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Studios Appeal as Antitrust Case Trial Opens Next Week

30 May, 2002 By: Joan Villa

Studio defendants and Blockbuster have asked U.S. District Judge Edward Prado to reconsider recent decisions that handed important legal victories to independent video retailers in a federal antitrust trial set to open next week.

The rulings had denied defendants' summary judgment motions and let stand charges of price fixing and horizontal and vertical conspiracies. The trial has been rescheduled from June 10 to June 12 in San Antonio, Texas. First witnesses, including Viacom chief Sumner Redstone, are slated to take the stand June 13.

The court also removed previous defendants Warner Home Video and MGM Home Entertainment from the case after the two settled for an unconfirmed sum that observers estimate at more than $15 million. The settlement money will be divided among the three plaintiffs in the federal action and more than 200 independent retailers in a similar lawsuit under way in Los Angeles Superior Court.

Plaintiffs in the 2-year-old federal action are Ron Cleveland of Lonestar Video in San Antonio; Dave Stevenson of The Big Picture Video in Syracuse, N.Y.; and John Merchant of 49'er Video in Sacramento, Calif.

In a joint motion for partial reconsideration filed last week, studio defendants disputed the judge's ruling that allowed horizontal conspiracy charges because it makes “economic sense” for the studios to have conspired in creating a market advantage for Blockbuster.

“If it makes ‘economic sense,' however, then it necessarily means that it would be rational for a studio to decide independently to provide this ‘market advantage' to Blockbuster,” the studios argued. “It does not ‘tend to exclude the possibility' of independent behavior.”

The defendants -— 20th Century Fox Home Entertainment, Buena Vista Home Entertainment, Columbia TriStar Home Entertainment, Paramount Home Entertainment and parent Viacom Inc., and Universal Studios Home Video — also contended that the judge's order “distorted” antitrust law by equating injury to individual retailers with the legal requirement of injury to competition.

“It is an elemental precept of the Sherman and Cartwright acts that harm to individual competitors, such as plaintiffs or other IVRs [independent video retailers], does not establish harm to competition,” the defendants wrote.

Columbia and Universal both individually requested reconsideration for their claims they entered into pricing agreements with Blockbuster to “meet competition” — a defense that would dismiss Robinson-Patman antitrust charges. Judge Prado granted Fox's meeting competition defense May 17 on grounds it was the last studio to enter into revenue-sharing deals.

Both Columbia and Universal rebutted the court's ruling denying their claims, arguing that the defense still applies to competitors in third or fourth position as long as they were not the first to enter into the pricing arrangements. They also disputed the judge's ruling that they were not entitled to the defense because they were unaware of specific revenue-sharing terms of other studios.

“Universal has shown—without dispute—that it knew the general terms of other Blockbuster deals, including some specifics (like the 60/40 split and the leasing arrangements), and relied on those terms in entering into its deal with Blockbuster,” the studio contended.

Columbia further argued that if the studio had known more, it would have been in violation of the Sherman Act “which prohibits the exchange of detailed current pricing information between competitors.”

In a separate filing, Blockbuster asked for reconsideration of conspiracy charges, noting that the judge's order denying the retailer's original request came to conflicting conclusions about whether it was in the studios' economic interests to conspire. Blockbuster also disputed price discrimination claims.

“Evidence that Blockbuster requested an exclusive deal is insufficient to raise an inference that any studio agreed to that request,” the retailer wrote. “But even if Blockbuster had secured such an agreement, it would constitute, at most, a refusal to deal. It is beyond dispute that a refusal to deal does not amount to prohibited price discrimination.”

The antitrust charges stem from revenue-sharing deals and other pricing agreements that began in 1997 between Blockbuster and the studios that were not available to independent retailers. Plaintiffs have charged that the pricing deals were illegal and allowed Blockbuster to stock vast quantities of new-release titles and build market share, creating an environment where independents could not compete.

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