General Cinema Corp. v. Buena Vista Distribution Co., Inc.

Decision Date12 July 1982
Docket NumberNo. 80-5851,80-5851
Citation681 F.2d 594
Parties1982-2 Trade Cases 64,875 GENERAL CINEMA CORPORATION, Plaintiff-Appellant, v. BUENA VISTA DISTRIBUTION CO., INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

James L. Seal, Swerdlow, Glikabrg & Shimer, P. C., Beverly Hills, Cal., for plaintiff-appellant.

A. Vernon Carnahan, Donovan, Leisure, Newton & Irvine, New York City, argued, for defendant-appellee; James A. Magee, Donovan, Leisure, Newton & Irvine, Los Angeles, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before NELSON and REINHARDT, Circuit Judges, and EAST, * District Judge.

NELSON, Circuit Judge:

Appellant, General Cinema Corporation, complains that appellee Buena Vista Distribution Company's system for determining rental rates of films distributed by Buena Vista constitutes vertical price fixing. The district court found that General Cinema's complaint failed to present either "a competitive injury, a clear causal connection, (or) an antitrust violation," granted Buena Vista's motion for judgment on the pleadings, and later denied General Cinema leave to file an amended complaint. We agree that General Cinema has failed to allege an antitrust violation and, accordingly, affirm.

FACTUAL BACKGROUND

General Cinema is an exhibitor of motion pictures to the public; Buena Vista distributes motion pictures to exhibitors like General Cinema, and is the exclusive distributor of films produced by Walt Disney Productions. Buena Vista earns its revenues by renting motion pictures to exhibitors under a license agreement.

General Cinema's complaint focuses on a system used by Buena Vista to determine

the amount of rent paid it. The contested system requires an exhibitor to pay either (i) a stated percentage (say, 70%) of each ticket sold, or (ii) the same percentage of a "minimum per capita amount" (minimum admission price) set in the license agreement, whichever is greater. Thus, if the "minimum per capita amount" were defined as $3.00, the rent would be a flat rate of $2.10 (per ticket sold) for tickets sold at less than $3.00, and 70% of the ticket price (per ticket sold) for tickets sold at greater than $3.00. 1

ISSUES

General Cinema raises three issues on appeal. It argues first that the district court erroneously held that it failed to allege a competitive injury and therefore lacked standing. Next, it claims the district court erroneously found that the first complaint failed to state a claim of vertical price fixing. Finally, General Cinema argues that any shortcomings in the first complaint were mended by the second complaint, and that the district court abused its discretion in denying leave to file the second complaint. We agree that General Cinema has standing to bring this claim because it has alleged that it has suffered competitive injury as a result of Buena Vista's vertical price fixing scheme. We affirm, however, because we conclude on the basis of the pleadings and the undisputed facts that, as a matter of law, Buena Vista's rental policy does not in fact constitute vertical price fixing.

I. Standing

Private suits to enforce the prohibition of restraints of trade in Section 1 of the Sherman Act are authorized by Section 4 of the Act, 15 U.S.C. § 15 (1976), which provides that "(a)ny person ... injured ... by reason of anything forbidden in the antitrust laws may sue therefore ...." The Supreme Court has held that this language only grants standing to those who suffer "injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701, 712 (1977). Thus a plaintiff must prove more than that its injury was causally linked to an act that violates the antitrust laws: it must prove "antitrust injury."

Retailers and wholesalers generally have standing to challenge schemes under which their resale prices are fixed by suppliers. Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968); Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968). In Blankenship v. Hearst Corp., 519 F.2d 418 (9th Cir. 1975), this court explained that wholesalers whose prices were fixed by a manufacturer suffered an antitrust injury because "(a) breakdown of the competitive process ... would endanger the (plaintiffs') price making autonomy." Id. at 426-27.

Buena Vista argues that General Cinema, nevertheless, lacks standing because it has suffered no injury from the alleged price fixing scheme. Unlike the plaintiff in Blankenship, Buena Vista argues, General Cinema was free to set its own prices. General Cinema did not set its prices at the minimum per capita amount, and it did not, according to Buena Vista, suffer any penalty for failing to do so. But General Cinema points out that its failure to charge the minimum per capita amount resulted in its paying a higher percentage of its ticket revenues in rental fees than other exhibitors. General Cinema argues it was thus injured for failing to fix its prices.

This allegation of injury is sufficient to confer standing on General Cinema. General Cinema has alleged an injury, and it claims that that injury is an antitrust injury because imposition of the injury constitutes vertical price fixing. Buena Vista's objection that the alleged injury is too insubstantial to constitute an antitrust injury properly relates to the validity of General Cinema's price fixing claim, not General Cinema's standing to make the claim. We conclude that General Cinema has standing because it has alleged the type of injury that would constitute an antitrust injury if its complaint set forth facts sufficient to constitute a valid claim of vertical price fixing.

II. Vertical Price Fixing

The parties have no dispute as to the basic facts of Buena Vista's rental policy; rather, the parties disagree as to the legal conclusion that should be drawn from those facts. The judgment on the pleadings entered below should be sustained only if it is clear as a matter of law that Buena Vista's rental policy does not constitute vertical price fixing. See Blankenship v. Hearst Corp., 519 F.2d 418, 423 (9th Cir. 1975); 5 C. Wright & A. Miller, Federal Practice and Procedure § 1368, at 689-91 (1969).

A supplier's attempt to fix the prices charged by those who resell its products-"vertical price fixing"-has been condemned as a violation of section 1 of the Sherman Act since the Supreme Court's 1911 decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). Vertical price fixing is still held to be per se illegal, Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 51 n.18, 97 S.Ct. 2549, 2558 n.18, 53 L.Ed.2d 568, 581 n.18 (1977), and the Supreme Court has given the following explanation of impermissible supplier behavior:

(I)f a manufacturer is unwilling to rely on individual self-interest to bring about general voluntary acquiescence which has the collateral effect of eliminating price competition, and takes affirmative action to achieve...

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