Orson, Inc. v. Miramax Film Corp.

Page 1358

79 F.3d 1358

1996-1 Trade Cases P 71,355, 24 Media L. Rep. 1545

ORSON, INC. t/a Roxy Screening Rooms v. MIRAMAX FILM CORP Orson, Inc., d/b/a/ Roxy Screening Rooms, Appellant.

No. 95-1399.

United States Court of Appeals Third Circuit.

Argued Jan. 22, 1996.

Decided April 1, 1996.

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C.Civ. No. 93-cv-04145); J. Curtis Joyner, Judge.

Paul R. Rosen (Argued), Jeffrey M. Goldstein (Argued), Spector, Gadon & Rosen, Philadelphia, PA, for Appellant.

Thomas E. Zemaitis (Argued), Barbara T. Sicalides, James W. McGarry, Pepper, Hamilton & Scheetz, Philadelphia, PA, for Appellee.

Before: MANSMANN and LEWIS, Circuit Judges, and RESTANI, Judge, Court of International Trade. ^*

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This antitrust case arises out of a business arrangement in the motion picture industry. The plaintiff, Orson, Inc., the owner of the Roxy Screening Rooms, a movie theater, alleged that the defendant, Miramax Film Corporation, a film distributor, violated section 1 of the Sherman Act, 15 U.S.C. § 1, and Pennsylvania common law by conspiring with another theater to drive the Roxy out of business and by granting that other theater exclusive, first-run licenses on Miramax films. Orson also charged that the licenses violated the length-of-run provision of Pennsylvania's Feature Motion Picture Fair Business Practices Law. 73 P.S. § 203-7. Orson now appeals the district court's decision to grant Miramax's motion for summary judgment.

We hold that Orson failed to present evidence sufficient to show that Miramax engaged in an antitrust conspiracy or that the licenses were unreasonable restraints of trade. We further hold that the district court erred in interpreting 73 P.S. § 203-7's requirement concerning the geographic expansion of first-run films. Thus, we will affirm the judgment of the district court granting summary judgment to Miramax on Orson's antitrust claims. We will, however, vacate the district court's grant of summary judgment to Miramax on Orson's state statutory claim and remand for further proceedings.

I. ¹

In January of 1992, Orson assumed the operations of the Roxy, a movie theater located in downtown "Center City" Philadelphia. The Roxy exhibited "art films," as opposed to movies that may be characterized as "commercial" or "mainstream," on two screens, each with a 130 person seating capacity. The Roxy charged between $3.50 and $5.50 for tickets.

The Ritz theaters, consisting of two separate five-screen facilities, the Ritz Five Theaters and the Ritz at the Bourse (collectively, the "Ritz"), also exhibited art films in Center City. The Ritz Five Theater, which opened in 1976 with about 1,125 seats, was owned and operated by the Posel Corporation; the Ritz at the Bourse, opened in 1990 with approximately 710 seats, was owned and operated by the Raysid Corporation. Ramon L. Posel was the President of both corporations. The Ritz's admission prices typically ranged from $3.50 to $6.00.

In addition to the Roxy and the Ritz, there were six other theaters in Center City; four theaters with a total of 20 screens were operated by United Artists and two theaters with two screens each were operated by American Multi-Cinema.

Miramax, a nationwide distributor of feature-length motion pictures, including art films, distributed movies to all of the theaters located in Center City and to theaters in the greater metropolitan Philadelphia area.

In the motion picture industry, film distributors license films to theaters for exhibition for a given amount of time. Frequently, the license is exclusive, providing that during its duration, the film will not be licensed to other exhibitors in a prescribed area. Such licenses are called "clearances."

In the usual case, films are licensed for a sum which consists of a film rental amount and a house allowance. Under this system, the distributor and the exhibitor agree on a separate dollar amount which represents the exhibitor's weekly expenses. The exhibitor retains a percentage of the weekly gross from ticket receipts above the house expense allowance; the remaining percentage inures to the distributor. Typically, the license provides that the distributor will receive a minimum percentage of the exhibiting theater's box office gross. A film distributor's revenues, therefore, depend directly upon a theater's capacity to attract the public. Thus, the decision to license a movie to one theater or another is premised in considerable measure on a distributor's assessment of a theater's grossing ability.

The time a particular exhibitor is licensed to show a film is called the "run." A "first-run" is the first exhibition of a film in a given geographic area; "subsequent" runs are exhibitions of that film in the area after the first-run has expired. Successive runs of motion pictures are a practical necessity in the industry because commonly, there are a limited number of prints made of any one film.

Between January of 1992, when Orson began operating the Roxy, and February of 1994, the close of discovery, Miramax licensed about 28 films on a first-run basis and one film on a subsequent-run basis to the Ritz. By comparison, during this period, Miramax licensed one film on a first-run basis and approximately 14 films on a subsequent-run basis to the Roxy. Miramax also granted eight first-run licenses to the theaters in Center City operated by either United Artists or American Multi-Cinema ² and six first-run licenses to theaters in the suburbs of Philadelphia.

At this same time, a number of other distributors also licensed films to the exhibitors in Center City. From the Roxy's opening in January of 1992 until March of 1994 Orson was granted about 73 first-run, exclusive licenses by 59 different distributors. According to Orson's President, Max L. Raab, art film distributors included, in addition to Miramax, three "distributors of consequence"--Sony Pictures Classics, the Samuel Goldwyn Company and Tristar Pictures.

All of the first-run licenses for films that Miramax granted to the Ritz were exclusive; that is, they provided that the films would not be licensed to another Center City theater while playing there. The licenses were established quite informally. Typically, Posel of the Ritz telephoned Martin Zeidman, Miramax's Senior Executive Vice President and head of domestic distribution, to discuss the Ritz's desire for a first-run license on a particular Miramax film. Having done business with one another for several years, Posel and Zeidman understood that the license would be exclusive and include standard terms. Once the parties agreed upon an opening date, Zeidman completed a "Theatrical Booking Worksheet," which set forth the title of the film and the opening date, listed the Ritz Five Theaters or the Ritz at the Bourse as the exhibitor, identified Posel as the buyer, marked the rental percentage terms, and designated the shipping territory as "Phila[delphia]." A day or two later, the booking worksheet was telefaxed from Zeidman's office in Los Angeles to Miramax's office in New York, which was responsible for shipping Miramax film prints to theaters in time for the opening date.

On occasion, Orson's film buyer, Jeffrey Fox Jacobs, asked Zeidman for a first-run, non-exclusive license on a Miramax film, indicating that Orson was prepared to offer Miramax a higher percentage of the Roxy's box office receipts and a lower house allowance than those negotiated by the Ritz. Jacobs' requests, however, were refused.

From time to time, Miramax held trade screenings for the movies it distributed in Philadelphia. Miramax would send a notice to exhibitors, inviting them to attend the trade screening of a certain film on a certain date. Most of the notices stated that "[w]e expect to avail this film for first run Philadelphia on or about [date], for an exclusive or non-exclusive run. After the first run theater or theaters have exhibited the film for 42 days we will consider offers for subsequent runs." The notice requested that a "written offer" be submitted by interested exhibitors by a specified time and day.

With respect to some of the clearances that Miramax granted the Roxy, the booking worksheet that Zeidman completed memorializing the clearance bore a date that was prior in time to the date of the trade screening notice that Miramax sent to exhibitors. ³

Fifteen of the films that Miramax licensed to the Ritz played there for a period of more than 42 days. Of these, nine expanded to other Philadelphia area theaters outside of Center City before the 42 days expired; six, however, ran at the Ritz, without expanding to other theaters.

According to the parties' briefs, the Roxy closed its doors in October of 1994.

On or about August 2, 1993, Orson commenced this action against Miramax. On August 19, 1993, Orson filed an amended complaint in three counts: Count I alleged that Miramax violated section 1 of the Sherman Act by, inter alia, conspiring with the Ritz to exclude the Roxy from the art film market by making the Ritz its "exclusive Philadelphia exhibitor for first-run art film features" and by granting the Ritz "exclusive first-run rights to those of Miramax'[s] films which the Ritz want[ed] to exhibit...." ⁴ Count II alleged that Miramax violated Pennsylvania's "common law doctrine against unreasonable restraint of trade"; and Count III alleged that Miramax violated section 203-7 of Pennsylvania's Feature Motion Picture Fair Business Practices Law, 73 P.S. § 203-1 et seq. (the "Pennsylvania Act") by "consistently grant[ing] the Ritz licenses for its feature art films for exclusive first runs for more than 42 days...." ⁵

On October 8, 1993, Orson filed a "Motion for Injunctive Relief to Restore the Status Quo during Pendency of Litigation." On November 9, 1993, the district court denied Orson's motion, Orson Inc. v. Miramax Film Corp., 836...