AMC Can't Escape Antitrust Lawsuit Over Distribution of Studio Movies

AMC Theater - P 2014
AP Images

AMC Theater - P 2014

An antitrust lawsuit filed by a Georgia-based movie theater chain has gotten a big boost thanks to a federal judge's decision to allow it to move forward.

In January 2014, Cobb Theaters targeted exhibition giant AMC Entertainment for allegedly using its worldwide market power to coerce film distributors to deprive competitors of access to studio films. According to the complaint, AMC's head film buyer sent a letter to studios demanding preferential or exclusive licensing treatment. Cobb says that afterward, Sony Pictures deprived its CineBistro outlets of hit films like The Amazing Spider-Man, This Is the End and Zero Dark Thirty. Cobb also said that Warner Bros. conditioned its license of The Hobbit: The Desolation of Smaug on unfavorable terms.

Last October, The Wall Street Journal reported the Justice Department had begun to investigate distributor-exhibitor "clearance" pacts carving out exclusivity on first-run films in certain geographical regions. But then Regal Entertainment beat a similar lawsuit from an independent operator of a movie theater in Corona, California, and AMC quickly used the decision to its advantage. The market power of the big exhibitors seemed destined to survive antitrust scrutiny.

On Friday, though, U.S. District Judge Eleanor Ross came to an entirely different conclusion on AMC's motion to dismiss.

AMC argued that Cobb hadn't adequately alleged the existence of a conspiracy, an unreasonable restraint on trade, or harm to the competition.

On the conspiracy front, the judge accepts the assertion that one of Cobb's theaters got "fewer high-grossing, popular films," that Sony "honored AMC's request for preferential treatment," and that AMC was "threatening, at least implicitly" to the distributors. "Drawing all reasonable inferences in favor of Plaintiffs, these allegations provide enough factual matter to suggest an agreement was made," she writes.

As for whether there was an unreasonable restraint on trade, the judge weighs AMC's argument that its clearance agreements are "procompetitive" with Cobb's argument that these agreements have outlived their usefulness in the movie industry. The judge hardly accepts the latter contention, but she refuses to make a determination at this stage. "Although Defendants may prove after discovery that the clearances at issue were justified, Plaintiffs’ allegations are sufficient to withstand a motion to dismiss," she writes.

To competitive harm, the judge is impressed that Cobb alleges "consumers are being forced to purchase a product that is less desirable and of inferior quality," and in response to the suggestion that there are alternatives, she writes, "Plaintiffs have alleged facts tending to show consumers might not consider watching a movie in a theatre and watching it at home to be 'reasonably interchangeable' experiences."

The judge is satisfied that plaintiffs have defined a relevant competitive market and alleged antitrust injury. She allows to survive charges that AMC has violated Section 1 and 2 of the Sherman Antitrust Act. The latter goes to allegations that AMC has monopolized and attempted to monopolize markets for film licenses and theater patrons. AMC's 69 percent share of the market where Cobb does business is deemed to be "borderline," but enough to withstand dismissal. Its alleged use of the "power of its entire nationwide acquire exclusive privileges in markets where it has competitors" is deemed to be serious enough to advance the lawsuit as well.

Furthermore, the judge won't allow AMC to escape a claim of tortious interference. The dispute is now on track for extensive discovery about the dealings that the nation's largest theatrical distributor has with big Hollywood studios.

Twitter: @eriqgardner