National Independent Theatre Exhibitors, Inc. v. Buena Vista Distribution Co.

• Decision Date: 12 December 1984
• Docket Number: No. 83-8638,83-8638
• Citation: 748 F.2d 602
• Parties: , 1984-2 Trade Cases 66,311 NATIONAL INDEPENDENT THEATRE EXHIBITORS, INC., Plaintiff, James T. Patterson, Sr., Screen Advertising Film Fund, Inc., Plaintiffs-Appellants, v. BUENA VISTA DISTRIBUTION COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 602

748 F.2d 602

40 Fed.R.Serv.2d 954, 1984-2 Trade Cases 66,311

NATIONAL INDEPENDENT THEATRE EXHIBITORS, INC., Plaintiff, James T. Patterson, Sr., Screen Advertising Film Fund, Inc., Plaintiffs-Appellants, v. BUENA VISTA DISTRIBUTION COMPANY, et al., Defendants-Appellees.

No. 83-8638.

United States Court of Appeals, Eleventh Circuit.

Dec. 12, 1984.

Rehearing and Rehearing En Banc Denied Feb. 5, 1985.

James T. Patterson, Sr., pro se.

William N. Withrow, Jr., J. Kirk Quillian, Atlanta, Ga., for Columbia, Metro-Goldwyn, Paramount, 20th Century, United & Warner.

Daniel R. Murdock, New York City, for Buena Vista.

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

Before TJOFLAT and HATCHETT, Circuit Judges, and GARZA ^*, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

This private antitrust dispute concerns the alleged attempt of eight major motion picture distributors to prevent a potential competitor from entering the marketplace. The district court entered summary judgment for the distributors. 100 F.R.D. 14. This appeal questions that decision and several of the district court's procedural and discovery rulings. We find no error in any of these latter rulings but vacate the summary judgment because certain material fact issues remain to be litigated. ¹

I.

Buena Vista Distribution Company, Inc., Columbia Pictures Industries, Inc., Metro-Goldwyn Mayer, Inc., Paramount Pictures Corporation, Twentieth Century Fox Film Corporation, United Artists Corporation, Universal Film Exchanges, Inc., and Warner Brothers Distributing Corporation, the eight defendants below, collectively supply eighty-five percent of the high quality motion pictures exhibited at theatres in the United States. They were producing approximately one hundred such motion pictures a year when this controversy arose. All eight belong to the Motion Picture Association of America (MPAA), a trade organization composed of the ten largest film distributors in the country.

National Independent Theatre Exhibitors, Inc. (NITE) is a trade association of independent movie theatre exhibitors who own and operate some five thousand screens in the continental United States. They formed NITE to protect and promote their interests. James Thomas Patterson, Sr., an independent theatre owner-operator, is NITE's president and a member of its board of directors.

In the early 1970's, independent theatres found themselves in a serious financial crisis. Faced with growing competition from large circuit exhibitors, shrinking attendance, and rising film rentals, they found it difficult to obtain top quality films for exhibition. In 1976, NITE decided that the solution for this problem was to increase the supply of quality films to the independent distributors. A greater variety of movies, NITE assumed, would foster more vigorous price competition by all distributors, resulting in lower film rentals, and would permit the independent theatres to offer movies to their patrons that were not being shown by most of their competitors. In addition, the lower admission prices and greater variety would increase public interest in going to the movies. NITE concluded that the major film producers lacked the economic incentive to cure the supply problem it perceived and that it should enter the production and distribution market. NITE lacked the financial resources to take this step, however.

In an effort to raise the capital that would be necessary to finance the production of high quality films, NITE's board of directors, in April 1977, created a "Film Fund," to which its members could make donations, and gave Patterson the job of soliciting their contributions. He, in turn, devised the following plan. NITE's member theatres would show several minutes of on-screen advertising before each feature film and contribute revenues generated by this advertising to the Film Fund. A board of advisors, chosen by the participating independent theatre owners, would select the movies the Fund would finance. The Film Fund would then contract with independent motion picture companies to produce the movies. The NITE members who participated in this voluntary screen advertising program would receive a discount on the rental of these movies in return for their contributions to the Fund. Daily Variety, a leading trade newspaper, reported on the NITE Film Fund in a front-page story on April 26, 1977. The story related strong interest in the program from film producers and exhibitors alike.

In June 1977, NITE entered into a four-year contract with Cinemavision, Inc., a company engaged in the selling of on-screen theatre advertising, for the sale of advertising space on NITE's members' movie screens. The contract provided that at least fifty percent of the net revenues Cinemavision collected from its advertisers for the participating theatres would be paid directly to the Film Fund. The contract required NITE to use its best efforts to solicit exhibitors to participate in the screen advertising program. NITE anticipated that its Film Fund would generate $42 million from the program over the four-year contract period.

NITE's board of directors decided that the Film Fund should be organized as a separate legal entity and persuaded Patterson to incorporate Screen Advertising Film Fund Corporation (SAFFCO). SAFFCO in turn contracted with NITE and Cinemavision to administer the program. The contract provided that SAFFCO would receive the theatre contributions generated by the on-screen advertising and would retain two percent of these contributions as a profit margin to pay Patterson a salary. Cinemavision eventually enrolled independent exhibitors representing four thousand screens to display advertisements, two thousand of whom agreed to contribute their advertising revenues to SAFFCO.

On September 27-28, 1977, at a NITE regional meeting held in St. Louis, Cinemavision announced that the screen advertising program would be launched in late October with a one thousand theatre test run. A reporter from Daily Variety attended the meeting and filed a long story entitled "NITE's Screen Advertising Network Gets 1000-Theatre Test Run Beginning Oct. 24," which appeared on the front page of the September 29 edition. The story stated, in part:

Following the tryout, additional theatres in other markets will be added until all 4200 screens signed up for the program are unreeling soft-sell commercials, William Woosley of Cinemavision told NITE's national conference of small circuits and independent buyers.

Included in that number, per NITE prexy Tom Patterson, are 2000 screens (not all NITE members) which will be donating proceeds from the ads to the Screen Advertising Film Fund Corp. (SAF[F]CO), the NITE group established to purchase, finance and produce features.

All exhibitors signed by Patterson have agreed to put three minutes of advertising on their screens before showing the feature for four years. Over that period, Patterson estimated, $42,000,000 would be generated for SAF[F]CO from the 2000 subscribing screens.

A second Daily Variety reporter in Hollywood, California placed phone calls to the major motion picture distributors to obtain their response to the NITE film advertising program. Senior executives from Universal Pictures, Buena Vista, Twentieth Century Fox, Columbia, and Warner Brothers returned the reporter's calls. All the executives were familiar with the program. They all voiced strong opposition to NITE's program because they feared the advertisements would "clutter the screen" and alienate theatre patrons. The executives' responses were quoted in the September 29, September 30, and October 5, 1977 editions of Daily Variety.

The MPAA Advertising-Publicity Committee met on October 27, 1977 and discussed the NITE Film Fund. Richard Kahn, chairman of the committee and vice president of Metro-Goldwyn Mayer, told a Daily Variety reporter that the committee unanimously voted to take a stand urging theatres not to exhibit screen ads. A story on the cover of the November 4, 1977 edition of Daily Variety reported that

A new voice--that of the ad-pub committee of the Motion Picture Association of America--has been added to the campaign to dissuade theatre owners from participating in the screen advertising program through which the National Independent Theatre Exhibitors Association hopes to generate financing for new feature film product.

Richard Kahn, ad-pub-exploitation v.p. of MGM, chairman of the MPAA panel, yesterday disclosed a unanimously approved committee stand deploring the "rebirth" of screen advertising, and urging exhibitors "to keep their screens free of nonentertainment oriented clutter."

Action of the ad-pub committee was endorsed by MPAA president Jack Valenti, and the association's advertising chief, Bethlyn Hand. Both attended the session, along with representatives of Universal, United Artists, Warner Bros. and MGM. Nonmember observers from American International and First Artists concurred.

On October 31, 1977, Twentieth Century Fox issued a statement that it would require all future exhibitors of its films to pay it a percentage of any revenues they might derive from on-screen advertising. The purpose of this statement was to discourage theatre participation in screen advertising programs.

On November 22, 1977, Warner Brothers mailed out bid solicitations for "Superman," one of the most commercially important movies of the year. The bid solicitation stated that theatres exhibiting screen ads would not be considered eligible for licensing the new film. The clear intent was to discourage screen advertising programs.

As a result of the major distributors' coercive activities, numerous theatre exhibitors withdrew from the NITE program; they could not afford to lose their principal sources of supply. At the same time, Cinemavision tried to separate itself from SAFFCO and NITE in order to save its business. These efforts came...