Buy One Get One (Discounted) Only Violates The Sherman Act If The Discount For The 'Tied' Product Is Below Cost

In a recent opinion, Collins Inkjet Corp. v. Eastman Kodak Co., the Sixth Circuit held that differential pricing in a tying arrangement (i.e., "I will charge you less for printer replacement parts, but only if you buy all of your printer ink from me.") only violates the Sherman Act if the "tied" product is discounted below the seller's cost. In short, Collins argued that Kodak was offering below-cost pricing on replacement parts in exchange for customer's commitment to purchase Kodak's ink, with the long-term effect that Collins would be driven out of the ink market. In this case, the Sixth Circuit affirmed a preliminary injunction against Kodak which required Kodak to cease charging customers different rates for Kodak's refurbished printer components depending on whether the customers bought Kodak ink.

Two of the central elements of a tying claim, both addressed in this opinion, are 1) market power in the tying market product, and 2) coercion, through pricing, of buyers of the tying product to buy the tied product.

Kodak's Market Power Kodak conceded that it had a 100% share of the printer replacement parts market, the "tying market product." Kodak, however, argued, unsuccessfully, that its customers were sophisticated businesses that could switch to other brands of printers that had competitive markets for replacement parts. The court rejected this argument because, even though Kodak's customers were sophisticated, the information costs to the customer were still extremely high because the customers have been locked in to high aftermarket prices without prior warning.

"Discount Attribution" The Sixth Circuit agreed with the Ninth Circuit's analysis related to the "discount attribution" standard to determine whether a bundled discount is an unlawful "attempt to monopolize" under § 2...