OPINION OF THE COURT
MANSMANN, Circuit Judge.
This antitrust case arises out of a business arrangement in the motion picture industry. The plaintiff, Orson, Inc., the owner of the Roxy Screening Rooms, a movie theater, alleged that the defendant, Miramax Film Corporation, a film distributor, violated section 1 of the Sherman Act, 15 U.S.C. § 1, and Pennsylvania common law by conspiring with another theater to drive the Roxy out of business and by granting that other theater exclusive, first-run licenses on Miramax films. Orson also charged that the licenses violated the length-of-run provision of Pennsylvania's Feature Motion Picture Fair Business Practices Law. 73 P.S. § 203-7. Orson now appeals the district court's decision to grant Miramax's motion for summary judgment.
We hold that Orson failed to present evidence sufficient to show that Miramax engaged in an antitrust conspiracy or that the licenses were unreasonable restraints of trade. We further hold that the district court erred in interpreting 73 P.S. § 203-7's requirement concerning the geographic expansion of first-run films. Thus, we will affirm the judgment of the district court granting summary judgment to Miramax on Orson's antitrust claims. We will, however, vacate the district court's grant of summary judgment to Miramax on Orson's state statutory claim and remand for further proceedings.
In January of 1992, Orson assumed the operations of the Roxy, a movie theater located in downtown "Center City" Philadelphia. The Roxy exhibited "art films," as opposed to movies that may be characterized as "commercial" or "mainstream," on two screens, each with a 130 person seating capacity. The Roxy charged between $3.50 and $5.50 for tickets.
The Ritz theaters, consisting of two separate five-screen facilities, the Ritz Five Theaters and the Ritz at the Bourse (collectively, the "Ritz"), also exhibited art films in Center City. The Ritz Five Theater, which opened in 1976 with about 1,125 seats, was owned and operated by the Posel Corporation; the Ritz at the Bourse, opened in 1990 with approximately 710 seats, was owned and operated by the Raysid Corporation. Ramon L. Posel was the President of both corporations. The Ritz's admission prices typically ranged from $3.50 to $6.00.
In addition to the Roxy and the Ritz, there were six other theaters in Center City; four theaters with a total of 20 screens were operated by United Artists and two theaters with two screens each were operated by American Multi-Cinema.
Miramax, a nationwide distributor of feature-length motion pictures, including art films, distributed movies to all of the theaters located in Center City and to theaters in the greater metropolitan Philadelphia area.
In the motion picture industry, film distributors license films to theaters for exhibition for a given amount of time. Frequently, the license is exclusive, providing that during its duration, the film will not be licensed to other exhibitors in a prescribed area. Such licenses are called "clearances."
In the usual case, films are licensed for a sum which consists of a film rental amount and a house allowance. Under this system, the distributor and the exhibitor agree on a separate dollar amount which represents the exhibitor's weekly expenses. The exhibitor retains a percentage of the weekly gross from ticket receipts above the house expense allowance; the remaining percentage inures to the distributor. Typically, the license provides that the distributor will receive a minimum percentage of the exhibiting theater's box office gross. A film distributor's revenues, therefore, depend directly upon a theater's capacity to attract the public. Thus, the decision to license a movie to one theater or another is premised in considerable measure on a distributor's assessment of a theater's grossing ability.
The time a particular exhibitor is licensed to show a film is called the "run." A "first-run" is the first exhibition of a film in a given geographic area; "subsequent" runs are exhibitions of that film in the area after the first-run has expired. Successive runs of motion pictures are a practical necessity in the industry because commonly, there are a limited number of prints made of any one film.
Between January of 1992, when Orson began operating the Roxy, and February of 1994, the close of discovery, Miramax licensed about 28 films on a first-run basis and one film on a subsequent-run basis to the Ritz. By comparison, during this period, Miramax licensed one film on a first-run basis and approximately 14 films on a subsequent-run basis to the Roxy. Miramax also granted eight first-run licenses to the theaters in Center City operated by either United Artists or American Multi-Cinema
At this same time, a number of other distributors also licensed films to the exhibitors in Center City. From the Roxy's opening in January of 1992 until March of 1994,
All of the first-run licenses for films that Miramax granted to the Ritz were exclusive; that is, they provided that the films would not be licensed to another Center City theater while playing there. The licenses were established quite informally. Typically, Posel of the Ritz telephoned Martin Zeidman, Miramax's Senior Executive Vice President and head of domestic distribution, to discuss the Ritz's desire for a first-run license on a particular Miramax film. Having done business with one another for several years, Posel and Zeidman understood that the license would be exclusive and include standard terms. Once the parties agreed upon an opening date, Zeidman completed a "Theatrical Booking Worksheet," which set forth the title of the film and the opening date, listed the Ritz Five Theaters or the Ritz at the Bourse as the exhibitor, identified Posel as the buyer, marked the rental percentage terms, and designated the shipping territory as "Phila[delphia]." A day or two later, the booking worksheet was telefaxed from Zeidman's office in Los Angeles to Miramax's office in New York, which was responsible for shipping Miramax film prints to theaters in time for the opening date.
On occasion, Orson's film buyer, Jeffrey Fox Jacobs, asked Zeidman for a first-run, non-exclusive license on a Miramax film, indicating that Orson was prepared to offer Miramax a higher percentage of the Roxy's box office receipts and a lower house allowance than those negotiated by the Ritz. Jacobs' requests, however, were refused.
From time to time, Miramax held trade screenings for the movies it distributed in Philadelphia. Miramax would send a notice to exhibitors, inviting them to attend the trade screening of a certain film on a certain date. Most of the notices stated that "[w]e expect to avail this film for first run Philadelphia on or about [date], for an exclusive or non-exclusive run. After the first run theater or theaters have exhibited the film for 42 days we will consider offers for subsequent runs." The notice requested that a "written offer" be submitted by interested exhibitors by a specified time and day.
With respect to some of the clearances that Miramax granted the Roxy, the booking worksheet that Zeidman completed memorializing the clearance bore a date that was prior in time to the date of the trade screening notice that Miramax sent to exhibitors.
Fifteen of the films that Miramax licensed to the Ritz played there for a period of more than 42 days. Of these, nine expanded to other Philadelphia area theaters outside of Center City before the 42 days expired; six, however, ran at the Ritz, without expanding to other theaters.
According to the parties' briefs, the Roxy closed its doors in October of 1994.
On or about August 2, 1993, Orson commenced this action against Miramax. On August 19, 1993, Orson filed an amended complaint in three counts: Count I alleged that Miramax violated section 1 of the Sherman Act by, inter alia, conspiring with the Ritz to exclude the Roxy from the art film market by making the Ritz its "exclusive Philadelphia exhibitor for first-run art film features" and by granting the Ritz "exclusive first-run rights to those of Miramax'[s] films which the Ritz want[ed] to exhibit...."
On October 8, 1993, Orson filed a "Motion for Injunctive Relief to Restore the Status Quo during Pendency of Litigation." On November 9, 1993, the district court denied Orson's motion, Orson Inc. v. Miramax Film Corp., 836 F.Supp. 309 (E.D.Pa.1993); on January 12, 1994, the court denied Orson's motion for reconsideration.
On March 22, 1994, Orson filed a motion for partial summary judgment on its common law restraint of trade claim and its Pennsylvania Act claim. Miramax filed a motion for summary judgment as to all of Orson's claims on January 4, 1994. On April 5, 1994, Miramax filed a cross-motion for summary judgment on two claims which, according to Miramax, were not set forth in Orson's complaint, but nonetheless discussed in Orson's summary judgment motion, namely, violations of sections 203-4 (bidding) and 203-8 (screening procedures) of the Pennsylvania Act.
On October 5, 1994, the district court denied Orson's motion for partial summary judgment in its entirety. Orson, Inc. v. Miramax Film Corp., 862 F.Supp. 1378, 1390 (E.D.Pa.1994).
As for Miramax's motion, the district court granted summary judgment to Miramax on both Orson's federal and state antitrust claims.
Id. at 1386.
With regard to Miramax's summary judgment motion on Orson's section 203-7 Pennsylvania Act claim, the district court concluded that Miramax was not liable for the nine films that were expanded to suburban Philadelphia theaters on or before the forty-third day of their runs at the Ritz, reasoning that section 203-7 only required that Miramax expand the films to other theaters in the Philadelphia area, not to other theaters located within Center City. Id. at 1387-88. As to the six films that were licensed exclusively to the Ritz without expanding to other theaters within 42 days, the court denied Miramax summary judgment, concluding that material issues of fact had been raised as to the existence and terms of the licenses and as to Orson's damages and Miramax's intent.
Finally, agreeing with Miramax that a party may not be granted summary judgment on claims that are not set forth in its complaint, the court granted Miramax's cross-motion for summary judgment. Id. at 1388-90. At the same time, however, the court granted Orson leave to amend its complaint to add claims under sections 203-4 and 203-8 of the Pennsylvania Act. Id. at 1390.
After filing a second amended complaint on October 19, 1994, which added section 203-4 and section 203-8 Pennsylvania Act claims in Counts IV and V respectively, Orson sought certification of the district court's October 5, 1994 order pursuant to 28 U.S.C. § 1292(b). The court denied Orson's request for certification.
Ultimately, based on its rulings on summary judgment and the parties' stipulation, the district court issued a final order on May 10, 1995, entering judgment in Miramax's favor on Orson's federal and state antitrust claims and on Orson's section 203-7 claim as to the nine films that Miramax distributed on a subsequent-run basis to theaters in the greater metropolitan Philadelphia area. The court's May 10 order also dismissed without prejudice Orson's section 203-4 and 203-8 claims and Orson's section 203-7 claim with respect to the six Miramax films that did not expand to other theaters after showing at the Ritz for 42 days.
This timely appeal by Orson followed. It involves the district court's decision to grant summary judgment to Miramax on Orson's antitrust claims and on Orson's Pennsylvania Act section 203-7 claim with respect to the nine subsequent-run Miramax films that played in Philadelphia theaters located outside of Center City on or before the fortysecond
Summary judgment may present the district court with an opportunity to dispose of meritless cases and avoid wasteful trials. See Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554-55, 91 L.Ed.2d 265 (1986). This is true even in antitrust cases "`where motive and intent play leading roles, proof is largely in the hands of alleged conspirators, and hostile witnesses thicken the plot.'" Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1362 (3d Cir.1992), cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659 (1993), (quoting Poller v. Columbia Broadcasting Sys., Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962)).
Summary judgment must be granted where no genuine issue of material fact exists for resolution at trial and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). On summary judgment, the moving party need not disprove the opposing party's claim, but does have the burden to show the absence of any genuine issues of material fact. Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53. If the movant meets this burden, then the opponent may not rest on allegations in pleadings, but must counter with specific facts which demonstrate that there exists a genuine issue for trial. Id. at 323, 106 S.Ct. at 2552-53. When the nonmoving party will bear the burden of proof at trial, the moving party may meet its burden by showing that the nonmoving party has not offered evidence sufficient to establish the existence of an element essential to its case. Id. at 322, 106 S.Ct. at 2552. We remain mindful that in ruling on a motion for summary judgment, a court must assess the material facts in light of the proof required of the plaintiff on substantive issues.
Section 1 of the Sherman Act provides in pertinent part that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States ... is declared to be illegal." 15 U.S.C. § 1. For a section 1 claim under the Sherman Act, "a plaintiff must prove `concerted action,' a collective reference to the `contract ... combination or conspiracy.'" Big Apple BMW, 974 F.2d at 1364 (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 445 (3d Cir.1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1280, 55 L.Ed.2d 791 (1978)), cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659 (1993). A "`unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement'" must exist to trigger section 1 liability. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 2742, 81 L.Ed.2d 628 (1984) (quoting American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S.Ct. 1125, 1139, 90 L.Ed. 1575 (1946)). In addition to the element of concerted action, a plaintiff must prove that anticompetitive effects were produced within the relevant product and geographic markets; that the objects of the conduct pursuant to the concerted action were illegal; and that it was injured as a proximate result of the conspiracy. Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1229 (3d Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 554, 126 L.Ed.2d 455 (1993).
Virtually all business agreements restrain trade to some extent; section 1, therefore, has been construed to make illegal only those contracts that constitute unreasonable restraints of trade. Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723, 108 S.Ct. 1515, 1518-19, 99 L.Ed.2d 808
Chicago Board of Trade, 246 U.S. at 238, 38 S.Ct. at 244.
In rule of reason cases, the plaintiff bears the initial burden of showing that the alleged combination or agreement produced adverse, anticompetitive effects within the relevant product and geographic markets. Brown Univ., 5 F.3d at 668. The plaintiff may satisfy this burden by proving the existence of actual anticompetitive effects, such as reduction of output, increase in price, or deterioration in quality of goods and services. Id. Due to the difficulty of isolating the market effects of the challenged conduct, however, such proof is often impossible to make. Id. Accordingly, the courts allow proof of the defendant's "market power" instead. Id. Market power — the ability to raise prices above those that would prevail in a competitive market — is essentially a "`surrogate for detrimental effects.'" Id. at 668-69 (quoting FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 460-61, 106 S.Ct. 2009, 2019, 90 L.Ed.2d 445 (1986)).
If a plaintiff meets his initial burden of adducing adequate evidence of market
Agreements between entities at different market levels are termed "vertical restraints." See United States v. Topco Assocs., Inc., 405 U.S. 596, 608, 92 S.Ct. 1126, 1133, 31 L.Ed.2d 515 (1972). The Supreme Court has instructed that vertical restraints of trade, which do not present an express or implied agreement to set resale prices, are evaluated under the rule of reason. Business Elec. Corp., 485 U.S. at 724, 108 S.Ct. at 1519-20; see also Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).
The Supreme Court has also repeatedly confirmed in vertical restraint cases that interbrand competition, as opposed to intrabrand competition, is the primary goal of the antitrust laws. Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722-23 (3d Cir.1991) (citing Business Elecs. Corp., 485 U.S. 717, 108 S.Ct. 1515, and Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), and GTE Sylvania, 433 U.S. at 36, 97 S.Ct. at 2550), cert. denied, 505 U.S. 1221, 112 S.Ct. 3034, 120 L.Ed.2d 903 (1992).
We now address the antitrust issues raised by the business arrangement in this case. We note at this point that Miramax conceded for purposes of summary judgment that the relevant product market was art films and that the relevant geographic market was Center City, Philadelphia. Our evaluation of Orson's antitrust claim, therefore, proceeds on this basis.
The first issue we consider is the precise nature of the agreement between Miramax and the Ritz. Orson alleges in its second amended complaint that Miramax committed to make the Ritz its "exclusive Philadelphia exhibitor for first-run art film features...." Based on our careful review of the evidence, we disagree. The record is devoid of any proof of a promise on Miramax's part that it would grant first-run licenses on its films in Center City to the Ritz only. Moreover, the evidence is to the contrary; the Roxy received a first-run license from Miramax, as did the theaters operated in Center City by United Artists and American Multi-Cinema. The record shows, instead, a series of clearances granted by Miramax to the Ritz, based on an understanding between the parties' respective principals that any time the Ritz was showing a first-run Miramax film, its license would be exclusive.
Before we consider the antitrust significance of the clearances, however, we will address the alleged conspiracy that we believe lies at the heart of Orson's second amended complaint. As we understand it, Orson's antitrust theory does not primarily challenge the clearances themselves; but rather, claims that the clearances were mere vehicles that Miramax and the Ritz used to
Our evaluation of Orson's allegations concerning a scheme on the part of Miramax and the Ritz to destroy the Roxy is controlled by our decision in Houser v. Fox Theatres Management Corp., 845 F.2d 1225 (3d Cir.1988). There the owners of the Colonial Theater (the "Housers") brought an antitrust action against several motion picture distributors and the owners of the Fox Theaters ("Fox"), alleging, inter alia, that each of the distributor defendants violated section 1 of the Sherman Act by conspiring individually with Fox to deny the Colonial first-run films. Id. at 1229. To support this claim, we required the Housers to present "direct or circumstantial evidence that reasonably tend[ed] to prove the alleged conspirators `had a conscious commitment to a common scheme designed to achieve an unlawful objective.'" Id. at 1232 (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 1471, 79 L.Ed.2d 775 (1984)). We further instructed that in doing so, the Housers had to show "`(1) that the defendants acted in contradiction of their economic interests, and (2) that the defendants had a motive to enter into an agreement.'" Id. (quoting Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 208 (3d Cir. 1980)).
As to our first enumerated element, the Housers asserted that the distributors had acted against their economic interests by consistently choosing to license films to the Fox Theaters rather than the Colonial. They argued that "`[o]n a purely objective basis, the Colonial was a better theater than any of the five Fox theaters'" in view of its "large seating capacity, elegant and well-maintained condition, and its location in a nice section of downtown in contrast to the alleged `dark and dingy' quality of the narrow suburban twin theaters and the downtown theater owned by Fox." Id. at 1232. Despite the Housers' assertion, we held that there was not sufficient evidence of record to permit a factfinder to conclude that the distributor defendants had acted contrary to their economic interests; we affirmed the order of the district court granting the defendants summary judgment. Id. at 1233. We observed that "the decision to license a picture to one theater rather than another is based on a complicated subjective estimation of a theater's grossing potential" and that the courts have recognized that "motion picture distributors have broad discretion to make licensing decisions based on their own independent judgments." Id. at 1232. Pointing out that the Housers' argument failed for emphasizing just a few of the factors that a distributor considers in making its licensing decision while ignoring others, we stated that "[s]uch factors as a proven track record of high box office receipts and an unblemished payment history are as important as the seating capacity or aesthetic qualities of a theater when estimating its grossing potential." Id. at 1232. We also concluded that the Housers did not substantiate their allegations that the distributors conspired with Fox because they feared that Fox would use its "circuit power" and refuse to do business with them. Id. at 1233. We, therefore, further held that even if the distributors had acted contrary to their economic interests, the Housers failed to present evidence to support the second essential element we had articulated, namely, that the distributors were motivated to conspire individually with Fox. Id.
Orson makes similar assertions here. It contends that given its willingness to pay a higher percentage of the Roxy's gross for first-run Miramax films than paid by the Ritz, Miramax acted contrary to its economic well-being by choosing to grant clearances to the Ritz; it further maintains that Miramax was coerced into favoring the Ritz because the Ritz had made it clear that unless it was granted an exclusive arrangement it would use its clout and refuse to play Miramax films.
We do not find sufficient evidence in the record for either assertion. To the contrary, the evidence establishes that the clearances were consistent with Miramax's business interests, granted by the distributor to, as between the Roxy and the Ritz, the theater it
Moreover, the deposition testimony that Orson offered to support its assertion that the Ritz had unduly pressured Miramax in its licensing decisions, even when viewed in Orson's favor, shows nothing of the kind. The testimony of Raymond Posel and Martin Zeidman demonstrates only that there existed a mutual understanding between the representatives of Miramax and the Ritz that the Ritz first-run licenses on Miramax films would be exclusive. Thus, we also conclude that Orson failed to show that Miramax had a motive to conspire with the Ritz to drive the Roxy out of business.
Lastly, we observe that Orson expended considerable effort describing the "trade screening charade" and the "sham bidding" in which Miramax and the Ritz allegedly engaged, contending that these practices were perpetuated by the parties to conceal their unlawful scheme. We have concluded, however, that Orson failed to present sufficient evidence to show that Miramax and the Ritz conspired to drive the Roxy from the market; we need not, therefore, consider Orson's allegations of a cover-up on their part. Further, Orson's assertions about improper bidding, without more, lack antitrust significance in this case. As we recognized in Sitkin Smelting & Refining Co. v. FMC Corp., 575 F.2d 440 (3d Cir.), cert. denied, 439 U.S. 866, 99 S.Ct. 191, 58 L.Ed.2d 176 (1978), "`the Sherman Act is neither a lowest-responsible-bidder statute nor a panacea for all business affronts which seem to fit nowhere else.'" Id. at 448 (citation omitted).
Therefore, we conclude that Orson failed to sustain its burden on summary judgment regarding the essential elements of its antitrust conspiracy claim.
Our inquiry does not end here. The fact remains that clearances existed between Miramax and the Ritz, and that Orson contends that they violated section 1 of the Sherman Act.
We begin our analysis of this aspect of Orson's case with a general discussion of
Clearances have undergone antitrust scrutiny. Some time ago, in Paramount Pictures, 334 U.S. 131, 68 S.Ct. 915, the Supreme Court reviewed a district court decree which resolved an antitrust action brought by the Department of Justice against several producers, distributors and exhibitors of motion pictures for various Sherman Act violations, including the maintenance of a system of allegedly unlawful clearances. Affirming the district court's decision to enjoin the defendants from continuing their clearance practices, the Court approvingly referenced the district court's view that clearances are justified by "the assurance they give the exhibitor that the distributor will not license a competitor to show the film either at the same time or so soon thereafter that the exhibitor's expected income from the run will be greatly diminished," as well as the court's conclusion that reasonable clearances require that the theaters involved substantially compete. Id. at 144-47, 68 S.Ct. at 922-24.
More recently, in Three Movies of Tarzana, 828 F.2d 1395, the Court of Appeals for the Ninth Circuit considered whether certain clearances were reasonable restraints of trade under the circumstances presented. There the owner of a movie theater ("TMT") brought suit against a competing exhibitor ("Pacific") and several movie distributors, alleging that first-run clearances granted to Pacific's Galleria Theater by the distributors violated section 1 of the Sherman Act. The district court granted summary judgment to the defendants; the court of appeals affirmed, noting that the courts have acknowledged over the years that "`the whole system of runs and clearances ... purposely, and legitimately, discriminates between competing exhibitors.'" Id. at 1399 (citations omitted). After initially observing that the reasonableness of a particular restraint depends upon an understanding of the industry at issue and a balancing of the restraint's positive and negative effects on competition, the court of appeals concluded that although the clearances the Galleria received reduced intrabrand competition to a minor degree, they "also encouraged interbrand competition by forcing TMT to find alternative subrun movies to exhibit and to promote." Id. at 1399. Considering next the relationship between the Galleria and TMT, the court determined that in view of the fact that the theaters competed, the clearances reflected a reasonable business decision on both sides of the transaction:
Id. at 1399-40 (citations omitted).
Guided by applicable rules of federal antitrust law and the cases we have reviewed, we conclude that the reasonableness of a clearance under section 1 of the Sherman Act depends on the competitive stance of the theaters involved and the clearance's effect on competition, especially the interbrand competition which, as the Supreme Court has instructed, is our primary concern in an antitrust action.
Applying these criteria to the clearances before us, we begin with the fact that the parties agreed that the Roxy and the Ritz were in competition. Thus, the clearances served their accepted purpose of assuring both Miramax and the Ritz that the return from one run of a particular Miramax film would not be diminished.
Turning to the touchstone of the rule of reason, the clearances' competitive effects, the uncontroverted facts of record reveal a market in which competition thrived at both the distributor and exhibitor levels. In Center City, the Roxy, the Ritz, and the theaters owned by United Artists and American Multi-Cinema vied for the films of at least 59 distributors. Indeed, it is the indisputable existence of alternative sources of supply for the Roxy which negates the existence of anticompetitive effects in this case. Although the Miramax-Ritz clearances most certainly reduced intrabrand competition to some degree by disallowing the Roxy from showing on a first-run basis any Miramax film that the Ritz had selected, they undeniably promoted interbrand competition by requiring the Roxy to seek out and exhibit the films of other distributors, which it consistently accomplished. Thus, in our view, the record conclusively establishes that the clearances did not produce the anticompetitive effects the Sherman Act was designed to prevent. On the contrary, competition in the relevant market was enhanced; art film consumers in Center City had more movies from which to choose. In an apparent attempt to avoid this absence of proof on an essential element of its case, Orson alluded in its brief to Miramax's having market power, arguing that the distributor had "enormous financial clout" and "solidified its leading position among independent film distributors" subsequent to its acquisition by the Walt Disney Company in 1993. Orson did not, however, present a factual basis for this belief. As we have stated, "[l]egal memoranda and oral argument are not evidence and cannot by themselves create a factual dispute sufficient to defeat a summary judgment motion." Jersey Cent. Power & Light Co. v. Township of Lacey, 772 F.2d 1103, 1109 (3d Cir.1985), cert. denied, 475 U.S. 1013, 106 S.Ct. 1190, 89 L.Ed.2d 305 (1986).
We thus conclude that Orson failed to present sufficient evidence to support its claim that the Miramax-Ritz clearances were unreasonable restraints of trade.
We turn now to Orson's state law claim brought under section 203-7 of the Pennsylvania Act. Orson alleges that Miramax violated 73 P.S. § 203-7 when it expanded the runs of nine films that had played exclusively at the Ritz for 42 days or less to theaters located in the suburbs of Philadelphia, but not to other Center City theaters.
On summary judgment, Miramax argued that it complied with section 203-7 because the relevant "geographical area" as contemplated by section 203-7 was the greater Philadelphia metropolitan area; Orson, by contrast, contended that the expansions to suburban theaters were legally irrelevant because section 203-7 required that Miramax expand the run of each film it licensed exclusively to the Ritz to theaters located within the geographical area covered by the license, namely, Center City.
The district court found section 203-7's wording "sufficiently vague" to permit these alternative interpretations. Orson Inc. v. Miramax Film Corp., 862 F.Supp. 1378, 1387 (E.D.Pa.1994). Noting that one of the purposes of the Pennsylvania Act is to "`promote the wide geographical dissemination at reasonable prices to the public of ideas, opinions and artistic expression in feature motion pictures,'" 73 P.S. § 203-2(4), and that another identified purpose of the Act is to "`foster vigorous and healthy competition'" in the film business, id. § 203-2(3), the court agreed with Miramax and held that since the Pennsylvania legislature's "primary purpose in enacting section 203-7 was not to increase market rivalry among direct competitors, but instead to promote the wide distribution of movies throughout Pennsylvania[,] ... Miramax can incur no 203-7 liability for the 9 films that were expanded to other Philadelphia area theaters on or before the forty-third day of their runs at the Ritz." Id. (footnote omitted).
The Pennsylvania Supreme Court has not interpreted section 203-7. We, therefore, must predict how the Court would interpret and apply that section. Borman v. Raymark Indus. Inc., 960 F.2d 327, 331 (3d Cir.1992). Unfortunately, there are no intermediate appellate court decisions to assist us.
With these principles in mind, we conclude that the district court's interpretation of section 203-7 is erroneous. Although section 203-7 may be less than clear in certain respects, it is not ambiguous as to where an exclusive first-run license must provide for expansion. We believe that as a matter of simple semantics, the statute's "within the geographical area"
73 P.S. § 203-2(9).
We therefore conclude that section 203-7 prohibits a distributor and exhibitor from entering into a license agreement which grants an exclusive first-run for more than 42 days without providing for expansion in the same geographic area covered by the license. Because the record is either disputed or incomplete in critical respects, however, we cannot resolve Orson's section 203-7 claim on summary judgment. Further proceedings are necessary to resolve, for example, the length of run and expansion terms, if
Thus, we conclude that Miramax was not entitled to summary judgment on Orson's section 203-7 Pennsylvania Act claim.
For the foregoing reasons, we will affirm the district court's grant of summary judgment on Counts I and II of the second amended complaint in Miramax's favor. We will vacate the district court's order granting summary judgment to Miramax on Count III as to the nine films that expanded to Philadelphia theaters outside of Center City on or before the forty-second day of their runs at the Ritz and remand for further proceedings on Orson's claim that Miramax's actions as to these nine films violated section 203-7 of the Pennsylvania Act.
In this appeal, Orson has also challenged the district court's decision to deny the motion for injunctive relief. This issue, however, is moot, in light both of our decision to uphold the court's order granting summary judgment to Miramax on Orson's antitrust claims and of the Roxy's cessation of operations.
73 P.S. § 203-7.
Further, since Orson had raised, in the district court's view, an issue for summary judgment by arguing in its brief in opposition to Miramax's motion that the Miramax-Ritz agreement should be declared illegal per se, the court evaluated the parties' submissions as though it had before it cross-motions for summary judgment as to Orson's entire complaint, even though Orson had moved expressly for summary judgment on only its Pennsylvania law claims. Id. at 1382. Orson does not question this aspect of the district court's decision on appeal.
73 P.S. § 203-10.
In addition to the traditional rule of reason and the per se rules, courts sometimes apply what amounts to an abbreviated or "quick look" rule of reason analysis. United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir.1993). This abbreviated rule applies where per se condemnation is inappropriate, but where a full-blown industry analysis is not required to demonstrate the anticompetitive character of an inherently suspect restraint. Id. For example, in cases involving agreements not to compete in terms of price or output among members of professional associations, the Supreme Court did not apply a per se analysis, opting instead for an abbreviated rule of reason test where "`no elaborate industry analysis [was] required to demonstrate the anticompetitive character of such an agreement.'" FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459, 106 S.Ct. 2009, 2018, 90 L.Ed.2d 445 (1986) (quoting Professional Eng'rs, 435 U.S. at 692, 98 S.Ct. at 1366).
Asserting in its brief that "[t]he restraint's negative effect on competition is manifest given the abundance of record evidence showing that the Miramax-Ritz boycott of the Roxy ha[d] the effect of decreasing output and increasing prices in the Center City art-film market," Orson suggests that an abbreviated rule of reason market analysis should be used here. Orson failed, however, to substantiate its assertion with facts. We have stated that arguments made in legal memoranda are not evidence. Jersey Cent. Power & Light Co. v. Township of Lacey, 772 F.2d 1103, 1109-10 (3d Cir.1985), cert. denied, 475 U.S. 1013, 106 S.Ct. 1190, 89 L.Ed.2d 305 (1986). We, therefore, need not consider Orson's suggestion further.
Id. at 52 n. 19, 97 S.Ct. at 2558 n. 19.
Id. at n. 7, 68 S.Ct. at 924 n. 7.
We also note that Orson did not allege nor did it present evidence to show that Miramax was a monopolist or that only Miramax films constituted the relevant product market. See Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 723 (3d Cir.1991) ("[I]t is also true that a well-defined submarket may constitute a relevant product market and so under certain circumstances a relevant product market could consist of one brand of a product, placing intrabrand competition at issue."), cert. denied, 505 U.S. 1221, 112 S.Ct. 3034, 120 L.Ed.2d 903 (1992). We make these points because Orson's antitrust theory frequently seemed premised on an analysis of a market which was limited to Miramax's product.
At any rate, we have already rejected a facial challenge to section 203-7 under the Copyright Act, holding that "the Act on its face contains no threat to the copyrights themselves...." Associated Film Distribution Corp. v. Thornburgh, 683 F.2d 808, 816 (3d Cir.1982), cert. denied, 480 U.S. 933, 107 S.Ct. 1573, 94 L.Ed.2d 765 (1987). See Associated Film Distribution Corp. v. Thornburgh, 800 F.2d 369, 377 (3d Cir.1986), cert. denied, 480 U.S. 933, 107 S.Ct. 1573, 94 L.Ed.2d 765 (1987) ("There may be merit to the distributors' argument that the 42-day provision, when construed as limiting the distributors' right to license an exclusive run to 42 days, is preempted by the Copyright Act. However, such preemption would be apparent on the face of the statute and cannot be reconciled with [our] earlier decision [in Associated Film, 683 F.2d at 816] that the Act is not facially invalid under the Copyright Act.").