they cannot help but compete in sales with each other.Some of the large mass merchandisers do business with more than one wholesaler.

This is the reason why they seek customers for which they would not have tocompete against other tokuyakuten and work to retain these customers. The factthat FujiColor is available in any gift shop in sight-seeing spots is largelyattributable to the sales expansion efforts of the "Four Specials." For example,Misuzu Sangyo is strong in kiosks, zoos and sales outlets under the JapanHighway Public Corporation which governs service areas in highways, whereasAsanuma covers large-scale stores and secondary wholesalers in rural areas.

See Firm Control of Distribution, Nikkei Business, June 28, 1993, at 16.

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The retailer decides with how many tokuyakuten it will deal. The large retail shopsgenerally follow one of two strategies. Most frequently, major dealers buy the same productsfrom two or three tokuyakuten in order to play one against the other. Using several tokuyakutenalso facilitates the gathering of product and market information.

Other retailers, exemplified by Yodobashi, follow a single-sourcing strategy. Yodobashiuses a single tokuyakuten for each product category. Since Yodobashi's business is large, it doesnot need to apply pressure by purchasing from multiple sources. Indeed, to lose Yodobashi'saccount would be a major loss for the operation of each tokuyakuten currently servicing theYodobashi account for a particular product. This approach allows Yodobashi to minimize theadministrative burdens involved in purchasing the same product from various sources.

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35. Tokuyakuten Do Not Control Competition Among Secondary Wholesalers

KODAK CLAIM:

"Fuji's tokuyakuten wholesalers are also tasked by Fuji with controlling secondarywholesalers distributing Fuji products so that they do not compete with each other:`An importance is attached to maintaining the current distribution order in FujiPhoto Film, and wholesalers are requested to direct secondary dealers not tocompete with each other at the same channel ends.'"


Source: Consultant's Report, 1992


Fujifilm does not "task" its wholesalers with "controlling secondary wholesalers . . . sothat they do not compete with each other." In fact, there is substantial competition amongsecondary wholesalers for the business of retailers. As a result, retailers do switch from onesecondary wholesaler to another to obtain better prices as a result of such competition.

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36. Fujifilm's Suggested Retail Prices Do Not Constitute Resale Price Maintenance

KODAK CLAIM:

"It is clear that the suggested retail price has a powerful normative effect."


Source: MITI's Guidelines to Improve Trade Practices: Standards that are Easy to Understandfor Third Parties, Suggested Retail Prices and the Establishment of Prices, Zenren Tsuho,September 1990, 6-7.


Fujifilm's suggested retail price is simply that -- a suggested reference price for retailersand consumers. Fujifilm never demands that the retailer sell at the suggested price. Suggestedretail prices are not used to prevent discounting. In fact, significant gaps between suggested retailprices and actual sales prices are common in the Japanese market, demonstrating that Fujifilmcannot and does not control prices at the retail level.

Moreover, Fujifilm is not alone in its use of suggested retail prices. Kodak also usessuggested retail prices, both in Japan and the United States. Nevertheless, retailers ultimatelydetermine their price, not simply by reference to the suggested retail price, but primarily basedon their position in the market vis-a-vis competitors.

The source cited by Kodak provides absolutely no support for Kodak's proposition. Inthat article, the reported discussion of suggested retail prices was motivated precisely by thedisregard for such suggested retail prices by retailers. Zenren's concern was that suggested retailprices had become meaningless because the gap between the suggested retail price and actualmarket prices had become too great. While Zenren is quoted as generally favoring the use ofsuggested retail prices as a reference, the article also states as follows: "Zenren's position onlygoes so far as to say that the suggested price should be replaced with open price if it has ceasedto have any substance."

Kodak also attempts to support its allegation by using the Japanese word "tatane." Theactual word is "tatene," and contrary to Kodak's definition, it is merely "a price to be used as astandard in sales transaction" -- i.e., it simply means "suggested price." Iwanami JapaneseDictionary, vol. 4, page 690.

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37. Fujifilm's Marketing Headquarters Does Not Forbid Transactions With DiscountersOr Warn Them If Prices Are Too Low

KODAK CLAIM:

"'Countermeasures for discounters {are} the most critical and urgent issue in theNo. 1 Marketing Headquarters' of Fuji Photo Film, which is in turn the marketingsection given the highest priority in Fuji's organization. Countermeasures includethe following: 1) `No business transactions are allowed ... with any discounters....'2. `{Fuji} carefully and strictly checks actual selling prices by discounters andgives them warnings if prices are too low.' 3) `{Fuji} carries out continuous andcomplete investigations on delivery channels to discounters.'"




Kodak's Consultant's Report is once again wrong. Fujifilm's distributors do, in fact, sellto discounters. Fujifilm does not issue warnings to discounters for their discounting. Majordiscount shops, such as Yodobashi and Daiei, are important customers of Fujifilm's tokuyakuten.

Moreover, Fujifilm sales people are well aware that to issue such a warning would violatethe Antimonopoly Act. Fujifilm has developed its own "Antimonopoly Act Compliance Manual"to ensure compliance with the Antimonopoly Act by all departments, especially the sales andmarketing departments. Fujifilm has also conducted seminars for salespeople and sales managersto ensure they are fully aware of the requirements for compliance with the Antimonopoly Act.

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38. Fujifilm Does Not Monitor Pricing "Abnormalities or Deviations"

KODAK CLAIM:

"A 1992 Japanese consultant's report made the following observations about Fuji'sarrangements to maintain stable retail prices for its film roll packs relative to rollssold individually: `The bottom line of this system is to fix the ratio of the pricebetween single roll of film and one roll film in a pack. They have not only triedto complete this policy in every step of the distribution channel from wholesalersto retailers, but also have checked changes of actual selling prices in retailers bymonthly price survey by various criteria such as area, type of products and typeof stores, at several hundred retail stores throughout Japan (at the same timechecking competitive prices). If any abnormalities or deviations are found in thissurvey, they immediately give warnings to wholesalers and let them take necessarymeasures for fixing prices.'"




The only retail price information systematically collected by Fujifilm is a monthly surveyby Nippon Research Center of 12 Tokyo and 10 Osaka retailers. The survey covers two or threeretail stores representing each type of business in each region. The research is intended todetermine Fujifilm's prices relative to its competitors' prices. Given that there are approximately280,000 film outlets in Japan, this limited volume of information is totally inadequate forpurposes of monitoring resale price maintenance. Therefore, Fujifilm has no way to check"abnormalities or deviations" by means of the limited pricing surveys that it conducts. See alsoRebuttal 37 (regarding Kodak's allegation of "warnings").

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39. Zenren's Reaction To Article Claiming Abolition Of Suggested Retail Price

KODAK CLAIM:

"The June 13 issue of the Nihon Keizai Shimbun reported that Japanese filmmanufacturers had agreed to the abolition of the suggested retail price in the filmindustry, and that "{r}etailers have the right to determine prices for film and smallcameras." The Zenren reassured its members in August 1990 that this was not thecase in an article headlined:

"The June 13 Nihon Keizai Shimbun article, `Retailers Have theRight to Determine Prices,' is False".

The Zenren noted that the objectionable article had stated that `film is already open.' Itcommented that:

"As our readers know, film uses the suggested retail prices set by themanufacturers for film. Thus, this was completely a false story."


Source: Zenren Tsuho, July 1990, 18.


Contrary to Kodak's suggestion, the Zenren Tsuho article cited by Kodak merely pointsout factual errors in the Nihon Keizai Shimbun ("Nikkei") article. The Nikkei article reportedthat:

(1) The FTPC (not manufacturers as Kodak suggests) decided to abandon suggestedretail prices;

(2) The FTPC decided that retailers will have free discretion in setting retail prices;

(3) An "open" price system (i.e., not using suggested retail prices) had been alreadyadopted for film, and would be expanded to include compact cameras;

(4) MITI's draft guidelines would propose abolition of suggested retail prices andintroduction of an open price system.

All of these claims were wrong. First, the FTPC does not decide whether themanufacturer's suggested price should be abolished -- it has no such function or authority.

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Second, it is evident that retailers have free discretion to set their prices, and there is no need fora FTPC decision on the matter. Third, an open price system was not introduced for film, sincesuggested retail prices have not been abolished. Finally, MITI's draft guidelines did not includea general proposal to abolish suggested retail prices; rather, MITI's draft guidelines took the viewthat suggested retail prices should be abolished when there is a substantial difference betweensuggested retail prices and market prices.

The article cited by Kodak is merely correcting the factual errors in the Nikkei article.Kodak's implication that Zenren is objecting to retailers' pricing freedom is baseless.

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40. Kodak Is Completely Wrong About Fujifilm's Rebate System

KODAK CLAIMS:

"There is . . . no open, standard rebate formula to which a distributor which hasachieved a particular sales target can refer and demand a specific rebate amountas a matter of right. . . . giving Fuji enormous leverage over many enterprises,particularly those in precarious financial condition." "Privatizing Protection" at52

"The rebates are remarkably progressive with respect to volume; the rebatepercentage increases dramatically as certain volume targets are reached within agiven year." "Privatizing Protection" at 53

"Fuji's rebates are paid on the basis of the distributor's or retailer's own revenuesrather than unit volume of the amount purchased, reducing the incentive toenhance sales by cutting prices." "Privatizing Protection" at 53

Source: None


Each of these allegations is false. These allegations are addressed in detail in Section IIof Fujifilm's response.

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41. Postmen Are Not Spies For Fujifilm

KODAK CLAIM:

"Fuji asks postmen to observe retailers in remote areas."


Source: Consultant's Report, 1995


Kodak's allegation regarding Fujifilm's use of postmen is entirely unfounded. Fujifilmhas never employed postmen for the purposes alleged. Postmen in Japan are public servants anddo not work on behalf of private companies.

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42. Fuji Color Ladies And Fuji Promotion Ladies Are Not Retail Price Monitors

KODAK CLAIM:

"'Fuji Photo Film carefully observes the stores which make actual contact withusers.' It has `double or triple human walls of sales promoters.' These include theFuji Color Ladies `consist{ing} mainly of housewives, {who make} businesscontacts with the dealers, after being thoroughly educated,' and the Fuji PromotionLadies, college graduates who are `the contact point with camera shops.'"


Source: Eizo Media O Sogsuru


Kodak's characterization of Fuji Color Ladies and Fuji Promotion Ladies as "observers"is entirely inaccurate. Both programs acted to supplement Fujifilm's ordinary sales force -- notto "monitor" prices.

The Fuji Color Ladies program consisted of approximately 100 persons whose role wasto explain the functioning of new product and collect complaints and requests from retail shops.This program began around 1970 and was terminated in 1979.

The Fuji Promotion Ladies program consists of 20 of Fujifilm's own employees. Theyconduct product demonstrations and instruction seminars at medium-sized retail shops. Initially,such demonstrations and seminars focused on Fujifilm's 8 mm film camera; today, their focus ison demonstrating, and providing instructions in, the use of Fujifilm's 8 mm video camera.

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43. Labs Do Not Monitor Prices On Behalf Of Fujifilm

KODAK CLAIM:

"Representatives of Fuji affiliated laboratories typically visit their affiliated retailshops every day, and the lab collects sales information from the shop owner."




Kodak's allegation that Fuji-affiliated laboratories collect sales information from shopowners which is in turn forwarded to Fujifilm is simply not true. The only information receivedby Fujifilm from its affiliated laboratories is monthly information regarding the total number ofprints processed. The laboratories do not provide any price information. Fujifilm does not uselaboratories to control retailers.

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44. Zenlaboren and Fujifilm Did Not Apply Pressure To "Maverick Retailers," AndZenren Did Not Request Them To Do So

KODAK CLAIM:

"When the Zenren or Zenraboren {sic} are concerned about discount pricing bymaverick retailers, they appeal to each other and to the manufacturers to applypressure to the troublesome firm or firms."


Source: Fuji's Plan for a national DP Festival (Temporary Name), Zenren Board of DirectorsAgrees, NSKT, August 1, 1994, 10.


Kodak entirely mischaracterizes the cited article. Chairman Suzuki's statement precedingthe portion quoted by Kodak specifically discounts Zenlaboren's ability to do anything about thediscounted prices. He states, "{a}lthough we do not anticipate that the Zenlaboren can doanything particular against discounters, do you {Zenren members} have any objections aboutapproaching Zenlaboren?"

Kodak mistranslates Mr. Suzuki's response to the various speakers discussing theprevalence of low print prices, including Director Ishida's statement (as quoted by Kodak).Kodak's translation reads as follows:

I assume that there are no objections to our requesting the Zenraboren {sic} to takemeasures against stores which are revising manufacturers' prices. . . ."("Privatizing Protection" at 56).

The actual translation reads:

I want to assume that at this stage there is no objection to approaching Zenlaborenasking for consideration of small stores {concerns} in response to manufacturers'price revisions {i.e., reductions by manufacturers in paper prices}.

The proper translation indicates that the Zenren intended to propose to the Zenlaboren that theypass on their cost reductions (in the form of lower paper prices) to the retailers -- not that theyretaliate against discounters.

Further, Kodak omits Mr. Suzuki's most pertinent statement -- the response to Dr. Ishida'squestion, "{C}an't Zenren do something to stop this {low price prints}?" Mr. Suzuki responded:

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"It is a virtual impossibility for the special committee to wipe out 5 yen or 10 yen low pricedprints."

Kodak also omits pertinent language regarding Fujifilm's response to the Zenren approach.Immediately after the portion quoted by Kodak, Mr. Suzuki goes on to describe what Fujifilmdid in response. He states that he was approached by Fujifilm officials who proposed apromotional effort called "National DP Festival." In fact, this festival is the focus of the entirearticle. The title of the article itself is "Fuji's Plan for a National DP Festival (Temporary Name)."The article states that Mr. Suzuki favored the participation of Zenren members in this promotion.This is clearly not the "countermeasure" that Kodak's misquotation implies.

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45. Zenren And Zenlaboren Do Not Expel Members For Discounting

KODAK CLAIM:

"The Zenren and Zenraboren {sic} directly criticize retailers that engage indiscount sales and ... have expelled members from their association for price-cutting."

"Privatizing Protection" at 57; see also p. 108.

Source: Private-brand Films and Low Price Development and Prints, NSKT, March 20, 1994,12; Seasonal Outlook: Wholesale: Voices Can be Heard Wondering If Wholesalers HaveBecome a Little Scared, NSKT, September 10, 1975, 8.


To support its allegation that Zenren and Zenlaboren have expelled discounters from theirassociations, Kodak quoted a Zenren official at a Zenren meeting. The statement, however,makes no mention of such an expulsion. The official was merely reporting that he hadapproached the Shashinya-san 45 chain about a possible Premiums Law violation. Specifically,he questioned the chain's offer to provide free films "forever" to any customer purchasingdesignated cameras. In such a case, the film being offered is considered a "premium" related tothe sale of the camera. The Premiums Law and, more specifically, the Camera Fair Trade Codeset specific rules on the value of "premiums" that can be offered on the sale of cameras. SeeRebuttal 26 and attachment (explaining and providing a copy of the Law and Code). Thus, thematter had nothing to do with discounted film.

Further, nothing in the article reflects any criticism of the discounters. A significantportion of the article is devoted to the discussion of a TV program's report on the new low printprices.

The article describes Zenren's position on low print prices as follows:

Regarding 9 yen prints, it is desirable to provide cheap service to consumersthrough increased efficiency. What is required for specialty stores, however, ishowever, to provide quality service at a reasonable price.

This position neatly describes Zenren's stance on price competition, i.e., that small camera storesshould compete on the basis of enhanced service and professional knowledge.

Kodak also omits pertinent language in the cited September 1975 article. Specifically,the article notes that there is no price policy advanced by the association. The article says:

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Some people seem to believe that the association has a price policy "which mustbe advanced." However, there is no such thing in the industry as of 1975.

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46. MITI's Recommendations Regarding The Distribution Sector Were NotAnticompetitive "Countermeasures"

KODAK CLAIM:

"MITI proposed liberalization countermeasures for the distribution systems inthree categories of industries which it believed to be vulnerable to rapidpenetration by foreign capital (basic materials, regulated consumer goods, andgeneral consumer goods, including film). The Industrial Structure Council, aMITI advisory body developed studies of these industries and recommendationsfor rationalizing their distribution structures, which, it was believed, could not beachieved without government support measures."


Source: MITI Reviews Distribution Policies in Preparation for Capital Liberalization, ZenrenTsuho March 1967, 6.


MITI's goal of rationalizing the distribution systems of various industries on the eve ofcapital liberalization was intended to enable such industries to compete not to block foreigncompetition. MITI's concern was that prior to liberalization, the distribution sectors should bepushed to modernize based on the model of developed countries. Generally, the distributionsector in Japan was considered outdated and it was MITI's position that for Japanese industry tocompete after capital liberalization would first require an updating of the older-era businesses andbusiness practices in the distribution sector. There is nothing in MITI's Distribution Guidelinesnor in the article cited by Kodak to suggest that any of MITI's recommendations involved theadoption of anticompetitive practices. A full translation of MITI's 1970 Distribution Guidelinesis included in Exhibit 11. See also Rebuttal 47 (describing issues addressed in the Guidelines)and Rebuttal 56 (describing recommendations in the Guidelines).

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47. MITI Did Not Separate The Liberalization Of Manufacturing And Distribution

KODAK CLAIM:

"MITI's strategy was to `earn some time by separating distribution from theproduction sector, which will be liberalized first.' In addition, it threw its weightbehind the domestic manufacturers' efforts to extend their control over wholesaleand retail enterprises."


Source: MITI Reviews Distribution Policies in Preparation for Capital Liberalization, ZenrenTsuho, March 1967, 6; Trade Conditions for Photo Film: MITI's Guidelines for Normalization,NSKT, July 10, 1970, 32.


The liberalization of the Japanese photographic products industry did not involve differenttimetables for distribution and manufacturing. Moreover, MITI's proposals for the distributionsector contained no anticompetitive elements. As noted in one of the articles cited by Kodak, theissues addressed by MITI were: "(1) effective sales channels; (2) adoption of rational businessdealings; (3) the role of distributors in adjusting the balance between supply and demand; (4)rationalization of materials distribution, such as through joint depots; and (5) a smooth fundssupply system for distributors." Zenren Tsuho, March 1967, at 6; see also Exhibit 11 (MITI's1970 Distribution Guidelines). MITI's proposals were aimed at modernization, not blockingimports.

MITI did not "throw its weight behind domestic manufacturers' efforts to extend theircontrol over wholesale and retail enterprises." The trend throughout the photographic industrytoward single-brand distribution had nothing to do with MITI and was practically completed by1970. See Rebuttal 10.

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48. MITI Did Not Endorse The Use of Rebates As A Means Of Controlling Wholesalers

KODAK CLAIM:

"{M}anufacturers streamlined and refined their system of volume-based andspecial rebates, which could be used to reward, manipulate or punish wholesalersand retailers who had been reduced to a state of precarious financial dependency.They were supported in this effort by MITI against the vehement opposition of thedistributors."


Source: None.


Contrary to Kodak's assertion, the MITI Distribution Guidelines specifically warnedagainst the excessive use of rebates. MITI specifically noted that excessive use of rebates as ameans of controlling the distribution process "may constitute a case of unfair trade under theAntimonopoly Act." Therefore, the Guidelines recommend that discounting (as opposed torebates) be used as the primary means of rewarding high volume purchases, with rebates kept toa minimum.

This point is made clear with a proper translation of the relevant section of the Guidelines:"In principle, a discount should be used as a means to reward consumers for the benefits of largequantity transactions. The use of rebates wil be allowed as a supplementary means to achieveother price policies. However, the use of rebates should be limited to a minimum." See Exhibit11 (MITI's 1970 Distribution Guidelines).

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49. JFTC Actively Enforced The Antimonopoly Act In The 1970s.

KODAK CLAIM:

"The JFTC published a report in 1970 . . . Thereafter, through the end of theliberalization countermeasures period, the JFTC took no significant action withrespect to the photographic materials industry, despite the widely-publicizedconduct of an array of anticompetitive practices."


Source: None


Contrary to Kodak's claim, the JFTC closely monitored the photographic film industrythroughout the 1970s and beyond. The 1969 JFTC study is a specific example of this monitoring.Moreover, immediately following the 1977 grant of authority to the JFTC to monitor structuralmonopolies, the JFTC began monitoring the photographic film industry under Article 2(7) of theAntimonopoly Act.

In addition, Kodak itself cites articles describing repeated raids by the JFTC ofphotoprocessing laboratories suspected of price fixing. Kodak also cites "at least seven findings{by the JFTC} of price fixing by local associations of color photoprocessing laboratories" duringthe late 1960s and early 1970s. The articles cited show that the JFTC issued orders to abrogateprice fixing agreements in specific instances in which violations were found. See, e.g., FairTrade Commission Conducts Site Investigation; Anti-Trust Law Violation Suspected for PriceIncrease in Color Photography Prints, NSKT, June 10, 1974, 29; see also Rebuttal 52(describing JFTC raids). Although Kodak seeks to characterize the JFTC as "quiescent," itclearly was not.

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50. The JFTC's 1969 Report Did Not Find "Price Fixing"

KODAK CLAIM:

"The JFTC, after investigating these conditions {high retail price and growingconsumption}, released a report in January 1970. The two basic findings were asfollows:

1) {P}hotographic film production, in actuality, operates as a two-company cartel,and at every level, the standard prices of the two companies are identical, andpractically never vary, and in situations where they do change, the time period andthe amount of change are both identical.

2) {A}ctual sales prices which exclude the issuing of uniform rebates, never differgreatly from the list prices. . . . showing clearly that a form of price fixing was ineffect in that industry."


Source: Liberalization of Capital and Reformation of Distribution in the Photosensitive ProductsIndustry, Zenren Tsuho, September 1974, 20-22.


Kodak entirely mischaracterizes the JFTC Report. According to Kodak the report found"price fixing" by Fujifilm and Konica. In fact, however, the JFTC Report makes no such finding.The report is an overview of the market structure and competitive dynamics of the film industryin Japan. The actual text of the report is included in Exhibit 13. As can be seen, the report isdescriptive only and does not make any legal conclusions. The report found:

Furthermore, in view of the announcement, etc. at the time of price changes, itseems that the larger manufacturer of the two has taken the leadership role.

Exhibit 13 at 17 and 20 (discussing price leader - price follower).

The JFTC report found not price collusion, but rather price leadership -- a phenomenoncommon to oligopolistic industries.

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51. MITI's 1970 Report Did Not Substantiate Or Defend Price Fixing

KODAK CLAIM:

"With the release of the JFTC Report, MITI, `which up to that point had beensolely devoted to protectionist policies, could not completely ignore this issue.'It released its own study, `Concerning Photographic Film Prices in General,' in1970. MITI's Report `clearly substantiated the existence of price fixing ofphotographic film,' but it also emphasized the international competitive challengeposed by Kodak. MITI endorsed a reduction in the tariff, abolition of quantitativerestraints on film imports, and monitoring price movements in the industry. At thesame time, MITI defended price coordination by Japanese producers that wasdesigned to counter Kodak's advance rather than simply gouge consumers.


Source: Liberalization of Capital and Reformation of Distribution in the Photosensitive ProductsIndustry, Zenren Tsuho, September 1974, 20-22; Tariff Reduction and the Promotion ofLiberational Competition: Explanation of Print Price, MITI Investigates Film Price Trends,Zenren Tsuho, December 1970, 17-20.


Contrary to Kodak's allegation, MITI's report did not "substantiate the existence of pricefixing in photographic film." The conclusions of the MITI report were as follows:

{T}he following represent MITI's view of the present situation regarding priceformation.

(1) Color film manufacturing in Japan is oligopolistic . . . as a result, theconcentration of production is high. Pricing decisions also reflect this marketstructure, where companies with small market shares follow the lead of companieswith large market shares. Nevertheless, the share between manufacturers is notfixed. Competition, including price competition, is observed using promotionssuch as photo parties and discounting to gain market share at the retail level.

This is hardly a clear substantiation of the existence of price fixing, as alleged by Kodak. Asnoted earlier, the conclusion that an industry is characterized by "oligopoly" is quite differentfrom a legal conclusion that anticompetitive price fixing has occurred. See Rebuttal 50.

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Moreover, MITI's report in no way defended price coordination by Japanese makers asa means of keeping Kodak out of the Japanese market. Indeed, MITI specifically endorsed stepsto enhance foreign (i.e., Kodak) competition. Specifically, MITI backed a reduction in the tariff,abolition of quantitative restraints on film imports, and monitoring price movements in theindustry. While MITI noted with concern the relative power of Kodak, its report in no waysupported measures to keep Kodak out. Moreover, film imports were deregulated, and the tariffrate on film was drastically reduced (from 40 percent in 1970 to 26 percent in 1971, andcontinually throughout the 1970s to 10.1 percent in 1980.) These measures all encouragedforeign competition.

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52. JFTC Investigations And Findings Against Labs Were Not "Quiescent"

KODAK CLAIM:

"{I}n addition to the 1970 price fixing finding, during the late 1960s and early1970s the JFTC made at least seven findings of price fixing by local associationsof color photoprocessing laboratories, a fact which should have made it aware ofthe pervasive nature of anticompetitive activities in the industry. But the JFTCremained quiescent, taking no action against Japanese manufacturers and limitingits actions against the lab associations to directives to abrogate the price fixingagreements."

"Privatizing Protection" at 80; see also p. 115-116.

Source: Fair Trade Commission Conducts Site Investigation; Anti-Trust Law Violation Suspectedfor Price Increase in Color Photography Prints, NSKT, June 10, 1974, 29. (p. 115, n. 250);Retail: One New Action: Saitama Prefecture Association's Proxy, NSKT, March 10, 1974, 8. (p.115, n. 251); Kanto Lab Associations' 10th Annual Meeting; A Turning Point Added to SalesFunctions, NSKT, June 1, 1975, 20. (p. 116, n. 252).


As demonstrated in Rebuttal 50, Kodak's characterization of the 1969 JFTC Study as afinding of "price fixing" is entirely false. Furthermore, it is difficult to see how "at least sevenfindings of price fixing by local associations of color photoprocessing laboratories" during thelate 1960s and early 1970s could constitute "quiescence" on the part of the JFTC.

The articles cited by Kodak show vigorous enforcement but few actual instances ofAntimonopoly Act violations. The June 10, 1974 NSKT article cited describes dramaticenforcement:

The Fair Trade Commission made an on-the-spot inspection in the morning of the11th, simultaneously entering 45 main labs and regional lab associations includingthe All Japan Federation of Color Lab Associations. . . . The officials of the JFTCheard the explanation of the matter from Mr. Sato, a staff member, and lookedover the related documents including the minutes of the All Japan Federation andKanto Association from 10:30 a.m. to about 2:00 p.m.

However, the article points out that the Zenlaboren and regional associations had clearly takenthe position that "they would not as organizations participate in negotiation on this matter {theneed for price increases}, stating that the revision of the price was strictly a matter between theindividual lab and its customers."

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Similarly, the June 1, 1975, article states that in November 1974 another JFTC inspectionresulted in a finding against 15 labs in the Tohoku district on November 26th, 1974. The JFTCordered the "price stipulation" agreement by these labs to be abrogated. The article states thatother labs subjected to the JFTC inspection were found innocent.

Contrary to Kodak's claim, the JFTC's raids and findings in these cases support thecontention, fully laid out elsewhere in this submission, that the JFTC was aggressive inmonitoring and enforcing the Antimonopoly Act during the 1970s. The fact that the JFTC carriedout repeated raids on labs clearly supports this conclusion. Moreover, the fact that the JFTCordered violators to stop as a result of these raids and exonerated those not found to have violatedthe Antimonopoly Act also supports this conclusion. Once again, Kodak has distorted the factsand the sources cited.

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53. Government Entities Were Not Involved In The Increase In Mitsui Bank'sShareholding In Fujifilm

KODAK CLAIM:

"During the countermeasures period the Mitsui Group's direct financial holdingsin Fuji were substantially increased through the actions of two government-sponsored entities which were established to stabilize trading in Japanesesecurities. . . . consistent with MITI's recommendations and reflecting the directinvolvement of Nihon Kyodo Securities (Japan Cooperative Securities, JCS) andNihon Shoken Hoyu Cooperative (Japan Securities Retention Cooperative, JSRC).These two entities used government funds to buy up stocks at depressed priceswhich were resold to companies related to the issuers, producing increased mutualstockholding within each keiretsu. JCS and JSRC became major shareholders ofFuji Photo Film in 1964, buying up Fuji shares on the stock market. By 1966,they were Fuji's top two shareholders, with combined holdings of 12.29 percent.They disposed of their shares in several stages and, by the time they had disposedof all of their shares in 1970, Mitsui group ownership of Fuji had increased from4.06 to 11.36 percent."


Source: Hiroshi Okumura, Hojin Shihonshugi no Kozo, 1975; Nenpo Keiretsu-ka no Kenkyu,(Japan: Keizai Chosa Kyokai, 1961-1994).


Kodak's factual claim is wrong. JCS and JSRC had nothing to do with investments byMitsui-related entities in Fujifilm. There is no correlation between the increase in Mitsui-relatedfinancial institutions' holdings in Fujifilm and the release by JCS and JSRC of their Fujifilmshares.

JCS and JSRC were established to improve the supply/demand balance in the stock marketwhich had been depressed since the fall of 1963. JCS was established in January 1964 by citybanks, Japan Industrial Bank, the Long Term Bank, and securities houses. JSRC was establishedin January 1965 by members of the securities exchanges.

In order to support stock prices, JCS purchased stocks totalling more than 190.6 billionyen between March 1964 and January 1965; JSRC purchased stocks totalling 232.8 billion yenbetween January and July 1965. The stocks purchased by these two entities were released to themarket as stock prices eventually recovered.

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A comparison of the increase in Mitsui-related financial institutions' holdings in Fujifilmand the release by JCS and JSRC of their Fujifilm shares shows that there is no connectionbetween these events:

Mitsui Group JCS JSRC

shares1,000 (%)

shares1,000 (%)

shares1,000 (%)

1966 8,391 (4.20) 17,306 (8.65) 7,270 (3.64)

1967 15,167 (7.58) 17,306 (8.65) 7,270 (3.64)

1968 17,385 (8.69) 6,882 (3.44) -- --

1969 19,417 (9.71) 3,947 (1.97) -- --

1970 22,719 (11.36) -- -- -- --

As shown, the most significant increase by Mitsui related financial institutions in Fujifilmoccurred in 1967 (almost doubling from 8,391,000 shares to 15,167,000 shares). During thisperiod, JCS and JSRC's holdings in Fujifilm were stable. JCS and JSRC did not release theirshares in Fujifilm until 1968. Other increases in Mitsui-related shareholding bear no significantcorrelation to the release of JCS and JSRC shares. Therefore, investments by Mitsui-relatedfinancial institutions in Fujifilm had nothing to do with JCS or JSRC.

Moreover, contrary to Kodak's allegations, MITI had nothing to do with this development.MITI does not have jurisdiction over financial markets, which are under the supervision of theMinistry of Finance, a separate government entity. Thus, MITI has no control or influence overthe financial sector, even to issue the type of "guidance" alleged by Kodak.

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54. MITI's Gradual Liberalization Policy Was Not An "Investment-RelatedCountermeasure"

KODAK CLAIM:

"Still another investment-related countermeasure was MITI's encouragement ofJapanese enterprises to amend their articles of incorporation to limit the numberof foreign directors on company boards, and to curtail the voting rights of foreigndirectors and foreign shareholders. MITI opposed relaxation of a rule thatprohibited foreigners from acquiring more than a 25 percent share of existingJapanese enterprises and prevented any single foreign investor from holding morethan 10 percent."


Source: MITI Decides on Negative Policy . . ., Mainichi Shimbun, January 28, 1973.


Kodak's statement that MITI encouraged Japanese enterprises to amend their articles ofincorporation to limit the number of foreign directors on company boards and to curtail the votingrights of foreign directors is false. Moreover, the source cited by Kodak does not support thisallegation.

Kodak again mischaracterizes MITI's stance with regard to restrictions on shareholdingsin existing Japanese enterprises. Kodak states that MITI "opposed" relaxation of the rule. In fact,the article cited by Kodak clearly states that MITI accepted relaxation of the rule, and merelydisagreed with other Japanese government agencies on whether the rules should be eliminatedat once or gradually. MITI sought a two year phase-out with three separate stages.

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55. Laws Were Not Revised At MITI's Request To Restrict Foreign Acquisitions

KODAK CLAIM:

"It {MITI} sought revision of the Commercial Code to restrict the exercise ofcontrol by foreign shareholders; revision of the Securities and Exchange Law toimpose `strong restrictions' on the open purchase of stocks by foreign firms, andrevision of the AML to increase restrictions on stock acquisition by foreigners."


Source: Open Buying of Stocks to be Restricted Strongly in Preparation for `Principle of 100Percent Capital Liberalization: MITI; Quick Improvement of Domestic Laws Urged, NihonKeizai Shimbun, February 5, 1973.


None of Kodak's alleged MITI "countermeasures" ever existed - no such restrictiverevisions were adopted. Not one of these alleged "countermeasures" was ever part of Japaneselaw.

Kodak first alleges that one of MITI's "countermeasures" entailed revisions to theCommercial Code to limit the exercise of control by foreign shareholders. In fact, no suchrestrictions were ever incorporated into the Commercial Code.

Kodak next alleges that another of MITI's "countermeasures" entailed revisions to theSecurities Exchange Law to impose "strong restrictions" on the open purchase of stocks byforeign firms. This revision was also never adopted.

Lastly, Kodak alleges that the Antimonopoly Act was revised in order to increaserestrictions on stock acquisitions by foreigners. No such restrictive provisions have ever been partof the Antimonopoly Act.

Therefore, not one of Kodak's alleged MITI "countermeasures" was ever a barrier toKodak's activities in Japan.

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56. MITI's 1970 Distribution Guidelines Were Procompetitive

KODAK CLAIM:

"One of the purposes of MITI's Trade Condition Normalization Guidelines for thePhotographic Film Industry was stated in the Guidelines themselves as follows:

{I}t is necessary to consider this in relation to the capital liberalization of the distributionsector. In order to prevent the disturbance of the trade system by foreign businesses withpowerful capital strength, the standards of rational trade conditions should be clarified."


Source: MITI, Trade Condition Normalization Guidelines for the Photographic Film Industry(MITI Photographic Industry Guidelines), Item I (Fourth).


MITI's Distribution Guidelines were never intended nor did they ever operate as ananticompetitive "countermeasure" as Kodak alleges. This fact becomes clear once one considersthe context and content of the Distribution Guidelines. See Exhibit 11 (MITI's 1970 DistributionGuidelines).

The portion quoted by Kodak is one of several statements regarding the need for revisionsto the terms of trade in the distribution industry:

First, when the terms of trade are not clearly stated, they should be made clear.If currently used terms of trade lack a reasonable basis, they should be reviewedand revised. We need to provide a better foundation to assure healthydevelopment of distribution activities.

Second, in order to stimulate the development of large scale distribution structuresand to strengthen the supply and demand functions, it is desirable to review andrevise the terms of trade so as to support those efforts.

Third, distribution related businesses will be making their operations standardizedin preparation for the systematization of their distribution activities by usingcomputers. As a premise, their terms of trade should be revised and made morerational.

Fourth, we must review our system in terms of capital liberalization in thedistribution sector. In order to be prepared for foreign corporations with huge

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investment capacity from entering the market and disrupting the established order,we need to have terms of trade which are reasonable and clear.

As is clear from these statements, the Guidelines sought to prepare the distribution sectorfor competition, not to prevent competition. The focus of the Guidelines was on modernizing thedistribution sector by adopting trade and payment terms consistent with the practices of strongforeign corporations. Thus, the link with liberalization has an entirely different meaning than thatascribed by Kodak. While Kodak seeks to impart an ominous tone to the Guidelines, the simplefact is that the measures proposed were all procompetitive.

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57. Forward Integration Into Photofinishing Was Not A "LiberalizationCountermeasure"

KODAK CLAIM:

"Wholesale photoprocessing laboratories were acquired outright by Fuji orbrought into a financial relationship (through acquisition by Fuji of a partial equityposition and/or the extension of loans.) The laboratories were in turn used toorganize affiliated retailers in a manner designed to resist penetration by outsiders.Konica undertook similar efforts, albeit belatedly and on a small scale. A parallelkeiretsu-ka occurred with respect to film distribution. As explained in an articlesummary:

`Fuji and Konica are expected to do everything to maintain theirshares by "keiretsu-nizing" distribution and labs. As a result, theoligopolistic system is expected to be reinforced more than ever.'"


Source: Rigid Film Prices: The Fair Trade Commission's Actual Survey (Report) on DeterminingPrices, Zenren Tsuho, May 1970, 6; Capital Liberalization and Distribution SystemReorganization in Photosensitized Material, Zenren Tsuho, February 1975, 18-19.


Fujifilm's laboratories were not developed in an effort to prevent Kodak's entry into theJapanese market. Fujifilm has made significant efforts to promote high quality laboratories inJapan by investing substantial resources in the development of laboratories. These efforts did notcreate a barrier to Kodak's access to the market.

Fujifilm's investments in laboratories were a function of the need for capital andsophisticated technology for the establishment of color photoprocessing laboratories. During theera of black and white film, retailers operated their own laboratories. With the advent of colorprinting in the early 1960s, many retailers lacked the requisite capital, technology, andmanagement skills. Therefore, Fujifilm provided significant assistance to those laboratories whorequested it. It is this same assistance that Kodak now characterizes as an attempt by Fujifilm toprevent Kodak's entry into the Japanese market.

First, Fujifilm did not acquire laboratories outright. Rather, Fujifilm assisted local photoretailers in establishing their own laboratories. As of April 1965, Fujifilm established 63Fujicolor major laboratories in this manner, 25 of which included equity participation by Fujifilm.

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Second, Kodak's claim that laboratories have been used to resist penetration by outsidersis rebutted by the ineffectiveness of laboratories for such purposes. This ineffectiveness isillustrated by the emergence of minilabs and the entry of discount chains into this segment of theindustry. Moreover, laboratories in which Fujifilm has some equity participation are free to usepaper of other manufactures. For example, a Doi laboratory, part of a major camera retail chainstore, recently switched from Fujifilm's paper to Kodak's paper.

Third, Fujifilm's relationship with its affiliated laboratories is not a "keiretsu" relationship.Fujifilm in no way controls the laboratories' operation or management. Fujifilm merely providestechnological and management assistance to laboratories. This assistance was prompted by theneed to increase efficiency in response to rapid technological and market developments.

Finally, forward integration into laboratories is a worldwide trend. See Rebuttal 13(describing this trend). As such, it cannot be considered a Fujifilm "liberalizationcountermeasure." In fact, Kodak's own forward integration in the United States far exceeds thescale of Fujifilm's corresponding investment in Japan.

In Japan, Kodak pursued a different strategy than Fujifilm. Rather than work with localretailers, Kodak chose to develop its own laboratories. Toyo was established under this businesspolicy as a wholly-owned laboratory of Nagase. See Rebuttal 13. The difference between thetwo approaches is illustrated by a geographic distribution comparison of the two companies'laboratories.

Amateur Laboratories GeographicDistribution

Fujifilm Kodak

Hokkaido 26 5

Tohoku 28 18

Kanto 82 61

Chubu 44 8

Kinki 35 18

Chugoku 26 3

Shikoku 10 3

Kyusyu 42 8

Total 293 124

(Source: Photomarket 1995, 198)

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Kodak has 61 laboratories in the Kanto area comprising Tokyo. In marked contrast, over theentire area covered by Kyusyu, Chugoku, and Shikoku, Kodak has 14 laboratories whereasFujifilm has 78.

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58. 1964 Meeting With Labs Had Nothing To Do With Liberalization

KODAK CLAIM:

"In 1964 Fuji invited representatives of sixty color labs that processed Fuji filmto a hotel in Tokyo to discuss closer affiliation in light of imminent liberalization."


Source: DP: Organization Possibilities, NSKT, October 10, 1964, 8.


Kodak suggests that Fujifilm's meeting with color labs was a liberalizationcountermeasure. In fact, the article makes no mention of "imminent liberalization" or of the needfor "liberalization countermeasures." Moreover, liberalization occurred 12 years later, in 1976.The event reported in the article had nothing to do with liberalization.

The article discusses the trend of increasing investments by manufacturers inphotofinishing labs. As noted at Rebuttal 57, this process of forward integration was a functionof the growth of color photography and not a "liberalization countermeasure."

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59. MITI Did Not Mastermind An Exclusionary Distribution System

KODAK CLAIM:

"Perhaps the single most significant action undertaken by Fuji during theliberalization countermeasures period was the extension of its control over threetokuyakuten, (primary film wholesalers), Asanuma, Omiya and Misuzu,transforming them from co-agents who handled the film of more than onemanufacturer into monopoly agents handling Fuji film exclusively."


Source: MITI Business Bureau, Concerning the Prices of General Photo Film, November 12,1970, reproduced in Tariff Reduction and the Promotion of International Competition:Examination of Print Price, MITI Investigates Film Price Trends, Zenren Tsuho, December 1970,17-20.


Kodak cites two sources to support its theory that MITI "masterminded" the creation ofa single-brand distribution system for Fujifilm as a means of excluding Kodak from the Japanesemarket. The first, MITI's 1970 Distribution Guidelines, say nothing about bringing distributorsinto the alleged Fujifilm keiretsu. See Exhibit 11 (MITI's 1970 Distribution Guidelines); see alsoRebuttals 46, 48. The second, MITI's 1970 Report on the film industry, describes the existingtrend in the industry towards direct distribution. This report was not administrative guidance, andit could hardly recommend the undertaking of actions that had already taken place. With respectto Fujifilm, three out of four Fujifilm tokuyakuten had already become single-brand distributorsby the time MITI's Report was released.

Kodak distorts MITI's 1970 Report on the film industry to create the illusion of a MITImaster plan. The central conclusion of the report was that the film industry was characterized byan oligopolistic structure. See Rebuttal 51. In light of this situation MITI's report specificallyendorsed market liberalization and close monitoring of pricing in the industry. The article citedby Kodak, in which the Report is reproduced, is entitled Tariff Reduction and Promotion ofInternational Competition: Examination of Print Prices, MITI Investigates Film Price Trends."This title clearly reflects the main import of MITI's Report.

Despite the obvious thrust of the report, Kodak focuses solely on MITI's concerns aboutthe domestic industry's ability to compete with Kodak. Kodak omits that this concern is basedon the Report's conclusion that Kodak at the time was the price leader in the industry, that Kodakhad twelve times the sales of the domestic producers combined, and that Kodak dominated 70percent of the worldwide market for film.

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60. Kashimura's Move To Become A Single-Brand Distributor For Fujifilm Was Not A"Liberalization Countermeasure"

KODAK CLAIM:

"In 1963, Kashimura KK, a major primary wholesaler, announced that it wouldlimit handling of photographic materials to Fuji products. This development wasnot altogether surprising, given the fact that Fuji owned stock in Kashimura andhad long financial ties with it."


Source: None


Kashimura has not carried Kodak products since World War II. Thus, its decision in 1963to drop Konica and become a single-brand distributor did not affect Kodak's access to theJapanese market.

In 1963, Fujifilm did not own shares of Kashimura. Therefore, its decision was not forcedby Fujifilm.

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61. Ohmiya's and Misuzu's Decisions to Become Single-Brand Distributors For FujifilmWere Not "Liberalization Countermeasures"

KODAK CLAIM:

"Omiya appears to have become an exclusive supplier of Fuji products around1964. Another major primary wholesaler, Misuzu Shokai, initially resisted Fujipressure by establishing a `Fuji Department' in 1964; it could thus take the posturethat while Misuzu itself handled other brands, its Fuji Department sold Fuji filmexclusively. However, in the mid-1960's Misuzu fell into financial difficulty andturned to Fuji for assistance. Fuji bailed Misuzu out, but the pressure from Fujito drop Kodak completely (rather than merely carry its products in a separatedivision) became too much to resist ... In 1968, Misuzu informed Kodak that itwould no longer handle Kodak developing materials, and would handle Fujimaterials exclusively ..."


Source: Distribution Networks (Keiretsu-Ka) Gaining Strength -- As Shown by Fuji's SpecialContract Shops, Zenren Tsuho, May 1964, 5; Relationship Between Major Photo MaterialsWholesalers and Manufacturers from the Standpoint of the Industry's Photo Materials, ZenrenTsuho, June, 1968, 5-7.


Ohmiya has not carried Kodak film since the end of World War II. Thus, its decision in1964 to drop Konica and to become a single-brand distributor did not limit Kodak's access to theJapanese market.

In 1968, when Misuzu terminated Konica and Nagase, the Japanese market for film wasstill heavily protected, and MITI had not issued any of its reports about liberalization. Thus,neither Ohmiya's nor Misuzu's decisions were "liberalization countermeasures."

Misuzu's preliminary move to establish a separate "Fujifilm Products Department" wasnot the result of pressure from Fujifilm. Rather, it was Misuzu's attempt to respond to the generalindustry trend towards single-brand distribution. See Distribution Networks . . . , Zenren Tsuho,May 1964, 5.

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62. Fujifilm Did Not Coerce Asanuma

KODAK CLAIM:

"By the early 1970's Asanuma was the only major tokuyakuten handling Kodakproducts. Then, in February 1975, Asanuma announced that it would no longercarry Kodak products and would become the sole agent for Fuji, handling onlyFuji film and paper. The `Asanuma incident' was perceived at the time as a majorblow to Kodak and has subsequently been characterized as the decisive event insecuring Fuji's dominant position in the Japanese market. Accounts vary as to theprecise reasons for Asanuma's decision, but it appears to have occurred undercoercive pressure from Fuji in a commercial environment which had beencharacterized for years by speculation that sooner or later, Asanuma and otherprimary agents would be forced to choose between suppliers."


Source: Fuji Shashin Fuirum-tai Konishiroku (Japan: Shashin Kogyo, 1980); Distribution ofKodak Products Declined Asanuma Switches to Fuji Exclusively; Comments on Fuji PocketSystem Sales Starting in April, NSKT, February 20, 1975, 10.


Kodak's role in the "Asanuma incident" is discussed in Rebuttal 11. In this quoted claim,Kodak focuses on Fuji's "coercive pressure" on Asanuma to drop Kodak. In fact, Fujifilm didnot apply undue pressure on Asanuma to become a single-brand wholesaler. In the article citedby Kodak, Mr. Kawabata then Managing Director of Asanuma, explained the decision toterminate Nagase:

Under these severe present circumstances, I think that not only filmmakers but camera makers are thinking about various matters.However, as a tokuyakuten wholesale trading company responsiblefor distribution, we came to this conclusion after considering andreviewing our future carefully. From now on, as a generalwholesaler, we think that we must conduct our sales activities bykeeping closer relationship with manufacturers including camerasand other goods.

Another article in NSKT explains this decision as part of Asanuma's long term businessstrategy and specifically contradicts the view that Asanuma was forced by Fujifilm to stophandling Kodak:

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There appears to be some rumor that Asanuma surrendered toFujifilm's pressure. However, it is hard to believe that profitpursuing trading house Asanuma makes such a big decision basedonly on pressure. I would think that this decision should be basedon not just short term profit or loss calculation, but based on thelonger term strategy.

See NSKT, March 1, 1975, at 8.

Moreover, a Nagase executive foresaw no major setback as a result of the Asanumadecision:

There are only a few stores whose dealings with tokuyakuten werelimited only to Asanuma. For such stores, we ask that they dealwith a new tokuyakuten. Therefore, I do not think that there will bea major actual "drop" as pointed out.

See Shashin Kogyo Junpo, March 10, 1975, at 3.

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63. Government Entities Did Not Fund Investments By Fujifilm In Distribution

KODAK CLAIM:

"The consolidation of the photographic distribution sector under Fuji and Konicaenjoyed the full support of MITI. Significantly, at the end of the countermeasuresperiod, the Japan Development Bank ("JDB"), which makes loans for investmentsthat are consistent with the government's industrial policies, began fundinginvestments by the Japanese manufacturers in distributors."


Source: JDB Annual Report (1981). Preparation for 100% Lifting of Restrictions Devising aConsolidation of Strength General Meeting of the Photo-Sensitive Products ManufacturingIndustry Association on the 24th at Ito, NSKT, June 1, 1974, 22.


The purpose of the JDB loans was to assist in the modernization of the distribution system.The loans were granted to firms in dozens of industries, not specifically to the photographicindustry. The need for such modernization was clearly recognized by both the government andindustry members. This need was highlighted and made more urgent by impending capitalliberalization. However, the JDB low interest loans for facility improvement actually enhancedcompetition, rather than being anticompetitive as alleged by Kodak.

That these loans had a procompetitive effect is clear from the one instance Kodak citesof such loans being granted in the photographic products industry. See "Privatizing Protection"at 94-95 (citing Wholesale, NSKT, April 20, 1976, 8). Specifically, the NSKT article cited byKodak reports that the JDB decided to fund the establishment of a physical distribution centerwhich had been agreed upon by Konica and four tokuyakuten. Clearly, providing loans forKonica to improve its distribution cannot be deemed anticompetitive in a market dominated byFujifilm.

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64. Tightening of Payment Terms Was Reasonable

KODAK CLAIM:

"Basically, over a period of roughly ten years, payment terms were tightened bymanufacturers to improve their own cash position while forcing wholesalers andretailers into an increasingly precarious (and dependent) cash flow situation."

"Privatizing Protection" at 95; see also p. 97.

Source: Fuji film -- . . . Collection to be Tightened . . . NSKT, February 1, 1974, 10; Fuji-Affiliated Special Contractors Emphasize Payment Rebates; Background and Retailer Reaction,Zenren Tsuho December 1969, 6-8.


Kodak has provided no factual support for its allegation that the tightening of paymentterms placed wholesalers and retailers in a "precarious" cash flow situation. This would only betrue if Fujifilm imposed payment terms which shifted the burden of inventory carrying costs andthe costs of carrying accounts receivable from Fujifilm to the tokuyakuten, which in turn shiftedall or part of the burden to retailers. The tokuyakuten and/or the retailers would then have toeither increase working capital or borrow to finance inventories and accounts receivable.

Clearly the adjustment to shorter payment terms may have provoked some complainingat first. See Fuji film -- . . . Collection to be Tightened . . ., NSKT, February 1, 1974, 10; Fuji-Affiliated Special Contractors . . ., Zenren Tsuho, December 1969, 6-8. Yet these predictablecomplaints do not prove Kodak's claim.

As is typical of "Privatizing Protection", Kodak again avoids including inconvenient factsthat contradict its point. The fact is that film has rapid turnover both at the wholesale and retaillevels. As a result, 60 day payment terms are not a burden on the wholesaler (because thewholesaler carries only modest inventories and can pass on its payment terms to the retailer) orthe retailer (because the retailer can sell the product within the period before payment is due).In the most recent six-year period, the tokuyakuten's inventory turnover ranged between 7.73 and15.84 days. Assuming an accounts payable of 75 days from receipt of the merchandise(invoicing, on average, takes place 15 days after shipment, translating a 60 day payment term into75 days), if the tokuyakuten received payment from retailers within sixty days of the shipmentout of their inventory, Fujifilm's payment terms would cover their full cash flow requirements.Since the retailers' inventory turns on average every 32 days, the retailer can similarlyaccommodate payment to the tokuyakuten within this period without any effect on its cash flow.

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65. MITI's Distribution Guidelines Were Not Criticized By One Of Their Authors

KODAK CLAIM:

"One of the draftsmen of the MITI Guidelines for film, Professor Katsuoka {sic}of Keio University, acknowledged the Guidelines had not been well received bydistributors but reflected that `the government in any case will try to help thestrong and crush the weak.'"

"Privatizing Protection" at 96-97 (note 207).

Source: The Object of the Film Trade Normalization Guide, speech reproduced in NSKT, March1, 1971, 39; Wholesale: Caution Necessary for Movement that Could Deter Normalization,NSKT, March 20, 1971, 8.


Kodak attributes the quoted statement to the wrong person. The article clearly indicateswhich part of the report is news and which part is the author's analysis. See The Object of theFilm Trade Normalization Guide, speech reproduced in NSKT, March 1, 1971, 39. The quotedstatements appear only in the analysis portion of the article. Thus, there can be no doubt that theopinion stated is that of the author and not the opinion of Professor Kataoka.

Professor's Kataoka's views are nothing like what is expressed by the author. Accordingto the article, it was Professor Kataoka's opinion that the Guidelines were intended to create anenvironment where business transactions could be conducted based on clear and established rulesand guidelines. The Professor is described as explaining that in the past, Japanese businesstransactions had been guided by personal relationships as opposed to established and legalbusiness guidelines. He explained that the Guidelines would help modernize the Japanesedistribution system which until then had lacked established guidelines. Id. These views clearlydo not support Kodak's allegation. See also Rebuttals 46 and 56.

The analysis section of the article expresses strong criticism of MITI's policies in the veinof the material quoted by Kodak. However, a full reading of the author's fiery rhetoric makes itclear that the author is upset that MITI has not done more to protect small enterprises.Specifically, he compares MITI's policies as an upgrade for small enterprises from being treatedas "dumpsites" to being treated as "tool sheds," not much of an improvement. Id.

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66. Fujifilm Did Not Introduce Volume-Based Rebates To Minimize CompetitionAmong Tokuyakuten

KODAK CLAIM:

"A threshold matter was to ensure that competition between the tokuyakuten wasminimized, preventing secondary wholesalers and retailers from playing them offagainst each other to secure better terms. In 1967 Fuji implemented a newvolume-based rebate scheme designed, in part, to encourage retailers andsecondary wholesalers to align with a single tokuyakuten. By providing for apartial pass-through of the rebate by the tokuyakuten to the secondarywholesaler/retailer, the new scheme encouraged the latter to procure film from asingle supplier to maximize volume and hence the rebate amount."


Source: Fuji Tokuyakuten: Contract Revisions, NSKT, December 1, 1962, 13-14; Wholesale:Unnatural Reorganization is Unnecessary, NSKT, June 20, 1962, 8; Promote Normalization ofTrade: Film and Photo Paper, Zenren Tsuho, December 1967, 5-8.


First, as shown in Rebuttal 34, Fujifilm's tokuyakuten do indeed compete substantially forsales of the same products to major accounts.

Second, Fujifilm did not offer rebates of any kind to retailers in the early to mid-1960s.The articles Kodak has referred to as support for its allegation are articles written in the early tomid-1960s, a period when the market was still substantially underdeveloped. At that time, notransactions or contract negotiations were conducted directly between Fujifilm and the retailers.The tokuyakuten negotiated directly with the retailers, with no involvement on the part ofFujifilm.

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67. Tokuyakuten Have Not Used A Camera-Film Link To Suppress Black MarketChannels

KODAK CLAIM:

"Over time, when new black market channels occasionally appeared, thetokuyakuten reportedly fought back using the film-camera link. In 1976, forexample, some processing laboratories were reportedly linking the film tophotoprocessing services offering film to retail outlets, outside the tokuyakutenchannel. However, a tokuyakuten executive commented that: Tokuyakuten seemsto have managed okay for now by somehow tying film and cameras, which wouldbe difficult if we were to sell each item separately."


Source: NSKT, January 1, 1976 (n. 225).


Kodak's claim is that the "film-camera linkage" by Fujifilm's tokuyakuten allows them tocontrol the distribution system. However, camera makers have developed their own distributionnetworks. Thus, this supposed linkage is nonexistent.

Moreover, Kodak's quoted article does not support its theory. While the article shows thatthe competitive strength of the tokuyakuten lies in their ability to supply both film and cameras,it does not suggest that this linkage amounts to sufficient power to exclude others from thebusiness. Instead, the article merely indicates that, faced with new competition, the tokuyakutenfelt that they needed to focus renewed attention on their film sales.

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68. Manufacturers Did Not Collude To Enforce Price Maintenance In Response ToSupermarket Chain A's Prices

KODAK CLAIM:

"'Mr. Takahashi of the Japan Federation of Photo Dealers Association's SensitizedMaterials Department, explained that the three manufacturers of photographicpaper (Mitsubishi, Fuji and Konica) had met on this issue {Supermarket Chain A},and that Mitsubishi would pressure Supermarket Chain A to raise its print prices,and that Fuji and Konica would strive to maintain prices through their owncommercial actions on Mitsubishi's assurances. It was stated by Mr. Uchimura,General Manager of Mitsubishi's Sensitized Materials Department, that Mitsubishiwould make Supermarket Chain A commit to the end user price of 45 yen. It isbelieved that Fuji proceeded with its plans based on Mr. Uchimura's statement.'"


Source: NSKT, April 10, 1974, 20 {sic} (correct citation is to p. 28).


Kodak fails to describe the circumstances surrounding retailers' reaction to Daiei's (themysterious "Chain A") print prices in 1974. The Zenren member retailers had recently completednegotiations with their laboratories in which they agreed to increased prices for photofinishing.These agreements were based on the premise that the increased prices were a general industryphenomenon occasioned by increases in costs at the manufacturing level in the aftermath of the1973 oil crisis. Accordingly, Zenren members expected such costs to also be reflected in Daiei'sprices, and it was rumored that Daiei would increase its prices to 45 yen. Daiei, however, limitedits price increase to 38 yen, up from 35 yen.

Retailers' response to this event was a decision to re-open their negotiations with theirlaboratories. See Rebuttal 70. Mr. Takahashi's allegation about what occurred at themanufacturers' association meeting, therefore, came in response to demands from angry Zenrenmembers as to who had started the rumor that Daiei would increase its prices to 45 yen. Giventhis context, such a statement does not deserve credence.

Kodak conveniently omits the fact that Mr. Takahashi is also quoted in the article asreporting his subsequent efforts to obtain assistance from the manufacturers. The article states:

After the April 2nd Board meeting, Chairman Koide, Managing Director Akima,and myself made a request to film makers. However, their response was that theyonly provide paper, and that price setting is done by the laboratories.

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Given the continued discounting by Daiei and other super stores, resulting in continued pricecompetition among retailers, it is clear which of the two statements is more credible.

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69. Fujifilm's And Konica's Resistance To Lowering Their Prices To Labs In The FaceOf Increased Costs Did Not Constitute Resale Price Maintenance

KODAK CLAIM:

"Fuji and Konica acted to enforce price discipline within their own distributionnetworks. They proceeded to negotiate with their own affiliated laboratoriesdelivering color prints to the supermarkets to discourage lower prices . . ."


Source: NSKT, April 10, 1974, 20.


The article cited by Kodak is not evidence of price maintenance activities by Fujifilm andKonica. The article contains very specific complaints by retailers to Fujifilm about its lack ofeffort to maintain prices, and a very specific statement by Fujifilm that it has nothing to do withprices at the retail level. As shown below, the context of the article makes it clear that citedefforts by Fujifilm and Konica were nothing more than the normal resistance of any manufacturerto lowering prices in the face of increased costs.

The proper context of the article is as follows. The 1973 oil crisis caused increasedmanufacturing costs for photographic products. These costs were passed on by the manufacturersin their wholesale prices for paper and chemicals. The laboratories, in turn, passed on theincrease in costs to the retailers. At the retail level, however, Daiei and certain other "superstores" decided not to pass on the full increase in costs to consumers. They restrained their priceincreases by lowering their margins, i.e., absorbing some of the cost increase.

This situation led to pressure back up the distribution chain for manufacturers to share thenew cost burden. See Rebuttal 70 (describing Zenren member's decision to re-open negotiationswith their laboratories). Manufacturers, however, basically refused to reduce their prices. Thus,while Kodak's claim is that manufacturers were enforcing price maintenance at the retail level,in fact they were merely resisting pressure from labs to absorb the increased costs themselves.

Kodak omits statements in the same article that indicate that the Fujifilm did not take anyaction to enable retailers to raise their prices. First, Fujifilm was criticized on this exact point bya laboratory executive. The laboratory executive stated:

As a laboratory we cannot return to the old price even if we are told to do so. Regardlessof the Daiei {Supermarket Chain A} price, the price of paper and chemicals was alreadyincreased in January. Also, the other expenses continue to increase as before, and the

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prices have not fallen. Under such circumstances, if I think about this issue with a freshmind, I do not think it is right that manufacturers are the only ones just sitting thereindifferently passing on the increased cost of paper and chemicals to higher prices. In ourcase we could be in a difficult situation or face a settlement delay in our dealings, whichmay lead to a critical situation. Since we are the ones who have to deal with retailersdirectly and must make a lot of efforts, it is very hard to put up with this.

Moreover, a Fujifilm executive made it clear in this same article that Fujifilm had nointention to intervene to stem the price slide. Mr. Kamigori of Fuji Color Sales is quoted assaying:

"I have no intention to send specific instructions to chain laboratories now. Sales priceis an issue which each laboratory must deal with individually. . . . Daiei {SupermarketChain A} price may be indeed a shock, there is nothing that can be done except that eachperson conducts his or her business with confidence."

Thus, the article makes it clear that Fujifilm did not engage in the activities alleged byKodak.

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70. Zenren Meeting In Response To Supermarket Chain A Resulted In Efforts ToObtain Lower Prices From Labs, Not Collusion To Increase Prices

KODAK CLAIM:

"{T}he Zenren convened an urgent meeting on April 6, 1974 to discuss a strategyfor increasing print prices against the recent background of Supermarket Chain A'sactions. The key, it was agreed, was to coordinate their price increases so thatsignificant differences in price did not open up between different types of retailoutlets."


Source: NSKT, April 10, 1974, 28.


According to the article cited by Kodak, the Zenren April 6 meeting was not called todiscuss a strategy for increasing prices. In fact, the meeting concluded that the retailers shouldre-open negotiations with laboratories to demand a decrease in prices. A price decrease from thelaboratories was demanded so that Zenren members could compete with Daiei and other "superstores" by lowering their prices.

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71. Nagase's Failure To Inform Kodak About Asanuma's Overtures

KODAK CLAIM:

". . . Asanuma approached Nagase and asked whether it could commit to supplyAsanuma with enough Kodak film to make good the shortfall. Asanuma receivedan inconclusive response from Nagase. Kodak management in the U.S. does notappear to have been alerted by Nagase to the Asanuma request and was unawarethat an historical opportunity was being lost. Based on Nagase's inconclusiveanswer, Asanuma decided to reverse its original decision and carry the Fuji Pocket110 System exclusively, dropping the Kodak product. At the same time, Asanumaconcluded that it would also drop Kodak film and make other photographicproducts and become an exclusive special agent for Fuji film."


Source: Distribution of Kodak Products Declined . . ., NSKT, February 20, 1975, 10.


Kodak's omissions in its account of the so-called "Asanuma incident" are discussed atRebuttals 11 and 62. In this passage Kodak claims in addition that it was unaware of Asanuma'srequest to Nagase. On this point, Kodak has only itself to blame. Kodak rebuffed directovertures by Asanuma in 1973, two years before the alleged "incident." In 1973, Asanuma's topmanagement went to Rochester to meet with Kodak, to air their grievances against Nagase, andto request direct ties between Asanuma and Kodak. However, Kodak indicated no willingnessto change the manner in which it distributed its products in Japan. Kodak gives no plausibleexplanation why its reaction to such a request would have changed less than two years later.

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72. Fujifilm's 1976 Direct Contracts With Retailers

KODAK CLAIM:

"In April 1976 Fuji amended its contracts for color film sales and entered intodirect contracts with 6000 retail stores, a move designed to ensure more stableprices, to permit better monitoring of retailers' activities, and to exclude outsidersfrom its system. The new contracts provided for direct payments of volume-basedrebates by Fuji to secondary wholesalers and retailers based on revenue volume,not unit volume. The idea was to choke off the practice of some wholesalers ofprocuring film, securing a rebate, and then diverting a portion of the inventory tothe black market, or unauthorized channels."


Source: NSKT, June 20, 1976, 11.


The only accurate aspect of Kodak's description of this article is the statement that in April1976 Fujifilm entered into contracts for color film sales directly with retailers. However, neitherthe article nor the facts support Kodak's statement that the contracts were "designed to ensuremore stable prices, to permit better monitoring of retailers' activities and to exclude outsidersfrom its system." Furthermore, Kodak's statement that the contracts were based on "revenuevolume, not unit volume" is yet another Kodak mistranslation. The contracts were based on thevolume of film purchased by the retailer.

The objective of the change was really quite simple -- to ensure that rebates given tostrengthen the competitive position of the retailers benefitted the retailers. The secondary dealerswere receiving rebates to strengthen their own competitive position.

In any event, today Fujifilm no longer has direct contracts with retailers.

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73. Fujifilm Did Not Adopt Production Restraints

KODAK CLAIM:

"Fuji responded to the {decline in retail film prices and paper prices in the 1978-1980period} with production restraints designed to tighten Japan's supply of consumerphotographic film and paper, thereby strengthen {sic} prices ... {Soon after}, Fujiimplemented double-digit price increases for paper products, and continued to raise itswholesale film prices. At the time, Fuji attributed the price increases to its rising material-- mostly silver -- costs rather than to a strategy of supply manipulation."

"Privatizing Protection" at 127, 129.

Source: Short Term Outlook: Photosensitive Materials, NSKT, May 20, 1981, 8.


Contrary to Kodak's claim, Fujifilm did not restrain production or shipments ofphotographic products to the Japanese market. Fujifilm's shipments during the semiannual periodin 1980 when the "silver shock" induced price increases took place were in fact 5.2 percent abovebudget projections and 13.4 percent above shipments during the same period of the prior year.Inventory levels of film were lower and exports rose more slowly during the period cited byKodak than during the preceding three years. Moreover, a comparison between Fujifilm'sshipments during 1980 and the total shipments of film in the Japanese market in 1980 indicatesthat Fujifilm increased its shipments at a faster pace than the increases in market consumption.Thus, Kodak's allegation regarding supply manipulation is simply false.

Furthermore, Kodak implies that the rise in the cost of silver was merely an excuse usedby Fujifilm, and that the real impetus behind Fujifilm's increased prices was a strategy of supplymanipulation. In support of its allegation, Kodak quotes an article as follows:

One estimate put the added cost of silver at 2.6 yen to 3 yen per sheet, yet inJanuary Fuji announced that E-sized sheets would rise by 14.87. "PrivatizingProtection" at 127, n. 274 (emphasis added).

Kodak relies on an obvious misreading of the article. The article states that its estimateof the increase in Fujifilm's prices is based on applying Fujifilm's announced 11.5 percentincrease to existing prices. Kodak's reading of the article, therefore, would entail an initialFujifilm price of 129.3 yen per E-sized sheet (14.87/0.115 = 129.3). Such a price simply bearsno relation to reality. Thus, the proper reading of the article is that Fujifilm's prices, after additionof the 11.5 percent, increased to 14.87 yen per E-sized sheet. The next sentence in the articleconfirms this reading. It states that the 11.5 percent increase by Fuji is not "enough to cover the

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silver cost increase." Such a conclusion makes no sense if the article is read as Kodak states,because an increase by 14.87 yen is five times the author's estimated effect of the increase insilver costs (2.6 - 3 yen). Kodak's reading of the article, therefore, is obviously wrong.

Correctly read, the article supports Fujifilm's explanation that the silver shock was thecause of its price increases at that time. Accordingly, the article rebuts Kodak's allegation thatthe increase was intended to manipulate retail prices.

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74. Zenren's Statements Of Basic Principles

KODAK CLAIM:

"{The Zenren's} statements of basic principles repeatedly emphasized theobjective of price stability."


Source: NSKT, May 1, 1982, 10 (referencing 1982 Action Plan); NSKT, October 20, 1985, 10(referencing 1985 Action Plan).


Kodak quotes from two supposed "statements of principle" of Zenren. The first, the "1982Action Plan," is simply not a statement by Zenren at all; rather, it is Shashoren's plan. Thereference to stabilizing prices simply reflects continuing concern that the rapid and largeincreases and decreases in prices during the silver shock period not be repeated.

The second, the "1985 Action Plan," is correctly attributed to Zenren. However, theconclusions Kodak draws from the quoted material are incorrect. There is nothinganticompetitive in Zenren's reference to "stable prices." For example, Kodak highlights thefollowing language: "We support countermeasures to fight the conspicuous gap between standardprices and actual sales prices. . . ." Kodak's obvious implication is that Zenren's goal is to enforcestandard prices, i.e., suggested retail prices. In fact, however, Zenren's position has consistentlybeen that when suggested retail prices are too high in relation to actual sales prices, the use ofsuggested retail prices should be abolished because they become misleading. In 1984, Zenreninitiated discussions within the FTPC on the precise issue of the "conspicuous gap" betweensuggested retail prices and actual sales prices for cameras. See NSKT March 20, 1984, at 11.The response by the camera makers association was a partial abolition of suggested retail prices.Id. In 1990, Zenren again addressed this issue in response to MITI's 1990 DistributionGuidelines. MITI's Distribution Guidelines recommended:

suggested retail price should be set to reflect the {market situation} asmuch as possible. In case there is a substantial gap between {the suggestedretail price} and actual sales price, it is preferred that the suggested retailprice be abolished.

beginning with goods that are most frequently purchased by consumers, itis desired to advance the introduction of an open price system {i.e., theabolition of suggested retail prices}.

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See MITI's Guidelines to Improve Trade Practices: Standards that are Easy to Understand forThird Parties, Suggested Retail Prices and the Formation of Prices, Zenren Tsuho, September1990, at 6-7.

Kodak also highlights Zenren's intention to "hold discussions with the applicablemanufacturers and labs in order to prevent confusion" and "mobilize our organization to deal withthe activities of new group." ("Privatizing Protection" at 131). Again, Kodak would like to implythat a group of 7,000 retailers can affect a market of approximately 280,000 outlets for film. SeeRebuttal 19. In fact, Zenren's appeals to manufacturers have resulted in advertising campaignsto attract customers to Zenren member stores. See, e.g., Rebuttals 20 and 44. Further, Zenren's"mobilization" has consisted of efforts to enhance quality and service to differentiate memberstores from those of new entrants. See, e.g., Rebuttals 34 and 45. Clearly, advertising campaignsand competition based on quality and service are means of "maintaining prices;" however, thereis no anticompetitive element in these efforts.

Even assuming Kodak's allegations were true, i.e., that Zenren's goals were to excludeothers and enforce price maintenance, there is no evidence that such goals have been realized.Film and print prices have continued to fall. See Rebuttals 17 (film prices fell in response tointroduction of private label film) and 20 (Nihon Jumbo today offers 4 yen prints). New outletshave continued to appear. For example, the 1985 Action Plan specifically mentions same-dayprocessing shops along the Kokutetsu National Railways. Kodak would like to imply thatZenren's "mobilization" was to exclude such shops. In fact, however, the shops have proliferated.Thus, Zenren has not operated to exclude others, maintain prices, or slow the introduction ofinnovations such as same-day processing.

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75. JFTC Has Not Delegated Any Authority To The FTPC

KODAK CLAIM:

"The JFTC, delegated legal authority to an organization comprised of six photographicindustry associations to enforce `codes' of competitive conduct within the industry, whichincluded sanctions against certain discount and promotional sales. . . . {T}he All JapanPhoto Industry Fair Trade Promotion Council, was established . . . to `promote self-regulation and emphasize the normalization of trade'. . . . Its membership included Fuji,Konica and most of their affiliated laboratories, wholesalers and retailers."


Source: Six Organizations to Promote Self-Regulation and Emphasize Normalization of Trade,NSKT, May 1, 1982, 10.


Kodak here again confuses the Retailers' Fair Trade Council and the Fair Trade PromotionCouncil. The article cited by Kodak discusses the creation of the FTPC. The contents of thearticle cited by Kodak and the role of the FTPC are detailed in Rebuttal 24. The JFTC has neverdelegated any authority to the FTPC, nor is the FTPC empowered to impose "sanctions againstcertain discount and promotional sales." See Rebuttal 25 (rebutting Kodak's specific allegationon this point).

Kodak's allegations are equally inapplicable to the Retailers' FTC. As detailed at Rebuttal26, the Retailers' FTC actions are limited to assistance with efforts to enforce standards under thePremiums Law.

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76. JFTC And FTC's Enforcement Of The Premiums Law Is Not Resale PriceMaintenance

KODAK CLAIM:

"When it received a complaint from the Council, the JFTC would contact theretailers involved and demand that they submit formal reports concerning theirbehavior; this could ultimately lead to sanctions against the discounters. Thus, in1988, the Council complained to the JFTC that certain retailers were postingadvertisements contrasting the price of inexpensive reverse-import film with fixed-price, domestically produced film. The JFTC found that this was an unfair postingand called for formal reports by the `guilty' retailers."


Source: Fair Trade Promotion Conference ..., Zenren Tsuho, March 1988, 8-9.


Kodak again confuses the Fair Trade Promotion Council ("Kotori Suishin Kyo") with theFair Trade Council ("Kotori Kyo"). In the article cited by Kodak, it is the Camera Retailers FairTrade Council that was acting. See Rebuttal 24 (describing the FTPC).

As noted in Rebuttal 26, the Fair Trade Council operates to assist in the enforcement ofthe standards of the Premiums Law and the specific Fair Trade Code for Cameras. In the articlescited by Kodak, the FTC's actions were in response to clear violations of the Act.

The article cited by Kodak discusses a film advertising display which was considered toviolate the Premiums Law because it included misleading statements about the nature of theproduct offered and the discount. One article states that in the advertisement "Korean Lotte filmwas displayed as Fujicolor HR 350 yen." Zenren Tsuho, May 1988, 13. The other articledescribes the misleading aspect of the advertisement as follows: "Lotte brand film was advertisedat a 60% discount, 250 yen per roll" based on "a domestic suggested retail price of 620 yen."Zenren Tsuho, March 1988, 8. This claim was considered misleading not because the priceoffered was low, but because the advertisement compares the price of the Korean made Lotte filmwith the suggested retail price of Japanese-made film, implying that the consumer is buying thesame film, but at a steep discount. These two elements of the advertisement were deemed to bemisleading and, therefore, in violation of the Premiums Law.

Compliance with the Premiums Law would not require a change in the price for theKorean Lotte film. Rather, it would require an adequate description of the product being offeredand its price. Therefore, Kodak's claim that this event involved price maintenance is simply nottrue.

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77. Enforcement Of Premiums Law Is Not Resale Price Maintenance

KODAK CLAIM:

"The code of `self-regulation' adopted by the Council applied by its terms only to themembers of the Council itself (e.g., domestic photographic manufacturers and theiraffiliated distributors and retailers) but in practice it served as a useful mechanism forpressuring "outsiders" that engaged in promotional efforts deemed inconsistent with thecode."


Source: Fair Trade Promotion Conference {sic} Strictly Monitors Violations by Non-Membersand Requires Guidance to be Provided to Local Government Offices, Zenren Tsuho, May 1988,13.


Kodak once again confuses the Fair Trade Promotion Council with the Fair TradeCouncil. In the article cited by Kodak, it is the Camera Retailers Fair Trade Council that wasacting. See Rebuttals 24 (describing the FTPC) and 25 (describing FTC).

Kodak makes much of the activities of the Camera Retailers FTC with regard to"outsiders." In fact, however, the Premiums Law applies to all businesses in Japan, not just tomembers of specific FTCs, and also applies to all products. The article points out that violationsof the Act by members of the FTC, which were made aware and had studied the standards, haddecreased. Meanwhile, however, violations by non-members had continued or even increased.The FTC, therefore, referred to specific instances of violations and asked for further action by theprefectural governments and by the JFTC. See Rebuttal 76 (describing how promotionalactivities violated the Premiums Law). The article also points out that the FTC's referral ofviolations of the Act with respect to the sale of film to the authorities was deemed to beappropriate. Therefore, there is nothing anticompetitive in the FTC's actions against "`outsiders'that engaged in promotional efforts deemed inconsistent with" the Premiums Law or the FairTrade Code for Cameras.

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78. There Was No Anticompetitive Interference With Nagase's VR Campaign

KODAK CLAIM:

"In 1982 Zenren was alarmed by àn aggressive campaign' by Kodak `to increaseits share' for consumer photographic film. Kodak began offering a new family offilms which featured four types packaged together in trail packs of 12 rolls (VR100, 200, 400 and 1,000) at a wholesale price of 1,120 yen. An industry journalestimated that this offer constituted a discount of 38.3 percent from the `fixed'price, and speculated about the possible reaction of Fuji and Konica, withreference to a Japanese proverb: Òne must extinguish any flames that come intoone's way.' The view of Zenren's small retailers was that `this is a bad thing, andif it is possible to bring a halt to it, that would be the most desirable outcome.'

The Zenren appealed to the Fair Trade Promotion Council to take upNagase's pricing of Kodak VR-series film with the JFTC on the followinggrounds:

Is this not a case of dumping?

Is this not an example of double-tiered pricing?

The majority of cameras cannot use ASA 1,000 film at thistime, so there is a concern that users will be confused;

Doesn't this discount of 38% off the standard price vergeupon being an unfair trade practice?

This may work well as an advertising tactic, but it alsoworks as a means of obtaining tax refunds, so there is not adifference between what is being represented as the motiveand the true reason behind it?

The Council concluded that both sides must be heard and recommended thatNagase's views be solicited. The next day the Zenren invited in NagaseDepartment Chief Yokoyama and asked for an explanation of what Nagase wastrying to do. He assured Zenren members that while Nagase was advertising theVR campaign in newspapers, it would not use television ads. But he wasadmonished by the Zenren for his company's pricing policies:

Zenren countered strongly by urging that àdequate precautionsmust be taken so that chaotic pricing and accompanying turmoil donot have a deleterious effect on the market."

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"Privatizing Protection" at 137-138; see also "Privatizing Protection" at 45, and 141.

Source: Fuji Expands Market Share in the U.S. Market; Current 10% Will Be Increased to 15%,NSKT, May 20, 1983, 8; Kodak's So-Called Commemorative Specially Reduced Prices; AnExtraordinary New Market Expansion Policy, NSKT, June 20, 1983, 8; Viewpoint of Fair TradeCommission Sought: Fair Trade Promotion Council on the VR Trial Debate, NSKT, June 20,1983, 21; Voluntary Restraint by Means of Developing and Printing Charge Sheets; Fair TradePromotion Council to Set Standards, NSKT, May 20, 1984, 10.


Kodak has entirely mischaracterized the responses by Zenren and the JFTC to its 1983 VRfilm promotion. Zenren's response was as follows: its smaller retailers believed Kodak/Nagase'sshort-term heavy discounting of VR film was unfair due to the misleading nature of theadvertising campaign. Specifically, the offer was for a multipack of four rolls of film, one ofwhich was incompatible with most cameras used in Japan at that time. At the time, compactcameras in Japan could not use VR 1000 film and the SLR cameras had no speed setting for VR1000 film. Consequently, Kodak's multipack was called a "trouble pack" as opposed to "trialpack." In 1983, sale of film in multipacks was a new and innovative sales method. Given itsnovelty, concerns were raised that the difference between the "single pack price" and the "fourpack price" constituted unfair double-tiered pricing. Today, of course, multipack sales are acommon marketing method in Japan.

Through Zenren and the Fair Trade Promotion Council, retailers sought an investigationby the JFTC to determine whether Kodak/Nagase's promotional campaign constituted unfair tradepractices such as dumping, double-tiered pricing, misleading advertising, etc. (It was the JFTCwho responded to the allegations, not the Fair Trade Promotion Council, as alleged by Kodak.)The JFTC's response was that Nagase's views should be solicited before an investigation wasinitiated. The articles do not discuss whether Nagase's views were ever presented to the JFTC,or whether the JFTC ever undertook an investigation or any other type of action.

However, it is apparent that Nagase did not entirely dispute Zenren's concern with itscampaign. Nagase agreed to retract its planned television advertising, although it stated that itwas too late to withdraw the newspaper advertising campaign. Nagase thus implicitlyacknowledged that there were problems with its advertising.

Kodak implies that Fujifilm and Konica together applied pressure on Nagase. To supportsuch an implication, Kodak quotes an article stating that: "An industry journal . . . speculatedabout the possible reaction of Fujifilm and Konica, with reference to the Japanese proverb: `Onemust extinguish flames that come into one's way'." However, Kodak omits to mention thepassage immediately following, which states that Japanese manufacturers would not be likely tofollow such advice. The article continues as follows:

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At the moment, two Japanese manufacturers are observing thedevelopments, and have not announced any specific counter-actionyet. It seems that they will compete with VR by the normalcountermeasure of intensifying advertisement during the regularsummer campaign.... It is very understandable that retailers haveconcerns. However, no matter how much they worry, they {theretailers} have no means of avoiding price competition under theprinciple of "free competition".

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