On Appeal from the United States District Court for the Middle District of Pennsylvania, D.C. Civil No. 83-1055.
Seitz, Higginbotham and Cohen, Circuit Judges.
This appeal arises from an order of the district court granting summary judgment in favor of the defendants. Upon review, we conclude that the plaintiffs failed to present sufficient evidence in support of their claims that defendant Fox willfully monopolized the exhibition of first-run films in violation of section 2, and that Fox conspired separately with the individual distributor defendants in violation of section 1, of the Sherman Act. Therefore, we will affirm the district court's grant of summary judgment in favor of the defendants.
On any given Saturday night of forty years ago, crowds filled elegant and spacious art deco movie houses in town centers across America to watch such stars as Lauren Bacall and Humphrey Bogart grace the giant silver screen. At that time, Lebanon, Pennsylvania supported five downtown motion picture theaters. Today, reflecting a national trend, the elegant downtown theaters are virtually extinct and have been replaced by smaller modern twin theaters adjacent to suburban shopping centers. By 1983, the greater Lebanon area supported two suburban twin theaters and a drive-in; however, the only operating downtown theater was the State, showing mainly X-rated films. This case arises out of one couple's attempt to restore the grand old Colonial Theater in downtown Lebanon to its former prominence.
The plaintiffs, Dennis and Natalie Houser, purchased the Colonial Theater in 1979. The Colonial is a large, old elegant theater in excellent condition with modern equipment and facilities located in a well-maintained residential section of downtown Lebanon. For several years prior to the Housers' acquisition, the Colonial had been operated as a sub-run theater on weekends only.*fn1 Dennis Houser is an accountant with no prior experience in the motion picture business, except that he had done the books for two prior operators of the Colonial. He acquired the Colonial to pacify an accounting client who had complained about the Housers' participation in the client's initial acquisition of the theater. Natalie Houser also had no experience in operating a motion picture theater. The Housers purchased the Colonial for $21,400 in cash and the assumption of $92,000 in outstanding obligations with full knowledge that the theater was losing money, and that it had not made a profit in several years prior to the acquisition. It was the Housers' intention to re-establish the Colonial as a profitable first-run film theater beginning in May, 1980.*fn2
At that time, defendant Fox Theatres Management Corporation, through Richard and Donald Fox ("Fox"), operated two suburban twin theaters located adjacent to shopping centers in the Lebanon area, and a downtown theater. These three Fox Theaters with a total of five screens were the only ones exhibiting first-run films on a full-time basis in the Lebanon area.*fn3 In December, 1981, Fox closed its downtown theater leaving two suburban twin theaters exhibiting first-run films in Lebanon. These theaters are part of a chain operated by Fox with 81 screens throughout southeastern Pennsylvania, Maryland and Delaware.
In the motion picture industry, each film distributor distributes its pictures in its own way. In this case, most of the distributor defendants have Philadelphia branch offices, run by branch managers, which license films in the Philadelphia exchange territory, including Lebanon.*fn4 Generally, a branch manager notifies exhibitors in a given area of availability dates for new releases, solicits bids or negotiates licenses directly, and makes any necessary adjustments in agreed-upon rental terms.
The precise pictures and release dates made available to individual theaters is based on such varied factors as the nature of the picture, the distributor's judgment as to whether a particular film is best suited to initial release in larger cities or to "going wide" in a number of towns at the same time, the length of playing time sought by an exhibitor, and the number of prints of a film that will be available. In the Philadelphia exchange, most pictures are offered first in the Philadelphia, Trenton and Wilmington areas. Occasionally, a picture will also open at the same time in relatively large markets such as Harrisburg or Allentown, and might even open simultaneously in such smaller markets as Lebanon.
Once the availability date of a film is set, exhibitors in an area are invited by the distributor either to submit written bids or to negotiate directly for films that interest them. Film rental fees are based on a percentage of each theater's weekly gross receipts, or "box office receipts." Generally, the percentage terms decline from week to week during a film's run and are dependent on the length of playing time offered. Occasionally, an exhibitor engages in "overbooking," which is the usual practice of committing to the exhibition of a film when no screen is available. The purpose of overbooking is to have films on reserve in case the anticipated run of an exhibited film has to be cut short because the film bombs.*fn5 Overbooking can also occur when a successful film is held over beyond its anticipated run. Sometimes an exhibitor will agree to pay a distributor a guaranteed minimum film rental or advance.
A film distributor's revenues depend directly upon the ability of a theater to attract customers. The decision to license a picture to one theater or another is based on the distributor's evaluation of the probable box office gross at each theater. Estimating a particular theater's grossing potential is a complex judgment call, which depends on such varied factors as the location of the theater, its cleanliness, and its history and reputation as a full-time first-run theater. In assessing grossing potential, a theater's track record regarding past box office receipts and payment history is very important.
Between May, 1980 and September, 1982, the Housers employed four successive booking agents who attempted to book first-run films at the Colonial with varying success. For example, beginning in May, 1980 until the end of that year, the Colonial successfully booked first-run films during 18 of the 34 weeks.*fn6 The Colonial either exhibited sub-run films or was closed during the remaining 16 weeks. In another period, beginning in January, 1982 through September, 1982, the Colonial exhibited first-run films in 21 of 36 weeks, but was closed for 14 of those weeks.*fn7 During this same period, Fox exhibited sub-run films on at least one of its screens during 19 of the 36 weeks. At various times, the Housers were taken off service by two film distributors for failure to pay film rentals. Finally, in September, 1982, the Housers closed the Colonial arguing ...