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In many ways, the modern film industry derives from a 1948 Supreme Court antitrust decision that dealt with how big Hollywood studios were controlling both movie distribution and exhibition. As a result of the case, studios had to divest themselves of their theater chains. Now, more than 65 years later, the Justice Department’s Antitrust Division is reportedly investigating “clearance” pacts between studios and theater chains that carve out exclusivity on first-run films in certain geographical regions. Today’s question: Is the practice really illegal?
On Thursday, just a few days after The Wall Street Journal revealed that the DOJ was asking questions about these types of arrangements, a federal judge in California dismissed a lawsuit brought by Starlight Cinemas, the owner of a few independent movie theaters in California, against exhibition giant Regal Entertainment Group.
According to the lawsuit, filed in June, Starlight operates a state-of-the-art 15-screen movie theater in Corona, Calif., but has been suffering because Regal has been having more success licensing the blockbuster films from the likes of Sony and Universal. Regal operates an upscale 18-screen theater in Corona, but is advantaged by the fact that it controls approximately 575 theaters and 7,631 screens. So if studios wish to effectuate a “wide release,” they need cooperation from the likes of Regal. But according to the allegations, Regal demands exclusivity for that privilege.
Starlight told the judge that it “repeatedly attempted to obtain licenses from these distributors to no avail … despite the fact that Starlight is confident it has been offering the distributors substantially more advantageous terms than those Regal offers.”
In reaction, Regal painted the allegations as “nothing more than that some (unidentified) film distributors [having] made business decisions not to license two neighboring theatres to play the same film at the same time,” and argued that the plaintiff hadn’t made a sufficient case under the Cartwright Act to sufficiently allege clearance agreements, a cognizable geographic market and consumer harm.
Additionally, the exhibiting giant said that even if the clearance agreements exist, they happen “film-by-film,” which it says is legal. Starlight isn’t alleging any agreement prohibiting it from competing film-by-film, according to Regal.
On Thursday, Judge Manuel Real writes that Starlight’s “allegations are mere legal conclusions, without any specifics, and are therefore insufficient to show the formation and operation of a conspiracy.”
That might not doom future cases. Maybe the DOJ could turn up more. But then, the judge goes on to write that “Plaintiff’s allegation that Defendant used its strong economic position in the market to obtain preferential treatment from distributors is insufficient to show conspiratorial conduct rather than mere unilateral conduct.”
There are other pending controversies out there, including a Georgia-based movie theater chain’s similar antitrust lawsuit against AMC Entertainment. That case is also awaiting a judge’s decision on whether the plaintiff has alleged a conspiracy and an unreasonable restraint on trade. At the moment, though, independent theater owners who might have gotten excited by news of a possible DOJ investigation have seemingly suffered a setback.
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