1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-1-1996

Orson Inc v. Miramax Film Corp

Precedential or Non-Precedential:

Docket 95-1399

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1996 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Orson Inc v. Miramax Film Corp" (1996). 1996 Decisions. Paper 187.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/187
1 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

___________ 

No. 95-1399 

___________ 

 ORSON, INC. 

 t/a ROXY SCREENING ROOMS 

 vs. 

 MIRAMAX FILM CORP. 

 Orson, Inc., d/b/a/ Roxy Screening Rooms, 

 Appellant

___________ 

Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. Civ. No. 93-cv-04145) 

___________ 

 

Argued 

January 22, 1996 

Before: MANSMANN and LEWIS, Circuit Judges, and 

RESTANI, Judge, Court of International Trade.* 

(Filed April 1, 1996) 

___________ 

Paul R. Rosen, Esquire (Argued) 

Jeffrey M. Goldstein, Esquire (Argued) 

Spector, Gadon & Rosen 

1700 Market Street 

29th Floor 

Philadelphia, PA 19103 

 COUNSEL FOR APPELLANT 

Thomas E. Zemaitis, Esquire (Argued) 

Barbara T. Sicalides, Esquire 

James W. McGarry, Esquire 

Pepper, Hamilton & Scheetz 

18th & Arch Streets 

3000 Two Logan Square 

Philadelphia, PA 19103 

 COUNSEL FOR APPELLEE 
2 

* Honorable Jane A. Restani, Judge, United States Court 

of International Trade, sitting by designation. 

___________ 

OPINION OF THE COURT 

__________ 

MANSMANN, Circuit Judge. 

 This antitrust case arises out of a business 

arrangement in the motion picture industry. The plaintiff, 

Orson, Inc., the owner of the Roxy Screening Rooms, a movie 

theater, alleged that the defendant, Miramax Film Corporation, a 

film distributor, violated section 1 of the Sherman Act, 15 

U.S.C. § 1, and Pennsylvania common law by conspiring with 

another theater to drive the Roxy out of business and by granting 

that other theater exclusive, first-run licenses on Miramax 

films. Orson also charged that the licenses violated the lengthof-run provision of Pennsylvania's Feature Motion Picture Fair 

Business Practices Law. 73 P.S. § 203-7. Orson now appeals the 

district court's decision to grant Miramax's motion for summary 

judgment. 

 We hold that Orson failed to present evidence 

sufficient to show that Miramax engaged in an antitrust 

conspiracy or that the licenses were unreasonable restraints of 

trade. We further hold that the district court erred in 

interpreting 73 P.S. § 203-7's requirement concerning the 

geographic expansion of first-run films. Thus, we will affirm 

the judgment of the district court granting summary judgment to 

Miramax on Orson's antitrust claims. We will, however, vacate 
3 

the district court's grant of summary judgment to Miramax on 

Orson's state statutory claim and remand for further proceedings. 

I.0

 In January of 1992, Orson assumed the operations of the 

Roxy, a movie theater located in downtown "Center City" 

Philadelphia. The Roxy exhibited "art films," as opposed to 

movies that may be characterized as "commercial" or "mainstream," 

on two screens, each with a 130 person seating capacity. The 

Roxy charged between $3.50 and $5.50 for tickets. 

 The Ritz theaters, consisting of two separate fivescreen facilities, the Ritz Five Theaters and the Ritz at the 

Bourse (collectively, the "Ritz"), also exhibited art films in 

Center City. The Ritz Five Theater, which opened in 1976 with 

about 1,125 seats, was owned and operated by the Posel 

Corporation; the Ritz at the Bourse, opened in 1990 with 

approximately 710 seats, was owned and operated by the Raysid 

Corporation. Ramon L. Posel was the President of both 

corporations. The Ritz's admission prices typically ranged from 

$3.50 to $6.00. 

 In addition to the Roxy and the Ritz, there were six 

other theaters in Center City; four theaters with a total of 20 

 

0 We begin our analysis by reviewing the evidence 

presented in this case. In considering a motion for summary 

judgment, a court does not resolve factual disputes or make 

credibility determinations, and must view the facts and 

inferences in the light most favorable to the party opposing the 

motion. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 

F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912 

(1993). 
4 

screens were operated by United Artists and two theaters with two 

screens each were operated by American Multi-Cinema. 

 Miramax, a nationwide distributor of feature-length 

motion pictures, including art films, distributed movies to all 

of the theaters located in Center City and to theaters in the 

greater metropolitan Philadelphia area. 

 In the motion picture industry, film distributors 

license films to theaters for exhibition for a given amount of 

time. Frequently, the license is exclusive, providing that 

during its duration, the film will not be licensed to other 

exhibitors in a prescribed area. Such licenses are called 

"clearances." 

 In the usual case, films are licensed for a sum which 

consists of a film rental amount and a house allowance. Under 

this system, the distributor and the exhibitor agree on a 

separate dollar amount which represents the exhibitor's weekly 

expenses. The exhibitor retains a percentage of the weekly gross 

from ticket receipts above the house expense allowance; the 

remaining percentage inures to the distributor. Typically, the 

license provides that the distributor will receive a minimum 

percentage of the exhibiting theater's box office gross. A film 

distributor's revenues, therefore, depend directly upon a 

theater's capacity to attract the public. Thus, the decision to 

license a movie to one theater or another is premised in 

considerable measure on a distributor's assessment of a theater's 

grossing ability. 
5 

 The time a particular exhibitor is licensed to show a 

film is called the "run." A "first-run" is the first exhibition 

of a film in a given geographic area; "subsequent" runs are 

exhibitions of that film in the area after the first-run has 

expired. Successive runs of motion pictures are a practical 

necessity in the industry because commonly, there are a limited 

number of prints made of any one film. 

 Between January of 1992, when Orson began operating the 

Roxy, and February of 1994, the close of discovery, Miramax 

licensed about 28 films on a first-run basis and one film on a 

subsequent-run basis to the Ritz. By comparison, during this 

period, Miramax licensed one film on a first-run basis and 

approximately 14 films on a subsequent-run basis to the Roxy. 

Miramax also granted eight first-run licenses to the theaters in 

Center City operated by either United Artists or American MultiCinema0 and six first-run licenses to theaters in the suburbs of 

Philadelphia. 

 At this same time, a number of other distributors also 

licensed films to the exhibitors in Center City. From the Roxy's 

opening in January of 1992 until March of 1994, Orson was granted 

about 73 first-run, exclusive licenses by 59 different 

distributors. According to Orson's President, Max L. Raab, art 

film distributors included, in addition to Miramax, three 

 

0 As Miramax points out, any theater is equipped to 

exhibit art films and theaters which are not known as "art 

houses" can and do decide to show such films, as well as the more 

commercial fare. 
6 

"distributors of consequence" -- Sony Pictures Classics, the 

Samuel Goldwyn Company and Tristar Pictures. 

 All of the first-run licenses for films that Miramax 

granted to the Ritz were exclusive; that is, they provided that 

the films would not be licensed to another Center City theater 

while playing there. The licenses were established quite 

informally. Typically, Posel of the Ritz telephoned Martin 

Zeidman, Miramax's Senior Executive Vice President and head of 

domestic distribution, to discuss the Ritz's desire for a firstrun license on a particular Miramax film. Having done business 

with one another for several years, Posel and Zeidman understood 

that the license would be exclusive and include standard terms. 

Once the parties agreed upon an opening date, Zeidman completed a 

"Theatrical Booking Worksheet," which set forth the title of the 

film and the opening date, listed the Ritz Five Theaters or the 

Ritz at the Bourse as the exhibitor, identified Posel as the 

buyer, marked the rental percentage terms, and designated the 

shipping territory as "Phila[delphia]." A day or two later, the 

booking worksheet was telefaxed from Zeidman's office in Los 

Angeles to Miramax's office in New York, which was responsible 

for shipping Miramax film prints to theaters in time for the 

opening date. 

 On occasion, Orson's film buyer, Jeffrey Fox Jacobs, 

asked Zeidman for a first-run, non-exclusive license on a Miramax 

film, indicating that Orson was prepared to offer Miramax a 

higher percentage of the Roxy's box office receipts and a lower 
7 

house allowance than those negotiated by the Ritz. Jacobs' 

requests, however, were refused. 

 From time to time, Miramax held trade screenings for 

the movies it distributed in Philadelphia. Miramax would send a 

notice to exhibitors, inviting them to attend the trade screening 

of a certain film on a certain date. Most of the notices stated 

that "[w]e expect to avail this film for first run Philadelphia 

on or about [date], for an exclusive or non-exclusive run. After 

the first run theater or theaters have exhibited the film for 42 

days we will consider offers for subsequent runs." The notice 

requested that a "written offer" be submitted by interested 

exhibitors by a specified time and day. 

 With respect to some of the clearances that Miramax 

granted the Roxy, the booking worksheet that Zeidman completed 

memorializing the clearance bore a date that was prior in time to 

the date of the trade screening notice that Miramax sent to 

exhibitors.0

 Fifteen of the films that Miramax licensed to the Ritz 

played there for a period of more than 42 days. Of these, nine 

expanded to other Philadelphia area theaters outside of Center 

City before the 42 days expired; six, however, ran at the Ritz, 

without expanding to other theaters. 

 

0 For example, the trade screening notice for "The Crying 

Game" was dated December 1, 1992. The notice announced that the 

first Philadelphia run would occur on or about December 18, 1992, 

invited Philadelphia exhibitors to a December 8, 1992, screening, 

and requested that written offers be submitted no later than 12 

noon on December 10, 1992. Zeidman's worksheet, which 

memorialized the clearance given to the Ritz for "The Crying" 

Game, however, had a telefax legend dated November 30, 1992. 
8 

 According to the parties' briefs, the Roxy closed its 

doors in October of 1994. 

 On or about August 2, 1993, Orson commenced this action 

against Miramax. On August 19, 1993, Orson filed an amended 

complaint in three counts: Count I alleged that Miramax violated 

section 1 of the Sherman Act by, inter alia, conspiring with the 

Ritz to exclude the Roxy from the art film market by making the 

Ritz its "exclusive Philadelphia exhibitor for first-run art film 

features" and by granting the Ritz "exclusive first-run rights to 

those of Miramax'[s] films which the Ritz want[ed] to exhibit 

. . . ."0 Count II alleged that Miramax violated Pennsylvania's 

 

0 Orson's amended complaint included allegations of 

additional anticompetitive practices by Miramax. These 

allegations were abandoned, with the exception of allegations of 

retaliatory conduct on Miramax's part, which Orson subsequently 

pursued by way of a motion for injunctive relief. See supra, p. 

9. In its motion, Orson relied on Bergen Drug Co. v. Parke, 

Davis & Co., 307 F.2d 725, 728 (3d Cir. 1962), an antitrust case 

where we held that a court may grant a preliminary injunction 

when a party engages in conduct calculated to frustrate 

litigation, and alleged that Miramax's refusal to grant the Roxy 

any more licenses, including a license for a subsequent run on 

"Strictly Ballroom" was retaliatory. The district court denied 

Orson's motion, finding that Miramax's reason for refusing Orson 

a license on "Strictly Ballroom" was not solely retaliatory; that 

Miramax films were not indispensable to Orson's survival; that 

Orson had delayed asking for preliminary relief; that a 

preliminary injunction would, under the circumstances, be 

difficult to administer; that Orson's contention that it would be 

unable to secure witnesses for trial because of other theaters' 

fear of retaliation was speculative; that Orson's alleged harm 

was compensable in money damages; that the preliminary injunction 

would be oppressive to Miramax; that Orson had not shown that it 

was likely to succeed on its antitrust claims; and that Orson's 

request for Miramax films exceeded the status quo. Orson, Inc. 

v. Miramax Film Corp., 836 F. Supp. 309 (E.D. Pa. 1993). 

 In this appeal, Orson has also challenged the district 

court's decision to deny the motion for injunctive relief. This 

issue, however, is moot, in light both of our decision to uphold 
9 

"common law doctrine against unreasonable restraint of trade"; 

and Count III alleged that Miramax violated section 203-7 of 

Pennsylvania's Feature Motion Picture Fair Business Practices 

Law, 73 P.S. § 203-1 et seq. (the "Pennsylvania Act") by 

"consistently grant[ing] the Ritz licenses for its feature art 

films for exclusive first runs for more than 42 days. . . ."0 

 On October 8, 1993, Orson filed a "Motion for 

Injunctive Relief to Restore the Status Quo during Pendency of 

Litigation." On November 9, 1993, the district court denied 

Orson's motion, Orson Inc. v. Miramax Film Corp., 836 F. Supp. 

309 (E.D. Pa. 1993); on January 12, 1994, the court denied 

Orson's motion for reconsideration. 

 On March 22, 1994, Orson filed a motion for partial 

summary judgment on its common law restraint of trade claim and 

its Pennsylvania Act claim. Miramax filed a motion for summary 

 

the court's order granting summary judgment to Miramax on Orson's 

antitrust claims and of the Roxy's cessation of operations. 

0 Section 203-7 of Pennsylvania's Feature Motion Picture 

Fair Business Practices Law, 73 P.S. § 203-1 et seq. (the 

"Pennsylvania Act"), states: 

§ 203-7. Length of run

No license agreement shall be entered into 

between distributor and exhibitor to grant an 

exclusive first run or an exclusive multiple 

first run for more than 42 days without 

provision to expand the run to second run or 

subsequent run theaters within the 

geographical area and license agreements and 

prints of said feature motion picture shall 

be made available by the distributor to those 

subsequent run theaters that would normally 

be served on subsequent run availability. 

73 P.S. § 203-7. 
10 

judgment as to all of Orson's claims on January 4, 1994. On 

April 5, 1994, Miramax filed a cross-motion for summary judgment 

on two claims which, according to Miramax, were not set forth in 

Orson's complaint, but nonetheless discussed in Orson's summary 

judgment motion, namely, violations of sections 203-4 (bidding) 

and 203-8 (screening procedures) of the Pennsylvania Act. 

 On October 5, 1994, the district court denied Orson's 

motion for partial summary judgment in its entirety. Orson, Inc. 

v. Miramax Film Corp., 862 F. Supp. 1378, 1390 (E.D. Pa. 1994). 

 As for Miramax's motion, the district court granted 

summary judgment to Miramax on both Orson's federal and state 

antitrust claims.0 Id. Characterizing the Miramax-Ritz 

agreement "by which Miramax grant[ed] exclusive licenses to the 

Ritz for the exhibition of its art films" as "clearly a vertical 

agreement between a distributor and an exhibitor," the court 

applied the rule of reason to the "restraint at issue." Id. at 

1385-86. Focusing on the competitive effects of the exclusive 

 

0 On summary judgment, the parties agreed that 

Pennsylvania's common law against unreasonable restraints of 

trade follows federal antitrust law. Orson, Inc. v. Miramax Film 

Corp., 862 F. Supp. 1378, 1381 n.3 (E.D. Pa. 1994). Accordingly, 

the district court treated Orson's federal and antitrust claims 

identically. Id. Likewise, in this appeal, Orson briefs only 

the federal antitrust issues. 

 Further, since Orson had raised, in the district 

court's view, an issue for summary judgment by arguing in its 

brief in opposition to Miramax's motion that the Miramax-Ritz 

agreement should be declared illegal per se, the court evaluated 

the parties' submissions as though it had before it cross-motions 

for summary judgment as to Orson's entire complaint, even though 

Orson had moved expressly for summary judgment on only its 

Pennsylvania law claims. Id. at 1382. Orson does not question 

this aspect of the district court's decision on appeal. 
11 

licenses, otherwise known in the industry as "clearances," the 

court concluded that the clearances were reasonable: 

[T]his Court holds that the clearances at 

issue here are reasonable. First while the 

clearances stifle intrabrand competition to a 

small degree--no Miramax art film playing at 

the Ritz can play contemporaneously at the 

Roxy, the clearances serve to stimulate 

competition between art films distributed by 

Miramax and art films originating with other 

distributors. As a result, art film-goers in 

Center City Philadelphia are offered a wider 

array of selections from which to choose. 

Further, it is apparent that the Ritz and the 

Roxy are in substantial competition. By 

Orson's own admission, the Ritz and the Roxy 

are the only two art houses in Center City 

Philadelphia. Thus, if the Ritz and the Roxy 

were to exhibit the same film on the same 

dates, not only would the overall degree of 

choice be reduced, but the Ritz would 

assuredly lose income as a result. At its 

core, Orson's complaint asks the Court to 

compel Miramax to lease its films to Orson 

for exhibition at the Roxy. The antitrust 

laws were not enacted to achieve such ends. 

Id. at 1386. 

 With regard to Miramax's summary judgment motion on 

Orson's section 203-7 Pennsylvania Act claim, the district court 

concluded that Miramax was not liable for the nine films that 

were expanded to suburban Philadelphia theaters on or before the 

forty-third day of their runs at the Ritz, reasoning that section 

203-7 only required that Miramax expand the films to other 

theaters in the Philadelphia area, not to other theaters located 

within Center City. Id. at 1387-88. As to the six films that 

were licensed exclusively to the Ritz without expanding to other 

theaters within 42 days, the court denied Miramax summary 
12 

judgment, concluding that material issues of fact had been raised 

as to the existence and terms of the licenses and as to Orson's 

damages and Miramax's intent.0 Id. at 1388. 

 Finally, agreeing with Miramax that a party may not be 

granted summary judgment on claims that are not set forth in its 

complaint, the court granted Miramax's cross-motion for summary 

judgment. Id. at 1388-90. At the same time, however, the court 

granted Orson leave to amend its complaint to add claims under 

sections 203-4 and 203-8 of the Pennsylvania Act. Id. at 1390. 

 After filing a second amended complaint on October 19, 

1994, which added section 203-4 and section 203-8 Pennsylvania 

Act claims in Counts IV and V respectively, Orson sought 

certification of the district court's October 5, 1994 order 

pursuant to 28 U.S.C. § 1292(b). The court denied Orson's 

request for certification. 

 Ultimately, based on its rulings on summary judgment 

and the parties' stipulation, the district court issued a final 

 

0 Section 203-10 of the Pennsylvania Act, which covers 

the actions that an exhibitor may bring for alleged violations of 

the Act, states: 

§ 203-10. Actions against distributors and exhibitors

 Any exhibitor may bring an action against a 

distributor or exhibitor or both in the respective 

courts of common pleas wherein the exhibitor's business 

is located to recover damages sustained by reason of a 

willful and intentional violation of his act and, where 

appropriate, shall be entitled to injunctive relief. 

Such exhibitor, if successful, shall also be awarded 

the costs of the action include, but not limited to, 

reasonable attorneys' fees. 

73 P.S. § 203-10. 
13 

order on May 10, 1995, entering judgment in Miramax's favor on 

Orson's federal and state antitrust claims and on Orson's section 

203-7 claim as to the nine films that Miramax distributed on a 

subsequent-run basis to theaters in the greater metropolitan 

Philadelphia area. The court's May 10 order also dismissed 

without prejudice Orson's section 203-4 and 203-8 claims and 

Orson's section 203-7 claim with respect to the six Miramax films 

that did not expand to other theaters after showing at the Ritz 

for 42 days. 

 This timely appeal by Orson followed. It involves the 

district court's decision to grant summary judgment to Miramax on 

Orson's antitrust claims and on Orson's Pennsylvania Act section 

203-7 claim with respect to the nine subsequent-run Miramax films 

that played in Philadelphia theaters located outside of Center 

City on or before the forty-second day of their first-run at the 

Ritz,0 as well as the court's denial of Orson's request for 

preliminary injunctive relief. We will first address the federal 

antitrust issues this appeal raises, and the state statutory law 

question second. 

II. 

 

0 Since the district court's May 10, 1995 order was a 

final order, 28 U.S.C. § 1291 gives us appellate jurisdiction 

over this entire case. Thus, our power of review extends not 

only to that portion of the district court's order which reflects 

its decision to grant summary judgment to Miramax, but to that 

portion of its order which reflects its decision to deny Orson's 

cross-motion for summary judgment as well. International Union, 

United Mine Workers of America v. Racho Trucking Co., 897 F.2d 

1248, 1252 n.2 (3d Cir. 1990). 
14 

 Summary judgment may present the district court with an 

opportunity to dispose of meritless cases and avoid wasteful 

trials. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). 

This is true even in antitrust cases "`where motive and intent 

play leading roles, proof is largely in the hands of alleged 

conspirators, and hostile witnesses thicken the plot.'" Big 

Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 

1362 (3d Cir. 1992), cert. denied, 507 U.S. 912 (1993),(quoting 

Poller v. Columbia Broadcasting Sys., Inc., 368 U.S. 464, 473 

(1962)). 

 Summary judgment must be granted where no genuine issue 

of material fact exists for resolution at trial and the moving 

party is entitled to judgment as a matter of law. Fed. R. Civ. 

P. 56(c). On summary judgment, the moving party need not 

disprove the opposing party's claim, but does have the burden to 

show the absence of any genuine issues of material fact. Celotex, 

477 U.S. at 322-23. If the movant meets this burden, then the 

opponent may not rest on allegations in pleadings, but must 

counter with specific facts which demonstrate that there exists a 

genuine issue for trial. Id. at 323. When the nonmoving party 

will bear the burden of proof at trial, the moving party may meet 

its burden by showing that the nonmoving party has not offered 

evidence sufficient to establish the existence of an element 

essential to its case. Id. at 322. We remain mindful that in 

ruling on a motion for summary judgment, a court must assess the 

material facts in light of the proof required of the plaintiff on 

substantive issues. 
15 

III. 

 Section 1 of the Sherman Act provides in pertinent part 

that "[e]very contract, combination in the form of trust or 

otherwise, or conspiracy, in restraint of trade or commerce among 

the several States . . . is declared to be illegal." 15 U.S.C. 

§1. For a section 1 claim under the Sherman Act, "a plaintiff 

must prove `concerted action,' a collective reference to the 

`contract . . . combination or conspiracy." Big Apple BMW, 974 

F.2d at 1364 (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 

445 (3d Cir. 1977), cert. denied, 434 U.S. 1086 (1978)), cert

denied, 507 U.S. 912 (1993). A "`unity of purpose or a common 

design and understanding, or a meeting of minds in an unlawful 

arrangement'" must exist to trigger section 1 liability. 

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 

(1984) (quoting American Tobacco Co. v. United States, 328 U.S. 

781, 810 (1946)). In addition to the element of concerted 

action, a plaintiff must prove that anticompetitive effects were 

produced within the relevant product and geographic markets; that 

the objects of the conduct pursuant to the concerted action were 

illegal; and that it was injured as a proximate result of the 

conspiracy. Petruzzi's IGA Supermarkets, Inc. v. DarlingDelaware Co., 998 F.2d 1224, 1229 (3d Cir.), cert. denied, ___ 

U.S. ___, 114 S. Ct. 554 (1993). 

 Virtually all business agreements restrain trade to 

some extent; section 1, therefore, has been construed to make 

illegal only those contracts that constitute unreasonable 
16 

restraints of trade. Business Elecs. Corp. v. Sharp Elecs. 

Corp., 485 U.S. 717, 723 (1988). Whether a business arrangement 

unreasonably restrains trade is determined by the courts, on a 

case-by-case basis, using a rule of reason which considers all 

relevant factors in examining a defendant's purpose in 

implementing the restraint and the restraint's effect on 

competition. Board of Trade of Chicago v. United States, 246 

U.S. 231, 238 (1918).0 Indeed, the traditional rule of reason 

 

0 There are certain agreements or practices which 

"because of their pernicious effect on competition and lack of 

any redeeming virtue are conclusively presumed to be unreasonable 

and therefore illegal without elaborate inquiry as to the precise 

harm they have caused or the business excuse for their use." 

Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5 (1958). 

Such "plainly anticompetitive" agreements are "`illegal per se.'" 

National Soc'y of Professional Eng'rs v. United States, 435 U.S. 

679, 692 (1978). Horizontal boycotts have received illegal per 

se treatment. Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 

U.S. 207 (1959). Although Orson contended in the district court 

that Miramax's relationship with the Ritz was illegal per se, and 

occasionally speaks of the relationship as a "boycott," it does 

not contend in this appeal that the per se rule applies. 

 In addition to the traditional rule of reason and the 

per se rules, courts sometimes apply what amounts to an 

abbreviated or "quick look" rule of reason analysis. United 

States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993). This 

abbreviated rule applies where per se condemnation is 

inappropriate, but where a full-blown industry analysis is not 

required to demonstrate the anticompetitive character of an 

inherently suspect restraint. Id. For example, in cases 

involving agreements not to compete in terms of price or output 

among members of professional associations, the Supreme Court did 

not apply a per se analysis, opting instead for an abbreviated 

rule of reason test where "`no elaborate industry analysis [was] 

required to demonstrate the anticompetitive character of such an 

agreement.'" FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459 

(1986)(quoting Professional Eng'rs, 435 U.S. at 692). 

 Asserting in its brief that "[t]he restraint's negative 

effect on competition is manifest given the abundance of record 

evidence showing that the Miramax-Ritz boycott of the Roxy ha[d] 

the effect of decreasing output and increasing prices in the 
17 

inquiry has essentially remained unchanged since it was first 

announced by the Supreme Court in Chicago Board of Trade and 

focuses on the competitive significance of the restraint: 

The true test of legality is whether the 

restraint imposed is such as merely regulates 

and perhaps thereby promotes competition or 

whether it is such as may suppress or even 

destroy competition. To determine that 

question the court must ordinarily consider 

the facts peculiar to the business to which 

the restraint is applied; its condition 

before and after the restraint was imposed; 

the nature of the restraint and its effect, 

actual or probable. The history of the 

restraint, the evil believed to exist, the 

reason for adopting the particular remedy, 

the purpose or end sought to be attained, are 

all relevant facts. 

Chicago Board of Trade, 246 U.S. at 238. 

 In rule of reason cases, the plaintiff bears the 

initial burden of showing that the alleged combination or 

agreement produced adverse, anticompetitive effects within the 

relevant product and geographic markets. Brown Univ., 5 F.3d at 

668. The plaintiff may satisfy this burden by proving the 

existence of actual anticompetitive effects, such as reduction of 

output, increase in price, or deterioration in quality of goods 

and services. Id. Due to the difficulty of isolating the market 

effects of the challenged conduct, however, such proof is often 

 

Center City art-film market," Orson suggests that an abbreviated 

rule of reason market analysis should be used here. Orson 

failed, however, to substantiate its assertion with facts. We 

have stated that arguments made in legal memoranda are not 

evidence. Jersey Cent. Power & Light Co. v. Township of Lacey, 

772 F.2d 1103, 1109-10 (3d Cir. 1985), cert. denied, 475 U.S. 

1013 (1986). We, therefore, need not consider Orson's suggestion 

further. 
18 

impossible to make. Id. Accordingly, the courts allow proof of 

the defendant's "market power" instead. Id. Market power -- the 

ability to raise prices above those that would prevail in a 

competitive market -- is essentially a "`surrogate for 

detrimental effects.'" Id. at 668-69 (quoting FTC v. Indiana 

Fed'n of Dentists, 476 U.S. 447, 460-61 (1986)). 

 If a plaintiff meets his initial burden of adducing 

adequate evidence of market power or actual anticompetitive 

effects, the burden shifts to the defendant to show that the 

challenged conduct promotes a sufficiently pro-competitive 

objective. Id. at 669. To rebut, the plaintiff must demonstrate 

that the restraint is not reasonably necessary to achieve the 

stated objective. Id.

 Agreements between entities at different market levels 

are termed "vertical restraints." See United States v. Topco 

Assocs., Inc., 405 U.S. 596, 608 (1972). The Supreme Court has 

instructed that vertical restraints of trade, which do not 

present an express or implied agreement to set resale prices, are 

evaluated under the rule of reason. Business Elec. Corp., 485 

U.S. at 724; see also Continental T.V., Inc. v. GTE Sylvania, 

Inc., 433 U.S. 36 (1977). 

 The Supreme Court has also repeatedly confirmed in 

vertical restraint cases that interbrand competition, as opposed 

to intrabrand competition, is the primary goal of the antitrust 

laws. Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722-23 

(3d Cir. 1991) (citing Business Elecs. Corp., 485 U.S. 717, and 

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984), and 
19 

GTE Sylvania, 433 U.S. at 36), cert. denied, 505 U.S. 1221 

(1992).0

IV. 

 We now address the antitrust issues raised by the 

business arrangement in this case. We note at this point that 

Miramax conceded for purposes of summary judgment that the 

relevant product market was art films and that the relevant 

 

0 In Continental T.V., Inc. v. GTE Sylvania, Inc., 433 

U.S. 36 (1977), a television manufacturer entered into franchise 

agreements which prohibited the sale of its products from other 

than specified locations. Discussing the application of the rule 

of reason to vertical restraints, the Supreme Court explained the 

difference between interbrand and intrabrand competition: 

 Interbrand competition is the 

competition among the manufacturers of the 

same generic product -- television sets in 

this case -- and is the primary concern of 

antitrust law. The extreme example of a 

deficiency of interbrand competition is 

monopoly, where there is only one 

manufacturer. In contrast, intrabrand 

competition is the competition between the 

distributors -- wholesale or retail -- of the 

product of a particular manufacturer. 

 The degree of intrabrand competition is 

wholly independent of the level of interbrand 

competition confronting the manufacturer. 

Thus, there may be fierce intrabrand 

competition among the distributors of a 

product produced by a monopolist and no 

intrabrand competition among the distributors 

of a product produced by a firm in a highly 

competitive industry. But when interbrand 

competition exists, as it does among 

television manufacturers, it provides a 

significant check on the exploitation of 

intrabrand market power because of the 

ability of consumers to substitute a 

different brand of the same product. 

Id. at 52 n.19. 
20 

geographic market was Center City, Philadelphia. Our evaluation 

of Orson's antitrust claim, therefore, proceeds on this basis. 

 The first issue we consider is the precise nature of 

the agreement between Miramax and the Ritz. Orson alleges in its 

second amended complaint that Miramax committed to make the Ritz 

its "exclusive Philadelphia exhibitor for first-run art film 

features. . . ." Based on our careful review of the evidence, we 

disagree. The record is devoid of any proof of a promise on 

Miramax's part that it would grant first-run licenses on its 

films in Center City to the Ritz only. Moreover, the evidence is 

to the contrary; the Roxy received a first-run license from 

Miramax, as did the theaters operated in Center City by United 

Artists and American Multi-Cinema. The record shows, instead, a 

series of clearances granted by Miramax to the Ritz, based on an 

understanding between the parties' respective principals that any 

time the Ritz was showing a first-run Miramax film, its license 

would be exclusive. 

 Before we consider the antitrust significance of the 

clearances, however, we will address the alleged conspiracy that 

we believe lies at the heart of Orson's second amended complaint. 

As we understand it, Orson's antitrust theory does not primarily 

challenge the clearances themselves; but rather, claims that the 

clearances were mere vehicles that Miramax and the Ritz used to 

further a secret conspiracy to drive the Roxy out of business by 

denying that theater first-run Miramax films. 

A. 
21 

 Our evaluation of Orson's allegations concerning a 

scheme on the part of Miramax and the Ritz to destroy the Roxy is 

controlled by our decision in Houser v. Fox Theaters Management 

Corp., 845 F.2d 1225 (3d Cir. 1988). There the owners of the 

Colonial Theater (the "Housers") brought an antitrust action 

against several motion picture distributors and the owners of the 

Fox Theaters ("Fox"), alleging, inter alia, that each of the 

distributor defendants violated section 1 of the Sherman Act by 

conspiring individually with Fox to deny the Colonial first-run 

films. Id. at 1229. To support this claim, we required the 

Housers to present "direct or circumstantial evidence that 

reasonably tend[ed] to prove the alleged conspirators `had a 

conscious commitment to a common scheme designed to achieve an 

unlawful objective.'" Id. at 1232 (quoting Monsanto Co. v. 

Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)). We further 

instructed that in doing so, the Housers had to show "'(1) that 

the defendants acted in contradiction of their economic 

interests, and (2) that the defendants had a motive to enter into 

an agreement.'" Id. (quoting Schoenkopf v. Brown & Williamson 

Tobacco Corp., 637 F.2d 205, 208 (3d Cir. 1980)). 

 As to our first enumerated element, the Housers 

asserted that the distributors had acted against their economic 

interests by consistently choosing to license films to the Fox 

Theaters rather than the Colonial. They argued that "`[o]n a 

purely objective basis, the Colonial was a better theater than 

any of the five Fox theaters'" in view of its "large seating 

capacity, elegant and well-maintained condition, and its location 
22 

in a nice section of downtown in contrast to the alleged `dark 

and dingy' quality of the narrow suburban twin theaters and the 

downtown theater owned by Fox." Id. at 1232. Despite the 

Housers' assertion, we held that there was not sufficient 

evidence of record to permit a factfinder to conclude that the 

distributor defendants had acted contrary to their economic 

interests; we affirmed the order of the district court granting 

the defendants summary judgment. Id. at 1233. We observed that 

"the decision to license a picture to one theater rather than 

another is based on a complicated subjective estimation of a 

theater's grossing potential" and that the courts have recognized 

that "motion picture distributors have broad discretion to make 

licensing decisions based on their own independent judgments." 

Id. at 1232. Pointing out that the Housers' argument failed for 

emphasizing just a few of the factors that a distributor 

considers in making its licensing decision while ignoring others, 

we stated that "[s]uch factors as a proven track record of high 

box office receipts and an unblemished payment history are as 

important as the seating capacity or aesthetic qualities of a 

theater when estimating its grossing potential." Id. at 1232. We 

also concluded that the Housers did not substantiate their 

allegations that the distributors conspired with Fox because they 

feared that Fox would use its "circuit power" and refuse to do 

business with them. Id. at 1233. We, therefore, further held 

that even if the distributors had acted contrary to their 

economic interests, the Housers failed to present evidence to 

support the second essential element we had articulated, namely, 
23 

that the distributors were motivated to conspire individually 

with Fox. Id. 

 Orson makes similar assertions here. It contends that 

given its willingness to pay a higher percentage of the Roxy's 

gross for first-run Miramax films than paid by the Ritz, Miramax 

acted contrary to its economic well-being by choosing to grant 

clearances to the Ritz; it further maintains that Miramax was 

coerced into favoring the Ritz because the Ritz had made it clear 

that unless it was granted an exclusive arrangement it would use 

its clout and refuse to play Miramax films. 

 We do not find sufficient evidence in the record for 

either assertion. To the contrary, the evidence establishes that 

the clearances were consistent with Miramax's business interests, 

granted by the distributor to, as between the Roxy and the Ritz, 

the theater it reasonably predicted would generate greater 

income. The record demonstrated that the Ritz had ten screens at 

two locations with seating capacities of 1,125 and 710 

respectively, while the Roxy had two screens with a seating 

capacity of 130 each. The Ritz had a solid history of box office 

receipts; by comparison, the Roxy was not nearly as profitable. 

The theaters which comprised the Ritz had been in continuous 

operation since their inception; the Roxy, on the other hand, had 

ceased operations from time to time over the years. The Ritz 

marketed the films it exhibited and was known to have outstanding 

sound and projection equipment. Simply put, "[i]n light of the 

broad discretion that must be given to film distributors in 

making complex licensing decisions," id. at 1233, Orson's 
24 

position, premised solely on the financial terms of its offer, is 

insufficient to call into question the wisdom of Miramax's 

decision. We, therefore, hold that the evidence in the record is 

insufficient to permit the factfinder to conclude that Miramax 

acted contrary to its self-interest by choosing to license 

exclusively to the Ritz rather than the Roxy. 

 Moreover, the deposition testimony that Orson offered 

to support its assertion that the Ritz had unduly pressured 

Miramax in its licensing decisions, even when viewed in Orson's 

favor, shows nothing of the kind. The testimony of Raymond Posel 

and Martin Zeidman demonstrates only that there existed a mutual 

understanding between the representatives of Miramax and the Ritz 

that the Ritz first-run licenses on Miramax films would be 

exclusive. Thus, we also conclude that Orson failed to show that 

Miramax had a motive to conspire with the Ritz to drive the Roxy 

out of business. 

 Lastly, we observe that Orson expended considerable 

effort describing the "trade screening charade" and the "sham 

bidding" in which Miramax and the Ritz allegedly engaged, 

contending that these practices were perpetuated by the parties 

to conceal their unlawful scheme. We have concluded, however, 

that Orson failed to present sufficient evidence to show that 

Miramax and the Ritz conspired to drive the Roxy from the market; 

we need not, therefore, consider Orson's allegations of a coverup on their part. Further, Orson's assertions about improper 

bidding, without more, lack antitrust significance in this case. 

As we recognized in Sitkin Smelting & Refining Co. v. FMC Corp., 
25 

575 F.2d 440 (3d Cir.), cert. denied, 439 U.S. 866 (1978), "`the 

Sherman Act is neither a lowest-responsible-bidder statute nor a 

panacea for all business affronts which seem to fit nowhere 

else.'" Id. at 448 (citation omitted).0 

 Therefore, we conclude that Orson failed to sustain its 

burden on summary judgment regarding the essential elements of 

its antitrust conspiracy claim. 

B. 

 Our inquiry does not end here. The fact remains that 

clearances existed between Miramax and the Ritz, and that Orson 

contends that they violated section 1 of the Sherman Act. 

 We begin our analysis of this aspect of Orson's case 

with a general discussion of clearances. We first observe that 

clearances, which involve entities at different levels of the 

 

0 We do not suggest that allegations concerning the 

bidding process lack antitrust significance in all contexts. For 

example, in Movie 1 & 2 v. United Artists Communications, 909 

F.2d 1245 (9th Cir. 1990), cert. denied, 502 U.S. 1030 (1991) and 

502 U.S. 1039 (1992), the plaintiff, a movie theater, alleged 

that two competing motion picture exhibitors and 19 national film 

exhibitors participated in an illegal "split agreement" in 

violation of Section 1 of the Sherman Act. In the motion picture 

industry, a split agreement is "an exhibitor agreement which 

divides a normally competitive market by allocating films to 

particular members for licensing rights to the films assigned." 

Id. at 1248. On summary judgment, the plaintiff submitted 

evidence which indicated that the distributor-defendants refused 

to receive any bids from the plaintiff for first-run films, that 

the exhibitor-defendants did not bid against one another and that 

the exhibitor-defendants earned respectively about 96.9% and 

69.9% of all revenues in the relevant market. Id. at 1251. Under 

these circumstances, the Court of Appeals for the Ninth Circuit 

held that the plaintiff presented a triable issue on its Section 

1 claim of a conspiracy to restrain trade in the form of a group 

boycott through split agreements. Id. at 1252. 
26 

film distribution industry, are vertical, nonprice restraints of 

trade. See Theee Movies of Tarzana v. Pacific Theatres, Inc., 

828 F.2d 1395, 1399 (9th Cir. 1987), cert. denied, 484 U.S. 1066 

(1988); see also United States v. Paramount Pictures, Inc., 334 

U.S. 131 (1948). As such, they are subject under section 1 to a 

rule of reason analysis. Three Movies of Tarzana, 828 F.2d at 

1399. 

 Clearances have undergone antitrust scrutiny. Some 

time ago, in Paramount Pictures, 334 U.S. 131, the Supreme Court 

reviewed a district court decree which resolved an antitrust 

action brought by the Department of Justice against several 

producers, distributors and exhibitors of motion pictures for 

various Sherman Act violations, including the maintenance of a 

system of allegedly unlawful clearances. Affirming the district 

court's decision to enjoin the defendants from continuing their 

clearance practices, the Court approvingly referenced the 

district court's view that clearances are justified by "the 

assurance they give the exhibitor that the distributor will not 

license a competitor to show the film either at the same time or 

so soon thereafter that the exhibitor's expected income from the 

run will be greatly diminished," as well as the court's 

conclusion that reasonable clearances require that the theaters 

involved substantially compete. Id. at 144-47.0

 

0 The clearances at issue in United States v. Paramount 

Pictures, 334 U.S. 131 (1948), involved, inter alia, five major 

defendants which produced motion pictures and their respective 

subsidiaries or affiliates which distributed and exhibited films. 

The evidence showed that the clearances were not typical, bearing 

no relation to the competitive factors which usually justify 
27 

 More recently, in Theee Movies of Tarzana, 828 F.2d 

1395, the Court of Appeals for the Ninth Circuit considered 

whether certain clearances were reasonable restraints of trade 

under the circumstances presented. There the owner of a movie 

theater ("TMT") brought suit against a competing exhibitor 

("Pacific") and several movie distributors, alleging that firstrun clearances granted to Pacific's Galleria Theater by the 

distributors violated section 1 of the Sherman Act. The district 

court granted summary judgment to the defendants; the court of 

appeals affirmed, noting that the courts have acknowledged over 

the years that "`the whole system of runs and clearances . . . 

purposely, and legitimately, discriminates between competing 

exhibitors.'" Id. at 1399 (citations omitted). After initially 

observing that the reasonableness of a particular restraint 

depends upon an understanding of the industry at issue and a 

balancing of the restraint's positive and negative effects on 

 

them. Id. at 146. By way of illustration, the Court set forth 

the following finding of the district court: 

"Some licenses granted clearance to sell to 

all theatres which the exhibitor party to the 

contract might thereafter own, lease, 

control, manage, or operate against all 

theatres in the immediate vicinity of the 

exhibitor's theatre thereafter erected or 

opened. The purpose of this type of 

clearance agreements was to fix the run and 

clearance status of any theatre thereafter 

opened not on the basis of its appointments, 

size, location, and other competitive 

features normally entering into such 

determination, but rather upon the sole basis 

of whether it were operated by the exhibitor 

party to the agreement." 

Id. at n.7. 
28 

competition, the court of appeals concluded that although the 

clearances the Galleria received reduced intrabrand competition 

to a minor degree, they "also encouraged interbrand competition 

by forcing TMT to find alternative subrun movies to exhibit and 

to promote." Id. at 1399. Considering next the relationship 

between the Galleria and TMT, the court determined that in view 

of the fact that the theaters competed, the clearances reflected 

a reasonable business decision on both sides of the transaction: 

 Because the two theaters were in 

substantial competition, Pacific [the 

exhibitor] was properly concerned that 

exhibiting first runs at TMT's theater 

simultaneously with the Galleria would 

diminish the Galleria's income. Pacific 

wanted to recoup its investment in the 

Galleria and advertising, rather than allow 

TMT's theater to "free ride" on its 

advertising. 

 The distributors had a legitimate 

business interest in the revenue generated by 

the theaters they licensed, because the 

distributors were paid, in part, out of each 

movie's gross profits. The distributors 

wished to reach the largest number of viewers 

with the smallest number of movie prints, to 

recoup quickly their own investment. 

Id. at 1399-40 (citations omitted). 

 Guided by applicable rules of federal antitrust law and 

the cases we have reviewed, we conclude that the reasonableness 

of a clearance under section 1 of the Sherman Act depends on the 

competitive stance of the theaters involved and the clearance's 

effect on competition, especially the interbrand competition 

which, as the Supreme Court has instructed, is our primary 

concern in an antitrust action. 
29 

 Applying these criteria to the clearances before us, we 

begin with the fact that the parties agreed that the Roxy and the 

Ritz were in competition. Thus, the clearances served their 

accepted purpose of assuring both Miramax and the Ritz that the 

return from one run of a particular Miramax film would not be 

diminished. 

 Turning to the touchstone of the rule of reason, the 

clearances' competitive effects, the uncontroverted facts of 

record reveal a market in which competition thrived at both the 

distributor and exhibitor levels. In Center City, the Roxy, the 

Ritz, and the theaters owned by United Artists and American 

Multi-Cinema vied for the films of at least 59 distributors. 

Indeed, it is the indisputable existence of alternative sources 

of supply for the Roxy which negates the existence of 

anticompetitive effects in this case. Although the Miramax-Ritz 

clearances most certainly reduced intrabrand competition to some 

degree by disallowing the Roxy from showing on a first-run basis 

any Miramax film that the Ritz had selected, they undeniably 

promoted interbrand competition by requiring the Roxy to seek out 

and exhibit the films of other distributors, which it 

consistently accomplished. Thus, in our view, the record 

conclusively establishes that the clearances did not produce the 

anticompetitive effects the Sherman Act was designed to prevent. 

On the contrary, competition in the relevant market was enhanced; 

art film consumers in Center City had more movies from which to 

choose. In an apparent attempt to avoid this absence of proof on 

an essential element of its case, Orson alluded in its brief to 
30 

Miramax's having market power, arguing that the distributor had 

"enormous financial clout" and "solidified its leading position 

among independent film distributors" subsequent to its 

acquisition by the Walt Disney Company in 1993. Orson did not, 

however, present a factual basis for this belief. As we have 

stated, "[l]egal memoranda and oral argument are not evidence and 

cannot by themselves create a factual dispute sufficient to 

defeat a summary judgment motion." Jersey Cent. Power & Light 

Co. v. Township of Lacey, 772 F.2d 1103, 1109 (3d Cir. 1985), 

cert. denied, 475 U.S. 1013 (1986).0

 We thus conclude that Orson failed to present 

sufficient evidence to support its claim that the Miramax-Ritz 

clearances were unreasonable restraints of trade. 

 

V. 

 We turn now to Orson's state law claim brought under 

section 203-7 of the Pennsylvania Act. Orson alleges that 

Miramax violated 73 P.S. § 203-7 when it expanded the runs of 

 

0 Miramax contends that Orson also failed to show that it 

suffered antitrust injury. Since Orson did not meet its burden 

of presenting sufficient evidence to demonstrate that competition 

was suppressed, we need not address this issue. 

 We also note that Orson did not allege nor did it 

present evidence to show that Miramax was a monopolist or that 

only Miramax films constituted the relevant product market. See

Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 723 (3d Cir. 

1991) ("[I]t is also true that a well-defined submarket may 

constitute a relevant product market and so under certain 

circumstances a relevant product market could consist of one 

brand of a product, placing intrabrand competition at issue."), 

cert. denied, 505 U.S. 1221 (1992). We make these points 

because Orson's antitrust theory frequently seemed premised on an 

analysis of a market which was limited to Miramax's product. 
31 

nine films that had played exclusively at the Ritz for 42 days or 

less to theaters located in the suburbs of Philadelphia, but not 

to other Center City theaters. 

 Section 203-7 provides in pertinent part that "[n]o 

license agreement shall be entered into between distributor and 

exhibitor to grant an exclusive first run or an exclusive 

multiple first run for more than 42 days without provision to 

expand the run to second run or subsequent run theaters within 

the geographical area . . . ." 73 P.S. § 203-7 (emphasis added). 

 On summary judgment, Miramax argued that it complied 

with section 203-7 because the relevant "geographical area" as 

contemplated by section 203-7 was the greater Philadelphia 

metropolitan area; Orson, by contrast, contended that the 

expansions to suburban theaters were legally irrelevant because 

section 203-7 required that Miramax expand the run of each film 

it licensed exclusively to the Ritz to theaters located within 

the geographical area covered by the license, namely, Center 

City.0

 

0 Believing that Orson is "apparently contending that 

[s]ection 203-7 compels distributors to terminate a first run at 

one theater, such as the Ritz, after 42 days and open another run 

at a competing theater, such as the Roxy," Miramax argues that, 

if interpreted this way, the Pennsylvania Act would be preempted 

by the Federal Copyright Act, 17 U.S.C. §§ 101-914. Orson, 

however, states in its reply brief that it does not maintain that 

section 203-7 compels distributors to terminate a first run at 

one theater and appears to argue that section 203-7 would only 

require that another theater in the relevant geographic area be 

permitted to share in the run after 42 days. In the trade, a 

first-run "day and date" refers to the first-run exhibition of a 

film by two theaters at the same time. Theatre Enterprises, Inc. 

v. Paramount Film Distributing Corp., 346 U.S. 537, 539 n.7 

(1954). 
32 

 The district court found section 203-7's wording 

"sufficiently vague" to permit these alternative interpretations. 

Orson Inc. v. Miramax Film Corp., 862 F. Supp. 1378, 1387 (E.D. 

Pa. 1994). Noting that one of the purposes of the Pennsylvania 

Act is to "`promote the wide geographical dissemination at 

reasonable prices to the public of ideas, opinions and artistic 

expression in feature motion pictures,'" 73 P.S. § 203-2(4), and 

that another identified purpose of the Act is to "`foster 

vigorous and healthy competition'" in the film business, id.

§203-2(3), the court agreed with Miramax and held that since the 

Pennsylvania legislature's "primary purpose in enacting section 

203-7 was not to increase market rivalry among direct 

competitors, but instead to promote the wide distribution of 

movies throughout Pennsylvania[,] . . . Miramax can incur no 203-

7 liability for the 9 films that were expanded to other 

Philadelphia area theaters on or before the forty-third day of 

their runs at the Ritz." Id. (footnote omitted). 

 

 At any rate, we have already rejected a facial 

challenge to section 203-7 under the Copyright Act, holding that 

"the Act on its face contains no threat to the copyrights 

themselves . . . ." Associated Film Distribution Corp. v. 

Thornburgh, 683 F.2d 808, 816 (3d Cir. 1982), cert. denied, 480 

U.S. 933 (1987). See Associated Film Distribution Corp. v. 

Thornburgh, 800 F.2d 369, 377 (3d Cir. 1986), cert. denied, 480 

U.S. 933 (1987) ("There may be merit to the distributors' 

argument that the 42-day provision, when construed as limiting 

the distributors' right to license an exclusive run to 42 days, 

is preempted by the Copyright Act. However, such preemption 

would be apparent on the face of the statute and cannot be 

reconciled with [our] earlier decision [in Associated Films, 683 

F.2d at 816] that the Act is not facially invalid under the 

Copyright Act."). 
33 

 The Pennsylvania Supreme Court has not interpreted 

section 203-7. We, therefore, must predict how the Court would 

interpret and apply that section. Borman v. Raymark Indus. Inc., 

960 F.2d 327, 331 (3d Cir. 1992). Unfortunately, there are no 

intermediate appellate court decisions to assist us.0

 Pennsylvania abides by well-known rules of statutory 

construction. When construing a statute, the Pennsylvania courts 

must ascertain and effectuate the Pennsylvania Legislature's 

intent. 1 Pa. Cons. Stat. Ann. § 1921(a); Commonwealth v. Lopez, 

444 Pa. Super. 206, 663 A.2d 746, 748 (1995). The courts' 

"starting point is the language therein, absent any evidence to 

the contrary. A statute's plain meaning must prevail." Retenauer 

v. Flaherty, 164 Pa. Commw. 182, 191, 642 A.2d 587, 591 (1994); 1 

Pa. Cons. Stat. Ann. § 1921(a). Any word or phrase, not 

otherwise defined, must be construed according to the rules of 

grammar and according to the common and approved usage. 1 Pa. 

Cons. Stat. Ann. § 1903(a); Martin Media v. Commonwealth, ___ Pa. 

Commw. ___, 661 A.2d 479, 481 n.2 (1995). Further, the letter of 

 

0 When a federal district court exercises diversity 

jurisdiction, it must apply the substantive law as decided by the 

highest court of the state whose law governs the action. See

Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Commercial 

Union Ins. Co. v. Bituminous Casualty Corp., 851 F.2d 98, 100 (3d 

Cir. 1988). When the state's highest court has not addressed the 

precise question presented, a federal court must predict how the 

state's highest court would resolve the issue. Borman v. Raymark 

Indus., Inc., 960 F.2d 327, 331 (3d Cir. 1992). Although not 

dispositive, decisions of state intermediate appellate courts 

should be accorded significant weight in the absence of an 

indication that the highest state court would rule otherwise. See

Rolick v. Collins Pine Co., 925 F.2d 661, 664 (3d Cir. 1991), 

cert. denied, 507 U.S. 973 (1993). Our review of the district 

court's prediction and application of state law is plenary. Borse 

v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992). 
34 

the statute is not to be disregarded under the pretext of 

pursuing its spirit, 1 Pa. Cons. Stat. Ann. § 1921(b), and the 

courts may not insert language into a statutory provision where 

the legislature has failed to supply it. Key Savings and Loan 

Ass'n v. Louis John, Inc., 379 Pa. Super. 226, 232, 549 A.2d 988, 

991 (1988). The courts should give effect to all sections of an 

act rather than interpreting the language in such a way that one 

clause is rendered superfluous or meaningless for the benefit of 

another. 1 Pa. Cons. Stat. Ann. § 1921(a); Key Savings and Loan 

Ass'n, 379 Pa. Super. at 232, 549 A.2d at 991. Finally, when a 

word or phrase is ambiguous, the courts must look beyond the 

statutory language and attempt to ascertain the intention of the 

legislature by reference to various statutory factors, including 

the occasion and necessity for the statute, the circumstances of 

its enactment; the mischief it remedies; the object it seeks to 

attain; former law; the consequences of a particular 

interpretation; contemporaneous legislative history; and 

legislative and administrative interpretations of the statute. 1 

Pa. Cons. Stat. Ann. § 1921(c). 

 With these principles in mind, we conclude that the 

district court's interpretation of section 203-7 is erroneous. 

Although section 203-7 may be less than clear in certain 

respects, it is not ambiguous as to where an exclusive first-run 

license must provide for expansion. We believe that as a matter 

of simple semantics, the statute's "within the geographical 
35 

area"0 phrase can only refer to the place where the license was 

granted in the first place. In our view, when the district court 

interpreted section 203-7 to sanction expansion to theaters 

outside of Center City, the plain meaning of the statute's 

language was distorted since the word "within" in that phrase was 

ignored. Moreover, in referring to the Act's expressed purposes 

to support its interpretation, the court overlooked the purpose 

which reflects the Pennsylvania Legislature's intention to limit, 

as Orson argues, the length of first-run licenses in the very 

areas they cover: 

[to] benefit the movie going public by 

limiting the long and extensive first runs so 

that additional theaters, in a given area, 

may also exhibit the same feature motion 

picture and at possibly a lower admission 

price . . . . 

73 P.S. § 203-2(9). 

 We therefore conclude that section 203-7 prohibits a 

distributor and exhibitor from entering into a license agreement 

which grants an exclusive first-run for more than 42 days without 

providing for expansion in the same geographic area covered by 

 

0 We note that the Pennsylvania Act does not define 

"geographical area". The Act, however, defines "Run" in section 

203-3 as "[t]he continuous exhibition of a feature motion picture 

in a defined geographical area for a specified period of time." 

73 P.S. § 203-3 (emphasis added). Section 203-7, unlike section 

203-3, does not have the word "defined" before "geographical 

area." This omission does not change our analysis, even though a 

Pennsylvania rule of statutory construction provides that "where 

a section of a statute contains a given word, the omission of 

such word from a similar section of the statute shows a different 

legislative intent." Commonwealth v. Berryman, 437 Pa. Super. 

258, 267, 649 A.2d 961, 965 (1994). This single rule cannot 

overcome what we see as the plain meaning of section 203-7 and 

the Pennsylvania Legislature's intent in enacting it. 
36 

the license. Because the record is either disputed or incomplete 

in critical respects, however, we cannot resolve Orson's section 

203-7 claim on summary judgment. Further proceedings are 

necessary to resolve, for example, the length of run and 

expansion terms, if any, of the licenses; the availability of 

license agreements and film prints, if relevant, to subsequent 

run theaters; Orson's damages; and Miramax's intent. See 73 P.S. 

§§ 203-7, 203-10. 

 Thus, we conclude that Miramax was not entitled to 

summary judgment on Orson's section 203-7 Pennsylvania Act claim. 

VI. 

 For the foregoing reasons, we will affirm the district 

court's grant of summary judgment on Counts I and II of the 

second amended complaint in Miramax's favor. We will vacate the 

district court's order granting summary judgment to Miramax on 

Count III as to the nine films that expanded to Philadelphia 

theaters outside of Center City on or before the forty-second day 

of their runs at the Ritz and remand for further proceedings on 

Orson's claim that Miramax's actions as to these nine films 

violated section 203-7 of the Pennsylvania Act.0

 

0 Each party is entitled to the costs it incurred on 

those claims on which it prevailed on appeal. The parties shall 

notify the Clerk's Office if they are unable to resolve this 

division of costs between themselves.