Filed 9/2/20 CERTIFIED FOR PUBLICATIO N

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

FLAGSHIP THEATRES OF PALM DESERT

, LLC,

Plaintiff and Respondent

,

v.

CENTURY THEATRES, INC.

, et al.,

Defendants and Appellant s

. B292609

(Los Angeles County Super. Ct. No. SC090481 )

FLAGSHIP THEATRES OF PALM DESERT

, LLC

,

Plaintiff and Appellant

,

v.

CENTURY THEATRES, INC.

, et al.,

Defendants and Respondents

. B299014

(Los Angeles County Super. Ct. No. SC090481 )

APPEAL from a judgment and orders of the Superior Court of
Los Angeles County, Lisa Hart Cole , Judge. Reversed ( B292609 )

. Dismissed ( B299014 )

.2 Norton Rose Fulbright, Peter H. Mason, Joshua D. Lichtman Lesley Holmes, Michael A. Swartzendruber and Barton W. Cox for Defendants and Appellants (B292609) and Defendants and Respondents (B299014). Perkins Coie, Thomas L. Boeder, Elvira Castillo, Donald J. Kula, Sunita Bali and Alisha C. Burgin for Plai ntiff and Appellant (B299014) and Perkins Coie, Thomas L. Boeder

, Elvira Castillo and
Donald J. Kula for Plaintiff and Respondent ( B292609 )

.

_________________________________ This appeal arises from an antitrust dispute involving the licensing of motion pi ctures to movie theat e r s for public exhibition. Plaintiff Flagship Theatres o f Palm Desert, LLC (Flagship), which previously owned the movie theat e r Palme d’Or in the Coachella Valley , obtained a jury verdict against d efendants Century Theatres, Inc. and Cinemark USA, Inc. (collectively, Century)

, 1
which owned The River, a theat e r located two miles away from Palme d’Or. Century owns a circuit of theat e r s throughout the country as well

. The jury found true Flagship’s allegatio ns that Century had engaged in a practice known as “circuit dealing” by entering into licensing agreements with film dis tributors that
covered licenses to play films not just at The River, but at multiple
other Century

- owned theaters as well , and using these agreements

to pressur e distributors into refusing to license films to Palme d’Or.

1 Cinemark acquired Century in October 2006. We use the term “Century” to refer to both parties. When referring individually to either, we use the terms “ Cinemark USA ” and

“ Century Theatr e s, ” respectively.3 In reaching this verdict, the jury made several more specific findings regarding the competitive effects of the agreements, including that the agreements harmed competition in the relevant
market. On appeal ( c ase No. 292609) , Century argues substantial

ev idence does no t support these findings, that there can be no

a ntitrust liability without such evidence, and that the judgment in Flagship’s favor should therefore be reversed. In the alternative, Century argue s that the court committed reversible error by admitting into evidence certain testimony and emails Century

argue s are in admissible prejudicial hearsay, and that the jury’ s verdict is an im permissible “compromise verdict. ” We agree with Century that Flagship did not present substantial evidence of antic ompetitive effects in the relevant market. We further agree with Century that this failure of proof warrants reversal, as circuit dealing based on multi

- theat e r licensing agreements is not per se illegal under the Cartwright Act. We therefore reverse the judgment and need not reach Century’s remaining arguments on appeal. Nor need we address Flagship’s appeal ( c ase No. B299014) 2 from the court’s postjudgment order awarding Flagship attorney fees in an amount lower than Flagship had requested.

2 This court granted the parties’ joint motion to consolidate oral argument in Century’s appeal ( c ase No. B292609) and Flagship’s appeal ( c ase No. B299 014) in October 2019. On its

own motion, the court hereby consolidates the two appeals for all
purposes.4 F ACTUAL AND PROCEDURAL BACKGROUND

A. Film Industry Background In the motion picture industry, film studios, also known

as distributors, own the copyrights to films, and grant licenses to
theat e r s, also known as exhibitors, to play those films to the general public. A group of film distributors

, referred to as the “major” and “mini

- major” 3 film studios , collectively distribute the majority of “first

- run commercial films in the United States

. ” First

- run films

are “new films that exhibitors play immediately follo wing the release date.” A “commercial film ” is one that has high “grossing ability” because it wil l appeal to a large audience. “[O]n the other end of the spectrum ” from “commercial films” are the “more artistic
class movies ,” “class title[s] that might come out on a more limited release basis.”
Di stributors usually license first

- run films on a “day and
date ” basis, meaning they grant licenses to a theat e r regardless of whether nearby theat e r s are also licensing the film at the same
time

. W hen two or more theat e r s are located very close to each other, however, distributors license a film to only one of those
theat ers for a period immediately following a film’s initial release

. This is referred to as a “ clearance ” situation , or a “competitive

zone

. ” A clearance is “an exclusive right that a film distributor grants to a theat e r in connection with the licensing of a film ” that

3 S pecifically, s even distributors known as the “majors”

— Universal, Fox, Paramount, Sony, Disney, Warner Bros., and Lionsgate

— together with a few “mini

- majors,” “account for 95 percent of the industry.”5

“ prohibits the distributor from licensing the film for exhibition

at certain other theate r s

. . . while the film is being shown at the
theate r that obtaine d the clearance.” ( Flagship Theatres of Palm Desert, LLC v. Century Theatr es, Inc. (2011) 198 Cal.App.4th 1366, 1375 ( Flagship I

) .) After the initial period of time covered by a clearance , a distributor may choose to license the film to the other theat e r or theat e r s in the clearance zone. At that point, however, the film is no longer a first

- run film

, but a less lucrative “moveover.” Although a clearance by definition means only one theat e r in the zone may exhibit a given film during the clearance period,
d istributo rs do not necessarily grant clearances to all their films

to the same theat e r . I nstead , a distributor may choose to allocate films between theat e r s in the zone , granting one theat e r clearances to some films, and the other theat er (or theat e r s) in the zone
clearances to other films

. During the relevant time period for this case (2003

– 2016 ), clearances were common throughout the country

. 4 A particular clearance may violate antitrust laws if it is shown to cause actual
harm to competition that outweighs any pr o competitive benefits of
the clearance . ( Orson, Inc. v. Miramax Film Corp. (3d Cir. 1996)
79 F.3d 1358, 1372 ( Orson ).) But clearances have withstood antitrust scrutiny on several occasions because they can and often
do generate a net benefit to consumers by increasing the selection of films that theat e r s offer and stimulating competition on bases other than film selection. (See , e.g., ibid. ; Th r ee Movies of Tarzana v. Pacific Theatres, Inc. (9th Cir. 1987) 828 F.2d 1395 , 1399

4 In 2016, distributors s hifted away from granting clearances in competitive zones. Paramount is a notable exception, having stopped honoring clearances in 2009.6

( Tarzana ) ; Soffer v. Nat’l Amusements Inc. (D.Conn. Jan. 10, 1996

, No. CIV 3:91CV472(AVC) ) 1996 WL 194947 *6 ( Soffer ) [ clearances “increased the overall choice of films to customers” in that market] .)

B. The River and Palme d’Or Theat e r s Century Theaters was an exhibitor that owned 80 theat e r s, including a theat e r called The River in Rancho Mirage, California

. In 2006, another exhibitor, Cin emark USA, acquired Century
Theatres

. Following this acquisition, the combined entity (Century) operated approximately 300 theat e r s throughout the country, including The River

. Flagship owned and operated a single theat e r in Palm Desert, Palme d’Or ( the Palme)

, from 20 03 until mid

- 2016

. Both T he River and the Palme were located in the Coachella Valley, a collection of towns largely populated by an older, more affluent demographic. State Route 111 (Route 111) is
the v alley’s main thoroughfare, facilitating travel between the se
towns , which include Palm Springs, Cathedral City, Palm Desert,
Rancho Mirage, Indian Wells, and La Quinta. The River and
the Palme are approximately two miles apart from each other on
Route 111

. The Coachella Valley has “a lot of theatres,” most of which

are located on or minutes off of Route 111. Multiple theat e r s are located “not all that far from ” T he River and t he Palme in terms of both drive time and distance

. At trial, Flagship witnesses testified that the Palme competed for patrons with these thea te r s , including The River, the Mary Pickford 14 in Cathedral City

, the Regal Rancho 16 in Rancho Mirage

, the Regal in Palm Springs,
the Regal Metro 8 in Ind io

, and the La Quinta in La Quinta

. Although the specific driving distances between the Westfield Mall
in Palm Desert (where the Palme was located) and these other7

theat e r s are not included in the record on appeal, on the court’s

own motion, we take judicial notice of the se distances as being approximately 2 miles, 6 miles, 6 miles, 12.5 miles, 10 miles, and
6. 5 miles, respectively

. 5
Differences in what The River and the Palme offered their patrons are central to the parties’ arguments on appeal. The River
has 15 screen s and is located in an outdoor shopping area

. The
River is a typical commercial movie theat e r with stadium seating and a typical movie theat e r concession area. It caters to adult, teen,
and family audiences

. The Palme had 10 screen s and was located in a n indoor
mall

. The Palme is an “art house theater ” with a stated mission of offering a wide selection of independent, foreign, and other

art istic class films that otherwise would not be seen in the Coachella Valley

. Accordingly, t he films the Palme exhibited excluded “very commercial titles,” 6 although the Palme did seek

5 Evidence Code section 452, subdivision (h) permits judicial notice of “ [f]acts

. . . that are not reasonably subject
to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable
accuracy .” ( Evid. Code, § 452, subd. (h).) Such facts include locations and distances between locations. (See People v. Traugott (2010) 184 Cal.App.4th 492 , 497, fn. 4 [taking judicial notice of distance between locations under Evid. Code, § 452, subd. (h)]; In re Nicole H. (2016) 244 Cal.App.4th 1150

, 1153 [same];

see also People v. Posey (2004) 32 Cal.4th 193, 215 , fn. 9 [taking judicial notice of the location of a city under Evid. Code, § 452, subd. (h) ].)

6 Examples of “very commercial” films include the franchises St ar Wars
, X

- Men , and Mission: Impossible , as well as Pixar films.8

to show some “high

- end adult commercial ” pictures. 7 This mix of offerings was desi gned to appeal to “sophisticated, discerning
film fans ” seekin g “upscale, adult programming.” The theat e r “[did] not have a youth audience

, at all,” and instead “focus[ed]”

on “ a cultu red adult audience and seniors.”
Whe n the Palme opened, it made its desired mix of films
kn ow n to distributors. It explain ed to distributor Sony, for example, that the Palme “will not be asking for

, nor expecting

, most Sony product

, as this is not a typical mainstream venue.
Please continue to sell

. . . [ T ] he River all the very commercial
titles. ” Universal similarly underst ood that the Palme “[was] only interested in certain films. They didn’t really care about a lot of
them

. ”
The Palme ’s d e cor and amenities were designed to create an upscale art house theat e r experience a s well. Flagship redecorated the building’s interior, creating an “elegant” lobby of granite, slate, and hand

- painted decorations . It had a café that offered “gourmet” food and “bistro fare ” such as espresso drinks, smoothies and “ premium des s erts. ” The theat e r also had sloped floors to accommodate patr ons with canes and walkers. The Palme pledged to offer “the best selection of art, independent, foreign, documentary, experimental, and classic films” along with the “best service, the best ambiance, the best café

7 The Palme’s business plan therefore called for “a collection of main titles” that were “supplement [ ed ] in the other screens

. . . with titles that people weren’t very familiar with,” including independent and foreign films. “[D]uring the trailers” for first

- run commercial movies, the Palme “would show all the other films [it was] screening at the theatre.”9

menu, the best technical presentation, and the very best overall
movie

- going experience in the desert.”

C. The Palme and Its Predecessor ’s Difficulty Obtaining License s to Fir st

- Run Films

The space Flagship operated as the Palme had been in a clearance situation with T he River for years before the Palme opened , and Flagship was aware of this before it chose the space

. The Palme’s predecessor, T he Town theat e r , obtained some first

- run film licenses from the major distributors

. There is conflicting evidence in the record as to how evenly the distributors
allocated clearances between The River and T he Town. When the Palme opened in 2003, it was not “awarded a high end com mercial film for an entire year. ” T he River routinely requested and rec eived clearances over the Palme for such films.
The Palme continued to have difficulties licensing first

- run films from the major distributors in the years that followed.
In some year s during the relevant period, one or more major
distributors did not licen se a single film to the Palme. For example, between 2002 and 2005, Paramount did not license any films to the Palme, and in 2003, 2006, and 2014, Universal did not license any films to the Palme. On several occasions, the Palme offered to
license a distributor’s first

- run film on terms pa rticularly attractive

to the distributor

— for example

, by offering more screens, longer

runs and a larger film rental payment than did T he River, as well

as a guaranteed minimum film rental

— but these offers were unsuccessful

. Uncontradicted expert testimony based on “ Rentrak ” data reflects, however, that in terms of first

- run films overall

— that is, not just the high grossing films or films from major
distributors

— “the Palme actually had

. . . slightly more first [

- ] run films [f rom November 2003 to June 2016 ] than [T] he River

. ” “[O] f10

those 1414 first [

- ] run films [shown at the Palme]

, more than hal f ”

— 55 percent

— “ were shown no place e l s e in the entire Coachella Valley .”

D. Flagship Attributes Its Difficulty Obtaining Licenses to Century ’s “C ircuit Dealing” and Sues Century Flagship sued Century in 2007 , alleging that the manner
in which Century lice nsed films caused distributors to deny the
Palme licenses to the most lucrative first

- run commercial films,
and that these film license agreements violated the Cartwright Act

, California’s antitrust law

. (See Bus. & Prof. Code

, § 16720 et seq. ) Specifically, Flagship alleged that Century ’s film licensing agreements, includ ing agreements with the major and mini

- major film studios, reflected a practice referred to as “circuit dealing”

—

“ ‘ the pooling of the purchasing power of an entir e [theat e r ] circuit in bidding for films,’ which undermines the competitive proces s of bidding for film licenses ‘theatre by theatre.’ ” ( Flagship I, supra, 198 Cal.App.4th at p. 1375 , quoting United States v. Paramount
Pictures (1948) 334 U.S. 131, 154 ( Paramount Pictures ).) The United States Supreme Court has recognized two distinct forms of circuit dealing. The first “ is a form of monopoly leveraging, that is,

‘ a monopolist ’ s use of power in one market to gain an advantage in a related market.’ (Sullivan & Grimes, The Law of Antitrust: An Integrated Handbook (2000) § 3.4b1, p. 106.) For example, one of
the United States Supreme Court cases concerning cir cuit dealing addressed certain ‘master agreements’ between distributors and
movie theat er cir cuits that ‘l umped together towns in which
the [circuits] had no competition and towns in which there were competing theaters.’ ( United States v. Griffith (1948) 334 U.S. 100,
102

– 103

. . . . )” ( Flagship I, supra
, 198 Cal.App.4th at p. 1375.)11

The other type of circuit dealing occurs where a theat e r circuit

owner does not necessarily have or leverage monopoly power in

any region, but its “agreements cover[ ] multiple theat ers within

a particular circuit” and “ ‘ eliminate the possibility of bidding for films theatre by theatre. In that way they eliminate the opportunity for the small competitor to obtain the choice first [

- ] runs, and put a premium on the size of the circuit. They

are, therefore, devices for stifling competition and diverting the cream of the business to the large operators. ’ ” ( Id

. at p. 1376, quoting Paramount Pictures
, supra, 334 U.S. at p. 154.) For ease of reference, we refe r to these two types of
circuit

- dealing claims as “ monopoly circuit

- dealing claims ” and

“ non

- monopoly circuit

- dealing claims, ” respectively. Flagship alleged Century engaged in both types of circuit dealing. Namely, it alleged that (1) Century leveraged its power as the owner of numerous theat e r s across the country

— some in areas
with little or no competition

— to pressure distributors in to granting
T he River clearances over the Palme, an d (2) Century’s practice of negotiat ing multi

- theat e r licensing agreements exerted pressure on
distributors to sh un the Palme or risk losing business from Century outside the Coachella Valley

. The compl aint also all eged that Century exerted further pre ssure on distributors to grant T he River clearances over the Palme by licensing multiple films from a
distributor at once

— that is, Century would agree to play an entire slate of a distributor’s current films, even the less d esirable ones

. 8

8 Flagship does not argu e that such multi

- film licensing agreements (as opposed to multi

- theater agreements) constitute a form of circuit dealing, nor would such an argument find support in the current law.12 Flagship’s lawsuit did not allege that the clear ances between the two theat e r s violated the antitrust laws

— that is,
that the clearances were themselves agreements prohibited by the Cartwright Act. Rather, Flagship alleged T he River’s
clearances over the Palme were the fruits of Century ’s challenged
circuit

- dealing agreements , and th us a product of

— but not themselves

— an antitrust violation

. ( Flagship I, supra

, 198 Cal.App.4th at pp. 1381

– 1382.)

E. The Palme Closes and the Tristone Palme 10 Opens in Its Place In 2016, the mall where the Palme was located elected not to renew Flagship’s lease

. Specifically, while Flagship was negotiating for a permanent lease of the space

, the mall informed Flagship that
it wanted to lease to a different theat e r operator
, and indicated to Flags hip that the other exhibitor was willing to pay more. Flagship
witnesses testified that Flagship had a limited ability to bid for
the lease due to a lack of “fair access to product” resulting from Century ’s challenged circuit dealing.
The Palme closed on June 30, 2016, and the Tristone
Palme 10 (the Tristone) opened a “ [ m ] atter of days ” thereafter
in the same space

. The theat e r was not renovated prior to the Tristone opening, and the new management continued to play independent and unique films

. Specifically, expert testimony reflects that 37 percent of the films shown at the Tristone in its first 15 months of business (f rom Ju ly 2016 to September 2017 ) were not offered else where in the Coachella Valley. Nothing in

t he record suggests that the Tristone has since closed

.13 F. The Jury Verdict 9 At trial, Flagship pursued both its monopoly circuit

- dealing claim, based on Century ’s alleged leveraging of monopoly power
in markets outside the Coachella Valley

, and its non

- monopoly
circuit

- dealing claim

, based on Century ’s licensing agreements
that covered multiple theat e r s

. In its closing argument, Flagship reiterated to the jury that it was not challenging the clearances as
such: “ [Flagship d id ] not contend that clearances in the absence of circuit dealing are unlawful. They’re not. Clearances always
existed in this zone. Clearances do n’t play a role in this case.” The parties disputed which antitrust analytical framework applied to Flagship’s circuit

- dealing claims

— specifically, whether
either or both claims were subject to the antitrust “ rule of reason, ” as opposed to a per se rule . As we discuss in more detail below, if a per se framework applies , an antitrust plaintiff need only

prove the act of circuit dealing and is not required to show that the
conduct resulted in harm to competition. (See Marin County Bd. of

9 This case came before this court on two occasions before proceeding to trial. First, in 2011, we reversed the trial court’s initial summary judgment ruling in Century ’s favor based on the sufficiency of the evidence to establish antitrust injury. We further held that “the court [had] abused its discretion by making discove ry rulings that impermissibly curtailed Flagship ’ s efforts to gather evidence of circuit dealing” outside the Coachella Valley, and reversed the summary judgment ruling on this basis as well. ( Flagship I

, supra, 198 Cal.App.4th at p. 1383.) After further discovery, the case was dismissed in 2014 on the eve of trial based on a spoliation issue. In 2016, we reversed that ruling ( see Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. (May 24, 2016
, B257148) [nonpub. opn.]) , and the case ultimately proceeded to trial in 2018.14

Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 930

– 931 ( Palsson ).) Under the rule of reason, by contrast, the plaintiff must prove that the defendant’ s conduct harmed competition in the relevant market and that any procompetitive justifications for the conduct did not outweigh that harm. (See, e.g., Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672, 1680

– 1681 ( Exxon ) .)
The court ultimately concluded that monopoly circuit dealing
i s per se illegal under the Cartwright Act, such that Flagship did not need to prove actual harm to compet ition in order to prevail

. As to Flagship’s non

- monopoly circuit

- dealing claim, however,

t he trial concluded that the rule of reason applied. Thus, the

court instructed the jury that , in order for Flagship to prove its

non

- monopoly circuit

- dealing claim, Flagship had to prove both
the elements of that claim 10 and that the multi

- theat e r l icensing agreements underlying the claim caused an “anticompetitive effect ” that “outweighed an y ben eficial effect on competition.” 11

10 T he court identified as the elements of a non

- monopoly circuit

- dealing claim that : (1) Century “was a dominan t theatre circuit”; (2) Century “pooled its purchasing power to enter into licensing agreements for speci fic films that included multiple theatres, including, at least, [T] he River and one or more other theatres” ; (3) “ b y entering into such multiple theatre licensing agreements, the film distributors were precluded from determining on a theatre

- by

- theatre bas is which theatres would be licensed for a particular film, thereby eliminating the opportunity for the small competitor to obtain the choice first [

- ] runs” ; (4) “ [p] laintiff

was in fact precluded from competing fo r first[

- ]run films as a result

o f [Century] entering into multiple theatre licensing agreements” ; and (5) plaintiff suffered damages as a result

.
11 Although the latter additional instruction did not specifically state that the harm must occur in a defined relevant market, the special verdict form r equired a finding to this effect.15 The jury ultimately found that Century had not “ engage [d]
in the monopoly leveraging form of circuit dealing in v i olation of
the California antitrust law s, ” 12 but that Flagship had proven its non

- monopoly circuit

- dealing claim

. In reaching this verdict,
the jury made several more specific findings, corresponding to the components of a rule of reason analysis. Namely , the jury found
that Century ’s multi

- thea te r agreements “cause[ d] harm to competition in the relevant geographic and product market[ ]
in the form of

. . . decreased output of film,” 13 and that “t he anticompetitive effects of [ d efendants’] conduct in entering into licensing agreements covering multiple theaters outweigh[ed] the procompetitive benefits of such conduct in the relevant geographic

12 The jury was instructed that the elements of such a claim were that : (1) Century “possessed sufficient market power outside the market where t he Palme and [T] he River competed” ; (2) Century “used its market power by communicating to a film distributor that [Century] will not exhibit the distributor ’ s films in [Century] theatres outside the market where t he Palme and [T] he River competed in order to coerce the distributor to allocate films exclusively to [T] he River ra ther than t he Palme” ; (3) this “use of its market power caused a film distributor to agree to license first [

- ] run films exclusively to [T] he River, rather than to
t he Palme, in a manner contrary to the film distributor ’ s own best interest and that prevents the licensing of films theatre by theatre” ; and (4) plaintiff suffered damages as a result

. 13 The jury verdict form references harm to competition in the form of either increased prices or reduced output, and does not require the jury to indicate which it found to be true. All parties acknowledge, however, that Flagship has never argued a price effect

, and that no evidence regarding pricing was presented at trial. We therefore focus solely on the output restriction language in the jury’s finding.16

and product markets.” The jury was not asked to make an express finding regarding the definition of the relev ant market in which
these an ticompetitive effects occurred, but the court instructed
the jury as to the parties’ competing proposed definitions of the
relevant market in this case

. With respect to the geographic

scope of the relevant market , the court had instructed that, “[i] n connection with your evaluation of [Flagship’s] claim that [Century ] entered into film licensing agreements covering multiple theatres

, [Flagship] claims that one relevant geographic market for antitrust

pur poses contains only t he P alme and [T] he River. [Century] claims that one relevant geographic market for antitrust pur poses is broader than [T] he River and t he Palme, and inclu des other theaters in the greater Coachella Valley.” The jury awarded Fl agship $1.25 million in damages, which was automatically trebled to $3.75 million , pursuant to provision s of the Cartwright Act applicable to all successful private antitrust
suits

. ( See Bus. & Prof. Code, § 16750 , subd. (a) [“ Any person who is injured in his or her business or property by reason of anything forbidden or declared unlawful by this chapter, may sue therefor
in any court having jurisdiction

. . . [and] recover three times the damages sustained by him or her

. ”].)

G

. Post t rial Motions and Appeals Century moved for judgment notwithstanding the verdict

o r , i n the alternative, a new trial based on several arguments, including thos e raised in the instant appeal. The court denied the motion, noting that a s a result of Century’s multi

- theat e r licensing practices, “the Palme was unable to show first [

- ] run films[,] and

consumers w ere denied a choice of theaters, ” which the court deemed to be an anticompetitive effect in the relevant market. Finally, the trial court rejected Century ’s new trial arguments17

regarding statements Century challenged as hearsay and the jury having reached an improper “compromise verdict

. ” Century timely appealed the judgment following the jury’s verdict and the court’s
orde r denying Century ’ s motion for judgment notwit hstanding the verdict and for a new trial. As required by the Cartwright Act, t he trial court awarded Flagsh ip attorney fees , although not in the amount Flagship
had requested

. ( Bus. & Prof. Code, § 16750, subd. (a) [“Any person who is injured in his or her business or property by reason of anything forbidden or declared unlawful by this chapter, may sue therefor

. . . shall be awarded a reasonable attorneys ’ fee together with the costs of the suit. ”].) Flagship timely appealed the court’s postjudgment o rder regarding attorney fees

.
DISCUSSION On appeal, Century argue s that : (1) substantial evidence
does not support the relevant geographic market definition Flagship identified at trial; (2) substantial evidence does not support the jury’s finding that Century’s multi

- theat e r licensing agreements harmed competition in that or any other market ; (3) the court committed reversible error by permitting into evidence certain testimony and emails Century argue s constitute prejudicial,
ina dmissible hearsay; and (4) the jury’s verdict is an impermissible “compromise verdict

. ”
We need only address Century ’ s arguments regarding the sufficiency of the evidence , as these are dispositive of both appeals

.
I. A PPROPRIATE A NTITRUST A NALYTICAL F RAMEWORK Flagship first responds to Century’s arguments regarding
the sufficiency of the evidence by contending that Century’s
multi

- theater licensing agreements are per se illegal under the18

Cartwright Act, rather than subject to the rule of reason, and thus
that F lagship was not required to prove anticompetitive harm in

a properly defined market in order to prevail. 14 Thus, we must first decide whether the rule of reason is in fact the appropriate analytical framework for Flagship’s non

- monopoly circuit

- dealing
claim. (See Even Zohar Construction & Remodeling, Inc. v. Bellaire Townhouses, LLC (2015) 61 Cal.4th 830, 837 [“ [ w ] e answer

. . . questions [of law] through de novo review”].) As discussed below,
we conclude that it is.

A

. The Rule of Reason and Per Se Illegality Generally

T he distinction between per se and rule of reason analysis stems from the fact t hat the Cartwright Act, like its federal counterpart the Sherman Act, p rohibits not all agreements restraining trade, but rather agreements that unreasonably
restrain trad e

. ( See Business Electronics v. Sharp Electronics (1988) 485 U.S. 717, 723 ( Business Electr onics ) [Sherman Act] ; Palsson , supra, 16 Cal.3d at pp. 930

– 931 [ “In general, only
unreasonable restraints of t rade are prohibited [by the Cartwright Act]. ”] .) The Cartwright Act states that “[e]xcept as provided in
this chapter, every trust is unlawful, against public policy and void.” ( Bus. & Prof. Code, § 16726.) Section 16720 defines the

term “trust” as “a combination of capital, skill or acts by two or more persons” for certain enumerated anticompetitive purposes,

14 Flagship also argues that, even if the rule of reason applies, substantial evidence supports the jury’s findings under the rule of reason as well. We address these arguments in the Discussion section II, post

.19

i ncluding “[t]o create or carry out restrictions in trade or commerce.” (

Id

., § 16720, subd. (a).) That prohibition is analogous to the catchall language of section 1 of the Sherman Act, which prohibits “[e]very contract, combination

. . . , or conspiracy , in restraint of trade or commerce.” ( 15 U.S.C. § 1 ; s ee Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 838.) “T he term ‘restraint of trade’

. . . refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in v arying times and circumstances.” ( Business Electronics, supra

, 485 U.S.

at p. 731.) Nevertheless, “t here are certain agreements or practices which because of their pernicious e ffect 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 ex cuse for their use. ” ( Northern Pac. R. Co. v. Unit ed States (1958) 356 U.S. 1, 5 ; NYNEX Corp. v. Discon, Inc. (1998) 525 U.S. 128, 133 ( NYNEX ) [ certain practices “ so often prove so harmful to competition and so rarely prove justified that the antitrust laws do not require proof that

an agreement of that kind is, in fact, anticompetitive in the particular circumstances ”].) These “manifestly anticompetitive” practices constitute unreasonable restraints of trade under any circumstances, and are thus per se violations of antitrust law. ( Chavez v. Whirl

pool Corp. (2001) 93 Cal.App.4th 363, 369 ( Chavez ) ; see Northern Pac. R. Co. v. United States , supra , at p. 5 .)
Modern U nited States Supreme Court cases caution , however, that
these types of practices are few, and the Court has “ been slow

. . . to extend per se analysis to restraints imposed in the context of business relationships where the economic impact of certain20

practices is not immediately obvious.” ( FTC v. Indiana Federation of Dentists (1986) 476 U.S. 447

, 458

– 459 , itali cs omitted .)
When a challenged practice do es not fall into such a per se category, a court determines whether the practice unreasonably restrains trade by assess ing its actual competitive effects under
the rule of reason

. ( See Leegin Creative Leather Products , Inc. v. PSKS, Inc. (2007) 551 U.S. 877, 8 86

– 887 ( Leegin ).) T he rule of

reason weighs the anticompetitive effects of the conduct in the
relevant market against its procompetitive effects , and determines whether, on balance , the practice harms competition

. (See, e.g.,
ibid. ; Exxon , supra, 51 Cal.App.4th at pp. 1680

– 1681 .) In engaging in this balancing , “a court may consider ‘the facts peculiar to
the business in which the restraint is ap plied, the nature of the
restraint and its effects, and the history of the restraint and
the reason s for its adoption. ’ ” ( In re Cipro Cases I & II (2015)
61 Cal.4th 116, 146 , quoting United States v. Topco Associates,
Inc. (1972) 405 U.S. 596, 607 ( Topco ) .) Subjecting conduct to rule of reason scrutiny thus does not reflect a conclusion that the conduct is somehow innocuous or likely to be legal. P ractices scrutinized under the rule of reason may hold tremendous potential to harm competition and violate
the antitrust laws

. (See , e.g., Leegin supra, 551 U.S. at p. 894 [acknowledging several “ risks of unlawful conduct ” resulting
from certain restraints reviewed under the rule of reason]. ) Rather, t he defining feature of conduct eva luated under the rule of reason, as opposed to conduct deemed per se illegal

, is that,

“ [ n ] otwithstanding” those risks, it “ cannot be stated with any degree of confidence that [the conduct ] ‘ always or almost always tend[s] to restrict competition and decrease output, ’ ” because
the practice “ can have either procompetitive or anticompetitive21

effects, depending upon the circumstances. ” ( Ibid. ) Thus, further evidentiary investigation into those specific circumstances and
relevant market characteristics is necessary in order to determine its competitive effects. Rule of reason balancing serves this

purpose.

B

. Paramount Pictures Is Not Dispositive With this general understanding of the rule of reason and

per se antitrust analytical frameworks in mind, we turn to the more specific issue of which should apply to Flagship’s non

- monopoly
circuit

- dealing claim. Our discussion of this issue must begin with Paramount
Pictures , supra , 334 U.S. 131 , the U nited States Supreme Court’s
la st word on circuit dealing . Although the Court analyzed these claims under the Sherman Act, “ federal cases interpreting
the Sherman Act are applicable to problems arising under the Cartwright Act. ” ( Palsson, supra, 1 6 Cal.3d at p. 925 .)
Paramount Pictures is a 1948 decision arising from the Department of Justice’s (DOJ) federal antitrust prosecution of numerous film industry participants, including several movie studios that owned production, distribution, and exhibition (i.e., theat e r ) facilities. ( Paramount Pictures , supra, 334 U.S.

at pp. 140

- 141

. ) The action sought to enjoin a long list of the distributors’ practices

. These practices included certain clearances ( id

. at pp. 145

– 146)

, block booking ( id. at pp. 156

– 157), franchising agreements ( id. at p. 155), and, most notably for our purposes, certain types of film licensing agreements between distributors and
exhibitors that reflected circuit dealing ( i d. at pp. 153

– 155)

. T he DOJ’s complaint also alleged horizontal and vertical price

- fixing conspiracies, through which the defendants set minimum theat e r admission prices

. (

Id

. at p. 142

. ) T he district court concluded that

,22

through these and other practices and agreements

, the defendants monopolized and restrained trade in the distribution and exhibition of films nationwide

. ( Id. at pp. 141, 154. ) The Supreme Court affirmed the district court’s conclusion
that these practices constituted federal antitrust violations. ( Paramou nt Pictures , supra , 334 U.S. at pp. 174

– 175

. ) With resp e ct to circuit dealing, the Supreme Court explained that the challenged film licensing agreements with theat e r s were “ unlawful restraints of trade in two respects. In the first place, they eliminate the possib i lity of bidding for films theatre by theatre. In that way they eliminate the opportunity for the small competitor to obtain the choice first [

- ] runs, and put a premium on the size of the circuit. They are, therefore, devices for stifling competition and diverting the cream of the business to the large operators. ” ( Id. at p. 154

. )
Second

, “ the pooling of the purchasing power of an entire circuit
in bidding for films is a misuse of monopoly power insofar as it combines the theatres in closed towns with competitive situations .” ( Id. at pp. 154

– 155.) Th ese two explanations correspond to the two variants of circuit

- dealing claims discussed above: non

- monopoly
circuit

- dealin g claims and monopoly circuit

- dealing claims, respectively. The Supreme Court treated all the film licensing agreements in Paramount Pictures as per se illegal un der the federal antitrust laws. (See ibid. ; see also United State s v. Griffith

, supra, 334 U.S. at pp. 108

– 109 [companion case to Paramount
Pictures addressing monopoly circuit dealing only].)
Paramount Pictures ultimately resulted in a series of consent decree s that effected “ a fundamental restructuring of the industry. ” ( Redwood Theatres, Inc. v. Festival Enterprises, Inc. (1988)
200 Cal.App.3d 687, 694 ( Redwood ); see Paramount Pictures

, supra , 334 U.S. at p. 179 ( dis. opn. of Frankfurter, J. ) [ “terms of the decree23

in this litigation amount, in effect, to the formulation of a regime for the future conduct of the movie industry” ].) These decree s required, inter alia, that the studios divest themselves of their interests in certain downstream distribution and exhibition operations, and that they license film s for exhibition on a “theat er by theater” basis, “solely upon the merits and without discrimination in favor
of affiliat es , old customers , or others.” ( Paramount Pictures
, supra , at p. 164 , f

n. 17.) In the over 70 years since Paramount Pictures , the United States Supreme Court has not revisited the issue of circuit dealing

. The California Supreme Court has never addressed the issue

. Although Paramount Pictures provid es crucial guidance on
circuit

- dealing claims, it is not dispositive here . This is because
Paramount Pictures addresses ci rcuit dealing in the context of a unique and distinguishable set of market conditions: v ertically integrated film distributors who employed a broad range of anticompetitive practices, incl uding horizontal coordination , to maintain their monopoly power over an entire industry . N o such broad network of restrictions

, nor any horizontal coordination

, was

even alleged here

, 15 and the jury rejected the idea that Century had market power. N or are modern film studios vertically integrated
in any way with the theat e r s that exhibit their films to the public.

“ Formerly, the distributors controlled circuits of theatres, and

15 Flagship neither alleged, nor offered any e vidence suggesti ng, that there was a broader hub

- and

- spoke conspiracy between and among the distributors, or that any of the distributors was vertically integrated with any exhibitor entity. Rather, Flagship’s theory involved multiple agreements, each bet ween one distributor and Century, which is neither owned nor controlled by any distributor.24

commonly attempted to lessen competition at the exhibitor level by using their vertical leverage through such devices as block booking, direct discrimination against independent exhibitors, joint operation of theatres, and conspiracy to fix prices and establish

un iform clearances. The charge of circuit dealing [in Paramount
Pictures ] was colored by this evidence of conspiracy and vertical leverage; not only were some of the circuits controlled by affiliates,
b ut in many instances there was ‘ cooperation among the major defendants in their respective capacities a s distributors and exhibitors.’ ” ( Redwood

, supra , 200 Cal.App.3d at p. 697, quoting
U nited States v. Paramount Pictures (S.D.N.Y. 1946) 66 F.Supp. 323, 346 .)
This unique constellation of market conditions and practices presented in Paramount Pictures was key to the district court’s
decision

— which, as to the substance of the alleged Sherman Act violations, the high court upheld without caveat. For example,

t he district cou rt noted that its assessment of the film licensing agreements should be considered “in view of the history and relation to the moving picture business of the various parties

to this action.” ( U

nited States v. Paramount Pictures , supra, 66 F.Supp. at p. 346 .) And on remand from the Supreme Court’s seminal decision, the district court pointed more specifically to
the relationship between the defendants, noting that the studio defendants “must be viewed collectively rather than independently
as to the power which they exercise d

. . . over the market by their theater hol d ings .” ( U nited States v. Paramount Pictures ( S.D.N.Y. 1949) 85 F.Supp. 881, 894 , italics added .) In this context,
the holding in Paramount Pictures served a unique purpose: “un ravel [ing] the effects of the [film] distributors’ past domination of film exhibition. ” ( Redwood, supra

, 200 Cal.App.3d at p. 697.)25 The United States District Court for the Southern District of New York recognized as much in an order, issued during
the pendency of the instant appeal, that terminates the consent
decrees resulting from Paramount Pictures . (See U nited States v. Paramount Pictures, Inc. (S.D.N.Y. Aug. 7, 2020, No. MISC.
19

- 544 (AT)) 2020 WL 4573069 *1 .) The district court did so at
the req uest of the DOJ’s a ntitrust d ivision in connection with the division’s “ initiative to review, and where ap propriate, terminate

or modify ‘ legacy antitrust judgments that no longer protect competition’ because of ‘ changes in industry conditions, changes in economics, changes in law, or for other reasons. ’ ” ( Id. at p p

. *1

– *2 .) In concluding that terminating the Paramount Pictures decrees would be in the public interest, the district court described them

as addressing a horizontal cartel ( id. at p. *1)

, and noted that “[t]he [d] ecrees [have] put an end to [d] efendants’ collusion and cartel and, in their absence, the market long

- ago reset to competitive
conditions. Both the market structure and distribution system that facilitated that collusion are no longer the same .” ( Id. at p. * 4 .)
In sum , although we must and do follow the Supreme Court’s guidance in Paramount Pictures regarding competitive concerns associated with circuit dealing

— in particular, their potential to stunt growth of s mall theat e r s or create barriers to entry for new
entrants in the market for film exhibition

— we do not read the
decision as concluding that all multi

- theat e r license agreements, under all circumstances, are per se illegal under federal (or California) antitrust law. ( See Redwood , supra , 2 00 Cal.App.3d

at p. 697 [ noting Paramount Pictures “must be understood in light of i ts peculiar facts and context” and that “[t]oday, the
issues surrounding circuit dealing have acquired a very different
industria l context” ].)26 C

. Relevant Precedent and Antitrust Legal Principles We must therefore look beyond Paramount Pictures to determine whether and under what circumstances, if at all, per se treatment might be appropriate for non

- monopoly ci rcuit

- dealing claims. Below, we consider two primary sources of relevant authority in this regard: (1) general developments in federal
and California antitrust law governing vertical restraints
since Paramount Pictures
, and (2) the few cases that address
circuit

- dealing claims, comprised of a single California C ourt of
A ppeal decision and a handful of fed eral district court decisions. ( See Palsson, supra

, 16 Cal.3d at p. 925 [ “federal cases interpreting
the Sherman Act are applicable to problems a rising under the Cartwright Act ” ].)

1. Development s in f ederal and California

a ntitrust l aw r egarding v ertical r estraints

s ince Paramount Pictures In antitrust law parlance, a f ilm licensing agr eement is a “ vertical restraint, ” meaning it is an a greement between
entities at “ different levels of the market structure ”

— a film
studio supplying film licenses ( the supplier level) and a theat e r exhibit ing the studio’s films to the public ( the retail level ). ( Topco, supra, 405 U.S. at p. 608 ; see Tarzana , supra , 828 F.2d

at p. 1399 [concluding clearances are vertical restraints]; Redwood,

supra , 2 00 Cal.App.3d at pp. 703

– 707 [analyzing non

- monopoly
circuit dealing as a vertical restraint] .) Thus, g eneral antitrust
law principles regarding vertical restraints are a logical source of guidance on the proper analytical framewor k for circuit

- dealing
claims under the Cartwright Act

. The United States Supreme Court’s approach to vertical
restraints has changed significantly since Paramount Picture s

.27

Namely, o ver the past several decades, t he Court has repeatedly
held that vertical restraints are to be analyzed under the rule of

reason , rather than deemed per se illegal under the Sherman Act

. (See, e.g., Leegin , supra , 5 51 U.S. at p. 89 8 [resale price maintenance] ; NYNEX , supra, 525 U.S. at p. 130 [vertical boycott agreement] ; Continental T. V., Inc. v. GTE Sylvania Inc. (1977)
433 U.S. 36, 57

– 58 ( Sylvania ) [non

- price geographic restrictions
in franchising agreement] .) This approach i s a result of the “substantial scholarly and judicial authority supporting [the] economic utility” of vertical restraints in many instances , which “in varying forms, are widely used in our free market economy.” ( Sylvania

, supra , at pp. 57

– 58.) F or example, although vertical restraints plainly restrict intrabrand competition, in doing so they

can stimulate interbrand competition

— “ ‘ the primary concern of
antitrust law ’ ” ( Business Electronics, supra , 485 U.S. at p. 724; quoting Sylvania, su

pra , 433 U.S. at p. 52, f n. 19 )

— “by allowing
the manufacturer to achieve certain efficiencies in the distribution of [its] products.” 16 ( Sylvania, supra, at p

. 54; Leegin, supra , at

16 “ 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 to28

p. 890.) Vertical restraints can also “allow [ ] the manufacturer

to achieve certain efficiencies in t he distribution of his products. ” ( Sylvania, supra , at p. 54 [“ [t] hese ‘redeeming virtues’ are implicit in every decision sustaining vertical restrictions under the rule of reason ”].) Based on these and other potential procompetitive benefits , the Supreme Court has concluded that one cannot say
any particular type of vertical restraint

— even ve rtical restraints regarding price

— “ ‘ “ always or almost always tend[s] to restrict competition and decrease output. ” ’ ” ( Business Electronics, supra , at p. 723; see Leegin, supra , at p. 894.) As such, rule of reason scrutiny is appropriate. Cases discussing two types of vertical restraints are particularly instructive in analyzing Flagship’s non

- monopoly
circuit

- dealing claims: vertical boycotts and exclusive dealing.
A “vertical boycott ” oc curs when “ ‘ entities at different levels of distribution combine to deny a competitor at one level the benefits enjoyed by the memb ers of the vertical combination. ’ ” ( Marsh v. Anesthesia Serv ice s Med ical Gr ou p, Inc. (2011) 200 Cal.App.4th 480, 494 ( Marsh ) .) E xclusive dealing occurs when there is an

“ ‘ agreement between a vendor and a buyer that prevents the buyer from purchasing a given good from any other v endor. ’ ” ( Aerotec International v. Honeywell Internationa l (9th Cir. 2016) 836 F.3d 1171, 1180 (

Aerotec ), quoting Allied Orthopedic v. Tyco Health Care Group (9th Cir. 2010) 592 F.3d 991, 996 & f n. 1 .) These two types of vertical restraints are at least partially analogous to Flagship’s

non

- monopoly circuit

- dealing claim, in that Flagship argues

substitute a different brand of the same product.” ( Sylvania, supra

, 433 U.S. at p. 52 , f

n. 19.)29

Century’s multi

- theat e r licensing agreements caused studios to license first

- run films only t o Century in the relevant geographic market as Flagship def ines it ( the Rancho Mirage clearance zone ). Thus, Flagship’s claim could be understood as implying several vertical group boycotts

— that is, agreements between each
studio and Century to boycott a competing theat e r (the Palme)

. Alternatively, Flagship’s claim could be understood as implying

seve ral exclusive dealing arrangements

— that is, agreements between each studio and Century that the studio will deal exclusively with Century in the Rancho Mirage clearance zone

. In NYNEX

, supra , 525 U.S. 128, t he Supreme Court applied the rule of reason to a vertical grou p boycott claim. Specifically,
the Court concluded that an alleged agreement between a supplier and buyer that the buyer would boy cott a competing supplier “for an improper reason ” was not per se illegal under the Sherman Act

. ( Id. at p. 133.) The complaint in NYNEX alleged that the defendant
h ad monopoly power, that the p urpose of the challenged agreement was “to drive [the competing supplier] from the market” ( id . at

p. 137), and that the defendants’ conduct increased prices to

c onsumers. (

Id. at pp. 136

– 138.) The Court did not find these allegations sufficient to warrant per se treatment , and expressly

r ejected the suggestion that any “special motive ” of parties to a vertical boycott “could make a signifi cant difference” in this regard. ( Id. at p. 13 8 .) Rather, the Court made the broad pronouncement
that “antitrust law does not permit the application of the per se rule in the boycott context in the a bsence of a horizontal agreement .” 17 ( Id. at p. 13 8 .)

17 Although NYNEX acknowledged the possibility that

a vertical agreement restricting price might warrant per se30 Sherman Act challenges to exclusive dealing arrangements are likewise analyzed under the rule of reason. ( See Jefferson Parish Hosp ital Dist. No. 2 v. Hyde (1984) 466 U.S. 29 ; id . at

pp. 45

- 4 6 ( conc. opn. of O ’ Connor, J.)

, abrogated on other grounds
in Illinois Tool Works Inc. v. Independent Ink , Inc. (2006) 547 U.S. 28, 34 [c haracterizing agreement the majority described as subject to the rule of reason as an exclusive dealing arrangement subject

to the rule of reason]; Aerotec, supra , 836 F.3d at p. 1180, f n. 2 [ “[b] ecause exclusive dealing arrangements provide ‘well

- recognized economic benefits

. . . including the enhancement of interbrand competition,’ we apply the rule of reason rather than a per se analysis” ] ; see also, e.g., Eisai, Inc. v. Sanofi Aventis U.S., LLC (3d Cir. 2016) 821 F.3d 394, 403 [ e xclusive dealing arrangement s can “offer consumers various economic benefits” and thus are “ju dged under the rule of reason”].) Federal courts also apply
the rule of reason to exclusive dealing agreements in the movie
theat e r industry specifically

— namely, to clearances. ( See, e.g., Tarzana, supra , 828 F.2d at p. 1 399 [because c learances are vertical restraints, they “are reasonable if they are likely to promote interbrand competition without overly restricting intrabrand competition” ] ; Orson, supra, 79 F.3d at p. 1372 .) The California Supreme Court has not yet addressed the general treatment of vertical restraints under the Cartwright Act, nor has it considered exclusive dealing or vertical group boycott claims more specifically. But California C ourts of A ppeal generally analyze vertical restrain t s under the rule of reason

. (See Exxon

,

treatment, the Court has since held that vertical agreements regarding resale prices are also subject to the rule of reason, and for largely the same reasons that non

- price vertical restraints are. (See Leegin, supra , 551 U.S. at pp. 890

– 894.)31

supra , 51 Cal.App.4th at p. 1681 [ where an antitrust plaintiff alleges vertical restraints, facts must be ple a d ed showing “some anticompetitive effect in the larger, interbrand market” ] ; Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1044 ( Gianelli Distributing ) [same]
, disapproved of on
other grounds by Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th
384 ; see also Theme Promotions v. News America Marketing FSI ( 9th Cir. 2008) 546 F.3d 991, 1000 [ “California courts have determined that vertical restraints of trade, including exclusive dealing contracts, are not per se u nreasonable but instead are subject to a ‘rule of reason’ analysi s”] ( italics omitted ) .) And

o ur state C ourts of A ppeal have also more specifically held that

, absent some horizontal component or leveraging of monopoly

power, neither exc lusive dealing arrangements nor vertical

group boycotts are per se v iolations of the Cartwright Act. (See Fisherman’

s Wharf Bay Cruise Corp. v. Superior Court (2 003)
114 Cal.App.4th 309, 335 ( Fisherman’s Wharf ) [ “exclusive dealing arrangements are not deemed illegal per se” but rather “tested
under a rule of reason”] ; Marsh, supra

, 200 Cal.App. 4th at p. 494 [ rule of reason applies to “vertical boycott [ s ] ” ] ; Gianelli Distributing,

supra , 172 Cal.App.3d at pp. 1045
, 1047 [applying rule of reason to
vertical agreement between manufacturer and distributor to shift business away from competin g distributer]; see also Antitrust

, UCL and Privacy Section

, Cal. Lawyers Association, Cal. Antitrust and Unfair Competition Law ( r ev. ed. 2019) § 2 .09 [“ purely
vertical group boycotts are reviewed under the rule of reason ”];
id

., § 3.08 [“ [i] n California, as under federal law, exclusive dealing arrangements are not deemed necessarily illegal per se; rather, they are generally analyzed under the rule of rea son ” ] (fn. omitted) .) Rather, a plaintiff alleging such violations must prove net harm32

to competition under the rule of reason. ( See Fisherman’s Wharf

, supra, 114 Cal.App.4th at p. 335 ; Marsh, supra

, 200 Cal.App.4th

at p. 494.) These decision s apply largely the same logic as the United States Supreme Court decisions discussed above (s ee, e.g., Dayton Time Lock Service Inc. v. Silent Watchman Corp. (1975)
52 Cal.App.3d 1, 6 [ “ E xclusive

- dealing contracts are not necessarily
invalid. They may provide an incentive for the marketing of new products and a guarantee of quality

- control distri bution.”] ; Gianelli Distributing, supra

, 172 Cal.App.3d at p. 1045, citing Sylvania,

supra , 433 U.S. at pp. 51

– 52
, 58

– 59 .)

2. California and f ederal c ases a ddressing

c ircuit d ealing s ince Paramount Pictures

W e turn next to the modern cases that have considered
circuit

- dealing claims since the Paramount Pictures decision and the developments in antitrust jurisprudence outlined above

. 18

18 W e do not discuss some of the Sherman Act cases Flagship cites that predate the significant changes in federal antitrust law (and, in some cases, the significant changes in the film industry) outlined in the Discussion section I.C.1 (see pp. 2 6

- 3 1
, ante ) and thus are not instructive. (See Beech Cinema v. Twentieth Century

Fox Film (2d Cir. 1980) 622 F.2d 1106; Columbia Pictures Corp. v. Charles Rubenstein, Inc. (8th Cir. 1961) 289 F.2d 418; Fox West Coast Theatres Corp. v. Paradise T. Bldg. Corp. (9th Cir. 1958) 264 F.2d 602; Bordonaro Bros. Theatres v. Paramount Pictures (2d Cir. 1949) 176 F.2d 594.) Moreover, none of these cases addresses the correct analytical framework for circuit

- dealing claims, but rather various other issues not directly relevant to this appeal, such as the sufficiency of eviden ce supporting the existence of the conspiracy alleged.33 a. California circuit

- dealing cases Only two California decisions have addressed the issue: Redwood, supra, 200 Cal.App.3d 687 , and this c ourt’s decision in Flagship I

, supra , 198 Cal.App

. 4 t h 1366 . In Flagship I , we did not have occasion to decide which analytical framework to apply to any type of circuit

- dealing claims

. 19
Redwood , by contrast, provides a detailed discussion of the issue, drawing from sources similar to those we survey above. First , the court “ acknowledged that the United States Supreme Court held circuit dealing per se unlawful under the Sherman Act but also recognized that both federal antitrust
law and the structure of the film industry have undergone
consider able development since the late 1940’ s. ” ( Flagship I, supra

, 198 Cal.App.4th at p. 137 7, citing Redwood, supra

, 200 Cal.App.3d

a t pp. 697

– 698

. ) The court proceeded to survey antitrust law in several related areas, including bo ycotts and vertical restraints,

as well as the significant changes in the film industry discussed above, noting t hat “[t] oday, the issues surrounding circuit dealing have acquired a very different industrial context ” ( Redwood

, supra , at p. 697), and that, “ ‘ [w]ith the elimination of a motion picture industry vertically integrated downward to the exhibitor level,

19 The parties raised this issue in Flagship I . ( Flagship I,

supra , 198 Cal.App.4th at p. 1386.) At the time, however, the y had
not briefed all the legal issues relevant to deciding which antitrust analytical framework applied, and the record was insufficient to determine the exa ct nature of Flagship’s circuit

- dealing claims. ( Id

. at pp. 1386

– 1387.) W e noted that “[t]he type of circu it [

- ] dealing claim at issue might influence the analysis of whether the per se rule or the rule of reason should apply,” in that it “might make certain authorities or analogies more relevant than others,” and declined to decide the issue. ( Ibid .)34

the significance of a distributor ’ s refusal to do business with

an independent shifts dramatically. ’ ” ( Id

. at p. 698 , quoting Southway Theatr es, Inc. v. Georg ia Theatre Co. (5th Cir. 1982)
672 F.2d 485, 498 .) In light of these changed market conditions,
the modern antitrust approach to vertical restraints, and the need

to understand Paramount Pictures “ in light of its peculiar facts
and context” ( Redwood

, supra , at p. 697 )

, the Redwood court ultimately concluded that the pla intif f ’ s non

- monopoly circuit

dealing claim was subject to the rule of reason analysis under the Cartwright Act. (

Id. at p. 713.)

b. Federal circuit

- dealing cases Finally, we consider a handful of federal district court cases
that have discussed circuit

- dealing claims

. Some of these decisions note that Paramount Pictures requires per se tre atment for all forms of circuit dealing

. (See Cobb Theatres III, LLC v. AMC Entertainment Holdings (N. D.Ga. 2015) 101 F.Supp.3d 1319, 1342 ( Cobb ); 2301 M Cinema LLC v. Silver Cinemas Acquisition Co. (D.D. C. 2018) 342 F.Supp.3d 126

, 132 ( Silver Cinemas ); Reading International , Inc. v. Oaktree Capital Manage ment L LC (S.D.N.Y. Jan. 8, 2007 , No. CV 03

- 1895 (PAC) )
2007 WL 39301 *7 ( Reading ) .)
B oth Cobb and Silver Cinemas are motion to dismiss decisions in which the relevant antitrust analytical framework

was not at issue

. 20 In both cases , t he complaint alleged that the

20 In Co bb , the defendants did argue in their reply brief that the rule of reason, rather than a per se analysis, applied to all circuit

- dealing claims, but the court did not address the argument except to note that “[d]efendants suggest that circuit dealing shoul d be scrutinized under the rule of reason. Even if that were35

defendant theat e r

- circuit owner had leveraged its market power

to obtain clearances and that it had negotiated clearances for multiple theat e r s simultaneously. ( See Silver Cinemas, supra

, 342 F.Supp.3d at pp. 133

– 135; Cobb, supra , 101 F.Supp.3d at

p. 1343.) The complaints in both cases also alleged monopoly

power

. ( Silver Cinemas, supra , at pp. 134

– 135
, 137

– 138; Cobb,

supra , at p p. 1335 , 1339

– 1342 .) These decisions concluded that
the respective complaints had sufficiently alleged both forms of circuit dealing to avoid dismissal.
In Reading , the district court granted a summary judgment
motion in favor of the defendant on numerous causes of action,
and noted that, if the plaintiff was ever attempting to assert any
circuit

- dealing claims, it had abandoned them. ( Reading, supra

, 2007 WL 39301 at p. *6.) The court then went on to note in dicta that “ [e]ven if the [c] ourt liberally construed [p] laintiffs ’ complaint

t o i nclude a claim for circuit dealin g, [p] laintiffs would not prevail,” because “ no reasonable jury could find a conspiracy betw een [the defendant theat e r ] and its distributors.” ( Id. at p. *7.) In this context, the decision notes that “[p] laintiffs are correct that circuit dealing is per se anticompetitive ,” but does not discuss or rely
further on this characterization

. ( I bid

. , italics omitted. ) T he court goes on to note, somewhat in tension with the implication that all circuit dealing is per se illegal that “ Paramount [ Pictures ] merely condemned using these national relationships [between theat e r s and studios] to leverage master licensing agreements
nationwide. ” ( Id. at p. *8 .)
Still o ther federal district court cases have applied the rule of reason to what appear in substance to be circuit

- dealing claims

,
true, the [c] ourt ’ s analysis here would not change.” ( Cobb, supra , 101 F.Supp.3d at p. 134 3 .)36

citing the general rule that vertical restraints are no longer illegal

per se . (See Cinema Village Cinemart, Inc. v. Regal Entertainment Group ( S.D.N.Y. Sept. 29, 2016

, No. CV 15

- 05488 (RJS) ) 2016 WL 5719790 ( Cinema Village )

, affd. (2d Cir. 2017) 708 F. Appx. 29 ; Six West Retail Acquisition, Inc. v. Sony Picture Theatre Management Corp. (S.D.N.Y. Mar. 31, 2004
, No. Civ. 97

- 5499 ) 2004 WL 691680 ( Six West ) .) For example, in Cinema Village , the court applied the rule of reason to “ claims that various film distributors have refused to license first

- run films to [plaintiff theat e r ] as a result of exclusive dealing agreements ( ‘ clearances ’ ) with [defendant
theat e r ] ” ( Cinema Village

, supra , 2016 WL 5719790 at p. *1), and
that defendant theat er had “ extracted these agreements from
the film distributors, against their economic interests, by using its considerable market power as a major nationwide theater chain. ” ( I bid .) In Six West , the court cited Paramount Pictures for the proposition that “ relationships that eliminate the opportunity for small theat re s to obtain first [

- ] run films stifle competition and
violate [s] ection 1 [of the Sherman Act] ,” and applied the rule of

reason to what it termed a “relationship licensing claim,” based

on a “voluntary relationship between an exhibitor and distributor [ that ] ‘ hi nder [ s ] other exhibitors’ ability to acquire quality movies

. ’ ” ( Six West
, supra , 2004 WL 691680 at p. *8.) Neither decision appears to view its application of the rule of reason as in tension
with Paramount Pictures

. Given the limited extent to which, if at all, these federal
district court decisions appear to analyze the question of the appropriate analytical framework for non

- monopoly circuit

- dealing claims, they do not provide much meaningful guidance, either
indivi dually or viewed as a whole, on that issue

.37 D. Flagship’s Non

- M onopoly Circuit

- Dealing Claim Is Subject to the Rule of Reason Based on the foregoing survey of relevant federal and California law and film industry developments, we conclude that the trial court correctly required Flagship to show actual net harm to competition under the rule of r eason in order to prevail on its

non

- monopoly circuit

- dealing claim. We agree with Redwood ’ s thoughtful analysis of the unique legal and industrial context to which the holding in Paramount Pictures is tethered. We further agree that the connection between the rule of reason and vertical
restraints in modern antitrust law

— a connection that, sinc e Redwood discussed it , has graduated from a trend to a fundamental

tenet

— is key to selecting the proper analytical framework for

non

- monopoly circuit

- dealing claims

. The recent federal district court decision terminating the
Paramount Pictures consent decrees ( see p. 2 5
, ante )

, similarly observed that both the industry and federal antitrust law have changed since Paramount Pictures , such that many practices deemed per se illegal in the 1940 ’ s would not and should not be

per se illegal in the modern movi e theater industry under modern antitrust law. ( See U

nited States v. Paramount Pictures, Inc.

, supra, 2020 WL 4573069 at p. *6 [“ [d] ecrees’ treatment of certain
conduct as per se illegal and subject to criminal penalties

. . . prohibits conduct that today may be deemed legal and beneficial

to competition and consumers ” ] ( italics omitted ) .) T he order more specifically comments in dicta that circuit

- dealing claims are today subject to rule of reason scrutiny: “ The legal framework used to
evaluate the [d] ecrees’ film licensing practices

— including block booking, circuit dealing, and resale price maintenance

— has also changed. Although per se illegal seventy years ago, today

, courts38

would analyze such restraints under the rule of reason

— evalu ating
the specific market facts to determine whether a practice’s anticompetitive harm outweighs its procompetitive benefits.” ( Ibid

, italics omitted .)
We note that Redwood cabins its holding in a manner suggesting that the rule of reason may not always apply to

non

- monopoly circuit

- dealing claims

. Specifically, the court noted that there was “ no evidence of predatory intent ” and no evidence that “the alleged agreements were dictated by the exhibitor, concerned with its own position, rather than g ranted in the exercise of the distributors ’ independent discretion

. . . reflect [ing] the perceived business advantages to the distributors of dealing with large theatre circuits. ” ( Redwood, supra, 200 Cal.App.3d a t p. 703 .) With these caveats, the court held that the showing before it “plainly f[ell] short of the evidentiary threshold required to sustain a boy cott theory of per se liability.” ( Ibid. ) This appears to leave open the possibility that a non

- monopoly circuit

- dealing claim based on film licensing agreements that have a predatory purpose, are dictated unilaterally by the defendant thea t e r , and/or are beneficial
to that theat e r and not the licensing distributor , might present candidates for per se Cartwright Act liability. Indeed, Flagshi p argues as much in its attempts to distinguish Redwood based

on Century’s “pressur[ing] ” distributors to enter into licensing agreements covering multiple theat e r s

. We find Flagship’s arguments in this regard unpersuasive and, to the extent Redwood supports them, we disagree with its holding. Redwood “ explicitly based its reasonin g on federal law and precedents

. ” ( Orchard Supply Hardware v. Home Depot USA, Inc. (N.D .Cal. 2013) 939 F.Supp.2d 1002, 1011 .) But the U nited States Supreme Court’s subsequent decision in NYNEX has since “ clarified39

that an unlawful group boycott claim must involve some horizontal arrangement. ” ( I

bid. [rejecting, on this basis, plaintif f ’ s reliance on
Redwood for the proposition that “ the Cartwright Act might permit it to allege a group boycott even in the absence of any arrangement between horizontal competitors ”] ; see NY N EX, supra , 525 U.S.

at p. 138 .) Indeed, the agreement at issue in NYNEX had the sole purpose of driving a competitor out of the market, yet the Court declined to apply a per se framework on this basis, reserving such

treatment solely for boycotts with a horizontal component. 21 ( Ibid .) We are thus unpersuaded by the argument that per se treatment is appropriate where, as here, a theat e r

- circuit owner has not leveraged its monopoly power in obtaining film licenses, but rather, as Flagship asserts the evidence reflects, “pressure [ d ] ” a distributor
into a multi

- film licensing agreements

— even if those agreements primarily or exclusively benefit the theat e r

- circuit owner. The potential procompetitive benefits of an exclusiv e dealing or group boycott agreement

— which California and federal courts have repeatedly recognized

— are not negated or prevented when the parties to the vertical agreement have any particular motive

.

21 For this same reason, in the wake of NYNEX , we do not find Flagship’s citation to Movie 1 & 2 v. United Artists Communications (9th Cir. 1990) 909 F.2d 1245, to be persuasive authority for the proposition that non

- horizontal “group boycotts that directly or indirectly cut off necessary access to customers

or suppliers” are per se Sherman Act violations. ( Id. at p. 1253.) Movie 1 & 2 is also inapposite in that it involved a boycott with horizontal components. ( Id. at p. 1248 [distributor defendants alleged to have concertedly refused to deal with plaintiff t heat er and to have assisted with a split agreement between one distributor defendant and a theat er defendant].)40 More broadly, we see nothing c ategorically pernicious about film licensing agreements that cover “ two or more theatres in

a particular circuit and allow the exhibitor to allocate the film
rental paid among the theatres as it sees fit ” ( Paramount Pictures

, supra , 334 U.S. at p. 154 ), such that non

- m onopoly circuit

- dealing
claim s based thereon warrant per se treatment. Certainly, as the Supreme Cou rt recognized many years ago, such agreements hold the potential to block new market entrants , or stunt the ability of smaller theat e r s to serve as viable competitive threats to
their large r counterparts. ( See i bid .) These consequences might ultimately harm consumers by increasing prices, reducing product qualit y, and/or reducing output to an extent that outweighs any countervailing pro competitive b enefits of the agreements

. But
the fact that such agreements might so harm competition does

not mean they always will. In Paramount Pictures , the certainty of harm to competition was sealed by the vertically integrated relationship between studios and th eat e r s, as well as by the
host of other anticompetitive practices these entities employed

. The Supreme Court thus deemed per se treatment appropriate.
But such certainty no longer exists. Even acknowledging ho w important first

- run films are to theat e r s, it comport s neither with
modern antitrust la w, nor modern economic and movie theat e r industry realities, to render all multi

- theat e r licensing agreement s per se anticompetitive and illegal. It is important to note that we are not addressing the appropriat e standard for monopoly circuit

- dealing claims, which require a showing of market power and may be more closely analogized to tying than to exclusive dealing or vertical boycott. We leave that question for another day, as the jury rejected Flags hip’s41

monopoly circuit

- dealing claim, even under the per se standard the trial court determined should apply thereto. In sum, we conclude that a Cartwright Act plaintiff asserting

a non

- monopoly circuit

- dealing claim must prove not only that

a theat e r

- circuit owner entered into film licensing agreements covering more than one of its theat e r s, but that such agreements caused net harm to competition, as determined by the balancing of anti and procompetitive effects under the rule of reason. W hen
underst ood in context, Paramount Pictures does not require a contrary conclusion, nor could a contrary conclusion be reconciled with the treatment of vertical restraints

— including specifically vertical boycott agreements, exclusive dealing agreements, and
clearan ces

— under California and federal antitrust law.

II. S UFFICIENCY OF THE E VIDENCE S UPPORTING J URY ’ S F INDING OF C OMPETITIVE H ARM IN THE R ELEVANT M ARKET We turn next to Century’s arguments that the evidence presented at trial does not sufficiently support Flagship’s proposed relevant geographic market (the Rancho Mirage clearance zone )

or the jury’s finding that the challenged agreements harmed competition in the relevant market. We review such issues for substantial evidence

, meaning

we must resolve a ll conflicts in the evidence in favor of the respondent, and “indulge in” “ all legitimate and reasonable inferences

. . . to uphold the verdict if possible. ” ( Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.) Under this
standard of review, “t he power of the appellate court begins and
ends with a determination

. . . whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury. When two or more infere nces

can be reasonably deduced from the facts, the reviewing court is42

without power to substitute its deductions for those of the trial court.” (

Ibid. ; see also Estate of Teed (1952) 112 Cal.A pp.2d 638, 644 [ “ [s] ubstantial evidence” is “ ‘such relevant e vidence

as a reasonable [person] might accept as adequate to support a conclusion’ ” ].)

A. Role of Geographic Market Definition Generally

T o assess “d irect evidence of anticompetitive effects . . . in
the relevant market . . . we must f irst define the relevant market. ” ( Ohio v. American Express Co. (2018) 585 U.S. __ [ 138 S.Ct. 2274,
22 84

- 22 85] (

A merican Express ).) Thus, u nder the rule of reason, an
antitrust plaintiff must establish the boundaries of the market in which the plaintiff maintains the defendant harmed competition

— otherwise, the finder of fact will not know where to l ook in assessing anti and pro competitive effects of a practice. (See ibid

. [“ ‘ [w]ithout a definition of [the] market there is no way to measure [the defenda nt’s] ability to lessen or destroy competition ’ ”]

, quoting
Walker Inc. v. Food Machinery (1965) 382 U.S. 172, 177; see Ralph C. Wilson Indus tries v. Chronicle Broadcast (9th Cir. 1986) 794 F.2d 1359, 1363 [“ [t] o determine whether competition has been harmed,
the relev ant market must be defined”].) “The United States Supreme Court has declared that
the relevant marke t is determined by considering ‘ commodities reasonably interchangeable by c onsumers for the same purposes.’ ( United States v. du Pont & Co. (1956) 351 U.S. 377, 395

. . . .) Or, in other words, the relevant market is composed of products that have reasonable interchangeability for the purpose for which they are produced. ( Id . at p. 404

. . . .)” ( Exxon, supra , 51 Cal.App.4th

at p. 1682. ) This concept “ encompasses notions of geography

as well as product use, quality, and description. The geographic
market extends to the ‘ “area of effective competition”

. . . where43

buyers can turn for alternate sources of supply. ’ ” ( Oltz v. St. Peter ’ s Community Hosp. ( 9th Cir. 1988) 861 F.2d 1440 , 1446, quoting Moore v. Jas. H. Matthews & Co. (9 th Cir. 1977) 550 F.2d 1207,
1218 .) Thus, sellers offering products consumers would consider
substitutes within the geographic area in which those buyers are willing to travel to purchase those product s comprise s the relevant
market because the “ gr oup s of sellers or producers” in this area

“ have actual or potential ability to deprive each other of significant levels of business.” ( Thurman Industries , Inc. v. Pay ’ N Pak Stores,
Inc. (9 th Cir. 1989) 875 F.2d 1369, 1374 ( Thurman ) .)

B. The Jury’s Finding Involving Relevant Market Century challenges the sufficiency of the evidence to support a finding that the relevant geographic market was as Flagship defined it

— that is, the Rancho Mirage clearance zone. But t he jury did not make any finding as to what the relevant market

was. Al though t he court relayed to the jury what Century and Flagship’s respective proposed definitions of the relevant market

were, the verdict form did not ask the jury to identify which (if either) definition the jury accepted. Instead, the verdict form asked the jury to determine a broader issue that involved “the relevant
market

, ” but without defining that term. Specifically, the form
asked whether “[the defendants’] conduct cause [d] harm to competition in the relevant geograp hic and product markets in
the form of increased pric es or decreased output of film.” (Italics added.) That the jury answered this question in the affirmative
does not necessarily imply that the jury accepted Flagship’s definition. The jury could have ac cepted the definition proffered by the defense, but nevertheless concluded the defendants had caused anticompetitive harm in that more broadly defined market.44

Therefore, i n order to test the sufficiency of the evidence to support the jury’s finding of ant icompetitive effects in “ the geographic and product market s , ” we must consider whether substantial evidence supports that competition was harmed in either the relevant geographic market posited by Flagship (Rancho Mirage) or the relevant geographic market posited by Century (the Coachella Valley).

C

. Sufficiency of the Evidence to Support a Finding of Competitive Harm in the Geographic Market

as Defined by Flagship ( the Rancho Mirage Clearance Z one

)

1. Flagship’s p roposed g eographic m arket Although Century challenges only Flagship ’s geographic market definition, not its product market definition, the former is a function of the latter. Namely, “[Flagship] claims that the product market is the market for licensing of first [

- ] run films, ” a market
in which distributors sell licenses, theat e r s buy licenses, and moviegoers do not participate at all

. 22 (Italics added.) According

to F lagship, because the Palme and T he River are located in the
Rancho Mirage clearance zone

, they only need license s to play

22 T he idea that licenses for first

- run films are interchangeable product s

— or, for that matter, that tickets
to view first

- run films are interchangeable products

— is counterintuitive, given that there may be significant differences between any given first

- run film and another. In concrete terms, it is hard to understand how the right to exhibit, or the right to view, an R

- rate d action movie is i nterchangeable with the right
to exhibit or view a G

- rated animated film. Given the role of first

- run films as a group in the economics of the movie theat er business, however, movie theat er industry cases appear to have accepted this co ncept, and the parties do not challenge it here.45

films in that zone , so licenses for other cities would not be viable substitute products for them

. Moreover, Flagship argues, T he River
and the Palme are in a clearance situation in Rancho Mirage

, meaning a distributor would only ever license a ny first

- run film to

one or the other theat e r there . Flagship argues that the geographic
market is thus the “competitive zone” in whi ch these clearances were granted : the Rancho Mirage clearance zone. To support its geographic market, Flagship points to
extensive evidence refle cting industry rec ognition of the Rancho Mirage clearance zone

, and testimony that T he River is the only
theat e r with which t he Palme competed to obtain film license s from distributors. For example, it cites testimony of exhibitors and
distributors that t he Palme and T he River were the only theat e r s that competed in Rancho Mirage

. Flagship argues evidence of such

“ ‘ “commercial realities of the industry” ’ ” support s its proposed
relevant geographic market

. Certainly, ample evidence establishes that only the Palme
and T he River competed for film licens e s in the Rancho Mirage clearance zone, as they were the only two theat e r s in this zone.
But neither this, nor any ot her e vidence Flagship presented at
trial suggests that consumers in the Rancho Mirage clearance zone
could not or would not travel outside of that zone to view a film

— for ex ample, at th e Regal Rancho or Mary Pickford theat e r s located approximately 6 miles away from the Palme and approximately 4.5

to 5.5 miles away from The River

. (See f n. 5 ante , taking judicial notice of distances between theat e r s.) Indeed, n one of the evidence Flagship identifies speaks to substitutability from the perspective of
the movie

- viewing consumer at all

. This is a crucial point, because the Cartwright Act’s purpose
is to “protect and promote competition for the benefit of consumers ”46

( Chavez , supra, 93 Cal.App.4th at p. 375
, italics added ), and “[c]onsumer welfare is a principal, if not the sole, goal of antitrust laws.” ( Cianci v. Superior Court (1985) 40 Cal.3d 903, 918

– 9 19, citing Palsson , supra , 16 Cal. 3d at p. 935 .) The purpose of the
rule of reason is likewise consumer

- focused. (See Leegin , supra , 551 U.S. at p. 886 [goal of rule of reason is to “distinguish [ ] between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer ’

s best interest ” ], italics added .) And to the extent the antitrust laws protect competition more broadly, “[c] ompetition is not just rivalry among sellers. It is rivalry for the custom of buyers ” ( U

nited States v. Bethlehem Steel Corporation (S.D.N.Y. 1958) 168 F.Supp. 576, 592)

, such that “ ‘ [a] ny definition of line of
commerce which ignores the buyers and focuses on what the sellers do, or theoretically can do, is not meaningful. ’ ” ( Westman Com ’n Co. v. Hobart Intern., Inc. (10th Cir. 1986) 796 F.2d 1216, 1221

, quoting U

nited States v. Bethlehem Steel Corporation

, supra , at

p. 592.) Moreover, any such fo cus on competition more broadly
is merely a means to protect the consumer. (See Feldman v. Sacramento Bd. of Realtors, Inc. (1981) 119 Cal.App.3d 739, 748 ( Feldman ) [“ the purpose of antitrust laws is primarily to protect
the consuming public by healthy competition, and only secondarily to protect the individual competitor”].) Accordingly, all antitrust movie theat e r industry cases of
which this court is aware have defined the relevant geographic
market based on the area in which consumers

— that i s, moviegoers

— are willing to travel to see movies. ( See

, e.g., Orson,

supr a , 79 F.3d at p. 1372 [ summary judgment for defendant inappropriate where evidence potentially supported that challenged clearances caused anticompetitive effects in a market defined by47

the choice s available to “ art film consumers in Center City ” ] ; Cobb

, supra , 101 F.Supp.3d at p. 1336 [relevant geographic market for
circuit

- dealing claims sufficiently alleged as clearance zone based on moviegoers “ not [being] willing to travel outside of the area to watch movies because of significant population density and heavy traffic congest ion ”]; Reading, supra

, 2007 WL 39301 at p. *11 [ relevant geographic market defined as “the ‘ “ area of effective competition

. . . to which t he purchaser [here, moviegoers] can practicably turn for supplies ” ’ ” ], q uoting U nited States v. Eastman
Kodak Co. (2d Cir. 1995) 63 F.3d 95, 104. ) “[I] f the purchaser, i.e. , the moviegoer, can go beyond
the defined market for supplies, i.e. , movies, then the geographic market is too narrowly defined. ” ( Reading , supra, 2007 WL 39301,

at p. *11 , italics omitted

. ) T his focus makes sense when one considers that, whatever is occurring in the distributor

- facing portion of the market

— that is, the portion in which exhibitors license films from distributors

— c onsumers’ choices about
where they will go to see a movie are what ultimately determine competing theat e r s’ “ actual or potential ability to deprive each
other of significant levels of business

. ” ( Thurman , supra, 875 F.2d at p. 1374.) T hus, “[f]or antitrust purposes, the proper inquiry is
how consumers, not suppliers, view the market” and “ the fact that industry professionals consider [Rancho Mirage] a separate zone for licensing purposes

. . . has little rele vance in the antitrust context.” ( Reading, supra

, 2009 WL 39301 at p. *12 .) Therefore

, although there may well be a market for film
licenses in the Rancho Mirage clearance zone, it is a market of questionable , if any, significance under the antitrust laws.
This is particularly true in this case, given that m uch of the anticompetitive harms Flagship alleges occurred in the relevant48

m arket were suffered by movie

- going consumers, whose choices
and preferences played no role in how Flagship defines the geographic boundaries of its proposed relevant market.

2. Anticompetitive e ffects in Flagship’s

p roposed g eographic m arket Even assuming, arguendo, that Rancho Mirage could serve as a proper antitrust relevant geographic market in this case , Flagship failed to offer substantial evidence of anticompetitive effects in that market. In arguing to the contrary, Flagship identifies three types of harm in the Rancho Mirage market for film licenses . We address
each in turn below.

a. Reduction in the output of film licenses in the Rancho Mirage clearance zone Flagship first argues that the challenged agreements reduce d the output of film licenses in the Rancho Mirage clearance zone.
R eduction in output is a form of competitive harm recognized by
the anti t rust laws. (See Am erican Express , supra, 585 U.S. at p.

__ [ 138 S.Ct. at p. 2284 ] [“ d irect evidence of anticompetitive effects
would be ‘ “ proof of actual detrime ntal effects [on competition], ” ’ ”

“ such as reduced output, increased prices, or decreased quality
in the relevant market” ] , quoting FTC v. Indiana Federation of
Dentists , supra, 476 U.S. at p. 460 .) Here, however, substantial
evidence does not support a finding of reduced output

. As discussed above, a clearance zone is a geographic area in which

, by definition

, a distributor will grant only one license to exhibit each first

- run film

. Thus, i n a clearance zone like Rancho Mirage, the re will always be only as many film licenses issued as there are first

- run films to license . T he challenged agreements affect not how many
licenses each distributor issue s , but how (if at all) the distributor49

will divide up a static number of licenses between the theat e r s in
the zone

. Flagship did not argue below and does not argue on appeal that the general practice of granting clearances in Rancho Mirage harmed competition

. 23 Rather, under Flagship’s theory of the case, Century used circuit dealing to assure that distributors granted all
clearance licenses or at least the most lucrative clearance licenses
to T he Rive r, rather than , as is the case in many other clearance zones, allocating licenses between the theat e r s in the zone

. As a

23 Nor do the antitrust laws view this as inherently anticompetitive

— rather, in order for a clearance to violate the antitrust laws, a plaintiff must show something beyond the inherent limitations a clearance places on the number of film licenses granted for a particular film in a particular area. “[T]he reasonableness of a clearance under section 1 of the Sherman Act d epends on the competitive stance of the theaters involved and the clearance ’ s effect on competition, especially the interbrand competition.” ( Orson, supra , 79 F.3d at p. 1372; see Tarzana,
supr a, 828 F.2d at p. 1399 [clearances “are reasonable if they are likely to promote interbrand competition without overly restricting in trabrand competition”].) The Ninth C ircuit has identified the following factors for the purposes of analyzing the competitive effects of a clearance beyond the inherent limitation on t he number of licenses awarded in the clearance zone: ( 1) “ the proximity of the theaters ” ; ( 2) “ the location of theaters with respect to major thoroughfares ”; ( 3) “ whether transportation barriers exist between the theaters ”; ( 4) “ whether the plaintiff theater bid on the clearances ”; ( 5) “ whether the plaintiff acknowledged that his theater was substantially competitive with the defendant ”; ( 6) “ whether the theaters drew customers from the same geographical area ”; and ( 7) “ whether the theaters a dvertised throughout the same geographical area.” ( Soffer, supra, 1996 WL 194947 at p. *4, citing Tarzana, supra, 828 F.2d at p. 1399.)50

result, Flagship argues, “ distributors decreased their output of film with respect to the Palme , denying it access to the vast majority of profitabl e, first

- run, commercial films.” (Italics added.) Thus, Flagship’s argument identifies a reduction n ot in the total number of film licenses granted in Rancho Mirage (which is necessarily capped in a clearance situation ) , but rather a reduction in the percentage of such licenses allocated to the Palme

. Th is is not

a reduction i n overall output that harms competition , but rather

a reduction in what one competitor received that harms a single competitor. The latter does not satisfy a plaintif f ’s burden und er the antitrust rule of reason to show an “ actual adverse effect on competition as a whole in th e relevant market[.] [T] o prove it has been harmed as an individual competitor will not suffice. ” ( Capital Imaging v. Mohawk Valley Med ical Assoc

. (2d Cir. 1993) 996 F.2d 537, 543 [“ I nsisting on proof of harm to the whole market fulfills
the broad purpose of the antitrust law that was enacted to ensure competition in general, not narrowly focused to protect individual competitors. Were the law construed otherwise, routine disputes between business competitors would be elevated to the status of an a ntitrust action, thereby trivializing the [Sherman] Act because of its too ready availability

. ”] ; see also S outhern California Institute of Law v. TCS Educ. System (C.D.Cal. Apr. 5, 2011, Civ. No. 10

– 8026 ( JAK )), 2011 WL 1296602 *10 [ “ [s] ection one claimants must plead and prove a reduction of competition in the
market in general and not mere injury to their own positions as competitors in the market” ] ; see also RLH Industries , Inc. v. SBC Communications, Inc. (2005) 133 Cal.App.4th 1277, 1285

– 12 86 [ explaining that “the antitrust law is ‘concern [ ed ] with the protection of competition , not competitors ’ ” ] , quoting Brown Shoe Co. v. United States (1962) 370 U.S. 294, 320 .)51 Thus, substantial evidence does not support a finding of competitive harm based on a reduction in output in Flagship’s proposed relevant market, even if we were to recognize that market for antitrust purposes.

b. Reduction in consumer choice of theat e r s in the Rancho Mirage clearance zone Flagship next argues that the agreements harmed competition in Rancho Mirage by causing moviegoers there to have fewer theat e r s from which to choose when they want to
view first

- run film s

. But Flagship offered no evidence suggesting
consumers cannot or will not tra vel outside the Rancho Mirage
clearance z one to see a movie. As noted above, Flagship defined
that area as the relevant market based on where exhibitors buy
licenses

— not where consumers buy movie ticket s. Flagship offered no evidence on the latter point. Thus, no evidence support s this type of harm to consumers in the Rancho Mirage zone

. (See Marsh, supra, 200 Cal.App.4th at p. 495 [“ ‘ it is plaintif f ’ s burden

to make the required showing of a “ ‘substantially adverse effect

on competition in the relevant market ’ ” ’ ”], quoting Exxon, supra

, 51 Cal.App.4th at p. 1681.)
Nor would antitrust law necessarily view such an effect

as competitive harm, even if substantial evidence did support it

. First, the idea that removing one theat e r from a list of potential options for viewing a film constitutes competitive harm is
inconsistent with the approach federal appellate courts take to analyzing clearances. Clear ances necessarily deprive consumers of at least on e theat e r choice in which to view a film, yet courts require an antitrust plaintiff challenging a clearance to prove

some harm to competition beyond that in order for the clearance

to violate the antitrust laws

. ( See f n. 23
, ante

. ) Second, at least52

one court has concluded in the specific context of circuit dealing that “ the mere possibility that a consumer might have to see his or
her first choice movie at his or her second choice theatre or his or
her second choice movie at his or her first choice theatre [ ] is not an actionable restraint of trade

. ” ( Six West
, supra , 2004 WL 691680

at p. *10 ; see also Reading

, supra , 2007 WL 39301 at pp. *13

– * 14 [same] ; Cinema Vil l age, supra , 2016 WL 5719790 at p. *5 [ finding that facts asserted “merely establishe[d] that

. . . consumers must watch first

- run films at one theat er rather than at another” but

“ [ w ] ithout more, that state of affairs does not constitute actionable
harm ”] (ital ics added) .) Finally, anti t rust law generally does not view the elimination of a part icular competitor

— without more

—

as harm to competition. ( See Austin v. McNamara (9 th Cir. 1992) 979 F.2d 728, 738

– 7 39 [ The p laintiff “ was required to show not merely injury to himself as a competitor, but rather injury to competition. Even ‘ the elimination of a single competitor, standing alone, does not prove anticompetitive effect

. ’ ” ] ; Kaplan v. Burroughs Corp. (1979) 611 F.2d 286, 291 [ “ [e] ven if sufficient proof of intent and causation are introduced, the elimination of a single competitor, standing alone, doe s not prove anticompetitive effect”].) Although many first

- run films were not available at the Palme, they were “ still

. . . available, presumably in whatever number is demanded by consumers ,” such that the reduction in the number
shown at t he Palme reflects, “at most, a slight reduction in competition between [ t he P alme and The River] regarding
the [e xhibition] of [first

- run fi l ms]. ” ( E CC v. Toshiba America Consumer Products, Inc. (2d Cir. 1997) 129 F.3d 240, 245.) “ It is settled, however, that to sustain a[n antitrust] claim, a plaintiff ‘must

. . . show more than just an adverse effect on competition among different sellers of the same product ’ ” ( ibid. )

, and instead53

demonstrate harm to compet ition in a manner that negatively affects “the consuming public

. ” (See, e.g., Feldman , supra, 119 Cal.App.3d at p. 748 .)

c. Barriers to entry in the Rancho Mirage clearance zone Flagship further implies that the challenged agreements caused harm to competition in that they created barriers for
theat e r s trying to enter or expan d operations in the Rancho Mirage clearance zone

. Specifically, citing Redwood , Flagship

argues that Century’s multi

- theat e r licensing agreements

“ entrench the position of established motion picture exhibitors
and pose formidable barriers to entrepreneurs seeking to enter (or expand opera tions) in the theatre business” ( Redwood

, supra, 200 Cal.App.3d at p. 708 ), “ a competitive harm the antitrust laws seek to prevent .” We do not disagree that s uch barriers may well result from
certain multi

- film licensing agreements . But no evidence in the
record support s that this happened here with Century’s licensing agreements

. T o the contrary, the evidence shows that the Tristone entered the market immediately following the Palme’s closure, apparently unaffected by the theoretical barriers Flagship posits. Nor is there any evidence in the record suggesting that the Tristone
has been unable to expand because of barriers created by Century’s licensing agreements. In the absence of evidence suggesting Century’s agreements created barriers to entry, Flagship quotes Redwood for the proposition that an exhibitor “ may be placed at a grave competitive disadvantage” and that circuit

- dealing agreements “ may present serious antitrust questions .” ( Redwood, supra

, 200 Cal.App.3d at

p. 707 , italics added

. ) Such a theoretical possibility

— even one54

recognized in appellate authority

— i s not a substitute for e vidence of anticompetitive harm. “[T] here is really only one way to prove

an adverse effect on competition under the rule of reason: b y showing actual harm to consumers in the relevant market. ” (See MacDermid Printing Solutions LLC v. Cortron Corp. ( 2d Cir. 2016) 833 F.3d 172, 182 .) Accepting the mere potential for anticompetitive harm as actual harm effectively resurrects the

per se st andard we rejected above. (See NYNEX , supra, 525 U.S.

at p. 133 [practices deemed per se illegal “ do not require proof
that an agreement

. . . is, in fact, an ticompetitive in the particular circumstances”].) Because non

- monopoly circuit dealing is not

per se illegal, the mere possibility that restricting access to a unique product may , under certain circumstances, have the

econom ic effects Flagship identifies does not , without more, provide substantial evidence to support its non

- monopoly circuit

- dealing
claim

.
D

. Sufficiency of Evidence to Establish Competitive

Harm in the Broader Market a s Defined by Century (

the Coachella Valley)

1. Century’s p roposed g eographic m arket Century “contend s that the relevant product market
is the exhibition to consumers of first [

- ] run films, ” a market
in which exhibitors are the suppliers, and moviegoers are the purchasers

. (Italics added.) In defining the geographic bounds of this market, Century therefore focus es on the ability and willingness of moviegoers to travel to theat e r s in nearby cities
in order to see first

- run films. Based on this analysis, Century defined the relevant geographic market a s the Coachella Valley. Substantial evidence supports this definition . Numerous percipient witnesses, including the film buyer for the Palme,55

acknowledged that t he Palme and T he River compete d for

customers with at least five theat e r s in the Coach ella Valle y. For example, one of t he Palme’s co

- owners testified that , before the
La Quinta was built, t he Palme “compete[d] for patrons” with
five other theat e r s, and that “the market for patrons in that area
consisted ” of the Mary Pickford, the Regal Rancho, the Regal
in Palm Springs, and the Regal Metro 8 in Ind io. Distributors likewise testified that T he River and t he Palme competed with
other theat e r s for patro ns. Uncontested e xpert testimony also supports such a geographic market. Namely, Century’s economic expert testified that it was “reasonable to

. . . conclude that all [Coachella Valley theat e r s] are part of the relevant geographic market,” based on the relatively short distances and dri ve times
between The R iver and other theat e r s in the Coachella Valley

,

as well as customer survey responses indicating that 75 percent

or more of moviegoers surveyed in each Coachella Valley city
considered The River their favorite theat e r

. The Coachella Valley theaters identified above are between approximately 6

– 10 miles away from the Palme

. Moreover, unlike the market suggested by Flagship, the geographic (and product) market Century proposed to the jury is
consistent with the approach to relevant market definition in all
other movie theat e r industry and circuit

- dealing cases of which this
court is awar e. ( See p p. 47

– 48
, ante

. )

2. Anticompetitive e ffects in Century’s

p roposed g eographic m arket Flagship argues that even if the Coachella Valley constitutes
the r elevant geographic market, substantial evidence still supports that the challenged multi

- theat e r licensing agreements harmed competition in that broader market. Specifically, Flagship56

identifies two types of anticompetitive harm in the Coachella Valley
market

. We address each in turn below, and conclude that neither can support the jury’s finding.

a. Reduction in output of unique films in the Coachella Valley First, Flagship points to evidence that the Palme exhibited independent and artistic films not exhibited at any other Coachella Valley theat e r , and that the Pa lme’s closure, which Flagship
attributes to Century ’s licensing practices, thus reduced the output
of such unique films. Flagship argues that the Palme’s closure
likewise reduced any competitive pressure to play such films that
other theat e r s may have felt as a r esult of the Palme playing them

. First, we note that the record does no t include substantial evidence supporting that the challenged licensing agreements proximately caused the Palme to go out of business. The only evidence in this regard to wh ich Flagship cites is tes timony of
the Palme’s co

- owner that Flagship had a “ limited

. . . ability to
bid for the lease ” due to a lack of “fair access to product” resulting from Century’s challenged circuit dealing

. This is speculation, not
substantial evidence. ( See California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 45 .) Moreover, even if the evidence did support that the Palme closed as a result of the challenged agreements, w e are not

aware of any evidence speaking to the total number of unique

or independent films exhibited in the Coachella Valley after the Palme’s closure

. There is thus nothing from which a jury could reasonably infer that the total number of independent films exhibited in the Coachella Valley dropped following the Palme’s
closure

. When asked to identify such evidence during the hearing before this court, Flagship suggested that the record contains57

testimony establishing that over 700 unique films would not be shown in the Coachella Valley as a result of the Palme’s closure. This misconstrues the testimony. Century’s expert did opine that, during the 13 years the Palme was in b usiness, the Palme exhibited approximately 700 films not exhibited elsewhere in the Coachella Valley. But he offered no opinion

— nor does the record contain any evidence suggesting

— that such films did not or could not find a
home after the Palme’s closure. Indeed, the evidence in the record regarding other theat e r s ’ exhibition of independent or unique films supports an opposite conclusion. Namely, there was evidence that at least one theater competed with the Palme for licenses to independent films

,

as well as evidence that the Tristone, which began showing films immediately after the Palme’s closure, play ed unique and independent films. 24

b. Loss of unique art house theat e r in the Coachella Valley Flagship next argues that the challenged agreements caused a reduction in output of a unique and valuable type of theat e r

. Specifically, it argues the Palme’s closure denied consumers a

“ specialty theater with o ne

- of

- a

- kind features” that offered a

“ singular combination of u pscale ameni ties and senior

- friendly

24 Century’s expert economist calculated more specifically that 37 percent of the first

- run films shown at the Tristone in its 15 years were not exhibited at any other Coachella Valley theater. Although this represents a drop f rom the 55 percent he calculated for the Palme over the course of its approximately 13

- year existence, this does not provide a basis for concluding that the overall number of independent films at all Coachella Valley theat er s dropped as a result of the Pa lme’s closure.58

design.” Like Fl agship’s argument regarding a posited reduction
in unique films following the Palme’s closure, this argument
fails because there is (1) no evidence in the record to support the inference that the Palme closed as a result of the challenged agreements, and (2) no evidence in the record regarding what
other theat e r s in the Coachella Valley offered patrons in this regard, either before or after the Palme’s closure. Without evidence regarding the amenities offered at theat e r s outside the Rancho Mirage c learance z one , the record cannot support a finding that
the Palme was the only theat e r in the Coachella Valley that offered
certain amenities . Perhaps more importantly, there is no evi dence in the record supporting that, following the Palme’s closure, the
Tristone stopped offer ing the same amenities and overall theat e r experience that the Palme had offered in that same space days
earlier

. This distinguishes the case at bar from Cobb

, supra, 101 F.Supp.3d 1319, on which Flagship relies for this point

. In Cobb , a federal district court concluded that a complaint challenging the use of clearances to prevent movie theat e r s , offering a unique “CinéBistro” experience from entering or effectively competing in the relevan t market sufficiently alleged harm to competition, because these effects diminish ed the quality of
theat e r s offered to consumers

. ( Id. at p p

. 1326, 1335 .) Specifically, “t he [c] omplaint allege [d] in detail

. . . the various amenities that [ plaintif f ’s CinéBistros theat e r ] and [the other theat e r s in the alleged market] respectively offer consumers, often drawing stark differenc es

. . . [ and ] alleged more than a me re substitution of competitors” ( id . at p. 1335), rather, that “ consumers are being forced to purchase a product that is less desirable and of inferior quality. ” ( Ibid. ) Here, the re is no thing suggesting that the Tristone59

offers a theat e r experience that is different from

— let alone inferior

to

— that which the Palme had offered in the exact same space

. To the contrary, there is testimony that the Tristone did not remodel the space

. Flagship bore the burden of establishing harm to competition,
so to the extent it now argues a reduction in the overall output of independent art house films, or the loss of a unique art house
theat e r reflects such harm, Flagship must identify evidence of those
overall losses. Pointing to t he fact that the Palme was an art house
theat e r that played many unique films and that it is now closed does not satisfy that burden. We therefore conclude that substantial evidence does not support the jury’s finding of anticompetitive effects in the relevant market, whether that market i s defined as the Rancho Mirage
clearance zone or the Coachella Valley. Because, as discussed
in detail in the Discussion section I
, ante , Flagship’s non

- monopoly
circuit

- dealing claim was subject to the rule of reason, the lack of substantial evidence to support a finding of anticompetitive harm
mandates reversal of the judgment

. Because we reverse the judgment on this basis, we need not r each Century ’s third and fourth arguments regarding a new trial. We likewise need not address Flagship’s separate appeal challenging the amount of attorney fees awarded below, as Flagship is no longer the prevailing party and thus not entitled to attorney fees.60 DISPOSITION

As to Century Theatres, Inc. and Cinemark USA, Inc.’s appeal (B292609), t he judgment in favor of Flagship Theatres of Palm Desert is reversed. Accordingly, t he postjudgment
order granting Flagship Theatres of Palm Desert’s attorney fees is likewise reversed. Century Theatr e s, Inc. and Cinemark USA, Inc. are entitled to recover their costs on appeal in case
No. B292609

. As to Flagship Theatres of Palm Desert’s appeal ( case No. B299014), the appeal is dismissed as moot. The parties
shall bear their own costs on appeal in case No. B299014. CERTIFIED FOR PUBLICATION

.

ROTHSCHILD, P. J.
We concur:

BENDIX , J.

SINANIAN, J. *

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the Californi a Constitution.