General Cinema Corp. v. Buena Vista Distrib. Co.

• Decision Date: 05 February 1982
• Docket Number: No. CV78-3284-Kn.,CV78-3284-Kn.
• Parties: GENERAL CINEMA CORPORATION, Plaintiff, v. BUENA VISTA DISTRIBUTION CO., INC., Defendant. BUENA VISTA DISTRIBUTION CO., INC., Counter-Claimant, v. GENERAL CINEMA CORPORATION, Counter-Defendant.
• Court: U.S. District Court — Central District of California

532 F. Supp. 1244

GENERAL CINEMA CORPORATION, Plaintiff, v. BUENA VISTA DISTRIBUTION CO., INC., Defendant.

BUENA VISTA DISTRIBUTION CO., INC., Counter-Claimant, v. GENERAL CINEMA CORPORATION, Counter-Defendant.

No. CV78-3284-Kn.

United States District Court, C. D. California.

February 5, 1982.

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Swerdlow, Glikbarg & Shimer, Los Angeles, Cal., for plaintiff, counter-defendant General Cinema Corp.

Donovan, Leisure, Newton & Irvine, Los Angeles, Cal., for counter-claimant and defendant Buena Vista Distribution Co., Inc.

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT

KENYON, District Judge.

This suit involves an antitrust challenge to a practice in the licensing of motion pictures known as "split of product agreements" or "splits." Under these arrangements, which have existed from time to time in various areas throughout the country, the members of the split meet to divide among themselves the upcoming films to be released. Each participating movie theater owner ("exhibitor") receives, with respect to the film or films allocated to it, what is referred to as a "first right of negotiation" or a "first opportunity to negotiate" with the distributor for the film.

The party challenging this practice, Buena Vista Distribution Co., Inc., the principle domestic distributor of films produced by Walt Disney Productions, was originally named as a defendant in this action by plaintiff General Cinema Corp., which is a motion picture exhibitor operating one of the largest chains of theaters in the country. In August, 1978, General Cinema filed suit against Buena Vista, contending that an alleged imposition of minimum film rentals based on a per capita charge for each customer constituted unlawful price-fixing under Section 1 of the Sherman Act, 15 U.S.C. § 1. In September, 1978, Buena Vista answered and filed a counterclaim against General Cinema asserting that the latter's participation in split agreements also constituted unlawful price-fixing under Section 1 of the Act. Buena Vista seeks injunctive and declaratory relief, as well as treble damages for the splits involving General Cinema which have occurred during and after the four-year statute of limitations period prior to the date of the suit.

On May 19, 1980, Judge Lawrence Lydick of this court granted Buena Vista's motion for judgment on the pleadings as to General Cinema's entire complaint for lack of anti-trust standing. General Cinema Corp. v. Buena Vista Distribution Co., No. 78-3284 (C.D.Cal. June 25, 1980). That part of the case is now on appeal in the Ninth Circuit. Id., appeal docketed, No. 80-5851 (9th Cir. Oct. 22, 1981). On the same day, Judge Lydick denied Buena Vista's further motion for partial summary judgment on its counterclaim. A little less than a year later, Buena Vista renewed its motion for partial summary judgment as to liability based upon a more extensive record and the Supreme Court's intervening decision in Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980), in which the Supreme Court reversed a decision by the Ninth Circuit which had held an alleged price-fixing agreement to be subject to the antitrust rule of reason and thus not illegal per se under Section 1 of the Sherman Act.

Section 1 proscribes "Every contract, combination ... or conspiracy, in restraint of trade." However, the Supreme Court has long interpreted the Act to prohibit only those restraints of trade which are "unreasonable." Two methods or "rules" of antitrust analysis have developed. Under "the prevailing standard of analysis," the "rule of reason," the courts weigh the pro- and anticompetitive effects of a challenged restraint to determine if it is "unreasonable." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977). Certain practices, however, have been held unreasonable per se, and therefore illegal under the "per se rule," because they facially appear to be ones that would always or almost always tend to restrict competition" and have no "redeeming competitive virtues and ... the search for those values is ... almost sure to be in vain." Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 13, 19-20, 99 S.Ct. 1551, 1559, 1562, 60 L.Ed.2d 1 (1979).¹ Once a court has identified "plainly anticompetitive" conduct to be governed by the per se rule, it is foreclosed from undertaking an inquiry into the reasonableness of such conduct. Id. at 8-9, 78 S.Ct. at 519-20. "Price-fixing" is the legal label given to one category of restraints on competition that has long been recognized as within the per se rule of illegality. Id. As the Supreme Court has said,

Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.

Catalano, Inc. v. Target Sales, Inc., supra, 446 U.S. at 647, 100 S.Ct. at 1927; United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223, 60 S.Ct. 811, 844, 84 L.Ed. 1129 (1940).

Buena Vista argues that the split agreements it is challenging should uniformly be declared illegal per se as "price-fixing" because the purpose and effect of all such agreements is to reduce price competition and the terms of licenses paid to distributors for films, and because splits have no redeeming competitive virtues. Pursuant to requests for admission under Fed.R. Civ.P. 36, General Cinema has admitted participating in many splits across the country during the period from September, 1974, until April 1, 1977, when the United States Department of Justice issued a press release stating its intention to challenge splits agreements as per se violations of the Sherman Act. Buena Vista on the present motion seeks a partial summary judgment that all splits in which General Cinema has participated are illegal as a matter of law. It asserts that under the Sherman Act, the licensing of films properly occurs only under competitive conditions, which could take one of the following forms: 1) "competitive bidding," a formal process by which bids are submitted; 2) "competitive negotiations," which do not involve actual bids, but offers made by competing exhibitors are treated as firm like bids; or 3) a residual category of negotiations with exhibitors in a competitive environment, without any conspiratorial or practical restraint on the willingness of exhibitors to come forward to negotiate for pictures in which they are interested, or on the distributor's ability to induce offers by approaching selected exhibitors.

General Cinema responds that Buena Vista's motion for partial summary judgment should be denied because splits are properly evaluated under the rule of reason, not the per se rule applicable to price-fixing. It contends that splits provide only a "minimal" restraint, if any, on price competition, and that they have significant benefits for distributors (and exhibitors) which require analysis under the rule of reason. General Cinema additionally claims that Buena Vista's "acquiescence," "consent" and "participation" in splits further establishes that the per se rule is inapplicable, and furthermore that the legality of splits can only be determined on a case-by-case basis at trial.

Buena Vista's renewed motion was first argued on March 30, 1981. By order of April 3, 1981, the court submitted a series of questions to the litigants. Both submitted two sets of briefs in response, along with extensive evidentiary exhibits. Meanwhile, the court granted leave for two film industry groups to participate as amici curiae, the National Association of Theatre Owners ("NATO") in support of the exhibitor General Cinema, and eight distributors of motion pictures on behalf of Buena Vista. General Cinema filed its own motion for summary judgment which was denied by the court at a hearing on June 8, 1981. After that date, the parties submitted various additional filings. By order of September 24, 1981, the court submitted a further list of questions to which the parties responded orally at a hearing on September 28, 1981, with the additional submission of lists of relevant citations to the record.

After carefully reviewing and analyzing the entire record connected with Buena Vista's motion for partial summary judgment, the court concludes that it should be granted. The court's reasons are set forth in this opinion, which shall also serve as its findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52. The opinion is divided into five parts. First, the court addresses the standards for granting a motion for summary judgment in antitrust cases. In the next two parts, the asserted anticompetitive and procompetitive effects of splits are analyzed under the relevant caselaw. Part IV addresses General Cinema's contention that distributor participation or consent in splits is material to their legality. Part V concerns General Cinema's contention that a trial must be held in order to determine the legality of splits on a case-by-case basis.

I. SUMMARY JUDGMENT IN ANTI-TRUST CASES

Fed.R.Civ.P. 56(c) states, in relevant part, that "The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." It is well-established that the burden is upon the party seeking the judgment to demonstrate the absence of any genuine issue of material fact and that it is entitled to judgment as a matter of law. In examining the record, the court is required to draw all inferences in the light most favorable to the party opposing the motion. Ron Tonkin Gran Turismo v. Fiat Distributors, Inc., 637 F.2d 1376, 1381 (9th Cir. 19...