Antitrust Law Daily TRO banning Regal from blocking boutique theater’s access to films upheld
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Friday, September 30, 2016

TRO banning Regal from blocking boutique theater’s access to films upheld

By Greg Hammond, J.D.

Boutique upscale movie theater chain iPic-Gold Class Entertainment, LLC was appropriately granted a temporary restraining order against theater chain Regal Entertainment Group, the Texas Court of Appeals in Houston, Texas, has decided. iPic demonstrated a probable right to relief on its Sherman Act conspiracy and monopolization claims, as well as probable, imminent, and irreparable injury (Regal Entertainment Group v. iPic-Gold Class Entertainment, LLC, September 29, 2016, Huddle, R.).

iPic claimed that Regal violated the Texas Free Enterprise and Antitrust Act by telling major film distributors that Regal’s 24-screen, 5,000-seat Greenway facility would not play first-run films simultaneously with the nearby 8-screen, 578-seat iPic in Houston. The trial court granted temporary injunctive relief, prohibiting Regal from engaging in anticompetitive and unlawful conduct by: (1) demanding or requesting exclusive film licenses or the right to exhibit films from any studio to the exclusion of iPic’s Houston theater; (2) indicating to a studio that such defendant will refuse to play a film at any of its theaters if the studio licenses the film for exhibition at the iPic Houston, or carrying out such refusal; or (3) communicating between the Regal and AMC defendants, or coordinating their respective communications with any studio, with regard to preventing iPic from receiving licenses to first-run films to exhibit at the iPic Houston.

On appeal, Regal argued that the lower court abused its discretion by entering the temporary injunction because iPic did not demonstrate a probable right to relief on its claims, or probable, imminent, and irreparable injury.

The appellate court rejected Regal’s first argument—regarding a probable right to relief—finding that iPic provided sufficient evidence to support findings of (1) a contract, combination, or conspiracy (2) having an adverse effect on competition (3) in a relevant market.

Conspiracy, coercion. First, evidence showed that film distributors were incentivized against allocation, but three allocated against their self-interest and reported to iPic that they did so because of Regal’s request. Similarly, Regal’s costly decision not to have the Greenway play Star Wars: The Force Awakens, because it was offered to iPic Houston, was inconsistent with Regal’s self-interest, according to the appellate court. Evidence that Regal and half of the major film distributors acted contrary to their self-interest permitted a rational inference of conspiracy or coercion, as opposed to permissible independent conduct.

Relevant product market. With regard to the relevant product market, Regal argued that the Greenway and iPic Houston both operate in the same market—the market for first-run film exhibition. iPic, however, claimed that it participates in a distinct first-run film exhibition market—the market for premium exhibition of first-run films—to the exclusion of the Greenway and megaplexes generally. Specifically, iPic presented evidence that its Houston facility was the only theater of its kind in Houston, targeting a different demographic, and charging twice or more the price of the average ticket at the Greenway for its premium plus seats. iPic’s antitrust expert also testified that the amount of consumers who treated the two theaters as interchangeable was "de minimis" because of the difference in both price and quality of experience. This was sufficient evidence for the trial court to impliedly find that the two theaters participate in distinct first-run film exhibition markets. The appellate court therefore deferred to that finding on appeal.

Relevant geographic market. The appellate court also found that, although the parties offered conflicting evidence, the trial court could have concluded that the geographic market spans roughly an area contiguous with the 3-mile range iPic posited, with Regal’s resulting market share being sufficient to bespeak market power.

Market power. iPic asserted that the decision by some distributors to allocate films between the theaters was itself proof of Regal’s market power, sufficient to support the temporary injunction. Evidence demonstrated that the Greenway has more than 5,000 seats, outnumbering the iPic Houston’s seats by almost ten times. It was undisputed that Greenway’s relative size gave it the capacity to generate more total revenue for distributors than the iPic. There was also evidence from which the trial court could conclude that Regal’s clearance request was the but-for cause of the allocating distributors’ decisions not to license films to iPic Houston. This evidence was sufficient to support the trial court’s finding that Regal had sufficient market power to restrain, in part, iPic’s ability to obtain film licenses.

Harm to competition. Evidence that Regal’s clearance request reduced the number of films that iPic Houston was able to exhibit was sufficient to show that Regal’s conduct harmed the market for premium exhibition of first-run films. The appellate court therefore deferred to the trial court’s implied finding of harm to competition.

Probable, imminent, irreparable injury. Regal’s argument—that the trial court erred in granting temporary injunctive relief because iPic did not adduce sufficient evidence that it would suffer probable, imminent, and irreparable injury without it—was also rejected. Although there was conflicting evidence concerning whether iPic Houston would suffer imminent harm absent injunction, the appellate court could not disturb the trial court’s resolution of conflicting evidence. iPic’s presented evidence that it was unsuccessful in licensing several films due to Regal’s clearance request, that its reputation and goodwill was dependent upon being able to offer these movies, and that the clearance therefore negatively affected iPic’s reputation and ability to deliver the experience consumers expected.

The case is No. 01-16-00102-CV.

Attorneys: Christopher Casamassima (Wilmer Cutler Pickering Hale and Dorr LLP) for Regal Entertainment Group. Richard Bernard Farrer (Yetter Coleman LLP) for IPic-Gold Class Entertainment LLC.

Companies: Regal Entertainment Group; IPic-Gold Class Entertainment LLC

MainStory: TopStory Antitrust TexasNews

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