Opposition Brief — Three Movies of Tarzana v. Pacific Theatres, Inc.

Supreme Court, Us,

fiLBD

a peer JAN 29 1988

IN THE

Supreme Court of the Unit

OcTOBER TERM. 1987

Theee Movies of Tarzana,

Petitioner,

ys.

Pacific Theatres, Inc., Columbia Pictures Industries,

Inc., Paramount Pictures Corporation, Twentieth

Century Fox Film Corporation, Universal Film

Exchanges, Inc., Warner Bros. Distributing

Corporation and MGM/UA Entertainment Co.,

Respondents.

On Petition for Writ of Certiorari

to the Court of Appeals for the Ninth Circuit

Respondents’ Joint Brief In Opposition

to Petition for Writ of Certiorari

Bertrand M. Cooper*

Gregory P. Goeckner

O’Melveny & Myers

Suite 1506

400 South Hope Street

Los Angeles, California 90071

(213) 669-6000

Attorneys for Respondents

Columbia Pictures Industries,

Inc., Paramount Pictures

. Corporation, Twentieth Century

Fox Film Corporation, Universal

Film Exchanges, Inc. and MGM/UA

, Entertainment Co.

Counsel of Record

(Additional counsel on reverse side.)

Lawyers Brief Service / Legal Publishers / (213) 383-4457 / (714) 720-1510

Richard C, Yarmuth*

Culp, Guterson & Grader

Suite 2700

One Union Square

Seattle, Washington 98101

(206) 624-7141

Attorneys for Respondent

Warner Bros. Distributing

Corporation

Harry B. Swerdlow*

James L, Seal

Rosenfeld, Meyer & Susman

Suite 444

9601 Wilshire Boulevard

Beverly Hills, California 90210

(213) 858-7700

Attorneys for Respondent

Pacific Drive-In Theatres Corp.

TABLE OF AUTHORITIES

ARGUMENT

III.

IV.

TABLE OF CONTENTS

PETITIONER ESTABLISHES NO BASIS

Poe mas OF CERTIORARL ......................

ne BPR, BRR PR CIIROIUIINGD ....5020000.ccsscrccrccssesse

THERE IS NO BASIS TO REVIEW

AGAIN THE STANDARDS FOR SUM-

Ee I I Sncetsiaicassconsissabswssnascessesesecncosss

THE CLEARANCES AT ISSUE WERE

REASONABLE BECAUSE THE THEA-

TRES WERE IN SUBSTANTIAL COMPE-

aa cali incapnispsnsdeinesnkteicncessassnesncoees

A. “Substantial Competition” Is the Legal

Standard for Evaluation of Clearances ...........

B. Summary Judgment Was Appropriate on

I NI aecsinnessusasdsonseneassansnavsssses

PETITIONER PRESENTS NO FACTUAL

BASIS FOR DISTINGUISHING THIS

CASE FROM THE ORDINARY CLEAR-

PP CARE ...:..:....0:. Ni Ueieedalibasabeisehinneeniuketvocseeninis

SOPHO HEHEHE HEE HE ETE EEH HEE HEHE EEEES

oeeee

wands 9

scien

Page

VI. PETITIONER HAS FAILED TO ESTAB-

LISH ANY HARM TO THE COMPETI-

re Pe oo 15

PII i ctetibe pee | lebons, 17

APPENDIX A

SEE SPER HINIE sascnascsvidcciuinsiesatcsciee talnchacecucc A-1

—ili—

TABLE OF AUTHORITIES

Page

Cases

United States Supreme Court:

Anderson v. Liberty Lobby, Inc.

477 US. 242, 106 $.Ct. 2505 (1986) ................ 6-8

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.

S29 WS. 477 BT BAN. GR CIGT TD esiescsssrscisrcneris, 15

Celotex Corp. v. Catrett

477 US. 307, 106 SAA. 2548 (CE9BG). .....00..0000.. 6-8

Continental T.V., Inc. v. GTE Sylvania Inc.

433 US. 26, SF SAA. ZIP CEST) vnsser..s-... passim

Matsushita Elec. Indus. Co. Ltd. v. Zenith

Radio Corp.

475 US. 574, 106 S.Ct. 1348 (1986) «0... 6-8

N.C.A.A. v. Board of Regents of the University of

Oklahoma

468 US. 85, 104 S.Ct. 2948 C19GAE) o........0c00000:.... 7

United States v. Paramount Pictures, Inc.

334 UG. 034, GE SAL. DiS CUGSE) cencscsiionn passim

oom $Y amen

Page

Federal Courts of Appeal:

Barry v. Blue Cross of California

ee re PO CE CUE, BGDG) oi ccccecvccnsccccseccccncssasscs 8

Continental T.V., Inc. v. GTE Sylvania Inc.

ee ica icons nnchsdcdcdicabes 8

National Basketball Ass’n v. SDC Basketball

Club, Inc.

815 F.2d 562 (9th Cir.), cert. dismissed sub

- nom. Los Angeles Memorial Coliseum

Comm’n v. National Basketball Ass’n

re ts = a. cabipbnsiuesntonen 8

Naumkeag Theatres Co. v. New England

Theatres, Inc.

345 F.2d 910 (1st Cir.), cert. denied, 382

SURI EI aici alain eesti ceeceonamaaiensnenhouie 10

O.5.C. Corp. v. Apple Computer, Inc.

Fem Me TBS COT Ce, FOGG) cvcevcissscnscccccssicscnsces 8

Ralph C. Wilson Industrie, Inc. v.

Chronicle Broadcasting Co.

794 F.2d 1359 (9th Cir. 1986) ..... icaibicbeenlnvenideiane 8

R.C. Dick Geothermal Corp. v. Thermogenics, Inc.

827 F.2d 407 (9th Cir. 1987)

ROUTING PIER) cvcscscsincccsoncssscosssscescosescscerscasscceeas 8

Southway Theatres, Inc. v. Georgia Theatre Co.

Te FAO BOS COR Coe, T9GR) co cesccsesiccssssscccccsscecee 10

Page

Federal District Courts:

Ayers v. Pastime Amusement Co.

283 F. Supp. 773 (D.S.C. 1968) ......ccceeeeeeeees 10

Broadway & Ninety-Sixth Street Realty Co. v.

Loew’s, Inc.

21 FR.D. 347 CG.D.N.Y. (1958) .nccceccrrcccsrsscccseese 10

Fanchon & Marco v. Paramount Pictures, Inc.

100 F. Supp. 84 (S.D. Cal. 1951), cert.

denied, 345 U.S. 964 (1953), aff’d, 215

F.2d 167 (9th Cir. 1954), cert. denied, 348

CPB. DER CUDGDD cceccsrccssessarccesercseisconsccnsaisnasivescincesssees 10

Paramount Pictures Theatres Corp. v.

Partmar Corp.

97 F. Supp. 552 (S.D. Cal. 1951), aff'd,

200 F.2d 561 (9th Cir. 1952), aff'd, 347

U.S. 89, reh’g denied, 347 US. 931 (1954) ..... 10

Quad Cinema Corp. v. Twentieth Century Fox Film

Corp.

80 Civil 5650 (S.D.N.Y. April 19, 1984) .......... 11

United States v. Loew’s, Inc.

1971 Trade Cas. (CCH) 1 73,673, at 90,803

(S.DN.Y.. 1971) ccccccccrsccccscccccccccsccsscssonsssccssessssecssceoses 13

— oo

Page

Universal Amusements Co., Inc. v. General Cinema

Corp. of Texas, Inc.,

635 F. Supp. 1505 (S.D. Tex. 1985) 0... 11

Other Authorities:

Statutes

Sherman Act, Section 1, 15 U.S.C. Section 1 o........cccccccceeee 2

Clayton Act, Section 4, 15 U.S.C. Section 15 0c... 2

Court Rules

Federal Rule of Civil Procedure 56(c) ...........cccccccccscceeeseee 3, 6

United States Supreme Court Rule 17.1 .........cccccccccccceeeeees ]

United States supreme Court Rule 28.1 ..........0cc.cssccsvecoscsses 3

No. 87-1089

IN THE

Supreme Court of the United States

October Term, 1987

Theee Movies Of Tarzana,

Petitioner,

vs.

Pacific Theatres, Inc., Columbia Pictures Industries,

Inc., Paramount Pictures Corporation, Twentieth

Century Fox Film Corporation, Universal Film

Exchanges, Inc., Warner Bros. Distributing Corporation

and MGM/UA Entertainment Co.,

Respondents.

Respondents’ Joint Brief In Opposition

to Petition for Writ of Certiorari

ARGUMENT

I. PETITIONER ESTABLISHES NO BASIS

FOR GRANT OF CERTIORARI,

Supreme Court Rule 17.1 makes clear that this Court

will grant review on writ of certiorari only if: (1) the

decision below conflicts with decisions of other federal

courts of appeal; (2) the decision below resolved an

important question of law not yet settled by this Court; or,

(3) the decision below conflicts with a prior decision of this

Court. None of those criteria is met here.

The question of law presented by this petition — the

standard for summary judgment — has been reviewed by

this Court on several occasions in recent years. Nothing

a a

about this petition suggests any basis for further

examination of the issue. The Circuits do not differ in their

interpretation of this Court’s decisions, and petitioner does

not suggest that the Ninth Circuit misapplied those

standards here.

More importantly, petitioner raises no objection to the

substantive standard applied below — “substantial competi-

tion” — to evaluate clearances under the Sherman Act’s

rule of reason; and, petitioner suggests no genuine dispute

about any fact material to application of that standard here.

Indeed, petitioner asks this Court to review nothing more

than a lower court’s routine application of the summary

judgment procedure to undisputed facts in an area of well-

established substantive law. Nothing distinguishes the

decision below from the thousands of other cases decided

annually in the lower courts involving issues of antitrust or

summary judgment. Thus, respondents believe the petition

should be summarily denied.

Il, FACTUAL BACKGROUND.

This action was commenced in July 1984; petitioner

alleges violation of Section 1 of the Sherman Act, 15 U.S.C.

Section 1, and jurisdiction under 15 U.S.C. Section 15. At

issue are the reasonableness of certain “clearances”

assertedly granted in motion picture exhibition licenses

during 1980-82 to respondent Pacific Drive-In Theatres

Corp. (“Pacific”), an exhibitor of motion pictures, by

respondents Columbia Pictures Industries, Inc., Paramount

Pictures Corporation, Twentieth Century Fox Film

Corporation, Universal Film Exchanges, Inc., Warner Bros.

Distributing Corporation and MGM/UA Entertainment

— on

Co.,! each of which is a distributor of motion pictures

(collectively distributors”). After the completion of

extensive discovery, Pacific and the distributors filed

separate motions in the District Court for summary

judgment, pursuant to Federal Rule of Civil Procedure

56(c), based on undisputed evidence that: (1) Pacific’s

Galleria theatre was in “substantial competition” with

petitioner’s Tarzana _ theatre, making the clearances

reasonable; and, (2) the challenged clearances had no

adverse effect on competition. The District Court granted

the motions and entered judgment of dismissal in favor of

all defendants. 1986-2 Trade Cas. (CCH) 167,231, at

61,170 (C.D. Cal. 1986). On appeal, reviewing the summary

judgments de novo, the Ninth Circuit Court of Appeals

unanimously affirmed. 828 F.2d 1395 (9th Cir. 1987). This

petition follows that affirmance.

Petitioner claims that the Galleria’s clearances over it

were unlawful. When a distributor grants a clearance

requested by an exhibitor as part of a motion picture

license, it agrees not to license the same picture to play ‘day

and date” (i.e, simultaneously) at a cleared theatre. (CR

108:3.)2 Clearances are a form of vertical territorial

restriction which apply to the distribution and exhibition of

motion pictures. Vertical territorial restraints are lawful

under the Sherman Act’s rule of reason if their effect is to

! A separate list of respondents’ parent, subsidiary and affiliated

corporations, as required by Supreme Court Rule 28.1, is attached as

Appendix A to this brief.

2 Citations to the District Court record are in the following form: (CR

x:y), in which “x” is the number of the document on the District Court’s

docket sheet and “ty” is the consecutive page number therein supporting

the material in this Brief. Citations to briefs filed in the Ninth Circuit are

to the abbreviated title of the document, i.e. “Petitioner’s Opening Brief

on Appeal, at x.” Citations to the present Petition for Writ of Certiorari

are to ‘‘Petition, at x.”

—_ i

promote interbrand competition without unduly restraining

intrabrand competition. Continental T.V., Inc. v. GTE

Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549 (1977).

Clearances substantially enhance interbrand competition

— between showings of different motion pictures? —

among motion picture exhibitors. A clearance protects the

licensed theatre’s box office gross potential from diminution

by nearby theatres showing the same picture. Over the

longer term, clearances also encourage exhibitors to make

substantial investments in quality state-of-the-art theatres

and to promote exhibition of licensed motion pictures to the

public, without fear that competing theatres will act as “free

riders,” reaping the benefits. without making similar

substantial expenditures of their own funds. By increasing

such interbrand competition, clearances also benefit theatre

patrons, providing them with a greater choice of motion

pictures to see.

In contrast, individual clearances minimally restrict

intrabrand competition — competition between exhibitors

showing the same motion picture — because they affect

only specified nearby “cleared” theatres, limit those

theatres’ ability to exhibit only that single motion picture,

and last only the few weeks that the picture is shown at the

3 As used herein, “interbrand” competition refers to the simultaneous

showing at two theatres of two different motion pictures — e.g.,

“SUPERMAN II” and “THE GREAT MUPPET CAPER” — which

compete for the same patrons; theatres in “intrabrand” competition

simultaneously show the same picture — e.g., “ROCKY III” — and

compete for the same patrons. Because distributors often have multiple

pictures licensed for exhibition at the same time, “interbrand”

competition between showings of different pictures may encompass

competition for theatre patrons between different pictures licensed by the

same distributor. Thus, the “intrabrand” competition restrained by

clearances is much more limited than is the case with the typical

“intrabrand” restraint, which applies to an entire product line.

— ae

licensed theatre. Clearances are much less restrictive than

the normal intrabrand vertica’ territorial restraint, which

applies to a manufacturer's entire product line, gives the

dealer exclusive rights to a broad territory and often lasts

several years.

In light of these considerations, clearances long have

been deemed valid under the Sherman Act’s rule of reason,

United States v. Paramount Pictures, Inc., 334 U.S. 131,

147, 68 S.Ct. 915 (1948), if the theatres are in “substantial

competition” for patrons, ie., if they each draw substantial

portions of their patronage from the same area. The

clearances at issue here clearly were valid under the criteria

of Sylvania and Paramount. They encouraged Pacific to

build and operate its expensive state-of-the-art Galleria

Theatre in Sherman Oaks, offering both distributors and

theatre patrons additional motion picture exhibition choices

in the area. However, their restrictive effect was only on

intrabrand competition, preventing petitioner's theatre from

simultaneously showing the same motion picture as the

Galleria and thereby dep. ving petitioner of a potential

“free ride” on the Galleria’s investment and advertising. In

effect, petitioner complains of nothing more than being

deprived of this “free ride,” and thereby being required to

exhibit another motion picture, i.e. petitioner complains of

being required to engage in interbrand competition with the

Galleria.

In addition, the clearance at issue had an unusually

limited effect on intrabrand competition. Petitioner’s theatre

routinely faced a simultaneous, and admittedly valid,

clearance from one of three theatres in Woodland Hills,

California. Petition, at 4. Thus, the Galleria’s clearance

affected petitioner only when the Galleria held a first run

picture longer than the corresponding Woodland Hills

theatre showing the picture. Petition, at 5. This happened

only rarely. Even according to petitioner, it occurred no

deaillicns

more than thirteen times out of the hundreds of motion

pictures exhibited in the area over an eighteen month

period. It would be difficult to describe a less restrictive

impact on intrabrand competition. Petitioner’s Opening

Brief on Appeal, at 9.4 Moreover, the effect on petitioner

itself was de minimis. On every such occasion, petitioner

was able to exhibit some other subrun picture, either from

the same or another distributor. (CR 89:69.)

Because petitioner admits its theatre and the Galleria

were in substantial competition, (CR 89:30-31, 76), the pro-

competitive effects of these clearances plainly outweighed

their minimal impact on intrabrand competition and the

Courts below properly found them to be valid.

lil. THERE IS NO BASIS TO REVIEW

AGAIN THE STANDARDS FOR SUM.

MARY JUDGMENT.

Petitioner suggests this Court should examine again the

standards for summary judgment under F.R. Civ. P. 56,

even though this Court has examined those standards

extensively in recent years and devoted three significant

decisions in 1986 to the subject. Celotex Corp. v. Catrett,

477 US. 317, 106 S.Ct. 2548 (1986); Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505 (1986); Matsushita

Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,

106 S.Ct. 1348 (1986). Those decisions set forth adequate

guidelines for the lower courts on the Rule’s inter. -tation

and on the importance of summary judgment as a

procedure for the orderly conclusion of extended and

* Pacific’s analysis indicates an even smaller effect, that the Galleria’s

clearances delayed petitioner’s sub-run licenses on only two occasions,

costing t at most $2,281 in box office revenue. Pacific’s Opposition Brief

on Appeal, at 18-19; (CR 84:24-26; 85:133-34.)

=. an

complex litigation. E.g. Celotex Corp. v. Catrett, 477 US.

317, 106 S.Ct. 2548, 2555 (1986) (summary judgment is an

‘integral part of the Federal Rules” which allows

defendants to demonstrate that claims against them “have

no factual basis’’).

Summary judgment is of special significance to dispose

of antitrust cases, where the failure to dismiss unfounded

claims may directly injure competition, chilling pro-

competitive activity and imposing high economic costs on

successful competitors. Matsushita Elec. Indus. Co., Ltd. v.

Zenith Radio Corp., 475 U.S. 574, 593-94, 106 S.Ct. 1348,

1360 (1986). Rule of reason cases are no exception; in

appropriate situations, “ ‘the rule of reason can ... be

applied in the twinkling of an eye.’” N.CAA. v. Board of

Regents of the University of Oklahoma, 468 U.S. 85, 109

n.39, 104 S.Ct. 2948, 2964-65 n.39 (1984) (quoting P.

Areeda, The “Rule of Reason” in Antitrust Analysis:

General Issues 37-38 (Federal Judicial Center, June 1981)).

Indeed, with issues of motive and intent absent from the

substantive standard for clearances, cases such as this are

perfectly suited for summary adjudication.

In the face of these decisions, petitioner does not argue

that this Court has given insufficient attention in recent

years to summary judgment standards or that the Ninth

Circuit misapplied those standards in this case. Rather,

petitioner implicitly recognizes that the summary judgment

standard it advocates, Petitioner’s Opening Brief on Appeal,

at 27; cf. Petition, at 21, would require reversal of

Anderson, Matsushita and Celotex. (In urging the Ninth

Circuit to reverse this summary judgment, petitioner did

> not even mention Anderson or Matsushita and included

only one passing reference to Celotex in a footnote.

Petitioner’s Opening Brief on Appeal, at 17 n.2.)

Petitioner also suggests confusion and inconsistency in

the Ninth Circuit after Anderson, Celotex and Matsushita.

ee

nti,

Of course, such an “‘intra-circuit conflict” is not an

appropriate matter for review by certiorari, but should have

been resolved by petition for rehearing en banc to the Court

of Appeals, a step petitioner never took. In any event, the

Ninth Circuit’s decisions belie such confusion. The only

two? Ninth Circuit decisions cited by petitioner which

postdate Anderson, Celotex and Matsushita — National

Basketball Ass’n v. SDC Basketball Club, Inc., 815 F.2d 562

(9th Cir.), cert. dismissed sub nom. Los Angeles Memorial

Coliseum Comm'n vy. National Basketball Ass’n, 108 S.Ct.

362 (1987) and Barry v. Blue Cross of California, 805 F.2d

866 (9th Cir. 1986) — are consistent with those decisions of

this Court. Nor has the Ninth Circuit had any difficulty

applying the rule of reason in Sherman Act cases on

motions for summary judgment, Barry v. Blue Cross of

California, 805 F.2d 866, 871 (9th Cir. 1986); O.S.C. Corp. v.

Apple Computer, Inc., 792 F.2d 1464, 1469-70 (9th Cir.

1986), including cases challenging vertical territorial

restraints, Ralph C. Wilson Industries, Inc. v. Chronicle

Broadcasting Co, 794 F.2d 1359 (9th Cir. 1986);

Continental T.V., Inc. v. GTE Sylvania Inc., 694 F.2d 1132,

1135-36 (9th Cir. 1982).

* The current status of the Ninth Circuit’s decision in ReC. Dick

Geothermal Corp. v. Thermogenics, Inc., 827 F.2d 407 (9th Cir. 1987),

cited repeatedly by petitioner, is uncertain. That decision was withdrawn

from publication in the bound reporter, pending the Circuit's decision on

a motion for rehearing. Respondents are informed that the original panel

of the Ninth Circuit recently has re-affirmed that decision, but that a

petition for rehearing en banc now is pending before the entire court.

The opinion apparently has not yet been re-published. In any event, the

Opinion supports respondents’ position here, because the Ninth Circuit in

R.C. Dick affirmed a grant of summary judgment dismissing Sherman

Act claims under the rule of reason.

_

IV. THE CLEARANCES AT ISSUE WERE

REASONABLE BECAUSE THE THEA-

TRES WERE IN SUBSTANTIAL COM-

PETITION.

A. ‘Substantial Competition” Is the Legal

Standard for Evaluation of Clearances.

Petitioner makes little mention of substantial

competition, the substantive standard for evaluation of

clearances. That standard is settled by two decisions of this

Court: Continental T.V., Inc. v. GTE Sylvania Inc., 433 US.

36, 97 S.Ct. 2549 (1977), and United States v. Paramount

Pictures, Inc., 334 US. 131, 68 S.Ct. 915 (1948).

In Sylvania, this-Court recognized that vertical territorial

restraints (such as clearances), as restrictions on intrabrand

competition, actually promote interbrand competition by

protecting the selected retailer from the ‘free rider” effect,

thereby making the brand’s product line — heavily

supported by that retailer — more competitive with other

brands in the market. Continental T.V., Inc. v. GTE Sylvania

Inc., 433 US. 36, 54-55, 97 S.Ct. 2549, 2560 (1977). Vertical

intrabrand territorial restrictions are lawful within the limits

of the rule of reason because “‘[ijnterbrand competition .

is the primary concern of antitrust law,” id. 433 U.S. at 52

n.19. Thus, Sylvania makes clear that a finding of

reasonableness is the only possible outcome where, as here,

the restraint in question balances a significant enhancement

to interbrand competition against a minor diminution of

intrabrand competition.

Consistent with the later analysis in Sylvania, in United

States v. Paramount Pictures, Inc., 334 U.S. 131, 147, 68

S.Ct. 915 (1948), this Court approved clearances over

theatres in “substantial competition” for patrons. The

substantial competition standard is justified by the same

a ee

a

concerns over the “free rider” effect — in the context of

motion picture exhibition — and the same interest in

promoting interbrand competition among different pictures

which justify vertical territorial restraints generally. As this

Court agreed forty years ago in U.S. v. Paramount, the pro-

competitive ‘‘justification [for clearances] was found in the

assurance they give the exhibitor that the distributor will

not license a competitor to show the film ... at the same

time [as the licensed exhibitor] . . . [which would cause] the

exhibitor’s expected income from the run . . .[to] be greatly

diminished.” Id. 334 U:S. at 145.®

Since 1948, the U.S. vy. Paramount standard has withstood

the test of time, having been examined and consistently

applied by the lower courts. E.g. Naumkeag Theatres Co. v.

New England Theatres, Inc., 345 F.2d 910, 913 (1st Cir.),

cert. denied, 382 U.S. 906 (1965); Ayers v. Pastime

Amusement Co., 283 F.Supp. 773, 786 (D.S.C. 1968);

Broadway & Ninety-Sixth Street Realty Co. v. Loew’s, Inc.,

21 F.R.D. 347, 355 (S.D.N.Y. 1958); Fanchon & Marco vy.

Paramount Pictures, Inc., 100 F.Supp. 84, 90-91 (S.D. Cal.

1951), cert. denied, 345 U.S. 964 (1953), aff’d, 215 F.2d 167

(9th Cir. 1954), cert. denied, 348 US. 912 (1955):

Paramount Pictures Theatres Corp. v. Partmar Corp., 97 F.

Supp%552, 558 (S.D. Cal. 1951), aff’d, 200 F.2d 561 (9th

Cir. 1952), aff’d, 347 U.S. 89, reh’g denied, 347 US. 931

(1954). Following the Sylvania decision, substantial

competition has remained a viable standard. Southway

Theatres, Inc. v. Georgia Theatre Co., 672 F.2d 485, 504 (Sth

® Clearances have never been held unlawful per se. Cf. United States

v. Paramount Pictures, Inc., 334 US. 131, 145, 68 S.Ct. 915, 923 (1948).

Thus, petitioner’s suggestion that the reclassification of certain formerly

per se unlawful restraints to analysis under the rule of reason necessarily

cautions courts against the grant of summary judgment, Petition, at 21-

2, is inapposite here.

— SN

Cir. 1982); Universal Amusements Co. Inc. v. General

Cinema Corp. of Texas, Inc., 635 F. Supp. 1505, 1524 (S.D.

Tex. 1985); Charge to Jury and Special Interrogatories to

Jury at 26-28, Quad Cinema Corp. v. Twentieth Century Fox

Film Corp., 80 Civil 5650 (S.D.N.Y. April 19, 1984),

attached as (CR 117:25-31).

B. Summary Judgment Was Appropriate

on the Undisputed Facts.

Based on this well-established substantive standard, the

lower courts properly granted respondents’ motions for

summary judgment. Because the issue here was reasonable-

ness under the rule of reason, to defeat summary judgment

petitioner had to demonstrate its ability to prove the

unreasonableness of the challenged practice. At most,

petitioner demonstrated only a fatal void between its

pleadings and the testimony and other evidence provided by

its own witnesses.

Petitioner was unable to show any disputed material facts

negating the existence of substantial competition between

its theatre and the Galleria. To the contrary, during

depositions, petitioner’s representatives repeatedly admitted

the existence of substantial competition. (CR 89:30-31, 76;

108:12-13.) See also, Petitioner’s Opening Brief on Appeal,

at 21 (“if” the facts are as shown by the undisputed

evidence, “‘it could strongly be presumed that the Galleria

and TMT were in substantial competition and the

[Galleria’s] clearance over [TMT] was, _ perforce,

reasonable’).

The factual record leaves little doubt that petitioner’s

concessions were correct: the theatres were located on the

same major thoroughfare, only a short distance apart,

Petitioner’s Opening Brief on Appeal, at 2; (CR 84:6;

90 :542-545; 108:15); travel time between them was minimal

=

and no barriers to access existed, (CR 84:5; 89:12-13, 151-

152); residents in the area were highly mobile, (CR 89:25-

26, 152-154); residents of Los Angeles normally travel great

distances for shopping and entertainment — indeed, Los

Angeles, and especially the San Fernando Valley, is known

as a “city on wheels,” (CR 84:24, 34-73; 89:26); and,

petitioner’s theatre and the Galleria solicited patrons from

broad overlapping areas, (CR 89:51-52). Petitioner also

conceded the reasonableness of indistinguishable clearances

over its theatre by the first run theatres in Woodland Hills.

(CR 84:4; 89:6, 11, 22, 23, 29, 30, 75, 82, 83, 131, 132, 143;

90 :542-545.) Finally, petitioner sought the same clearances

over the Galleria from distributors (CR 89:84-89, 177-179;

90:526, 540, 541, 546)’ that it now complains the

distributors granted the Galleria over it.

Thus, the lower courts were correct in holding that

petitioner’s theatre and the Galleria were in substantial

competition and that the Galleria’s clearances were valid

under the rule of reason. Summary judgment for

respondents therefore was appropriate.

7 The requests by petitioner to clear the Galleria, among other

evidence, establish the falsity of petitioner’s contention, Petition, at 4,

that artificial ‘‘zones” divided the San Fernando Valley and controlled

the determination of substantial competition among Valley theatres.

Obviously, such an artifice, even if true, would have no relevance to

analysis of the market conditions on which the antitrust statutes are

based. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 46-47,

97 S.Ct. 2549, 2555-56 (1977).

eae’

=) =

Vv. PETITIONER PRESENTS NO _ FAC-

TUAL BASIS FOR DISTINGUISHING

THIS CASE FROM THE ORDINARY

CLEARANCE CASE,

Petitioner tries to distinguish this clearance case from the

usual “substantial competition” decision. First, petitioner

contends that the clearances at issue were somehow unusual

because they were obtained by a first-run theatre over a sub-

run theatre. Petition, at 16. That contention is without

merit. First run theatres always have cleared sub-run

theatres; that has been one of the principal uses of

clearances since 1948, when this Court recognized that

clearances over sub-run theatres were necessary to protect a

first-run theatre’s box office gross potential. United States

v. Paramount Pictures, Inc., 334 U.S. 131, 145, 68 S.Ct. 915,

923 (1948).

Second, petitioner suggests the Galleria’s decision to drop

its clearance requests over Mann’s Valley West theatre in

1984 as a distinguishing factor. Petition, at 17. This

argument fails as a matter of law. Reasonable clearances, as

permissible restraints, are not required in every situation

where theatres are in substantial competition. United States

v. Loew’s, Inc., 1971 Trade Cas. (CCH) 4 73,673, at 90,803

(S.D.N.Y. 1971). While the Sherman Act clearly distin-

guishes between reasonable and unreasonable restraints of

trade, it does no more than prohibit those restraints found

unreasonable. To suggest otherwise would turn the

Sherman Act on its head, forcing the courts to begin

considering claims based on the failure of business

competitors to restrain trade. Obviously, petitioner's

argument is nonsense.

Petitioner’s second suggested distinction also ignores

complex changes in market conditions for motion picture

distribution. By 1984, those market conditions had changed

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both nationwide and in the Valley to such an extent that the

Galleria was forced to choose between demanding a

clearance over the Valley West and obtaining certain

quality first run films. During those years, distributors

responded to the rapid emergence of the home VCR and

cable and pay television as major market forces, and to

rapidly escalating advertising and other promotional costs,

by releasing their pictures in increasing numbers of theatres

first-run during a shortening theatrical release period. (CR

89:211-212; 90:242-245, 250-251, 311-312, 370-371, 396,

425-426.) In the Valley, the impact of these nationai trends

was accelerated by the area’s increasing population base.

(CR 89:112-113; 90:323, 406-407.)8

To license so many theatres, distributors had to convince

exhibitors to drop or limit first-run clearances incompatible

with wide distribution patterns. During this period, several

traditional clearances in the Valley ended (such as the

admittedly valid clearances by the Woodland Hills theatres

over the Valley West). (CR 90:261-265, 312, 335-338, 353-

357, 369-371, 380-382, 406-407, 432-433, 460-461.) The /ast

clearances to end were the Galleria’s clearances over the

Valley West. Mann Theatres, petitioner’s successor,

contributed to the impact of these market changes on the

8 In concrete terms, the impact of these changing conditions is

exemplified by the first run exhibition records for the “STAR TREK”

series of motion pictures: the original “STAR TREK” opened first run

in December 1979 at 857 screens nationwide and two in the Valley;

“STAR TREK II” opened in June 1982 at 1621 screens nationwide,

including three in the Valley; but by June 1984 “STAR TREK III”

opened on 1966 screens nationwide — at that time the largest first run

release ever — including six theatres in the Valley. (CR 107:3.)

Ultimately, the Galleria’s decision to drop its clearances over the Valley

West was tied directly to Paramount’s need for additional screens in the

Valley for “STAR TREK III.” (CR 59:14; 90:251-258, 281-288, 422-

423.)

a

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Galleria’s clearances by investing substantial sums in

renovation of the Valley West theatre and by bidding

aggressively to exhibit top-quality first-run films, making its

theatre an effective first-run competitor. (CR 85:121-23.)

Thus, it is undisputed that the Galleria’s 1984 decision to

drop its clearances over the Valley West was unrelated to

the reasonableness of those clearances. Certainly that

change, as the result of changing market conditions several

years after the fact, does not support petitioner’s suggested

inference that the Galleria’s clearances were unreasonable

in 1980-82.

VI. PETITIONER HAS FAILED TO ESTAB-

LISH ANY HARM TO THE COMPETI-

TIVE PROCESS.

Petitioner simply ignores its failure to establish injury to

competition, which was the alternate basis for the decisions

below. Because the antitrust laws focus on the preservation

of competition, and not on any one competitor, to show a

violation of Section 1 petitioner must show both that the

Galleria’s clearances were unreasonable and that they

harmed the competitive process. Brunswick Corp. v. Pueblo

Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697

(1977).

Petitioner’s suggested injuries, its supposed losses in box-

office revenue and the assertedly forced sale of its assets to

Mann Theatres at a “distressed” price, Petitioner’s Opening

Brief on Appeal, at 3, 8-9; cf. Petition, at 7, do not satisfy

that requirement of injury to competition. Petitioner’s

inability to license a few specific sub-run films did not injure

competition, because those films were licensed instead to

other nearby sub-run theatres, (CR 89:69); at most, the

Galleria’s clearances rearranged the locations of those few

sub-run films.

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The sale of TMT’s business also did not adversely affect

competition. TMT was replaced by Mann’s Valley West, a

first-class theatre and a vigorous competitor, which bid

aggressively for film licenses and eventually became a first-

run theatre. Petitioner’s Opening Brief on Appeal, at 3, 7,

10, 26-27. If anything, consumer choice increased and

competition improved.

Whatever losses were suffered by petitioner resulted not

from any injury to competition, but directly from enhanced

competition among motion picture exhibitors when the

Galleria theatre opened. That petitioner may have failed, by

its own unwillingness or inability, to meet the Galleria’s

increased competition, should be of no concern to the

antitrust laws.

Mri

ite. eee

CONCLUSION

For the foregoing reasons, respondents submit that this

case is not appropriate for discretionary review. The

petition for writ of certiorari should be denied.

DATED: January 29, 1988

Respectfully submitted,

BERTRAND M. COOPER

GREGORY P. GOECKNER

O’MELVENY & MYERS

RICHARD YARMUTH

CULP, GUTERSON & GRADER

HARRY B. SWERDLOW

JAMES L. SEAL

ROSENFELD, MEYER & SUSMAN

By: BERTRAND M. COOPER

Counsel of Record

APPENDIX A

Se

APPENDIX A

Rule 28.1 Listing

The News Corporation Limited

Satellite Television PLC

William Collins PLC

News International-Hachette LTD.

Trafford Park Printers LTD.

News (UK) LTD.

British Movietonews LTD.

CBS/ Fox Video (Holdings) Limited

CBS/Fox Video Limited

UK Film Distributors Limited

Servicios Dist. De Films Ltda. (Brazil)

Col-Fox Servicios Dist. De Films Ltda. (Brazil)

Cinemas Fox-Severiano Ribeiro LTD. (Brazil)

Northern Star Holdings LTD.

Fox/Col Film Distributors Inc. (Panama)

MDF SRL (Venezuela)

Corsair

Grenada Partnership

Fox-UGC S.A. (Belgium)

Columbia-Fox (Denmark)

Columbia-Fox O.E. (Greece)

EPS Entertainment Programming Services LTD. (Canada)

Puerto Rican Film Service (Puerto Rico)

Elle Publishing

Games Management Services

East-West Airlines

ae

Independent Newspapers LTD. (New Zealand)

Wimmera Mail Times PTY LTD.

Advertiser-News Weekend Publishing PTY LTD.

Lotto Management Services PTY LTD.

Computer Power Group Holdings PTY LTD.

Far North Publishing Company PTY LTD.

AYR Newspapers PTY LTD.

Spectak Productions PTY LTD.

Westernport Publishing Co. PTY LTD.

Leader Westernport Printing PTY LTD.

Broadglen Publishing

Victoria Bookshops LTD.

Ansett Transport Industries LTD.

Salmat Direct Marketing PTY LTD.

Automail Holdings PTY LTD.

Consumer Production Marketing Services PTY LTD.

Australian Newsprint Mills Holdings LTD.

Herald Sun Travel PTY LTD.

Post Courier LTD.

Ravette LTD.

Mercury Air Freight Holding LTD.

Advertiser News Weekend Publishing

Company PTY LTD.

Clare Street Investments PTY LTD.

The MacQuarie Library PTY LTD.

Podlich Enterprises PTY LTD.

Anspin PTY LTD.

Quest Media Holdings PTY LTD.

Herald Press PTY LTD.

ee ee ea ba ae

saa

Provincial Newspapers (QLD) LTD.

Lanmere PTY LTD.

Farmer Publications PTY LTD.

Gulf + Western, Inc.

Warner Communications Inc.

MGM/UA Communications Co.

Turner Broadcasting System, Inc.

The Decurion Corporation

Compare Data Corporation

Cinema Park Drive-In Theatre, Inc.

Ed-Pac Drive-In Theatre Corp.

Film Bond Services, Inc.

MCA Inc.

Two-Beat Music Corp.

Discovision Associates

Saticoy Technology, Inc.

T.E.M. Programs International

Mood Music Company, Inc.

Fontaine Music Corp.

Quantum Media, Inc.

Rancom Films, Inc.

Supreme Music Corporation

Western Costume Co.

MPD Leasehold Corp.

Afram Films, Inc.

American Motion Picture Export Company, Inc.

Motion Picture Export Association of America, Inc.

Motion Picture Export Association of America in Rome

Cinema International Corporation N.V. (Netherlands)

—

Cineplex Odeon Corporation (Canada)

Alan Hutchison Publishing Company Limited (England)

Eugene Music Limited (England)

Evita Music Limited (England)

Jeeves Music Limited (England)

Radio Music Britain Ltd.

Rawiou Music Limited (England)

Spoone Music Limited (England)

Valley Music Limited (England)

United International Pictures B.V., a Partnership

(Netherlands)

Pincus-Gil Music Pty. Limited (Australia)

Spoone Music Pty. Limited (Australia)

Tangerine Music Pty. Limited (Australia)

Regent Investments Pty. Limited (Australia)

Town Cinema Investments Pty. Ltd. (Australia)

The Coca-Cola Company

Coca-Cola Enterprises Inc.

TCC Beverages Limited

Consolidated Coca-Cola Bottling Company

Columbia Pictures Entertainment, Inc.

De Laurentiis Entertainment Group, Inc.

Delphi film Associates

Delphi Film Associates III

Showscan Film Corporation