FUJIFILM'S REBUTTAL REGARDING
ITS ALLEGED "CONTROL" OF THE TOKUYAKUTEN
In both its May 31, 1995 and its November 6, 1995 submissions, Eastman Kodak
made allegations that Fujifilm controls its primary distributors -- the tokuyakuten.
Although Kodak admits that Fujifilm's direct control -- i.e., share ownership -- of
the tokuyakuten is limited, it claims that indirect mechanisms of control permit
Fujifilm to maintain its dominant position in the Japanese consumer markets for
photographic film and paper. In both of its primary public submissions, Kodak
mentioned Fujifilm's rebates and its membership in the Mitsui keiretsu as mechanisms
of control. In its November 6, 1995 submission, it added to its list the guarantee
deposits Fujifilm collects from the tokuyakuten.
Even if Kodak's claims had any factual merit (which they do not), they are
irrelevant to the fundamental issues presented in this case. Most importantly, on
December 21, 1995, Fujifilm submitted survey results that demonstrate Kodak's wide
availability in Japan -- not just in the competitive "shark tanks" of Tokyo and Osaka,
but throughout Japan; not just in the large stores, but particularly in the specialty
camera stores that Kodak said Fujifilm had locked up. These survey results -- which
USTR is welcome to verify -- demonstrate that any claims of Fujifilm's control over
the tokuyakuten are simply beside the point. Such control, if it existed, is not
preventing Kodak film from getting on Japanese retail shelves. Kodak's problem is
getting consumers interested in buying Kodak film off of those shelves.
If Kodak's allegations were relevant, they are wrong in any event. As to each
supposed mechanism of control, consider the following:
Guarantee Deposits: Fujifilm collects from three of the four
tokuyakuten and some of its other customers a small amount of cash on each purchase
as security to cover a portion of its outstanding accounts receivables from them.
These guarantee deposits are a common form of security in Japan. They are used by
Fujifilm only if other forms of security are insufficient to cover outstanding
accounts receivable. Fujifilm pays above-market interest on these deposits and
permits its customers to withdraw their deposits at any time, as long as they
substitute some other form of security. The tokuyakuten are not required to make
security deposits, or to post any kind of security -- provided they pay in cash.
Indeed, Fujifilm offers cash discounts to encourage cash payment. In practice, one
tokuyakuten does not use the guarantee deposit form of security; deposits for two
of the four have decreased over the last four years such that refunds have exceeded
deposits during that period; and deposits held for the fourth have increased only
by an annual average representing 0.2 percent of its average annual sales. The facts
of the guarantee deposit program therefore show an absence of control by Fujifilm
over the tokuyakuten.
Rebates: Fujifilm now offers only two rebate programs relating to the
sale of film, only one of which could be characterized as even mildly progressive.
For this target volume rebate, the difference between the minimum possible rate and
the maximum possible rate is only about 0.5 percentage points. The other rebate or
discount programs are simply price decreases with no exclusionary effect. For the
target volume rebate, the spread between minimum and maximum rates is too small to
have an exclusionary effect. Furthermore, there is no evidence to suggest that a
decision by the tokuyakuten to sell Kodak would cause them to sell less Fuji brand
film (and thus earn a slightly lower rebate rate). This is particularly true given
the fact that customers representing 77.3 percent of the tokuyakuten's sales volume
already carry Kodak; for these customers especially, there would be little if any
tradeoff between selling more Fujifilm and selling more Kodak. Thus, even the
limited progressivity of this rebate program is irrelevant to the tokuyakuten's
decision whether to carry Kodak.
Mitsui Keiretsu: Finally, Kodak claims that Fujifilm controls the
tokuyakuten through its keiretsu affiliations with Mitsui group banks. As we
indicated in "Rewriting History," however, Fujifilm's connection to the Mitsui group
is weak at best. It is not a member of the Mitsui group's executive council, and
any other connections are no stronger than its connections to other groups.
Furthermore, the lending relationships between the tokuyakuten and Mitsui banks are
unremarkable: these banks supply only a portion of the tokuyakuten's financing needs.
Even if Fujifilm were a member of the Mitsui keiretsu, such affiliation does not keep
the tokuyakuten in tow.
Kodak's allegations therefore fail once again. Fujifilm does not control the
tokuyakuten. More significantly, such allegations are irrelevant given Kodak's
broad availability in Japan. Kodak has tried to avoid the facts that destroy its
case with irrelevant -- and false -- allegations.
TABLE OF CONTENTS
A. Kodak's Allegations Of Fujifilm Control Over The Tokuyakuten Suffer
From Basic Analytic Flaws And Are Ultimately Irrelevant
B. The Use of Guarantee Deposits Is A Normal Business Practice And Does
Not Represent A Mechanism Of Control
The use of guarantee deposits is a common business practice
Guarantee deposits are not a burden on the tokuyakuten
Kodak's comparison of tokuyakuten profits to guarantee
deposits is both wrong and irrelevant
C. Kodak Misunderstands And Distorts Fujifilm's Rebates To The Tokuyakuten
Fujifilm's rebate programs are unremarkable
Fujifilm's rebates do not exclude Kodak
D. Fujifilm Is Not a Member Of The Mitsui "Keiretsu" In Any Meaningful
Sense Of That Term And Its Relations With The Mitsui Group Offer No Mechanism For
Control Of The Tokuyakuten
Fujifilm's affiliation with the Mitsui group is very weak
Shareholding by Mitsui group companies in Fujifilm does not
establish keiretsu membership
Fujifilm has no directors from the Mitsui group
Lending relationships between Mitsui banks and the tokuyakuten
prove absolutely nothing