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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1988
- **Citation:** 484 U.S. 1066

## Text

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

ae hee

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

_— =

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.

pa ee

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_0632%3A2. Public record. Not legal advice.