Japan

Fujifilm's views on Kodak's procedure under the section 301 petition

Fujifilm Files New Evidence Against Kodak's Case with USTR
(Released from Fujifilm New York)

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EXECUTIVE SUMMARY

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

EXECUTIVE SUMMARY

DISCUSSION

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

  1. The use of guarantee deposits is a common business practice in Japan
  2. Guarantee deposits are not a burden on the tokuyakuten
  3. 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

  1. Fujifilm's rebate programs are unremarkable
  2. 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

  1. Fujifilm's affiliation with the Mitsui group is very weak
  2. Shareholding by Mitsui group companies in Fujifilm does not establish keiretsu membership
  3. Fujifilm has no directors from the Mitsui group
  4. Lending relationships between Mitsui banks and the tokuyakuten prove absolutely nothing

CONCLUSION

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