Antitrust Law Daily Wrap Up, ANTITRUST—DColo: Antitrust Claims Against Denver Nightclub and Music Website Can Proceed to Trial, (Jan 24, 2013)

By Tobias J. Gillett, J.D., LLM.

A Denver nightclub owner can proceed to trial on claims that a competitor had monopolized the market for A-List DJs in the Denver area by threatening the DJs that their tracks would not be promoted on a music download website that the competitor also owned, the federal district court in Denver has ruled (Christou v. Beatport, LLC, January 23, 2013, Jackson, R.). The court also declined to exclude two expert witnesses the owner intended to present.

The nightclub owner, Regas Christou, owns several nightclubs in Denver, including two, called The Church and Vinyl, that featured performances by “A-List DJs” of Electronic Dance Music (EDM), DJs recognized in the list of “Top 100” DJs published annually by DJ Magazine. These DJs would garner larger audiences and thus higher profits for the nightclubs that hire them.

Christou and his competitor, Bradley Roulier, previously worked together, and Roulier, with Christou’s assistance, founded a website called Beatport that provided music downloads that catered to DJs. The tracks had characteristics, such as lack of digital rights management and the option to purchase them in WAV format, that distinguished them from tracks offered by other music download sites. Beatport was also frequently the first to offer new music, and offered some tracks exclusively. These aspects of the website permitted it to sell tracks at a higher price than other sites. Beatport was very successful, and became “the largest online site that caters exclusively to producers and consumers of” EDM.

Roulier later founded a competing nightclub, called Beta, that also featured performances by A-List DJs. Roulier allegedly began threatening those DJs that their tracks would not be promoted on Beatport if they performed at Christou’s clubs. This allegedly permitted Roulier to take over the Denver market for performances by those DJs.

Christou filed suit on behalf of himself and his nightclubs against Roulier, Beatport, and Beta, asserting a wide variety of claims, including tying and monopoly claims. The defendants filed a motion for summary judgment and a motion to exclude two expert witnesses Christou sought to present.

Antitrust Claims

The defendants raised six groups of arguments for dismissing Christou’s claims, including that the plaintiffs could not prove causation because they had not properly defined the market; that the plaintiffs lacked standing; that the plaintiffs had not presented evidence defining the relevant market; that the plaintiffs could not show that Beatport had an economic interest in requiring A-List DJs to perform at Beta; that Beatport, Roulier, and Beta could not have conspired with each other; and that the defendants could not have attempted to monopolize the market because Beta was only one of more than 400 drinking establishments in Denver, and only one of 32 nightclubs that play dance music.

The court rejected all of these arguments. With respect to causation, the court noted that this issue turned on factual disputes regarding the extent of Beta’s market power, inappropriate for summary judgment. On March 14, 2012, the court had already determined that, while Christou personally did not have standing to bring his antitrust claims, his nightclubs could have standing, 2012-1 Trade Cases ¶77,829.

The court also found that the definition of the relevant market was dependent on a series of questions of fact. Whether Beatport had an economic in interest in requiring A-List DJs to perform at Beta depended on the motives of Roulier and the relationship between Beatport and Beta, also questions of fact. The question of whether the defendants conspired with each was a question of fact, and the court noted that it had already addressed the question of whether they legally could conspire in its previous order. Finally, the argument regarding attempted monopolization turned on the definition of the relevant market, again an issue of disputed fact.

Motion to Exclude Market Definition Expert

The defendants had moved to exclude an expert witness presented by the plaintiffs, Dr. Owen R. Phillips, who had testified to a relevant tying market of “digital downloads of DRM-free, high fidelity Electronic Dance Music suitable for playing on high-performance sound systems globally” and a tied market, and market for monopolization purposes, of “live performances by A-List DJs playing Electronic Dance Music at nightclubs in the Denver metro area.” Phillips had determined that Beatport had monopoly or near-monopoly power in the tying market, and that Roulier’s use of Beatport’s market power had permitted Beta to obtain a monopoly or near-monopoly on the market for A-List DJs. He testified that this arrangement had caused harm to competition and significant revenue declines to Christou’s nightclubs.

The defendants did not challenge the qualifications of Dr. Phillips, a Stanford-trained economics professor. Rather, the defendants challenged Dr. Phillips on his opinions, relying on the testimony of their expert witness, Dr. James A. Langenfeld, another economics professor with unchallenged qualifications.

Dr. Phillips had not conducted a formal study of cross-elasticity, stating that those studies are rarely performed due to the difficulty of observing a significant price increase “from which a change in sales and profits can then be measured.” The court found this decision “not unreasonable.”

The court cited two previous antitrust decisions in which Dr. Phillips had served as an expert witness, noting that the courts had found them reliable enough for admission, but that those cases had “not determined the fate of his opinions here.” The court found his opinions and those of Dr. Langenfeld relevant, and that they would “be of assistance to the jury in understanding the facts and issues of the case.”

The court concluded that the defendants’ arguments went “to the weight to be given to his testimony by the jury, not to its admissibility.” As Dr. Phillips’s opinions were not “so far divorced from recognized science in his field, and so unsupported by facts, as to be unworthy of being heard at all,” the court denied the motion to exclude his testimony.

Motion to Exclude Damages Expert

The defendants also moved to exclude the testimony of the plaintiffs’ damages expert, Jay E. Freedberg, a certified public accountant, who had concluded that Christou’s nightclubs had suffered losses of $746,923 in profits due to the decline in A-List DJ performances, and $2,144,286 in the value of their business enterprise.

The defendants again did not challenge Freedberg’s qualifications, choosing instead to challenge his methods and opinions. Freedberg’s method for determining lost profits involved “project[ing] revenues that probably would have been realized had the business continued as in the past; next [accounting] for factors unrelated to the case that probably would have impacted revenues; and finally [deducting] projected expenses.” He testified that this was a widely accepted practice in the accounting industry.

The defendants challenged his method, contending that he should have included revenue from other sources that allegedly would have offset the losses from The Church and Vinyl, that he should have accounted “for factors other than the economic downturn that might have reduced revenues, such as the mere entry of a new and strong competitor in the market,” that he had compiled inaccurate revenue projections, that he should not have used “a variable cost to sales ratio estimated for all nights” to convert “lost sales on Thursday and Friday nights to lost profits,” and that he should not have relied on information supplied by the plaintiffs’ counsel.

The court found his testimony relevant, and chose not to exclude it. Although the defendants had identified certain alleged assumptions and mistakes in his calculations, the court found his work to be “essentially basic accounting,” and noted that the defendants had not challenged his “methods as such.” Again, their challenges went to the weight to be given to his testimony, not its admissibility.

The court had more questions concerning his testimony regarding lost enterprise value, which Freedberg had calculated as at December 31, 2010, using an unchallenged “capitalization of earnings method.” Although the court found that his testimony, “if otherwise relevant to the case, would be of assistance to the jury,” the court questioned “whether there is a logical relationship between Mr. Freedberg’s testimony regarding lost enterprise value and the factual issues in this case.” The court noted that “the relevance of the value of Mr. Christou’s clubs at the end of 2010” relied on “vague testimony” regarding Christou’s intent to sell the clubs in 2006-2007.

Moreover, the plaintiffs had not established whether the alleged decline in the clubs’ value was “perpetual,” what the value of the clubs was today, what would happened to their value if the plaintiffs succeeded in their case, or whether damages for lost enterprise value as of December 31, 2010 would “permit Mr. Christou to have his cake and eat it too.” The court observed that the plaintiffs had filed a motion to supplement their position regarding Freedberg’s opinion, and that the defendants had not opposed the motion, and thus granted that motion. The court therefore “elect[ed] to reserve judgment on the lost enterprise value opinion.”

The court also declined to grant summary judgment to the defendants on claims of misappropriation of trade secrets, civil conspiracy, and interference with prospective business advantage, and declined to dismiss state law claims for lack of subject matter jurisdiction. The court did grant the plaintiffs’ motion for sanctions for spoliation of certain text message evidence to the extent that the court would permit the plaintiffs to introduce evidence at trial regarding the failure to preserve the text messages, but rejected the defendants’ request for sanctions pursuant to Federal Rule of Civil Procedure 11.

The case is No. 10-cv-02912-RBJ-KMT.

Attorneys: Dale R. Harris (Davis Graham & Stubbs, LLP) for Regas Christou. George Vernon Berg , Jr. (Berg Hill Greenleaf & Ruscitti, LLP) for Beatport, LLC. Joe L. Silver (Silver & DeBoskey, P.C.) for Bradley Roulier.

Companies: R.M.C. Holdings, L.L.C.; Bouboulina, Inc., Beatport, LLC; BMJ&J, LLC

Cases: Antitrust ColoradoNews