FUJIFILM'S INITIAL COMMENTS ON

KODAK'S NOVEMBER 6, 1995 SUBMISSION

In its ongoing trade war against Fujifilm, Kodak yesterday released another weighty
document that supposedly substantiates its Section 301 allegations of a closed Japanese
market for color film and paper. Once again, there is far less to Kodak's case than meets the
eye.

Fujifilm is planning to issue shortly a comprehensive response to Kodak's new "facts." This
response will show that these "facts" consist of the same old concoction of misstatements,
distortions, and irrelevancies that Kodak has relied on throughout this investigation.

In the meantime, it is important to focus on what is missing from Kodak's new document.
Sherlock Holmes once solved a case by noticing the dog that didn't bark. In similar fashion,
the truth in this case is shown by what Kodak isn't saying.

On July 31, 1995, Fujifilm submitted to USTR and released to the public its comprehensive
and devastating answer to Kodak's factual allegations: a 585-page report entitled "Rewriting
History: Kodak's Revisionist Account of the Japanese Consumer Photographic Market." The
next week, on August 8, Fujifilm followed up with a 121-page legal analysis that exploded
Kodak's legal arguments. Now, with its new release, Kodak purports to rebut "Rewriting
History" and Fujifilm's legal analysis. Yet Kodak's submission fails to rebut many key factual
and analytical points raised by Fujifilm.

The omissions in Kodak's submission are striking:

• Kodak does not deny that it can and does sell directly to large retailers, or that it can
and does reach small retailers through secondary dealers and its own photofinishing
labs. Kodak provides no evidence of retailers that want to carry Kodak but cannot
obtain it.
• Kodak does not deny that the development of single-brand relationships between
wholesalers and manufacturers was not specific to Fujifilm, but was a general trend
that included Kodak and Konica as well as camera manufacturers. The only difference
between Fujifilm and the others is that the others bought their distributors, while
Fujifilm continued to rely on independent wholesalers.
• Kodak does not deny that its market share grew markedly in the early 1980s when the
price gap between Kodak and Fujifilm widened. This episode demonstrates that,
contrary to Kodak's repeated assertions, competing on price is an effective strategy in
Japan.
• Kodak has dropped its argument that Fujifilm's relationships with photofinishers in
Japan create an anticompetitive "captive market" for color paper. Kodak does not
deny that forward integration into photofinishing is a normal business practice around
the world.
• Kodak has no answer to Fujifilm's devastating critique of its econometric analysis.
Kodak purported to provide econometric evidence that the Japanese market is closed;
Fujifilm demonstrated that Kodak's analysis was rife with embarrassing calculational
and methodological blunders.
 • Kodak does not deny that on two separate occasions, scrutiny by the Japan Fair Trade
Commission led Fujifilm to change its business practices relating to the distribution of
color film. This record of scrutiny by the JFTC belies any claim that the JFTC has
acquiesced in Fujifilm's allegedly anticompetitive practices.
• Kodak does not deny that it spent billions of dollars in failed diversifications and
repeated restructurings over the past decade, or that it has followed an excessively
generous dividend policy for the past 20 years. These two facts, not a closed Japanese
market, explain the difference between Kodak's and Fujifilm's cash surplus positions.
• Kodak does not deny that between 1971 and 1986 it failed to invest in its own
distribution arm for the Japanese market, despite the fact that it was legally allowed to
do so. This 15-year delay was crucial in allowing Fujifilm to grow unopposed into a
formidable competitor with a firmly entrenched leading position in the Japanese
market.
• Kodak does not deny that its advertising effort in Japan has been insufficient, or that it
has committed serious cultural blunders. These missteps have doomed Kodak's efforts
to offset Fujifilm's built-in home team advantage.
• Kodak does not deny that it was two years late in introducing the two fastest growing
color film products of the past decade: single-use cameras and high resolution ISO
400 film. These two products together account for roughly 60 percent of the Japanese
color film market today, yet for both products Kodak ceded the marketplace to
Fujifilm for two years before offering a competing product.
• Kodak does not deny that it engages in aggressively exclusionary practices in the
United States. Specifically, it pays retailers as much as seven figures to keep Fuji
brand film off the shelf. In addition, it offers retailers rebates conditioned on buying
only Kodak. The Section 301 statute expressly requires USTR to examine conditions
in the U.S. market when evaluating whether foreign barriers exist.

In sum, Kodak's 1,100 pages of rebuttal do not rebut very much. The fact that Kodak does not
even deny many of Fujifilm's most devastating criticisms highlights the need for USTR to
subject all of Kodak's claims to objective, impartial scrutiny. It is now apparent what a
mistake it would have been to take Kodak's original claims at face value.

1. Kodak has unimpeded access to retailers

Kodak's central claim in this Section 301 investigation is that Fujifilm's relationships with its
four main tokuyakuten -- i.e., the fact that these distributors only carry Fuji brand film --
unfairly hinder Kodak's ability to reach retailers in the Japanese market. According to Kodak,
MITI support for and JFTC acquiescence in the relationships between Fujifilm and its
tokuyakuten constitute government toleration of anticompetitive activities that is actionable
under Section 301.

Kodak's claim -- the core of its entire case -- only makes sense if in fact lack of access to
Fujifilm's distributors significantly hinders Kodak's ability to sell film to retailers. If Kodak
does not need access to the tokuyakuten to be able to sell to retailers, then Fujifilm's
relationships with the tokuyakuten cannot be a market barrier. If there is no market barrier,
there is no Section 301 case.

In "Rewriting History" and its legal analysis, Fujifilm demonstrated that Kodak has precisely
the same ability to sell to retailers through precisely the same channels as does Fujifilm
selling through the tokuyakuten. As shown in Figure 1, both Kodak and Fujifilm/tokuyakuten
can and do sell directly to large retailers; both can and do reach retailers through selling to
secondary dealers; both can and do sell to retailers through their network of photofinishing
labs (#1). Kodak's claimed "distribution bottleneck" is a fraud..
.

FIGURE 1.
.
COLOR FILM DISTRIBUTION STRUCTURE IN JAPAN.

First, about half of the tokuyakuten's film sales are directly to large retail accounts. Kodak,
likewise, sells directly to large retailers; such direct sales account for roughly 60 percent of its
color film shipments. There is no need for a wholesaler intermediary between the
manufacturer and large retail accounts. Accordingly, Kodak's lack of a relationship with the
tokuyakuten is not an obstacle to selling to large retailers; Kodak can and does sell directly to
them through its importer/distributor subsidiary, Kodak Japan.

Next, approximately 35 percent of the tokuyakuten's sales are to secondary dealers,

multibrand resellers that specialize in servicing smaller retail outlets often in discrete
geographical areas. Kodak also sells to secondary dealers, with such sales constituting about
15 percent of Kodak's total color film shipments. Indeed, virtually all the significant
secondary dealers carry Kodak film -- a fact which Kodak does not deny in its rebuttal. These
secondary dealers collectively account for around 30 percent of total color film sales in
Japan, and Kodak can and does deal with nearly every one of them.

Finally, about 15 percent of the tokuyakuten's sales are to Fujifilm's major photofinishing
labs, which also act as resellers of color film. In similar fashion, roughly 25 percent of
Kodak's sales are to Kodak's major labs, which likewise resell to retail accounts. Thus,
Kodak's network of photofinishing labs gives it yet another channel for reaching the retail
store shelf (#2).

Accordingly, even without access to the four tokuyakuten, Kodak sells through exactly the
same distribution channels that Fujifilm and the tokuyakuten use. In its rebuttal Kodak denies
none of this. Nowhere in its rebuttal does Kodak try to argue that there are retailers in Japan
that would like to carry Kodak but cannot obtain it because of a lack of distribution channels.
Neither does Kodak argue that anyone is trying to prevent it from upgrading its distribution
channels: hiring more salespeople, intensifying its efforts with large retailers, reaching out
more to secondary dealers, and acquiring or building more photofinishing labs.

Kodak's implicit admission that it is able to sell to any retailer in Japan that wants to buy its
products is devastating to its contention that the tokuyakuten are an "essential facility" for
reaching the retailer. Kodak is left with the crackpot theory that some massive conspiracy
among nearly 300,000 retailers renders Kodak's sales pitches to them ineffective.

(#1) "Rewriting History" at 39.

(#2) Fujifilm's August 8, 1995 Comments on Legal Issues at 28-29.

2. The development of single-brand distribution was a general industry trend

Kodak argues that the transition of the four tokuyakuten from multibrand wholesalers to
dealers of only Fuji brand film was deliberately engineered by Fujifilm and MITI to block
Kodak from the Japanese market just as overt trade barriers were being removed. Yet the
facts surrounding this transition -- facts which Kodak does not deny -- show that Kodak's
conspiracy theory is baseless.

First, the timing of the tokuyakuten's switch from multibrand to single-brand wholesalers is
completely inconsistent with Kodak's characterization of the switch as a "liberalization
countermeasure." Kodak does not deny that Kashimura and Ohmiya have not carried Kodak
film since World War II; furthermore, Kodak does not deny that these two wholesalers
became Fuji-only color film distributors in 1963 and 1964, respectively -- long before the
Japanese market began to be liberalized. Furthermore, Kodak does not deny that Misuzu
dropped all brands of color film besides Fuji in 1968, when the tariff rate was still 40 percent
and thus no "liberalization countermeasures" were necessary to hinder Kodak (#3). Thus,
Kodak concedes that three of Fujifilm's four major tokuyakuten became single-brand
distributors long ago, when the Japanese market was overtly protected. It is impossible to
draw a causal connection between these prior events and the subsequent liberalization of the
color film market.

Only one of Fujifilm's major distributors, Asanuma, terminated Kodak during the
liberalization period. Yet Kodak does not deny that in 1973, shortly before Asanuma's
decision to drop the Kodak color film brand in 1975, Asanuma officials visited Kodak in
Rochester to seek restoration of direct dealings with Kodak(#4). Kodak refused Asanuma's
request, saying that Asanuma could only purchase Kodak through Kodak's then-exclusive
importer, Nagase. Since Nagase was also the major distributor of Kodak film in Japan,
Asanuma was in effect being required to purchase from its competitor. It is little wonder that
Asanuma eventually decided that its relationship with Kodak had no future (#5).
Kodak's conspiracy theory is belied not only by the timing of the tokuyakuten's actions, but
also by what other participants in the industry were doing during the same period. Here again,
Kodak does not deny the facts that undermine its own argument.

Kodak does not deny that Nagase bought its own tokuyakuten, Kuwada, in 1967, forcing it to
drop Fuji brand film and become a single-brand distributor. Likewise, Konica acquired a
number of distributors during the 1960s and '70s, building its own internal single-brand
distribution network (#6). Thus, Fujifilm's competitors were moving to single-brand
distribution at the same time that the tokuyakuten were; the tokuyakuten's moves were part of
a general industry trend, not an anti-Kodak plot.

Indeed, not only film manufacturers, but also camera manufacturers were moving toward
single-brand distribution at this time. In particular, Canon and Olympus began to develop
their own direct distribution systems starting around 1965 (#7). The tokuyakuten thus faced
some very stark alternatives: camera manufacturers, their major source of business, were
abandoning them, as were other film suppliers. Their decisions to enter into single-brand
relationships with Fujifilm were a logical response to the business challenges facing them.

In sum, Kodak does not deny that the entire Japanese photographic industry was trending
toward single-brand distribution during the 1960s and '70s. Kodak remains in denial,
however, about the clear implication of this fact: the development of Fujifilm's relationships
with the tokuyakuten had nothing to do with "privatizing protection."

(#3) "Rewriting History" at 66-67.

(#4) Kodak's November 6 submission at 121.
(#5) "Rewriting History" at 181-182.
(#6) "Rewriting History" at 68-71.
(#7) "Rewriting History" at 72.

3. Kodak's market share rose sharply when it competed on price

In "Rewriting History" Fujifilm showed that Kodak's market share in Japan rose sharply
when it competed aggressively on price, and then subsided after such aggressive pricing
stopped. Specifically, in 1980 and 1981, when Fujifilm was raising prices due to the "silver
shock", Nagase held the line on prices and thus increased the price gap between the Kodak
and Fuji brands. As shown in Figure 2, Kodak's market share rose accordingly, up from under
12 percent in 1978 to 18 percent in 1981 and again in 1983 (#8). Only then did Nagase, after
absorbing multiple price increases from Kodak, begin again to raise prices. In 1984 Kodak's
market share began its long downward slide (#9).

FIGURE 2

KODAK MARKET SHARE

FOR FILM IN JAPAN
1971-1983*
*See "Privatizing Protection," Appendix A, Table 2; Exhibit 19, Table 1

In its rebuttal Kodak does not deny that this episode occurred. It does not deny that the price
gap between Kodak and Fujifilm widened in the early 1980s, and it does not deny that Kodak
achieved its record high market share at the same time. Nevertheless, Kodak continues to
assert that price competition in the Japanese market is for one reason or another futile. The
uncontroverted facts, however, show otherwise: when Kodak undersold Fujifilm
aggressively, it picked up market share by leaps and bounds. The facts show that supply and
demand operate as surely in Japan as anywhere else.

(#8) "Rewriting History" at 169.

(#9) "Rewriting History" at 169-172.

4. Kodak alleges no market barriers in the Japanese color paper market

Kodak originally argued that Fujifilm's equity and contractual relationships with
photofinishing labs create an anticompetitive "captive market" for its color paper sales. In
"Rewriting History" and its legal analysis, however, Fujifilm showed that vertical integration
by color paper manufacturers into photofinishing is a normal accepted business practice
worldwide. In Japan, Kodak has had a photofinishing presence since 1952; in the United
States, Kodak and its subsidiary Qualex dominate wholesale photofinishing (#10).

In its rebuttal, Kodak does not even attempt to respond to Fujifilm. There is no discussion
whatsoever of market barriers in the Japanese color paper market. Accordingly, Kodak's
"captive market" argument must now be declared missing in action.

(#10) "Rewriting History" at 91-92, 94-96, 241-247.

5. Kodak's econometric "evidence" of Japanese market barriers is garbage in, garbage
out

Kodak's original complaint presented econometric analysis purporting to show that the
supposed closure of the Japanese distribution system in 1975 (the year of the "Asanuma
incident") significantly hindered U.S. exports to Japan. In addition, the analysis concluded
that U.S. export prices and the yen-dollar exchange rate had only a marginal effect on U.S.
exports -- a conclusion that according to Kodak is consistent with its position that price
competition in Japan is suppressed.

In an appendix to its legal analysis, Fujifilm's economic consultants, National Economic

Research Associates (NERA), provided a devastating critique of Kodak's econometric study
(#11). First, Kodak's results are apparently due to gross calculational errors. Second, the
analytical framework of Kodak's study is shot through with fundamental conceptual,
analytical, and statistical defects. In short, Kodak's study is a professional embarrassment
whose results are completely unreliable. Garbage in, garbage out.

Tellingly, Kodak has said nothing in its rebuttal in defense of its discredited econometric
analysis. Kodak thus tacitly admits that its so-called statistical evidence proves nothing.
Accordingly, Kodak offers nothing to demonstrate a causal connection between alleged
anticompetitive activities and the supposed burden or restriction on U.S. commerce.

(#11) Fujifilm's August 8, 1995 Comments on Legal Issues at Appendix.

6. Fujifilm has changed its business practices because of JFTC scrutiny

In "Rewriting History", Fujifilm refuted Kodak's allegations that the JFTC has failed to
subject Fujifilm's business practices to scrutiny under the Antimonopoly Act. Specifically,
Fujifilm detailed the numerous investigations and studies of Fujifilm and the Japanese
photographic industry generally that have been conducted by the JFTC over the past 25 years
(#12). Kodak has denied none of this; it simply continues to assert, without any factual
support, that the JFTC fails to enforce the Antimonopoly Act and is therefore "part of the
problem." In particular, Kodak does not deny that on two separate occasions in the past 15
years, scrutiny by the JFTC led Fujifilm to make significant changes in its business practices
relating to the distribution of color film and paper.

First, in 1981 the JFTC conducted an investigation of Fujifilm's distribution system for X-ray
film, and ordered Fujifilm to eliminate certain vertical restraints on dealers (e.g., territorial
restraints). Although the JFTC investigation focused on X-ray film, Fujifilm realized that
some of the issues identified by the JFTC could also apply to Fujifilm's distribution of
consumer products. Fujifilm therefore voluntarily undertook a broad-based internal initiative
to modify its other contracts -- including those relating to color film -- to remedy any possible
problems. In particular, Fujifilm eliminated provisions requiring the tokuyakuten to (1) obtain
Fujifilm's consent before handling other brands, and (2) make efforts to maintain orderly
prices (#13).

Second, the JFTC conducted two general studies in the late 1980s: one from 1987 to 1988
pertaining to oligopolistic industries, and one from 1988 to 1989 regarding distribution
systems. In response to JFTC requests for information, Fujifilm provided detailed
information regarding its various rebate programs and pricing policies. Although the JFTC
found no violations of the Antimonopoly Act, it did identify certain points of discussion.
Accordingly, Fujifilm voluntarily changed some of its business practices. To reduce even
further the mild progressivity of its rebate structure, it modified some of its rebate programs
and eliminated others. In addition, Fujifilm clarified its policy regarding manufacturer's
suggested prices to clarify the freedom of downstream customers to set their own resale
prices (#14).

Kodak does not deny any of this history of JFTC scrutiny. This history, though, belies
Kodak's unfounded claims that the JFTC has been failing to enforce the Antimonopoly Act
with respect to Fujifilm. The actual record of JFTC's enforcement activities in the
photographic industry shows that there has been no government toleration of anticompetitive
activities.

(#12) "Rewriting History" at 135-145.

(#13) "Rewriting History" at 140-141. The tokuyakuten were in fact handling other brands already. For
example, each of the tokuyakuten was carrying other brands of cameras besides the Fuji brand. Nevertheless,
Fujifilm promptly changed these contract provisions to avoid any possible concerns under the Antimonopoly
Act. Fujifilm made clear to each tokuyakuten that it was under no restriction against carrying competing brands.

(#14) "Rewriting History at 142-143.

7. Kodak squandered its own cash surplus

Kodak cited as "evidence" of market barriers in Japan the fact that Fujifilm has amassed a
large cash surplus. In "Rewriting History", however, Fujifilm demonstrated that Kodak could
have attained an equivalent surplus had it not wasted its high operating profits on
diversifications, extraordinary charges, and excessive dividends. Specifically, Fujifilm
pointed out that:

• In 1985 Kodak made a $494 million charge against earnings arising out of its
infringement of Polaroid's instant photography patents.
• In 1986 corporate restructuring led to a charge against earnings of $373 million.
• In 1988 Kodak acquired Sterling Drug for $5.1 billion.
• In 1989 corporate restructuring led to an extraordinary charge of $875 million.
• In 1991 additional restructuring led to extraordinary charges of $1.6 billion.
• In 1993 Kodak took an after-tax charge of $2.2 billion for accounting purposes.
• In 1992, 1993, and 1994, Kodak incurred further restructuring costs of $220 million,
$538 million, and $340 million, respectively.
• Over the past 20 years Kodak paid out dividends equal to nearly 80 percent of net
earnings, including six years in which dividends exceeded net earnings. This payout
ratio was nearly 50 percent higher than the average ratio for other companies included
in the Dow Jones Industrials (#15).

Kodak is unable to deny any of this. Kodak has just as much of a "profit sanctuary" in the
United States as Fujifilm does in Japan; the only difference is that Kodak has "spent" much
more of its profits than has Fujifilm. Kodak's failure to come to grips with the facts presented
by Fujifilm on this issue shows that its "evidence" of a closed market in Japan does not wash.
(#15) "Rewriting History" at 162-168, 184-185.

8. Kodak failed to invest in Japanese distribution or photofinishing for 15 years

In "Rewriting History", Fujifilm showed that Kodak failed to take advantage of the new
competitive opportunities that arose as the Japanese market was being liberalized. In 1971,
partial capital liberalization allowed Kodak to create joint ventures with 50 percent
ownership; in 1976, full liberalization permitted Kodak to open up wholly owned
subsidiaries. Yet Kodak invested nothing in creating its own distribution capacity in Japan
until entering into a joint venture with Nagase in 1986 -- 15 years after such a move was
allowed. And it was not until 1987 that Kodak made any investment in photofinishing
capacity (#16).

Kodak does not deny that this 15-year delay happened (#17). Instead, its strategy is to play
down the importance of the delay. But such a position is clearly untenable: when Kodak was
freed to enter the market, Fujifilm was one-tenth Kodak's size and behind Kodak
technologically; by the time Kodak began to invest seriously in Japan, Fujifilm had grown to
one-third Kodak's size and was its technological equal, if not its superior. While Kodak
tarried, Fujifilm had grown into a formidable competitor worldwide and an entrenched
incumbent in Japan.

Even Dr. Albert Sieg, the former president of Kodak Japan and a self-declared Kodak
sympathizer in this Section 301 investigation, has admitted that Kodak's failure to capitalize
quickly on liberalization was a major reason for its continued poor performance in Japan:

I clearly believe that one of the biggest problems that Kodak has in Japan is that for clearly
10 years of good opportunity, we neglected Japan. . . . And I'm talking about the early '70s to
early '80s when it was possible to have a reasonable investment in Japan and control your
own destiny. We were a good 10 years too late. . . . Frankly, it wasn't until the late '70s when
Fuji had the technological strength to even compete against Kodak. So you know, we did it to
ourselves(#18).

(#16) "Rewriting History" at 168-182.

(#17) Kodak does argue that it had little choice but to "do nothing" until 1976, the year that wholly owned
subsidiaries were allowed. Kodak's November 6 submission at 90. But this ignores the fact, admitted by Kodak,
that in 1971 50-50 joint ventures were permitted. Kodak finally entered into a 50-50 joint venture with Nagase
in 1986 -- 15 years after such an investment was first allowed.
(#18) Scott Latham, "Kodak's Self-Inflicted Wound," Wall Street Journal, August 14, 1995.

9. Home team advantage matters, particularly when the visiting team does not adjust to
the opponent's home field

In Section IV of "Rewriting History", Fujifilm explained that the difficulties Kodak faces in
Japan are due in part to the concept of "home team advantage". As demonstrated by surveys
undertaken by both Fujifilm and Kodak, the success of these two companies in their
respective home markets is largely a result of consumer preference. Kodak's surveys show
that 50 percent of U.S. consumers will buy only Kodak, regardless of price, and that an
additional 40 percent prefer Kodak. Likewise, Fuji brand film is consistently ranked by
Japanese consumers substantially higher than Kodak on all of the qualitative measures
surveyed, with as much as a 5 to 1 advantage in consumer perceptions. Since both companies
have under 40 percent of the world market excluding the U.S. and Japan, it follows that a
substantial home team advantage must be at work to permit the companies to maintain 70
percent of their respective home markets (#19). Kodak's rebuttal does not deny that consumer
loyalties to national brands can make it difficult for foreign brands to compete.

Recognizing the importance of marketing to overcome home team advantage, one would
have expected Kodak's marketing efforts to be greater in Japan. Between 1986 and 1989,
when Kodak claims to have spent 5.3 billion yen on advertising, Fujifilm spent 10 times (and
Konica eight times) that amount (#20). Kodak's response offers no denial of this fact.

Perhaps more important, however, is that Kodak does not deny many of the cultural blunders
it has made while playing on Fujifilm's home turf. Specifically, Kodak does not deny that (1)
it waited until the mid-1980s to offer film in Japan that was color balanced for Japanese
consumer preferences, after Asanuma representatives had encouraged them to do so in the
early 1970s (#21); (2) in 1990 it scaled back its R&D facility and laid off technicians that had
just been hired; and (3) in 1993 it cancelled job offers to several college graduates (#22). This
last gaffe has been called "maybe the worst marketing decision ever made by a foreign
company.(#23)" Such blunders only offer to solidify further Japanese consumers' allegiance
to Fuji brand film, yet Kodak fails to address these important cultural mistakes.

(#19) "Rewriting History" at 154-161.

(#20) "Rewriting History" at 195.
(#21) "Rewriting History" at 69, note 18.
(#22) "Rewriting History" at 196.
(#23) Scott Latham, "Kodak's Self-Inflicted Wound," Wall Street Journal, August 14, 1995.

10. Kodak has trailed behind Fujifilm in introducing new products to the Japanese
market

Kodak's efforts to overcome Fujifilm's home team advantage have been further plagued by a
persistent innovation gap. As detailed in "Rewriting History", Kodak was two years behind
Fujifilm in each of the two hottest-selling products of the past decade: single-use cameras and
high resolution ISO 400 film, which together now account for roughly 60 percent of color
film sales in Japan (#24).

Fujifilm introduced the world's first single-use camera in a 110 format in July 1986, and
followed with a 35mm version in July 1987. Kodak did not introduce a single-use camera in
Japan until August 1988. By that time Fujifilm had already sold roughly 10 million units.
Today single-use cameras make up over 15 percent of the Japanese color film market (#25).

In 1989, Fujifilm introduced ISO 400 film with resolution equivalent to that of ISO 100 film.
In the first year after its introduction, the new ISO 400 film tripled Fujifilm's sales of high
speed film from 10 percent of total sales to 30 percent. By the time that Kodak introduced its
own version of this product, ISO 400 film accounted for roughly 40 percent of total color
film sales in the Japanese market. As Figure 3 shows, that figure had climbed to 47.5 percent
by 1994; meanwhile, Kodak's major product, ISO 100 film, was losing market share
throughout this period.
 FIGURE 3

MARKET SHARE OF
DIFFERENT FILM SPEEDS IN JAPAN

Kodak cannot and does not attempt to deny these crucial facts (#26). Instead Kodak's rebuttal
attempts to downplay the correlation between major product innovations and market share.
This cannot be taken seriously. Since the 1980s, when Kodak began to focus on the Japanese
market, Kodak has had to play "catch up" with Fujifilm, the entrenched domestic incumbent
with strong brand loyalty. It is impossible to catch up, however, when you keep falling
behind on major product introductions (#27). A total inability to compete for two years on the
two most popular products in the Japanese market doomed Kodak to remain an "also ran" in
Japan. Kodak claims that distribution problems explain its low market share; its real problem
is that all too often it has had nothing to distribute.

(#24) "Rewriting History" at 188-190.

(#25) "Rewriting History" at 191.
(#26) Kodak's November 6 submission at 96, 98.
(#27) In this regard, Kodak does not even try to dispute the economic literature cited by Fujifilm on the subject
of the significant competitive advantages of "first mover" status. See "Rewriting History" at 160-161.

11. Kodak engages in aggressively exclusionary practices in the United States

Kodak complains about exclusionary practices in the Japanese market that hinder its sales
efforts. Yet as Fujifilm showed in "Rewriting History", Kodak engages in practices in the
United States that are far more exclusionary than anything Fujifilm is even accused of doing
in Japan (#28). The existence of these exclusionary practices is not denied in Kodak's recent
rebuttal.

Kodak claims that the tokuyakuten's exclusive dealing with Fujifilm has made it difficult for
Kodak to sell to retailers in Japan. Yet Kodak does not deny that in the United States,
exclusive arrangements between Kodak and numerous major retail chains make it impossible
for Fujifilm to sell to those retailers. Among the major U.S. retail chains from which Fujifilm
has been precluded are Eckerd Drug (1,700 drug store outlets), Publix Supermarkets (470
grocery store outlets), Caldor (174 discount store outlets), and Bradlees (130 discount store
outlets).

Kodak claims that Fujifilm's rebates discourage distributors and retailers from carrying
Kodak film. Yet Kodak does not deny that in the United States, its VIP rebate program offers
a 4 percent rebate if either a specified purchase target is met or the store agrees to carry only
Kodak. Not only is Kodak's U.S. rebate rate higher than anything Fujifilm offers in Japan, but
the expressly exclusionary terms of Kodak's program are completely without parallel in
Fujifilm's rebate programs in Japan.

The facts about Kodak's exclusionary practices are clear and uncontroverted. Accordingly,
Fujifilm has stronger grounds to complain about market access in the United States than
Kodak does about market access in Japan. And as Kodak implicitly concedes,29 what it does
in the U.S. market is directly relevant to this Section 301 investigation: the Section 301
statute requires USTR to investigate "reciprocal opportunities" for foreign firms in the U.S.
market when evaluating whether market barriers exist abroad(#30). The statute thus expressly
guards against the kind of double standard from which Kodak now seeks to profit.