U.S. v. Syufy Enterprises

• Decision Date: 09 May 1990
• Docket Number: No. 89-15475,89-15475
• Citation: 903 F.2d 659
• Parties: , 1990-1 Trade Cases 69,018 UNITED STATES of America, Plaintiff-Appellant, v. SYUFY ENTERPRISES; Raymond J. Syufy, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 659

903 F.2d 659

58 USLW 2677, 1990-1 Trade Cases 69,018

UNITED STATES of America, Plaintiff-Appellant, v. SYUFY ENTERPRISES; Raymond J. Syufy, Defendants-Appellees.

No. 89-15475.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 14, 1989.

Decided May 9, 1990.

Robert B. Nicholson, Dept. of Justice, Washington, D.C., for plaintiff-appellant.

Maxwell M Blecher, Blecher & Collins, Los Angeles, Cal., for defendants-appellees.

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

Before WIGGINS and KOZINSKI, Circuit Judges, and QUACKENBUSH, District Judge. ^*

KOZINSKI, Circuit Judge:

Suspect that giant film distributors like Columbia, Paramount and Twentieth Century-Fox had fallen prey to Raymond Syufy, the canny operator of a chain of Las Vegas, Nevada, movie theatres, the United States Department of Justice brought this civil antitrust action to force Syufy to disgorge the theatres he had purchased in 1982-84 from his former competitors. The case is unusual in a number of respects: The Department of Justice concedes that moviegoers in Las Vegas suffered no direct injury as a result of the allegedly illegal transactions; nor does the record reflect complaints from Syufy's bought-out competitors, as the sales were made at fair prices and not precipitated by any monkey business; and the supposedly oppressed movie companies have weighed in on Syufy's side. The Justice Department nevertheless remains intent on rescuing this platoon of Goliaths from a single David.

After extensive discovery and an 8 1/2 day trial, the learned district judge entered comprehensive findings of fact and conclusions of law, holding for Syufy. He found, inter alia, that Syufy's actions did not injure competition because there are no barriers to entry--others could and did enter the market--and that Syufy therefore did not have the power to control prices or exclude the competition. While Justice raises a multitude of issues in its appeal, these key findings of the district court present the greatest hurdle it must overcome.

Facts

Gone are the days when a movie ticket cost a dime, popcorn a nickel and theatres had a single screen: This is the age of the multiplex. With more than 300 new films released every year--each potentially the next Batman or E.T.--many successful theatres today run a different film on each of their six, twelve or eighteen screens. The multiplex offers something for everyone: Moviegoers can choose from a wider selection of films; theatre operators are able to balance profits and losses from blockbusters and flops, and to reduce manpower by consolidating concession islands; the producers, of course, like having the extra screens on which to display their wares.

Raymond Syufy understood the formula well. In 1981, he entered the Las Vegas market with a splash by opening a six-screen theatre. Newly constructed and luxuriously furnished, it put existing facilities to shame. Syufy's entry into the Las Vegas market caused a stir, precipitating a titanic bidding war. ¹ Soon, theatres in Las Vegas were paying some of the highest license fees in the nation, while distributors sat back and watched the easy money roll in.

It is the nature of free enterprise that fierce, no holds barred competition will drive out the least effective participants in the market, providing the most efficient allocation of productive resources. And so it was in the Las Vegas movie market in 1982. After a hard fought battle among several contenders, Syufy gained the upper hand. Two of his rivals, Mann Theatres and Plitt Theatres, saw their future as rocky and decided to sell out to Syufy. While Mann and Plitt are major exhibitors nationwide, neither had a large presence in Las Vegas. Mann operated two indoor theatres with a total of three screens; Plitt operated a single theatre with three screens. Things were relatively quiet until September 1984; in September, Syufy entered into earnest negotiations with Cragin Industries, his largest remaining competitor. ² Cragin sold out to Syufy midway through October, leaving Roberts Company, a small exhibitor of mostly second-run films, as Syufy's only competitor for first-run films in Las Vegas.

It is these three transactions--Syufy's purchases of the Mann, Plitt and Cragin theatres--that the Justice Department claims amount to antitrust violations. ³ As government counsel explained at oral argument, the thrust of its case is that "you may not get monopoly power by buying out your competitors." Tr. of Oral Arg. at 1.

Discussion

Competition is the driving force behind our free enterprise system. Unlike centrally planned economies, where decisions about production and allocation are made by government bureaucrats who ostensibly see the big picture and know to do the right thing, capitalism relies on decentralized planning--millions of producers and consumers making hundreds of millions of individual decisions each year--to determine what and how much will be produced. Competition plays the key role in this process: It imposes an essential discipline on producers and sellers of goods to provide the consumer with a better product at a lower cost; it drives out inefficient and marginal producers, releasing resources to higher-valued uses; it promotes diversity, giving consumers choices to fit a wide array of personal preferences; it avoids permanent concentrations of economic power, as even the largest firm can lose market share to a feistier and hungrier rival. If, as the metaphor goes, a market economy is governed by an invisible hand, competition is surely the brass knuckles by which it enforces its decisions.

When competition is impaired, producers may be able to reap monopoly profits, denying consumers many of the benefits of a free market. It is a simple but important truth, therefore, that our antitrust laws are designed to protect the integrity of the market system by assuring that competition reigns freely. While much has been said and written about the antitrust laws during the last century of their existence, ultimately the court must resolve a practical question in every monopolization case: Is this the type of situation where market forces are likely to cure the perceived problem within a reasonable period of time? Or, have barriers been erected to constrain the normal operation of the market, so that the problem is not likely to be self-correcting? In the latter situation, it might well be necessary for a court to correct the market imbalance; in the former, a court ought to exercise extreme caution because judicial intervention in a competitive situation can itself upset the balance of market forces, bringing about the very ills the antitrust laws were meant to prevent. See R. Coase, The Firm, The Market, and the Law 117-19 (1988); R. Posner, Economic Analysis of Law 324-25, 338-39 (3d ed. 1986).

It is with these observations in mind that we turn to the case before us. Perhaps the most remarkable aspect of this case is that the accused monopolist is a relatively tiny regional entrepreneur while the alleged victims are humongous national corporations with considerable market power of their own. While this is not dispositive--it is conceivable that a little big man may be able to exercise monopoly power locally against large national entities--chances are it is not without significance. Common sense suggests, and experience teaches, that monopoly power is far more easily exercised by larger, economically more powerful entities against smaller, economically punier ones, than vice versa.

Also of significance is the government's concession that Syufy was only a monopsonist, not a monopolist. ⁴ Thus, the government argues that Syufy had market power, but that it exercised this power only against its suppliers (film distributors), not against its consumers (moviegoers). This is consistent with the record, which demonstrates that Syufy always treated moviegoers fairly: The movie tickets, popcorn, nuts and the Seven-Ups cost about the same in Las Vegas as in other, comparable markets. While it is theoretically possible to have a middleman who is a monopolist upstream but not downstream, this is a somewhat counterintuitive scenario. Why, if he truly had significant market power, would Raymond Syufy have chosen to take advantage of the big movie distributors while giving a fair shake to ordinary people? And why do the distributors, the alleged victims of the monopolization scheme, think that Raymond Syufy is the best thing that ever happened to the Las Vegas movie market?

The answers to these questions are significant because, like all antitrust cases, this one must make economic sense. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 594 n. 19, 596-97, 106 S.Ct. 1348, 1356, 1360 n. 19, 1361-62, 89 L.Ed.2d 538 (1986). Keeping in mind that competition, not government intervention is the touchstone of a healthy, vigorous economy, we proceed to examine whether the district court erred in concluding that Syufy does not, in fact, hold monopoly power. There is universal agreement that monopoly power is the power to exclude competition or control prices. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1004, 100 L.Ed. 1264 (1956); Syufy Enters. v. American Multicinema, Inc., 793 F.2d 990, 993 (9th Cir.1986), cert. denied, 479 U.S. 1031, 107 S.Ct. 876, 93 L.Ed.2d 830 (1987). The district court determined that Syufy possessed neither power. As the government's case stands or falls with these propositions, the parties have devoted much of their analysis to these findings. So do we.

1. Power to Exclude Competition

It is true, of course, that when Syufy acquired Mann's, Plitt's and Cragin's theatres he temporarily diminished the number of competitors in the Las Vegas first-run film market. But this does not necessarily indicate foul play; many legitimate market arrangements...