Full opinion text
TELESCA, Chief Judge. Pending before this Court are motions brought by Eastman Kodak Company (“Kodak”) for modification or termination of two antitrust consent decrees entered into in 1921 (Civil Action No. A-51) and in 1954 (Civil Action No. 6450), respectively. Also pending is Kodak’s motion filed before trial for summary adjudication of the legal standard to be applied in a proceeding for modification of an antitrust decree. INTRODUCTION Events during the historical growth of the photographic industry spanning almost a century provide the basis for two antitrust consent decrees. These decrees were intended to remedy Kodak’s dominance in the marketing of film and in photofinishing by prohibiting Kodak from participating in the private label film market and from selling film with photo processing costs included. Kodak claims that it has complied with all of the requirements of the 1921 decree decades ago and the continuing prohibition to sell private label film is unfair because of drastic changes in market conditions and competition. Also, the main purpose of the 1954 decree, which was to end Kodak’s technological advantage in color film processing and create a market where there had been none, has been totally achieved and, therefore, its restrictions should be terminated. Kodak argues that the restraints imposed by both decrees are obsolete because of drastic changes in the photographic industry and the global economy, that now provide marketing opportunities to others which are denied to Kodak. Kodak also argues that its dominance in the photographic industry has long since ended and the restraints of both the 1921 decree and the 1954 decree prevent the marketing of newly developed technical improvements and adaptations in the photographic industry. Therefore, the central issue presented is whether the change of circumstances since 1921 and 1954 warrant either modification or termination of both decrees. The Government, voicing the arguments of various competitors in the photographic industry, objects to any major modification of either decree. The consistent theme of that objection is that, notwithstanding an increased competitive atmosphere in the photographic industry, Kodak’s dominance is still directly related to the economic advantage it gained prior to the enactment of both decrees and, therefore, the restraints of both decrees should remain in place. To accept that argument would require me to ignore critical historical changes of the past 73 years, both economic and legal. For the reasons set forth herein, I hold that dramatic changes have taken place in the development of the photographic industry, the global economy and in legal precedent which warrant termination of both the 1921 and 1954 decrees. BACKGROUND On August 24, 1915, the Honorable John R. Hazel, a member of this Court, issued a decision after an extensive trial, which produced more than 3,000 printed pages of testimony and three volumes of exhibits. That decision found that George Eastman and the Eastman Kodak Company had monopolized the amateur photography industry between 1895 and 1910. United States v. Eastman Kodak Co., 226 F. 62 (W.D.N.Y.1915) appeal dismissed, 255 U.S. 578, 41 S.Ct. 321, 65 L.Ed. 795 (1921). Judge Hazel described the history of the industry and the conduct which he found had violated the antitrust laws. Certain aspects of those findings require restatement. 1. Eastman’s Early Innovations In 1878, George Eastman entered the field of photography by selling collodion plates, commonly known as wet plates, which were used to make photographic negatives. Soon afterward in 1881, he organized the Eastman Dry Plate Company and began producing dry plates, a process which involved suspending photosensitive silver halides in gelatin and applying the suspension to a glass plate. While continuing to produce dry plates, Eastman researched more manageable and inexpensive media to support the photosensitive emulsions. In 1884' and 1885, Eastman and a partner, William H. Walker, completed research into, and were granted patents for, a system which used a roll of paper to support the photosensitive emulsions and a mechanism to hold that roll within the camera. Although Eastman hoped that this system would gain immediate public acceptance, it was not until 1888 when Eastman produced a camera — the “Kodak” — which was commercially successful. Although the Kodak camera finally brought photography into the amateur realm, the paper roll was difficult to process, because the paper needed to be detached from the back of the photographic emulsion before the positive image could be transferred to photographic paper. Eastman attempted to produce a transparent negative film that required neither glass nor paper to support the emulsions. Eastman originated the first commercially successful nitrocellulose roll film system by borrowing from and refining the ideas of Rev. Hannibal Goodwin. Eastman and one of his employees, Henry Rei-chenbach, received patents for this system in 1892. The implementation of celluloid roll film was a major advance in the film industry because it simplified the use of the camera, made processing easier, and finally made photography fully accessible to the general public. The amateur photographic industry was born. 2. Eastman Kodak’s Antitrust Violations Eastman’s success with the roll film camera and the general public’s increasing demand for the product inevitably brought competition. In the 1890s, competitors began to produce cameras implementing refinements to the film and the camera apparatus developed by Eastman. In addition to improving its cameras and films, Eastman Kodak also worked to enhance the marketing of its products, making them more available to consumers by encouraging drug stores to carry them as a side line. Innovative refinements and increased competition resulted in lowered prices which brought new consumers into the amateur photography market. Kodak then began to acquire its camera and film competitors. The Boston Camera Company was acquired in 1895, the American Camera Manufacturing Company in 1898, and the Blair Camera Company in 1899. In his decision of 1915, Judge Hazel found nothing unlawful in the acquisitions of these three companies, although he found that they were the “nucleus from which arose the intention to bring other companies manufacturing and dealing in photographic supplies under its control.” 226 F. at 70. At approximately the same time, Kodak began to purchase photographic paper suppliers. Kodak purchased at least nine paper companies between 1894 and 1898, and consolidated most of these companies into the General Alisto Company, which remained a subsidiary of Kodak. Far more significant in Judge Hazel’s decision, however, was the 1898 agreement between Kodak and the General Paper Company of Brussels (which was, at the time, the principal supplier of raw stock for photography paper for the entire world) that, in essence, gave Kodak control of all paper imported into the United States by the General Paper Company. Ultimately and by 1908, Kodak quickly came to control the raw paper industry in the United States. Kodak also purchased and consolidated several dry plate manufacturers, stock houses engaged in selling photographic supplies, and plate camera manufacturers between 1890 and 1905. Judge Hazel found that these acquisitions were made with the intent to monopolize. Based upon this finding, Judge Hazel ordered that an antitrust decree be entered remedying Kodak’s violation of the antitrust laws. 3. The 1921 Decree Judge Hazel considered all available remedies under the antitrust laws and decided that the relief should forbid future violations of the antitrust laws and also abrogate the illegal monopoly which he had found that Kodak had acquired. Judge Hazel entered a final decree on January 20, 1916, which Kodak thereafter appealed to the Supreme Court. In 1921, Kodak withdrew its appeal and agreed with the Government on the terms of the consent decree which ultimately was issued by Judge Hazel on February 1, 1921 (“the 1921 decree”). The decree, as drawn, had two essential functions. The first function, which has been satisfied, was short-term relief. Kodak was ordered to sell portions of businesses that it had acquired between 1890 and 1910. These terms of the 1921 decree were satisfied decades ago, and subsequent amendments to the decree reflect Kodak’s full compliance. The 1921 decree also placed artificial restraints on Kodak’s participation in the market in order to “effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about.” United States v. Eastman Kodak Co., 226 F. at 81 (quoting Standard Oil Co. v. United States, 221 U.S. 1, 78, 31 S.Ct. 502, 523, 55 L.Ed. 619 (1911)). Most prominent among these provisions is Section X, which prohibits Kodak from selling “so-called fighting brands” and requires that all articles and supplies shall “be labeled in such a manner as to show clearly that the same is manufactured” by Kodak. This has effectively prevented Kodak from selling “private label” film, which is color film marketed under the brand of a retail outlet. The two other continuing provisions of the decree are Sections VI and VII, which limit Kodak’s vertical interactions with dealers by forbidding exclusive dealing contracts and non-price vertical restraints. These provisions continue today, and the Government would have them continue for the foreseeable future. 4. The 1954 Decree The 1954 Consent Decree differs from the 1921 Consent Decree in that it was entered, without an adjudication of facts or law. Although the United States filed a Complaint in the matter, charging Kodak with violating the Sherman Act by its practices relating to the sale of color film throughout the country, the case settled immediately and the consent decree was entered by the Honorable John Knight, another member of this Court. The 1954 decree is similar to the 1921 decree in its two functions: first, it mandated short-term action, which required Kodak to introduce Ektaehrome-brand slide film, and second, it provided for long-term regulation, which forbade, among other things, “tying or otherwise connecting in any manner the sale of [Kodak’s] color film to the processing thereof.” The transcript of the hearing at which the 1954 decree was adopted reflects an understanding on the part of Kodak, which went unchallenged by the Government, that the decree might be subject to revision in the future. At the hearing, Kodak counsel noted that: The decree is the best that the Government and the company could devise. However, we have both realized that we cannot foresee how the business of processing colored film will develop over the ensuing years. In consenting Eastman Kodak has advised the Government that it may in the future have to appeal to this Court for relief, either on the one hand pursuant to these special provisions contained in the decree, or, secondly, pursuant to the general retention of jurisdiction by this Court which is specifically provided for by Section 17 of the decree, and, third, pursuant to the authority granted to this Court by Rule 60-B of the Rules of Civil Procedure which rule gives the Court broad powers to modify the decree when it. is no longer equitable or for any other justifiable relief. Kodak argues that the restrictions of the 1954 decree should be removed because circumstances have changed since 1954 and “it is no longer equitable” for them to remain in place. 5. Decree Modifications Both decrees have been modified by this Court in the past. The 1921 decree has been modified four times: on May 8,1924, May 13, 1926, January 10, 1929, and June 19, 1935. All of these modifications were relatively minor. The 1954 decree was modified once, in 1961, when this Court found that Kodak had satisfied several provisions of that decree. No modification to either decree has been attempted since 1961. THE MOTION TO MODIFY OR TERMINATE AND HEARING On May 20,1993, after protracted negotiations failed to produce a result acceptable to both parties, Kodak filed a motion for modification or termination of both the 1921 and 1954 decrees. The Government requested more time to complete its investigation concerning whether the modification or termination of some or all of the provisions of the decrees was appropriate. The Government was granted this time and Kodak’s application was held in place. Thereafter, the Government, in a letter to Kodak’s counsel concluded that it was their position that termination of Sections VI, VII, and X of the 1921 decree, and Section V of the 1954 decree would be inappropriate. By this, the Government essentially served notice that it intended to oppose the termination of those critical sections of both decrees and a hearing became necessary. An order was issued on November 29, 1993, which scheduled the hearing for March 14, 1994. It also required that a notice be published stating the basis of Kodak’s request and soliciting comments from the public for a sixty-day period prior to the hearing. Many comments were sent to the Court from politicians, competitors, manufacturer’s organizations, and members of the public, expressing positions on both decrees. These comments were filed and have become part of the record. PRE-TRIAL MOTIONS Kodak filed two additional motions prior to the commencement of the hearing. The first was a motion for summary adjudication of the legal standard to be applied. The second was a motion for summary judgment on Sections VI and VII of the 1921 decree. In a decision issued February 17, 1994, the decision on the motion for summary adjudication was reserved until the conclusion of the hearing on the merits and Kodak’s motion for partial summary judgment was denied on the ground that genuine issues of material fact existed. PUBLIC COMMENTS Through notices in various newspapers, periodicals and the Federal Register, see 58 Fed.Reg. 65398 (Dec. 14, 1998), the public was notified of the hearing on Kodak’s motion to vacate the 1921 and 1954 Consent Decrees and was invited to submit relevant comments to this Court. The Court received a total of 47 comments in letter and memoranda form from private citizens, politicians, trade associations and corporate rivals of Kodak (some of whom testified against Kodak in this hearing). The comments are divided into two categories — pro-Kodak and pro-Government — and a summary of each category is discussed below. 1. Pro-Kodak Not surprisingly, the comments received in favor of vacating the 1921 and 1954 decrees were unanimous in their opinion that the decrees are obsolete and no longer reflect market realities. The majority of the comments emphasized that the relevant geographic market for film is global, not national, and that Kodak presently competes at a disadvantage in the domestic film market. Some commentators stated that as the only domestic manufacturer of color negative film, Kodak’s hands should be untied and it should be allowed to compete on a “level playing field” with its competitors, most of which are major and highly capitalized foreign corporations. One commentator stated that Kodak is disadvantaged because foreign competition in the domestic film market is government subsidized. Another commentator stressed the unfairness of decrees that favor foreign competition in the United States while domestic corporations are restrained from freely entering foreign markets, e.g., Japan, on equal footing. These commentators believe that Kodak’s competitors can now compete in their own right and do not need government protection. It was also expressed that freeing Kodak from the decrees’ constraints will permit the consumer to decide which competitors produce the superior product and thus establish market preference. Comments were also received from trade associations representing areas in California, Colorado, Ohio, Massachusetts and New York. These comments stressed that recision of the decrees would promote the continued vitality of Kodak and, therefore, is essential to the economic well-being of their states and the nation. Moreover, these commentators were concerned that maintenance of the decrees would cost jobs because it is not likely that Kodak would be able to create new jobs if its business operations were unduly restricted. The comments received from politicians stressed that the law should be “a servant of the people,” and asked this Court to consider the impact of the decrees on their constituencies. These commentators stated that government intervention in Kodak’s business affairs is hurting employment and the economy. Without surprise, Thomas T. Mooney, President of the Greater Kochester Metro Chamber of Commerce stated, “[c]ertainly in today’s economic environment where jobs are so crucial, the health and profitability of Kodak is a matter of the highest concern.” One commentator favored vacating the 1954 decree because he feels photofinishing quality has dropped since the decree was entered. Another felt that consumers were inconvenienced by not being able to purchase film and processing for one price. Another favored vacating the decrees to help Kodak extricate itself from present financial difficulty. Still others argued that retention of the decrees will result in a loss of American jobs and increased taxpayer costs to enforce the decrees. 2. Pro-Government The majority of comments received in favor of retaining the consent decrees were submitted principally by independent photo-finishers. One feared that in seeking removal of the 1954 decree, Kodak intends to vertically and horizontally dominate the photofinishing industry. The commentator stated that Qualex’s acquisition and/or absorption of the majority of photofinishers in the United States along with Kodak’s marketing of the Colorwateh system demonstrates Kodak’s tendency to seek a monopoly of photofinishing services. There was a concern that Kodak has marketed the Colorwateh system to minilabs in such a way so as to guarantee itself a greater share of the color paper market. If Kodak is permitted to tie its Colorwateh processing to film sales, it will close out photofinishing competition. The commentator also stated that Qualex now seek to install micro minilabs in stores which would directly compete with current standalone minilabs. The Court also received comments from mail-order, wholesale and minilab photofin-ishers stating that their ability to remain competitive would be impaired should the 1921 and 1954 decrees be vacated. One commentator fears that elimination of the decrees will allow Kodak to sell film, paper and chemicals under exclusive arrangements which would drive out of business smaller concerns who are unable to carry a full line of products. In addition, independent photo-finishers fear that, if Kodak is allowed to tie film sales and photoprocessing, they will be foreclosed from processing new Kodak film lines and ultimately will be driven out of business. The Court also received lengthy submissions in the form of legal memoranda (in addition to those submitted at the hearing) from some of Kodak’s competitors, including Agfa, Konica United States and Fuji Photo Film U.S.A., Inc. They argue that Kodak already has substantial market power in the film and photoprocessing industries and the termination of the decrees will allow Kodak to ultimately monopolize these industries. Konica and Fuji also argue that Kodak has monopoly power in the color paper and photographic chemical markets and oppose termination of that portion of the 1921 decree pertaining to the sale of these items. (The Government does not oppose recision of the decree as to these markets and, therefore, these concerns are not properly before the Court.) The commentators argue that maintenance of the decrees are essential to the economic health of the marketplace. These concerns for the most part were also expressed through the testimony of witnesses and introduction of documents from both sides and, therefore, are dealt with in the body of this decision under various headings. THE HEARING The hearing began on March 14, 1994. Kodak presented several witnesses from inside the company. George Fisher, Kodak’s current Chief Executive Officer, testified about the negative effect of the decrees upon Kodak’s ability to innovate and compete in a global market. Colby Chandler, an engineer and former CEO of Kodak before retiring in 1990, testified about Kodak’s position in the color film and processing market at the time of the entry of the 1954 decree, its attempts to satisfy both decrees, and its current position in the color film processing market. Thomas Busch, General Manager of Photofinishing Sales, and David Biehn, Vice President of Consumer Imaging, both testified about Kodak’s inability to innovate new products for the market because of the outdated oppressive restrictions of both decrees. Three experts in the photographic industry also testified in Kodak’s behalf. Herbert Keppler, Publishing Director for Popular Photography and American Photo testified that film tests conducted by his magazine revealed that there were no significant quality differences between Kodak’s film and any of its top three competitors — Fuji, Konica, and Agfa. He also testified that film produced by the Minnesota Mining and Manufacturing Co. (“3M”) was of slightly lower quality but at a price point that was significantly lower than its four competitors. Peter Krause, who formerly worked for Agfa and is now a consultant and publisher of industry reports, testified concerning the nature of the film and photofinishing market in general, and specifically the degree of competition present in the film and photofinishing market today. Finally, Donald Becker, a photographic industry consultant and former president of Fox Photo, Inc., testified about the historical changes in the photofinishing market from the time he entered the market in 1949 to the present. Kodak also presented testimony from two photofinishing providers, Scott Sims and Neil Cohen. Sims, the owner of Scott’s Photo, Inc., in Rochester, New York, runs a specialty camera store and minilab at a single location. Cohen is the president of District Photo, Inc., which is one of the nation’s largest mail-order photofinishers and which also operates minilab retail outlets in the District of Columbia area. The Government principally presented witnesses from Kodak and Qualex’s competitors. These included Stephen Logsdon, vice-president of Polaroid’s conventional imaging division, Joseph Warren, vice-president of imaging systems for 3M and Paul Hudak, vice-president of photographic markets for Fuju Photo Film, USA. These witnesses testified about their companies’ positions in the film industry and ^stated that relieving Kodak from the constraints of the 1921 decree would adversely impact their ability to compete in the film business. Similarly, Margaret A. Weston, CEO of Konica Quality Photo East and David McEowen, president of Fuji TruColor, Indiana, both testified that allowing Kodak to bundle film and photofinishing in ways now prohibited by the 1954 decree would inhibit their ability to compete in the photofinishing market. The Government also called Thomas Froom, who is a merchandise manager for the Army and Air Force Exchange Service (“AAFES”). Froom testified that Kodak offered AAFES a premium to stock Kodak film exclusively, and also testified regarding Kodak’s Volume Incentive Program (“VIP”), which rewards retail outlets that sell large volumes of Kodak film. JURISDICTION Jurisdiction over the decrees, and the modification or termination thereof, was expressly reserved by this Court by the terms of Section XVII of the 1954 decree, and by the decision which led to the 1921 decree. See United States v. Eastman Kodak Co., 226 F. at 81. Even without such an express reservation, this Court would still have such power “by force of principles inherent in the jurisdiction of the chancery!, for a] continuing decree of injunction directed to events to come is subject always to adaptation as events may shape the need.” United States v. Swift & Co., 286 U.S. 106, 114, 52 S.Ct. 460, 462, 76 L.Ed. 999 (1932). THE APPLICABLE STANDARD The United States maintains that the applicable standard is set forth in United States v. Swift & Co., 286 U.S. at 119, 52 S.Ct. at 464 which provides that “[njothing less than a clear showing of grievous wrong evoked by new and unforeseen conditions” permits modification or termination of an antitrust decree without the government’s consent. This standard was further explained in United States v. United Shoe Machinery Corp., 391 U.S. 244, 88 S.Ct. 1496, 20 L.Ed.2d 562 (1968). The Government argues that no case has explicitly overruled the ap-plieability of Swift to the modification of antitrust decrees and that the recent decision in Rufo v. Inmates of Suffolk County Jail, — U.S. -, 112 S.Ct. 748, 116 L.Ed.2d 867 (1992) applies only to decrees in cases involving vindication of public rights, and does not apply to. a decree entered against a private entity in an antitrust action. Kodak argues that the “less stringent and more flexible” standard stated in Rufo applies, allowing a party to be relieved from a decree when it is no longer equitable for it to have prospective application. It also argues that later decisions have limited the Swift holding, almost to its facts and further that the two-part standard set forth in Rufo should be applied. That standard requires the party seeking modification to “establish! ] that a significant change in circumstances warrants revision of the decree.” If that standard is met, “the court should consider whether the proposed modification is suitably tailored to the changed circumstances.” Rufo, — U.S. at -, 112 S.Ct. at 760. The standard for relief from a consent decree is not the rigid Swift standard that the Government urges, but is instead a more flexible standard that allows a party to be relieved from a decree when it is no longer equitable to enforce that decree. Several sources support this view. The first is Federal Rule of Civil Procedure 60(b). That rule states that: On motion and upon such terms as are just, the court may relieve a party from a judgment, order or proceeding for the following reasons: * * ^ * * * (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. (Emphasis added.) The Rule is only the starting point for the inquiry, however. Supreme Court and Second Circuit precedents strongly support the proposition that the Swift standard is not to be applied mechanically or stringently. In United Shoe, 391 U.S. at 248, 88 S.Ct. at 1499, for example, the Supreme Court emphasized the unique facts of Swift, and particularly the situation which created the need for the decree. The Court emphasized that “the [Swift ] decree must, of course, be read in light of this context.” Id. The Court noted that the market conditions which existed at the time of the Swift decree were relatively unchanged and that there was still a danger of unlawful restraint of trade. Examination of the particular facts of Swift reveals that the defendants in that case were a closely-aligned group of major meat packers who had controlled the market for meat and groceries through horizontal agreements and control of the rail transportation of groceries. These defendants used a variety of means to attempt to circumvent the decrees while they were in place, and even succeeded to the extent that they managed to convince the Supreme Court of California to stay the decree pending further litigation for nearly four of those ten years. This stay was overturned by the Supreme Court about one year before the defendants brought the motion to terminate that was the subject of the Swift decision. United States v. California Cooperative Canneries, 279 U.S. 653, 49 S.Ct. 423, 73 L.Ed. 838 (1929). It was in this context that the Supreme Court examined the equities of decree termination, and the strong language used by the Supreme Court to maintain the decree had its source, at least in part, in the repeated attempts by the defendants to circumvent or overturn the decree. The Second Circuit, recognizing that Swift was limited to the unique facts of that case, has consistently leaned toward implementing a more flexible standard. This standard was set forth in King-Seeley Thermos Co. v. Aladdin Industries, Inc., 418 F.2d 31 (2d Cir.1969) and New York State Ass’n for Retarded Children v. Carey, 706 F.2d 956 (2d Cir.), cert denied, 464 U.S. 915, 104 S.Ct. 277, 78 L.Ed.2d 257 (1983). In King-Seeley, Judge Friendly held that a court was “free to grant relief” if “modification was necessary to achieve the results intended, even though this would take the form of reducing the restrictions imposed upon [the defendant].” King-Seeley, 418 F.2d at 35. The most compelling reason for adopting the flexible standard, however, arises from the recent Supreme Court decision in Rufo v. Inmates of Suffolk County Jail, — U.S. -, 112 S.Ct. 748, 116 L.Ed.2d 867 (1992). The Court in Rufo noted once again that Swift must be read in the context of the situation that gave rise to the case, and emphasized that although some conditions in the market affected by the decree in Swift had changed, the defendants were “positioned to manipulate ... prices in 1930, just as they had been in 1920.” Rufo, — U.S. at -, 112 S.Ct. at 757. After quoting the “grievous wrong” standard, the Rufo court stated that “[r]ead out of context, this language suggests a ‘hardening’ of the traditional flexible standard for modification of consent decrees, [but] that conclusion does not follow when the standard is read in context.” Id. — U.S. at -, 112 S.Ct. at 757-58. The Court elaborated that “[o]ur decisions since Swift reinforce the conclusion that the ‘grievous wrong’ language of Swift was not intended to take on a talismanic quality, warding off virtually all efforts to modify consent decrees.” Id. — U.S. at-, 112 S.Ct. at 758. The Court then set out what Kodak argues is the appropriate standard to apply in this case: “[A] party seeking modification of a consent decree bears the burden of establishing that a significant change in circumstances warrants revision of the decree. If the moving party meets this standard, the court should consider whether the proposed modification is suitably tailored to the changed circumstances.” Id. — U.S. at -, 112 S.Ct. at 760. While Rufo was primarily aimed at institutional reform decrees, the Second Circuit has applied the Rufo test broadly. It has held that Rufo applies not only in institutional litigation against government entities, but in other cases where equitable relief is applied. In Still’s Pharmacy v. Cuomo, for example, the Second Circuit applied Rufo to a modification of a settlement agreement concerning the method of calculating state Medicaid reimbursements to pharmacists. More recently, in Patterson v. Newspaper & Mail Deliverers’ Union, 13 F.3d 33 (2d Cir.1993), the Second Circuit approved the use of Rufo in a motion to terminate a consent decree in a civil rights action. In that decision, Chief Judge Newman examined Rufo and the cases which interpreted it, and concluded that: [T]he flexible standard outlined in ... Rufo is not limited to cases in which institutional reform is achieved in litigation brought directly against a governmental entity. The “institution” sought to be reformed need not be an instrumentality of government. If a decree seeks pervasive change in long-established practices affecting a large number of people, and the changes are sought to vindicate significant rights of a public nature, it is appropriate to apply a flexible standard in determining when modification or termination should be ordered in light of either changed circumstances or substantial attainment of the decree’s objective. Patterson, 13 F.3d at 38. The Seventh Circuit has gone even further — flatly declaring that Rufo gave the “coup de grace” to Swift and that Rufo’s flexible standard is “no less suitable to other types of equitable case.” In re Hendrix, 986 F.2d 195, 198 (7th Cir.1993). Two recent district court decisions also support the conclusion that Rufo’s “flexible standard” applies to modification of antitrust decrees. First, in United States v. Agri-Mark, Inc., 1994-1 Trade Cas. ¶ 70,512, 1994 WL 88979 (D.Vt.1994), which involved the modification of an antitrust decree entered pursuant to the Clayton Act, Judge Billings rejected the Government’s argument that the Swift standard should apply, and instead applied Rufo. Judge Billings’ application of Rufo is both persuasive and directly on point. The very recent decision in United States v. Western Telephone Company, Civil Action 82-0192 D.D.C. (April 5, 1994) by Judge Harold Greene of the United States District Court for the District of Columbia also indicates that Rufo is the standard to be applied to antitrust decrees. Noting that Rufo “provides ample fodder for those inclined to read its holding more broadly,” Judge Greene concluded that both the Seventh Circuit and the Second Circuit have allowed Rufo to apply to contexts other than reform decrees. In particular, Judge Greene pointed to Chief Judge Newman’s language in Patterson for the principle that Rufo applies to all equitable proceedings, including those to modify an antitrust decree. See Western Telephone, Slip Op. at 19. The Government argues that the adoption of the Rufo standard in the Western Telephone case is merely dicta, because Judge Greene noted that his decision would have been the same whether it was decided under the Swift or Rufo standard. This is incorrect, because Judge Greene relies solely on the Rufo standard for his determination, and although he denied the motion for modification of the decree, he made clear that the Rufo standard would be the one applied in future applications for relief. Moreover, his reasoning in the decision is highly persuasive. Finally, Rufo is the appropriate standard to apply in this case because the elements of the decrees in question here share common concerns with institutional reform decrees. Sections VI, VII, and X of the 1921 decree and Section V of the 1954 decree, put simply, impose continuing restrictions on Kodak’s interaction with the market. Market prices, competition, and marketing strategy are thus affected by these decrees, and changes in the decrees can have economic impact on a large number of Americans. In effect, the changes sought in these antitrust decrees fit the description given by Judge Newman in Patterson, because Kodak seeks pervasive change in long-established practices affecting a large number of people, and seeks the changes to vindicate significant rights of a public nature, i.e., the consumer benefits from increased competition which Kodak claims is stifled by both decrees. Kodak’s arguments for termination or modification of these decrees rest on the premise that the decrees have outlived their usefulness and no longer promote, but instead inhibit, competition. In that sense, Kodak’s request for relief seeks to vindicate significant public rights, and fits the Patterson standard. Therefore, Kodak’s request for relief from both the 1921 decree and the 1954 decree, like the request for relief from the decree in Patterson, must be judged by the flexible Rufo standard because it allows the Court to modify the decrees to fit changes in market conditions. The strict Swift standard would bind the Court to the terms of its own decree even if it is clear that changed circumstances have made it inequitable to apply the decree. Precisely for these reasons, and as the Second Circuit and Supreme Court have recognized, the flexible Rufo standard will be applied in determining Kodak’s motion to terminate the decrees. THE 1921 DECREE In support of its motion to eliminate and/or modify certain sections of the 1921 decree, Kodak contends (1) that substantial changes have occurred in the marketplace for film during the seventy-three years since the decree was entered; and (2) that there have been substantial changes in the law, and taken together, these factors justify the relief sought by Kodak. As a consequence of those substantial changes which it alleges have taken place in the market for film, Kodak also contends that it no longer possesses “market power,” defined generally as “the power to control prices or exclude competition.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956). Because of the size and financial strength of its competitors, Kodak argues that it does not have the market power necessary to drive its competitors out of the marketplace, or harm consumers through an anticompetitive pricing structure. Conversely, the Government maintains that Kodak still retains market power which can be traced to the illegal activities that gave rise to the 1921 decree. Although competitors have entered the market and have claimed an increasing market share, the Government contends that competition is not yet strong enough to eliminate Kodak’s market power. Consequently, it is the Government’s view that the disputed sections of the decree should remain in place in order to eliminate the illegally acquired market power which Kodak still possesses, and which enables it to extract a premium price for its film. The following represents a summary of proof submitted in support of the Court’s findings relevant to Kodak’s application for modification or termination of the 1921 decree. 1. The Expert Witnesses Kodak’s expert witness was Professor Jerry Hausman, MacDonald Professor of Economics at the Massachusetts Institute of Technology. Professor Hausman has a Ph.D. degree in economics from Oxford University (1973), and has published extensively in the fields of econometrics, public finance and applied economics. He has been a consultant to Kodak since 1987, and in addition, has testified in antitrust actions involving the printing and beer industries. In preparation for his testimony, Professor Hausman visited a Qualex macrolab and a Fuji minilab, both located near Washington, D.C. In addition, he testified that he studied the history of Kodak, read “old decisions” and the decrees at issue, and, using econometrics, analyzed empirical data (known as Nielsen “scan trac” data) representing consumers’ film purchases at food markets in five major cities. The data was collected as the bar code on each package of film was “scanned” at the checkout register, and the information concerning the purchase was thereby recorded. Professor Hausman also analyzed the same data collected from K Mart stores nationwide. The Government’s expert was Professor Robert Masson of Cornell University. Professor Masson has a Ph.D. degree in economics from the University of California at Berkeley (1969), and has published extensively in the industrial organizations field. He previously worked as an economist and consultant at the Department of Justice. He has extensive experience in the milk industry, but has neither studied, nor consulted for anyone, in the photographic industry. Professor Masson testified that he was hired by the Justice Department to serve as an expert in this matter in early February 1994, some six weeks before the hearing. He stated that he did not collect or analyze any empirical data, and the only persons he interviewed, primarily through conference calls, were the Government’s witnesses, who, with one exception, were all employees of Kodak’s competitors. In general, the Court found Professor Hausman to be the more helpful of the two experts. He was much more familiar with the photographic industry, and with the literature, particularly the Landes and Posner article discussed infra, which both he and Professor Masson acknowledged to be authoritative. In addition, Professor Hausman spent considerably more time and effort preparing for his testimony than did Professor Masson, who had been hired just prior to the hearing. Moreover, Professor Hausman previously served as an expert in an antitrust matter involving the beer industry. There are foreign and domestic competitors in both the beer and film industries in the United States, and each industry markets their products nationally and/or regionally to establish brand name identities and thereby compete for shelf space in retail outlets. In contrast, milk is advertised generieally, without reference to any particular brand, by the dairy industry’s trade association on behalf of local farmers nationwide. Because of the similarities in marketing of beer and film in this country, and in the nature of competition in both industries, Professor Hausman’s previous experience as an expert gave his testimony much more weight with respect to the economic issues presented than Professor Masson’s experience in the milk industry. 2. The Relevant Market for Film In analyzing whether a firm possesses market, or monopoly power, “the first step in a court’s analysis must be a definition of the relevant markets.” Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 268 (2d Cir.1979), citing United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391-93, 76 S.Ct. 994, 1005-6, 100 L.Ed. 1264 (1956). The relevant market “provides the basis on which to balance competitive harms and benefits of the restraint at issue.” Los Angeles Memorial Coliseum Com’n v. N.F.L., 726 F.2d 1381, 1392 (9th Cir.1984). In an antitrust context, the relevant market has two components: the product market and the geographic market. Id. at 1392. A. The Relevant Product Market The relevant product market “is composed of products that have reasonable interchangeability for the purposes for which they are produced — price, use and qualities considered.” du Pont, 351 U.S. at 404, 76 S.Ct. at 1012; see also Los Angeles Memorial Coliseum Com’n, 726 F.2d at 1392 (“Product market definition involves the process of describing those groups of producers which, because of the similarity of their products, have the ability — actual or potential — to take significant amounts of business away from each other.”) In essence then, the relevant product market is composed of products which are reasonably interchangeable for the same or similar uses. In 1921, photographic film (“film”) was the only medium available to the amateur consumer who wanted to preserve an image. However, the modern consumer has choices that did not exist seventy-three years ago, with film being only one means to that end. As an example, a consumer can chose to preserve an image on video taken by a “camcorder,” the use of which is widespread and increasing each year and unheard of in 1921. In contrast to film, a video taken on a camcorder does not require processing and can be immediately viewed on a video cassette recorder. Kodak’s research indicates that, within the first year after a household acquires a camcorder, the purchase of traditional photographic film by that household drops by thirty percent. Although other image-preserving mediums are available to the consumer, Kodak’s expert, Professor Hausman, testified that, for purposes of analyzing the continued viability of the 1921 decree, the relevant product market should include only amateur color negative photographic film, which represents the majority of film sold. The Government’s expert, Professor Masson, did not disagree with this conclusion. Accordingly, the Court adopts this finding. Where Kodak and the Government apparently disagree is whether the market for amateur color negative film should be broken into smaller product markets defined by film speed, such as 100 speed, 200 speed, etc., or by film size, such as 35 millimeter, etc. Professor Hausman testified that as a matter of economics, two or more products should be considered to be in the same market if firms can readily switch their production from one product to the other(s). This is characteristic of the film industry because manufacturers have the capability to readily switch production between different film speeds or sizes. No compelling evidence was offered to contradict this testimony. Legal authority also supports this conclusion. See, e.g., Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271 (9th Cir.1975) (where production substitutability is high, products should be treated as part of the same market); Frank Saltz & Sons, Inc. v. Hart Shaffner & Marx, 1985-2 Trade Cas. (CCH) ¶ 66,768 at 63,721 (S.D.N.Y.1985) (manufacturers of inexpensive men’s suits included in market with manufacturers of better men’s suits, because the former could easily and quickly convert to the manufacture of better men’s suits). Accordingly, the Court finds that the relevant product market for amateur color negative film includes all film speeds and sizes. B. The Relevant Geographic Market Kodak and the Government disagree on defining the relevant geographic market. Kodak defines the market as including the United States, Western Europe, and Japan (hereinafter referred to as a “world-wide” market), while the Government contends that the relevant geographic market should include only the United States. Kodak’s share of the world-wide market for amateur color film is 36 percent, while its share in the United States is estimated to be 75 percent of dollar sales, and 67 percent of unit sales. Kodak contends that its 36 percent share of the world-wide market is evidence that it does not possess market power, while the Government argues that Kodak’s market dominance in the United States alone is evidence of its market power. The relevant geographic market describes the “area of effective competition in which the seller operates, and to which the purchaser can practicably turn for supplies.” Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 628, 5 L.Ed.2d 580 (1961). There is no disagreement that film is produced by five multinational corporations which manufacture and sell film world-wide. Kodak, which is the only company manufacturing film in the United States, sells its film both domestically and overseas. Fuji manufactures film in Japan and in the Netherlands, Konica manufactures film in Japan, Agfa manufactures film in Germany, and 3M manufactures film in Italy. Each of these manufacturers produces amateur color negative film using generally the same emulsions for world-wide distribution. Each is essentially of equal quality. Professor Hausman identified two articles that are widely recognized in the economic literature on the subject of relevant geographic market definition: The Problem of Geographic Market Delineation in Anti-merger Suits, 18 Antitrust Bulletin 45 (1973), by K. Elzinga and T. Hogarty (“Elzinga & Hogarty”), and Market Power in Antitrust Cases, 94 Harvard Law Review 937 (1981), by J. Landes and R. Posner (“Landes & Posner”). Landes & Posner, for example, argue that if a distant seller has some sales in a local market, all its sales, wherever made, should be considered a part of that local market for purposes of computing the market share of a local seller. This is because the distant seller has proved its ability to sell in the market and could increase its sales there, should the local price rise, simply by diverting sales from other markets. 94 Harv.L.Rev., at 963 (emphasis in original). The proof at the hearing established that the production of photographic products is capital-intensive and that all world markets are supplied by Kodak, Fuji, Konica, Agfa, and 3M. Each of the foreign manufacturers has proved its ability to establish market share in the United States, and imported film comprises one-third of the film sold in the United States. It was Professor Hausman’s opinion that film manufacturers have excess capacity, and that the supply of film is “elastic,” meaning that foreign manufacturers could quickly increase the supply of film for U.S. consumption if Kodak attempted to restrict output and raise prices. The Government did not introduce any evidence to dispute Professor Hausman’s opinion. Based upon this empirical data and the ability of foreign competitors to increase film production for U.S. consumption, Professor Hausman concluded that the film being supplied to the United States from Japan and Western Europe is clearly constraining Kodak’s ability to raise domestic film prices. He also testified that he measured imports and exports of film into the United States, and that the quantitative flow of imports and exports is “significant” under the Elzinga & Hogarty test of market definition. Professor Hausman concluded that, under either the Landes & Posner or Elzinga & Hogarty methodologies, the relevant market for amateur color negative film is world-wide, and thus world-wide sales of Kodak and of its foreign competitors should be counted in computing Kodak’s market share for amateur color negative film. Professor Masson, in contrast, testified that the photographic industry is composed of several regional markets across the world, and that only the United States is the relevant geographic market for purposes of analyzing Kodak’s application. His analysis was based upon the fact that, while competition is global, film manufacturers employ different marketing strategies for different regions. However, the proof established that, while there may be slight differences, each manufacturer produces film for world-wide distribution using generally the same emulsions, and that the films are of comparable quality. The fact that manufacturers have to take cultural differences into account when formulating marketing strategies does not vitiate the economic reasons advanced by Professor Hausman in support of his conclusion that the relevant market for film is world-wide. Professor Masson conceded that he did not calculate whether the Elzinga-Hogarty test was satisfied by photographic industry empirical data, but that he was willing to accept Professor Hausman’s conclusion that the flow of imports and exports is “significant.” Professor Masson was, however, critical of both the Elzinga-Hogarty test and of what he called a “blanket application” of the Landes & Posner methodology. In particular, he testified that their approach is not applicable in this case because of what he called the “cellophane” problem, and because consumers do not view imported film as perfect substitutes. The Cellophane problem was vigorously pursued during the cross-examination of Professor Hausman, who was accused by Government counsel as having committed the elementary Cellophane fallacy. In United States v. E.I. du Pont de Nemours, also known as the Cellophane case, the issue was whether du Pont had monopoly power, and thus it was important in that case to determine whether cellophane and other flexible wrapping materials were reasonably interchangeable at the then-current price of cellophane. The Supreme Court ultimately defined the market for flexible wrapping materials on the basis of evidence of a high cross-elasticity of demand between cellophane and other flexible wrapping materials. Market Power in Antitrust Cases, 40 Harv. L.Rev. at 960. However, Landes & Posner postulated that in so finding, the Court committed economic error. Landes & Posner noted that “every monopolist faces an elastic demand ... at its profit-maximizing output and price, [and thus] there is bound to be some substitution of other products for its own when it is maximizing profits, even if it has great market power.” Id., at 961. They concluded that “the high cross-elasticity [in the Cellophane case], far from proving a lack of market power, was a necessary condition of market power.” Id. As a result, Landes & Posner opined that it was “improper in that case to include in the market substitutes that may have been attractive to consumers only because the market price was far above the competitive level[.]” Id., at 970-71. In essence, then, Landes & Posner argue that a high cross-elasticity of demand may be the result of monopoly power. At a high enough price, even poor substitutes look good to the consumer. Professor Hausman had previously testified that, based upon his econometric analysis of Nielsen scan trac data, there was a high cross-elasticity between Kodak’s price and the quantity of Fuji film demanded. Because of the cross-elasticities, or reasonable interchangeability between the two types of film, Professor Haus-man opined that Kodak did not have market power. On cross-examination, Government counsel contended that Professor Hausman committed the same economic error as that made by the Supreme Court in the Cellophane case. Professor Masson also concluded that Professor Hausman fell prey to the Cellophane fallacy. As noted above, Professor Masson then opined that the Cellophane problem was one reason why the Landes & Posner approach to determining relevant geographic markets was not viable in this case. Professor Masson concluded that it is improper to define the relevant geographic market as including world-wide production when imported film may be attractive to United States consumers only because Kodak’s U.S. film prices are above competitive levels. Under this scenario, the high cross-elasticities found by Professor Hausman, far from demonstrating lack of market power, may actually signify Kodak’s market power. The implication is that imported film may not be reasonably interchangeable with Kodak film at a competitive price, and defining the market broadly by including foreign production, as advocated by Professor Hausman, would be improper. Professor Hausman’s explanation proved both helpful and plausible. He explained that in the Cellophane ease, du Pont did not have any close competitors for cellophane, and the other flexible wrapping materials were not particularly good substitutes for cellophane. In this case, the evidence established that the branded film of Kodak’s competitors is of comparable quality to Kodak’s film, and is a very good substitute for the film manufactured by Kodak. Thus, while he acknowledged that a Cellophane problem can arise when defining geographic markets if the products are not good substitutes, Professor Hausman opined that this factor simply was not present in this case. I find that in this case no Cellophane-type problem is presented because Fuji, Konica, Agfa, and 3M are selling the same product as Kodak, namely amateur color negative film, and they are each competing for the same customers. While there may be subtle quality differences among the films of each manufacturer, Professor Masson’s argument that the products are sufficiently differentiated so as to create a Cellophane-type problem is untenable and unsupported by the record as a whole in this case. Although it was Kodak’s burden to prove that the relevant geographic market is world-wide, the Government failed to offer any credible evidence in rebuttal. Other than attacking the Elzinga & Hogarty and Landes & Posner methodologies, the Government’s primary argument was that the relevant geographic market should be defined based upon consumer perceptions, which translate into market share. In its Proposed Findings, the Government argues that “[f]irms can compete in a number of regional markets that together comprise the world. The market shares in each region reflect the way consumers perceive brands of film. These consumer perceptions determine the ability of firms to compete in those markets.” Government’s Proposed Findings at 2. No credible authority cited to the Court, however, supports the Government’s contention that relevant geographic markets should be defined based upon consumer perceptions or market shares alone. Rather, the caselaw discussing relevant geographic markets focuses on “the area of effective competition ... in which the seller operates, and to which the purchaser can practicably turn for supplies.” Tampa Electric Co., 365 U.S. at 327, 81 S.Ct. at 628. The evidence proffered by Kodak shows that the area of effective competition between the five film manufacturers is the entire world, and purchasers of film can “practically turn” to Kodak products produced in the United States, or to the products of foreign manufacturers produced in Western Europe and Japan. Landes & Posner make the point that “in many industries market shares are systematically exaggerated because of exclusion of the output of foreign producers selling in the United States.” 40 Harv.L.Rev., at 966. The evidence here suggests that Kodak’s market share would similarly be exaggerated if the relevant market was defined as solely a United States market. Accordingly, I find that the relevant geographic market includes the United States, Western Europe and Japan; in short, a world-wide market. 3. Market Power A. World-wide A party has market power if it has ‘“a power of controlling prices or unreasonably restricting competition.’ ” Hayden Publishing Co. v. Cox Broadcasting Corp., 730 F.2d 64, 68 (2d Cir.1984), quoting United States v. E.I. du Pont, 351 U.S. at 389, 76 S.Ct. at 1003. Citing Broadway Delivery Corp. v. United Parcel Service, Inc., 651 F.2d 122, 128 (2d Cir.), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981), the court in Hayden Publishing stressed that “the strength of competition, the probable development of the industry, and consumer demand, as well as the percentage of market share enjoyed by the alleged monopolist, were among the factors pertinent to the determination of [monopoly power].” 730 F.2d at 68-69. However, the “predominant factor appears to be market share[.]” State of New York by Abrams v. Anheuser-Busch, Inc. “Anheuser-Busch”, 811 F.Supp. 848, 873 (E.D.N.Y.1993). In Broadway Delivery Corp., the court noted that a market share below 50 percent is “rarely evidence of monopoly power[.]” 651 F.2d at 129. Having defined the relevant geographic market as the entire world, and having found earlier that Kodak’s world-wide market share is approximately 36 percent, it is quite clear that, on the basis of market share alone without reference to the other factors, Kodak does not possess market power. See also Anheuser-Busch, 811 F.Supp. at 873 (a 39 percent share “is below that which has been deemed sufficient to confer market power in any previous decision”.) Other factors support this determination. The proof shows that Kodak’s competitors are each well-financed, billion-dollar, multinational corporations selling film all over the world. According to Professor Hausman, competition among these producers has intensified in the United States, as evidenced by his finding that nominal and inflation-adjusted film prices have decreased over time in the United States. While other factors may be partially responsible for this development, Professor Hausman testified that this decline is due primarily to competition. Outside of the United States, Konica and Fuji have strong positions in Japan, and Agfa has a strong position in Western Europe (Agfa in fact describes itself as the film leader in Europe). However, each of the other film producers are vigorously competing in those areas as well. Thus, the film industry is subject to strong competition world-wide, which militates against a finding that Kodak possesses market power. With respect to probable future developments in the industry, testimony established that all major competitors in the industry are technologically inno