Cleveland v. Viacom Inc

United States Court of Appeals Fifth Circuit F I L E D August 25, 2003 In the Charles R. Fulbruge III Clerk United States Court of Appeals for the Fifth Circuit _______________

m 02-50811 _______________

RONALD CLEVELAND, DOING BUSINESS AS LONE STAR VIDEOTRONICS; PHOENIX-MERCHANT INVESTMENTS INC., DOING BUSINESS AS 49ER VIDEO; THE BIG PICTURE VIDEO INC., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED,

Plaintiffs-Appellants,

VERSUS

VIACOM INC., ET AL.,

Defendants,

VIACOM INC.; PARAMOUNT HOME VIDEO, INC.; BUENA VISTA HOME ENTERTAINMENT, INC.; COLUMBIA TRI-STAR HOME VIDEO, INC.; UNIVERSAL STUDIOS HOME VIDEO, INC.; TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC.; BLOCKBUSTER INC.,

Defendants-Appellees.

_________________________

Appeal from the United States District Court for the Western District of Texas m SA-99-CA-783-EP _________________________

Before DAVIS, SMITH, and DUHÉ, time, neither independent retailers, such as Circuit Judges. plaintiffs, nor large chains, such as Block- buster, had sufficient copies of “new release” JERRY E. SMITH, Circuit Judge:* titles available (“copy depth”) at the time cus- tomer demand was highest. The result was Plaintiffs, independent video retailers, sued customers frustrated by their inability to rent Blockbuster Inc.(“Blockbuster”), its parent the movies they most desired to see. company Viacom Inc.(“Viacom”), and the home-video affiliates of the seven major Holly- Until 1997, distributors serving independent wood movie studios,2 alleging price discrimin- retailers and large chains such as Blockbuster ation and antitrust violations. The claims turn typically purchased tapes from the studios largely on the studios’ output revenue-sharing through traditional purchases for a set price or agreements with Blockbuster, whereby rental through “cherry pick” revenue sharing, neither tapes are made available to Blockbuster for a of which options provided adequate copy low initial price in exchange for a portion of depth. Beginning in late 1997, however, rental revenues and a long-term commitment Blockbuster entered into long-term output rev- to purchase all the movies released by each enue sharing contracts with the studios,3 en- studio. At the close of the plaintiffs’ case-in- abling Blockbuster significantly to increase its chief, the defendants moved for judgment as a new release copy depth, improving its ability matter of law (“j.m.l.”), which the district to provide customers with desired titles. court granted. We affirm. Plaintiffs sued Blockbuster, Viacom, and I. the studio defendants, alleging that Blockbust- Plaintiffs Ronald Cleveland, d/b/a Lone Star er conspired with the studios to deny indepen- Videotronics, Phoenix-Merchant Investments dent retailers long-term output revenue-shar- Inc., d/b/a 49er Video, and The Big Picture ing agreements functionally equivalent to its Video Inc., are independent video retailers in own. On the basis of these allegations, plain- competition with Blockbuster, a large national tiffs asserted claims under § 1 of the Sherman chain. The parties agree that by 1997, the Act, 15 U.S.C. § 1; the Robinson-Patman Act, home-video rental market was struggling. 15. U.S.C. § 13; and parallel California stat- Under the pricing models prevalent at that utes.

* Pursuant to 5TH CIR. R. 47.5, the court has de- termined that this opinion should not be published 3 and is not precedent except under the limited cir- Under revenue sharing agreements, studios cumstances set forth in 5TH CIR. R. 47.5.4. lease tapes to retailers for lower up-front payments in return for a percentage of their revenues. Under 2 Defendants Paramount Home Video, Inc.; “cherry pick” revenue sharing agreements, retailers Buena Vista Home Entertainment, Inc.; Time War- are permitted to choose the specific tapes it wanted ner Entertainment Company, L.P.; Columbia Tri- to purchase on a title by title basis. “Output” rev- Star Home Video, Inc., Twentieth Century Fox enue sharing agreements, by contrast, require the Home Entertainment, Inc.; and Metro-Goldwyn- retailer to acquire all titles a studio releases, re- Mayer Home Entertainment, Inc. (collectively gardless of box office performance and local mar- “studios” or“studio defendants”). ket considerations.

II. v. Amer. Ass’n of Orthodontists, 314 F.3d We review a j.m.l. de novo. Arguello v. 758, 762 (5th Cir. 2002) (citing Matsushita Conoco, Inc., 330 F.3d 355, 357 (5th Cir. Elec. Indus. Co. v. Zenith Radio Corp., 475 2003). “A j.m.l. is appropriate only where U.S. 574, 588 (1986)), cert. denied, 123 S. Ct. ‘there is no legally sufficient basis for a reason- 2078 (2003). “Accordingly, evidence of con- able jury to find for [a] party.’”4 To defeat a duct that is ‘as consistent with permissible motion for j.m.l., the nonmovant must point to competition as with illegal conspiracy’ cannot a conflict in substantial evidence. Casarez v. support an inference of conspiracy.” Id. (cit- Burlington N./Santa Fe Co., 193 F.3d 334, ing Matsushita, 475 U.S. at 588). 336 (5th Cir. 1999). Substantial evidence is evidence “of such quality and weight that rea- Therefore, in the absence of direct evidence sonable and fair-minded men in the exercise of of conspiracy, a plaintiff must introduce cir- impartial judgment might reach different con- cumstantial evidence that “tends to exclude the clusions.” Id. possibility of independent action.” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. A. 752, 768 (1984); Viazis, 314 F.3d at 762. At- Plaintiffs advance two theories of concerted tempting to satisfy this standard, plaintiffs in- action in violation of § 1. First, they allege a troduced documentary evidence and testimony horizontal conspiracy among the studios that concerning defendants’ parallel behavior. Nei- was orchestrated by Blockbuster. Specifically, ther, however, tended to exclude the possibil- they contend that, at Blockbuster’s instigation, ity of independent conduct. the studio defendants conspired with each other to exclude independents from enjoying 1. pricing terms similar to those provided to First, plaintiffs rely on evidence demonstrat- Blockbuster. Second, plaintiffs argue that ing that Blockbuster planned to increase mar- Blockbuster’s separate agreements with the in- ket share by “owning” the new release market. dividual studio defendants constitute a series Plaintiffs also point to Blockbuster’s 1998 of vertical conspiracies to exclude independ- Business Plan, which projected increasing its ents from enjoying favored pricing arrange- market share from 25% to 50%, a goal plain- ments. tiffs argue is unreasonable absent some sort of favorable pricing. Plaintiffs rely entirely on circumstantial evi- dence in support of their claims. In reviewing Whatever these items of evidence are in- a j.m.l., we consider all evidence in the light tended to prove, they cannot support an infer- most favorable to the nonmovant, Giles v. ence of conspiracy. A company can set ambi- Gen. Elec. Co., 245 F.3d 474, 481 (5th Cir. tious competitive goals for itself, such as 2001), and draw all inferences from the evi- “owning” a portion of the market or signifi- dence in favor of the party opposed to the mo- cantly increasing its market share, without giv- tion, id. In antitrust cases, however, “the ing rise to a presumption that it intends to use range of permissible inferences is limited by illegal means to achieve those goals. particular principles of antitrust law.” Viazis Plaintiffs also rely on the statement of a Fox vice-president that Blockbuster had requested 4 Id. (citing FED. R. CIV. P. 50(a)(1)).

a “special deal” and “did not want [that deal] 2. to be given to independents.” The Fox officer Plaintiffs argue that in addition to the pre- also stated, however, that during the meeting viously discussed circumstantial evidence, the at which that statement was made, Fox had studios’ parallel conduct gives rise to an infer- refused to enter into any exclusive deal with ence of conspiracy. The mere fact that defen- Blockbuster.5 dants followed similar courses of action, how- ever, does not support such an inference. It is on the basis of this circumstantial evi- dence that plaintiffs attempt to establish con- The complained-of conduct is not the stu- certed action. There is almost no evidence dios’ agreements with Blockbuster per se, but whatsoever, circumstantial or otherwise, that rather the alleged refusal of any of the studio the studios engaged in any direct communica- defendants to deal with the independents on tion during their respective negotiations with similar terms. That conduct constitutes an an- Blockbuster or that any studio agreed, at titrust violation only if it is the result of an Blockbuster’s request, not to make output rev- agreement6 rather than of each studio’s inde- enue-sharing terms available to independents. pendent business judgment. Consequently, plaintiffs must present “significant probative evidence” that the studios’ parallel conduct 5 Plaintiffs also reference various internal mem- “was contrary to their economic self-interest oranda making somewhat similar points. A 1997 so as not to amount to a good-faith business Fox memorandum described the Blockbuster pro- judgment.” Royal Drug Co. v. Group Life & posal as creating a favored revenue share rela- Health Ins. Co., 737 F.2d 1433, 1437 (5th Cir. tionship. The mere use of the word “favored” to 1984).7 describe a proposed business relationship, how- ever, does not strongly support an inference of con- spiracy, especially where, as plaintiffs concede, Plaintiffs support their contention that de- other large chain retailers eventually arranged simi- fendants’ conduct was contrary to their eco- lar deals. nomic self-interest with conclusional testimony from their expert witness. That testimony is Plaintiffs also point to two Warner memos that based in part on the simplistic assumption that evidenced concern over industry backlash to the Blockbuster proposal and the possibility that its terms “[c]ould spur government inquiry into video 6 Because plaintiffs allege horizontal and verti- pricing practices.” Fear of the possible implica- cal theories of conspiracy, the unlawful agreement tions of the deal do not support an inference of con- could be either among the studios generally or be- spiracy to exclude the independents. tween each individual studio and Blockbuster. 7 Finally, a Disney memo stated that the company This is true regardless of whether Blockbuster hoped to extend the Blockbuster terms to other key wrongfully requested preferential treatment be- retailers, but apparently not to independent retail- cause, even in the face of such requests, a com- ers. That memo does not imply that the decision pany’s decision to take actions that are in its own not to extend the terms to independents was in- interest cannot support an inference of conspiracy. fluenced by Blockbuster or another studio. In fact, See Viazis, 314 F.3d at 764; Matrix Essentials, none of these memos even indirectly refers to an Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587, agreement between the studios or to an unlawful 594 (5th Cir. 1993); Lovett v. Gen. Motors Corp., request by Blockbuster to exclude independents. 998 F.2d 575, 579-81 (8th Cir. 1993).

because the studio’s received greater revenues title-by-title after box office results were under the terms of their deals with Block- known, while Blockbuster was committed to buster, they likewise would have received purchasing a studio’s entire output. More- greater revenues under similar deals with dis- over, Blockbuster, unlike the distributors, un- tributors serving independents. This approach dertook long-term obligations under its agree- ignores significant differences between inde- ment with the studios. As a result of the sig- pendent retailers and large chains such as nificant differences among between the terms Blockbuster. Such speculative and self-serv- of the agreements, any disparities in amounts ing expert testimony is an insufficient basis for paid cannot support a claim for price discrimi- plaintiffs’ claims of concerted action.8 nation.10

B. III. To establish price discrimination, plaintiffs Plaintiffs appeal the denial of their request rely on the disparity between the prices plain- for injunctive relief under 15 U.S.C. § 26, tiffs’ distributors paid for tapes and the which authorizes district courts to provide re- amounts paid by Blockbuster. The Robinson- lief “against threatened loss or damage by a vi- Patman Act and the California Unfair Trade olation of the antitrust laws.” We review a de- Practices Act, however, prohibit price discrim- nial of injunctive relief for abuse of discretion. ination only where customers are otherwise Peaches Entm’t Corp. v. Entm’t Repertoire purchasing on like terms and conditions.9 Assocs., Inc., 62 F.3d 690, 693 (5th Cir. 1995). Consequently, we uphold a denial of As defendants point out, the transactions at injunctive relief unless the district court has re- issue here are not reasonably comparable. lied on clearly erroneous factual findings or er- Most significantly, distributors servicing inde- roneous conclusions of law. N. Alamo Water pendents such as plaintiffs could select tapes Supply Corp. v. City of San Juan, 90 F.3d 910, 916-17 (5th Cir. 1996).

8 See 7-Up Bottling Co. v. Archer Daniels Plaintiffs argue that they are entitled to such Midland Co. (In re Citric Acid Litig.), 191 F.3d relief even if their substantive claims are reject- 1090, 1106 n.9 (9th Cir. 1999); Aviation Special- ed, because the relevant statutes do not require ties, Inc. v. United Techs. Corp., 568 F.2d 1186, actual injury, but merely threatened harm. The 1192 (5th Cir. 1978) (plaintiff’s assertion that de- threatened harm, though, must be a result of “a fendant’s conduct was contrary to its economic in- violation of the antitrust laws.” 15 U.S.C. terests held insufficient); id. at 1192 n.10 (pro- § 26.11 Because plaintiffs have lost on the is- fitable relationships with distributors insufficient to show that defendant acted against its interests in not adding plaintiff as distributor); Cf. Brooke 10 Group Ltd. v. Brown & Williamson Tobacco Cf. Coastal Fuels, Inc. v. Caribbean, 990 Corp., 509 U.S. 209, 242 (1993) (“When an ex- F.2d 25, 27 (1st Cir. 1993) (“[The Robinson- pert opinion is not supported by sufficient facts to Patman Act does not] prohibit price differences be- validate it in the eyes of the law . . . , it cannot tween spot sales and long-term contract sales that support a jury’s verdict.”). reflect different market conditions.”). 9 11 FTC v. Borden Co., 383 U.S. 637, 643 Plaintiffs also requested injunctive relief un- (1966). (continued...)

sue of whether a violation occurred, they are not entitled to injunctive relief.

AFFIRMED.

11 (...continued) der parallel California statutes. See CAL. BUS. & PROF. CODE §§ 16750(a), 17078-80, 17203. Like their federal counterpart, these statutes authorize injunctive relief only against violations of the law.