AMC Theater Chain Headed to Trial Over Alleged Conspiracy With Movie Studio Giants

AMC Theater - Getty - H 2018
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A Texas federal judge has set the stage for what could become the first jury trial examining the relationship between movie theaters and film studios since the U.S. Supreme Court's 1948 landmark decision in United ?States v. Paramount Pictures. On Tuesday, U.S. District Court Judge Alfred Bennett rejected AMC Entertainment's bid for summary judgment in a lawsuit that alleges the exhibition giant colluded with Disney, Sony and Universal to the disadvantage of an independent theater owner in Houston.

Viva Cinemas Theaters, the plaintiff, specializes in serving the Hispanic community with dubbed or subtitled films and alleged in its 2015 complaint that AMC came to "clearance" pacts that carved out exclusivity on first-run films in its geographical region. Locked out of hits including Iron Man and Fast and Furious tentpoles, Viva went out of business.

Overbroad clearances became per se illegal as a result of the Supreme Court's 1948 decision and also due to the settlement in the aftermath known as the Paramount Consent Decrees. But as Bennett notes in his decision Tuesday, Viva can't cite a single case in which clearances have been held illegal since that time. As a result, the judge concludes that a rule of reason analysis is required. Under antitrust law, that means that to prove a violation of the Sherman Act, Viva must show AMC and studios engaged in a conspiracy, the conspiracy had the effect of restraining trade and that trade was restrained in the relevant market.

In his order (read here), Bennett examines how Viva is defining the market both from a geographic and product standpoint.

Even if the geographic market is just five miles, the judge says it's sufficient to survive summary judgment. As for product, the judge points to plaintiff's expert pointing to first-run films with more than 2,000 runs and a submarket of wide-release English films with Spanish subtitles, and also finds it sufficient with arguments made against more suited for the rigors of cross examination at trial.

AMC argued that Viva had failed to present sufficient evidence of horizontal agreements with its suppliers (movie producers), but the judge wants it tested at trial. 

"Viva points to four things to support an inference that such agreements existed," he writes. "(1) the fact that all the suppliers uniformly refused to license first-run movies to Viva, (2) evidence that the suppliers knew AMC requested a clearance from all the other suppliers at issue, (3) evidence that the suppliers' uniform compliance with AMC's request was publically available knowledge, and (4) that such action was against each individual supplier's self-interest (absent AMC's request) unless they all acted uniformly as any individual supplier would want their movie in as many theaters as possible and would not want to lose any market space to the other suppliers."

As demonstrated above as well as in depositions in the case, studio executives will likely testify at trial.

Adds Bennett, "Though the Court agrees with AMC that such evidence of horizontal agreements is precarious, screening out marginal cases is not an appropriate use of this Court's summary judgment function. Based on the evidence, the Court cannot say a reasonable juror could not find the existence of horizontal agreements between the suppliers."

The decision comes weeks after the Justice Department said it would be reviewing the Paramount Consent Decrees, but as explained here, the Trump Administration can hardly overrule the high court. Restraints on trade will continue to invite judicial scrutiny, and movie licensing agreements may be reviewed under relevant competition law.