Cleveland, et al v. Viacom Inc, et al

United States Court of Appeals
Fifth Circuit
F I L E D
August 25, 2003
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 02-50811
_______________
RONALD CLEVELAND,
DOING BUSINESS AS LONE STAR VIDEOTRONICS;
PHOENIX-MERCHANT INVESTMENTS INC.,
DOING BUSINESS AS 49ER VIDEO;
THE BIG PICTURE VIDEO INC.,
ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED,
Plaintiffs-Appellants,
VERSUS
VIACOM INC., ET AL.,
Defendants,
VIACOM INC.;
PARAMOUNT HOME VIDEO, INC.; BUENA VISTA HOME ENTERTAINMENT, INC.;
COLUMBIA TRI-STAR HOME VIDEO, INC.; UNIVERSAL STUDIOS HOME VIDEO, INC.;
TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC.; BLOCKBUSTER INC.,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Western District of Texas
m SA-99-CA-783-EP
_________________________

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Before DAVIS, SMITH, and DUHÉ,
Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Plaintiffs, independent video retailers, sued
Blockbuster Inc.(“Blockbuster”), its parent
company Viacom Inc.(“Viacom”), and the
home-video affiliates of the seven major Holly-
wood movie studios,2 alleging price discrimin-
ation and antitrust violations. The claims turn
largely on the studios’ output revenue-sharing
agreements with Blockbuster, whereby rental
tapes are made available to Blockbuster for a
low initial price in exchange for a portion of
rental revenues and a long-term commitment
to purchase all the movies released by each
studio. At the close of the plaintiffs’ case-in-
chief, the defendants moved for judgment as a
matter of law (“j.m.l.”), which the district
court granted. We affirm.
I.
Plaintiffs Ronald Cleveland, d/b/a Lone Star
Videotronics, Phoenix-Merchant Investments
Inc., d/b/a 49er Video, and The Big Picture
Video Inc., are independent video retailers in
competition with Blockbuster, a large national
chain. The parties agree that by 1997, the
home-video rental market was struggling.
Under the pricing models prevalent at that
time, neither independent retailers, such as
plaintiffs, nor large chains, such as Block-
buster, had sufficient copies of “new release”
titles available (“copy depth”) at the time cus-
tomer demand was highest. The result was
customers frustrated by their inability to rent
the movies they most desired to see.
Until 1997, distributors serving independent
retailers and large chains such as Blockbuster
typically purchased tapes from the studios
through traditional purchases for a set price or
through “cherry pick” revenue sharing, neither
of which options provided adequate copy
depth. Beginning in late 1997, however,
Blockbuster entered into long-term output rev-
enue sharing contracts with the studios,3 en-
abling Blockbuster significantly to increase its
new release copy depth, improving its ability
to provide customers with desired titles.
Plaintiffs sued Blockbuster, Viacom, and
the studio defendants, alleging that Blockbust-
er conspired with the studios to deny indepen-
dent retailers long-term output revenue-shar-
ing agreements functionally equivalent to its
own. On the basis of these allegations, plain-
tiffs asserted claims under § 1 of the Sherman
Act, 15 U.S.C. § 1; the Robinson-Patman Act,
15. U.S.C. § 13; and parallel California stat-
utes.
* Pursuant to 5TH CIR. R. 47.5, the court has de-
termined that this opinion should not be published
and is not precedent except under the limited cir-
cumstances set forth in 5TH CIR. R. 47.5.4.
2 Defendants Paramount Home Video, Inc.;
Buena Vista Home Entertainment, Inc.; Time War-
ner Entertainment Company, L.P.; Columbia Tri-
Star Home Video, Inc., Twentieth Century Fox
Home Entertainment, Inc.; and Metro-Goldwyn-
Mayer Home Entertainment, Inc. (collectively
“studios” or“studio defendants”).
3 Under revenue sharing agreements, studios
lease tapes to retailers for lower up-front payments
in return for a percentage of their revenues. Under
“cherry pick” revenue sharing agreements, retailers
are permitted to choose the specific tapes it wanted
to purchase on a title by title basis. “Output” rev-
enue sharing agreements, by contrast, require the
retailer to acquire all titles a studio releases, re-
gardless of box office performance and local mar-
ket considerations.

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II.
We review a j.m.l. de novo. Arguello v.
Conoco, Inc., 330 F.3d 355, 357 (5th Cir.
2003). “A j.m.l. is appropriate only where
‘there is no legally sufficient basis for a reason-
able jury to find for [a] party.’”4 To defeat a
motion for j.m.l., the nonmovant must point to
a conflict in substantial evidence. Casarez v.
Burlington N./Santa Fe Co., 193 F.3d 334,
336 (5th Cir. 1999). Substantial evidence is
evidence “of such quality and weight that rea-
sonable and fair-minded men in the exercise of
impartial judgment might reach different con-
clusions.” Id.
A.
Plaintiffs advance two theories of concerted
action in violation of § 1. First, they allege a
horizontal conspiracy among the studios that
was orchestrated by Blockbuster. Specifically,
they contend that, at Blockbuster’s instigation,
the studio defendants conspired with each
other to exclude independents from enjoying
pricing terms similar to those provided to
Blockbuster. Second, plaintiffs argue that
Blockbuster’s separate agreements with the in-
dividual studio defendants constitute a series
of vertical conspiracies to exclude independ-
ents from enjoying favored pricing arrange-
ments.
Plaintiffs rely entirely on circumstantial evi-
dence in support of their claims. In reviewing
a j.m.l., we consider all evidence in the light
most favorable to the nonmovant, Giles v.
Gen. Elec. Co., 245 F.3d 474, 481 (5th Cir.
2001), and draw all inferences from the evi-
dence in favor of the party opposed to the mo-
tion, id. In antitrust cases, however, “the
range of permissible inferences is limited by
particular principles of antitrust law.” Viazis
v. Amer. Ass’n of Orthodontists, 314 F.3d
758, 762 (5th Cir. 2002) (citing Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 588 (1986)), cert. denied, 123 S. Ct.
2078 (2003). “Accordingly, evidence of con-
duct that is ‘as consistent with permissible
competition as with illegal conspiracy’ cannot
support an inference of conspiracy.” Id. (cit-
ing Matsushita, 475 U.S. at 588).
Therefore, in the absence of direct evidence
of conspiracy, a plaintiff must introduce cir-
cumstantial evidence that “tends to exclude the
possibility of independent action.” Monsanto
Co. v. Spray-Rite Service Corp., 465 U.S.
752, 768 (1984); Viazis, 314 F.3d at 762. At-
tempting to satisfy this standard, plaintiffs in-
troduced documentary evidence and testimony
concerning defendants’ parallel behavior. Nei-
ther, however, tended to exclude the possibil-
ity of independent conduct.
1.
First, plaintiffs rely on evidence demonstrat-
ing that Blockbuster planned to increase mar-
ket share by “owning” the new release market.
Plaintiffs also point to Blockbuster’s 1998
Business Plan, which projected increasing its
market share from 25% to 50%, a goal plain-
tiffs argue is unreasonable absent some sort of
favorable pricing.
Whatever these items of evidence are in-
tended to prove, they cannot support an infer-
ence of conspiracy. A company can set ambi-
tious competitive goals for itself, such as
“owning” a portion of the market or signifi-
cantly increasing its market share, without giv-
ing rise to a presumption that it intends to use
illegal means to achieve those goals.
Plaintiffs also rely on the statement of a Fox
vice-president that Blockbuster had requested
4 Id. (citing FED. R. CIV. P. 50(a)(1)).

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a “special deal” and “did not want [that deal]
to be given to independents.” The Fox officer
also stated, however, that during the meeting
at which that statement was made, Fox had
refused to enter into any exclusive deal with
Blockbuster.5
It is on the basis of this circumstantial evi-
dence that plaintiffs attempt to establish con-
certed action. There is almost no evidence
whatsoever, circumstantial or otherwise, that
the studios engaged in any direct communica-
tion during their respective negotiations with
Blockbuster or that any studio agreed, at
Blockbuster’s request, not to make output rev-
enue-sharing terms available to independents.
2.
Plaintiffs argue that in addition to the pre-
viously discussed circumstantial evidence, the
studios’ parallel conduct gives rise to an infer-
ence of conspiracy. The mere fact that defen-
dants followed similar courses of action, how-
ever, does not support such an inference.
The complained-of conduct is not the stu-
dios’ agreements with Blockbuster per se, but
rather the alleged refusal of any of the studio
defendants to deal with the independents on
similar terms. That conduct constitutes an an-
titrust violation only if it is the result of an
agreement6 rather than of each studio’s inde-
pendent business judgment. Consequently,
plaintiffs must present “significant probative
evidence” that the studios’ parallel conduct
“was contrary to their economic self-interest
so as not to amount to a good-faith business
judgment.” Royal Drug Co. v. Group Life &
Health Ins. Co., 737 F.2d 1433, 1437 (5th Cir.
1984).7
Plaintiffs support their contention that de-
fendants’ conduct was contrary to their eco-
nomic self-interest with conclusional testimony
from their expert witness. That testimony is
based in part on the simplistic assumption that
5 Plaintiffs also reference various internal mem-
oranda making somewhat similar points. A 1997
Fox memorandum described the Blockbuster pro-
posal as creating a favored revenue share rela-
tionship. The mere use of the word “favored” to
describe a proposed business relationship, how-
ever, does not strongly support an inference of con-
spiracy, especially where, as plaintiffs concede,
other large chain retailers eventually arranged simi-
lar deals.
Plaintiffs also point to two Warner memos that
evidenced concern over industry backlash to the
Blockbuster proposal and the possibility that its
terms “[c]ould spur government inquiry into video
pricing practices.” Fear of the possible implica-
tions of the deal do not support an inference of con-
spiracy to exclude the independents.
Finally, a Disney memo stated that the company
hoped to extend the Blockbuster terms to other key
retailers, but apparently not to independent retail-
ers. That memo does not imply that the decision
not to extend the terms to independents was in-
fluenced by Blockbuster or another studio. In fact,
none of these memos even indirectly refers to an
agreement between the studios or to an unlawful
request by Blockbuster to exclude independents.
6 Because plaintiffs allege horizontal and verti-
cal theories of conspiracy, the unlawful agreement
could be either among the studios generally or be-
tween each individual studio and Blockbuster.
7 This is true regardless of whether Blockbuster
wrongfully requested preferential treatment be-
cause, even in the face of such requests, a com-
pany’s decision to take actions that are in its own
interest cannot support an inference of conspiracy.
See Viazis, 314 F.3d at 764; Matrix Essentials,
Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587,
594 (5th Cir. 1993); Lovett v. Gen. Motors Corp.,
998 F.2d 575, 579-81 (8th Cir. 1993).

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because the studio’s received greater revenues
under the terms of their deals with Block-
buster, they likewise would have received
greater revenues under similar deals with dis-
tributors serving independents. This approach
ignores significant differences between inde-
pendent retailers and large chains such as
Blockbuster. Such speculative and self-serv-
ing expert testimony is an insufficient basis for
plaintiffs’ claims of concerted action.8
B.
To establish price discrimination, plaintiffs
rely on the disparity between the prices plain-
tiffs’ distributors paid for tapes and the
amounts paid by Blockbuster. The Robinson-
Patman Act and the California Unfair Trade
Practices Act, however, prohibit price discrim-
ination only where customers are otherwise
purchasing on like terms and conditions.9
As defendants point out, the transactions at
issue here are not reasonably comparable.
Most significantly, distributors servicing inde-
pendents such as plaintiffs could select tapes
title-by-title after box office results were
known, while Blockbuster was committed to
purchasing a studio’s entire output. More-
over, Blockbuster, unlike the distributors, un-
dertook long-term obligations under its agree-
ment with the studios. As a result of the sig-
nificant differences among between the terms
of the agreements, any disparities in amounts
paid cannot support a claim for price discrimi-
nation.10
III.
Plaintiffs appeal the denial of their request
for injunctive relief under 15 U.S.C. § 26,
which authorizes district courts to provide re-
lief “against threatened loss or damage by a vi-
olation of the antitrust laws.” We review a de-
nial of injunctive relief for abuse of discretion.
Peaches Entm’t Corp. v. Entm’t Repertoire
Assocs., Inc., 62 F.3d 690, 693 (5th Cir.
1995). Consequently, we uphold a denial of
injunctive relief unless the district court has re-
lied on clearly erroneous factual findings or er-
roneous conclusions of law. N. Alamo Water
Supply Corp. v. City of San Juan, 90 F.3d
910, 916-17 (5th Cir. 1996).
Plaintiffs argue that they are entitled to such
relief even if their substantive claims are reject-
ed, because the relevant statutes do not require
actual injury, but merely threatened harm. The
threatened harm, though, must be a result of “a
violation of the antitrust laws.” 15 U.S.C.
§ 26.11 Because plaintiffs have lost on the is-
8 See 7-Up Bottling Co. v. Archer Daniels
Midland Co. (In re Citric Acid Litig.), 191 F.3d
1090, 1106 n.9 (9th Cir. 1999); Aviation Special-
ties, Inc. v. United Techs. Corp., 568 F.2d 1186,
1192 (5th Cir. 1978) (plaintiff’s assertion that de-
fendant’s conduct was contrary to its economic in-
terests held insufficient); id. at 1192 n.10 (pro-
fitable relationships with distributors insufficient to
show that defendant acted against its interests in
not adding plaintiff as distributor); Cf. Brooke
Group Ltd. v. Brown & Williamson Tobacco
Corp., 509 U.S. 209, 242 (1993) (“When an ex-
pert opinion is not supported by sufficient facts to
validate it in the eyes of the law . . . , it cannot
support a jury’s verdict.”).
9 FTC v. Borden Co., 383 U.S. 637, 643
(1966).
10 Cf. Coastal Fuels, Inc. v. Caribbean, 990
F.2d 25, 27 (1st Cir. 1993) (“[The Robinson-
Patman Act does not] prohibit price differences be-
tween spot sales and long-term contract sales that
reflect different market conditions.”).
11 Plaintiffs also requested injunctive relief un-
(continued...)

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sue of whether a violation occurred, they are
not entitled to injunctive relief.
AFFIRMED.
11(...continued)
der parallel California statutes. See CAL. BUS. &
PROF. CODE §§ 16750(a), 17078-80, 17203. Like
their federal counterpart, these statutes authorize
injunctive relief only against violations of the law.

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