Filed 9/2/20

CERTIFIED FOR PUBLICATION

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 Appellants.

 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 Plaintiff 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 pictures to movie theaters for public exhibition.

Plaintiff Flagship Theatres of Palm Desert, LLC (Flagship), which 

previously owned the movie theater Palme d’Or in the Coachella 

Valley, obtained a jury verdict against defendants Century 

Theatres, Inc. and Cinemark USA, Inc. (collectively, Century),

1

which owned The River, a theater located two miles away from 

Palme d’Or. Century owns a circuit of theaters throughout the 

country as well. The jury found true Flagship’s allegations that 

Century had engaged in a practice known as “circuit dealing” 

by entering into licensing agreements with film distributors 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 pressure 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 Theatres,” 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 (case No. 292609), Century argues substantial 

evidence does not support these findings, that there can be no 

antitrust liability without such evidence, and that the judgment in 

Flagship’s favor should therefore be reversed. In the alternative, 

Century argues that the court committed reversible error by 

admitting into evidence certain testimony and emails Century

argues are inadmissible prejudicial hearsay, and that the jury’s 

verdict is an impermissible “compromise verdict.”

We agree with Century that Flagship did not present 

substantial evidence of anticompetitive effects in the relevant 

market. We further agree with Century that this failure of proof 

warrants reversal, as circuit dealing based on multi-theater

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 (case 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 (case No. B292609) and 

Flagship’s appeal (case No. B299014) in October 2019. On its 

own motion, the court hereby consolidates the two appeals for all 

purposes.
4

FACTUAL 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 

theaters, 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 following the 

release date.” A “commercial film” is one that has high “grossing 

ability” because it will 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.”

Distributors usually license first-run films on a “day and 

date” basis, meaning they grant licenses to a theater regardless 

of whether nearby theaters are also licensing the film at the same 

time. When two or more theaters are located very close to each 

other, however, distributors license a film to only one of those 

theaters 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 theater in connection with the licensing of a film” that 

3 Specifically, seven 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 theaters . . . while the film is being shown at the 

theater that obtained the clearance.” (Flagship Theatres of Palm 

Desert, LLC v. Century Theatres, 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 theater or 

theaters 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 theater

in the zone may exhibit a given film during the clearance period, 

distributors do not necessarily grant clearances to all their films 

to the same theater. Instead, a distributor may choose to allocate 

films between theaters in the zone, granting one theater clearances 

to some films, and the other theater (or theaters) 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 procompetitive 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 theaters offer and stimulating competition on bases 

other than film selection. (See, e.g., ibid.; Three Movies of Tarzana 

v. Pacific Theatres, Inc. (9th Cir. 1987) 828 F.2d 1395, 1399

4 In 2016, distributors shifted 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 Theaters

Century Theaters was an exhibitor that owned 80 theaters, 

including a theater called The River in Rancho Mirage, California. 

In 2006, another exhibitor, Cinemark USA, acquired Century

Theatres. Following this acquisition, the combined entity (Century) 

operated approximately 300 theaters throughout the country,

including The River.

Flagship owned and operated a single theater in Palm Desert,

Palme d’Or (the Palme), from 2003 until mid-2016.

Both The 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 valley’s main thoroughfare, facilitating travel between these 

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 theaters are 

located “not all that far from” The River and the Palme in terms 

of both drive time and distance. At trial, Flagship witnesses 

testified that the Palme competed for patrons with these theaters, 

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 Indio, 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 other 
7

theaters are not included in the record on appeal, on the court’s 

own motion, we take judicial notice of these 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 screens and is located in an outdoor shopping area. The 

River is a typical commercial movie theater with stadium seating 

and a typical movie theater concession area. It caters to adult, teen, 

and family audiences.

The Palme had 10 screens and was located in an indoor

mall. The Palme is an “art house theater” with a stated mission 

of offering a wide selection of independent, foreign, and other 

artistic class films that otherwise would not be seen in the 

Coachella Valley. Accordingly, the 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

Star 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 designed to appeal to “sophisticated, discerning 

film fans” seeking “upscale, adult programming.” The theater

“[did] not have a youth audience, at all,” and instead “focus[ed]” 

on “a cultured adult audience and seniors.”

When the Palme opened, it made its desired mix of films 

known to distributors. It explained 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 understood that the Palme “[was] only 

interested in certain films. They didn’t really care about a lot of 

them.”

The Palme’s decor and amenities were designed to create an

upscale art house theater experience as 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 desserts.” The theater also had sloped floors to 

accommodate patrons 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 Licenses to First-Run Films 

The space Flagship operated as the Palme had been in a

clearance situation with The River for years before the Palme

opened, and Flagship was aware of this before it chose the space. 

The Palme’s predecessor, The Town theater, 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 The Town.

When the Palme opened in 2003, it was not “awarded a 

high end commercial film for an entire year.” The River routinely 

requested and received 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 years during the relevant period, one or more major 

distributors did not license 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 particularly attractive 

to the distributor—for example, by offering more screens, longer 

runs and a larger film rental payment than did The 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 [from November 2003 to June 2016] than [T]he River.” “[O]f
10

those 1414 first[-]run films [shown at the Palme], more than half”—

55 percent—“were shown no place else in the entire Coachella 

Valley.”

D. Flagship Attributes Its Difficulty Obtaining 

Licenses to Century’s “Circuit Dealing” and 

Sues Century

Flagship sued Century in 2007, alleging that the manner 

in which Century licensed 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, including 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 entire [theater] circuit 

in bidding for films,’ which undermines the competitive process 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 circuit dealing 

addressed certain ‘master agreements’ between distributors and

movie theater circuits that ‘lumped 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 theater circuit 

owner does not necessarily have or leverage monopoly power in

any region, but its “agreements cover[ ] multiple theaters 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 refer 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 theaters across the country—some in areas 

with little or no competition—to pressure distributors into granting 

The River clearances over the Palme, and (2) Century’s practice of 

negotiating multi-theater licensing agreements exerted pressure on 

distributors to shun the Palme or risk losing business from Century 

outside the Coachella Valley. The complaint also alleged that 

Century exerted further pressure on distributors to grant The 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 desirable ones.

8

8 Flagship does not argue 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 clearances 

between the two theaters violated the antitrust laws—that is, 

that the clearances were themselves agreements prohibited 

by the Cartwright Act. Rather, Flagship alleged The River’s 

clearances over the Palme were the fruits of Century’s challenged

circuit-dealing agreements, and thus 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 theater operator, and indicated to 

Flagship 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 theater 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 (from July 2016 to September 2017) 

were not offered elsewhere in the Coachella Valley. Nothing in 

the record suggests that the Tristone has since closed.
13

F. The Jury Verdict9

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 theaters. In its closing argument, Flagship 

reiterated to the jury that it was not challenging the clearances as 

such: “[Flagship did] not contend that clearances in the absence 

of circuit dealing are unlawful. They’re not. Clearances always 

existed in this zone. Clearances don’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 discovery 

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 

is per se illegal under the Cartwright Act, such that Flagship did

not need to prove actual harm to competition in order to prevail. 

As to Flagship’s non-monopoly circuit-dealing claim, however, 

the 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 claim10 and that the multi-theater licensing 

agreements underlying the claim caused an “anticompetitive effect” 

that “outweighed any beneficial effect on competition.”11

10 The court identified as the elements of a non-monopoly 

circuit-dealing claim that: (1) Century “was a dominant theatre 

circuit”; (2) Century “pooled its purchasing power to enter into 

licensing agreements for specific films that included multiple 

theatres, including, at least, [T]he River and one or more other 

theatres”; (3) “by entering into such multiple theatre licensing 

agreements, the film distributors were precluded from determining 

on a theatre-by-theatre basis 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 for first[-]run films as a result 

of [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 required 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 violation of

the California antitrust laws,”

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-theater agreements “cause[d] harm to 

competition in the relevant geographic and product market[ ] 

in the form of . . . decreased output of film,”13 and that “the 

anticompetitive effects of [defendants’] 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 the 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 the Palme and 

[T]he River competed in order to coerce the distributor to allocate 

films exclusively to [T]he River rather than the 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 

the 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 relevant market in which 

these anticompetitive 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 

purposes contains only the Palme and [T]he River. [Century]

claims that one relevant geographic market for antitrust purposes 

is broader than [T]he River and the Palme, and includes other 

theaters in the greater Coachella Valley.”

The jury awarded Flagship $1.25 million in damages, which

was automatically trebled to $3.75 million, pursuant to provisions 

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. Posttrial Motions and Appeals

Century moved for judgment notwithstanding the verdict 

or, in the alternative, a new trial based on several arguments, 

including those raised in the instant appeal. The court denied the 

motion, noting that as a result of Century’s multi-theater licensing 

practices, “the Palme was unable to show first[-]run films[,] and 

consumers were 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 arguments 
17

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 

order denying Century’s motion for judgment notwithstanding the 

verdict and for a new trial.

As required by the Cartwright Act, the trial court awarded 

Flagship 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 order regarding attorney fees.

DISCUSSION

On appeal, Century argues 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-theater 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 argues constitute prejudicial, 

inadmissible 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. APPROPRIATE ANTITRUST ANALYTICAL FRAMEWORK

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 the 
18

Cartwright Act, rather than subject to the rule of reason, and thus

that Flagship 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

The distinction between per se and rule of reason analysis 

stems from the fact that the Cartwright Act, like its federal 

counterpart the Sherman Act, prohibits not all agreements 

restraining trade, but rather agreements that unreasonably

restrain trade. (See Business Electronics v. Sharp Electronics 

(1988) 485 U.S. 717, 723 (Business Electronics) [Sherman Act]; 

Palsson, supra, 16 Cal.3d at pp. 930–931 [“In general, only 

unreasonable restraints of trade 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

including “[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; see Aguilar v. 

Atlantic Richfield Co. (2001) 25 Cal.4th 826, 838.)

“The 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 varying 

times and circumstances.” (Business Electronics, supra, 485 U.S. 

at p. 731.) Nevertheless, “there are certain agreements or practices 

which because of their pernicious effect on competition and lack of 

any redeeming virtue are conclusively presumed to be unreasonable 

and therefore illegal without elaborate inquiry as to the precise 

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

(Northern Pac. R. Co. v. United 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. Whirlpool Corp. (2001) 93 Cal.App.4th 363, 369

(Chavez); see Northern Pac. R. Co. v. United States, supra, at p. 5.) 

Modern United 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 certain 
20

practices is not immediately obvious.” (FTC v. Indiana Federation 

of Dentists (1986) 476 U.S. 447, 458–459, italics omitted.)

When a challenged practice does not fall into such a per se

category, a court determines whether the practice unreasonably 

restrains trade by assessing its actual competitive effects under 

the rule of reason. (See Leegin Creative Leather Products, Inc. v. 

PSKS, Inc. (2007) 551 U.S. 877, 886–887 (Leegin).) The 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 applied, the nature of the 

restraint and its effects, and the history of the restraint and 

the reasons 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. Practices 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, the defining feature of conduct evaluated 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 anticompetitive 
21

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 United States Supreme Court’s 

last 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, 16 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., theater) 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 (id. at pp. 153–155). The 

DOJ’s complaint also alleged horizontal and vertical price-fixing 

conspiracies, through which the defendants set minimum theater

admission prices. (Id. at p. 142.) The 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. 

(Paramount Pictures, supra, 334 U.S. at pp. 174–175.) With respect 

to circuit dealing, the Supreme Court explained that the challenged 

film licensing agreements with theaters were “unlawful restraints 

of trade in two respects. In the first place, they 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. 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.) These two explanations correspond to the two 

variants of circuit-dealing claims discussed above: non-monopoly 

circuit-dealing claims and monopoly circuit-dealing claims, 

respectively. The Supreme Court treated all the film licensing 

agreements in Paramount Pictures as per se illegal under the 

federal antitrust laws. (See ibid.; see also United States 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 

decrees 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 decree 
23

in this litigation amount, in effect, to the formulation of a regime for 

the future conduct of the movie industry”].) These decrees required, 

inter alia, that the studios divest themselves of their interests in 

certain downstream distribution and exhibition operations, and 

that they license films for exhibition on a “theater by theater” 

basis, “solely upon the merits and without discrimination in favor 

of affiliates, old customers, or others.” (Paramount Pictures, supra, 

at p. 164, fn. 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 provides crucial guidance on 

circuit-dealing claims, it is not dispositive here. This is because 

Paramount Pictures addresses circuit dealing in the context of a 

unique and distinguishable set of market conditions: vertically 

integrated film distributors who employed a broad range of 

anticompetitive practices, including horizontal coordination, to 

maintain their monopoly power over an entire industry. No 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. Nor are modern film studios vertically integrated 

in any way with the theaters that exhibit their films to the public. 

“Formerly, the distributors controlled circuits of theatres, and 

15 Flagship neither alleged, nor offered any evidence 

suggesting, 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 between 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 

uniform 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, 

but in many instances there was ‘cooperation among the major 

defendants in their respective capacities as distributors and 

exhibitors.’ ” (Redwood, supra, 200 Cal.App.3d at p. 697, quoting 

United 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, 

the district court 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.” (United 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 exercised . . . over the market by 

their theater holdings.” (United 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:

“unravel[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 United 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 request of the DOJ’s antitrust division in connection with the 

division’s “initiative to review, and where appropriate, 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 pp. *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 small theaters 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-theater license agreements, 

under all circumstances, are per se illegal under federal (or 

California) antitrust law. (See Redwood, supra, 200 Cal.App.3d 

at p. 697 [noting Paramount Pictures “must be understood in 

light of its peculiar facts and context” and that “[t]oday, the 

issues surrounding circuit dealing have acquired a very different 

industrial 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 circuit-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 Court of 

Appeal decision and a handful of federal district court decisions. 

(See Palsson, supra, 16 Cal.3d at p. 925 [“federal cases interpreting 

the Sherman Act are applicable to problems arising under the 

Cartwright Act”].)

1. Developments in federal and California

antitrust law regarding vertical restraints

since Paramount Pictures

In antitrust law parlance, a film licensing agreement 

is a “vertical restraint,” meaning it is an agreement between 

entities at “different levels of the market structure”— a film 

studio supplying film licenses (the supplier level) and a theater

exhibiting 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, 200 Cal.App.3d at pp. 703–707 [analyzing non-monopoly 

circuit dealing as a vertical restraint].) Thus, general antitrust 

law principles regarding vertical restraints are a logical source of 

guidance on the proper analytical framework for circuit-dealing 

claims under the Cartwright Act.

The United States Supreme Court’s approach to vertical 

restraints has changed significantly since Paramount Pictures. 
27

Namely, over the past several decades, the 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, 551 U.S. at p. 898 [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 is 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.) For 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, supra, 433 U.S. at p. 52, fn. 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 to 
28

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

to achieve certain efficiencies in the 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 vertical 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” occurs when “ ‘entities at different levels of 

distribution combine to deny a competitor at one level the benefits 

enjoyed by the members of the vertical combination.’ ” (Marsh v. 

Anesthesia Services Medical Group, Inc. (2011) 200 Cal.App.4th 

480, 494 (Marsh).) Exclusive 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 vendor.’ ” (Aerotec 

International v. Honeywell International (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 & fn. 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, fn. 19.)
29

Century’s multi-theater licensing agreements caused studios to 

license first-run films only to Century in the relevant geographic 

market as Flagship defines 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 theater (the Palme). 

Alternatively, Flagship’s claim could be understood as implying 

several 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, the Supreme Court applied 

the rule of reason to a vertical group boycott claim. Specifically, 

the Court concluded that an alleged agreement between a supplier 

and buyer that the buyer would boycott 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

had monopoly power, that the purpose 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 

consumers. (Id. at pp. 136–138.) The Court did not find these 

allegations sufficient to warrant per se treatment, and expressly 

rejected the suggestion that any “special motive” of parties to a 

vertical boycott “could make a significant difference” in this regard. 

(Id. at p. 138.) 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 absence of a horizontal agreement.”17

(Id. at p. 138.) 

17 Although NYNEX acknowledged the possibility that 

a vertical agreement restricting price might warrant per se 
30

Sherman Act challenges to exclusive dealing arrangements 

are likewise analyzed under the rule of reason. (See Jefferson 

Parish Hospital Dist. No. 2 v. Hyde (1984) 466 U.S. 29; id. at 

pp. 45-46 (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 [characterizing 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, fn. 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 [exclusive dealing arrangements

can “offer consumers various economic benefits” and thus are

“judged under the rule of reason”].) Federal courts also apply 

the rule of reason to exclusive dealing agreements in the movie

theater industry specifically—namely, to clearances. (See, e.g., 

Tarzana, supra, 828 F.2d at p. 1399 [because clearances 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 Courts of Appeal generally

analyze vertical restraints 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 pleaded 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 unreasonable but instead are 

subject to a ‘rule of reason’ analysis”] (italics omitted).) And 

our state Courts of Appeal have also more specifically held that,

absent some horizontal component or leveraging of monopoly 

power, neither exclusive dealing arrangements nor vertical 

group boycotts are per se violations of the Cartwright Act. (See

Fisherman’s Wharf Bay Cruise Corp. v. Superior Court (2003) 

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 competing distributer]; see also Antitrust, 

UCL and Privacy Section, Cal. Lawyers Association, Cal. Antitrust 

and Unfair Competition Law (rev. 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 reason”] (fn. omitted).) 

Rather, a plaintiff alleging such violations must prove net harm 
32

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 decisions apply largely the same logic as the 

United States Supreme Court decisions discussed above (see, e.g., 

Dayton Time Lock Service Inc. v. Silent Watchman Corp. (1975) 

52 Cal.App.3d 1, 6 [“Exclusive-dealing contracts are not necessarily 

invalid. They may provide an incentive for the marketing of new 

products and a guarantee of quality-control distribution.”]; 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 federal cases addressing 

circuit dealing since Paramount Pictures

We 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 We 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. 26-31, ante) and 

thus are not instructive. (See Beech Cinema v. Twentieth CenturyFox 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 evidence 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 court’s decision in 

Flagship I, supra, 198 Cal.App.4th 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 

considerable development since the late 1940’s.” (Flagship I, supra,

198 Cal.App.4th at p. 1377, citing Redwood, supra, 200 Cal.App.3d 

at pp. 697–698.) The court proceeded to survey antitrust law in 

several related areas, including boycotts and vertical restraints, 

as well as the significant changes in the film industry discussed 

above, noting that “[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, they had 

not briefed all the legal issues relevant to deciding which antitrust 

analytical framework applied, and the record was insufficient to 

determine the exact nature of Flagship’s circuit-dealing claims. (Id.

at pp. 1386–1387.) We noted that “[t]he type of circuit[-]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 Theatres, Inc. v. Georgia 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 plaintiff’s non-monopoly circuitdealing 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 treatment 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 

Management LLC (S.D.N.Y. Jan. 8, 2007, No. CV 03-1895 (PAC))

2007 WL 39301 *7 (Reading).) 

Both Cobb and Silver Cinemas are motion to dismiss 

decisions in which the relevant antitrust analytical framework 

was not at issue.

20 In both cases, the complaint alleged that the 

20 In Cobb, 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 

should be scrutinized under the rule of reason. Even if that were 
35

defendant theater-circuit owner had leveraged its market power 

to obtain clearances and that it had negotiated clearances for 

multiple theaters 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 pp. 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 

to include a claim for circuit dealing, [p]laintiffs would not prevail,” 

because “no reasonable jury could find a conspiracy between [the 

defendant theater] 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. (Ibid., italics omitted.) The 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 theaters 

and studios] to leverage master licensing agreements 

nationwide.” (Id. at p. *8.)

Still other 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. 1343.) 
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 theater] as a 

result of exclusive dealing agreements (‘clearances’) with [defendant 

theater]” (Cinema Village, supra, 2016 WL 5719790 at p. *1), and 

that defendant theater had “extracted these agreements from 

the film distributors, against their economic interests, by using its 

considerable market power as a major nationwide theater chain.” 

(Ibid.) In Six West, the court cited Paramount Pictures for the 

proposition that “relationships that eliminate the opportunity 

for small theatres 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] ‘hinder[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 

individually or viewed as a whole, on that issue. 
37

D. Flagship’s Non-Monopoly 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 reason 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, since 

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. 25, 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 movie theater industry under modern

antitrust law. (See United 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).) The 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, courts 
38

would analyze such restraints under the rule of reason—evaluating 

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 granted 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 at 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 boycott 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 theater, and/or are beneficial 

to that theater and not the licensing distributor, might present 

candidates for per se Cartwright Act liability. Indeed, Flagship 

argues as much in its attempts to distinguish Redwood based 

on Century’s “pressur[ing]” distributors to enter into licensing 

agreements covering multiple theaters.

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 reasoning 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 United States

Supreme Court’s subsequent decision in NYNEX has since “clarified 
39

that an unlawful group boycott claim must involve some horizontal 

arrangement.” (Ibid. [rejecting, on this basis, plaintiff’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 NYNEX, 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 theater-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 theater-circuit owner. The 

potential procompetitive benefits of an exclusive 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 theater

and to have assisted with a split agreement between one distributor 

defendant and a theater defendant].)
40

More broadly, we see nothing categorically 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-monopoly circuit-dealing 

claims based thereon warrant per se treatment. Certainly, as the 

Supreme Court recognized many years ago, such agreements hold 

the potential to block new market entrants, or stunt the ability 

of smaller theaters to serve as viable competitive threats to 

their larger counterparts. (See ibid.) These consequences might 

ultimately harm consumers by increasing prices, reducing product 

quality, and/or reducing output to an extent that outweighs any 

countervailing procompetitive benefits 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 theaters, 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 how 

important first-run films are to theaters, it comports neither with 

modern antitrust law, nor modern economic and movie theater

industry realities, to render all multi-theater licensing agreements

per se anticompetitive and illegal. 

It is important to note that we are not addressing the

appropriate 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 Flagship’s 
41

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 theater-circuit owner entered into film licensing agreements 

covering more than one of its theaters, but that such agreements 

caused net harm to competition, as determined by the balancing 

of anti and procompetitive effects under the rule of reason. When 

understood 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 

clearances—under California and federal antitrust law. 

II. SUFFICIENCY OF THE EVIDENCE SUPPORTING JURY’S 

FINDING OF COMPETITIVE HARM IN THE RELEVANT MARKET

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 all 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, “the 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 inferences 

can be reasonably deduced from the facts, the reviewing court is 
42

without power to substitute its deductions for those of the trial 

court.” (Ibid.; see also Estate of Teed (1952) 112 Cal.App.2d 

638, 644 [“[s]ubstantial evidence” is “ ‘such relevant evidence 

as a reasonable [person] might accept as adequate to support a 

conclusion’ ”].)

A. Role of Geographic Market Definition Generally

To assess “direct evidence of anticompetitive effects . . . in

the relevant market . . . we must first define the relevant market.” 

(Ohio v. American Express Co. (2018) 585 U.S. __ [138 S.Ct. 2274,

2284-2285] (American Express).) Thus, under 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 look in 

assessing anti and procompetitive effects of a practice. (See ibid. 

[“ ‘[w]ithout a definition of [the] market there is no way to measure 

[the defendant’s] ability to lessen or destroy competition’ ”], quoting 

Walker Inc. v. Food Machinery (1965) 382 U.S. 172, 177; see Ralph 

C. Wilson Industries v. Chronicle Broadcast (9th Cir. 1986) 794 F.2d 

1359, 1363 [“[t]o determine whether competition has been harmed, 

the relevant market must be defined”].)

“The United States Supreme Court has declared that 

the relevant market is determined by considering ‘commodities 

reasonably interchangeable by consumers 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” . . . where 
43

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. (9th 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 products comprises the relevant 

market because the “groups 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. (9th 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 the

jury did not make any finding as to what the relevant market 

was. Although the 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 geographic and product markets in 

the form of increased prices 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 accepted the definition proffered 

by the defense, but nevertheless concluded the defendants had 

caused anticompetitive harm in that more broadly defined market. 
44

Therefore, in order to test the sufficiency of the evidence to support

the jury’s finding of anticompetitive effects in “the geographic and

product markets,” 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 Zone) 

1. Flagship’s proposed geographic market

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, theaters buy licenses, and 

moviegoers do not participate at all.

22 (Italics added.) According 

to Flagship, because the Palme and The River are located in the

Rancho Mirage clearance zone, they only need licenses to play 

22 The idea that licenses for first-run films are 

interchangeable products—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-rated action movie is interchangeable 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 theater

business, however, movie theater industry cases appear to have 

accepted this concept, 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, The River 

and the Palme are in a clearance situation in Rancho Mirage, 

meaning a distributor would only ever license any first-run film to

one or the other theater there. Flagship argues that the geographic 

market is thus the “competitive zone” in which these clearances 

were granted: the Rancho Mirage clearance zone.

To support its geographic market, Flagship points to 

extensive evidence reflecting industry recognition of the Rancho 

Mirage clearance zone, and testimony that The River is the only 

theater with which the Palme competed to obtain film licenses

from distributors. For example, it cites testimony of exhibitors and 

distributors that the Palme and The River were the only theaters 

that competed in Rancho Mirage. Flagship argues evidence of such 

“ ‘ “commercial realities of the industry” ’ ” supports its proposed

relevant geographic market.

Certainly, ample evidence establishes that only the Palme 

and The River competed for film licenses in the Rancho Mirage 

clearance zone, as they were the only two theaters in this zone. 

But neither this, nor any other evidence 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 example, at the Regal Rancho or Mary Pickford theaters located 

approximately 6 miles away from the Palme and approximately 4.5

to 5.5 miles away from The River. (See fn. 5 ante, taking judicial 

notice of distances between theaters.) Indeed, none 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, 918–919, 

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” (United 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 United States v. Bethlehem Steel Corporation, supra, at 

p. 592.) Moreover, any such focus 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 theater industry cases of 

which this court is aware have defined the relevant geographic 

market based on the area in which consumers—that is, 

moviegoers—are willing to travel to see movies. (See, e.g., Orson, 

supra, 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 by 
47

the choices 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 congestion”]; Reading, supra, 2007 WL 39301 at p. *11

[relevant geographic market defined as “the ‘ “area of effective 

competition . . . to which the purchaser [here, moviegoers] can 

practicably turn for supplies” ’ ”], quoting United 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.) This 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—consumers’ choices about 

where they will go to see a movie are what ultimately determine 

competing theaters’ “actual or potential ability to deprive each 

other of significant levels of business.” (Thurman, supra, 875 F.2d 

at p. 1374.) Thus, “[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 relevance 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 much of the 

anticompetitive harms Flagship alleges occurred in the relevant 
48

market 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 effects in Flagship’s 

proposed geographic market

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 reduced

the output of film licenses in the Rancho Mirage clearance zone. 

Reduction in output is a form of competitive harm recognized by

the antitrust laws. (See American Express, supra, 585 U.S. at p. __ 

[138 S.Ct. at p. 2284] [“direct evidence of anticompetitive effects 

would be ‘ “proof of actual detrimental 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, in a clearance zone like Rancho Mirage, there will 

always be only as many film licenses issued as there are first-run 

films to license. The challenged agreements affect not how many 

licenses each distributor issues, but how (if at all) the distributor
49

will divide up a static number of licenses between the theaters 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 The River, rather than, as is the case in many other clearance 

zones, allocating licenses between the theaters 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 

depends 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,

supra, 828 F.2d at p. 1399 [clearances “are reasonable if they are

likely to promote interbrand competition without overly restricting 

intrabrand competition”].) The Ninth Circuit has identified the 

following factors for the purposes of analyzing the competitive 

effects of a clearance beyond the inherent limitation on the 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 advertised 

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 profitable, first-run, commercial films.” (Italics added.) Thus,

Flagship’s argument identifies a reduction not 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. This is not 

a reduction in 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 plaintiff’s burden under 

the antitrust rule of reason to show an “actual adverse effect on 

competition as a whole in the relevant market[.] [T]o prove it has 

been harmed as an individual competitor will not suffice.” (Capital 

Imaging v. Mohawk Valley Medical Assoc. (2d Cir. 1993) 996 F.2d 

537, 543 [“Insisting 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 antitrust action, thereby trivializing the [Sherman] Act 

because of its too ready availability.”]; see also Southern 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, 1285–1286 

[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 theaters

in the Rancho Mirage clearance zone

Flagship next argues that the agreements harmed 

competition in Rancho Mirage by causing moviegoers there to 

have fewer theaters from which to choose when they want to 

view first-run films. But Flagship offered no evidence suggesting 

consumers cannot or will not travel outside the Rancho Mirage

clearance zone 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 tickets. Flagship offered 

no evidence on the latter point. Thus, no evidence supports this 

type of harm to consumers in the Rancho Mirage zone. (See 

Marsh, supra, 200 Cal.App.4th at p. 495 [“ ‘it is plaintiff’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 theater 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. Clearances necessarily deprive consumers 

of at least one theater 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 fn. 23, ante.) Second, at least 
52

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 Village, supra, 2016 WL 5719790 at p. *5 [finding 

that facts asserted “merely establishe[d] that . . . consumers must 

watch first-run films at one theater rather than at another” but 

“[w]ithout more, that state of affairs does not constitute actionable 

harm”] (italics added).) Finally, antitrust law generally does not 

view the elimination of a particular competitor—without more—

as harm to competition. (See Austin v. McNamara (9th Cir. 1992)

979 F.2d 728, 738–739 [The plaintiff “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, does 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 the Palme reflects, “at most, a slight reduction in 

competition between [the Palme and The River] regarding 

the [exhibition] of [first-run films].” (ECC 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 instead 
53

demonstrate harm to competition 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

theaters trying to enter or expand operations in the Rancho 

Mirage clearance zone. Specifically, citing Redwood, Flagship 

argues that Century’s multi-theater licensing agreements 

“entrench the position of established motion picture exhibitors 

and pose formidable barriers to entrepreneurs seeking to enter 

(or expand operations) 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 such barriers may well result from 

certain multi-film licensing agreements. But no evidence in the 

record supports that this happened here with Century’s licensing 

agreements. To 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 one 
54

recognized in appellate authority—is not a substitute for evidence 

of anticompetitive harm. “[T]here is really only one way to prove

an adverse effect on competition under the rule of reason: by

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 standard 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, anticompetitive 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 

economic 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 as Defined by 

Century (the Coachella Valley)

1. Century’s proposed geographic market

Century “contends 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 focuses on the ability and 

willingness of moviegoers to travel to theaters in nearby cities 

in order to see first-run films. Based on this analysis, Century 

defined the relevant geographic market as the Coachella Valley.

Substantial evidence supports this definition. Numerous 

percipient witnesses, including the film buyer for the Palme, 
55

acknowledged that the Palme and The River competed for 

customers with at least five theaters in the Coachella Valley. For 

example, one of the Palme’s co-owners testified that, before the 

La Quinta was built, the Palme “compete[d] for patrons” with 

five other theaters, 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 Indio. Distributors 

likewise testified that The River and the Palme competed with 

other theaters for patrons. Uncontested expert testimony also 

supports such a geographic market. Namely, Century’s economic 

expert testified that it was “reasonable to . . . conclude that all 

[Coachella Valley theaters] are part of the relevant geographic 

market,” based on the relatively short distances and drive times

between The River and other theaters 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 theater. 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 theater industry and circuit-dealing cases of which this 

court is aware. (See pp. 47–48, ante.)

2. Anticompetitive effects in Century’s 

proposed geographic market

Flagship argues that even if the Coachella Valley constitutes 

the relevant geographic market, substantial evidence still supports 

that the challenged multi-theater licensing agreements harmed 

competition in that broader market. Specifically, Flagship 
56

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 theater, and that the Palme’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 theaters may have felt as a result of the Palme playing them.

First, we note that the record does not 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 which Flagship cites is testimony 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, we 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 contains 
57

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 business, 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 theaters’

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, played unique and 

independent films.24

b. Loss of unique art house theater in the 

Coachella Valley 

Flagship next argues that the challenged agreements caused 

a reduction in output of a unique and valuable type of theater. 

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

“specialty theater with one-of-a-kind features” that offered a

“singular combination of upscale amenities 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 from 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 

theaters dropped as a result of the Palme’s closure.
58

design.” Like Flagship’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 theaters in the Coachella Valley offered patrons in this 

regard, either before or after the Palme’s closure. Without evidence

regarding the amenities offered at theaters outside the Rancho 

Mirage clearance zone, the record cannot support a finding that 

the Palme was the only theater in the Coachella Valley that offered 

certain amenities. Perhaps more importantly, there is no evidence 

in the record supporting that, following the Palme’s closure, the 

Tristone stopped offering the same amenities and overall theater

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 theaters, 

offering a unique “CinéBistro” experience from entering or 

effectively competing in the relevant market sufficiently alleged 

harm to competition, because these effects diminished the quality of

theaters offered to consumers. (Id. at pp. 1326, 1335.) Specifically, 

“the [c]omplaint allege[d] in detail . . . the various amenities that

[plaintiff’s CinéBistros theater] and [the other theaters in the

alleged market] respectively offer consumers, often drawing stark 

differences . . . [and] alleged more than a mere 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, there is nothing suggesting that the Tristone 
59

offers a theater 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 

theater reflects such harm, Flagship must identify evidence of those 

overall losses. Pointing to the fact that the Palme was an art house 

theater 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 is 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 reach 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), the judgment in favor of Flagship Theatres 

of Palm Desert is reversed. Accordingly, the postjudgment 

order granting Flagship Theatres of Palm Desert’s attorney 

fees is likewise reversed. Century Theatres, 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 California 

Constitution.