Assignment:
Circuit Judge Kozinski
FACTS
Gone are the days when a movie ticket cost a dime, popcorn a nickel, and theaters had a single screen: This is the age of the multiplex. With more than 300 new films released every year- each potentially the next Batman or E.T.-many successful theaters today run a different film on each of their 6, 12, or 18 screens. Raymond Syufy understood the formula well. In 1981 he entered the Las Vegas market with a splash by opening a sixscreen theater. Newly constructed and luxuriously furnished, it put existing facilities to shame. Syufy's entry into the Las Vegas market caused a stir, precipitating a titanic bidding war. Soon theaters in Las Vegas were paying some of the highest license fees in the nation, while distributors sat back and watched the easy money roll in.
It is the nature of free enterprise that fierce, no-holdsbarred competition will drive out the least effective participants in the market, providing the most efficient allocation of productive resources. And so it was in the Las Vegas movie market in 1982. After a hard-fought battle among several contenders, Syufy gained the upper hand. Two of his rivals, Mann Theatres and Plitt Theatres, saw their future as rocky and decided to sell out to Syufy. While Mann and Plitt are major exhibitors nationwide, neither had a large presence in Las Vegas. Mann operated two indoor theaters with a total of three screens; Plitt operated a single theater with three screens. Things were relatively quiet until September 1984; in September Syufy entered into earnest negotiations with Cragin Industries, his largest remaining competitor. Cragin sold out to Syufy midway through October, leaving Roberts Company, a small exhibitor of mostly second-run films, as Syufy's only competitor for first-run films in Las Vegas. It is these three transactions-Syufy's purchases of the Mann, Plitt, and Cragin theaters-that the Justice Department claims amount to antitrust violations. As government counsel explained at oral argument, the thrust of its case is that "you may not get monopoly power by buying out your competitors."
DISCUSSION
Of significance is the government's concession that Syufy was only a monopsonist, not a monopolist. Thus the government argues that Syufy had market power, but that he exercised this power only against suppliers (film distributors), not against consumers (moviegoers). This is consistent with the record, which demonstrates that Syufy always treated moviegoers fairly: The movie tickets, popcorn, nuts, and the Seven-Ups cost about the same in Las Vegas as in other, comparable markets. While it is 2. Power to Control Prices The crux of the Justice Department's case is that Syufy, top gun in the Las Vegas movie market, had the power to push around Hollywood's biggest players, dictating to them what prices they could charge for their movies. The district court found otherwise.
This finding too has substantial support in the record. Perhaps the most telling evidence of Syufy's inability to set prices came from movie distributors, Syufy's supposed victims. At the trial, distributors uniformly proclaimed their satisfaction with the way the Las Vegas first-run film market operates; none complained about the license fees paid by Syufy. Particularly damaging to the government's case was the testimony of the former head of distribution for MGM/UA that his company "never had any difficulty in acquiring the terms that we thought were reasonable,". . . explaining that the license fees Syufy paid "were comparable or better than any place in the United States. And in most cases better."
The documentary evidence bears out this testimony. Syufy has at all times paid license fees far in excess of the national average, even higher than those paid by exhibitors in Los Angeles, the Mecca of Moviedom. In fact, Syufy paid a higher percentage of his gross receipts to distributors in 1987 and 1988 than he did during the intensely competitive period just before he acquired Cragin's Redrock. While successful, Syufy is in no position to put the squeeze on distributors.
It is a tribute to the state of competition in America that the Antitrust Division of the Department of Justice has found no worthier target than this paper tiger on which to expend limited taxpayer resources. Yet we cannot help but wonder whether bringing a lawsuit like this, and pursuing it doggedly through 27 months of pretrial proceedings, about two weeks of trial, and now the full distance on appeal, really serves the interests of free competition. Affirmed.
Questions
1. At one point, Syufy held 100 percent of the first-run market. Why was Syufy not a monopolist?
2. Is this decision rooted more in structural (market share) or conduct (e.g., predatory pricing) considerations? Explain.
3. What role did the issue of Syufy's intent to monopolize play in this case? Explain.
4. Assume we have historical data showing that when the price of rolled steel has increased, the sales volume of rolled aluminum has remained constant. What, if anything, does that fact tell us about the product market for rolled steel?
5. Define the product market for championship boxing matches. See United States v. International Boxing Club of New York, Inc. , 358 U.S. 242 (1959).
6. Adidas provides cash, sporting goods, and the like to universities in exchange for various promotional rights, including the team's or coach's agreement to wear Adidas clothing in athletic activities. National Collegiate Athletic Association (NCAA) rules limit the amount of advertising that may appear on a uniform being used in competition. Adidas sued the NCAA claiming, among other things, that the advertising restrictions constitute an attempted monopoly by the NCAA. In pursuing its monopoly claim, Adidas defined the relevant market as "the market for the sale of NCAA Promotional Rights." The NCAA responded by saying that a market consisting solely of the sale of promotional rights by NCAA member institutions (colleges and universities) on athletic apparel used in intercollegiate activity is not a plausible relevant market.
a. Define the relevant product market from the NCAA point of view.
b. How would the court decide where the product market actually lies? See Adidas America, Inc v. NCAA , 64 F.Supp.2d 1097 (1999).