Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ga.: Cinema operator may pursue exclusive dealing, monopolization claims against AMC, (Mar 24, 2015)

By Linda O’Brien, J.D., LL.M.

A cinema operator alleged sufficient facts to pursue claims against a competing major film theatre operator for engaging in anticompetitive conduct by coercing film distributors to limit the cinema operator’s access to top-grossing movies and by coercing lessors not to lease theatre space to competitors, the federal district court in Atlanta has decided (Cobb Theatres III, LLC v. AMC Entertainment Holdings, Inc., March 20, 2015, Ross, E.).

Cobb Theatres owns and operates seven integrated cinema and dining venues located in Georgia, Florida, Virginia, and Colorado. AMC Entertainment owns and operates theatres worldwide, and is the second-largest theatre circuit in the United States. Cobb and AMC are the only film theatre operators in the Buckhead and Brookhaven districts of Atlanta. In fall 2010, an AMC executive sent a letter to major film distributors that requesting preferential treatment or exclusive film licensing treatment over Cobb. Several distributors honored AMC’s request by allocating substantially more high-grossing newly released films to AMC. AMC also deterred lessors of theatre space from leasing their spaces to Cobb in several locations that would compete with AMC.

Cobb filed suit against AMC, alleging that AMC violated Sections 1 and 2 of the Sherman Act by engaging in circuit dealing, monopolization, attempted monopolization, and exclusive dealing. AMC moved to dismiss the complaint.

Exclusive dealing. The court determined that Cobb sufficiently alleged the existence of an agreement to restrain trade. AMC’s argument that the complaint did not identify which specific film distributors had agreements with AMC was rejected. The complaint alleged that AMC sent a letter to major film distributors, demanding preferential treatment for its Buckhead and Brookhaven theatres. Although Cobb set for the specific contents of the letter, the major film distributors were not identified by name. Cobb also alleged that AMC implied that refusal to grant such preferential treatment would result in adverse economic consequences. The court noted that there were fewer than ten major film distributors, all of whom were known by AMC, and Sony Pictures was identified as one of the film distributors that honored AMC’s request for preferential treatment.

The plaintiff also alleged sufficient facts to show the preferential agreements were unreasonable and actual harm to competition. Although the complaint did not specifically allege that the agreements were “unduly extended as to area or duration,” Cobb contended that such agreements no longer provide procompetitive benefits in the modern film industry. Moreover, Cobb alleged in detail how AMC’s conduct reduced the quality of movie theatres offered to the public by comparing various amenities that Cobb and AMC offer consumers.

Monopolization. To state a prima facie case for monopolization, a plaintiff must plead the possession of monopoly power in the relevant market and the willful acquisition of that power, the court explained. Cobb alleged that AMC used its monopoly power to coerce distributors into denying Cobb the opportunity to fairly compete for film licenses and to coerce landlords not to lease space to AMC competitors. In this case, Cobb’s allegations that AMC’s conduct caused harm to competition by substantially diminishing the quality of a good offered to the public was sufficient to show exclusionary or predatory conduct. Furthermore, Cobb’s allegations that AMC had a 69 percent market share in the Buckhead and Brookhaven districts and used its monopoly power to stifle competition were sufficient to show market power, according to the court.

Circuit dealing. Finally, Cobb sufficiently alleged facts to show the existence of an unlawful circuit dealing arrangement under which AMC negotiated preferential treatment for its Buckhead theatres. In rejecting AMC’s argument that there were no allegations that AMC’s request was ever accepted, the court noted that the complaint contained numerous allegations regarding the letter and the conduct of the distributors after receiving the letter. These allegations showed that AMC used the power of its entire nationwide circuit to acquire privileges in markets where it had competitors. Therefore, AMC’s motion to dismiss was denied.

The case is No. 1:14-cv-00182-ELR.

Attorneys: Catherine S. Simonsen (Perkins Coie), and Henry D. Fellows, Jr. (Fellows LaBriola, LLP) for Cobb Theatres III, LLC, and Cobb Theatres IV, LLC. Barton Wayne Cox (Fulbright & Jaworski) for AMC Entertainment Holdings, Inc., and AMC Entertainment Inc.

Companies: Cobb Theatres III, LLC; Cobb Theatres IV, LLC; AMC Entertainment Holdings, Inc.; AMC Entertainment Inc.

Cases: Antitrust GeorgiaNews