Chief Justice Hecht delivered the opinion of the Court.
Respondents allege that petitioners conspired to restrain trade in the movie-theater market in violation of Section 15.05(a) of the Texas Free Enterprise and Antitrust Act ("Texas Antitrust Act").
iPic alleges that starting in early 2013, AMC and Regal conspired to eliminate iPic from the markets in Houston and Frisco, just north of Dallas, by "clearing" a proposed iPic theater near Regal Greenway in central Houston and another near AMC Stonebriar in Frisco. iPic's allegations require an understanding of the film industry.
AMC, Regal, and iPic are movie exhibitors. Historically, exhibitors licensed movies from third-party distributors, which acted as liaisons between exhibitors and the production studios. Today, the six largest production studios—Walt Disney Studios, Warner Brothers Entertainment, 20th Century Fox, Paramount Pictures, Sony Pictures, and Universal Studios—act as their own distributors. But there remain independent distributors too, such as Lionsgate, Focus, the Weinstein Company, Bleeker Street, Broad Green, and Open Road Films.
Open Road is an independent distributor formed in 2011 as a joint venture between AMC and Regal. Open Road has since
When theaters in close proximity show the same first-run (new release) film, they are playing the film day-and-date. To prevent playing day-and-date with a competitor, a theater can request that a film's distributor grant it a clearance—an exclusive license to show the film for a period of time. Clearance practices are traceable to the earliest days of the film industry. Because theaters had only a handful of screens, they could not play every first-run film available. Theaters nearby one another thus bid against each other to secure the exclusive license to play a particular film. In exchange for that exclusive license, a theater would pay the distributor a guaranteed sum and take responsibility for advertising and promoting the film in the area.
The parties disagree about what role clearances have played in the industry in more recent history. At a pretrial hearing in the trial court, iPic presented witness testimony that clearances began phasing out in the 1980s when distributors moved to an allocation system. Later, when megaplexes began sprouting up in the mid-1990s, allocating films was no longer necessary because a megaplex can play every first-run movie available.
Regal is no longer a party to this case, but its historical clearance practices are central to iPic's conspiracy allegations against AMC. Regal CEO Amy Miles testified that when she joined the company in 1999, Regal already had a general policy of seeking clearances against theaters in proximity to a Regal theater. Miles explained that Regal recognizes 70 clearance zones across the country in which Regal seeks clearances against any class of theater within three miles, and distributors therefore allocate first-run films between Regal and the theater nearby. In Houston, for example, Regal Greenway sought clearances against the River Oaks Theatre beginning in 1999 when the Greenway opened.
In 17 of Regal's clearance zones, Regal clears a theater owned by AMC. In 15, one Regal theater clears another Regal theater. One example is a clearance zone in northern Virginia, where a 20-screen Regal theater clears one of Regal's smaller theaters that offers luxury amenities similar to those offered by iPic. Another example occurs in northwest Austin, where Regal's Gateway 16 does not play day-and-date with its Arbor 8 theater.
Miles testified that Regal believes clearances are beneficial to the entire film-industry ecosystem, including theaters and customers, because clearances ultimately facilitate more films being shown in a geographic area and for longer. Miles projected that without clearance zones, theaters would devote most of their screens to blockbusters, which would play through the theaters faster, resulting in less choice for consumers and less revenue for distributors and theaters.
Miles acknowledged, however, that Regal has made some exceptions to its three-mile policy over the years. Regal usually does not seek clearances in densely populated areas such as Manhattan, where a three-driving-miles rule of thumb does not make sense. Regal's clearance practices have also varied when it has acquired an existing theater. "[I]f we acquire a theater that didn't assert a clearance prior to the
In 2008, Regal declined to clear a dine-in theater within its Redmond, Washington clearance zone that later became an iPic. In 2010, Regal declined to clear the iPic Austin, which opened less than three miles from Regal's Gateway 16 and Arbor 8 theaters. Miles testified that these exceptions to Regal's three-mile policy were tests conducted at the request of distributors to determine whether luxury theaters —then a new and innovative concept —would truly compete with traditional ones. There is conflicting evidence on what the data from the Redmond and Austin tests show, but Miles testified that once luxury theaters took off, Regal came around to viewing them as competitors to Regal's more traditional theaters.
Before 2012, AMC had never requested clearances against competing theaters. But that year it adopted its own corporate policy of requesting clearances against theaters within roughly three miles of an AMC theater. An internal report prepared by AMC in November 2012 reflects AMC's determination that asserting clearances could help fend off "competitive encroachment".
In December 2012, AMC made a presentation on the new policy to various studios and to Open Road personnel. Written materials from that presentation project that without a change in clearance policy, new competition would negatively affect AMC's revenue. The materials reflect that AMC had considered the matter "carefully" and would "stand behind" the decision to start asserting clearances "for the long-term health of [its] ... business".
In January 2013, Regal's president and COO, Greg Dunn, who also sat on the board of Open Road, directed Regal's head film buyer, Ted Cooper, to clear all luxury or dine-in theaters within three miles of a Regal theater. Around the same time, Regal learned that iPic planned to build a theater in Houston within three miles of Regal Greenway. In April 2013, Regal's Ted Cooper told iPic executive Clark Woods at an industry conference that Regal planned to clear iPic's new Houston theater. A few days later, iPic's CEO, Hamid Hashemi, emailed a colleague that "Regal ... just told us they are clearing us in Houston", characterizing Regal's decision as "[n]o biggie". Also in April 2013, iPic opened a new theater in Los Angeles within three miles of an AMC theater. Despite its new policy, AMC declined to clear iPic Los Angeles, and the two theaters play day-and-date. It was not until several months later, around December 2013, that iPic began making plans for a Frisco theater.
In April 2014, AMC learned that iPic was in the process of negotiating a lease for a space in Frisco located within three miles of AMC Stonebriar. An internal AMC email characterized the forthcoming iPic as "[a]n obvious clearance situation" and expressed AMC's intention to "move quickly" to communicate its clearance request to distributors. An internal email between AMC personnel dated May 16, 2014, contained this draft clearance request to distributors for the anticipated iPic Frisco:
The letters were not sent out immediately. AMC executive Bob Lenihan testified by deposition that the lack of urgency in sending the requests—construction on iPic Frisco had not even begun—and AMC's being "a big company with a lot of bureaucracy" were the likely reasons for the delay. Another AMC executive, Nathan Reid, testified by deposition that AMC's film department received final approval to send out the requests in late June and that a two-month delay from drafting to sending a clearance request was "[n]ot at all" unusual.
On June 20, AMC's head film buyer, Ryan Wood, forwarded the draft clearance letter to colleagues with a note that the "[p]lan will be to send on Tuesday (7/1)". Still, the letters were not sent out on the 1st. iPic points to calendar entries in the record indicating that on July 2, Lenihan had lunch with Open Road personnel and that an AMC executive had a phone call scheduled with a Regal executive about Open Road matters. There is no evidence that clearances against iPic were discussed at the meeting or on the call.
Ryan Wood testified by deposition that distribution of the letters was delayed by the holiday weekend. "[P]hone calls needed to be made to each of the contacts [AMC was] sending [the letters] to", and it was too "close to July 4th weekend where [AMC and] a lot of the [distributors] were [going to be] closed for certain days". Woods explained that it was AMC's practice not to send a clearance letter until AMC had reached the recipient by telephone first; that with respect to certain distributors, AMC needed to make calls to multiple people; and that this process required "a phone conversation", "not just a voicemail left".
AMC finally started sending out its clearance requests on July 8. That same day, Regal began calling distributors to communicate that it wanted to clear iPic Houston. In these phone calls, Regal communicated to several distributors that it would refuse to play any movie at its Greenway theater that the distributor also offered to iPic Houston. AMC's clearance letters communicated the same message with respect to iPic Frisco.
No distributor bit on AMC's requests to clear iPic Frisco. Each either denied the request outright or refused to address it until iPic solidified its plans for a Frisco theater. In January 2017, AMC emailed all the distributors that it had sent clearance requests to for iPic Frisco and formally withdrew those requests. iPic Frisco was never built for reasons unrelated to this lawsuit, and iPic has not claimed any damages related to that proposed theater.
In response to Regal's requests, three distributor-studios—Sony, Universal, and Fox—decided to allocate their films between
iPic filed this suit against Regal and AMC in November 2015, just a few weeks after iPic Houston opened. iPic initially alleged several antitrust claims under Section 15.05 of the Texas Antitrust Act as well as a common-law claim for tortious interference with iPic's business.
In January 2016, the trial court temporarily enjoined Regal from making further clearance requests against iPic Houston or communicating to distributors that it would not play day-and-date with iPic Houston. After that order was affirmed on appeal,
AMC filed a traditional and no-evidence motion for summary judgment on all claims against it. The trial court granted the motion without stating its reasons and rendered judgment dismissing all iPic's claims. iPic appealed the court's judgment with respect to one claim alleging a horizontal conspiracy between Regal and AMC to restrain trade under Section 15.05(a). The court of appeals reversed the summary judgment and remanded the case for trial.
The Texas Antitrust Act's stated "purpose... is to maintain and promote economic competition in trade and commerce" in the state and "to provide the benefits of that competition to consumers".
iPic's sole remaining claim alleges a horizontal conspiracy between Regal and AMC under Section 15.05(a) of the Act to "crush iPic with clearances" in order to put iPic out of business in Houston and Frisco. Even though all iPic's damages were sustained by iPic Houston, and AMC only tried to clear the rumored-but-never-built iPic Frisco, iPic argues that under antitrust law, AMC is liable as Regal's co-conspirator for damages to iPic Houston.
Section 15.05(a) states that "[e]very contract, combination, or conspiracy in restraint of trade or commerce is unlawful."
Like the language of its federal counterpart, the broad language of Section 15.05(a) indicates that every conspiracy in restraint of trade is unlawful. Yet the United States Supreme Court has, since its earliest decisions, "recognized that [Section 1] was intended to prohibit only unreasonable restraints of trade."
The seminal antitrust case on movie-theater clearances is United States v. Paramount Pictures.
AMC and iPic vigorously dispute whether iPic is in substantial competition with megaplexes like AMC and Regal. But we need not make that determination because iPic did not raise the issue in its motion for summary judgment.
iPic alleges a conspiratorial agreement between AMC and Regal to "crush iPic with clearances"—i.e., to put iPic out of business in Houston and Frisco by preventing it from obtaining first-run films in those markets. Because this appeal arises from a summary judgment for AMC, we review the lower courts' judgments de novo, taking as true all evidence favorable to iPic and indulging every permissible inference in its favor.
For anticompetitive conduct to give rise to liability under Section 1 of the Sherman Act or Section 15.05(a) of the Texas Antitrust Act, the conduct must "stem ... from an agreement, tacit or express", rather than from independent
Because a Section 1 claim challenges multilateral conduct, its "very essence... is the existence of an agreement."
After a plaintiff "establishes the existence of an illegal contract or combination, it must then proceed to demonstrate
"A § 1 agreement may be found when `the conspirators had a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.'"
In Matsushita Electric Industrial Co. v. Zenith Radio Corp., the Supreme Court warned that "courts should not permit factfinders to infer conspiracies when such inferences are implausible because the effect of such practices is often to deter procompetitive conduct."
Matsushita involved an allegation by American TV manufacturers that a group
The Supreme Court pointed to several reasons why the plaintiffs' conspiracy theory was implausible. One was that if the conspiracy did exist, it was a failure. Twenty years after the conspiracy was alleged to have commenced, two American firms, including lead plaintiff Zenith, retained the largest shares of the American market. The Court noted that "[t]he alleged conspiracy's failure to achieve its ends in the two decades of its asserted operation is strong evidence that the conspiracy [did] not in fact exist."
The Court reversed the court of appeals' judgment and remanded for that court to reconsider the evidence in light of the standards announced.
The Supreme Court extended the plausibility requirement to the pleading stage in Bell Atlantic Corp. v. Twombly, where it held that in order to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff's conspiracy allegations
Matsushita and Twombly teach that (1) parallel business conduct, alone, is insufficient to raise a fact issue on the existence of a conspiracy;
Lower federal courts have fleshed out these principles by requiring plaintiffs who base their claim on consciously parallel business behavior to demonstrate the existence of "plus factors".
"A plausible allegation that the parallel conduct was not in the alleged conspirators' independent self-interest absent an agreement is generally considered the most important `plus factor.'"
A court's task in evaluating the propriety of summary judgment is to "[v]iew all the evidence and tak[e] the plus factors into consideration" and determine if the evidence tips the scales in favor of a conspiracy by "tend[ing] to exclude the possibility that the alleged coconspirators acted independently or based upon legitimate business purposes."
We turn to the allegations and evidence in this case.
iPic alleges that AMC and Regal conspired to "crush iPic with clearances" in order to "eliminate" it "from the markets of Houston and Frisco." iPic alleges that the conspiracy was formed in January 2013 when, after hearing AMC's presentation to Open Road, Regal president Greg Dunn directed Regal's film department to
In our view, the "factual context" of this case "renders [iPic's] claim implausible".
It is also hard to see why AMC and Regal would have any motive to conspire to seek the specific clearances they sought together as a unit rather than independently.
iPic argues that by teaming up and making their formal requests on the same day, Regal and AMC would have a greater chance of success with distributors. But it is hard to see why Regal's requests for clearances in Houston would have any impact on a distributor's decision how to allocate films 270 miles away in Frisco, or vice versa.
iPic also contends that Regal and AMC's teaming up sends a stronger message to iPic than either exhibitor's requesting clearances alone would have. But the clearance requests target only two iPics, one of which was never built. Except for iPic Houston, all iPic's theaters have had access to all first-run films since the day they opened their doors. One of these, iPic Los Angeles, opened within a three-mile radius of an AMC theater in April 2013— after the conspiracy allegedly began—and AMC declined to clear it. If AMC and Regal did conspire in January 2013 to "crush iPic with clearances", the conspiracy
iPic nonetheless contends that it has presented evidence of several plus factors that collectively tip the scales in favor of a conspiracy. We start with the "most important" one: whether the clearance requests "would be against [AMC's] self-interest if [it] were acting independently, but consistent with [AMC's] self-interest if [it] were acting in concert" with Regal.
This evidence supports iPic's assertion that it is against an exhibitor's economic interest—in the short term, at least—to refuse to play day-and-date with a competitor. The court of appeals recognized as much but then leapt to the conclusion that the first and "most important" plus factor had been established.
There is nothing illegal about a company's pursuing action that trades short-term financial loss for long-term gain. Commentators have warned that "[o]ne must not characterize a firm's sacrifice of short-run interest in favor of long-run interest as contrary to self-interest. Such a sacrifice by itself tells us nothing about possible conspiracy because a firm often
iPic argues that "a reasonable jury could find that AMC and Regal would only expose themselves to such an economic hit, in tandem with one another, if they expected to jointly drive their new premium boutique competitor out of business in Frisco, Houston, and around the country." But that is simply not a rational inference in the factual context of this case, where it is undisputed that both Regal and AMC have sought other clearances independently. iPic claims that a conspiracy between Regal and AMC to harm iPic's business in Houston and Frisco "would radically expand the area in which iPic [would be] precluded from competing", but the record does not support that assertion. Regal may have been trying to harm iPic's Houston theater, and AMC was undoubtedly trying to preclude an iPic Frisco from even being built. But nothing about the economics of the July 2014 clearance requests suggests that they were made pursuant to an otherwise "economically senseless" agreement.
iPic argues that it has also presented evidence of several plus factors found by the court of appeals: motive and opportunity to conspire, communications between the parties, a pretextual explanation for anticompetitive conduct, and facts consistent with a traditional conspiracy.
The first bucket consists of evidence of communications between AMC and Regal between 2012 and 2014, sometimes through their joint venture, Open Road. In May 2012, Rich Boynton at AMC emailed his contacts at Open Road and asked them to find out whether Regal would be clearing a dine-in theater called Studio Movie Grill that was rumored to be opening near Regal Greenway. Open Road's Elliot Slutzky responded that Regal had informed him that it would not be clearing that theater. iPic alleges that this exchange violated Open Road's information-sharing guidelines, which forbade AMC and Regal from sharing "competitively sensitive information" about their film-exhibition businesses in order to avoid antitrust allegations.
The second bucket holds the timeline of AMC's and Regal's decisions to start clearing dine-in theaters and their communications with studios about clearing iPic. Included are the facts that AMC and Regal sent their requests to clear iPic on the same day and that each exhibitor's request stated that its theater would refuse to play first-run films offered to iPic—statements that iPic characterizes as "threats".
The third bucket holds a shred of evidence involving Regal's post-clearance-request conduct. In a November 2015 email, Alan Davy, the Regal executive who made the July 2014 clearance requests, reported to the general manager of Regal's MarqE megaplex that iPic "tanked" on The Peanuts Movie and then said: "The problem was Studio 30 didn't get the benefit." Studio 30 was an AMC megaplex (now closed) that was located about five miles from both Regal Greenway and iPic Houston.
Taking iPic's evidence together and in the light most favorable to iPic, we conclude that it does not raise a genuine issue of material fact that the conspiracy iPic alleges ever existed. The national clearance strategy that AMC adopted in late 2012 became public knowledge when it was presented directly to distributors around the same time that it was presented to Open Road. It may be that AMC and Regal were monitoring each other's clearance strategies, but there is no evidence that Regal and AMC ever communicated with one another about clearing iPic.
Allegations of general contacts or even specific contacts that are abstract or vague in nature are not enough to support a reasonable inference of conspiracy under federal law.
* * * * *
The conspiracy that iPic has alleged is implausible, and its case rests on parallel conduct and suspicion. That is not enough to survive summary judgment under federal antitrust law because it does not tend to exclude the possibility that AMC acted independently.
Justice Young did not participate in the decision.
We note, however, that—outside of an inquiry into whether a proposed merger's effect "may be substantially to lessen competition" under the Clayton Act, 15 U.S.C. § 18—the words "substantial competition" have not appeared in an antitrust decision from the Supreme Court since Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 74 S.Ct. 257, 98 L.Ed. 273 (1954), a decision that also predates the Court's seminal opinions in Du Pont and Brown Shoe. Cf. FTC v. Actavis, Inc., 570 U.S. 136, 159, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013) ("In California Dental, we held (unanimously) that abandonment of the `rule of reason' in favor of presumptive rules (or a `quick-look' approach) is appropriate only where `an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets.'" (quoting Cal. Dental Ass'n v. FTC, 526 U.S. 756, 770, 119 S.Ct. 1604, 143 L.Ed.2d 935 (1999))); FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 458, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) ("[W]e decline to resolve this case by forcing the Federation's policy into the `boycott' pigeonhole and invoking the per se rule.").
First, the plaintiff "bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market." Id. (quoting Cap. Imaging Assocs., 996 F.2d at 543). Second, "[i]f the plaintiff succeeds, the burden shifts to the defendant to establish the pro-competitive redeeming virtues of the action." Id. (internal quotation marks omitted) (quoting Cap. Imaging Assocs., 996 F.2d at 543). Third, "[s]hould the defendant carry this burden, the plaintiff must then show that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition." Id. (citing Cap. Imaging Assocs., 996 F.2d at 543).