Landmark Response to Regal's Motion to Dismiss

8/16/2019 Landmark Response to Regal's Motion to Dismiss

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UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA

SILVER CINEMAS ACQUISITION CO. DBALANDMARK THEATRES,

Plaintiff,

v.

REGAL ENTERTAINMENT GROUP; REGALENTERTAINMENT HOLDINGS, INC.; REGALENTERTAINMENT HOLDINGS II, LLC; REGALCINEMAS CORPORATION; REGAL CINEMASHOLDINGS, INC.; REGAL CINEMAS, INC.;REGAL CINEMAS II, LLC and REGAL GALLERYPLACE LLC,

Defendants.

Civil Action No. 1:16-cv-123 (CRC)

ORAL ARGUMENTREQUESTED

LANDMARK’S MEMORANDUM OF POINTS AND AUTHORITIESIN OPPOSITION TO REGAL’S MOTION TO DISMISS

Case 1:16-cv-00123-CRC Document 17 Filed 05/19/16 Page 1 of 54


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TABLE OF CONTENTS

FACTUAL BACKGROUND AND PROCEDURAL HISTORY ................................................. 2

ARGUMENT .................................................................................................................................. 7

I.

MOTION TO DISMISS STANDARD ................................................................... 8

II. THE COMPLAINT ADEQUATELY ALLEGES PER SEILLEGAL CIRCUIT DEALING ............................................................................ 9

III. THE COMPLAINT ADEQUATELY ALLEGES NON-CIRCUIT DEALING-BASED VIOLATIONS OF THESHERMAN ACT .................................................................................................. 13

A. Regal’s Blanket Clearance Fails the Paramount Substantial Competition Test .................................................................... 14

B. The Complaint Adequately Alleges Sherman ActViolations Under the Modern Rule of Reason .......................................... 18

1. The Complaint Alleges Direct Evidence ofRegal’s Market Power................................................................... 20

2. The Complaint Alleges CircumstantialEvidence of Regal’s Market Power .............................................. 22

3. The Complaint Alleges ExclusionaryConduct by Regal that Has HarmedCompetition and Consumers—Not JustLandmark ...................................................................................... 30

4.

Regal’s Blanket Clearance AgreementsHave No Procompetitive Justification .......................................... 35

C. The Complaint Adequately Alleges ClassicUnlawful Clearance Agreements Between Regaland the Film Distributors .......................................................................... 39

IV. THE COMPLAINT ADEQUATELY ALLEGESVIOLATIONS OF D.C. LAW.............................................................................. 42

CONCLUSION ............................................................................................................................. 43



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TABLE OF AUTHORITIES

CASES

A.L.B. Theatre Corp. v. Loews, Inc.,

355 F.2d 495 (7th Cir. 1966) .............................................................................................33, 34

Am. Tobacco Co. v. United States,328 U.S. 781 (1946) .................................................................................................................29

Apani Sw., Inc. v. Coca-Cola Enters., Inc.,300 F.3d 620 (5th Cir. 2002) ...................................................................................................26

Arnett Physician Grp., P.C. v. Greater LaFayette Health Servs., Inc.,382 F. Supp. 2d 1092 (N.D. Ind. 2005) ...................................................................................27

Babyage.com, Inc. v. Toys “R” Us, Inc.,558 F. Supp. 2d 575 (E.D. Pa. 2008) .................................................................................20, 32

Banneker Ventures, LLC v. Graham,798 F.3d 1119 (D.C. Cir. 2015) ...............................................................................................43

Baxley-DeLamar Monuments, Inc. v. Am. Cemetery Ass’n,843 F.2d 1154 (8th Cir. 1988) .................................................................................................29

Belizan v. Hershon,434 F.3d 579 (D.C. Cir. 2006) ...................................................................................................9

Bell Atl. Corp. v. Twombly,550 U.S. 544 (2007) ......................................................................................................... passim

Broadcom Corp. v. Qualcomm Inc.,501 F.3d 297 (3d Cir. 2007).....................................................................................................19

Brown Shoe Co. v. United States,370 U.S. 294 (1962) ...........................................................................................................22, 25

Cheeks v. Fort Myer Constr. Corp.,71 F. Supp. 3d 163 (D.D.C. 2014) ...........................................................................................40

Chi. Ridge Theatre Ltd. P’ship v. M & R Amusement Corp.,732 F. Supp. 1503 (N.D. Ill. 1990) ..........................................................................................17

Chi. Ridge Theatre Ltd. P’ship v. M & R Amusement Corp.,855 F.2d 465 (7th Cir. 1988) ...................................................................................................15

City of Moundridge v. Exxon Mobil Corp.,250 F.R.D. 1 (D.D.C. 2008) .....................................................................................................40



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Cloverleaf Enters., Inc. v. Md. Thoroughbred, Horsemen’s Ass’n,730 F. Supp. 2d 451 (D. Md. 2010) ...........................................................................................9

Cobb Theatres III, LLC v. AMC Entm’t Holdings, Inc.,101 F. Supp. 3d 1319 (N.D. Ga. 2015) ............................................................................ passim

Concord Assocs. L.P. v. Entm’t Props. Trust ,817 F.3d 46 (2d Cir. 2016).......................................................................................................26

Cooper v. First Gov’t Mortg. & Inv’rs Corp.,206 F. Supp. 2d 33 (D.D.C. 2002) ...........................................................................................12

E & L Consulting, Ltd. v. Doman Indus. Ltd.,472 F.3d 23 (2d Cir. 2006).................................................................................................30, 31

E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass’n, Inc.,357 F.3d 1 (1st Cir. 2004) ........................................................................................................26

E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc.,637 F.3d 435 (4th Cir. 2011) ...................................................................................................23

Eastman Kodak Co. v. Image Tech. Servs., Inc.,504 U.S. 451 (1992) .................................................................................................................32

Elecs. Commc’ns Corp. v. Toshiba Am. Consumer Prods., Inc.,129 F.3d 240 (2d Cir. 1997).....................................................................................................30

Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. ,131 Cal. Rptr. 3d 519 (Cal. Ct. App. 2011) .........................................................................9, 13

FTC v. Ind. Fed’n of Dentists,476 U.S. 447 (1986) .................................................................................................................19

FTC v. Sysco Corp.,113 F. Supp. 3d 1 (D.D.C. 2015) .......................................................................................23, 26

GTE New Media Servs., Inc. v. Ameritech Corp.,21 F. Supp. 2d 27 (D.D.C. 1998) .........................................................................................8, 42

Halberstam v. Welch,

705 F.2d 472 (D.C. Cir. 1983) .................................................................................................39

Hosp. Bldg. Co. v. Trs. of Rex Hosp.,425 U.S. 738 (1976) ...................................................................................................................9

IHS Dialysis Inc. v. Davita, Inc.,2013 WL 1309737 (S.D.N.Y. Mar. 31, 2013) .........................................................................24



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Image Tech. Servs., Inc. v. Eastman Kodak Co.,125 F.3d 1195 (9th Cir. 1997) .................................................................................................19

In re High-Tech Employee Antitrust Litig.,856 F. Supp. 2d 1103 (N.D. Cal. 2012) .......................................................................10, 22, 23

In re Lithium Ion Batteries Antitrust Litig.,2014 WL 4955377 (N.D. Cal. Oct. 2, 2014)............................................................................42

In re Nexium (Esomeprazole) Antitrust Litig.,968 F. Supp. 2d 367 (D. Mass. 2013) ................................................................................19, 22

iPic-Gold Class Entm’t, LLC v. Regal Entm’t Grp., No. 2015-68745 (Tex. Dist. Ct. 234th Jan. 21, 2016)..............................................................35

Jung v. Ass’n of Am. Med. Colls.,300 F. Supp. 2d 119 (D.D.C. 2004) .............................................................................12, 39, 40

Kramer v. Time Warner Inc.,937 F.2d 767 (2d Cir. 1991).....................................................................................................12

Kreuzer v. Am. Acad. of Periodontology,735 F.2d 1479 (D.C. Cir. 1984) ...............................................................................................14

L.A. Draper & Son v. Wheelabrator-Frye, Inc.,735 F.2d 414 (11th Cir. 1984) .................................................................................................22

Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,551 U.S. 877 (2007) .....................................................................................................18, 31, 32

Little Rock Cardiology Clinic PA v. Baptist Health,591 F.3d 591 (8th Cir. 2009) ...................................................................................................26

Loew’s, Inc. v. Cinema Amusements, Inc.,210 F.2d 86 (10th Cir. 1954) ...................................................................................................39

Mathias v. Daily News, L.P.,152 F. Supp. 2d 465 (S.D.N.Y. 2001)......................................................................................26

Mazanderan v. Indep. Taxi Owners’ Ass’n,

700 F. Supp. 588 (D.D.C. 1988) ..............................................................................................42

Monsanto Co. v. Spray-Rite Serv. Corp.,465 U.S. 752 (1984) .................................................................................................................42

Movie 1 & 2 v. United Artists Commc’ns, Inc.,909 F.2d 1245 (9th Cir. 1990) .................................................................................................34



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Orbo Theatre Corp. v. Loew’s Inc.,156 F. Supp. 770 (D.D.C. 1957) ..................................................................................33, 35, 37

Orson, Inc. v. Miramax Film Corp.,79 F.3d 1358 (3d Cir. 1996).....................................................................................................37

Osborn v. Visa Inc.,797 F.3d 1057 (D.C. Cir. 2015) ...............................................................................................39

Oxbow Carbon & Minerals LLC v. Union Pac. R.R. Co.,81 F. Supp. 3d 1 (D.D.C. 2015) ....................................................................................... passim

Paddock Pubs., Inc. v. Chi. Tribune Co.,103 F.3d 42 (7th Cir. 1996) .....................................................................................................37

Quad Cinema Corp. v. Twentieth Century-Fox Film Corp.,1983 WL 1822 (S.D.N.Y. May 12, 1983) ....................................................................... passim

Ralph C. Wilson Indus., Inc. v. Am. Broad. Cos.,598 F. Supp. 694 (N.D. Cal. 1984) ..........................................................................................37

Re/Max Int’l v. Realty One, Inc.,173 F.3d 995 (6th Cir. 1999) ...................................................................................................19

Reading Int’l, Inc. v. Oaktree Capital Mgmt. LLC ,2007 WL 39301 (S.D.N.Y. Jan. 8, 2007) ........................................................................ passim

Reading Int’l, Inc. v. Oaktree Capital Mgmt. LLC ,317 F. Supp. 2d 301 (S.D.N.Y. 2003).............................................................................. passim

Rebel Oil Co. v. Atl. Richfield Co.,51 F.3d 1421 (9th Cir. 1995) ...................................................................................................29

Republic Tobacco Co. v. N. Atl. Trading Co.,381 F.3d 717 (7th Cir. 2004) ...................................................................................................31

S. Pac. Commc’ns Co. v. Am. Tel. & Tel. Co.,556 F. Supp. 825 (D.D.C. 1982), aff’d , 740 F.2d 980 (D.C. Cir. 1984) ..................................29

S. Pac. Commc’ns Co. v. Am. Tel. & Tel. Co.,

740 F.2d 1011 (D.C. Cir. 1984) ...............................................................................................19

Schine Chain Theatres v. United States,334 U.S. 110 (1948) ...........................................................................................................13, 41

Scott v. District of Columbia,101 F.3d 748 (D.C. Cir. 1996) .................................................................................................18



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Seven Gables Corp. v. Sterling Recreation Org. Co.,1987 WL 56622 (W.D. Wash. June 25, 1987).......................................................15, 33, 36, 41

Six W. Retail Acquisition, Inc. v. Sony Theatre Mgmt. Corp.,2004 WL 691680 (S.D.N.Y. Mar. 31, 2004) .....................................................................34, 35

Sky Angel U.S., LLC v. Nat’l Cable Satellite Corp.,33 F. Supp. 3d 14 (D.D.C. 2014) .............................................................................................40

Sky Angel U.S., LLC v. Nat’l Cable Satellite Corp.,947 F. Supp. 2d 88 (D.D.C. 2013) .....................................................................................26, 30

Spectrum Sports, Inc. v. McQuillan,506 U.S. 447 (1993) .................................................................................................................14

Starlight Cinemas v. Regal Entm’t Grp.,2014 WL 7781018 (C.D. Cal. Oct. 23, 2014) ....................................................................40, 41

Syufy Enters. v. Am. Multicinema, Inc.,793 F.2d 990 (9th Cir. 1986) .............................................................................................23, 30

T. Harris Young & Assocs., Inc. v. Marquette Elecs., Inc.,931 F.2d 816 (11th Cir. 1991) .................................................................................................22

Tampa Elec. Co. v. Nashville Coal Co.,365 U.S. 320 (1961) .................................................................................................................22

Theee Movies of Tarzana v. Pac. Theatres, Inc.,828 F.2d 1395 (9th Cir. 1987) ...............................................................................34, 37, 38, 41

Theme Promotions, Inc. v. News Am. Mktg. FSI ,546 F.3d 991 (9th Cir. 2008) ...................................................................................................19

Times-Picayune Publ’g Co. v. United States,345 U.S. 594 (1953) .................................................................................................................26

Todd v. Exxon Corp.,275 F.3d 191 (2d Cir. 2001).....................................................................................................23

Toys “R” Us, Inc. v. FTC ,

221 F.3d 928 (7th Cir. 2000) ...................................................................................................31

United States v. Apple Inc.,952 F. Supp. 2d 638 (S.D.N.Y. 2013)......................................................................................42

United States v. Conn. Nat’l Bank ,418 U.S. 656 (1974) ...........................................................................................................23, 26



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United States v. Griffith,334 U.S. 100 (1948) .......................................................................................................9, 10, 12

United States v. Grinnell Corp.,384 U.S. 563 (1966) .................................................................................................................35

United States v. Microsoft Corp.,253 F.3d 34 (D.C. Cir. 2001) ........................................................................................... passim

United States v. Paramount Pictures,334 U.S. 131 (1948) ......................................................................................................... passim

United States v. Paramount Pictures,70 F. Supp. 53 (S.D.N.Y. 1946).................................................................................................9

United States v. Phila. Nat’l Bank ,374 U.S. 321 (1963) ...........................................................................................................23, 26

United States v. Socony-Vacuum Oil Co.,310 U.S. 150 (1940) .................................................................................................................10

United States v. Visa U.S.A., Inc.,344 F.3d 229 (2d Cir. 2003).........................................................................................19, 21, 29

W. Duplicating, Inc. v. Riso Kagaku Corp.,2000 WL 1780288 (E.D. Cal. Nov. 21, 2000) .........................................................................22

Wampler v. Sw. Bell Tel. Co.,597 F.3d 741 (5th Cir. 2010) ...................................................................................................26

William Goldman Theatres v. Loew’s, Inc.,150 F.2d 738 (3d Cir. 1945).....................................................................................................34

York v. McHugh,698 F. Supp. 2d 101 (D.D.C. 2010) .........................................................................................12

STATUTES

15 U.S.C. § 1 .......................................................................................................................... passim

15 U.S.C. § 2 .......................................................................................................................... passim

D.C. Code § 28-4502 .................................................................................................................6, 42

D.C. Code § 28-4503 .................................................................................................................6, 42

RULES

Fed. R. Civ. P. 8(d)(3)....................................................................................................................18



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OTHER AUTHORITIES

Earl W. Kintner, Federal Antitrust Law (2013) .............................................................................22

Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of AntitrustPrinciples and Their Application (3d & 4th eds. 2011-2014) .................................................20



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In October of 2015, Landmark Theatres, an independent film exhibition company,

introduced an upscale, innovative new theater concept in the heart of Washington, D.C. with the

opening of its Atlantic Plumbing theater. Landmark’s six-screen theater offers an intimate and

upscale experience, with premium food and alcohol and oversized, plush leather seats.

Consumers who had long stopped going to the movies because of the long lines, dirty bathrooms,

harsh neon lighting, unpleasant crowds, and sold-out shows at Regal’s tired Gallery Place theater

in Chinatown would now have a choice—or so Landmark thought.

As soon as Landmark sought to license commercial films, it was uniformly told by film

distributors that Regal had requested—and they had granted—“clearance” over Landmark’s

theater. That is, they had agreed to license virtually all of their top commercial films—movies

like Star Wars and The Hunger Games —exclusively to Regal’s Gallery Place theater and not to

Landmark’s Atlantic Plumbing theater. This is despite the fact that, for years prior, Regal’s

Gallery Place had played films “day and date” with—i.e., had not requested clearance over—an

even closer theater in Union Station before that theater closed and left Regal with a monopoly in

the relevant market. As a result of Regal’s blanket clearance over Landmark’s Atlantic

Plumbing, Landmark has largely been licensed “the leftovers” and has been forced to fill its

screens with films few people want to see. Moviegoers who want to watch the popular, wide-

release films on the big screen are forced to see them at Regal’s Gallery Place or not at all. They

have been deprived of the higher quality and lower prices that Landmark sought to bring to the

District with its innovative new offering.

There is no procompetitive justification for the clearance agreements Regal has entered

into with distributors. Regal argues that it is in the economic interests of distributors to employ a

single exhibitor in the core of Washington, D.C. and that Landmark’s and Regal’s theaters are



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simply competing for single-exhibitor status. But the economics and realities of modern film

distribution and history of this film zone—alleged in the complaint—suggest just the opposite.

Today clearances impair, rather than serve, competition among commercial film

distributors. Specifically, clearance agreements do not, as they did during the 1940s and 1950s,

legitimately protect a local exhibitor from “free-riding” by competitors on an exhibitor’s

investment in promoting a distributor’s film: now distributors, not exhibitors, fund promotion.

Nor do clearances promote “interbrand competition” at the expense of “intrabrand competition”

or prevent “audience splitting”: in today’s digital age, the costs of distributing films to multiple

theaters is negligible, and “interbrand competition”—and a distributor’s own independent

interests—are served by exhibition in as many theaters as possible. In the core of the District, as

elsewhere, clearances serve only the economic interests of an exhibitor large enough to force

distributors to agree to them. Absent Regal’s demand for preferential treatment and exclusivity,

the distributors would be free to (and would) license their wide-release, commercial films to both

the Gallery Place and Atlantic Plumbing theaters for day-and-date play to maximize their box

office grosses in the zone and reach the widest audience possible.

The only purpose Regal’s blanket clearance serves is to protect its old, worn-out, low-

quality, high-priced theater from competition. Its effects are to stifle innovation, lower quality,

increase prices, run Landmark’s theater out of business, and deprive consumers in the core of the

District of the choice of where to see a movie. Regal’s blanket clearance is anticompetitive and

illegal under the federal and D.C. antitrust and tortious interference laws. Its motion to dismiss

Landmark’s complaint should be denied.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Regal is the largest movie theater circuit in the United States, with approximately 575

theaters nationwide and 24 theaters in the greater Washington, D.C. area alone. Amended



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Complaint (ECF No. 12) (“Compl.”) ¶ 16. Since 2004, it has operated the Regal Gallery Place

Stadium 14, a 14-screen, 3,350-seat theater in the heart of densely-populated downtown

Washington, D.C.’s Gallery Place/Chinatown district. Id. ¶¶ 39, 44, 52. The Gallery Place was

built over a decade ago and offers a substandard moviegoing experience to patrons: “long ticket

and concession lines, large, loud, and unpleasant crowds . . . , a virtually constant police presence,

sold-out shows, exorbitantly priced concessions, bag searches, dirty bathrooms, and standard

(non-plush/oversized) seating.” Id. ¶ 40.

Seeking to expand the market for moviegoing in the core of Washington, D.C. (“District

Core”) by offering a substantially different and higher-quality experience, in October of 2015,

Landmark opened its six-screen, 344-seat Atlantic Plumbing theater in the Shaw/Howard

University neighborhood of Washington, D.C. Id. ¶ 41. In addition to classic and alternative

concessions, Atlantic Plumbing offers a full bar with premium food and alcoholic beverages,

including specialty cocktails, a wide variety of beer and wine, and unique, upscale food options

such as mini crab cakes and organic crispy chickpeas. Id. ¶ 42. Food and drinks purchased in the

bar can be taken into any auditorium to enjoy while watching a movie. Id. The theater also offers

oversized, plush leather seats, advance reserved seating, and automated ticketing kiosks. Id.

Ticket prices are up to 30 percent lower than at Regal’s Gallery Place. Id. ¶ 43.

As a first-run, commercial film theater, Landmark’s Atlantic Plumbing sought to license

mainstream films like Star Wars and The Hunger Games from the major film distributors. Id.

¶¶ 66, 68. Landmark expected that distributors would license their wide releases to Landmark’s

and Regal’s theaters “day and date”—that is, for exhibition on the same dates. This expectation

was based on the fact that distributors had, for years before AMC’s and then Phoenix Theatre’s

Union Station 9 closed in 2009, licensed such films to that theater for day-and-date play with



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Regal’s Gallery Place, despite these theaters being only one mile away from each other and

operating substantially similar theaters. Id. ¶¶ 63-65, 82. In addition, Regal’s Gallery Place sells

out during prime showtimes, and Landmark expected to draw patrons back to the movies with a

substantially different experience. Id. ¶¶ 82-83. As such, there was and remains substantial

unmet demand for another theater showing mainstream films in the population-dense heart of

Washington, D.C. Id. ¶¶ 44, 52, 82-83. Indeed, distributors would maximize their films’ grossing

potential in this zone—as they used to do before the Union Station 9 closed—by licensing films

for day-and-date play, a practice that has become common in the commercial film industry. Id.

¶¶ 65, 73, 82.

Nevertheless, when Landmark contacted each of the major film distributors in an effort to

license their commercial films for exhibition at its Atlantic Plumbing theater, it was told

uniformly that Regal had requested a blanket “clearance” over Landmark’s Atlantic Plumbing

theater. Id. ¶ 66. In other words, Regal had requested that the film distributors agree to license

their films exclusively to Regal’s Gallery Place and not to license them to Landmark’s Atlantic

Plumbing theater for the entirety of each film’s first theatrical run (which today is the entirety of

a film’s theatrical exhibition life, after which it is released on video on demand). Id. ¶¶ 24-25.

Furthermore, Regal threatened to retaliate against any distributor that nevertheless licensed any

commercial film to Landmark: Regal would refuse to play the film at its Gallery Place theater

and reserved the right to disadvantage that distributor’s films’ prospects at any of its 575 theaters

across the country. Id. ¶ 67.

In response, the film distributors agreed to grant Regal’s request for clearance: they

agreed to license their highest-grossing films exclusively to Regal’s Gallery Place theater and not

to even offer to license those films to Landmark’s Atlantic Plumbing theater. Id. ¶ 69. For



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example, when Landmark sought to negotiate a license to exhibit Disney’s mega-blockbuster

Star Wars: The Force Awakens, Disney informed Landmark that it had already agreed to license

the film exclusively to Regal’s Gallery Place and not to license the film to Landmark under any

terms. Id. ¶¶ 68-69. The same occurred with respect to Lionsgate’s blockbuster The Hunger

Games: Mockingjay, Part 2, Sony’s blockbuster Spectre, Warner Bros.’ Our Brand Is Crisis, and

The Weinstein Company’s Burnt. Id. Landmark was forced to fill its screens with substantially

lower-grossing, less desirable films and specialty or art films that are not an adequate substitute

for the commercial films licensed to the Gallery Place. Id. ¶¶ 71, 86-87. As a result, the Atlantic

Plumbing theater was unable to serve the patrons it could have attracted had the distributors not

agreed with Regal to license their in-demand movies exclusively to Regal’s Gallery Place, and it

is threatened with going out of business if this conduct continues. Id. ¶¶ 74, 79, 88.

Regal’s blanket clearance has crippled competition in the District Core. Landmark’s

Atlantic Plumbing theater offers a higher-quality, more innovative, and lower-priced experience

than Regal’s Gallery Place, but its efforts to compete with Regal on the merits with these

offerings have been neutralized by its inability to access its most essential input—wide-release

commercial films. Id. ¶¶ 88-89. As a result, consumers who prefer Landmark’s theater are forced

to see their first-choice film at Regal’s theater and suffer a lower-quality, higher-priced

moviegoing experience—or, in the case of sold-out shows at the Gallery Place, not to see their

first-choice film at all. Id. ¶¶ 75-77. If the distributors continue to adhere to Regal’s demands,

Landmark’s Atlantic Plumbing theater will be forced to close its doors, resulting in even less

choice and output in the relevant market. Id. ¶ 88.

The relevant antitrust markets in which to analyze the anticompetitive effects of Regal’s

conduct are the markets to license and exhibit films in the District Core—a densely populated



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area roughly bounded to the south by the National Mall, to the east by North Capitol Street, and

to the northwest by Rock Creek/Rock Creek Park. Id. ¶ 44. As the complaint alleges, consumers

in the District Core generally do not travel outside this area to attend a theatrical film exhibition,

and vice versa; given a small but substantial, nontransitory increase in the prices charged by

commercial film exhibitors in the District Core, District Core consumers would not travel farther

afield to avoid the price increase. Id. ¶¶ 46, 48. This is due to a variety of fact-intensive market

realities: high population density, heavy traffic congestion, unfamiliarity with areas outside the

District Core, the sheer distance of more distant theaters, the inconvenience and expense of

traveling outside the zone, and the inaccessibility of theaters outside the District Core by Metro,

on which most District Core consumers depend. Id. ¶¶ 47, 49-52. There are high barriers to entry

into this market, and Regal controls over 90% of it. Id. ¶¶ 56-58.

In January 2016, Landmark filed a complaint against Regal seeking relief under the

federal antitrust and D.C. antitrust and tortious interference laws from Regal’s anticompetitive

conduct and agreements. ECF No. 1.1 Landmark alleges five distinct causes of action: circuit

dealing in violation of Sherman Act Sections 1 and 2 and D.C. Code Sections 28-4502 and 28-

4503 (Count I); contracts in restraint of trade in violation of Sherman Act Section 1 and D.C.

Code Section 28-4502 (Count II); monopolization (Count III) and attempted monopolization

(Count IV) in violation of Sherman Act Section 2 and D.C. Code Section 28-4503; and tortious

interference with business relations (Count V). Compl. ¶¶ 93-131. Regal has moved to dismiss

Landmark’s complaint. ECF No. 16.

1 Landmark slightly amended its complaint as of right in February 2016. ECF No. 12.



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ARGUMENT

Because Landmark’s complaint alleges in sufficient detail plausible antitrust claims under

federal and D.C. law, Regal’s motion should be denied.

First , Landmark alleges that Regal has engaged in per se illegal circuit dealing—a

distinct violation of the antitrust laws arising from the leveraging of Regal’s circuit power to

coerce film distributors into granting Regal preferential film licensing treatment and excluding

Landmark. Regal’s arguments for dismissal of Landmark’s circuit dealing claim ignore the

complaint’s allegations and misconstrue the governing case law.

Second —and regardless of whether the complaint plausibly alleges the distinct circuit

dealing claim—Regal’s clearance is unreasonable under United States v. Paramount Pictures,

334 U.S. 131 (1948), and its progeny, without the need to evaluate whether Landmark has

alleged a plausible relevant antitrust market or Regal’s power in that market. That is because

Landmark’s and Regal’s District Core theaters are not in “substantial competition.” Rather,

Landmark’s theater largely appeals to a different audience and offers a substantially different

moviegoing experience.

Third , Regal’s conduct is anticompetitive under the modern “rule of reason,” which

requires proof of Regal’s market power and harm to competition resulting from Regal’s

anticompetitive or exclusionary conduct. Here, the precise delineation of a relevant market is not

necessary to establish an antitrust violation because Landmark has alleged direct evidence of

Regal’s market power. Landmark’s complaint also alleges specific facts regarding consumer

preferences and practices and market realities that render the District Core a relevant antitrust

market and support a plausible inference of Regal’s ability to exercise market power in that

market.



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Landmark also alleges classic exclusionary conduct that has harmed competition. Based

on its false assumption that distributors want to contract with a single exhibitor in the District

Core, Regal speculates that distributors have decided not to license films to Landmark because

Landmark “has not made sufficiently attractive offers” (Motion 3) to win single-exhibitor status.

Regal’s arguments (a) ignore both the history of film-licensing in this zone and the economics of

modern commercial film distribution—under which the more theaters that show a distributor’s

film, the better—(b) contradict the allegations in the complaint, and (c) assume the outcome of a

fact-intensive inquiry that is for the jury—not this Court on a motion to dismiss—to resolve.

Landmark has also plausibly alleged that Regal’s conduct was not merely “unilateral.”

Contrary to Regal’s contention, clearances like those at issue here have been understood in the

case law as Section 1 agreements for decades, and for good reason: implicit (if not explicit) in

every license that a distributor grants to Regal’s Gallery Place is the distributor’s agreement not

to license that same film for day-and-date play to Landmark’s Atlantic Plumbing theater.

Furthermore, Landmark alleges specific facts supporting the inference that the exclusive licenses

at issue here are coerced agreements —not just unilateral responses to a unilateral announcement.

Finally, because Regal’s arguments for dismissing Landmark’s D.C. law claims are

derivative of its failing arguments for dismissal of Landmark’s Sherman Act claims, the D.C.

law claims survive as well. Regal’s motion should be denied in its entirety.

I. MOTION TO DISMISS STANDARD

“In analyzing a motion to dismiss, the court must accept the allegations in the complaint

as true and construe them in light most favorable to the plaintiff. . . . The complaint must be

liberally construed in the plaintiff’s favor, giving deference to inferences derived from the factual

allegations.” GTE New Media Servs., Inc. v. Ameritech Corp., 21 F. Supp. 2d 27, 40 (D.D.C.

1998); see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). “[A] plaintiff need only



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make sufficient allegations of fact ‘to raise a reasonable expectation that discovery will reveal

evidence of [the alleged violation].’ Accordingly, in antitrust cases, ‘summary procedures should

be used sparingly in complex antitrust litigation where motive and intent play leading roles’” and

“‘dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very

sparingly.’” Cloverleaf Enters., Inc. v. Md. Thoroughbred, Horsemen’s Ass’n, 730 F. Supp. 2d

451, 460 (D. Md. 2010) (quoting Twombly, 550 U.S. at 556; Hosp. Bldg. Co. v. Trs. of Rex Hosp.,

425 U.S. 738, 746 (1976)) (citation omitted). “Even if it is extremely unlikely that a plaintiff will

recover, a complaint may nevertheless survive a motion to dismiss for failure to state a claim,

and a court reviewing such a motion should bear in mind that it is testing the sufficiency of the

complaint and not the merits of the case.” Cobb Theatres III, LLC v. AMC Entm’t Holdings, Inc.,

101 F. Supp. 3d 1319, 1329 (N.D. Ga. 2015).2

II. THE COMPLAINT ADEQUATELY ALLEGES PER SE ILLEGAL CIRCUITDEALING

As Regal concedes (Motion 2), circuit dealing is the licensing of film on other than a

“theatre-by-theatre, film-by-film basis.” See Paramount , 334 U.S. at 154; United States v.

Paramount Pictures, 70 F. Supp. 53, 74 (S.D.N.Y. 1946); Flagship Theatres of Palm Desert,

LLC v. Century Theatres, Inc., 131 Cal. Rptr. 3d 519, 524 (Cal. Ct. App. 2011) (reciting the

“long-standing antitrust law requirement that films be licensed on a theater by theater, film by

film basis”). An exhibitor engages in unlawful circuit dealing when it uses its “strategic position”

gained by having “a monopoly of theatres in any one town” to “acquire exclusive privileges in a

city where he has competitors.” United States v. Griffith, 334 U.S. 100, 107 (1948); see

2 Were the Court to grant Regal’s motion, Landmark respectfully requests leave to amend

to cure any deficiencies. See Belizan v. Hershon, 434 F.3d 579, 583 (D.C. Cir. 2006)(“[D]ismissal with prejudice is warranted only when a trial court determines that the allegation ofother facts consistent with the challenged pleading could not possibly cure the deficiency.”)(emphasis and quotation marks omitted).



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Paramount , 334 U.S. at 154-55. Such conduct is “a misuse of monopoly power under the

Sherman Act” because “[t]he consequence of such [conduct] is that films are licensed on a non-

competitive basis in what would otherwise be competitive situations.” Griffith, 334 U.S. at 108

(exhibitor may not use the power it derives from its large circuit to “stifle competition by

denying competitors less favorably situated access to the market”); see Paramount , 334 U.S. at

154 (“unlawful” to “eliminate the opportunity for the small competitor to obtain the choice first

runs, and put a premium on the size of the circuit”).

“[C]ircuit dealing [is] considered [a] per se violation[] of the Sherman Act.” Cobb

Theatres, 101 F. Supp. 3d at 1343; Reading Int’l, Inc. v. Oaktree Capital Mgmt. LLC (“ Reading

II ”), 2007 WL 39301, at *7 (S.D.N.Y. Jan. 8, 2007). As Regal concedes, under the per se rule,

the plaintiff need not make “any showing of market power or [anti]competitive effects.” Motion

11 n.3; see United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940).3

Landmark adequately alleges circuit dealing here. First, it alleges that Regal derives

substantial power over distributors from its status as the largest exhibitor circuit in the United

States, its numerous theaters in “closed towns” across the country where it is the only outlet for

distributors’ films, and its dominance in the greater Washington, D.C. area. Compl. ¶ 16.

Second, Landmark alleges that Regal demanded that distributors “deny[] [its] competitor[]

[Landmark] less favorably situated access to the market,” Griffith, 334 U.S. at 108, and

“eliminate the opportunity for the small competitor [Landmark] to obtain the choice first runs,”

3 Regal does not appear to dispute that circuit dealing is per se illegal under Paramountand its progeny (Motion 11 n.3). Rather, it unremarkably points out ( id.) that contracts inrestraint of trade and monopolization in the absence of circuit dealing are evaluated under therule of reason. To the extent Regal is contending that the per se rule does not apply, “the Courtneed not engage in a market analysis until the Court decides whether to apply a per se or rule ofreason analysis,” and “that decision is more appropriate on a motion for summary judgment.” Inre High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103, 1122-23 (N.D. Cal. 2012). It issufficient at this stage that Landmark has pled a per se claim. See id.



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Paramount , 334 U.S. at 154, by licensing their films exclusively to Regal’s Gallery Place theater

and not to Landmark. Compl. ¶ 67. Third, Landmark alleges that Regal backed this demand to

deprive Landmark of the inputs it needs to compete with the threat that Regal could and would

disadvantage distributors’ films across Regal’s circuit—including in its closed towns and its

numerous theaters throughout Washington, D.C.—if the distributors did not comply. Id.; see id.

¶ 62. The distributors, fully cognizant of Regal’s ability to deprive them of substantial grosses on

their films across the country, bowed to Regal’s demand and, contrary to their own economic

interests, agreed not to license their “choice first runs” to Landmark. Id. ¶ 69, 71-72.4

Ignoring these allegations, Regal argues (Motion 8) that the complaint fails to allege that

Regal “threatened to use its national circuit to deny the Atlantic Plumbing a single film.” That is

simply not true. Landmark specifically alleges that Regal’s demand for a blanket clearance over

all films in favor of its Gallery Place theater included the “message” that “[i]f you license a

commercial film to Landmark’s Atlantic Plumbing theater, Regal can and will use its monopoly

power in the District Core, its dominance in the greater D.C. DMA, and its national circuit

power, to retaliate against you,” including “by reserving the right to disadvantage your film’s

prospects at any of Regal’s 575 theaters across the country.” Compl. ¶ 67; see, e.g., Cobb

Theatres, 101 F. Supp. 3d at 1343 (denying motion to dismiss circuit dealing claim where

demand for blanket clearance allegedly “operated as a demand that those distributors grant

[defendant] preferential treatment or, alternatively, ‘risk being denied the grossing potential of

4 The complaint also quotes Regal’s annual report, in which Regal states that the “size ofour theatre circuit is a significant competitive advantage for negotiating attractive nationalcontracts.” Compl. ¶ 61; see Motion 10. Landmark did not “misquote” this statement (Motion10). It quoted the excerpt, ending with “negotiating,” and indicated as much with a close-quotation mark. Compl. ¶ 61. It then accurately paraphrased “negotiating attractive nationalcontracts” as “negotiating with suppliers, including distributors.” Id. Regal’s admission that itssize gives it an advantage in negotiating national contracts is at least circumstantial evidence thatRegal has power over its suppliers, including distributors.



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[defendant’s competing] theater[] and, implicitly, some or all of the theaters in its entire circuit ”)

(quoting complaint). A dominant exhibitor need not “be [so] crass” as to “make[] [an explicit]

threat to withhold the business of his closed or monopoly towns unless the distributors give him

the exclusive film rights in the towns where he has competitors” to be held to have engaged in

circuit dealing. Griffith, 334 U.S. at 108; see Cobb Theatres, 101 F. Supp. 3d at 1344 (same).

The complaint alleges that Regal has consciously not licensed films on a “theater by

theater, film by film basis” (Motion 9), has demanded a blanket clearance in the District Core—

covering all films from all distributors—and has backed that demand by the power of its circuit.

That is circuit dealing, and it violates the Sherman Act. Without the benefit of discovery, it is

difficult to imagine what additional “facts” (Motion 8) Landmark could possibly have alleged.5

Next, Regal argues that Landmark has not ruled out the possibility of the distributors’

unilateral conduct (Motion 9). But at the Rule 12 dismissal stage, the plaintiff is not required to

“eliminate the possibility of independent action . . . even if defendants’ allegations are also

plausible.” Oxbow Carbon & Minerals LLC v. Union Pac. R.R. Co., 81 F. Supp. 3d 1, 13 & n.9

(D.D.C. 2015). Rather, the complaint need allege only “plausible grounds to infer” liability.

Twombly, 550 U.S. at 556. Regal’s argument is appropriate for the summary judgment (not Rule

12) stage. See Jung v. Ass’n of Am. Med. Colls., 300 F. Supp. 2d 119, 158-59 (D.D.C. 2004).

5 Regal cites legalese in its annual report to the effect that it supposedly licenses films on a

“film-by-film and theatre-by-theatre basis” (Motion 10). The Court may not consider thisstatement because Regal’s annual report is not “central” to Landmark’s complaint. Cooper v.First Gov’t Mortg. & Inv’rs Corp., 206 F. Supp. 2d 33, 36 (D.D.C. 2002). At most, the Court cantake judicial notice of the unremarkable and wholly irrelevant fact that Regal self-servingly madethis statement, but not for the truth of the matter asserted. See Kramer v. Time Warner Inc., 937F.2d 767, 774 (2d Cir. 1991). Regal’s annual report also admits that the “size of our theatrecircuit is a significant competitive advantage for negotiating attractive national contracts,”Motion 10, suggesting negotiation on other than a film-by-film and theater-by-theater basis. Atmost, these statements create a genuine dispute of fact as to whether Regal does, in fact, engagein film-by-film, theater-by-theater licensing, which cannot be resolved at this stage. See York v. McHugh, 698 F. Supp. 2d 101, 107 (D.D.C. 2010).



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Regal’s belief that the complaint’s allegations support an alternative explanation for Regal’s

conduct does not “contradict[]” or “undermine[]” (Motion 9) Landmark’s plausible claims.

Finally, Regal implies that a circuit dealing claim requires a showing that the defendant

“threatened to forego playing a distributor’s films at all of [its] theatres nationwide” and argues

that such a “suggestion” that Regal did so here “makes no sense” (id. at 11). But “[n]othing in

the discussion in any of th[e] [Supreme Court circuit dealing] cases suggests that prohibited

circuit dealing is limited to agreements that cover all of the theaters in a circuit. Rather, they

suggest that it is not so limited.” Flagship, 131 Cal. Rptr. 3d at 533 (rejecting same

misconstruction of case law that Regal makes here). By Regal’s logic, no circuit dealing claim

could ever be “plausible” because it would never “make sense” for a dominant exhibitor to

threaten to use its “large buying power” and “combin[e] its closed and open towns” to force

distributors not to deal with small exhibitors in discrete local markets. Schine Chain Theatres v.

United States, 334 U.S. 110, 115 (1948). Such conduct not only is plausible; it has actually

occurred and led to the creation of an entire body of Supreme Court case law outlawing it.

III.

THE COMPLAINT ADEQUATELY ALLEGES NON-CIRCUIT DEALING-BASED VIOLATIONS OF THE SHERMAN ACT

Contrary to Regal’s false refrain (Motion 2, 7, 12), Landmark’s four distinct antitrust

claims do not all “depend” on the “theory” that Regal has engaged in circuit dealing. Only one of

its claims—the circuit dealing claim (Count I)—does. While Count I does in fact properly allege

a plausible circuit dealing claim under well-established precedents, Counts II, III, and IV are

non-circuit dealing claims that Regal has entered into contracts in restraint of trade and has

monopolized and attempted to monopolize the markets for film licensing and exhibition in the

District Core. Unlike the circuit dealing claim, these claims do not require Landmark to establish

that Regal has engaged in non-film-by-film or non-theater-by-theater film licensing, or leveraged



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its power outside of the District Core to gain an unfair advantage in it. Rather, they require only a

showing of unreasonableness and, in the case of Count II, “some form of joint action [that]

satisf[ies] the contracts, combinations, or conspiracy requirement” of Sherman Act Section 1.

Kreuzer v. Am. Acad. of Periodontology, 735 F.2d 1479, 1485 (D.C. Cir. 1984); see United

States v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001).6

Landmark’s complaint meets these requirements. It adequately alleges violations of the

Sherman Act under both the Paramount substantial competition test and the modern rule of

reason, and it alleges specific facts permitting the plausible inference of concerted conduct.

A. Regal’s Blanket Clearance Fails the Paramount Substantial Competition Test

In its landmark Paramount decision, the U.S. Supreme Court announced: “There should

be no clearance between theatres not in substantial competition.” 334 U.S. at 146. The Court

recognized the following factors as bearing on whether two theaters are in “substantial

competition” and thus whether a clearance is unreasonable.

(1) The admission prices of the theatres involved, as set by theexhibitors;

(2) The character and location of the theatres involved, includingsize, type of entertainment, appointments, transit facilities, etc.;

(3) The policy of operation of the theatres involved, such as theshowing of double features, gift nights, give-aways, premiums,cut-rate tickets, lotteries, etc.;

(4) The rental terms and license fees paid by the theatres involvedand the revenues derived by the distributor-defendant from suchtheatres;

(5) The extent to which the theatres involved compete with each

other for patronage;

(6) The fact that a theatre involved is affiliated with a defendant-distributor or with an independent circuit of theatres should be

6 Landmark’s attempted monopolization claim also requires an allegation of Regal’s intentto monopolize, see Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993), but Regaldoes not argue—nor could it—that the complaint fails to allege this element. See Compl. ¶ 119.



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disregarded[.]

Id. at 145-46; see Quad Cinema Corp. v. Twentieth Century-Fox Film Corp., 1983 WL 1822, at

*6 (S.D.N.Y. May 12, 1983) (“[T]he ‘reasonableness’ of a clearance policy . . . is nothing more

than the converse of the question of what constitutes ‘substantial competition’ in a given case.”);

Seven Gables Corp. v. Sterling Recreation Org. Co., 1987 WL 56622, at *9 (W.D. Wash. June

25, 1987) (“A clearance may only be granted against a theater ‘in substantial competition’ with

the theater obtaining the license.”).

Thus, under Paramount and its progeny, clearances between two theaters not in

substantial competition violate the Sherman Act, without the need to define the boundaries of a

relevant market or the defendant’s power in that market, or otherwise engage in a full-blown

rule-of-reason analysis. For example, in Paramount , the Supreme Court affirmed the district

court’s finding that the clearances in that case “had no relation to the competitive factors which

alone could justify them” and held that that “evidence” was “adequate,” on its own, “to support

the finding of a conspiracy to restrain trade by imposing unreasonable clearances.” 334 U.S. at

146, 147. It upheld an injunction against the “granting [of] any clearance between theatres not in

substantial competition.” Id. at 147. And in Chicago Ridge Theatre Ltd. Partnership v. M & R

Amusement Corp. (“Chicago Ridge II ”), 855 F.2d 465 (7th Cir. 1988), the Seventh Circuit

specifically distinguished between the substantial competition test and the modern rule-of-reason

test: whereas the former asks only whether the two theaters are in substantial competition, under

the rule of reason, the plaintiff must show the defendant’s market power. Id. at 471.

Notably, the Chicago Ridge II court explicitly acknowledged that Paramount “is the last

word from the Supreme Court directly addressing the antitrust ramifications of clearances in the

distribution and exhibition of motion pictures” and thus remains controlling law. Id. at 470-71. In

other words, unless and until the Supreme Court revisits Paramount , a plaintiff can prove that



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clearances violate the Sherman Act by showing that its theater is not in substantial competition

with the defendant’s, without defining a relevant market, showing the defendant’s power in that

market, or demonstrating that the anticompetitive effects of the clearances outweigh any

procompetitive benefits proffered by the defendant. See, e.g., Reading II , 2007 WL 39301, at

*10-16 (evaluating clearances (a) as “exclusive licenses” under modern rule of reason, and

separately, (b) as “clearance agreements” under Paramount ’s substantial competition test).

Landmark’s complaint alleges with factual specificity that its Atlantic Plumbing theater is

not in substantial competition with Regal’s Gallery Place. On the first Paramount factor—

admission prices—the complaint alleges that Landmark’s ticket prices are up to 30 percent lower

than Regal’s. Compl. ¶ 43. The “character and location of the theatres involved, including size,

type of entertainment, appointments, transit facilities, etc.,” Paramount , 334 U.S. at 145, also

militate against a finding of substantial competition. Landmark’s theater has less than half of the

screens and one-tenth of the seats of the Gallery Place. Compl. ¶¶ 39, 41. And unlike the routine

(and shopworn) facilities at Gallery Place, Landmark’s Atlantic Plumbing theater offers a full-

service bar and upscale food items; allows patrons to bring alcoholic beverages into the

auditoriums; offers reserved seating; and features oversized, plush leather seats. Id. ¶¶ 40, 42.

Landmark also alleges minimal overlap in the theaters’ respective patronage, see Paramount ,

334 U.S. at 145: while the Gallery Place attracts large, loud, and often unpleasant crowds

(including teens and children), Landmark’s Atlantic Plumbing theater caters to “a more mature

audience seeking a more refined movie theater experience.” Compl. ¶¶ 40, 83. Finally, for years

before it closed, Regal played day and date with an even closer and more similar theater. Id.

¶¶ 63-65. These factual allegations, which must be taken as true, support a plausible inference



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that Regal’s and Landmark’s theaters are not in substantial competition. If they are not, Regal’s

blanket clearance violates the Sherman Act.

Regal improperly ignores these allegations and misconstrues the complaint in arguing

(Motion 31-32) that the two theaters “‘substantially compete’ for the same customers.” First,

Regal falsely states that the complaint “expressly asserts that the ‘Atlantic Plumbing theatre is in

competition with [the Gallery Place] for many of the same patrons.’” Motion 31 (quoting Compl.

¶ 53) (alterations in original). In fact, that paragraph of the complaint alleges only that Regal’s

pattern of demanding blanket clearances over Landmark’s Atlantic Plumbing theater, but not

farther-afield theaters, “reflects Regal’s estimation” that only the Atlantic Plumbing theater—and

not the farther-afield theaters—are in competition with the Gallery Place at all. Compl. ¶ 53

(emphasis added). The complaint alleges substantial differences between the two theaters’

customer bases, see id. ¶¶ 40, 83—not, as Regal argues, the opposite.

The only other allegations Regal cites for its “substantial competition” proposition are

allegations in the complaint supporting an inference that there is any competition at all between

Regal’s and Landmark’s theaters. See Motion 31. But “Paramount requires the plaintiff[] to

show the absence only of substantial competition, not the absence of all competition.” Chi.

Ridge Theatre Ltd. P’ship v. M & R Amusement Corp., 732 F. Supp. 1503, 1512 (N.D. Ill. 1990)

(second emphasis added). Indeed, Regal’s argument—that an allegation of any competition

between two theaters negates an allegation of no substantial competition and renders a clearance



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“presumpti[vely] . . . lawful”) (Motion 32)—is a “twist of logic” that “would defeat all unlawful

clearance cases” and is not the law. Quad Cinema, 1983 WL 1822, at *6 n.6.7

Finally, Regal’s argument that Landmark’s complaint fails the substantial competition

test (Motion 32) cites exclusively summary judgment cases and one bench trial case in which

courts made the substantial-competition determination on a full record. Those cases are

inapposite here, at the motion to dismiss stage. See Reading Int’l, Inc. v. Oaktree Capital Mgmt.

LLC (“ Reading I ”), 317 F. Supp. 2d 301, 321-22 (S.D.N.Y. 2003). Because Landmark alleges

facts supporting a plausible inference that its Atlantic Plumbing theater is not in substantial

competition with Regal’s Gallery Place theater—which must be taken as true—Landmark’s

Sherman Act claims survive Regal’s motion to dismiss.

B. The Complaint Adequately Alleges Sherman Act Violations Under theModern Rule of Reason

As discussed, Landmark’s antitrust claims survive Regal’s motion to dismiss without the

need to establish a prima facie case under the modern rule of reason. But Landmark’s complaint

does this, too. Specifically, Landmark pleads direct and circumstantial evidence of Regal’s

market power, and that Regal has engaged in exclusionary conduct that has harmed competition.

Under the modern rule of reason, a plaintiff shows a violation of the Sherman Act by (1)

making a threshold showing of the defendant’s market or monopoly power and (2) establishing

that the defendant’s conduct was anticompetitive. See Leegin Creative Leather Prods., Inc. v.

PSKS, Inc., 551 U.S. 877, 885-86 (2007); Microsoft , 253 F.3d at 58-59. Market or monopoly

power is “the power to control prices or exclude competition” and can be proven by either direct

7 As discussed above, Landmark’s allegation of no substantial competition is not

inconsistent with its allegations of some competition between the Gallery Place and AtlanticPlumbing theaters. In any event, a plaintiff may “properly plead alternative theories of liability,regardless of whether such theories [a]re consistent with one another.” Scott v. District ofColumbia, 101 F.3d 748, 753 (D.C. Cir. 1996) (citations omitted); see Fed. R. Civ. P. 8(d)(3).



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or circumstantial evidence. Microsoft , 253 F.3d at 51; Image Tech. Servs., Inc. v. Eastman Kodak

Co., 125 F.3d 1195, 1202 (9th Cir. 1997). Direct proof of market power is evidence that a firm

has profitably reduced output and raised prices above competitive levels or excluded

competitors. Microsoft , 253 F.3d at 51 (citing FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460-

61 (1986)); Theme Promotions, Inc. v. News Am. Mktg. FSI , 546 F.3d 991, 1001 (9th Cir. 2008);

Re/Max Int’l v. Realty One, Inc., 173 F.3d 995, 1018 (6th Cir. 1999). Circumstantial proof of

market power, by contrast, involves an “examin[ation] [of] market structure.” Microsoft , 253

F.3d at 51. “Under this structural approach, monopoly power may be inferred from a firm’s

possession of a dominant share of a relevant market that is protected by entry barriers.” Id.; see

Theme Promotions, 546 F.3d at 1001.

“Because market share and barriers to entry are merely surrogates for determining the

existence of monopoly power, . . . direct proof of monopoly power does not require a definition

of the relevant market.” Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 n.3 (3d Cir.

2007) (collecting cases). As the D.C. Circuit has explained, “[t]he definition of the relevant

market has no independent significance under the Sherman Act. It relates only to the

determination of whether a defendant possesses monopoly power.” S. Pac. Commc’ns Co. v. Am.

Tel. & Tel. Co., 740 F.2d 1011, 1020 (D.C. Cir. 1984); see Ind. Fed’n of Dentists, 476 U.S. at

460-61. As such, “an antitrust plaintiff is not required to rely on indirect evidence of a

defendant’s monopoly power, such as high market share within a defined market, when there is

direct evidence that the defendant has actually set prices or excluded competition.” Re/Max Int’l,

173 F.3d at 1018; see United States v. Visa U.S.A., Inc., 344 F.3d 229, 239 (2d Cir. 2003); see,

e.g., In re Nexium (Esomeprazole) Antitrust Litig., 968 F. Supp. 2d 367, 389 (D. Mass. 2013)



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(“This Court need not engage in an extensive analysis of circumstantial evidence of market

power because direct evidence of such power is available.”).

1. The Complaint Alleges Direct Evidence of Regal’s Market Power

Regal argues (Motion 17) that Landmark’s non-circuit dealing claims must be dismissed

if Landmark fails to allege a plausible relevant market and that, without a relevant market,

Landmark cannot prove that Regal has market power. As already discussed, Regal is wrong.8

Regal’s ability to reduce output, raise prices, and exclude competitors is direct evidence

of its market power. Landmark has alleged that its Atlantic Plumbing theater offers a superior

consumer experience than does Regal’s Gallery Place—with its dirty bathrooms, long lines, old,

traditional theater seats, substantially fewer amenities, and a generally less pleasant environment.

Compl. ¶¶ 40, 42. The Gallery Place nevertheless charges up to 30 percent more for reserved

tickets. Id. ¶ 43. This is direct evidence that Regal has market power—the power to raise prices

above and to reduce output (here quality) below competitive levels. See 11 Phillip E. Areeda &

Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application

(hereinafter “Areeda”) ¶ 1912f (3d ed. 2011) (reduction in quality constitutes “reduction in

‘output’”); see also Babyage.com, Inc. v. Toys “R” Us, Inc., 558 F. Supp. 2d 575, 583 (E.D. Pa.

2008) (“Hallmarks of . . . actual harm [to competition] include an increase in retail prices above

and beyond what they would be under competitive conditions, a reduction in output below what

it would be under competitive conditions, and a deterioration in quality and service.”).

8 The cases Regal cites for the proposition that “[e]stablishing the contours of thegeographic market is the necessary predicate” for alleging Landmark’s rule-of-reason claims(Motion 17) stand instead for a much more limited proposition: that when a plaintiff proceedsonly on a market-structural (circumstantial evidence) approach to establishing market power, awell-defined relevant market is required. When the plaintiff presents direct evidence of market power, it is not.



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Further direct evidence of Regal’s market power is its ability to exclude Landmark’s

theater from access to desirable first-run commercial films by strong-arming all of the

distributors into licensing almost all such films exclusively to Regal’s Gallery Place theater,

notwithstanding the distributors’ contrary business interests in licensing films for day-and-date

play at multiple theaters. Compl. ¶ 73. Indeed, Regal concedes in its motion that it has been able

to do so solely because of its size—i.e., power in the market—relative to Landmark. See Motion

9 (arguing that Regal’s Gallery Place has secured virtually all of the film product in the District

Core because it “offers significantly more seats”). This is perhaps the most convincing direct

evidence of Regal’s market power:

Dealers cannot force an unwilling manufacturer to restrictintrabrand competition to their advantage unless they possess some power over it. Of course, there is no better demonstration of powerthan its exercise. Suppose, for example, that a manufacturerexplicitly declared that distribution restraints would be inefficient but nevertheless adopted them after dealers threatened, “Restrainintrabrand competition or we cease handling your product.” Theresulting restraint could then be readily attributed to dealer powerand fairly judged unreasonable.

8 Areeda ¶ 1604g.9 Because Landmark has alleged direct evidence of Regal’s market power, its

rule-of-reason claims survive regardless of whether Landmark has alleged a plausible relevant

market.10

9 See, e.g., Visa, 344 F.3d at 240 (“[Plaintiff], despite repeated recent attempts, has beenunable to persuade any issuing banks . . . to utilize its network services because [defendants’]exclusivity rule would require such issuing banks to give up membership in [defendants’]consortiums, and banks are unwilling to do so. In short, [defendants] have demonstrated their power in the network services market by effectively precluding their largest competitor fromsuccessfully soliciting any bank as a customer.”).



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2. The Complaint Alleges Circumstantial Evidence of Regal’s MarketPower

As discussed, Landmark has alleged direct evidence of Regal’s market power, thus

obviating the need to allege Regal’s market power through a market-structural approach. But

Landmark has alleged that too.

The relevant market is defined generally as “the area of effective competition,” Brown

Shoe Co. v. United States, 370 U.S. 294, 324 (1962), “to which the purchaser can practicably

turn for supplies,” Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961). “[S]uch

economic and physical barriers to expansion as transportation costs, delivery limitations and

customer convenience and preference” and “[t]he location and facilities of other producers and

distributors” are “essential in determining the relevant geographic market.” L.A. Draper & Son v.

Wheelabrator-Frye, Inc., 735 F.2d 414, 423 (11th Cir. 1984). “[M]arkets involving services that

can only be offered from a particular location,” like movie theaters, “will often be defined by

how far consumers are willing to travel.” Cobb Theatres, 101 F. Supp. 3d at 1336 (quoting Earl

W. Kintner, Federal Antitrust Law § 10.15 (2013)); see T. Harris Young & Assocs., Inc. v.

Marquette Elecs., Inc., 931 F.2d 816, 823 (11th Cir. 1991) (“customer convenience and

preference . . . must be considered” in determining whether “consumers within the geographic

area cannot realistically turn to outside sellers should prices rise within the defined area”). But

unlike “[b]usiness firms [that] maximize profits, which depend on the cost and value of such

inputs as fuel, wages, and the like[,] . . . consumers . . . place different subjective values on their

10 See, e.g., W. Duplicating, Inc. v. Riso Kagaku Corp., 2000 WL 1780288, at *5 (E.D. Cal. Nov. 21, 2000) (denying defendant’s motion to dismiss because it was “directed solely at[plaintiff’s] circumstantial proof of market power” but plaintiff had “alleged direct proof ofmarket power,” which was sufficient); High-Tech Employee, 856 F. Supp. 2d at 1122 (denyingmotion to dismiss for failure to allege plausible relevant market because defendants’ market power was established with allegations that they “succeeded in lowering the compensation andmobility of their employees below what would have prevailed in a lawful and properlyfunctioning labor market”); Nexium, 968 F. Supp. 2d at 389.



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time and willingness to travel. These differing values cannot readily be captured by

transportation costs or other objective factors.” 2B Areeda ¶ 553a.

Thus it is not surprising that “[t]he Supreme Court has recognized that an ‘element of

fuzziness would seem inherent in any attempt to delineate the relevant geographical market,’ and

therefore ‘such markets need not—indeed cannot—be defined with scientific precision.’” FTC v.

Sysco Corp., 113 F. Supp. 3d 1, 48 (D.D.C. 2015) (quoting United States v. Conn. Nat’l Bank ,

418 U.S. 656, 669 (1974) (quoting United States v. Phila. Nat’l Bank , 374 U.S. 321, 360 n.37

(1963))); id. at 51-52 (defining relevant market is “thorny” task). For this reason, dismissal at the

Rule 12 stage for failure to allege a relevant geographic market is disfavored. Todd v. Exxon

Corp., 275 F.3d 191, 199-200 (2d Cir. 2001).11

Moreover, “[t]here is no requirement that the market definition elements of the antitrust

claim be pled with specificity.” High-Tech Employee, 856 F. Supp. 2d at 1122 (alteration

omitted). “An antitrust complaint therefore survives a Rule 12(b)(6) motion unless it is apparent

from the face of the complaint that the alleged market suffers a fatal legal defect” or the alleged

market definition is “facially unsustainable.” Id.

The complaint here alleges that the relevant geographic market is the District Core—the

densely populated area of Northwest Washington, D.C. roughly bounded to the northwest by

Rock Creek/Rock Creek Park. Compl. ¶ 44. Consumers desiring to see a movie and already

present in the District Core (whether for work, shopping, or some other reason, or because they

live there) “generally do not travel outside of this area to attend a theatrical film exhibition,” and

11 See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 442 (4th Cir.

2011) (“determining the relevant geographic market is a fact-intensive exercise centered on thecommercial realities of the market and competition”); Syufy Enters. v. Am. Multicinema, Inc.,793 F.2d 990, 994 (9th Cir. 1986) (“Relevant market is a factual issue which is decided by the jury.”).



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would not do so even if prices increased a small but substantial amount. Id. ¶¶ 45-46. This

reluctance to travel outside the Core once in it to see a movie is driven by a variety of factors that

differ from consumer to consumer, including “the time and expense of traveling farther afield,”

“the discomfort and uncertainty associated with visiting unfamiliar neighborhoods,” the Metro-

inaccessibility of some theaters outside the zone, and high population density and heavy traffic

congestion in the District Core. Id. ¶¶ 47, 51-52.

These allegations are sufficient to establish the relevant market at this stage of the case.

See, e.g., Cobb Theatres, 101 F. Supp. 3d at 1336 (plaintiff adequately “demonstrated why the

market should . . . exclude . . . theatres” farther afield from the relevant market but within the

same metropolitan area by alleging that “moviegoers in the [alleged relevant market] are not

willing to travel outside of the area to watch movies because of significant population density

and heavy traffic congestion”); IHS Dialysis Inc. v. Davita, Inc., 2013 WL 1309737, at *5

(S.D.N.Y. Mar. 31, 2013) (plaintiffs sufficiently pled relevant geographic markets comprised of

distinct subregions of metropolitan areas where plaintiffs alleged consumers were “unwilling or

unable to travel long distances” to obtain relevant services).

None of Regal’s arguments supports dismissal. First, Landmark does not “admit”

(Motion 18) that “many other first-run commercial theatres are located right outside the ‘District

Core.’” To the contrary, the complaint alleges with factual particularity why AMC’s Loews

Georgetown 14, AMC’s Courthouse Plaza 8 near Arlington, AMC’s Uptown 1 in Cleveland Park,

AMC’s Mazza Gallerie in Friendship Heights, ArcLight’s North Bethesda theater, and Regal’s

Bethesda theater are generally not “reasonable alternatives” for the theaters in the District Core.

For example, AMC’s Georgetown theater has no Metro stop, Compl. ¶ 51, and the same is true

for ArcLight’s North Bethesda theater. The Gallery Place and Atlantic Plumbing theaters are



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within walking distance of vast swaths of the District Core and are also familiar to consumers

therein; neither can be assumed true of theaters in Arlington, Friendship Heights, and Bethesda.

Id. ¶ 47. And driving times to theaters outside the District Core—particularly given heavy traffic

congestion—substantially exceed the time required to get to theaters within it. Id. ¶ 52. Moreover,

that Regal has demanded clearance over Landmark’s theater—but not the other theaters it argues

should be included in the market, see id. ¶ 53—is further circumstantial evidence that Regal

views Landmark—but not these other theaters—as its competition. See Brown Shoe, 370 U.S. at

325 (“boundaries of . . . []market may be determined by examining such practical indicia as

industry or public recognition of the []market as a separate economic entity”) (contra Motion 24

n.8). Although a defendant’s trade area does not by definition constitute a relevant market, here

Regal’s internal view of competition in the District Core is at least a factor relevant to the

analysis. For Rule 12 purposes, Landmark’s detailed factual allegations are sufficient to establish

the plausibility of the District Core as the relevant market.

Next, cherry-picking specific routes, Regal quibbles (Motion 19-21, 23 n.6) that

consumers at the extreme southwest periphery of the relevant market are physically closer to

AMC’s Georgetown theater, and have a shorter Metro ride to AMC’s Courthouse Plaza theater

in Arlington, than to Regal’s Gallery Place and Landmark’s Atlantic Plumbing; and that

consumers at the extreme northwest periphery are closer to a single-screen theater in Cleveland

Park that shows one movie at a time (AMC’s Uptown 1) than they are to Regal’s Gallery Place.

But relevant market analysis turns on the options available to a substantial number of in-

market consumers, not whether any consumer in the relevant market would have sources outside

the market to turn to in response to an intra-market price increase. A relevant market may

“exclude any other [source] to which, within reasonable variations in price, only a limited



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number of buyers will turn.” Sysco, 113 F. Supp. 3d at 26-27 (emphasis added) (quoting Times-

Picayune Publ’g Co. v. United States, 345 U.S. 594, 612 n.31 (1953)). In other words, there will

always be “fuzziness” such as Regal identifies at the periphery of a relevant geographic market.

Conn. Nat’l Bank , 418 U.S. at 669.12 That a “limited number of buyers” at the periphery of the

relevant market may consider a few other theaters to be reasonable alternatives does not render

Landmark’s relevant market implausible. See Conn. Nat’l Bank , 418 U.S. at 669-70 (plaintiff

need only “delineat[e] the rough approximation of [the relevant] market[]”).13 Were it otherwise,

no plaintiff could ever establish a defendant’s market power through a structural proof.

Regal next points out (Motion 21) that many people live inside the District Core but work

outside it, or vice versa. But Landmark defines the market not as people who live inside the

District Core, but as “consumers” who already are, or will be, in the District Core when they

want to see a movie. Compl. ¶ 46; see, e.g., Quad Cinema, 1983 WL 1822, at *5 (asking what

percentage of patrons of theaters in proposed relevant market “lived, worked, or came from some

12 See 2B Areeda ¶ 530d (“Whatever the market urged . . . , the other party can usuallycontend plausibly that something relevant was left out, that too much was included, or thatdividing lines between inclusion and exclusion were arbitrary. The Supreme Court has wiselyrecognized there is ‘some artificiality’ in any boundaries, but that ‘such fuzziness’ is inherent in bounding any market.”) (footnote omitted) (quoting Phila. Nat’l Bank , 374 U.S. at 360 n.37).13

In the cases Regal cites, by contrast, the plaintiff included only “a bare allegation” of therelevant geographic market with no supporting facts, Sky Angel U.S., LLC v. Nat’l CableSatellite Corp. (“Sky Angel I ”), 947 F. Supp. 2d 88, 104 (D.D.C. 2013); egregiouslygerrymandered the market to include, for example, only vending machines on a single collegecampus, E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass’n, Inc., 357 F.3d 1, 7 (1st Cir.2004); or affirmatively alleged facts that contradicted its proposed relevant market, see Little Rock Cardiology Clinic PA v. Baptist Health, 591 F.3d 591, 600-01 (8th Cir. 2009); see also, e.g.,Wampler v. Sw. Bell Tel. Co., 597 F.3d 741, 744-46 (5th Cir. 2010) (alleging that a singleapartment building constituted a relevant geographic market); Concord Assocs. L.P. v. Entm’tProps. Trust , 817 F.3d 46, 53 (2d Cir. 2016) (failing to allege any facts establishing why“Catskills gambling market” was local); Apani Sw., Inc. v. Coca-Cola Enters., Inc., 300 F.3d 620,627 (5th Cir. 2002) (inexplicably excluding non-city-owned facilities from relevant market); Mathias v. Daily News, L.P., 152 F. Supp. 2d 465, 483 (S.D.N.Y. 2001) (“vague” and“contradictory” allegations of relevant market lacking any facts).



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activity [therein]”). This is based on the commonsense assumption, reinforced by decades of

consumer experience, that people do not generally time when they see a movie around their

commutes to and from work and therefore do not consider all theaters near where they work and

live, and in between, when they decide which theater to patronize (contra Motion 21-22). Rather,

whether people spontaneously decide to see a movie, or plan to see one at a certain date and time

(overwhelmingly on Friday nights or the weekend, not when they are going to or from work),

they generally choose from theaters that they are near, or will be near, at the time. This is

common sense. Regal’s strained theory of consumer decision-making about when and where to

see a movie is at most a factual question that cannot be decided at this stage, especially when

discovery from Regal’s own marketing files will likely prove just the opposite.14

Finally, Regal essentially argues (Motion 22-23) that all Metro-accessible theaters in the

greater Washington, D.C. area should be included in the relevant market, using cherry-picked

14 This case is nothing like Reading II , on which Regal heavily relies. As an initial matter,that case was decided on summary judgment. In any event, in that case, the plaintiff admittedthat the zone in which the plaintiff’s and defendant’s theaters were located—Union Square in New York City—was a destination location for moviegoing—that people commonly traveledinto the zone to see a movie. 2007 WL 39301, at *11-12. Given this admission, the courtreasoned, the defendant’s theater could not have market power because, “[w]ere [it] to raise pri

Landmark Response to Regal's Motion to Dismiss

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