Declaration Reply Declaration By Thomas Boeder In Support of Flagship Motion For Attorneys Fees

Reply

Cal. Super. - 2nd Dist.July 26, 2006

Electronically FILED By Superior Court of California, County of Los Angeles on 02/19/2019 12:06 PM Sherri R. Carter, Executive Officer/Clerk of Court, by S. Watson,Deputy Clerk 1 | Thomas L. Boeder, Admitted Pro Hac Vice TBoeder@perkinscoie.com Elvira Castillo, Admitted Pro Hac Vice ECastillo@perkinscoie.com Cara Wallace, Admitted Pro Hac Vice CWallace@perkinscoie.com PERKINS COIE LLP 1201 Third Avenue, Suite 4900 Seattle, WA 98101-3099 Telephone: 206.359.8000 Facsimile: 206.359.9000 N O wn BA L N Donald J. Kula, Bar No. 144342 DKula@perkinscoie.com 8 | Donna Strain Bar No. 305599 DStrain@perkinscoie.com 9 | PERKINS COIE LLP 1888 Century Park East, Suite 1700 10 | Los Angeles, CA 90067 Telephone: 310.788.9900 11 | Facsimile: 319.788.3399 12 | Attorneys for Plaintiff Flagship Theatres of Palm Desert, LLC 13 | dba Cinémas Palme d’Or 14 SUPERIOR COURT OF THE STATE OF CALIFORNIA 15 COUNTY OF LOS ANGELES 16 17 | FLAGSHIP THEATRES OF PALM Case No. SC090481 DESERT, LLC dba CINEMAS PALME 18 | D’OR, Assigned for all purposes to the Honorable Lisa Hart Cole 19 Plaintiff, REPLY DECLARATION BY THOMAS L. 20 Vv. BOEDER IN SUPPORT OF FLAGSHIP MOTION FOR ATTORNEY’S FEES 71 | CENTURY THEATRES, INC. and CINEMARK USA, INC. Date: March 5, 2019 22 Time: ~~ 8:30 am. Defendants. Dept: O 2 3 Complaint filed: July 26, 2006 24 Trial date: April 2,2018 25 26 27 28 REPLY DECLARATION OF T. BOEDER 61424-0001/143155618.1 ISO MOTION FOR ATTORNEY'S FEES CASE NO SC090481 N N nw A x 10 11 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 95 28 I, Thomas L. Boeder, declare and state as follows: 1: I am an attorney duly licensed to practice before the courts of the State of Washington and admitted pro hac vice in this court for this matter. I am a partner in the Perkins Coie law firm and have been the lead counsel and supervising partner for Plaintiff Flagship Theatres of Palm Desert, LLC dba Cinémas Palme d’Or (“Plaintiff” or “Flagship”) in this action since Perkins Coie was retained to represent Flagship with respect to this case. I have personal knowledge of the facts set forth in this declaration, and if called upon to testify, could and would testify competently as to these facts. 2. As noted Flagship’s Reply Memorandum in Support of its motion for an attorney’s fee, a prevailing plaintiff seeking such a fee under the lodestar approach is entitled to include in the lodestar work relating to preparation and defense of the requested attorney’s fee. Based on Perkins Coie time records for such work in defending Plaintiff’s motion for attorney’s fees, including discovery on this issue requested by Defendants and stipulated to by Plaintiff, review of extensive papers filed by Defendants in opposition, inter alia, to any attorney’s fee being awarded to Plaintiff, preparation of papers in reply, and estimated time to prepare for and present oral argument at the hearing on the attorney’s fee motion, I estimate that a conservative amount for this work, not included in the lodestar previously stated in Plaintiff’s motion to be $709,000. Plaintiff asks that the Court add this amount to the lodestar requested as the basis of a reasonable attorney’s fee award 3. The following are the sources of data that form the basis for calculation of the amount stated above: a. Data provided in the Exhibit 24 to the declaration of Defendants’ attorney’s fee expert, Clement L. Glynn that identified time entries designated as relating to preparation of Plaintiff’s fee motion (500.25 hours/$275,189.75) and then REPLY DECLARATION OF T. BOEDER BT 1- ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 N N hw RA W N 0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4. deducting the entirety of 10 entries for timekeeping entries that include block billed tasks other than those relating to the fees motion (41.5 hours/$23,480.50) and for period of time subsequent to Exhibit A to the Boeder Declaration that has all time entries included in the lodestar on which the Plaintiff's fees motion is based. The total for this category, rounded to the nearest thousand is $252,000. b. Perkins Coie accounting records for time subsequent to that in Exhibit A and related to work on attorney’s fee from 8/31/18 to 1/31/19 (797.7 hours/$490,152,50), including work for research and drafting of the fee motion, discovery/depositions related to the motion as requested and pursued by Defendants, and motion to seal. The total for this category, rounded to the nearest thousand is $490,000. c. The timekeeper numbers from the above sources do not provide data with respect to work on the fee motion subsequent to 1/31/19 that includes preparation for and argument in support of the attorney’s fee motion at the scheduled hearing on March 5, 2019. d. I further excluded from the total of the fees work categories above non-fees related work included in block billed time entries that also included fees related work. The total amount of this exclusion is 55.6 hours/$33,028 that is rounded to $33,000 for purposes of totaling all categories listed in paragraphs a through d. e. Using the rounded numbers in categories listed above, and without including work subsequent to 1/31/19, yields of total of $709,000. Attached as Exhibit A is a true and correct copy of the opinion rendered by the Court of Appeals with regard to Judge Goodman’s grant of a termination sanction that is cited as 61424-0001/143155618.1 -2- REPLY DECLARATION OF T. BOEDER ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 ~N O Y nw Rr W N oo 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., No. B257148, 2016 WL 3091192 (Cal. Ct. App. May 24, 2016). 5 The parties took and defended a total of 60 depositions during three phases in the case: 9 depositions from March 1, 2007 to April 3, 2008; 33 from September 12, 2012 to December 17, 2013; and 18 from June 7, 2017 to February 22, 2018. 6. Defendants noticed two of Flagship’s principals 12 times over the life of the case. Brian Tabor was deposed on the following days: a. b. March 19, 2008 resulting in 2 hours and 77 pages of testimony; December 5, 2012 resulting in 5 hours and 161 pages of testimony; June 20, 2013 resulting in approximately 4.7 hours and 183 pages of testimony; June 21, 2013 resulting in approximately 10 hours and 336 pages of testimony; June 14, 2017 resulting in approximately 9 hours and 344 pages of testimony, and September 15, 2017 resulting in approximately 4 hours and 152 pages of testimony. Steve Mason was deposed on the following days: March 15, 2008 resulting in approximately 3 hours and 134 pages of testimony; . December 5, 2012 resulting in approximately 5.5 hours and 226 pages of testimony; . June 19, 2013 resulting in approximately 11 hours and 394 pages of testimony; . June 20, 2013 resulting in approximately 4.5 hours and 209 pages of testimony; . June 7, 2017 resulting in approximately 9 hours and 363 pages of testimony, and f. September 16, 2017 resulting in approximately 4 hours and 174 pages of testimony. REPLY DECLARATION OF T. BOEDER 61424-0001/143155618.1 -3- ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 co NN 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 de of the case. Flagship deposed Defendants’ current and former employees 21 times over the life John Lundin was deposed on July 26, 2007 resulting in approximately 1.5 hours and 58 pages of testimony and on November 21, 2013 resulting in 7.5 hours and 301 pages of testimony. . Morris Birnbaum was deposed on November 20, 2007 resulting in approximately 5 hours and 153 pages of testimony and on September 18, 2012 resulting in approximately 2.5 hours and 97 pages of testimony. Robert Lenihan was deposed on November 20, 2007 resulting in approximately 3.5 hours and 141 pages of testimony, and on November 1, 2013 resulting in 8 hours and 289 pages of testimony. . Justin McDaniel was deposed on April 3, 2008 resulting in approximately 1.5 hours and 55 pages of testimony, on October 11, 2013 resulting in approximately 2.5 hour and 95 pages of testimony, and on September 27, 2017 resulting in approximately 4.5 hours and 115 pages of testimony. Harry Whitson was deposed on April 3, 2008 resulting in approximately 2 hours and 92 pages of testimony and on October 17, 2013 resulting in 4.7 hours and 139 pages of testimony. Shelby Tharpe was deposed on June 5, 2008 resulting in approximately 2 hours and 78 pages of testimony and on October 18, 2013 resulting in 1.3 hours and 67 pages of testimony. Steve Bunnell was deposed on October 3, 2013 resulting in 6 hours and 175 pages of testimony. REPLY DECLARATION OF T. BOEDER CASE NO. SC090481 No N Y LL B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 h. Timothy Warner was deposed on October 4, 2013 resulting in 3 hours and 108 pages of testimony. i. Jonathan Penn was deposed on October 10, 2013 resulting in approximately 2.5 hours and 110 pages of testimony and on September 13, 2017 resulting in 6 hours and 202 pages of testimony. J. Mark Zoradi was deposed on October 10, 2017 resulting in 2 hours and 73 pages of testimony. k. Cara West was deposed on September 20, 2017 resulting in 4.5 hours and 144 pages of testimony. Testimony from 17 out of the 20 above-referenced depositions were used at trial. 8. The parties and third parties exchanged documents in the regular course of discovery during three phases: from the time when the case was filed and June 20, 2008, the parties exchanged approximately 3,238 documents consistent of approximately 10,819 pages; from June 22, 2012 to January 9, 2015, the parties and third parties exchanged approximately 115,448 documents consisting of approximately 269,884 pages, of which approximately 39,732 documents consisting of approximately 140,666 pages were produced by Cinemark; and from March 6, 2017 to October 25, 2017, the parties exchanged approximately 155,090 documents consisting of approximately 1,060,562 pages, of which approximately 64,043 documents consisting of 806,753 pages were produced by Cinemark. 9. Cara Wallace is an associate whose work I directly supervised on this case. Her time entries during trial do not reflect the myriad of tasks she performed while at trial. While myself, Don Kula, and Elvira were in the courtroom, Ms. Wallace, among other tasks, prepared witness examination and cross-examination outlines; assisted Ms. Bali with trial exhibit negotiations; negotiated deposition designations with opposing counsel, and prepared material REPLY DECLARATION OF T. BOEDER 61424-0001/143155618.1 5 ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 N N LL B R A W N 0 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 regarding disputes to the same for the Court’s review; assisted with witness preparation; supervised the presentation of oral and video deposition designation testimony; performed research and drafted substantive sections of trial briefing, including the opposition to non-suit; identified key evidence for inclusion in opposition to non-suit and closing arguments; revised and assisted with negotiating jury instructions, and assisted with oral argument related to the same; and prepared rebuttal closing argument presentation. When Ms. Wallace was in the courtroom, she was assisting with oral arguments, administrative tasks related to the Court’s orders, or gathering information for use in relation to the tasks identified above. 10. Tyler Anthony was an associate who was present at trial for three days, and then only to assist with oral presentation of deposition designation testimony. 11. Attached as Exhibit B is a true and correct copy of trial transcript excerpts 1827:15-21, 3144:9-15, 3295:22-3297:5. 12. Attached as Exhibit C is a true and correct copy of the Declaration of Heidi Robertson dated January 25, 2019. 13. Attached as Exhibit D is a true and correct copy of the Declaration of F. Matthew Ralph dated February 5, 2019. 14. Attached as Exhibit E is a true and correct copy of public comments, with highlighting added by Flagship, which were submitted to the U.S. Department of Justice by the Independent Cinema Alliance entitled “Comments of the Independent Cinema Alliance to the Department of Justice, Antitrust Division concerning the Paramount Consent Decrees” dated October 4, 2018, available at https://www.justice.gov/atr/page/file/1102561/download. 15. Attached as Exhibit F is a true and correct copy of public comments, with highlighting added by Flagship, which were submitted to the U.S. Department of Justice by the Writers Guild of America, West, Inc. entitled “In re Antitrust Consent Decree Review: The REPLY DECLARATION OF T. BOEDER §1424-0001/143155618.1 -6- ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Paramount Consent Decrees; Comments of Writers Guild of America, West, Inc.” dated October 4,2018, available at https://www.justice.gov/atr/page/file/1102781/download. 16. Attached as Exhibit G is a true and correct copy of public comments, with highlighting added by Flagship, which were submitted to the U.S. Department of Justice by Cinetopia LLC entitled “Written Statement of Cinetopia LLC regarding the Paramount Consent Decrees Review before the Chief, Litigation III Section, Antitrust Division, U.S. Department of Justice” dated October 4, 2018, available at https://www justice.gov/atr/page/file/1102386/download. I declare under penalty of perjury under the laws of the State of Washington that the foregoing is +h true and correct. Executed this |] 8 ~ day of February 2019 at Seattle, Washington. Ee THOMAS L. BOEDER REPLY DECLARATION OF T. BOEDER ROE RETRY Ie ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 EXHIBIT A Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 2016 WL 3091192 Not Officially Published (Cal. Rules of Court, Rules 8.1105 and 8.1110, 8.1115) California Rules of Court, rule 8.1115, restricts citation of unpublished opinions in California courts. Court of Appeal, Second District, Division 1, California. FLAGSHIP THEATRES OF PALM DESERT, LLC, Plaintiff and Appellant, V. CENTURY THEATRES, INC,, et al., Defendants and Respondents. B257148 (consolidated with B259552, B261149) Filed May 24, 2016 APPEAL from a judgment of the Superior Court of Los Angeles County. Allan J. Goodman and H. Chester Horn, Jr., Judges. Reversed. (Super. Ct. No. SC090481) Attorneys and Law Firms Perkins Coie, Thomas L. Boeder, Elvira Castillo, Katherine G. Galipeau, Donald J. Kula, Vilma R. Palma- Solana, and Oliver M. Gold for Plaintiff and Appellant. Norton Rose Fulbright US, Michael A. Swartzendruber, Barton Wayne Cox, Peter H. Mason, and Lesley Holmes for Defendants and Respondents. Opinion ROTHSCHILD, P.J. *1 Plaintiff and appellant Flagship Theatres of Palm Desert, LLC (“Flagship”), challenges the trial court's grant of terminating sanctions in favor of defendants Century Theatres, Inc. (“Century”) and Cinemark USA, Inc. (“Cinemark”) in the antitrust litigation between the parties. | While the case was pending, Flagship's co- owner, Brian Tabor, deleted a large number of e-mails from the account he used for both personal and business purposes. Tabor deleted the e-mails deliberately, but he did not do so with the intent of destroying evidence in the case. Rather, the account was failing to deliver mail to him properly, and tech support personnel for his email WESTLAW provider advised him to clear storage space in the account in order to restore its functionality. Flagship initially sued Century. While this litigation was underway, Cinemark acquired Century. This opinion uses the name Century to refer to the company prior to acquisition, and Cinemark afterward. We conclude that the remedy of terminating sanctions was overbroad. The lesser sanction of barring plaintiff from presenting evidence for the period for which Tabor's emails could not be replaced would substantially remedy any prejudice to defendants. We thus reverse. FACTS AND PROCEEDINGS BELOW A group of investors founded Flagship in 2002 for the purpose of operating a movie theater complex in Palm Desert. This is the only theater that Flagship operates. The ownership group included five individuals, three of whom are relevant to this appeal: Brian Tabor, the primary manager and film buyer for the company; Steve Mason, who was also involved in day-to-day operations but primarily handled big-picture strategy; and the actor Bryan Cranston, who primarily played a passive role but occasionally contacted distributors on behalf of the company. Flagship leased a vacant seven-screen movie theater complex in a shopping mall in Palm Desert, renovated it, and reopened it several months later under the new name Cinémas Palme d'Or (the Palme). The Palme was unable to obtain as many desirable movies from distributors as it had expected. Flagship's owners attributed this to the presence of a multiplex theater approximately two miles away in Rancho Mirage called Century at the River (the River). According to Flagship, prior to 2002, the River and the Town Center (the earlier name of the Palme location) had obtained from distributors the rights to show roughly equal numbers of the most desirable movies. In July 2002, Century, owner of a large chain of movie theaters, purchased the River. Flagship claims that thereafter distributors sent the vast majority of the most commercially successful films to the River. In 2006, Flagship filed suit against Century and two film distributors, alleging that the defendants had violated the Cartwright Act (Bus. & Prof.Code, § 16700 et. seq.), Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 the Unfair Competition Law (Bus. & Prof.Code, § 17200 et. seq), and had tortiously interfered with Flagship's prospective economic advantage. Flagship's complaint alleged that Century had been engaging in the illegal practice known as “circuit dealing,” by which a large theater chain uses its leverage in the broader market to deny a smaller competitor access to desirable movies. (See Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. (2011) 198 Cal. App.4th 1366, 1375 (Flagship I).) According to Flagship, if distributors proposed to license popular films to show at the Palme rather than the River, Century threatened to refuse to show those distributors’ films at other theaters that Century owned. *2 For the next two years, the case proceeded through discovery, and each side requested and received documents from the other. Most notably, in December 2006, defendant Universal Film Exchanges LLLP (Universal) served a set of requests for production in which it requested numerous categories of documents from Flagship. Among many other categories of documents, Universal requested “all emails between Plaintiff and any motion picture distributor referring or relating to” the Palme. In addition, Universal requested all emails referring or relating to the River. In response to the requests from Universal and other co-defendants in the case, Flagship produced emails and other documents in the spring of 2007, dating from the inception of Flagship. From the date of production in 2007 until the trial court granted summary judgment in July 2008, no defendant moved for further production. No court order required the parties to preserve documents, but Flagship's principals were aware of their duty not to destroy potential evidence in the case. Tabor and Mason had long contemplated filing suit against Century, and as early as the spring of 2004, they orally agreed to preserve all documents that might be relevant to any such lawsuit. Flagship voluntarily dismissed the distributors from the case and added Cinemark as a defendant following Cinemark's acquisition of Century, and alleged that Cinemark engaged in the same unlawful practices as had Century. In 2008, the trial court granted Century's motion for summary judgment. We reversed the judgment in 2011, remanding the case to the trial court for further proceedings. (Flagship I, supra, 198 Cal. App.4th 1366.) WESTLAW In the summer of 2012, Tabor began experiencing problems sending and receiving email. Tabor used the same AT & T email account for both his personal and business dealings. A customer service agent at AT & T told him that his inbox had grown too large, and that in order to restore functionality, he would need to delete emails. Tabor deleted thousands of messages from his account in chronological order beginning with emails sent and received in the 1990's and ending at February 19, 2009. Tabor did not have a backup copy of the emails he deleted. Shortly thereafter, Cinemark filed a new discovery request asking for documents including Tabor's emails. Tabor realized that by deleting his emails, he had violated his obligation to preserve documents relevant to the lawsuit. He and Mason and Flagship's attorneys spent hours attempting to recover the deleted emails, but without success. The scope of the loss of Tabor's emails is as follows: For the period before the spring of 2007, Tabor permanently deleted all emails from his account. Before the deletion, however, Flagship had produced his emails, with some minor exceptions discussed below, in response to Universal's requests for production in 2007. This production of documents still exists and is available to Cinemark. Universal's requests for production in 2007 were sufficiently broad as to encompass essentially all emails that Cinemark now believes are relevant to defend their case. For the period between the spring of 2007 and February 19, 2009, Tabor's emails have been permanently deleted, and no emails from this time period were produced to Universal. Cinemark has managed to obtain some emails from this period through other sources, including from the distributors with whom Tabor corresponded and from Mason, to whom Tabor often sent copies of his email correspondence. Tabor's mass deletion of emails did not affect any emails dated after February 19, 20009. When Cinemark learned that Tabor had deleted the emails, it moved for sanctions. The trial court denied the motion because it was unable to fully evaluate the extent of prejudice to Cinemark. Subsequently, Cinemark renewed its motion for sanctions. This time, the trial court granted the motion. Although the court concluded that the emails had not been deleted maliciously, it nonetheless granted terminating sanctions, concluding that no lesser sanction would remedy the prejudice to Cinemark. In addition, Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 the court granted attorneys' fees and costs in favor of Cinemark. DISCUSSION I. Terminating Sanctions *3 An order imposing sanctions is reviewed for abuse of discretion. (Williams v. Russ (2008) 167 Cal.App.4th 1215, 1223-1224 (Williams ).) A trial court abuses its discretion in imposing terminating sanctions if lesser sanctions would adequately protect the non-offending party from prejudice. (Caryl Richards v. Superior Court (1961) 188 Cal.App.2d 300, 305.) Tabor's actions in 2012 most likely destroyed some emails that might have been helpful to the defendants, although not necessarily admissible as evidence in the case. As a result, Cinemark likely suffered some prejudice, and it is entitled to a remedy to compensate for this prejudice. But the potential for prejudice is limited to the period between the spring of 2007 and February 19, 2009 because the relevant emails outside that period, with some minor exceptions, were saved. Accordingly, the trial court abused its discretion by not limiting appropriate sanctions to the period between the spring of 2007 and February 19, 2009. Within the 2007 to 2009 period, all of the emails from Tabor's account were deleted, and with only a few exceptions, they cannot be recovered. > Cinemark argues that the deletion of these emails has prejudiced its entire defense, including issues of liability, causation, and damages. According to Cinemark, Flagship prejudiced Cinemark's defense as to liability by destroying emails in which distributors stated that they chose to license films to the River rather than the Palme for business reasons, not because of coercion. Cinemark argues that Flagship prejudiced its defense as to causation by destroying emails explaining Flagship's strategy regarding the movies it wanted to license or not license. With respect to damages, Cinemark argues that it could have shown that Flagship attempted to license too few popular films to garner the potential revenues Flagship's expert witness believed the Palme could have achieved if not for Cinemark's alleged malfeasance. Cinemark has recovered some examples of each of these kinds of emails in Tabor's surviving emails, and believes that if not for the deletion, many more would have survived. Because Cinemark was the victim of Flagship's deletions and because at least some of Cinemark's proposed defense theories are plausible, we WESTLAW must assume that the missing emails would have provided Cinemark with some useful information.> For its part, Flagship contends that sanctions are unnecessary because it does not need Tabor's emails to prove its own case and that Cinemark's own communications with distributors should be the heart of Cinemark's defense. Nonetheless, Cinemark has the right to attempt to prove its defenses on any plausible theory, however weak it might seem to Flagship. Because Flagship is the party responsible for the loss of emails, we must give the benefit of the doubt to Cinemark. On the theories Cinemark has chosen, the loss of emails from 2007 to 2009 may impair its ability to defend itself. In consequence, it is entitled to an appropriate remedy preventing Flagship from presenting evidence or collecting damages covering this time period. The only emails from the 2007 to 2009 period that Cinemark has access to are those obtained from the parties with whom Tabor was corresponding. That includes some emails Tabor sent to distributors, and other emails in which Tabor included Mason as a “cc” recipient. We have no reason to believe, however, that these exceptions accounted for more than a small portion of the emails from this period. This is not to imply that all the missing emails would have been admissible evidence in the case. For example, Cinemark contends that emails from distributors stating business reasons for rejecting Flagship's offers will aid them in disproving liability and causation. If, however, these emails are proffered by Cinemark for the truth of the assertion that the distributors’ rejections were for business reasons, they would be inadmissible hearsay, but they might nevertheless be useful in allowing Cinemark to develop evidence in the case or possibly be admissible for some other purpose of which we are not aware. *4 Cinemark, however, argues that it is entitled to terminating sanctions, not only sanctions limited to the 2007-2009 period, because Flagship's 2007 production was incomplete. 4 According to Cinemark, in 2007, Flagship produced only 150 emails Tabor sent or received. By contrast, five years later in 2012, Flagship included 25,000 of Tabor's emails in its response to discovery. 4 Cinemark contends that it is entitled to terminating sanctions under Williams,supra, 167 Cal.App.4th at p- 1227, in which the court held that upon a proper showing from the defendant, it falls to the plaintiff to disprove the prejudicial effect of the spoliation. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 The court reasoned that “burden shifting is proper when one[ | party['s] wrongdoing makes it practically impossible for the plaintiff to prove its case.” (Id. at p. 1226.) We disagree. Here, Flagship did not engage in the wrongdoing the court condemned in Williams. (See id. at p. 1224 [inferring that plaintiff cherry-picked favorable documents, then allowed the rest to be destroyed]; see also R.S. Creative v. Creative Cotton, Ltd. (1999) 75 Cal.App.4th 486, 490-492; Electronic Funds Solutions v. Murphy (2005) 134 Cal.App.4th 1161, 1184.). Furthermore, as we describe in this opinion, the destruction of documents was limited, and the state of the record shows that it was not practically impossible for Cinemark to defend its case. Without a detailed description of the 25,000 emails themselves we can reach no conclusions about why they were more numerous than the 2007 production. It is possible, for example, that Flagship was overly liberal in its 2012 production, and that the 2007 production, albeit narrower, included all the documents to which defendants were entitled. Universal's request for production was wide ranging and included a request for every email Tabor sent to or received from a distributor, along with other categories that include virtually all documents Cinemark now argues are relevant to this case. There is good reason to believe that relatively few relevant emails for the period before 2007 are missing. Distributors had a strong incentive to preserve emails they received from Tabor. As early as 2005, they knew that Flagship was contemplating litigation against them. Further, the examples of missing emails that Cinemark cites do not suggest a widespread or deliberate lack of compliance by Flagship. The most useful pre-2007 document for Cinemark was an email Tabor wrote to a Sony employee requesting that Sony license the films “Big Fish” and “Mona Lisa Smile” to the Palme. In the email, Tabor wrote, “I will not be asking for, nor expecting, most Sony product, as this is not a typical mainstream venue. Please continue to sell Century Theatres at the River all of the very commercial titles.” Yet this email dated from 2003, three years before Flagship filed its initial complaint in this case, and several months before Tabor and Mason testified that they first contemplated filing suit. Tabor might have deleted it before he had any reason to believe he needed to preserve it for purposes of litigation. The other emails Cinemark has cited do not significantly favor Cinemark. In one, Tabor wrote to a distributor WESTLAW that he had been pleasantly surprised by how well the film “John Tucker Must Die” performed at the Palme, despite the fact that the movie was primarily aimed at a teen audience, not the upscale adult audience that typically attends movies at the Palme. This email might be useful to Cinemark to show that Flagship had marketed the Palme as primarily an arthouse venue, or, from Flagship's perspective, it might show that the Palme was interested in teen movies and capable of generating high ticket sales with them. In another email, Tabor cited statistics showing that in the case of two previous movies, “Veronica Guerin” and “Step Into Liquid,” the films performed better at the Palme than they had in earlier weeks when shown at the River or another area theater. This document might be useful to show, given an equal playing field, Flagship was capable of competing against the River and generating strong revenues. In another email that Tabor failed to preserve, he informed an employee of NBC Universal that he had mailed her a check for $1,245.60. In all, we see no evidence that Tabor's failure to preserve a few emails from before 2007 was anything other than occasional and inadvertent. *5 Finally, Cinemark contends that terminating sanctions are appropriate because the loss of emails made it impossible for Cinemark to defend against Flagship's claims of damages. Flagship's expert witness theorized that, because the Palme had approximately 40 percent of the seating capacity that existed between the two theaters, it should have been able to obtain approximately 40 percent of the revenues that the two theaters generated. The expert suggested that Flagship could measure its damages by the shortfall of revenues below 40 percent. Cinemark alleges it intended to attack this theory by showing that Flagship believed that many of the most lucrative mainstream Hollywood blockbusters were a poor fit for Flagship's intended audience and therefore did not attempt to license these films. If Flagship declined a sufficiently large number of these high-grossing movies, it would become implausible for Flagship to generate 40 percent of the total revenue of the two theaters. We disagree. In its decision, the trial court wrote, “in order to support their expert's theory, plaintiffs ‘must be able to establish that they actually sought to license and play enough films to generate 40% of the cumulative box office grosses.” ” The court was mistaken. The number of films Flagship requested is not necessarily reflective of the Palme's box office potential if not for Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 alleged misconduct by Cinemark. For example, Tabor and Mason might have realized that distributors were unwilling to give them certain kinds of movies and simply stopped requesting them, even if they would have gladly played those movies at the Palme. Indeed, Universal Studios informed Flagship in no uncertain terms that it planned to license all of its films exclusively to the River. Flagship suggests it will present testimony that it stopped requesting films from Universal Studios because it would have been pointless to continue making requests in light of this communication. (See Charles Rubenstein, Inc. v. Columbia Pictures Corp. (D.Minn.1959) 176 F.Supp. 527, 536 [rejecting a defendant's argument to be dismissed from a circuit dealing case on the ground that the plaintiff had not requested better runs for the defendant's movies because any request would have been futile].) = The trial court's grant of terminating sanctions was based largely on its misinterpretation of this evidentiary point. This error alone would justify reversal. (See Adams v. Aerojet-General Corp. (2001) 86 Cal. App.4th 1324, 1341 [* “A trial court abuses its discretion when it applies the wrong legal standards applicable to the issue at hand.” ’]) Cinemark also contends that it suffered prejudice because of other instances where Flagship failed to preserve documents. In these instances, the information was preserved elsewhere. For example, Tabor acknowledged that he routinely threw away handwritten notes from conversations with distributors regarding terms of exhibition after entering this information into a spreadsheet, and he destroyed physical printouts of the same spreadsheet after entering data regarding payments to distributors into the digital version of the spreadsheet. There is no reason to believe that Cinemark was prejudiced by this business practice, however, because the information contained in the notes was transferred to the spreadsheet. This data was key to Flagship's operation, as it included information such as which movies to play in which theaters, and how much each distributor was owed. Because a central part of the distributors’ businesses required them to keep track of this kind of information, it would have been difficult for Tabor to alter or falsify this information without the distributors noticing. In addition, distributors have produced a few emails from Mason that are no longer in his account, despite the fact that Mason testified in his deposition that he never deleted any messages from his email account. They are only a WESTLAW handful, and they do not provide meaningful support for Cinemark's position. We have no reason to believe that the deletion of these emails were anything other than occasional oversights. Tabor admitted that, in addition to his mass deletion of emails, he sometimes deleted emails on an individual basis when he believed they were “junk” or “duplicative.” Cinemark has produced no evidence to suggest that these emails would have been valuable. Given the apparent small scale and innocuousness of the deletion of emails outside the 2007-2009 time frame, there is no justification for additional sanctions. *6 Finally, Cranston acknowledged that he failed to preserve handwritten notes that he took during conversations with studio executives. These notes were so sporadic that their loss could not significantly prejudice Cinemark. I1. Attorneys" Fees In addition to challenging the award of terminating sanctions, Flagship contends that if terminating sanctions are reversed we should reverse the award of attorneys’ fees. We agree. Because we reverse the attorneys’ fee order in its entirety, we need not evaluate the trial court's interpretation of the application of Code of Civil Procedure section 2023.030, subdivision (a) to the facts of this case. Upon remand, the trial court must consider the attorneys' fee matter de novo, keeping in mind both the application of that section and our evaluation of the prejudice to Cinemark from the destruction of documents. III. Conclusion By granting terminating sanctions in a case in which the prejudice to the non-offending party can be ameliorated by a more limited remedy, the trial court abused its discretion. Consequently, we reverse the judgment. On remand the trial court shall order as a sanction for its spoliation of evidence that Flagship is prohibited from offering evidence of acts, events, or communications occurring during the period between spring 2007 g and February 19, 2009, and is further precluded from claiming damages for this period. If, however, Cinemark offers evidence at trial relating to acts, events, or communications for this time period that, in the view of the trial court, is more than nonsubstantive, peripheral, or foundational, then Flagship may also present evidence Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., Not Reported in... 2016 WL 3091192, 2016-1 Trade Cases P 79,647 and seek damages pertaining to this time period. Because the court's award of attorney's fees and costs was based on the grant of terminating sanctions, it too is reversed. The trial court shall determine the exact date in the spring of 2007 at which point Flagship's initial production of documents stopped. DISPOSITION The judgment of the trial court is reversed. On remand the trial court shall order as a sanction for its spoliation of evidence that Flagship is prohibited from offering evidence of acts, events, or communications occurring during the period between spring 2007 and February 19, 2009, and is further precluded from claiming damages for this period. If, however, Cinemark offers evidence at trial relating to acts, events, or communications for this time period that, in the view of the trial court, is more than nonsubstantive, peripheral, or foundational, then Flagship may also present evidence and seek damages pertaining to this time period. Further, the trial court shall consider de novo whether to grant attorneys’ fees. Appellant to recover its costs on appeal. We concur: JOHNSON, J. LUL J. All Citations Not Reported in Cal.Rptr.3d, 2016 WL 3091192, 2016-1 Trade Cases P 79,647 End of Document WESTLAW ©2019 Thomson Reuters. No claim to original U.S. Government Works. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. Negative Treatment Negative Direct History The KeyCited document has been negatively impacted in the following ways by events or decisions in the same litigation or proceedings: -,. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. 2016 WL 3091192, Cal.App. 2 Dist. , May 24, 2016 , unpublished/noncitable () , review denied (Aug 10, 2016) WESTLAW Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. History (2) Direct History (2) "1. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. 198 Cal.App.4th 1366 , Cal.App. 2 Dist. , Aug. 31, 2011, as modified on denial of rehearing ( Sep 29, 2011), review denied ( Nov 30, 2011) Appeal After Remand ™ 2. Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. 2016 WL 3091192, Cal.App. 2 Dist. , May 24, 2016 , unpublished/noncitable () , review denied ( Aug 10, 2016) WESTLAW EXHIBIT B c o ~ N o O U l B E O W N D P 10 Ld 12 13 14 15 16 17 18 19 20 Zl 22 23 24 25 26 217 28 SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES DEPARTMENT WE-O HON. LISA HART COLE, ]UDGE FLAGSHIP THEATRES OF PALM ) DESERT, LLC dba CINEMAS PALME ) D'OR, a California limited ) liability corporation, ) Plaintiff, ) Vs. ) No. SC090481 Century Theatres, INC., a ) Volume 10 California corporation, et al., ) Defendants. ) Pages 1761 - 1967 REPORTER'S DAILY TRANSCRIPT OF PROCEEDINGS THURSDAY, APRIL 19, 2018 APPEARANCES OF COUNSEL (Please see next page.) REPORTED BY: NAREN J ANSEN, CSR NO. 3827, RMR, CRR OFFI CIAL REPORTER PRO TEMPORE Veritext Legal Solutions 866 299-5127 c o ~~ o O OU B O W N D 10 11 Ld 13 14 15 16 17 18 19 20 21 22 23 24 25 26 217 28 1827 Q Okay. And so we're just showing you. This is indeed the exhibit you were testifying about earlier which is a 10-K from 2012. Is that right? A That's correct MR. BOEDER: Mr. Lin, would you please pull up page 4, Trial Exhibit 29004 and then go down and blow up the one paragraph under description of business. That first paragraph. And can you blow that up a little bit more. Would you basically highlight the portion of that exhibit which is a sentence that begins on the second line which says, "our circuit is the third largest in the Uu.s." Q So as of 2012, it's your understanding, then, that Cinemark was the third largest circuit movie theatre circuit in the United States. Is that correct? A That is correct, sir. Q And the -- with 298 theatres and 3,916 screens in 39 states. Is that right? A Yes, sir, at that time. Q And in 91 percent of those theatres, there was no other theatre that competed with Cinemark theatre. Is that correct? A I'd like to clarify that. No other theatre that competed for film Q Yes. A We competed with other theatres vigorously for Veritext Legal Solutions 866 299-5127 SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES DEPARTMENT WE-O HON. LISA HART COLE, JUDGE FLAGSHIP THEATRES OF PALM DESERT, LLC dba CINEMAS PALME D'OR, a California limited liability corporation, Plaintiff, VS. No. SC090481 CENTURY THEATRES, INC., a California corporation, et al., Vol ume 20 Pages 3130 - 3305 Defendants. REPORTER'S DAILY TRANSCRIPT OF PROCEEDINGS MONDAY, MAY 7, 2018 APPEARANCES OF COUNSEL: (Please see next page.) NAREN J ANSEN, CSR NO. 3827, RMR, CRR OFFI CI AL REPORTER PRO TEMPORE Veritext Legal Solutions 866 299-5127 Page 3144 1 checklist, or here's our spreadsheet. 2 We didn't see any of that 3 What we did see occasionally is after the fact 4 here's a comparison of certain films against certain 5 films. And we think this shows you could have done better 6 here, you could have done better there. There's not a [ot 1 of those. Certainly does not show that there's 8 film-by-film theatre-by-theatre negotiation on licensing 9 So circuit dealing. 10 These are the two forms that the court 11 instructed you on. Monopoly leveraging, multi-theatre 12 filmlicensing. 13 The evidence for these overlapped quite a bit 14 And we'll talk about that. I'm going to talk about them 15 individually and talk about where the evidence fits. 16 First of all, monopoly leveraging 17 These are the elements the court went over with 18 you. I've abbreviated them You'll have the instruction. 19 You can read it back in the jury room 20 Market power. We'll talk about that. 21 Second one. Cinemark uses its size, power of 22 its circuit outside the Palme's market to coerce to 23 prevent Palme -- the Palme from getting film 24 The size and power of Cinemark's circuit caused 25 distributors to not give the Palme film 26 And then damages. 217 Excuse me. Not filmby film theatre by 28 theatre. That's an element of both claims. And then Veritext Legal Solutions 866 299-5127 Page 3295 1 And let's just look at a couple of documents so 2 that you see how it worked in practice. 3 And you see that this notion that it was 4 Mr. Kula's argument that you're to rely on. No. Look at 5 the documents. Look at the exhibits so you can see how 6 this actually played out. 1 Let's look at a couple. 8 We're talking about Palm Springs this year 9 You've got multiple theatres here 10 And here's Birnbaum -- Mr. Birnbaum saying to 11 Mr. Lenihan. Bob, these are the Warner allocations 12 excluding Texas. Palm Springs is a discussion since they 13 had NO COUNTRY, we can have everything else as long as we 14 cover them adequately. 15 Does that sound to you like filmby film, 16 theatre by theatre? 17 Does that sound to you like Century's deriving 18 no power from the ability to offer multiple theatres to a 19 distributor? 20 Do you really think that that makes no 21 difference to a distributor? 22 Let's look at another example. 23 This is an e-mail talking about having offered 24 30 to 40 runs to a distributor in CiniArts theatres. 25 Again, what does that sound like to you? 26 And then also seeking appropriate representation 21 in competitive zones specifically because they've made 28 this offer of 30 to 40 runs. Veritext Legal Solutions 866 299-5127 Page 3296 c o ~~ o O OU B E O w N D N O R N N N RN N N NN NN N D FP FR FR Fk | m m BR Bk 0 - N o O U 1 B N W N HR O W oO - m e o Y U l R E E W N D P o WW Does that sound like filmby film theatre by theatre to you? Does that sound like individual negotiation that's looking at the merits of each individual theatre in a competitive zone looking to play that film? Or does that look like leveraging Let's look at a couple of more quickly. Well, this is a different example, actually. Earlier during defense counsel's closing, the statement was made, well, all you have is hearsay You don't really have admissions in documents that distributors ever felt pressure or felt like they had to check with Cinemark before doing something Dominic Baltazar from Lionsgate. Mr. Tabor's asking him about an allocation on its merits. He wants to play his film He thinks it will play well at the Pal me. He wants to negotiate and see if he can compete What does Mr. Baltazar tell him? |"m not sure how things are going to go with Cinemark. | can't make that commitment to you right now. | can't decide. lt almost sounds like he's saying it's not up to him, Tell me. Is that consistent with this notion that distributors just do whatever they want and Cinemark and Century have no ability to influence those decisions? Going back for a second to this notion of whether or not it's filmby filmand whether or not Veritext Legal Solutions 866 299-5127 Page 3297 1 there's leverage by offering a hundred and fifty locations 2 nationally. 3 You tell me. That's not filmby film And it 4 also shows you that it's just not true that multiple 5 theatres wouldn't be committed in order to get film 6 One more. And this is just another example. 1 And, again, you should look at these in the jury roomif 8 you want to scrutinize them more. 9 Again, this is monopoly leveraging in the sense 10 that it's trying to leverage. There's Rancho Mirage 11 highlighted to the bottom That's Palm Springs. And 12 looking for the appropriate representation, 13 Because they're going to commit to play this 14 film, 15 And it -- specifically it's referencing Rancho 16 Mirage as well as other theatres 17 | want to talk briefly to you just to give you 18 some data about the second form That is multiple theatre 19 agreements 20 So what did you hear? | think you heard some 21 argument from defense counsel that you haven't seen a 22 license, right? A written license signed by Cinemark and 23 distributors that says here is the license to this film, 24 RAY, for 50 of your theatres 25 That's true. You haven't seen that 26 But have you seen a stand-alone license? 217 Have you seen an individual license between 28 Cinemark and The River to play RAY? Veritext Legal Solutions 866 299-5127 EXHIBIT C DECLARATION OF HEIDI ROBERTSON I, Heidi Robertson, declare as follows: 1; [ am the CEO for Tristone Cinema Group, LLC (“Tristone Cinemas”). I have worked for Tristone Cinemas since May 2003. Before my role as CEO, I was the Director of Corporate Accounting from May 2003 to March 2006. I make the following statements based upon my own personal knowledge, and if called upon, could and would testify competently to the following. 2; Tristone Cinemas is a small circuit with six theaters located in Southern California. One of our theaters, Palm Desert 10 Cinemas, operates in the same location that Cinemas Palme d’Or, owned and operated by Flagship Theatres of Palm Desert, LLC. 3; I am familiar with the Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. (“Flagship”) litigation. The Flagship litigation was closely followed by Tristone Cinemas and by independent theaters and small circuits generally, and the favorable jury verdict was of particular interest to small circuits, like Tristone Cinemas. 4. Based on my personal experience and observations, the favorable verdict for Flagship has made an important difference in increasing Tristone Cinemas’ access to film at our Palm Desert 10 theater. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed this 5" day of January, 2019, at \W'\ domer , CA Heidi Robertson EXHIBIT D DECLARATION OF F. MATTHEW RALPH 1. I am a partner and co-chair of the Antitrust Practice Group of the law firm of Dorsey & Whitney LLP, and I specialize in antitrust litigation matters. Iam member in good standing of the Bars of Minnesota, Montana, Arizona, the U.S. Supreme Court, the U.S. Court of Appeals for the Fifth, Eighth, and Ninth Circuits and the U.S. District Court for the District of Minnesota and the Northern District of Texas. I submit this declaration in support of plaintiff’s attorney’s fee motion that I understand to have been filed in the case of Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. and Cinemark USA, Inc. 2. I am lead counsel for Cinetopia LLC, a small, independent movie theater in antitrust litigation against AMC, the largest movie theater circuit in the world. As a result of my representation of Cinetopia, I have become familiar with the history of movie industry antitrust cases and the economic challenges associated with pursuing a clearance and circuit dealing case against a major theater circuit. 3. Cases involving clearances and circuit dealing are extremely expensive for several reasons. First, the anticompetitive conduct frequently takes place over a long period of time and involves numerous persons. Second, numerous third party witnesses (such as employees of movie distributors, theater landlords, and independent film buyers) often possess relevant information. Third, the volume of relevant documents is large because film licensing and operations for multiplex theaters generate a substantial amount of documentation. Fourth, antitrust cases can involve testimony from multiple experts. For these reasons, it is extremely difficult for a small independent theater to be able to afford sustained litigation against a major theater circuit that has substantially larger financial resources. 4. With my encouragement, Cinetopia retained Thomas “Tom” Boeder of Perkins Coie as co-counsel in its lawsuit against AMC based upon Mr. Boeder’s experience, determination, and success as lead plaintiff’s counsel in the Flagship case and others. 6. 1 understand that Mr. Boeder’s application for attorneys’ fees substantially exceeds the damages awarded in the Flagship case. Based on my experience, knowledge, and work in antitrust litigation (including the Cinetopia litigation), I do not find this surprising or unfair. The damages that a small theater suffers in a clearance or circuit dealing case, especially if it deals only with a single location or a small number of screens, will frequently amount to less than it would cost to hire experienced legal counsel to pursue the claims through trial. The statutory attorneys’ fees available to prevailing plaintiffs in antitrust cases enables the successful prosecution of cases that otherwise might have settled for less than their value or that might not have been brought at all. Mr. Boeder’s work for Flagship has therefore provided a substantial public service to the exhibition industry that will likely result in small theaters having better access to films and in better competition on the merits among all theaters. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed this 5" day of February 2019, at Minneapolis, Minnesota. 7 May ed, A F. MATTHEW RALPH EXHIBIT E cinema alliance Comments of the Independent Cinema Alliance to the Department of J ustice, Antitrust Division concerning the Paramount Consent Decrees October 4, 2018 + Address 5720 Lyndon B Johnson Fwy Suite #625 Dallas, TX 75240 972-382-9422 taskforce@CinemaAlliance.org Cinemalliance.org I. The Independent Cinema Alliance The Independent Cinema Alliance (“ICA”) is a non-profit corporation that promotes the preservation and prosperity of independent cinemas' as an essential part of a healthy motion picture industry. Independents are essential because: e independents serve small-town and rural markets that would typically not have a cinema but for the dedication of independents to their communities; e hundreds of thousands of Americans who love big-screen entertainment would never see motion pictures on the big screen if independents disappeared, because the big circuits would never go into such small markets; e independents are frequently industry innovators because they must innovate to find ways to survive in an industry dominated by big players; ¢ independents often depart (necessarily) from the Big Exhibition paradigm of featuring only the biggest Hollywood fare, and thus diversify the motion picture entertainment available to patrons (e.g., art films, niche films such as Hispanic and faith-based films, and films by independent producers generally); ¢ independents frequently become integral components of their communities and provide services and contributions that connect the big screen to special community watersheds (film festivals, community fundraising, children’s matinees, showings of classic movies, special pricing for veterans/first-responders/active military, sponsoring local events on the big screen); e the average ticket price for independents is significantly lower than the average ticket price for big circuits, and independents generally operate at lower margins than circuits command; and e even in urban markets, where a few independents survive, they are the only remaining check against big circuit monopoly power, and frequently innovate in pro-consumer ways to compete (e.g., family entertainment centers). In sum, motion picture consumers benefit enormously because, compared to big circuits, independents vitally contribute more diverse content, in more diverse places, more inexpensively, and in more diverse and creative ways. But they achieve these pro-competition and pro-consumer benefits increasingly in competitively hostile and cost-crippling circumstances. The big players in the motion picture industry are doing fine. For independents it is a labor of love, and they are being forced out of business in growing numbers. For purposes of eligible membership in the ICA, “independent” means: not publicly owned or owned in whole or in part by a motion picture distributor, motion picture studio or other content supplier, including a supplier of electronic content; e market share of domestic theatrical revenue does not exceed 2%; ¢ not owned in whole or in part by a national or regional circuit having a domestic theatrical revenue share of more than 2%; and consolidated screen count does not exceed 500 screens. As an advocacy group on behalf of independent cinemas, the ICA is uniquely positioned to urge preserving the Paramount Consent Decrees, which foremost seek to protect independent cinemas. The Paramount Consent Decrees happened because the Department of Justice seven decades ago valiantly stepped into an industry rife with antitrust abuse and on behalf of independents and their patrons. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 162 (1948) (“The trade victims of this conspiracy have in large measure been the small independent operators. They are the ones that have felt most keenly the discriminatory practices and predatory activities in which defendants have freely indulged. They have been the victims of the massed purchasing power of the larger units in the industry. It is largely out of the ruins of the small operators that the large empires of exhibitors have been built.”). The ICA currently represents 236 independent cinema companies with 2,672 screens. II. Independents in the Motion Picture Industry A. The Business of Big Stories We deal in durable stories, stories with the status of national treasures, even stories with broad therapeutic influence,” and stories that can take many millions of dollars to produce by teams of hundreds. But we never know in advance whether people will credit any particular story. The history of the motion picture industry is a tale of urgency to control the wild unpredictability of the product. Every instance of the “product” (the motion picture) is all its own, and no truly 2 Vikas Shah, The Role of Film in Society (June 19, 2011) (https://thoughteconomics.com/the-role-of- film-in-society/): Contemporary research has also revealed more profound aspects to film’s impact on society. In a 2005 paper by S C Noah Uhrig (University of Essex, UK) entitled, “Cinema is Good for You: The Effects of Cinema Attendance on Self-Reported Anxiety or Depression and ‘Happiness’ the author describes how, “The narrative and representational aspects of film make it a wholly unique form of art. Moreover, the collective experience of film as art renders it a wholly distinct leisure activity. The unique properties of attending the cinema can have decisively positive effects on mental health. Cinema attendance can have independent and robust effects on mental wellbeing because visual stimulation can queue a range of emotions and the collective experience of these emotions through the cinema provides a safe environment in which to experience roles and emotions we might not otherwise be free to experience. The collective nature of the narrative and visual stimulation makes the experience enjoyable and controlled, thereby offering benefits beyond mere visual stimulation. Moreover, the cinema is unique in that it is a highly accessible social art form, the participation in which generally cuts across economic lines. At the same time, attending the cinema allows for the exercise of personal preferences and the human need for distinction. In a nutshell, cinema attendance can be both a personally expressive experience, good fun, and therapeutic at the same time. In a rather groundbreaking study, Konlaan, Bygren and Johansson found that frequent cinema attendees have particularly low mortality risks - those who never attended the cinema had mortality rates nearly 4 times higher than those who visit the cinema at least occasionally (Konlaan, Bygren, and Johansson 2000). Their finding holds even when other forms of social engagement are controlled, suggesting that social engagement specifically in an artistic milieu is important for human survival.” reliable formula has ever been devised to predict its demand with meaningful certainty.> And thus has the last century (roughly the age of Hollywood) been alternating determinations by big production, big distribution, and big exhibition to control the chaos and assure the reliable revenue stream that is more commonplace in other industries. The antitrust sensitivity of this industry follows inevitably. The formula for dealing with chaos is to control as much as possible: in the case of distribution, to ensure that its stories always get to the big screen on as favorable terms as possible, and in the case of exhibition, to ensure that it gets the best stories on as favorable terms as possible, ideally at the expense of any potential competitors.* The market structure that emerges is the irresistible force (Hollywood distribution) versus the immovable object (the big circuits). From an abstract antitrust perspective, perhaps that looks like sufficient parity to pay no further attention. But that ignores the compelling reasons for the Paramount Consent Decrees in the first place: independents, the people who do the really hard work in markets that would never have a big screen if they went out of business. See Paramount, 334 U.S. at 162. B. Being an Independent The cinema business is essentially comprised of two types, large national and regional exhibitors, or circuits, and independent exhibitors. Typically, the large national and regional circuits are publicly owned, operate in larger metropolitan markets and collectively generate most of the domestic theatrical ticket revenue. In 2017, for instance, the top 8 circuits produced over 65% of cinema revenue in the United States. AMC, Regal, and Cinemark alone accounted for 51% of revenue. The average number of screens per large circuit location is between 12 and 16, because circuits typically open “multiplexes,” while the average number of screens per small independent But see sequels and prequels, the ubiquitous multiplication of a “proven” formula, typically beyond the formula’s ability to deliver. See M. Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis (Univ. of Cal. Press 1960) at p.1 (“The final product is not homogeneous, but is constantly changing, and market uncertainty is greater than in most industries. Consumer reaction to any particular film is unpredictable. The search for security-for protection against market uncertainty-gave the greatest impetus to combination and concerted market control in the industry. Major producers purchased leading theaters in order to be assured that their pictures would be exhibited in them-a necessity if they were to earn revenues adequate even to cover the production costs of first-class films. Some large theater chains, in order to be assured of adequate supplies of films, acquired production companies. From these initial vertical combinations, it was only a short step to nation-wide horizontal combines that could exclude the pictures of independent producers from large theaters, and, by withholding their own pictures from independent exhibitors, force them to sell out to major theater circuits. Monopoly and combination in the motion picture industry can thus be said to rest on the foundation of market uncertainty.”); M. Anderson, State Regulation of Motion Picture Distributors, 3 Pace L.R. 107, 107 n.2 (1982) (“Motion pictures are high risk, high profit enterprises, in part, because of the difficulty in predicting public acceptance and box office revenues. Distributors attempt to share the financial risk with exhibitors by obtaining as favorable terms as possible.”). 4 location is significantly fewer. The smaller population base in markets served by independents typically cannot support the considerable costs of expansion. Because the smaller independent exhibitors typically serve markets the large circuits disregard, they are usually the only source of big-screen entertainment in their communities and serve a very important economic, social and cultural function. Put another way, if these independent exhibitors shuttered, tens of thousands of Americans would never again watch stories on the big screen (unless they were willing to drive 50 or more miles). To build a modern cinema costs from $500,000 to $750,000 per auditorium. The bar of public expectations has been raised to expect this level of construction and amenities. Since the 1960s the rule of thumb has been that it takes 10,000 people to profitably support one screen. A town of 20,000 could support 2 screens, and pay a full-time manager a decent salary, service the mortgage and provide a reasonable return on investment. A town of 2,500 could support a mom and pop operation with no or few paid employees, and maybe mom or pop having a day job. But these are numbers specifically for independents. No big circuit would ever locate in these towns because the numbers do not fit their model. Independents in small towns and rural areas are there for the love of the business. The people in these markets enjoy the big screen because someone loves the business enough to stay open notwithstanding. And they love it enough to wear multiple hats. Unlike other businesses which sell basically the same products year after year, each movie is a new product that appeals to a different audience segment and presents a new marketing challenge. Motion picture contracts must be tirelessly negotiated and renegotiated. New marketing plans for each motion picture must be managed every week. The way cinemas are constructed and maintained is governed by strict fire and life safety codes, Americans with Disabilities Act regulations and insurance requirements. HIVI (hearing impaired, visually impaired) equipment must be regularly maintained to ensure proper service to patrons with disabilities and comply with DOJ regulations. Precise time schedules must be worked out to meet contract requirements, ease congestion and optimize use of the facilities. Buildings and furnishings host high traffic counts and must be cleaned, maintained and repaired daily. Seat maintenance and repair is a major issue especially with the newer, more complex rockers and recliners. Regular HVAC maintenance includes air filters, grease traps in grill hoods, and popcorn and lobby vents. Water filter maintenance includes water lines to mix drink dispensers and ice makers. Technical equipment must be maintained in perfect order - and digital cinema equipment is so much more difficult and expensive to maintain than the old film projectors used to be. Staffs must be hired and trained, including “how to” instruction and customer service training, periodic fire drills, fire extinguisher training, emergency procedures for power outages, tornado warnings, etc., and state-mandated chemical training for use of cleansers and other chemicals used at the cinema, and state-mandated food and alcohol testing and certifications. Perishable concession supplies must be ordered, inventoried, stored and sold while still fresh. Security must be maintained handling large amounts of cash and large crowds. Each individual guest must be welcomed, sold tickets and concessions, seated and cleaned up after in a calm, gracious manner. Local events must be managed. Federal, state and local legislatures frequently want a piece of the cinema business, in the form of admission taxes or beverage taxes, and so lobbying is required. The typical independent cinema owner is “in charge,” frequently “hands on,” of all of the foregoing. As noted, it is a labor of love. Finally, independents in small towns tend to be active in their communities, serving on various volunteer boards, local chambers of commerce, school boards, local colleges and hospitals, and municipal government positions (one independent served several terms as mayor of Paradise, California). C. Booking the Movie Motion pictures are copyrighted creations, and the copyright owners enjoy the standard ownership rights with respect to their creations. Thus, exhibitors do not typically purchase content, but instead purchase a license to show it. The license terms and conditions are contained in the complex master license agreements (MLA) imposed upon exhibitors by distributors, coupled with particular booking requirements for individual motion pictures (and sometimes picture rental is negotiated or renegotiated or “settled” after the picture has finished its run) (collectively, “the booking contract’). Most of the prohibitions contained in the Paramount Consent Decrees concerned the booking contract. Motion pictures typically start on Fridays. It matters to play a major motion picture “on the break.” It means playing the picture when it first comes out, when its popularity is greatest and national advertising is most intense, when the most people will buy tickets to see it. Small-town cinemas could once wait to play motion pictures later when the rental percentage was lowered. But with the steady shrinking of the theatrical window (the period when a motion picture can be viewed exclusively at the cinema), and pictures released on video and other platforms ever more swiftly, playing off the break is increasingly unsustainable. The price of the license may be either “flat” or “percentage.” Flat terms are rare, and typically apply only on older motion pictures which have already gone to other formats. A common flat fee would be $250 to $350 for a one- or two-day engagement. All other motion pictures are licensed on a percentage of “gross” ticket sales after deduction of local and state sales taxes. Percentage arrangements range from 35% to as outrageously high as 70% payable to distributors. Even at a 50/50 split, independents are lucky to break even and must rely on concession sales (or other revenue streams) to profit and stay in business. Variations on the percentage arrangement include the “90/10 deal,” in which a pre-set “house allowance” (the house expense or “nut”) is deducted, and 90% of the remaining gross is paid to the distributor. Of course, a high-grossing, prestigious cinema in a big city may negotiate a house allowance that is more than the actual cost of running the theatre for the week, while the house allowance in other cinemas will fall short of the actual expenses. A distributor may demand an advance or a guarantee before opening the picture. An advance is applied to the film rental that the picture earns. If the picture does not earn the amount of the advance, the overpayment is applied to future films. It is very hard to get a distributor to make a cash refund of an unearned advance. A guarantee is a nonrefundable payment and will not be refunded even if the picture does not earn the guarantee. At the end of the engagement, the theatre will owe any percentage film rental over the guarantee. Guarantees are illegal in some states. Independents routinely engage in discount programs in order to survive in markets with lower population bases, to account for certain viewing realities (e.g., matinees), and to serve certain deserving demographics (e.g., children, senior citizen, military and first-responder discounts). Distributors generally accept differential pricing for adults and children, and discounts for matinees (showtimes before 6 p.m.), but may or may not accept any other differential ticket pricing. Per capita requirements by distributors effectively eliminate ticket pricing flexibility independents would otherwise enjoy. Discount theatres are a variation. Most distributors have a discount or “sub-run” release date after the national break, when ticket prices are understood to be lower. Somewhere in the “booking contract” will typically be a “holdover” provision, meaning that if the motion picture grosses above a certain dollar amount on its opening weekend, it must “hold” another week (that is, play another week, whether or not the exhibitor planned to continue featuring that motion picture). Of course, if the picture is performing well, both the distributor and the exhibitor will benefit from continuing its run. Too frequently, however, these “holdover” provisions are becoming “minimum runs,” where distributors dictate multi-week runs whether or not the motion picture is performing well. Two- week minimums have become common and the bigger distributors demand three-week minimums, or more.’ For the average big circuit with a multiplex, a “minimum run” might be vaguely irritating. (One of fifteen screens must be devoted to a poorly performing picture at a loss.) For independents, it can be ruinous. An independent with a two-screen or four-screen location simply cannot afford to commit one of those screens to a poorly-performing “holdover” and lose the opportunity to play a fresh and better-performing picture. Coupled with per capita requirements, that scenario is s See generally Martin G. Anderson, “State Regulation of Motion Picture Distributors,” 3 PACE L. REV. 107 (1982), available at: http://digitalcommons.pace.edu/plr/vol3/iss1/6. See, e.g., Erich Schwartzel, “Disney Lays Down the Law for Theaters on ‘Star Wars: The Last Jedi,”” The Wall Street Journal (Nov. 1, 2017), https://www.wsj.com/articles/disney-lays-down- the-law-for-theaters-on-star-wars-the-last-jedi-1509528603 (“Few operators can afford to turn away a Disney windfall. But some independent theaters have decided against screening ‘Last Jedi” when it is released, saying the company’s disproportionate share of ticket sales and four- week hold make little economic sense-especially in small towns ... ‘There’s a finite number of moviegoers in my market, and I can service all of them in a couple of weeks,” said Lee Akin, who operates a single-screen theater in Elkader, Iowa (population: 1,213).”). literally a net negative. The independent is losing money by playing that distributor’s punitive “minimum run” unless the four people who come to the movie in week 3 buy 165 popcorn tubs among them. For very small towns, even the standard “two-week minimum” means they cannot play the picture on the break and must wait until they can play the picture for one week only off the break. Yet there is no rational reason, especially in the digital age, why they should be forced to play the picture off the break, other than an arbitrary and anti-competitive minimum run. The minimum runs demanded by studios mean that independents are constantly required to pick and choose among distributors because (lacking “multiplexes”) they cannot accommodate all distributors’ minimum run requirements. If five distributors are demanding minimum runs on their pictures, independents must pass on some product, or play it, if at all, off the break, which then strains their relationship with distributors. III. The Department of Justice Project Concerning Legacy Consent Decrees and the Reasons for Preserving the Paramount Consent Decrees Unlike most previous occasions when the Department of Justice parachuted into the motion picture industry to inquire about the continuing efficacy of the Paramount Consent Decrees,’ the Department this time made no secret of its negative disposition: The Department of Justice’s Antitrust Division today announced an initiative to terminate outdated antitrust judgments. “Today, we are taking a first step toward freeing American businesses, taxpayers, and consumers from the burden of judgments that no longer protect competition,” said Makan Delrahim, Assistant Attorney General for the Justice Department’s Antitrust Division. “We will pursue the termination of outdated judgments around the country that presently do little more than clog court dockets, create unnecessary uncertainty for businesses or, in some cases, may actually elicit anticompetitive market conditions.” From the early days of the Sherman Act until the late 1970s, the Division often entered into final judgments that did not include an express termination date. In 1979, the Division adopted the general practice of including sunset provisions that automatically terminate judgments, usually 10 years from entry. However, nearly 1300 “legacy” judgments remain on the books of the Antitrust Division, and nearly all of them likely remain open on the dockets of courts around the country. The original consent decrees are reported as follows: United States v. Paramount Pictures, Inc., 1948-49 Trade Cas. (CCH) 462,335 (S.D.N.Y. Nov. 8, 1948) (RKO); United States v. Paramount Pictures, Inc., 1948-49 Trade Cas. (CCH) {62,377 (S.D.N.Y. Mar. 3, 1949) (Paramount); United States v. Loew's Inc., 1950-51 Trade Cas. (CCH) {62,573 (S.D.N.Y. Feb. 8,1950) (Columbia, Universal and UA); United States v. Loew's Inc., 1950-51 Trade Cas. (CCH) 162,861 (S.D.N.Y June 7, 1952) (Fox); United States v. Loews Inc., 1950-51 Trade Cas. (CCH) 62,765 (S.D.N.Y. Jan. 4, 1951) (Warner); United States v. Loew's Inc., 1952 Trade Cas. (CCH) 467,228 (S.D.N.Y. Feb. 7, 1952) (Loew's). 8 The vast majority of these judgments no longer protect competition because of changes in industry conditions, changes in economics, changes in law, or for other reasons.® The ICA readily acknowledges that consent decrees, especially in the absence of truth-finding adjudications, can be taken too far as heavy-handed government regulation.” We respectfully contend, however, that the Paramount Consent Decrees present a special and compelling case, in an antitrust-sensitive industry, for retention. We urge the Department not to take the disruptive and dangerous step of dissolving the Decrees and potentially unleashing a wave of anticompetitive conduct at an already very volatile moment in the history of our industry. And make no mistake: the primary victims of dissolving the Decrees would be independents, and the tens of thousands of Americans who consume motion pictures at their local independent cinema. A. The Heart of the Paramount Consent Decrees For independents, and for the district court that fashioned the Paramount Consent Decrees, “the heart of the consent judgment was the licensing injunction, prohibiting the defendants ‘from licensing any feature for exhibition upon any run in any theatre in any other manner than that each license shall be offered and taken theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or others.” That declaration was a magnificent antitrust achievement. It synthesized better probably than any other single statement in cinema history the essential principle of free and fair competition in the exhibition industry. It deserves to be preserved. Interestingly, the original “theatre by theatre” language of the Decree presupposed a competitive bidding requirement, which the Supreme Court ultimately rejected.!! The language was thus 8 https://www.justice.gov/opa/pr/department-justice-announces-initiative-terminate-legacy- antitrust-judgments. See Washington Post, “Sessions wants a review of consent decrees, which have been used for decades to force reforms” (Apr. 4, 2017) https://www.washingtonpost.com/news/post- nation/wp/2017/04/04/sessions-wants-a-review-of-consent-decrees-which-have-been-used-for- decades-to-force-reforms/?utm_term=.7901b3076f77 (Attorney General Jeff “Sessions has been a longtime critic of the pacts. The attorney general - a former federal prosecutor and U.S. senator - once called consent decrees ‘one of the most dangerous, and rarely discussed exercises of raw power’ and ‘an end run around the democratic process.’”). 10 United States v. Loew's Inc., 705 F. Supp. 878, 881 (S.D.N.Y. 1988) (emphasis added) (quoting Warner Consent Judgment § ITI(8), 1950-51 CCH Trade Cas. 62,765, at 64,266; Loew's Consent Judgment § 1I(8), 1952-53 CCH Trade Cas. 67,228, at 67,327; Fox Consent Judgment § 1I(8), 1950-51 CCH Trade Cas. 62,861, at 64,546; Columbia, Universal and UA Consent Judgment § II(8), 1950-51 CCH Trade Cas. 62,573, at 63,678; Paramount Consent Judgment § II(8), 1948-49 CCH Trade Cas. 62,377, at 63,011). tH See Paramount, 334 U.S. at 155-56 (“the findings on franchises are clouded by the statement of the District Court in the opinion that franchises ‘necessarily contravene the plan of licensing each picture, theatre by theatre, to the highest bidder.” As will be seen hereafter, we eliminate from the decree the provision for competitive bidding. But for its inclusion of competitive bidding the District Court might well have treated the problem of franchises differently.”). 9 modestly adjusted on remand to become a perfect non-discrimination declaration at the heart of the consent decrees. As to that perfect declaration, the Supreme Court opinion contains scattered bits and pieces of it throughout its opinion! - but nowhere is the declaration so succinct and perfectly encapsulated as in the Decrees themselves. Most of the specific prohibitions of the Paramount Consent Decrees follow naturally from this essential proposition: if distributors truly license each motion picture “theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or others,” then practices such as circuit dealing, block booking and overbroad clearances would be impossible. Moreover, licensing with such meticulous fairness would blunt the anticompetitive effect of any vertical integration. See id. at 154-55 (“The formula deals and master agreements are unlawful restraints of trade in two respects. In the first place, they eliminate the possibility of bidding for films theatre by theatre. In that way, they eliminate the opportunity for the small competitor to obtain the choice first runs, and put a premium on the size of the circuit. They are, therefore, devices for stifling competition and diverting the cream of the business to the large operators. In the second place, the pooling of the purchasing power of an entire circuit in bidding for films is a misuse of monopoly power insofar as it combines the theatres in closed towns with competitive situations.”); id. at 155-56, supra note 10; id. at 156-57 (“Block-booking prevents competitors from bidding for single features on their individual merits. The District Court held it illegal for that reason and for the reason that it ‘adds to the monopoly of a single copyrighted picture that of another copyrighted picture which must be taken and exhibited in order to secure the first.””); id. at 159-60 (“(6) Discrimination. The District Court found that defendants had discriminated against small independent exhibitors and in favor of large affiliated and unaffiliated circuits through various kinds of contract provisions. These included suspension of the terms of a contract if a circuit theatre remained closed for more than eight weeks with reinstatement without liability on reopening; allowing large privileges in the selection and elimination of films; allowing deductions in film rentals if double bills are played; granting moveovers and extended runs; granting road show privileges; allowing overage and underage; granting unlimited playing time; excluding foreign pictures and those of independent producers; and granting rights to question the classification of features for rental purposes. The District Court found that the competitive advantages of these provisions were so great that their inclusion in contracts with the larger circuits and their exclusion from contracts with the small independents constituted an unreasonable discrimination against the latter. Each discriminatory contract constituted a conspiracy between licensor and licensee. Hence the District Court deemed it unnecessary to decide whether the defendants had conspired among themselves to make these discriminations. No provision of the decree specifically enjoins these discriminatory practices because they were thought to be impossible under the system of competitive bidding adopted by the District Court. These findings are amply supported by the evidence. We concur in the conclusion that these discriminatory practices are included among the restraints of trade which the Sherman Act condemns.”); and see id. at 160-61 ((“It will be for the District Court on remand of these cases to provide effective relief against their continuance, as our elimination of the provision for competitive bidding leaves this phase of the cases unguarded.”). And the result on remand was this perfect statement of fair competition: that no distributor may license “any feature for exhibition upon any run in any theatre in any other manner than that each license shall be offered and taken theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or others.’” 10 For independent cinemas, the “theatre by theatre” mandate is a lifeline, the continuing reason for their existence in the teeth of increasingly consolidated and powerful distribution and exhibition industries. To dissolve the Decrees at this moment in cinema history would declare open season on the most vulnerable players in the market and imperil access to the Big Screen for so many Americans in small towns and rural areas. B. The Reasons to Preserve the Paramount Consent Decrees The Paramount Consent Decrees are a special case. They deserve to be preserved, and their termination now would send exactly the wrong signal in an industry with steadfastly more structural conditions and incentives for anticompetitive abuse. First, these are not decrees negotiated without any adjudication of guilt. See United States v. Loews's Inc., 705 F. Supp. 878, 881 (S.D.N.Y. 1988) (“Because this case was actually litigated, the judgments are not consent decrees in the traditional sense. Only the details of relief were negotiated and entered by consent, findings of guilt having been entered and upheld.”). Indeed, the Paramount Consent Decrees were abundantly litigated, at the district court, on immediate appeal to the United States Supreme Court, and then further on remand." Moreover, the Supreme Court remand did not undo the key factual findings by the district court. The Supreme Court affirmed the findings, and indeed remarked not once, but twice on the defendants’ proclivity for unlawful conduct.!* The Supreme Court “affirmed in part and reversed in part” only because the Court quibbled with one remedy of mandatory competitive bidding, not any findings of fault. It therefore cannot be said that the Consent Decrees rested in any sense upon findings that had been undone, questioned or reversed on appeal. Second, the Paramount Consent Decrees pose none of the problems and perpetuate none of the mischiefs associated with overzealous employment of consent decrees.'® The Paramount Consent 13 United States v. Paramount Pictures, Inc., 66 F. Supp. 323 (S.D.N.Y. 1946), affd in part and rev'd in part, 334 U.S. 131 (1948), on remand, 85 F. Supp. 881 (S.D.N.Y. 1949), aff'd, 339 U.S. 984 (1950). See Paramount, 334 U.S. at 147 (noting studio defendants’ “proclivity to unlawful conduct”); id. at 148 (noting that distributors had “shown such a marked proclivity for unlawful conduct”). 15 See Don George, Inc. v. Paramount Pictures, 111 F. Supp. 458, 467 (W.D. La. 1951) (“Under the circumstances of the remand, it will not do to say that the Supreme Court granted the defendants a new trial as the defendants contend, since it must be borne in mind that the judgment was affirmed in part, that is, as to many findings of fact and conclusions of law with reference to violations of the antitrust laws by the defendants and reversed in part but the reversal was made largely to enable the district court to solve the problem of divestiture. It appears that in order to give third parties, such as plaintiffs herein, the benefit of pleading the consent decrees for use as prima-facie evidence a careful distinction was made in the consent decrees between issues which had been closed by the decision of the Supreme Court and issues such as the problem of divestiture which were left open for determination by the District Court on remand.”). See generally Andrew Grossman, Former Visiting Fellow, American Heritage Foundation, Use and Abuse of Consent Decrees in Federal Rulemaking, Testimony before the Subcommittee on the Courts, Commercial and Administrative Law, Committee on the Judiciary, United States 11 Decrees are not an example of an agency seeking to short-circuit traditional rulemaking procedures, or two parties colluding to effect “regulation” by consent decree, or one administration seeking to limit the policy discretion of a future administration, or an arrogation of excessive judicial power and excessive judicial involvement in on-going policy matters. Indeed, the Supreme Court disagreed with the district court as to the remedy of mandatory competitive bidding precisely because the Court believed such a remedy would excessively entangle the judiciary in on-going industry activity. The Department of Justice played by the rules, filed and fully litigated one of the most significant antitrust lawsuits in the 20% century, obtained detailed findings, and negotiated appropriate remedies in the form now known as the Paramount Consent Decrees. The passage of decades has not dimmed their relevance. Indeed, the ICA submits respectfully that not a single mischief can be cited from perpetuation of the Paramount Consent Decrees. It is certainly true that antitrust law has evolved since the 1940s. For example, vertical arrangements are viewed more benignly now than they were in the 1940s. But that is not to say that the Paramount Consent Decrees are perpetuating “bad law.” The salutary effect of the Paramount Consent Decrees is not their recitation of modern antitrust principles, but their expression of certain timeless guides for fair conduct in an industry inclined to misbehave. While not dispositive, it is at least relevant that the Department of Justice has parachuted into the motion picture industry several times to conduct precisely this inquiry - and each and every time, the Department concluded that no disturbance of the status quo was necessary or appropriate. Third, if general antitrust laws were adequate, these particular decrees would not have been necessary, which remains true today. See United States v. Loews's Inc., 705 EF. Supp. 878, 884 (S.D.N.Y. 1988) (“These consent judgments were fashioned after years of litigation in which this industry was shown to have a proclivity for anti-competitive behavior. If the specter of criminal prosecution and civil litigation were a sufficient prophylactic for antitrust violations, the consent judgments in this and many other cases would never have been necessary.”). Moreover, the primary beneficiaries of the Paramount Consent Decrees - independent cinemas and their patrons - generally cannot afford to invoke “general antitrust laws” in any event. Especially given the trajectory of antitrust law (away from the per se category and toward the “rule of reason,” with its notoriously dense factual exploration), and the tendency of antitrust litigation to be complex, protracted and expensive, very few independents could ever afford to launch an antitrust lawsuit. Fourth, the Paramount Consent Decrees have become a part of movie industry jurisprudence. Comparable to case law from another jurisdiction, the Decrees are persuasive authority; they are not “binding” on all industry players, but they usefully instruct. Industry players, including small exhibitors, who have never heard of the Sherman Act or the Clayton Act have heard of the “Paramount Consent Decrees.” When an errant distributor pushes the envelope (and to be sure we still hear many reports of such conduct) and hints at conditioning access to a blockbuster on taking some stinkers, the invocation of the “Paramount Consent Decrees” can be very effective. House of Representatives (February 3, 2012), available at https://www.heritage.org/testimony/use-and-abuse-consent-decrees-federal-rulemaking. 12 In this sense, despite the absence of “statutory” status, the Paramount Consent Decrees have exercised a measurable “civilizing influence” on an antitrust-inclined industry. The Decrees have become part of the essential fabric of the industry, and dissolving them would accomplish no salutary purpose, but would strip vulnerable independents of a valuable negotiating tool. It is of course true that the Decrees are not strictly applicable across the industry. We cannot ignore the fact, for example, that the current industry behemoth, Disney, was not even one of the original Paramount defendants. But “bound” or not, all industry players take instruction from the Paramount Consent Decrees. And why wouldn’t they? The Paramount Consent Decrees constitute a highly particularized adjudication and application of “general” antitrust laws to our very idiosyncratic industry. For example, “general antitrust law” says broadly that tying arrangements are illegal, subject of course to numerous exceptions and countless factual gradations and distinctions. But thanks to the Paramount Consent Decrees, we have a much more specific and therefore useful application of that “general” antitrust principle to our industry: “block booking” specifically is unlawful. That specificity lends a very useful clarity to behavior in our industry. It is true that dissolution of the Paramount Consent Decrees would still leave the Supreme Court’s United States v. Paramount Pictures opinion itself as precedent. But the Supreme Court opinion is not what has become an integral part of this industry’s self-understanding. It is the fact of those Decrees, the fact of those specifically-embodied remedies, that continue to guide and constrain so many industry players today. Moreover, as noted, the eloquent heart of the Paramount Consent Decrees - the theatre-by-theatre without discrimination mandate - is contained only most succinctly in the Decrees themselves. See supra, section IIIA at pp. 9-11. Interestingly, that eloquent heart of the Paramount Consent Decrees has truly become an industry mantra, and it is invoked widely by both distributors and exhibitors. For example, in recent Cobb Theatres antitrust litigation against AMC, concerning clearances, AMC defended itself in part by insisting that “AMC has always licensed films at these theatres on a film-by-film, theatre-by- theatre basis.”!” Nothing about “general antitrust laws” would have suggested that specific . See The Hollywood Reporter, “Cobb Theatres Argues Jury Should Decide Antitrust Case Against AMC” (Nov. 7, 2016), available at https://www.hollywoodreporter.com/thr-esq/cobb-theatres- argues-jury-should-decide-antitrust-case-amc-944852: (“AMC tells the judge in a summary judgment motion that ‘uncontroverted evidence disproves’ the allegation that it coerced distributors into granting it exclusive licenses. Specifically, AMC says in its court papers that the distributors ‘unequivocally testified that AMC never threatened or attempted to coerce them into doing anything. To the contrary, both the distributor witnesses and AMC’s witnesses have sworn that AMC has always licensed films at these theatres on a film-by-film, theatre-by- theatre basis.””); see also Deadline Hollywood, “Distribs & Exhibs Hold Line On Clearances Despite Fox’s Position Change” (Mar. 31, 2016) (“Added Sony’s distribution honcho Rory Bruer: ‘We will make decisions theater by theater, picture by picture and we aren’t looking to change that. It’s our intention to continue to distribute our pictures on what’s right for each film.””). Available at https://deadline.com/2016/03/20th-century-fox-exhibition-clearances-circuit-dealing- 1201729061/. Again, significantly, nothing in “general antitrust laws” obliged Mr. Bruer to frame 13 phrasing. Nor, of course, was AMC a defendant in the original Paramount litigation. For AMC (and its distributor witnesses) to frame AMC’s defense that way underscores the continuing salutary and civilizing influence of the Paramount Consent Decrees. Fifth, while decades have passed, modern conditions in the motion picture industry, if anything, reinforce the continuing relevance of the Paramount Consent Decrees. On both the distribution and the exhibition sides of the business, the drive toward consolidation continues unabated. All of that consolidated power will almost certainly squirt out as anticompetitive conduct, because they can, and almost certainly the losers will be independent cinemas. The motion picture industry is much less vertically integrated than it was when the Department of Justice instigated the Paramount litigation. But the primary beneficiaries of the Decrees - independent cinemas and their patrons - do not need protection specifically from “vertical integration.” They need protection from anticompetitive abuse by all players with market power and a natural tendency to exploit it. That means the shrinking distribution oligopoly and the shrinking exhibition oligopoly and the looming streaming oligopoly. Interestingly, the era following the Paramount Consent Decrees roughly coincided with the broad advent of television, perhaps the single greatest competitive threat to cinemas in their history. Cinemas survived, but the motion picture industry was changed forever. Fewer people went to cinemas and studios pivoted to fewer and more expensive motion pictures. Thus, independent exhibitors “found themselves bidding for a smaller supply of films in a more competitive market.”'® But for the Paramount Consent Decrees, independents, and the small-town cinema experience generally, likely would have been crushed out of existence, and a generation of Americans would have missed the big screen. Conditions are ripe for the big squeeze. Streaming services with massive market power are the new, potentially scarier, “television.” If they purchase cinemas, and throw around their ample weight, independent cinemas confront the predations of Big Distribution, Big Exhibition, and Big Streaming. On the other hand, if the Paramount Consent Decrees continue to be respected, the entry of behemoths like Amazon into the exhibition business would more likely be on terms that deterred Amazon from abusing its market power either to favor its own cinemas with its content or to punish fairly competing exhibitors with terms such as overbroad clearances. his company’s conduct that way. That is the continuing salutary legacy of the Paramount Consent Decrees. 18 Michael Conant, The Paramount Decrees Reconsidered, 44 LAW & CONTEMP. PROBS. 79, 107 (1981). See Open Markets newsletter, “Lights, Camera, Monopoly: DOJ Could Revive the Studio System” (Aug. 24, 2018), available at https://openmarketsinstitute.org/newsletters/corner- newsletter-august-23-2018-paramount-consent-decrees-matter-tech-giants-threaten-banking- overlooked-dissent-ftc/: A DOJ decision to end the Paramount Decrees would allow major studios to buy up theater chains and impose the same anticompetitive practices on filmmakers and consumers barred 70 years ago. More troubling is that this would come at a time of increased concentration in the studio, movie theater, and online distribution markets. Disney’s recent 14 Moreover, the great promise of digital cinema - that distribution of motion pictures can be accomplished easily and at a tiny fraction of the cost (there being no $1,500 cumbersome celluloid print involved), and that widely-released motion pictures can therefore more easily and more widely get into the hands of independents in small markets - is reaching a delicate stage, and the results so far are decidedly mixed. Despite the relative ease of digital distribution, independent cinemas curiously continue to experience vexatious obstacles to accessing major motion pictures. Much too frequently, our members are hearing vague excuses like “you’re not a part of our marketing plan.” What “marketing plan” seeks a lower gross for a major motion picture’s opening weekend??! Some of the reluctance to widen the availability of major motion pictures can possibly be attributed to “virtual print fees,” the arrangements whereby distributors pay exhibitors a certain sum upon booking a motion picture to subsidize purchase of digital equipment and pass on some of the savings reaped by distributors.?? But here is the strangeness, and the reason why it is a delicate stage in our industry’s history. The era of virtual print fees is coming to a close. Many purchase of 20th Century Fox means that four corporations now control 75 percent of the movie production business. In theaters, three firms now control 60 percent of the domestic market. Online, two companies dominate the streaming market, where 30 percent of consumers report using Amazon Prime Video and 50 percent report using Netflix as of 2017. kk ck In announcing the plan to review the Paramount consent decrees, Assistant Attorney General for Antitrust Makan Delrahim said that ‘much has changed in the motion picture industry since’ the Paramount Decrees. That’s true. In many key respects, the film industry is more concentrated now than it was in 1948. 20 H. Alexander and R. Blakely, “The Triumph of Digital Will Be the Death of Many Movies,” The New Republic (Sep. 12, 2014) https://newrepublic.com/article/119431/how-digital-cinema-took- over-35mm-film (“Yet the real opportunity to axe costs digitally comes long after the final scene is shot. To produce and ship a 35mm print to an American cinema costs about $1,500. Multiply that by, say, 5,000 prints for a big movie and it comes to $7.5 million. Digital formats can do the same job for 90 percent less.”). 2 Even in the pre-Paramount period, it was recognized that “multiple first runs” (as opposed to default exclusivity arrangements) increased total revenue. Michael Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis at 65 & n.20 (Univ. of Cal. Press 1960). (“Some postwar deviations showed that multiple first runs (in a number of neighborhood theaters at one time) increased total revenues for the distributor.”). 2 See Wikipedia, the Free Encyclopedia, “Virtual Print Fee,” at https://en.wikipedia.org/wiki/Virtual_Print_Fee (last visited Oct. 4, 2018): Virtual Print Fee (VPF) is a subsidy paid by a film distributor towards the purchase of digital cinema projection equipment for use by a film exhibitor in the presentation of first release motion pictures. The subsidy is paid in the form of a fee per booking of a movie, intended to match the savings that occurs by not shipping a film print. The model is designed to help redistribute the savings realized by studios when using digital distribution instead of film print distribution. 15 independents have already concluded their virtual print fee arrangements with distributors, and yet they still report inexplicable motion picture availability problems. What is happening? We cannot yet be certain, but it is a fixture of antitrust law that when players leave money on the table or otherwise act contrary to self-interest, antitrust conspiracies may be much more readily inferred.?* Are overbroad clearances to blame for the difficulty independents are experiencing with film availability? Clearances are analyzed under the rule of reason, which makes proving them and their specific anticompetitive effects a dense and difficult undertaking. But it would send a terrible signal at this moment in our industry to dissolve the most eloquent expression and free and fair competition in the exhibition industry. The great promise of digital cinema is precisely that distribution can be as wide as there are willing exhibitors, which was not possible in the finite “print” era. As we approach the end of the virtual print fee era, at an otherwise highly dynamic moment in the larger entertainment industry, we should take tremendous care not to change or abolish rules that have long constituted the most significant checks on anticompetitive impulses. For the foregoing reasons, the ICA and its members respectfully request that the Department of Justice conclude, as it has repeatedly before, that no action concerning the Paramount Decrees is necessary or appropriate. IV. The Specific DOJ Inquiries The case for preserving the Paramount Consent Decrees set forth in the previous sections implicitly answers many of the DOJ’s specific inquiries. The ICA nevertheless briefly addresses them. A. Do the Paramount Decrees continue to serve important competitive purposes today? Why or why not? Yes. The Paramount Consent Decrees constitute a vital checklist of do’s and don’ts in the motion picture industry, particularized to this industry in a way that the “general antitrust laws” could never justly or efficiently accomplish. Even if not strictly “binding” on all current industry players, the “civilizing influence” and salutary instruction of the Decrees warrants their retention. 2 See Regal Entm't Grp. v. Ipic-Gold Class Entm't, LLC, 507 S.W.3d 337, 350 (Tex. App. 2016) (“The evidence that Regal and half of the major film distributors acted contrary to their self- interest is what permits a rational inference of conspiracy or coercion as opposed to permissible independent conduct.”) (citing Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877, 884 (8th Cir. 1978) (when conduct is inconsistent with self-interest of actors, were they acting alone, agreement may be inferred solely from action)); see also Cobb Theatres III, LLC v. AMC Entmt. Holdings, Inc., 101 F.Supp.3d 1319, 1331 (N.D. Ga. 2015) (noting that most conspiracies are inferred from behavior of alleged conspirators and denying motion to dismiss restraint-of-trade claim where premium theater alleged that megaplex requested clearance, implicitly threatening economic harm if distributors did not accede, and premium theater subsequently received fewer films). 16 Most importantly, as noted, the heart of the Paramount Consent Decrees - the theatre-by-theatre on the merits licensing mandate - might be the single most important factor in the ability of independents cinemas to survive in today’s increasingly concentrated market. B. Individually, or collectively, are the decree provisions relating to (1) movie distributors owning movie theatres; (2) block booking; (3) circuit dealing; (4) resale price maintenance; and (5) overbroad clearances necessary to protect competition? Are any of these provisions ineffective in protecting competition or inefficient? Do any of these provisions inhibit competition or cause anticompetitive effects? As previously noted, and worthy of repetition, most of the specific prohibitions of the Paramount Consent Decrees follow naturally from the requirement that motion pictures be licensed “theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or others.” If that essential formula for fairness is followed, then practices such as circuit dealing, block booking and overbroad clearances would be impossible. Moreover, licensing with such meticulous fairness would blunt the anticompetitive effect of any vertical integration by any content provider, no matter how much market power. See supra, p.10. >i) Movie Distributors Owning Movie Theatres As noted, it is not vertical integration per se that threatens the livelihood of independents. It is the abuse of the market power gained either by the vertical integration itself or otherwise. If distributors truly follow the mandate to license “theatre by theatre, solely on the merits,” then by definition they cannot favor either their own “affiliated theatres” or other large “circuit theatres.” It is a somewhat common misconception that the Paramount Consent Decrees precluded vertical integration. They did not. While substantial divestiture was ordered as part of the initial remedy, neither the Supreme Court nor the district ruled that defendants could not get back into the exhibition business. Several of the defendants were required to seek permission to do so, but the relative lack of vertical integration today is not because of the Paramount Consent Decrees. It is because the studios themselves have concluded for various reasons that the exhibition industry is too difficult or insufficiently attractive. The ICA does not see distributor ownership of cinemas as the primary mischief to be avoided,** provided critically that the theatre-by-theatre licensing mandate is preserved and respected. That said, a scenario where a studio or a behemoth streaming service bought up a significant number of cinemas (or, for example, bought one of the biggest circuits) would raise significant antitrust anxieties. We believe the DOJ is well equipped to assess the impact on competition if such a possibility materializes. 24 Indeed, perhaps some modest vertical integration would be a net positive insofar as content providers acquired some skin in the exhibition game and learned the importance of the theatrical window and the pro-consumer and pro-competitive benefits of tiered entertainment, something that Amazon, for example, has suggested it would respect. 17 It warrants emphasis that the chief mischief associated with vertical integration in the motion picture industry is clearances.” If clearances are illegal, or at a minimum regulated strictly, vertical integration poses less of a threat to competition. If clearances are legal, or their regulation too lax, then vertical integration quickly becomes a big problem. (ii) Block Booking The Supreme Court in United States v. Paramount described block-booking as “the practice of licensing, or offering for license, one feature or group of features on condition that the exhibitor will also license another feature or group of features released by the distributors during a given period. The films are licensed in blocks before they are actually produced. All the defendants, except United Artists, have engaged in the practice. Block-booking prevents competitors from bidding for single features on their individual merits.” 334 U.S. at 156-57. Block booking has significant anticompetitive consequences for any exhibitor, including the biggest circuits. But it is ruinous for independents with their smaller screen counts. Somewhat akin to the effect of “minimum runs,” block booking occupies tremendously valuable screen space with under-performing content. Thus, it is one thing for a multiplex with 15 screens to devote one screen to an under-performing motion picture - to be sure a pernicious mischief that ought to be unlawful - but the effect on the independent with two screens is obviously devastating. The prohibition of block booking in the Paramount Consent Decrees most certainly does not have anticompetitive effects, quite the opposite. Block booking empowers distributors to push weak content on exhibitors,?® and the opportunity cost of devoting that screen to that weak content (especially devastating to locations with few screens) empowers distributors unfairly to keep their distributor-competitors’ content off the big screen. (iii) Circuit Dealing The ICA notes at the outset that the exhibition market is not a zero-sum game between big circuits and small independents. Indeed, independents have often benefited from the buying power of big circuits, which has prevented studio predations that might have otherwise occurred 25 See Michael Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis, at 64 (Univ. of Cal. Press 1960) (“The record showed that many theaters received first-run films only during a period when affiliated with a major circuit. When under independent ownership, either before or after circuit affiliation, the Paramount defendants even refused to bargain with the operator to license him first-run film. Examples were the Oriental Theatre in Chicago, the Roxy in Atlanta, the Fifth Avenue in Englewood, California, and the Palace in Gary, Indiana. A small theater in Janesville, Wisconsin, took first run away from larger local houses when Fox acquired control of it.”). 2 See Michael Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis, at 79 (Univ. of Cal. Press 1960) (“Many mediocre films would never have earned their costs of production had the distributor tried to market them singly, each on its own merits. In this way block booking enabled distributors to shift a part of the market uncertainties to the exhibitors by guaranteeing that poorly accepted pictures would be bought.”). 18 industrywide. Moreover, big circuits pay the lion’s share of dues to trade associations such as the National Association of Theatre Owners, which ably represents the entire exhibition industry in multiple forums. However, it is undeniable that “circuit dealing” violates the “theatre-by-theatre on the merits” licensing mandate at the heart of the Paramount Consent Decrees. See Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 198 Cal.App.4th 1366, 1375 (2011) (“The case law contains no general definition of prohibited circuit dealing, but it is generally characterized as ‘the pooling of the purchasing power of an entire circuit in bidding for films,” which undermines the competitive process of bidding for film licenses ‘theatre by theatre.’”) (citing Paramount, 334 U.S. at 154). Indeed, the “theatre-by-theatre” mandate expressly includes in its recitation of prohibited discrimination both affiliated theatres and circuit theatres. As the Supreme Court described circuit dealing in Paramount: The inclusion of theatres of a circuit into a single agreement gives no opportunity for other theatre owners to bid for the feature in their respective areas and, in the view of the District Court, is therefore an unreasonable restraint of trade. ... The formula deals and master agreements are unlawful restraints of trade in two respects. In the first place, they eliminate the possibility of bidding for films theatre by theatre. In that way they eliminate the opportunity for the small competitor to obtain the choice first runs, and put a premium on the size of the circuit. They are, therefore, devices for stifling competition and diverting the cream of the business to the large operators. In the second place, the pooling of the purchasing power of an entire circuit in bidding for films is a misuse of monopoly power insofar as it combines the theatres in closed towns with competitive situations. 334 U.S. at 154-55. In any given geographic market, if the big circuit gets the picture on the merits, and an independent competitor does not, the antitrust laws generally provide no recourse for the disappointed independent. But what big circuits cannot do is obtain circuit-wide deals that predetermine “the merits” across multiple geographic markets (and, if coupled with overbroad clearances, suppress independent access to motion pictures even outside the big circuit’s geographic markets). Given the steadily increasing consolidation in the exhibition industry, the prohibition of circuit dealing is even more vitally important today than it was in 1948. Whether the anticompetitive mischief is instigated by Big Distributors or Big Circuits matters little to the struggling independent who cannot stay in business if denied access to major motion picture content. (iv) Resale Price Maintenance Horizontal price fixing continues to be a per se violation. “Vertical price fixing” used to be a per se antitrust violation but is no longer. “Resale price maintenance” (a vertical arrangement) is subject to the “rule of reason,” as opposed to per se treatment, meaning it requires a dense factual inquiry. See General Cinema Corporation v. Buena Vista Distribution Inc., 681 F.2d 594 (9th Cir. 1982) (finding a distributor’s per capita requirements not “vertical price fixing”). In 19 2007, the Supreme Court made it official that vertical resale price maintenance arrangements are subject to the “rule of reason,” and no longer per se violations. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007). While distributors are not fixing a specific ticket price, their per capita requirements (essentially, a floor on ticket price that exhibitors will be charged regardless of the actual ticket price) certainly eliminate nearly all pricing flexibility an exhibitor might otherwise have. Independents in particular chafe at the per capita requirements because (1) as small operators, they have less buying clout and they are already operating at lower margins; (2) their average ticket prices are generally lower than the average ticket prices of big circuits; and (3) they generally need more pricing flexibility to account for local socioeconomic and other conditions. While independents steadfastly complain about the stifling of pricing flexibility from per capita requirements, the ICA has not surveyed its members concerning details of per capita requirements. It is accordingly an open question whether per capita requirements are imposed unfairly against independents, or in a discriminatory fashion that favors big circuits, or in other anticompetitive ways. What seems clear, however, is that per capita requirements, coupled with abuses like minimum runs, constitute unlawful restraints of trade. Having to keep an underperforming picture on a screen beyond its opening week and pay excessive per capitas for the relatively few patrons who show up (and of course being unable to price the ticket downward precisely because of per capita requirements) is manifestly anticompetitive, and especially injurious to independents with their typically smaller locations. While antitrust law has changed with respect to resale price maintenance since 1948, the Paramount Consent Decrees still constitute a salutary check on vertical price predations, especially as to more vulnerable and consumer-friendly independents. wv) Overbroad Clearances It is not unlawful for a distributor to “pick a winner” in a given geographic market. What the Paramount Consent Decrees add to the rule-of-reason inquiry?’ is, again, the requirement that the “winner” be picked “on the merits” and on a theatre-by-theatre film-by-film basis. Nobody gets to be the automatic winner. Moreover, nobody gets to “win” beyond a reasonable geographic range. The big circuit winner downtown cannot keep the picture out of the small independent’s suburban or rural cinema. Especially pernicious is the coupling of clearances and circuit dealing, where a “blanket clearance” effectively issues in favor of a big circuit. The Paramount Consent Decrees justly deter that kind of anticompetitive conduct. And because clearances tend (with some exceptions) to operate against a distributors’ interest by reducing the number of runs and the achievable 2 Regal Entm't Grp. v. Ipic-Gold Class Entm't, LLC, 507 S.W.3d 337, 346-47 (Tex. App. 2016) (alleged clearance analyzed under rule of reason); Cobb Theatres Ill, LLC v. AMC Entmt. Holdings, Inc., 101 F.Supp.3d 1319, 1332 (N.D. Ga. 2015) (alleged clearance agreement between premium theater and distributor is vertical agreement scrutinized under rule of reason); Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1371 (3rd Cir. 1996) (clearances are vertical, nonprice restraints evaluated under rule of reason). 20 gross, 28 the persistence of clearances, especially in favor of the same big circuit, raises serious suspicion of an unlawful restraint.’ In Paramount, the Supreme Court treated clearances appropriately as likely anticompetitive and as requiring specific competitive justification by the distributor. As we have said, the only justification for clearances in the setting of this case is in terms of the special needs of the licensee for the competitive advantages they afford. To place on the distributor the burden of showing their reasonableness is to place it on the one party in the best position to evaluate their competitive effects. Those who have shown such a marked proclivity for unlawful conduct are in no position to complain that they carry the burden of showing that their future clearances come within the law. Cf. United States v. Crescent Amusement Co., 323 U. S. 173, 323 U. S. 188. 334 U.S. at 148. Apart from the obvious anticompetitive impact on the exhibitors who are getting excluded (and these are usually, though not always, independents), clearances operate in other ways to distort competition. For example, clearances prevent the kind of head-to-head competition that requires exhibitors to get creative in pro-consumer ways. An exhibitor consistently getting a clearance is basically getting a market pass from competition. Moreover, clearances can constitute significant (and hidden?) barriers to entry, in that an otherwise attractive market might be fatally less attractive if the exhibitor operating in that market is regularly getting (or clearly capable of getting) muscular clearances.?! Thus, for example, clearances might confer the power to exclude competition even if a monopolist is not exacting a monopoly profit, and thus obscure the abuse of monopoly power. a See supra, note 21. 29 See supra, note 23. X A similar “consumer choice” argument was one of the reasons Fox noted when, upon the May 27, 2016 release of X Men: Apocalypse it famously declared it would not honor clearances. Deadline Hollywood, “Distribs & Exhibs Hold Line On Clearances Despite Fox’s Position Change” (Mar. 31, 2016) (“with the different types of movie theaters that exist today from PLFs to restaurant/multiplex combos, Fox believes the consumer should have the right to choose where they’ll see a movie. This puts some pressure on exhibition to provide a better experience than their competition down the street.”). Available at https://deadline.com/2016/03/20th-century-fox- exhibition-clearances-circuit-dealing-1201729061/. A See American Stores, 872 F.2d at 842 (“An absence of entry barriers into a market constrains anticompetitive conduct, irrespective of the market's degree of concentration.””). Where entry barriers are low, market share does not accurately reflect the party’s market power. United States v. Waste Mgmt., Inc., 743 F.2d 976, 982-83 (2d Cir. 1984). But entry barriers that are only apparently low distort analysis of that market and hamper efforts at competitive redress. 21 Clearances almost always hurt smaller players. Almost. Sometimes a smaller player wins the lottery and gets a "clearance" vis-a-vis a big player.>? And that’s what makes clearances so insidious. They re not “structurally” anti-competitive because they can always be withheld or given to another player (although they can certainly become structurally anticompetitive if the same exhibitor essentially obtains a permanent and automatic clearance in plain violation of the Paramount Consent Decrees). But obviously it is typically the big circuits with the economic wherewithal to extract most clearances, especially clearances that reduce the distributor’s gross. The Paramount Consent Decrees did not eliminate clearances, but they did create a higher bar with respect to their competitive justification. As with circuit dealing, given the steadfastly increasing concentration in the exhibition industry, the importance of the Decrees’ skepticism regarding clearances is even more important today than it was in 1948. C. What, if any, modifications to the Paramount Decrees would enhance competition and efficiency? What legal justifications would support such modifications, if any? The ICA respectfully submits that the status quo ought not be disturbed, and that, as the Department has done on each previous occasion when it revisited the Paramount Consent Decrees, it conclude that no change is necessary or appropriate. However, taking the question seriously, the very best “modification” of the Paramount Consent Decrees would be codifying their central principle as positive law: prohibiting distributors “from licensing any feature for exhibition upon any run in any theatre in any other manner than that each license shall be offered and taken theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or others.” That principle, writ large, would do wonders for competition, consumers and the motion picture industry generally. If the Department of Justice instituted a rulemaking proceeding toward the end of distilling the best of the Paramount Consent Decrees, including their “theatre-by-theatre on the merits” mandate, the ICA would applaud the initiative, and likely not object if the action were coupled with efforts to vacate the Paramount Consent Decrees. D. What effect, if any, would the termination of the Paramount Decrees have on the distribution and exhibition of motion pictures? Termination of the Paramount Consent Decrees would be not only misdirected policy, but terrible timing. This is not the moment to untether big distributors (or other behemoth content providers) or even to hint that some “testing the waters” or “pushing the anticompetitive envelope” might be okay. Even the perception that the Department of Justice feels less solicitous toward independent cinemas would tempt too many big players (including big circuits) into the kinds of predations that are difficult to detect, and even some that are more brazen. Independents already dwell in a kind of perpetual existential angst, and the economic challenges of running a cinema continue to mount. It is difficult to navigate these waters. Independents need to see that 2 That is exactly what happened in the government’s antitrust litigation against Syufy Enterprises, which doomed the government’s case. See United States v. Syufy Enterprises, 903 F.2d 659 (9th Cir. 1990). 22 the Department of Justice remains committed to the principles of fairness so succinctly embodied in the Paramount Consent Decrees, especially the “theatre-by-theatre on the merits” mandate. To the extent that termination of the Decrees introduced ambiguity into the state of the law (and it is a virtual certainty that some, and possibly substantial, ambiguity would be introduced), anticompetitive conduct would spike, and the earliest casualty would likely be the “theatre-by- theatre on the merits” mandate. If that mandate is compromised, we would witness the death spiral of independent cinema, with appalling consequences to the industry and to patrons of independent cinemas. E. Have changes to the motion picture industry since the 1940s, including but not limited to, digital production and distribution, multiplex theatres, new distribution and movie viewing platforms render any of the Consent Decree provisions unnecessary? To be sure, the motion picture industry is very different in 2018 than it was 70 years ago. Most obviously, nearly every consumer of motion pictures owns at least one television, and probably a mobile device as well. But the basic rules set forth in the Paramount Consent Decrees continue to serve the industry and consumers well. i) Digital production and distribution The digital revolution should make wide distribution of motion pictures easier than ever, as there will never again be a “finite print” issue (and once we’re post-VPF, not even an artificially “finite” print in the form of transfer payments). This is the promise of digital: easy distribution to as many exhibitors as possible, and for a truly wide-release, there should be no impediment to such wide release. But we need the Paramount Consent Decrees to ensure that true promise of digital, else big players will introduce competitively advantageous bottlenecks that limit distribution. Since the point of tiered entertainment is to determine as early and precisely as possible the value of a motion picture across platforms, distributors, acting in their best interest, will naturally distribute popular features as widely as possible. Failure to do so suggests some collusion or conspiracy in restraint of trade. (ii) Multiplex theatres In one sense, multiplex theatres indicate the ascendency of exhibition, the power of choice. But that refers primarily to circuits, not independents. Independents are often 1, or 2, or 3, or 4- screen locations not because they are technologically “lagging,” but because they know exactly what their market can support. Predatory practices like “minimum runs” are especially problematic in the world of multiplex theatres, which can easily accommodate “minimum runs” (just bump that poorly performing movie to the smallest screen for that third required week) versus independents, who typically do 23 not have the luxury of keeping a poorly performing movie on their one or two screens for three weeks. The rise of multiplex theatres gives circuit theatres even more buying power, and power specifically to discriminate against independents. If circuits are encouraging minimum runs, for example, that would violate the Paramount Consent Decrees. It is easier to make the case that minimum runs are improper with the Paramount Consent Decrees than without them. (iii) New distribution and movie viewing platforms Even with multiplying platforms, the “theatre-by-theatre on the merits” licensing mandate remains a relevant and persuasive principle. See United States v. Loew's Inc., 882 F.2d 29 (2d Cir. 1989) (“The continuing injunction to license features theatre-by-theatre also makes it unlikely that Warner’s interest in Cinemerica will result in foreclosure of distributors’ access to exhibitors. Moreover, the changed nature of the motion picture exhibition industry has made such foreclosure highly improbable.”). Importantly, while platforms for movies have multiplied, the big screen remains the primary platform, and the one that typically drives the value of motion pictures in subsequent platforms. The cinema’s primacy in the sequence of various platforms preserves the relevance and the importance of the Paramount Consent Decrees. Obviously, the Paramount Consent Decrees did not become irrelevant or obsolete with the advent of television, which sent the exhibition industry generally reeling. To the contrary, given the additional competitive pressures introduced by television (as with the additional competitive pressures today from new platforms), the Paramount Consent Decrees substantially aided in ensuring that independents cinemas could navigate the rocky waters and survive to provide Big Screen entertainment to people who would likely otherwise never have such access. F. Are existing antitrust laws, including, the precedent of United States vs. Paramount, and its progeny, sufficient or insufficient to protect competition in the motion picture industry? While “general antitrust laws” point a little of the way into clarity about proper and improper conduct in the motion picture industry, no extant statute or regulation or collection of cases comes anywhere near providing the level of particularity and clarity of application to our idiosyncratic motion picture industry as the Paramount Consent Decrees. See discussion, supra, at p. 12. Moreover, even if “general antitrust laws” could be refashioned over a period of time to adequately address all of the matters addressed in the Paramount Consent Decrees, the interim chaos and spur to experimental predations would doom too many independents. As noted throughout these Comments, nothing in existing antitrust law comes close to the elegance and power of the “theatre-by-theatre on the merits mandate” in the Paramount Consent Decrees. The ICA respectfully urges the DOJ not to consider terminating the Decrees unless and until it has something of equal value and power in their stead. Independents are robust competitors. The ICA is not promoting mere sympathy for a victim class. But they are the most vulnerable players in an industry increasingly dominated by very big 24 players. And their disappearance would have a terrible impact on the industry and on mostly rural and small-town patrons who would probably never again watch a movie on the Big Screen. The Paramount Consent Decrees have operated for decades as a kind of civilizing influence on a dynamic industry, and as a solace for independents, who know the Department of Justice went to bat for the little guy in a big way, and won. The ICA and its members respectfully ask the Department of Justice now not to renounce its own remarkable victory. Respectfully submitted, I EE | October 4, 2018 25 EXHIBIT F Before the U.S. DEPARTMENT OF J USTICE, ANTITRUST DIVISION Washington, D.C. In re Antitrust Consent Decree Review: The Paramount Consent Decrees COMMENTS OF WRITERS GUILD OF AMERICA, WEST, INC. The Writers Guild of America, West, Inc. (WGAW) is pleased to offer these comments in response to the Department of J ustice Antitrust Division (DOJ ) review of the Paramount Consent Decrees. WGAW is a labor organization that represents more than 10,000 professional writers of film, television, online video programming, local news and documentaries. In initiating this review, the DOJ has asked for comment on whether changes to the motion picture industry since the 1940s have rendered any of the Consent Decree provisions unnecessary, and whether existing antitrust laws are able to sufficiently protect competition in the motion picture industry. The Paramount Consent Decrees arose from concerns regarding the extreme power that a group of large and integrated entertainment companies wielded over the theatrical film business. Much has changed in the intervening decades, but the media and entertainment industry is, once again, dominated by a few firms who wield significant market power, and who can use that leverage to harm competitors. Any action that would grant the major entertainment conglomerates more tools or assets they could use to control exhibition of theatrical films would harm competitors in theatrical distribution and production, and ultimately harm creative labor and consumer choice. The Paramount Consent Decrees have ongoing validity despite changes to the industry, and the DOJ must apply strict oversight and enforcement in order to protect that industry and its participants. Theatrical Markets Remain Separate and Major Firms Exhibit Significant Market Power During the United States v. Paramount and related legal actions of the 1940s, the defendant studios and exhibitors exerted a significant level of control over theatrical distribution and, therefore, theatrical production. Through practices such as direct ownership of theaters, block booking, circuit dealing, broad clearances and fixed admission prices, a set of powerful studios and theaters who became the Paramount defendants - Paramount Pictures, Twentieth Century Fox, Warner Brothers Pictures, Columbia Pictures Corporation, Loew's Incorporated, Radio- Keith-Orpheum (RKO), Universal Corporation and United Artists Corporation - were able to control theatrical prices, ensure distribution for preferred theatrical products and curtail competition from both independent theaters and independent film producers. Though collectively, the defendants had interests in only 17.35% of the country’s theaters in 1945,! they actually controlled 90% of the most significant theaters in the major markets around the 1 United States v. Paramount Pictures, 66 F. Supp. 323, 353 (S.D.N.Y. 1946). country.? As the court noted in another case involving substantially the same companies, ? “Defendants control the production and distribution of more than 80% of feature pictures in this country, and no exhibitor can successfully operate without access to defendants’ product.” This level of control over theatrical film distribution was used as well to prevent competition with independent producers, who were unable to access theatrical outlets.> Many aspects of the entertainment industry as well as the technology and venues for video distribution have changed since the 1940s. However, relevant markets remain dominated by a few powerful companies. Theatrical viewing, in particular, remains a separate consumer market despite the technological developments that have created a plethora of options for consumers to access film content, such as subscription streaming services, MVPD on-demand and DVD/Blu-Ray. As the DOJ recently confirmed in the AMC-Carmike Cinemas merger, commercial theater viewing is differentiated from in-home viewing by factors such as ticket prices, screen size, audio sophistication and social experience. In addition, the available product at first-run theaters in generally not replicated by in-home services.® Consumers pay a higher ticket price per film to go to the theater in order to access a unique, collective viewing experience of first-run film content. Theater owners negotiate with film studios to screen the studios’ products, while studios aim to earn as much revenue as possible in this first and most lucrative release window, which often establishes a film's value as it progresses through downstream windows of television, online video licensing and home video sales. Online feature-length programs from services like Netflix and Amazon, a development of recent years, are a separate consumer product market from theatrically-released films. Online feature films are more analogous to TV movies, requiring a lower level of engagement, and the online market for feature-length programs has similarly tended to act as a repository for second-tier content. Indeed, Netflix has acquired distribution rights for several films from major studios following reports that the studios were nervous about the films performing poorly at the box office.” The creators of Crazy Rich Asians chose a theatrical release with Warner Brothers over a significantly higher initial monetary offer to distribute the film via Netflix, recognizing that the cultural and social experience of having the first all-Asian film from a major Hollywood studio since 1993 in theaters would not be replicated by having one available on Netflix.® The recent nature of these developments - Netflix's substantial expansion into feature-length projects 2 Kraig G. Fox, “Paramount Revisited: The Resurgence of Vertical Integration in the Motion Picture Industry,” Hofstra Law Review, Vol.21 Iss. 6 (1992) at 513 (“Paramount Revisited”). 3 All of the Paramount defendants except Universal. 4 Goldman Theatres, Inc., v. Loew's Inc., 3 Cir., 150 F.2d 738, 744, 745 (3d Cir. 1945), cited in United States v. Paramount Pictures, 66 F. Supp. 323, 334 (S.D.N.Y. 1946). > Paramount Revisited at 509, citing Michael Conant, Antitrust in the Motion Picture Industry (1960) at 37. 6 Complaint, United States v. AMC Entertainment Holdings, Inc. and Carmike Cinemas, Inc., No. 1:16-cv- 02475, at 7-8 (Dec. 12, 2016). "Borys Kitand Pamela McClintock, Sources: Netflix Paid Paramount More Than $50 Million for ‘Cloverfield Paradox’, Variety (Feb. 6, 2018), https://www.hollywoodreporter.com/heat-vision/netflix-paid- paramount-more-50-million-cloverfield-paradox-1082305; Kaitlyn Tiffany, Netflix buys Extinction, another sci-fi thriller the original studio didn't want, The Verge (Feb. 8, 2018), https://www.theverge.com/2018/2/8/16992306/nefflix-extinction-michael-pena-universal-cloverfield- paradox; Zack Sharf, ‘Annihilation’ on Netflix: Moviegoers Need to Take Responsibility for Paramount's Controversial Deal, IndieW ire (Feb. 26, 2018), http://www.indiewire.com/2018/02/annihilation-netflix- paramount-deal-streaming-1201932550/. 8 Rebecca Sun and Rebecca Ford, The Stakes Are High for ‘Crazy Rich Asians’ - And That's the Point, The Hollywood Reporter (Aug. 1, 2018), https://www.hollywoodreporter.com/features/crazy-rich-asians- story-behind-rom-com-1130965. began in late 2015 - leaves significant uncertainty in SVOD’s long-term participation in this market. Online viewing of entertainment content has evolved into a heavily television-focused outlet as episodic series are better suited to encouraging consumers to keep coming back to the platform. The MPAA reported online television views increased 45% in 2017 to 160 billion, while online movie views decreased 11% and numbered 7 billion.® In this context, the large theatrical distributors wield significant market power over theater owners. Although the major studios do not distribute as high a share of feature films as they did in the 1940s, they dominate the box office. The top four distributors - Disney, Fox, Warner Brothers and Universal - accounted for close to 70% of domestic box office’? in 2015, 2016 and 2017. Following the merger of Disney and Fox, just three firms are likely to account for more than two-thirds of annual box office receipts. Disney-Fox combined accounted for 50% of total box office in the first six months of 2018." U.S. and Canada Theatrical Distribution Market Share - Top Firms? 2018 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Q1- 213 Disney 1% | 12% | 14% | 12% | 14% | 15% | 15% | 20% | 26% | 22% | 36% =m 13% | 16% | 15% | 11% | 10% | 10% | 18% | 12% | 13% | 13% | 13% Wamer | 20% | 20% | 19% | 18% | 18% | 21% | 19% | 17% | 17% | 18% | 11% Universal | 13% | 10% | 9% | 12% | 13% | 13% | 11% | 22% | 14% | 15% | 12% Sony 12% | 14% | 13% | 13% | 17% | 11% | 12% | 9% | 8% | 10% | 7% + nal 17% | 15% | 16% | 19% | 8% | 8% | 10% | 6% | 8% | 5% | 6% fon £2 57% | 58% | 57% | 53% | 55% | 60% | 63% | 71% | 70% | 68% | 73% Distributors and studios bargain over their division of box office revenue, as well as factors such as how often or long a film plays on a theater's largest screens. The relatively standard revenue split in the domestic box office - close to 50% - represents the studios’ bargaining leverage against theater owners, which has been increasing recently as declining theatrical attendance makes theater owners more dependent on “tentpole” films." Tentpoles are large-budget films with significant marketing campaigns intended to drive high turnout for a given film and are often part of a franchise of films. Disney's Marvel Cinematic Universe and Star Wars franchises are quintessential examples. This strategy is also a reaction to the growing importance of the international film market - where action films are more easily translated - and the decline of the physical home video market. In recent years Disney, in particular, has increased its share of the domestic box office by acquiring competitors and reducing output. In 2008, the studio distributed 21 films that 9 Motion Picture Association of America, 2017 THEME Report at 32 (2017). 10 Defined as the United States and Canada. 11 Box Office Mojo. 12 Box Office Mojo. 13 Through June 30, 2018. 14 Moffett Nathanson Research, U.S. Theaters: Cyclical vs. Secular and Studio Leverage? (Jan. 30, 2018). accounted for 11% of box office receipts. Disney then acquired Marvel Entertainment in 2009 and Lucasfilm in 2012. By 2017, Disney distributed only 8 films but captured 22% of box office. Disney-Fox Theatrical Output: Films Released 2018 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Q1- 215 Disney 21 23 16 14 13 10 13 11 13 8 5 Fox 2% | 25 | 25 | 26 | 22 | 22 | 25 | 25 | 21 25 6 Warner 32 29 | 28 2% | 26 31 28 31 23 20 13 Universal | 25 | 27 | 22 | 23 24 | 22 | 25 2 33 | 22 12 Sony 39 | 41 38 | 40 | 35 31 34 35 38 | 38 13 CBS- Ena 23 16 | 20 18 | 20 15 17 13 15 15 5 Top4->3 | a4 | 404 | of 89 85 85 91 99 90 75 36 Firms The ability to increase market share while reducing output is a function of anticompetitive market power over theater owners. There are already reported incidents of studios exercising their market power to demand concessions from theaters. Disney, for instance, has reportedly demanded contract terms such as retaining 65-70% of ticket sales, monopolizing each theater's largest venue '® and crowded out other features.’ For the screenwriters, the increased market power and reduced output from major studios has meant fewer jobs, lower compensation and less creativity. Screen employment overall has been stagnant in recent years, as decreasing theatrical attendance and the decline of the physical home video market has pressured some film studio margins. Many of the major studios have responded to this pressure by cutting development budgets for new films, or studio research and development. The focus on franchise films, which are a series of films from the same studio which take place in the same cinematic “universe,” has enabled this trend, allowing studios to reduce innovative development and employ fewer writers. These broader market trends have increased the power of large studio employers as writers compete for fewer jobs, causing average screenwriter compensation to decline. Search friction enhances the monopsony power of large screen employers. As screenwriting employment occurs on a per project basis, significant effort is needed to find the next job and this pressure causes screenwriters to invest significant time and often unpaid labor in order to even compete to obtain employment. To the extent that Netflix becomes a buyer for or commissions feature-length projects that have comparable budgets to major theatrical releases, the writing for these projects could be considered within the theatrical film writing submarket, but its competitive impact remains unclear. The writing work for Netflix's handful of major studio-level projects (such as Bright or 15 Through June 30, 2018. 16 Erich Schwartzel, Disney Lays Down the Law for Theaters on ‘Star Wars: The Last Jedi’, The Wall Street Journal (Nov. 1, 2017), https://www.wsj.com/articles/disney-lays-down-the-law-for-theaters-on-star- wars-the-last-jedi-1509528603. 17 Anthony D'Alessandro and Anita Busch, Quentin Tarantino Blasts Disney on Howard Stern Show As ‘Force Awakens’ Pushes ‘The Hateful Eight’ Out of Cinerama Dome, Deadline (Dec. 16, 2015), hitps://deadline.com/2015/12/the-hateful-eight-star-wars-force-awakens-arclight-theater-fight- 1201668018. War Machine)*® was contracted under theatrical film writing terms with third-party producers, with the expectation by the writer that the film would be released initially in theaters. Netflix's strategy of content exclusivity means these films will only produce revenue as part of its monthly subscription income, which will limit the number of big-budget films made for Netflix and ultimately the impact of Netflix on competition for writing services. In addition, writing a feature-length program for Netflix or Amazon remains an inferior labor market substitute for theatrical film writing due to differences in the structure of compensation. Theatrical films are generally sold or licensed in multiple secondary markets, producing a series of revenue-based reuse payments for writers that form a significant base of their compensation. Even mid-budget films, such as 2014's The Hundred-F oot J ourney*® may still generate several hundred thousand dollars of residual compensation for the writer in the first year alone. SVOD films, in contrast, are compensated for reuse in the same manner as TV movies, with smaller fixed payments for reuse in the initial distribution market. And, because of Netflix's strategy of exclusivity, these films are unlikely to generate any other residual compensation for the writer or other creative labor via licensing to secondary markets. For instance, a Netflix high-budget feature length program will generate just over $38,000 in residual compensation to the writer for the first year of its exhibition on Netflix's global platform. These developments in distribution of films have not eradicated the ability of dominant firms to exercise market power, leaving theatrical markets vulnerable to harms from anticompetitive conduct when those firms reduce output and squeeze competitors out of theaters. Such conduct leaves writers with fewer jobs and consumers with fewer choices for what to see at the theater, and the overall quality and diversity of theatrical product suffers. Rolling Back the Paramount Consent Decrees Threatens Competition The Paramount Consent Decrees do not apply to all of today’s powerful market players. However, they signal to the market that the DOJ will apply heightened scrutiny to studio ownership of theaters, block booking, circuit dealing, broad clearances and resale price maintenance. This signal acts as a normative constraint upon all major studios and deters abuse for fear of inviting DOJ review. The DOJ now contemplates permitting the freer exercise of market power in theatrical distribution and exhibition. Incumbents will be emboldened to further consolidate an oligopolistic theatrical market structure on both the buy and sell sides, with independent producers and distributors pushed out of the market. Some may opt for the streaming video marketplace, but the niche audiences and limited financial backend will reduce the available return on investment and lead to lower overall output. Competition, consumers and workers will all be worse off. In recent decades, running movie theaters has not been integral to the business model and profitability of major studios. However, incentives are changing. There are many more entertainment alternatives than in the 1940s, such as television, video games and streaming video. Meanwhile, major movie studios have consolidated into diversified media conglomerates that seek to monetize intellectual property (IP) across reuse and ancillary markets, i.e. reselling films in secondary markets and developing derivative products for television, stage, theme parks, merchandise, etc. The theatrical market plays a key role in establishing the value of IP due to its ability to generate massive cultural events, such as the release of Black Panther or 18 Kayla Cobb, Netflix Is Spending A Ton Of Money on Original Movies, Decider (Apr. 12, 2017), https://decider.com/2017/04/12/netflix-film-spending-2017/. 19 Reported $22 million budget. Crazy Rich Asians. The major studios have an incentive to exert greater control over exhibition in order to recoup their investments, prop up box office revenues and secure the value of their IP in ancillary markets. Vertical integration would enable powerful media conglomerates to capture a greater share of box office revenues by harming upstream and downstream competition. Vertically integrated studios will advantage their own films by putting them on more screens for longer, thereby foreclosing movie-going customers to competing producers and narrowing consumer choice. Peak movie-going times such as the holidays are especially vulnerable to foreclosure as tentpole films are released during the most lucrative calendar windows. Vertically integrated studios will foreclose critical inputs to rival exhibitors by licensing their films to affiliated theaters and granting broad clearances to maximize their share of the local box office. And vertical integration provides studios with access to sensitive information about licensing deals and enhanced bargaining power vis-a-vis unaffiliated exhibitors. The combined information and leverage will be used to raise prices and extract favorable terms and conditions from unaffiliated exhibitors, as the DOJ recently contemplated in its challenge to the AT&T-Time Warner merger. Short of vertical integration, the repeal of the Paramount Consent Decrees encourages practices that increase the power of major studios over independent producers and distributors. Block booking poses a particular threat to the market for independent films. Independent distributors lack the power to force large exhibitors to accept a block of films. As noted above, even with over 40,000 screens in the US, just four (now to become three) studios control nearly 70% of the box office. Block booking will allow the major studios to increase their share of the box office by extending their control over art house and niche films. Without robust independent distribution, small and independent producers will have to strike a deal with the majors for inclusion as a secondary offering in a block of films, giving the majors more leverage over both distributors and producers. Films notincluded in a major studio's block would be forced to compete for a smaller number of leftover screens, reducing their visibility and revenue. The breakout success of low-budget films that do not fit the family-friendly or tentpole-focused major studios, such as 2016's award-winning Moonlight, would be even less likely. Circuit dealing and broad clearances also threaten to freeze small and independent exhibitors out of the market for popular first-run films. License negotiations will take place at the level of the circuit where large exhibitors can guarantee broad exhibition of major studio films in exchange for clearances that effectively monopolize local exhibition markets. Small and independent theaters will be denied a chance to bid on popular first-run films in their local market. Since they rely on popular first run movies to attract customers and subsidize their art house and niche fare, exclusion from the first run market can irreparably harm smaller theaters, as demonstrated by the cases of Cinemas Palme d'Or vs. Cinemark?® and Viva Cinema Theaters vs. AMC. Anticompetitive clearances are so damaging that small and independent theaters will not be able to stay in business long enough to prevail under a regime of circuit dealing and broad clearances. Cinemas Palme d'Or emphasized this pointin a letter announcing its closure: “We could no longer stay solvent because of Cinemark’s constant pressure on studios and distributors to shut us out of major titles. We have fought hard, but circuit-dealing has made it impossible to stay in business.”?? The destruction of an important 20 Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 198 Cal.App.4th 1366 (2011). 21 Viva Cinemas Theaters & Entertainment LLC v AMC Entertainment Holdings, No. 4:15-CV-01015 (5.D.Tex 2018). 22 Anthony D'Alessandro, Cinemas Palme d'Or Closes Over Losses From Circuit Dealing: Owner Bryan Cranston & Cinemark React - Update, Deadline Hollywood (Apr. 26, 2016), source of competition in local exhibition markets will reduce the variety of films on offer and limit consumers to the large multiplex viewing experience at the expense of the intimate or historic small theater viewing experience. Resale price maintenance threatens to stifle innovation in theatrical pricing. New entrants and major exhibitors have been experimenting with theatrical subscription models. Mandating a minimum ticket price gives studios a tool to quash innovative ticketing models they see as threatening to their box office revenues. The major studios could force exhibitors to sell tickets at prices that make it difficult to include their films in subscription packages, thereby limiting the consumer appeal of such offerings. The resurgence of these practices will allow major studios to make development and production decisions knowing that theatrical exhibition is all but guaranteed on favorable terms. Faced with declining competition, these studios will further narrow their film offerings and pare back development (R&D) budgets without risking box office revenue. Given the costs of producing and marketing films with the potential for monetization across reuse and ancillary markets, the major studios will concentrate development spending on fewer films based on existing properties instead of spreading risk across a larger and more varied slate. Reducing output also lowers the risk that films will cannibalize each other's revenues in head-to-head competition. In a competitive theatrical market, small and mid-sized producers and distributors would respond to output reductions by the major studios by increasing production, investing in creative workers and competing for underutilized screens and unmet demand for different movies. However, tactics prohibited by the Consent Decrees, if allowed, would have significant anticompetitive effects in the current theatrical market. The major studios will be empowered to utilize a range of tools for denying rivals access to moviegoers on competitive terms in order to sustain output reductions. The squeeze on development budgets and output will harm writers by eliminating jobs, putting downward pressure on compensation and restricting creativity. Likewise, these actions harm consumers by stifling innovation and variety, leaving fewer choices for theatrical product. Active Antitrust Enforcement Is Required to Protect Competition in Theatrical Markets Theatrical markets have a history of anticompetitive conduct and concentration, and require active oversight in order to preserve competition. The DOJ 's approval of the Disney-Fox acquisition creates a behemoth with over a third of the entire US box office and a demonstrated pattern of leveraging its market power into extraordinarily onerous exhibition terms and conditions. The top three studios are likely to control two-thirds of the box office, which increases the risk of abuse. Exhibitors have been consolidating as well, especially with the recent mergers of AMC-Carmike and Cineworld-Regal. In 1995, the top five chains owned 34.3% of the screens. By 2016, the top five chains owned 53% of the screens in the US.?3 And anticompetitive clearances have harmed numerous small and independent theaters.?* This history suggests that the theatrical market warrants greater oversight, not less. The DOJ must https://deadline.com/2016/04/cinemas-palme-dor-closes-cinemark-circuit-dealing-bryan-cranston- 1201744349). 23 Michael Cieply, AMC Is Set to Become the Biggest Movie Theater Company in the US, The New York Times (Mar. 7, 2016), https://www.nytimes.com/interactive/2016/03/07/business/media/amc-biggest- movie-theater-chain.html. 24 In addition to Cinemark vs. Cinemas Palme d'Or and AMC vs. Viva Cinemas, see also Landmark Cinemas vs. 2301 M Cinema, The Avalon Theater Project, Denver Film Society, and Cinema Detroit not send a signal to the marketplace that it no longer takes anticompetitive conduct and consolidation seriously. Conclusion The seventy years following the original Paramount Consent Decrees have seen many changes to the theatrical business, including the popularity of mediums such as television, home video and streaming. However, these changes have not eradicated the market power of major players, who retain significant control over what writers can get paid to write and what audiences can see in theaters. The DOJ should continue to use all of the tools at its disposal to prevent or fight against anticompetitive practices in this market. Respectfully submitted: /s/ Writers Guild of America, West, Inc. 7000 West Third Street Los ee CA 90048 October 4, 2018 EXHIBIT G Written Statement of Cinetopia LLC regarding the PARAMOUNT CONSENT DECREES REVIEW before the Chief, Litigation Ill Section Antitrust Division U.S. Department of Justice 450 5th Street NW, Suite 4000 Washington, DC 20001 October 4, 2018 Cinetopia LLC owns and operates cutting-edge, upscale, dine-in multiplex theaters in Overland Park, Kansas; Beaverton, Oregon; and Vancouver, Washington. The company was founded in 2005 and is based in Beaverton, Oregon. The goal of antitrust law is to foster competition, and thus expand output, reduce prices, enhance quality, promote innovation, and generally improve consumer welfare. The Paramount consent decrees remain important guideposts in the movie industry today -as they have been for the last seventy years. Although some aspects of the industry have changed, the market conditions that exist today would permit anticompetitive conduct. These conditions insulate large, entrenched firms, threaten innovation, and raise barriers to new entrants. The original rationale for the consent decrees continues to support their enforcement today. If the Division should nevertheless choose to seek modification or termination of the consent decrees, the basis should be limited to the age of the decrees, and not to their substance. The Division should not make unnecessary determinations that could unfairly prejudice pending litigation. As was recognized in the 1940s and remains true today, watching movies in the theater is a unique form of entertainment in American culture.® The experience of viewing a movie in a theater differs from watching live entertainment (e.g., a stage production), watching a sporting event, or viewing a movie at home (e.g., on a DVD or via streaming service). The theater experience for movies is not easily replicated in the home, because movie theaters offer advanced sound systems, larger screens, and a social experience. Moreover, the most popular and high performing movies released for theaters typically are not available for home viewing for some period. Differences in the pricing of various alternative forms of entertainment also reflect their lack of substitutability in the eyes of consumers. Today the major movie studios-Paramount Pictures, Warner Bros. Pictures, 20th Century Fox, Universal Pictures, Columbia Pictures, Walt Disney Pictures, and Lionsgate-collectively control 80 to 85% of domestic box-office revenue.? Five of these studios (except Disney and Lionsgate) were major studios in the Golden Age of Hollywood -i.e., between late 1928 and the end of 1949, when Paramount divested its theater chain, pursuant to the Paramount consent decrees-and have maintained that status today.? 1 See generally, e.g., Samantha Barbas, How the Movies Became Speech, 64 RUTGERS L. REv. 665, 710-15 (2012). 2 See, e.g., Big Six, MAYA ACAD. OF ADVANCED CINEMATICS, http://www.maacindia.com/blog/index.php/big-six/ (last visited Sept. 5, 2018). 3Seeid. 4838-5529-32974 Although much has changed since 1949, the landscape of the movie industry remains largely the same, and the same reasons supporting the creation of the decrees remain true today. The Paramount consent decrees were an appropriate response to the growing power of the big players at the time. The primary objective of the decrees was to impede conspiracy in the licensing and exhibiting of movies within theater circuits to maximize joint profits. The pre-Paramount industry practices hurt not only independent studios and consumers, but also the industry as a whole. Innovation and improvement were stifled; all that the big players needed to guarantee profits was adherence to this conspiracy to license and exhibit movies within their own theater circuits. Without these practices, distributors would have to compete for theater space on the merits by, for example, offering attractive licensing terms or making better movies. It would then be up to theater owners to consider the merits of these offers and decide-on a case-by-case, theater-by-theater basis- which movies to bid for and how long to run them. This competitive system, envisioned and supported by the interdependent provisions of the Paramount consent decrees, allows independent studios and distributors to have better access to theaters and, thus, be able to compete for market share against the major movie studios. Conversely, it also allows smaller theaters to compete for access to movies. The system seeks to promote competition in the movie market as a whole and, ultimately, to benefit consumers by increasing output and improving quality of the products. The Paramount decrees also drew lines between movie production, distribution, and exhibition. The market can respond faster and more efficiently to changes in consumers’ preference and demand when these processes are separate. Today, the increased concentration in the market makes the decrees more relevant than they were 70 years ago. For example, following Disney's recent acquisition of 20th Century Fox, four corporations now control more than 80 percent of the movie production and distribution market sector.* In the exhibition realm, three dominant theater circuits control more than 50 percent of domestic revenue.® This increased concentration of market power in a small number of players highlights the need to preserve and promote competition in the movie industry. 4 See Youyou Zhou, Charted: How the Disney-Fox Mega-Merger Eats up Market Share, QUARTZ (Dec. 15, 2017), https://qz.com/1157391/how-the-disney-fox-deal-will-dominate-media. 5 See VIKRAM CHANDRASEKARAN, REDWOOD CAPITAL, NORTH AMERICAN CINEMA EXHIBITOR REPORT 2016, 5 (2017), https://www.vipcinemaseating.com/content/uploads/2016/08/North-American-Cinema-Exhibitor-Report- Redwood-Capital.pdf (last visited Sept. 5, 2018) (note that Carmike Cinemas was acquired by AMC by the end of 2016). 8 E.g., Landmark Theatres v. Regal Entm’t Holdings, Inc., No. 16-CV-0123 (D.D.C. filed Jan. 26, 2016); Viva Cinemas Theaters v. Am. Muti-Cinema, Inc., No. 4:15-CV-1015 (S.D. Tex. filed Apr. 20, 2015); Cobb Theatres Ill, LLC v. AMC Entm’t Holdings, Inc., No. 1:14-CV-0182, (N.D. Ga. Filed Jan. 22, 2014). 4838-5529-32974 Moreover, the opening of an online market sector has threatened further blurring of beneficial lines between movie production, distribution, and exhibition. Indeed, new digital streaming services have been able to combine the distribution and exhibition of certain movies into a one-stop process. As they took another step and started to produce their own content, these digital players have been able to control, to a certain extent, the entire process of movie production, distribution, and exhibition. As the Department acknowledged in U.S. v. AT&T, this vertical integration can damage competition because “a vertically integrated firm” could “use its ownership of programming to raise fees to rival distributors and limit competition in the distribution market.”® More generally, “vertically integrated programmers . . . have the incentive and ability to use . . . that control as a weapon to hinder competition.”® That is exactly what the Paramount defendants were able to do prior to the decrees. Although the industry has changed since entry of the decrees, the same anticompetitive forces exist, just with new technologies. The Paramount decrees are still needed. Enforcing them benefits the industry, competition, and consumers by promoting fair opportunity for innovative new entrants. 7 See generally Complaint, Cinetopia LLC v. AMC Entm’t Holdings, Inc., No. 18-CV-2222 (D. Kan. May 4, 2018), ECF No. 1. 8 Brief of Appellant United States of America 2, United States v. AT&T, No. 18-5214 (D.C. Cir. Aug. 6, 2018), ECF No. 1744194. 9d. at 40-41 (omissions in original). 4838-5529-32974 wm A W N OO NO 0 N N 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE I, Yolanda Mendez, declare: I am a citizen of the United States and employed in Los Angeles, California. I am over the age of eighteen years and not a party to the within-entitled action. My business address is 1888 Century Park East, Suite 1700 Los Angeles, CA 90067. On February 19, 2019, I served a copy of the within document(s): REPLY DECLARATION OF THOMAS L. BOEDER IN SUPPORT OF FLAGSHIP’S MOTION FOR ATTORNEY’S FEES by placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, the United States mail at Los Angeles, California addressed as set forth below. [x] by transmitting via e-mail or electronic transmission the document(s) listed above to the person(s) at the e-mail address(es) set forth below. Peter H. Mason, Esq. Lesley Holmes, Esq. Kelsey A. Maher, Esq. NORTON ROSE FULBRIGHT US LLP 555 South Flower Street, 41° Floor Los Angeles, CA 90071 Tel: 213.892.9200 / Fax: 213.892.9494 Email: peter.mason@nortonrosefulbright.com lesley.swanson.holmes@nortonrosefulbright.com kelsey. maher@nortonrosefulbright.com Michael A. Swartzendruber, Pro Hac Vice Barton W. Cox, Pro Hac Vice Nathan Baum, Pro Hac Vice NORTON ROSE FULBRIGHT US LLP 2200 Ross Avenue, Suite 3600 Dallas, TX 75201 Tel: 214.855.8000 / Fax: 214.855.8200 Email: michael .swartzendruber@nortonrosefulbright.com beau.cox@nortonrosefulbright.com Nathan.baum@nortonrosefulbright.com I am readily familiar with the firm's practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on REPLY DECLARATION OF T. BOEDER -8- ISO MOTION FOR ATTORNEY FEES 143155618.1 > CASE NO. SC090481 2 wn 6 motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on February 19, 2019, at Los Angeles, California , do,” o / Yolandy/ Mendez () REPLY DECLARATION OF T. BOEDER -9- ISO MOTION FOR ATTORNEY FEES CASE NO. SC090481 143155618.1