[Federal Register Volume 73, Number 204 (Tuesday, October 21, 2008)]
[Notices]
[Pages 62543-62558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23357]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Regal Cinemas, Incorporated; Response to Public 
Comments on the Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes the public comments 
received on the proposed Final Judgment in United States v. Regal 
Cinemas, Incorporated, Civil Action No. 1:08-cv-746, and the response 
to the comments. On April 29, 2008, the United States filed a Complaint 
alleging that Regal Cinema, Inc.'s acquisition of Consolidated Theatres 
Holdings, GP violated Section 7 of the Clayton Act, 15 U.S.C. 18. The 
proposed Final Judgment, filed on April 29, 2008, requires the combined 
company to divest four movie theaters in three North Carolina 
metropolitan areas. Public comment was invited within the statutory 60-
day comment period. Copies of the Complaint, proposed Final Judgment, 
Competitive Impact Statement, Public Comments, the United States' 
Response to the Comments, and other papers are currently available for 
inspection in Suite 1010 of the Antitrust Division, Department of 
Justice, 450 5th Street, NW., Washington, DC 20530, telephone: (202) 
514-2481, on the Department of Justice's Web site (http://www.usdoj.gov/atr), and the Office of the Clerk of the United States 
District Court for the District of the District of Columbia, 333 
Constitution Avenue, NW., Washington, DC 20001. Copies of any of these 
materials may be obtained upon request and payment of a copying fee.

Patricia A. Brink,
 Deputy Director of Operations, Antitrust Division.

United States District Court for the District of Columbia

[Civil Action No: 1:08-cv-00746]
    United States of America, Plaintiff, v. Regal Cinemas, Inc., and 
Consolidated Theatres Holdings, GP, Defendants; Response of the United 
States to Public Comments on the Proposed Final Judgment
    Judge: Leon, Richard J.
    Filed:
    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the 
United States hereby responds to two public comments received during 
the public comment period regarding the proposed Final Judgment in this 
case. One commenter argues for additional, more intrusive relief than 
the relief obtained by the United States. The other argues there was no 
harm from the transaction, and that the United States should not have 
filed its Complaint nor required any relief whatsoever. After careful 
consideration of the comments, the United States determined that the 
Proposed Final Judgment remains in the public interest. The United 
States will move the Court for entry of the proposed Final Judgment 
after the public comments and this Response have been published in the 
Federal Register, pursuant to 15 U.S.C. 16(d).

I. Procedural History

    On April 29, 2008, the United States filed the Complaint in this 
matter alleging that defendant Regal Cinema, Inc.'s (``Regal'') 
acquisition of defendant Consolidated Theatres Holdings, GP 
(``Consolidated''), if permitted to proceed, would combine the two

[[Page 62544]]

leading, and in some cases only, operators of first-run, commercial 
movie theatres in parts of the metropolitan areas of Charlotte, 
Raleigh, and Asheville, North Carolina. The Complaint alleged that the 
likely effect of the acquisition would be to lessen competition 
substantially for first-run commercial movie exhibition in violation of 
Section 7 of the Clayton Act, 15 U.S.C. 18. The United States filed a 
proposed Final Judgment and a Stipulation signed by the United States 
and the defendants consenting to the entry of the proposed Final 
Judgment after compliance with the requirements of the APPA. Pursuant 
to those requirements, a Competitive Impact Statement (``CIS'') was 
filed in this court on April 30, 2008; the Proposed Final Judgment and 
CIS were published in the Federal Register on May 15, 2008; and a 
summary of the terms of the proposed Final Judgment and CIS, together 
with directions for the submission of written comments relating to the 
proposed Final Judgment, were published for seven days in the 
Washington Post on May 23, 2008 through May 29, 2008. The defendants 
filed the statements required by 15 U.S.C. 16(g) on May 19, 2008 and 
June 18, 2008, respectively.
    The sixty-day comment period ended on July 28, 2008. Two comments, 
described below, were received.

II. The United States' Investigation and Proposed Resolution

    After Regal and Consolidated announced their plans to merge, the 
United States Department of Justice (the ``Department'') conducted an 
extensive investigation into the competitive effects of the proposed 
transaction. As part of this investigation, the Department obtained 
documents and information from the merging parties, and conducted 
interviews with competitors and other individuals with knowledge of the 
industry. Among the third parties the Department interviewed during its 
investigation was one of the commenters, Mr. Bruner, who shared his 
concerns about the competitive impact of the proposed merger in the 
Charlotte area.
    On the basis of its investigation and prior experience with markets 
for first-run commercial movie exhibition, the Department concluded 
that the proposed transaction would lessen competition for the 
theatrical exhibition of first-run, commercial movies in four North 
Carolina markets--Southern Charlotte, Northern and Southern Raleigh, 
and Asheville.\1\ As more fully explained in the Complaint and CIS, the 
proposed transaction likely would lead to higher ticket prices for 
moviegoers and would reduce the newly merged entity's incentives to 
maintain, upgrade, and renovate its theatres in the relevant markets, 
to improve its theatres' amenities and services, and to license the 
highest revenue movies, thus reducing the quality of the viewing 
experience in those four areas. As alleged in the Complaint, these 
outcomes are likely because, in each of the relevant markets, Regal and 
Consolidated were each other's most important competitor, given the 
close proximity of their theatres to one another and to moviegoers.
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    \1\ The other locations where Consolidated owned a theatre that 
was acquired by Regal did not present competitive problems. The 
Complaint contains no allegations regarding these areas and no one 
has commented on them.
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    The proposed Final Judgment is designed to preserve competition in 
the four markets. It requires divestitures as viable ongoing businesses 
of a total of four theatres in three metropolitan areas: the Crown 
Point 12 in Southern Charlotte; the Raleigh Grand 16 in Northern 
Raleigh; the Town Square 10 in Southern Raleigh; and the Hollywood 14 
in Asheville. Sale of these theatres will preserve existing competition 
between the defendants' theatres that are or would have been each 
other's most significant competitor in the theatrical exhibition of 
first-run movies in Southern Charlotte, Northern and Southern Raleigh, 
and Asheville.

III. Standard of Review

    Upon the publication of the public comment and this Response, the 
United States will have fully complied with the Tunney Act and will 
move the Court for entry of the proposed Final Judgment as being ``in 
the public interest.'' 15 U.S.C. 16(e), as amended. In making the 
``public interest'' determination, the Court should review the proposed 
Final Judgment in light of the violations charged in the complaint, 
see, e.g., Mass. Sch. of Law at Andover, Inc. v. United States, 118 
F.3d 776, 783 (D.C. Cir. 1997) (quoting United States v. Microsoft 
Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995)), and be ``deferential to 
the government's predictions as to the effect of the proposed 
remedies.'' Microsoft, 56 F.3d at 1461.
    The Tunney Act states that the Court shall consider in making its 
public interest determination:

    (A) the competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration of relief sought, anticipated effects of alternative remedies 
actually considered, whether its terms are ambiguous, and any other 
competitive considerations bearing upon the adequacy of such judgment 
that the court deems necessary to a determination of whether the 
consent judgment is in the public interest; and
    (B) the impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and individuals 
alleging specific injury from the violations set forth in the complaint 
including consideration of the public benefit, if any, to be derived 
from a determination of the issues at trial.

15 U.S.C. 16(e). See generally United States v. SBC Commc'ns, Inc., 489 
F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments to 
the Tunney Act ``effected minimal changes'' to the court's scope of 
review under Tunney Act, and that review is ``sharply proscribed by 
precedent and the nature of Tunney Act proceedings'').\2\
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    \2\ The 2004 amendments substituted ``shall'' for ``may'' in 
directing relevant factors for court to consider and amended the 
list of factors to focus on competitive considerations and to 
address potentially ambiguous judgment terms. Compare 15 U.S.C. 
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).
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    As the United States Court of Appeals for the District of Columbia 
Circuit has held, under the APPA a court considers, among other things, 
the relationship between the remedy secured and the specific 
allegations set forth in the government's complaint, whether the decree 
is sufficiently clear, whether enforcement mechanisms are sufficient, 
and whether the decree may positively harm third parties. See 
Microsoft, 56 F.3d at 1458-62 (D.C. Cir. 1995). With respect to the 
adequacy of the relief secured by the decree, a court may not ``engage 
in an unrestricted evaluation of what relief would best serve the 
public.'' United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) 
(citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 
1981)); see also Microsoft, 56 F.3d at 1460-62. Courts have held that:

[t]he balancing of competing social and political interests affected 
by a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's 
role in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to 
the decree. The court is required to determine not whether a 
particular decree is the one that will best serve society, but 
whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.


[[Page 62545]]


Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS, 
858 F.2d at 464 (holding that the court's ``ultimate authority under 
the [APPA] is limited to approving or disapproving the consent 
decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. 
Mass. 1975) (noting that, in this way, the court is constrained to 
``look at the overall picture not hypercritically, nor with a 
microscope, but with an artist's reducing glass''). See generally 
Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies [obtained 
in the decree are] so inconsonant with the allegations charged as to 
fall outside of the `reaches of the public interest' ''). In making its 
public interest determination, a district court ``must accord deference 
to the government's predictions about the efficacy of its remedies, and 
may not require that the remedies perfectly match the alleged 
violations because this may only reflect underlying weakness in the 
government's case or concessions made during negotiation.'' SBC 
Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 
(noting the need for courts to be ``deferential to the government's 
predictions as to the effect of the proposed remedies''); United States 
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) 
(noting that the court should grant ``due respect to the [United 
States'] prediction as to the effect of proposed remedies, its 
perception of the market structure, and its views of the nature of the 
case'').
    Court approval of a consent decree requires a standard more 
flexible and less strict than that appropriate to court adoption of a 
litigated decree following a finding of liability. ``[A] proposed 
decree must be approved even if it falls short of the remedy the court 
would impose on its own, as long as it falls within the range of 
acceptability or is `within the reaches of public interest.' '' United 
States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) 
(citations omitted) (quoting United States v. Gillette Co., 406 F. 
Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United 
States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum 
Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent 
decree even though the court would have imposed a greater remedy). To 
meet this standard, the United States ``need only provide a factual 
basis for concluding that the settlements are reasonably adequate 
remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
    Moreover, the district court's role under the APPA is limited to 
reviewing the remedy in relationship to the violations that the United 
States has alleged in its complaint, and does not authorize the Court 
to ``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's 
authority to review the decree depends entirely on the government's 
exercising its prosecutorial discretion by bringing a case in the first 
place,'' it follows that ``the court is only authorized to review the 
decree itself,'' and not to ``effectively redraft the complaint'' to 
inquire into other matters that the United States did not pursue. Id. 
at 1459-60. As this Court recently confirmed in SBC Communications, 
courts ``cannot look beyond the complaint in making the public interest 
determination unless the complaint is drafted so narrowly as to make a 
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
    In its 2004 amendments to the Tunney Act, Congress made clear its 
intent to preserve the practical benefits of utilizing consent decrees 
in antitrust enforcement, adding the unambiguous instruction 
``[n]othing in this section shall be construed to require the court to 
conduct an evidentiary hearing or to require the court to permit anyone 
to intervene.'' 15 U.S.C. 16(e)(2). The language wrote into the statute 
what the Congress that enacted the Tunney Act in 1974 intended, as 
Senator Tunney then explained: ``[t]he court is nowhere compelled to go 
to trial or to engage in extended proceedings which might have the 
effect of vitiating the benefits of prompt and less costly settlement 
through the consent decree process.'' 119 Cong. Rec. 24,598 (1973) 
(statement of Senator Tunney).

IV. Summary of Public Comments and the Response of the United States

    During the sixty-day comment period, the United States received two 
comments: one from Robert B. Bruner, the owner of the Village Theatre 
in Charlotte, North Carolina, and the other from The Voluntary Trade 
Council, Inc., a Virginia non-profit corporation. Both comments are 
attached in the accompanying Appendix. After reviewing both comments, 
the United States continues to believe that the proposed Final Judgment 
is in the public interest. The two comments received by the Department 
are summarized below:

Public Comment From Mr. Bruner \3\
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    \3\ Mr. Bruner made two written submissions during the comment 
period. His second comment, which he describes as a Supplement, 
makes largely the same points as the first comment, but provides 
additional information arising out of a lawsuit he filed against 
Consolidated and Regal in North Carolina state court. Mr. Bruner's 
lawsuit does not allege that Regal's acquisition of Consolidated 
violates the antitrust laws. Rather, Mr. Bruner's claims are based 
entirely on the effect of the transaction on his contract with 
Consolidated pursuant to which that company has managed certain 
aspects of the Village Theatre's operation. According to Mr. 
Bruner's complaint, upon acquiring Consolidated, Regal informed Mr. 
Bruner that it would assign the management contract to another 
theatre chain, which Mr. Bruner believes violates his agreement.
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    Robert B. Bruner is the owner of the Village Theatre in Charlotte, 
North Carolina, located approximately three miles west of Regal's 
Stonecrest 22. The Village Theatre is a five-plex, stadium-seating 
theatre located on the third floor of a mixed-use shopping center and 
offers reserved seating, beer and wine, and upscale concessions. The 
Village Theatre is one of the six theatres the Department alleged to 
compete in the Southern Charlotte market for first-run motion picture 
exhibition, and Mr. Bruner's comment is limited to this geographic 
market.
    Mr. Bruner's comment contends that the United States should have 
sought additional relief in the Southern Charlotte market, and he 
proposes in particular that appropriate relief would have included 
freeing the Village Theatre from pre-existing limitations (referred to 
as ``clearances'' and discussed below) on the films that distributors 
were willing to license to that theatre.
    Mr. Bruner first argues that divestiture of Regal's Crown Point 12 
(as required by the proposed Final Judgment) will not prevent the 
merger from increasing concentration in the Southern Charlotte market, 
in part because the market should have been alleged to exclude his 
Village Theatre and to include an additional theatre operated by 
Consolidated.\4\ He submits that, had the United States alleged the 
``proper'' market, additional relief of the sort he proposes would be 
required to remedy sufficiently the increase in concentration from the 
merger.
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    \4\ For the Court's convenience, we have attached as Exhibit A a 
map showing the locations of theatres in the Southern Charlotte 
area.
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    As explained below, Mr. Bruner's comment should be given no weight 
in the context of this Tunney Act review of the remedy obtained by the 
United States. Mr. Bruner acknowledges that the required divestiture of 
the Crown Point 12 furthers the objective of remedying the harm to 
competition in Southern Charlotte alleged in the United States' 
complaint; indeed, Mr. Bruner would retain this component of the United 
States' remedy. Mr. Bruner does not allege that this remedy was

[[Page 62546]]

insufficiently related to the allegations in the Complaint, or was 
unclear, or that enforcement mechanisms are insufficient, or that the 
relief will harm third parties. See Microsoft, 56 F.3d at 1457-58. Mr. 
Bruner's argument is that the United States should have obtained 
additional relief, but this assertion does not satisfy the standards 
set forth in cases such as Bechtel, 648 F.2d. at 666, AT&T, 552 F. 
Supp. at 151, and Alcan, 605 F. Supp. at 622, that the secured remedy 
is outside ``the reaches of the public interest.'' Moreover, in 
criticizing the United States' allegations regarding market definition, 
Mr. Bruner is questioning the validity of the United States' Complaint, 
an exercise that is beyond the scope of the Tunney Act review. See SBC 
Commc'ns, 489 F. Supp. at 15; Microsoft, 56 F.3d at 1459.
    When considered in light of the applicable legal standards, the 
United States' remedy more than satisfies the public interest 
requirements set forth in the Tunney Act.

A. Divestiture of the Crown Point 12 Adequately Restores Competition 
Lost as a Result of the Merger

    Mr. Bruner asserts that divestiture of the Crown Point 12 is 
inadequate relief to remedy the merger's concentrating effect. Mr. 
Bruner claims that divestiture of this theatre does not sufficiently 
reduce the merger's concentrating effect in Southern Charlotte, and 
that, even after the divestiture of the Crown Point, the Southern 
Charlotte market would still be so highly concentrated that additional 
relief is required. Mr. Bruner also argues that the Crown Point will 
not be an effective competitor against Regal because it is located on 
the eastern edge of the Southern Charlotte market, five miles from its 
nearest competitor, the Arboretum 12, with no other competing theatres 
to the north, south or east.
    Mr. Bruner is correct that divestiture of the Crown Point would not 
ensure that concentration levels in Southern Charlotte were no higher 
than their pre-merger level, but that fact does not mean that the 
relief obtained by the United States is inadequate. The Department 
determined that the anticompetitive effects of the transaction in 
Southern Charlotte would flow from the elimination of competition among 
three theatres that were most vigorously competing against each other 
pre-merger: Regal's Crown Point, Consolidated's Arboretum 12 (which, as 
Mr. Bruner correctly points out, is five miles from the Crown Point to 
the south), and Consolidated's Philips 10 (which is located 
approximately seven miles from the Crown Point to the west). The 
divestiture of the Crown Point to an independent viable competitor 
would restore the competition among those theatres that was lost due to 
the combination of Regal and Consolidated.
    With respect to the sufficiency of the proposed remedy, a district 
court must accord due respect to the United States's views of the 
nature of the case, its perception of the market structure, and its 
predictions as to the effect of proposed remedies. E.g., SBC Commc'ns, 
489 F. Supp. 2d at 17 (United States is entitled to ``deference'' as to 
``predictions about the efficacy of its remedies''). The United States 
``need only provide a factual basis for concluding that the settlements 
are reasonably adequate remedies for the alleged harms.'' Id.
    Mr. Bruner places great emphasis on the concentration statistics in 
making his argument that the relief obtained is inadequate. While a 
merger's impact on concentration in a market is a useful indicator of 
the likely potential competitive effects of a merger, it is by no means 
the end of the analysis. The Department gathered and considered 
considerable other evidence, much of which is not publicly available, 
bearing on the likely effects of combining Regal and Consolidated 
theatres in Southern Charlotte, and the effect of preserving the 
independence of the Crown Point theatre via an appropriate divestiture. 
The United States concluded, and subsequently alleged in the Complaint, 
that the merger would cause harm by eliminating competition for 
moviegoers between particular Regal and the Consolidated theatres in 
Southern Charlotte, rather than by considering market-wide 
concentration levels. The United States explained in its Complaint the 
competitive dynamics that would be impaired by Regal's acquisition of 
Consolidated. Specifically, as noted above, the Department found that 
the principal competitor of both Consolidated theatres in Southern 
Charlotte--the Arboretum 12 and the Phillips 10--was Regal's Crown 
Point theatre, and that the Phillips 10 also competed to a lesser 
degree with Regal's Stonecrest theatre. The United States alleged that, 
without the merger, if these Regal or Consolidated theatres were to 
increase ticket prices, and the theatres of the other firm did not 
follow, the exhibitor that increased price would likely suffer 
financially as a substantial number of its patrons would patronize the 
other exhibitor's theatre. See Complaint, ] 34. That competition would 
be lost as a result of an unremedied merger, because the newly-combined 
entity could increase prices at all of its theatres, or be sure that 
its other theatres would capture sales lost to the theatre that raised 
prices, thus making profitable price increases that would have been 
unprofitable pre-merger. Id.
    The United States also found that, for various reasons, the other 
theatres in Southern Charlotte would be unable to attract enough 
moviegoers that were served by the Regal and Consolidated theatres to 
make a post-merger price increase or reduction in quality unprofitable. 
For example, as alleged in the Complaint, those other theatres are 
located further away from those moviegoers, are smaller in size or have 
fewer screens, or offer a lower quality viewing experience than the 
Regal and Consolidated theatres. See Id. at ] 36. The relief obtained 
by the United States flowed directly from this analysis of the merger's 
likely effects, and that relief will prevent those effects from being 
realized. Not only is Regal's Crown Point 12 the principal competitor 
to Consolidated's two theaters in Southern Charlotte, it is one of the 
largest theatres in the market, with 12 screens and stadium seating, 
making it competitive in quality with the other theatres in the area.

B. Criticism of the United States' Allegation of the Proper Geographic 
Market for First-Run Commercial Movie Exhibition of Southern Charlotte 
Is Beyond the Scope of Tunney Act Review

    Much of Mr. Bruner's comment is devoted to arguments that the 
allegations in the United States' complaint do not properly define the 
South Charlotte market. Mr. Bruner claims that the United States 
incorrectly excluded another Consolidated theatre from the market, and 
improperly included his Village Theatre in the market. Mr. Bruner 
asserts that these changes support a conclusion that the merger caused 
an even greater increase in concentration, and thus provide further 
support for his position that the relief obtained by the United States 
was inadequate.
    Mr. Bruner's arguments should be rejected. In essence, Mr. Bruner 
is claiming that the United States should have brought a different 
case--founded upon different market allegations--than the one alleged 
in the Complaint. As explained by this Court, however, in a Tunney Act 
proceeding, the district court should not second-guess the 
prosecutorial decisions of the Department regarding the nature of the 
claims brought in the first instance; ``[r]ather, the court is to 
compare the complaint filed by the [United States] with the proposed 
consent decree and determine whether the [proposed

[[Page 62547]]

decree] clearly and effectively addresses the anticompetitive harms 
initially identified.'' United States v. Thomson Corp., 949 F. Supp. 
907, 913 (D.D.C. 1996). Similarly, the Tunney Act review does not 
provide for an examination of possible competitive harms the United 
States did not allege. See, e.g., Microsoft, 56 F.3d at 1459 (stating 
that the district judge may not ``reach beyond the complaint to 
evaluate claims that the government did not make'') \5\. The reviewing 
court may look beyond the scope of the complaint only when the 
complaint has been ``drafted so narrowly as to make a mockery of 
judicial power.'' SBC Commmc'ns, 489 F. Supp.2d at 14. That is not the 
case here. The United States' decision to allege a harm in a specific 
market is based on a case-by-case analysis that varies depending on the 
particular circumstances of each product and geographic market. The 
Complaint properly alleges the harm the transaction is likely to cause 
in the relevant product and geographic markets. Because Mr. Bruner is 
challenging the adequacy of the relief based on his definition of the 
relevant geographic market, rather than the geographic market alleged 
in the Complaint, his challenge should carry no weight.\6\
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    \5\ Were a court to reject a proposed decree on the grounds that 
it failed to address harm not alleged in the complaint, it would 
offer the United States what the Court of Appeals for the D.C. 
Circuit referred to as a ``difficult, perhaps Hobson's choice,'' in 
that the United States would have to either redraft the complaint 
and pursue a case it believed had no merit, or drop its case and 
allow conduct it believed to be anticompetitive to go unremedied. 
Microsoft, 56 F.3d at 1456.
    \6\ In any case, the Department properly excluded the Park 
Terrace from the relevant geographic market. Past investigations 
involving competition among movie theatres revealed that moviegoers 
typically will not travel more than 5 to 10 miles from their homes 
to see a movie. At approximately 10 miles from Regal's Crown Point, 
the Park Terrace is at the outer range. In addition, the Park 
Terrace is not located near a freeway exit, increasing the travel 
time. The Department's examination of the merging parties' data, as 
well as interviews with market participants, confirmed that the Park 
Terrace and the Crown Point draw moviegoers from very different 
areas.
    The Department also properly included Mr. Bruner's Village 
Theatre in the market. Although that theatre may not show as many 
first-run movies as other theaters as result of the clearances that 
Mr. Bruner describes, it nevertheless provides some competition for 
the same group of moviegoers as the Stonecrest, which is less than 
three miles away.
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C. The Additional Relief Proposed by Mr. Bruner Would Be Inappropriate

    Mr. Bruner argues that the United States should obtain additional 
relief in the form of an order requiring his competitor, Regal, to 
waive any opportunities it has for ``clearances'' of first-run movies 
against the Village Theatre, which Mr. Bruner asserts will enhance the 
Village Theatre's ability to compete against Regal's Stonecrest theatre 
post-merger. In the motion picture industry, ``clearance'' refers to a 
practice whereby a distributor (i.e., movie studios) may elect to 
license only certain theatres in a geographical area to exhibit a 
first-run movie during some period of time. In such a case, the 
exhibitors that are licensed to show the movie are referred to as 
having ``clearance'' against exhibitors that do not have such rights. 
According to Mr. Bruner, several distributors have opted to license 
first-run movies only to Regal's Stonecrest Theatre in the portion (or 
``zone'') of the Southern Charlotte market in which the Village Theatre 
is located, thus granting clearances against that theatre.
    Mr. Bruner would have this Court order Regal not to avail itself of 
the exclusive rights to exhibit a movie at the Stonecrest that a 
distributor wishes to grant. In Mr. Bruner's view, this outcome would 
assure his theatre access to every first-run movie he desires and allow 
his five-plex theatre to compete better with Regal's 22-screen 
Stonecrest, to the benefit of consumers. Mr. Bruner's proposal is 
inappropriate for several reasons, and the United States' remedy--
divestiture of the Crown Point--is more effective in addressing the 
merger's harm in Southern Charlotte.
    First, it is important to recognize that the practice of 
distributors granting the Stonecrest clearance against the Village 
Theatre is not a result of the merger. Whatever effects those practices 
have on competition in the Southern Charlotte market, they are 
unrelated to this case and the United States' allegations of harm from 
the transaction at issue. Thus, factoring Mr. Bruner's concern 
regarding clearances into the public interest assessment here would 
inappropriately construct a ``hypothetical case and then evaluate the 
decree against that case,'' something the Tunney Act does not 
authorize. Microsoft, 56 F.3d at 1459.
    Second, Mr. Bruner's relief likely would be unworkable and 
inappropriately limit the licensing freedom of third parties, since its 
effectiveness would hinge on movie distributors choosing to license the 
Village Theater despite Mr. Bruner's assertion that they have not made 
such choices in the pre-merger world.
    Finally, even if Mr. Bruner's requested relief would serve to 
enhance the Village Theatre's ability to compete in the market post-
merger, such relief would inappropriately and unnecessarily involve the 
Court and the Department in supervising Regal's ongoing marketplace 
conduct. Mr. Bruner's proposal would limit Regal's ability to compete 
with the Village Theatre for the exclusive right to show a movie at the 
Stonecrest or the Arboretum by offering studios a better deal. The 
Department of Justice's Antitrust Division has previously made clear 
that it is unlikely to impose restrictions on a merged firm's right to 
compete as part of a merger remedy. Such restrictions, even as a 
transitional remedy, are strongly disfavored as they directly limit 
competition in the short term, and any long-term benefits are 
inherently speculative. See Antitrust Division Policy To Guide To 
Merger Remedies, dated October 21, 2004 at 19. Structural remedies such 
as the divestiture the Department has required in this case, are 
preferred in merger cases because they are relatively clean and 
certain, and generally avoid government entanglement in the market that 
conduct remedies require. A carefully crafted divestiture decree is 
``simple, relatively easy to administer, and sure'' to preserve 
competition. United States v. E.I. du Pont de Nemours & Co., 366 U.S. 
316, 331 (1961). Divestiture of an ongoing business to a new, 
independent, and economically viable competitor has proved to be the 
most successful remedy in maintaining competition that would have been 
lost due to the merger. See California v. American Stores Co., 495 U.S. 
271, 280-81 (1990) (``[I]n Government actions divestiture is the 
preferred remedy for an illegal merger or acquisition.'').

Public Comment From the Voluntary Trade Council, Inc.

    The Voluntary Trade Council (``VTC'') describes itself as ``a 
research center dedicated to antitrust and competition regulation * * * 
working in the tradition of the Austrian School of Economics * * * 
offer[ing] free-market criticism of the Department of Justice, the 
Federal Trade Commission and other agencies that intervene to prevent 
the voluntary exchange of goods, services and ideas.'' VTC argues that 
the Department should not have alleged a market for first-run movie 
distribution, contends that the Department should ignore any increase 
in price resulting from the transaction so long as consumers were 
willing to pay higher prices, and opposes any remedies to ameliorate 
the competitive harm that the United States alleges would otherwise 
occur as a result of Regal's acquisition of Consolidated. VTC urges the 
Court to reject the proposed Final

[[Page 62548]]

Judgment as inconsistent with the public interest.
    It appears that VTC is philosophically opposed to the existence of 
and enforcement of the antitrust laws in any case. See http://voluntarytrade.org. All of VTC's arguments in this case are directed 
toward the United States' decision to file the Complaint alleging a 
Section 7 violation, and its related decision to require that the 
Defendants divest certain theatres in order to restore competition and 
avoid the need to litigate this matter.\7\ As such, none of VTC's 
arguments is directed to any issue relevant under the Tunney Act, i.e., 
whether, in light of the violations charged in the Complaint, the terms 
of the proposed Final Judgment are inconsistent with the public 
interest. Microsoft, 56 F.3d at 1462. The Court should accordingly 
ignore VTC's comment.
---------------------------------------------------------------------------

    \7\ The Department's conclusion that first-run, commercial movie 
exhibition is a proper relevant market, see Complaint at ] 17, was 
based on the application of standard antitrust principles to the 
visual entertainment options available to consumers in the areas 
where Regal and Consolidated operate movie theatres, as set forth in 
the Department's Merger Guidelines. See Horizontal Merger 
Guidelines, 57 Fed. Reg. 41,552, 41,555, Sec.  1.1 (1992). Contrary 
to VTC's assertion, the mere existence of other forms of visual 
entertainment would not prevent a monopolist movie exhibitor from 
profitably raising prices or reducing quality relative to 
competitive levels.
---------------------------------------------------------------------------

V. Conclusion

    After careful consideration of the public comments, the United 
States concludes that the entry of the proposed Final Judgment will 
provide an effective and appropriate remedy for the antitrust 
violations alleged in the Complaint and is therefore in the public 
interest. Accordingly, after publication in the Federal Register 
pursuant to 15 U.S.C. 16(b) and (d), the United States will move this 
Court to enter the Final Judgment.

Dated: September 24, 2008.

 Respectfully Submitted,

Gregg I. Malawer (DC Bar No. 481685),

Anne Newton McFadden,

U.S. Department of Justice Antitrust Division, 450 5th Street, NW., 
Suite 4000, Washington, DC 20530, (202) 514-0230, Attorneys for 
Plaintiff the United States.
BILLING CODE 4410-11-M
[GRAPHIC] [TIFF OMITTED] TN58AD08.000

BILLING CODE 4410-11-C

Appendix

Public Comment from Robert B. Bruner (June 26, 2008)................   A
Public Comment from Robert B. Bruner (July 22, 2008)................   B
Public Comment from Voluntary Trade Council, Inc. (July 13, 2008)...   C
 

A

June 26, 2008

John R. Read, Chief,
Antitrust Division/Litigation III,
450 5th Street, NW., Suite 4000,
Washington, DC 20530.

    This letter is a public comment to the proposed Final Judgment 
regarding the merger of Regal Cinemas, Inc. (``Regal'') and 
Consolidated Theatres, GP (``Consolidated'') (the ``Merger''). More 
specifically it focuses on the competitive effect of the Merger in 
the

[[Page 62549]]

Southern Charlotte, North Carolina, market area.
    As noted below, even after the divesture of the Crown Point 12 
the HHI for the Southern Charlotte market will be 5,032 points, 
nearly three times the 1,800 point threshold for a highly 
concentrated market set forth in the Merger Guidelines. Further, the 
Merger will still cause a HHI increase of 1,281 points, more than 25 
times the 50 point increase for highly concentrated markets that the 
guidelines specify potentially raise significant competitive 
concerns and more than 12 times the 100 point increase threshold 
that the guidelines specify create a presumption of the creation or 
enhancement of market power or the facilitation of its exercise. 
Merger Guidelines Sec. 1.51c.
    As discussed in detail below, to obtain an accurate view of the 
competitive effect of the Merger in the Southern Charlotte market, 
the inclusion of the Park Terrace Theatre in the market and the 
exclusion of the Village Theatre in the market is required. With 
these two adjustments, the Herfindahl Hirschman Index (``HHI'') will 
more accurately reflect the market concentration and the competitive 
effect of the Merger in Southern Charlotte. As this revised HHI 
clearly shows the divestiture by Regal of the Crown Point 12 does 
not eliminate the noncompetitive effects of the Merger in the 
Southern Charlotte market.
    Thus, additional changes to the proposed Final Judgment are 
necessary to reduce the market concentration of Regal in the 
Southern Charlotte market area. Because of its location, the entry 
of the Village Theatre into Southern Charlotte as a true first-run 
commercial movie theatre will, in reality, most likely be more 
beneficial to the consumers than the divestiture of Crown Point 12. 
The elimination or waiver of Regal's Stonecrest's clearance will 
allow the Village Theatre to enter the first-run commercial movie 
market in Southern Charlotte which will provide additional consumers 
a choice of venues \1\ for first-run commercial movies in Southern 
Charlotte and help to deconcentrate the market and offset the 
anticompetitive effects of the Merger.\2\
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    \1\ The five screen Village Theatre is Charlotte's only luxury 
theatre while Regal's Stonecrest is a 22 screen multiplex.
    \2\ Since these calculations were based upon the 2007 box office 
revenues and since the box office revenues for the Village Theatre 
should increase after the clearance is eliminated, the market share 
for the Village Theatre should increase and the competitive effect 
of the merger in the Southern Charlotte market will be reduced even 
further than that shown on Exhibit 5.
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The Complaint

    On April 29, 2008, the United States of America brought a civil 
antitrust action to enjoin the proposed Merger of Regal and 
Consolidated and to obtain equitable relief (the ``Compliant''). As 
stated by the United States in the Complaint, the Merger would 
substantially lessen competition and tend to create a monopoly in 
the theatrical exhibition of first-run commercial movies \3\ in the 
Southern Charlotte market area in violation of Section 7 of the 
Clayton Act. Regal is the largest operator of theatres in the United 
States. Consolidated is the largest operator of theatres in the 
Southern Charlotte area.
---------------------------------------------------------------------------

    \3\ The Complaint did not define the term first-run commercial 
movies. Generally, as stated in the Complaint, art movies are 
released less widely than commercial first-run movies. For purposes 
of this Comment Letter, the term first-run, commercial movies will 
include those movies with an initial release of more than 1,500 
prints. This is the lower end of a release of what is typically a 
first-run commercial movie.
---------------------------------------------------------------------------

    As stated in Paragraphs 14-17 of the Complaint, tickets at 
theatres exhibiting first-run commercial movies usually cost 
significantly more than tickets at sub-run theatres. Art movies are 
released less widely than first-run commercial movies. The relevant 
product market within which to access the competitive effects of the 
Merger is the exhibition of first-run commercial movies.
    Paragraph 19 of the Complaint sets forth the theatres in 
Southern Charlotte that the United States used in its review of the 
competitive impact in this market area, including its calculation of 
the HHI. As discussed below, Paragraph 19 of the Complaint wrongly 
includes the five screen Village Theatre in the relevant market and 
excludes the six screen Park Terrace.
    Paragraph 30 of the Complaint states that the newly merged 
entity would control four of the six first-run commercial theatres 
in the Southern Charlotte area, with 56 out of 83 total screens and 
a 75% share of the 2007 box office receipts. The market 
concentration as measured by the HHI would increase 2,535 points to 
6,050 points; substantially above the merger guidelines.
    The Complaint also states that the Merger is likely to lead to 
higher ticket prices for moviegoers (see Paragraph 34 of the 
Complaint) and that the entry of a first-run commercial movie 
theatre in the Southern Charlotte area is unlikely (see Paragraph 37 
of the Complaint).
    The Complaint states that the likely effect of the Merger would 
be to lessen competition substantially for first-run commercial 
motion picture exhibition in violation of Section 7 of the Clayton 
Act, 15 U.S.C. Section 18.

The Proposed Final Judgment

    At the same time the Complaint was filed, the United States also 
filed a proposed Final Judgment stating that it will eliminate the 
anticompetitive effects of the Merger. In the Southern Charlotte 
market area, under the proposed Final Judgment, Regal is required to 
divest its ownership of the Crown Point 12 theatre.
    In the Southern Charlotte market the exhibitors of film product 
are highly concentrated and the HHI for that area greatly exceeds 
the merger guidelines. Even after the divestiture of assets proposed 
by the United States the HHI in the Southern Charlotte market will 
increase by almost 130% from the pre-merger HHI.

Comment--The Final Judgment Does Not Adequately Reduce or Eliminate the 
Anticompetitive Effects of the Merger in Southern Charlotte

    United States has found that the Merger would substantially 
lessen competition in the Southern Charlotte market and is in 
violation of Chapter 7 of the Clayton Act. See Exhibit 1.\4\ The 
post-Merger HHI shows an excessive concentration of the market in 
Southern Charlotte as a result of the Merger. After divesture by 
Regal of the Regal Crown Point 12 Theatre the post-Merger HHI would 
still be an extremely high 5,032 points, reflecting an excessive 
concentration of the market after the Merger. See Exhibit 2.
---------------------------------------------------------------------------

    \4\ The United States did not publish the details of their 
calculation of the HHI. Therefore, the numbers shown in this Public 
Comment Letter will not exactly match those of the United States; 
but there are no significant variations.
---------------------------------------------------------------------------

    In Paragraph 34 of its Complaint, the United States asserts that 
the Merger will enable price increases by the merged firm to be 
profitable because of the lack of remaining competition in the 
market Paragraph 37 of the Complaint notes the unlikelihood of new 
entry in Southern Charlotte to reduce the market power of the merged 
firm. However, the United States' Competitive Impact Statement, 
which orders the divestiture of the Crown Point 12, provides no 
analysis or data as to how that action will reduce or eliminate the 
substantial market concentration and anticompetitive effects of the 
Merger in Southern Charlotte. It provides only a conclusionary 
statement that the divestiture will ``preserve existing competition 
between the defendant's theatres that are or would have been each 
others' most significant competitor. * * *'' This statement is in 
error with respect to the Southern Charlotte market because the 
Crown Point 12 is on the periphery of the market on the far eastern 
edge of the Southern Charlotte market area, approximately five miles 
from its nearest competitor, the Arboretum 12 located to the west of 
the Crown Point 12. There are no competing theatres to the north, 
south or east.
    Thus, the divestiture of the Crown Point 12 will have no real 
effect on competition in the Southern Charlotte market. The merged 
firm, Regal, will still have the power to raise prices and the 
likelihood of new entry will remain unlikely. The HHI of over 4,577, 
still an increase of, at a minimum, 1,000 to a maximum (see below) 
of over 3,000 points is still overwhelmingly establishes a Section 7 
violation, particularly with entry barriers admittedly very high.

Comment--Competitive Effects in the Southern Charlotte Market

    The review by the United States of the competitive effects of 
the Merger in the Southern Charlotte market is incomplete and 
inaccurate. The determination of which theatres show first-run 
commercial movies is important in assessing the competitive impact 
on the Southern Charlotte market. All facts and circumstances must 
be evaluated to determine the relevant market as a precondition to 
finding a violation of Chapter 7 of the Clayton Act. In determining 
whether a particular theatre (which may not clearly be a ``first-run 
commercial theatre'') shall be considered a ``first-run commercial 
theatre'', the public interest compels inclusion of theatres which 
are truly first-run competitors and the exclusion of theatres which 
are not.

[[Page 62550]]

    Consolidated's Park Terrace Should be Included in the Relevant 
Market. The United States wrongly excludes the Park Terrace Theatre 
from the Southern Charlotte market. The Park Terrace Theatre, 
acquired by Regal in the Merger, primarily shows first-run 
commercial movies. The Park Terrace Theatre is located in the 
Southern Charlotte market near the Phillips Place Theatre. It has 
stadium seating and its ticket prices are the same as at other 
first-run commercial theatres in the Southern Charlotte market area. 
Prior to the Merger both the Park Terrace Theatre and the Phillips 
Place theatre were owned by Consolidated. Because the Park Terrace 6 
is in the same film zone as Phillips Place 10 (also a part of the 
Merger) and, more importantly, because the Phillips Place Theatre 
has only 10 screens, the Park Terrace 6 and the Phillips Place 10 
share films.\5\
---------------------------------------------------------------------------

    \5\ Although Phillips Place has only 10 screens, from June 1, 
2006 to present it has showed 235 first-run commercial movies. This 
is compared to the 325 first-run commercial movies shown on the 22 
screens at the Regal's Stonecrest, its nearest competition. If 
Phillips Place and Park Terrace were not sharing movies then, 
because of required commitments to the film distributors to show a 
film for a certain length of time (typically four to five weeks), 
Phillips Place would have been able to show less than 150 films over 
this time period.
---------------------------------------------------------------------------

    Most films start their run at Phillips Place and conclude the 
required run (usually four to five weeks) at Park Terrace. See 
Paragraph 12 of the Complaint. This relationship is critical. Since 
Phillips Place has only 10 screens sharing films with Park Terrace 
allows Phillips Place to exhibit more first-run commercial movies 
than it otherwise could show. This arrangement allows the film 
distributors to license more first-run commercial movies to Phillips 
Place/Park Terrace. Without the ability to ``move over'' films from 
Phillips Place to Park Terrace a substantial portion of the Southern 
Charlotte market would be deprived of many of the best first-run 
commercial movies. The first-run movies at the Park Terrace Theatre 
that are ``moved over'' from Phillips Place are still being shown on 
their first run at other first-run commercial theatres in Southern 
Charlotte.\6\ Thus, Phillips Place 10 and Park Terrace 6 should be 
treated, for purposes of determining the competitive effect of the 
Merger in the Southern Charlotte market, as the Phillips Place/Park 
Terrace 16. Since the Park Terrace is a theatre that is being 
acquired by Regal in the Merger, its inclusion in the relevant 
market will result in a more accurate picture of the competitive 
effect of the Merger in the Southern Charlotte market.
---------------------------------------------------------------------------

    \6\ For example, on June 26, 2008 all six movies exhibited at 
Park Terrace were also on their first-run at the AMC Carolina 
Pavilion, four of the six were on their first-run at Regal's 
Stonecrest.
---------------------------------------------------------------------------

    Village Theatre Should be Excluded from the Relevant Market. The 
United States wrongly includes the Village Theatre from the Southern 
Charlotte market.
    Background. The independently owned Village Theatre is a two 
year old five-plex stadium theatre with state of the art projectors 
and sound systems. The Village Theatre is the only luxury theatre in 
Southern Charlotte (and probably the entire Carolinas). It offers an 
array of amenities for the moviegoers, including valet parking, 
gourmet desserts, wine and beer, and luxury reserved seating. The 
Village Theatre has been voted the Critics' Choice award as the best 
theatre in Charlotte. It is a showcase venue and had hosted numerous 
world premieres of non-commercial movies. Numerous restaurants are 
in the theatre building and fronting plaza, all with the option of 
outdoor seating. The Village Theatre is the centerpiece of a $75mm 
mixed-use shopping center.
    Regal's Stonecrest Theatre is in a competitive film zone \7\ 
with the Arboretum Theatre \8\ and the Village Theatre. The distance 
from Regal's Stonecrest to Arboretum is less than three miles (as 
the crow flies) and from Regal's Stonecrest to the Village Theatre 
is approximately 2.6 miles (as the crow flies).\9\ The Arboretum was 
in operation before Regal's Stonecrest was built. Upon Regal's 
Stonecrest's opening, there was an agreement between Regal's 
Stonecrest and the Arboretum that there would be no clearance given 
to either theatre in that film zone and that each theatre would show 
the same movies on a ``day-and-date'' basis.\10\ Even though the 
Village Theatre has only five screens compared to the 22 screens at 
Regal's Stonecrest, since the Village Theatre opened in March 2006 
(much after the opening of Regal's Stonecrest), Regal's Stonecrest 
has invoked clearance against the Village Theatre on every first-run 
commercial movie shown at Regal's Stonecrest while continuing to not 
invoke clearance against the bigger competitor--the 12 screen 
Arboretum Theatre.
---------------------------------------------------------------------------

    \7\ The industry standard for a film zone is a five mile radius 
around the theatre in question. The only exceptions to the five mile 
standard are urban areas that are densely populated like New York 
City.
    \8\ Prior to the Merger, the Arboretum Theatre was a 
Consolidated theatre; Regal acquired ownership of the Arboretum 
Theatre as part of the Merger.
    \9\ Competitive zones are calculated upon mileage ``as the crow 
flies'' and not based upon road driving distance between the two 
theatres because the purpose of a competitive zone is to effect upon 
the moviegoers within that area.
    \10\ The term ``day and date'' refers to the right of two or 
more theatres located within the same film zone to exhibit the same 
movie at the same time. In that case there can be no clearance.
---------------------------------------------------------------------------

    The Village Theatre is the most centrally located of all the 
first-run commercial movie theatres in the Southern Charlotte area. 
It has the ability to become an attractive option for customers 
desiring to see first-run commercial movies in this market.
    Exclude the Village Theatre. Village Theatre has desired to 
exhibit first-run commercial movies since it opened but because it 
is in a competitive or split zone with Regal's Stonecrest and there 
has been no allocation of product between the Village Theatre and 
Regal's Stonecrest, Regal's Stonecrest has invoked the benefits of 
clearance to prevent the Village Theatre from showing virtually all 
first-run commercial movies.
    Thus, Regal's Stonecrest's use of clearance has effectively kept 
the Village Theatre from being a first-run commercial movie theatre. 
Since June 1, 2006 the Village Theatre has shown only three first-
run commercial movies while Regal's Stonecrest has shown over 300 
first-run commercial movies. For example, for the summer of 2008 the 
Village Theatre has not been able to obtain Indiana Jones, Get 
Smart, The Hulk, Ironman, Sex and the City, Hancock or any other 
first-run commercial movie. Therefore, for purposes of determining 
the competitive effect of the proposed Merger, Village Theatre 
cannot be considered as a first-run commercial movie theatre and it 
should not be included in the relevant market or the calculation of 
the HHI. As discussed below, the Village Theatre should only be 
included in the calculation of HHI if the clearance of Regal's 
Stonecrest is eliminated so that the Village Theatre can show first-
run commercial movies on a ``day and date'' basis with the Regal's 
Stonecrest Theatre.
    Impact on Market Concentration in the Southern Charlotte Market 
Area. Based on the facts above, the Park Terrace Theatre should have 
been included in the review of the competitive impact on market 
concentration in the Southern Charlotte market area and the Village 
Theatre should have been excluded. Exhibits 3 and 4 set forth the 
revised figures for the competitive effect of the Merger with the 
inclusion of the Park Terrace Theatre and the exclusion of the 
Village Theatre. Exhibits 3 and 4 show a major increase in the 
market concentration from that set forth in Paragraph 30 of the 
Complaint. The benchmark for determining the competitive effects of 
the Merger on the Southern Charlotte market is the HHI before the 
Merger. After giving effect to these changes (before the divestiture 
of Crown Point 12), after the Merger, Regal would control five of 
the six first-run, commercial theatres in the Southern Charlotte 
market area (instead of four of six as shown in the Complaint), with 
62 out of 84 total screens (instead of 56 of 83 as shown in the 
Complaint), and a 78% share of the 2007 box office receipts (instead 
of 75% as shown in the Complaint). The market concentration as 
measured by the HHI would increase 2,867 points to 6,618 points as 
compared to the increase of 2,535 points to 6,050 points as set 
forth in Paragraph 30 of the Complaint, a substantial additional 
increase in the Regal's actual post-Merger market concentration.
    Exhibit 6 is a summary of the Competitive Effects of the Merger 
on the Southern Charlotte market. As discussed above, Paragraph 30 
of the Complaint erroneously included the Village Theatre and 
excluded the Park Terrace Theatre. Exhibits 3 and 4 accurately 
reflect the competitive effects before the Merger, after the Merger 
and after the divestiture of Crown Point 12 by including the Park 
Terrace Theatre and excluding the Village Theatre.

Comment--New Entry Into the Southern Charlotte Market

    The entry of an additional first-run commercial movie theatre in 
the Southern Charlotte market is beneficial from a competitive 
effects point of view because the new entry will obtain a share of 
the market, thereby reducing Regal's market concentration. More 
importantly it will give moviegoers in Southern Charlotte another

[[Page 62551]]

real choice of venues \11\ for viewing first-run commercial movies 
in a market in which, as the United States states in Paragraph 37 of 
its Complaint, the entry of an additional first-run commercial movie 
theatre in Southern Charlotte is very unlikely.
---------------------------------------------------------------------------

    \11\ The five screen Village Theatre is Charlotte's only luxury 
theatre while Regal's Stonecrest is a 22 screen multiplex.
---------------------------------------------------------------------------

    However, there is an opportunity to have a new entry exhibiting 
first-run commercial movies in the Southern Charlotte market. With 
the elimination of clearance between Regal's Stonecrest and the 
Village Theatre,\12\ the Village Theatre would enter the Southern 
Charlotte market as an additional first-run commercial movie 
theatre. The entry of the Village Theatre as an additional first-run 
commercial movie theatre in the Southern Charlotte market benefits 
competition because the Village Theatre will obtain a share of the 
market and thereby reduce Regal's market concentration. The impact 
of this action on the market is shown on Exhibit 5. It will benefit 
consumers by giving them an additional choice of venues for first-
run commercial movies in a heavily concentrated market. Eliminating 
clearance is a more effective way to increase competition and give 
moviegoers a choice of venues than divesting the Crown Point 12.
---------------------------------------------------------------------------

    \12\ See Appendix A for a discussion of clearance as it relates 
to the Village Theatre.
---------------------------------------------------------------------------

Comment--Conclusion

    The Competitive Impact Statement filed by the United States in 
United States v. Regal Cinemas, Inc. and Consolidated Theatres 
Holdings, GP is in error with respect to the Southern Charlotte 
first-run commercial movie market. It wrongly asserts that the 
divestiture of the Regal Crown Point 12 will preserve existing 
competition between the merging entities and eliminate the 
anticompetitive effects of the Merger. In point of fact, the 
divestiture will have little effect on the extremely concentrated 
market because of the location of the Crown Point 12 on the 
periphery of the market. Further, the divestiture will not begin to 
overcome the presumption contained in the Merger Guidelines which 
follows from the very substantial increase in the HHI in a highly 
concentrated market like Southern Charlotte.
    The Competitive Impact Statement also wrongly excludes the six 
screen Park Terrace Theatre and includes the five screen Village 
Theatre in the Southern Charlotte market, rendering the market 
definition inaccurate and less concentrated than actually is the 
case. The post-Merger HHI is actually about 6,618 points if the 
market is correctly defined and remains at an alarming 5,032 points 
even after the divesture of the Crown Point 12.
    Although the United States asserts that new entry for a first-
run commercial movie theatre is unlikely there is one potential new 
entrant, the independently owned five screen Village Theatre, 
waiting in the wings in a prime location in the Southern Charlotte 
market. As shown on Exhibit 5, this new entry will have a positive 
effect on the post-Merger market concentration of Regal.
    The United States should therefore act to assure a more 
competitive market and provide additional consumer choice by 
enabling the Village Theatre to become a viable first-run commercial 
movie venue in Southern Charlotte. To do so, clearance for first-run 
commercial movies that Regal's 22 screen Stonecrest exercises 
against the Village Theatre in Regal's Stonecrest's film zone must 
be eliminated. The elimination or waiver of Regal's Stonecrest's 
clearance will permit the Village Theatre to enter the first-run 
commercial movie market in Southern Charlotte, will provide 
additional consumer choice of venues \13\ for first-run commercial 
movies in Southern Charlotte, will eliminate Regal's unreasonable 
restraint of trade, and will help to deconcentrate the market and 
offset the anticompetitive effects of the Merger.\14\
---------------------------------------------------------------------------

    \13\ The five screen Village Theatre is Charlotte's only luxury 
theatre while Regal's Stonecrest is a 22 screen multiplex.
    \14\ Since these calculations were based upon the 2007 box 
office revenues and since the box office revenues for the Village 
Theatre should increase after the clearance is eliminated, the 
market share for the Village Theatre should increase and the 
competitive effect of the merger in the Southern Charlotte market 
will be reduced even further than that shown on Exhibit 5.
---------------------------------------------------------------------------

    The Final Judgment should therefore be amended to enhance 
consumer choice and allow entry of the Village Theatre into the 
Southern Charlotte first-run commercial movie market by eliminating 
the exercise of clearance by Regal's Stonecrest Theatre.

Sincerely submitted,

Robert B. Bruner,
14825 John J. Delaney Dr.,
Suite 240,
Charlotte, North Carolina 28277,
704/369-5001.

Appendix A--Clearance as It Relates to the Village Theatre

    Clearance in General. ``Clearance'' refers to an agreement 
between a theatre and a film distributor that a particular film will 
not be played simultaneously for a particular period of time at two 
different theatres located the same film zone. See United States v. 
Paramount Pictures, 334 U.S. 131, 145 (1948). Clearance agreements 
are allowed in the film exhibition industry for the legitimate 
business purpose of ensuring that a particular theatre's income from 
a film will not be greatly diminished because the film is also being 
shown at a nearby competing theatre. See id. If clearances are 
reasonable, they are considered allowable restraints of trade. See 
id. at 146. Clearances between theatres not in substantial 
competition are per se unreasonable. See id. at 145-46.
    Thus, clearance is a reasonable restraint of trade only when 
each of the following factors are met: (1) The clearance is used for 
the legitimate business purpose of ensuring the exhibitor that its 
income from a film will not be greatly diminished because the film 
is also being shown at a nearby competing theatre, and (2) the 
theatres which are subjected to clearance are in substantial 
competition. As discussed below, the clearance between Regal's 
Stonecrest and the Village Theatre does not satisfy either 
condition.
    Regal's Stonecrest and the Village Theater are not in 
Substantial Competition. As stated above, there should be no 
clearance between theatres not in substantial competition.\15\ 
United States v. Paramount, 334 U.S. 131 at 145-46.
---------------------------------------------------------------------------

    \15\ The use of clearance presumes that there is an allocation 
of first-run commercial movies between all of the theatres within 
the same film zone. Clearly, if one theatre is able to obtain the 
entire film product, there is no need for that theatre to have 
clearance to protect against another theatre's showing of the film 
simultaneously in the same zone. As amply demonstrated above, in the 
instant case, the Village Theatre has no allocation of product, and 
Regal's Stonecrest has no need for clearance against the Village 
Theatre.
---------------------------------------------------------------------------

    The Village Theatre cannot be considered a first-run commercial 
movie theatre, since it has shown only three first-run commercial 
movies since June 1, 2006 as compared to Regal's Stonecrest's 
showing of 300-plus first-run commercial movies in the same period. 
Thus, Regal's Stonecrest and the Village Theatre are not in 
substantial competition, and the use of clearance by Regal's 
Stonecrest against the Village Theatre is an unreasonable restraint 
of trade and should be prohibited.
    Regal's Stonecrest's invocation of clearance against the Village 
Theatre is not for a proper business purpose. As stated above, even 
if Regal's Stonecrest and the Village Theatre were determined to be 
in substantial competition, clearance can be reasonable only if it 
is necessary to ensure the exhibitor's expected income will not be 
greatly diminished because the film is also being shown 
simultaneously or soon thereafter at a nearby competing theatre. See 
United States v. Paramount Pictures, 334 U.S. 131 at 145. Regal's 
Stonecrest's invocation of clearance against the Village Theatre is 
unjustified. See Theee Movies of Tarzana v. Pacific Theatres Inc., 
828 12d 1395, 1399 (9th Cir. 1987).
    First, the Village Theatre has only five screens while Regal's 
Stonecrest has 22 screens. Having only five screens will reduce the 
number of first-run commercial movies that the Village Theatre will 
be able to exhibit at any one time. With 22 screens, Regal's 
Stonecrest has the ability to exhibit practically every first-run 
commercial movie that is available. This summer Regal's Stonecrest 
has shown some of the blockbuster movies (which are the most popular 
and thus the most profitable) on up to six screens. Obviously, with 
only five screens the Village Theatre cannot show a movie on six 
screens. Given the requirements of the film distributors that films 
show for a four to five week run, the Village Theatre does not have 
the capacity to greatly diminish the expected income at Regal's 
Stonecrest. See Paragraph 12 of the Complaint.
    Second, Regal's Stonecrest's voluntary waiver of clearance 
against the Arboretum, a theatre with over twice the number of 
screens as the Village Theatre, demonstrates that Regal's Stonecrest 
does not need clearance in its film zone to ensure that it's 
expected income will not be greatly diminished. See Id.
    Third, Regal's Stonecrest's use of clearance discriminatorily 
against the Village Theatre while waiving it as to the Arboretum 
thus

[[Page 62552]]

operates to deprive movie consumers of choice, injures the Village 
Theatre and unreasonably restricts competition between the theatres 
in the zone. Id.; U.S. v. Paramount Pictures, 66 F. Supp. 323, 346 
(S.D.N.Y. 1946), opinion issued, 70 F. Supp. 53 (S.D.N.Y. 1946) and 
judgment aff'd in part, rev'd in part on other grounds, 334 U.S. 
131, 68 S. Ct. 915, 92 L. Ed. 1260 (1948). Therefore, the use of 
clearance by Regal's Stonecrest against the Village Theatre is an 
unreasonable restraint of trade and should be prohibited.
    The Clearance between Regal's Stonecrest and the Village Theatre 
is an Unreasonable Restraint of Trade. The clearance between Regal's 
Stonecrest and the Village Theatre cannot be justified on the 
grounds that the theatres are in substantial competition and that 
clearance is being used to assure Regal's Stonecrest that a 
distributor will not license a competitor to show a movie at the 
same time or so soon thereafter that the Regal's Stonecrest's 
expected income will be greatly diminished. See Theee Movies of 
Tarzana, 828 F.2d 1395 at 1399.
    Regal's Stonecrest and the Village Theatre are not in 
substantial competition because the Village Theatre cannot be 
considered a first-run commercial move theatre. Moreover, clearance 
is not necessary to ensure Regal's Stonecrest's expected income will 
not be greatly diminished. See Id. This is obviously true because 
the Village Theatre has only five screens compared to the 22 at 
Regal's Stonecrest. Also, Regal's Stonecrest has voluntarily waived 
clearance against another theatre, the Arboretum Theatre, in the 
same film zone with which it is substantially competitive, and the 
invocation of clearance against the Village Theatre operates 
primarily to injure the Village Theatre and overly restrict 
competition between theatres in the zone.\16\ Id. The clearance is, 
therefore, an unreasonable restraint of trade. See United States v. 
Paramount, 334 U.S. 131 at 145-46; see Theee Movies of Tarzana, 828 
F.2d 1395 at 1399.
---------------------------------------------------------------------------

    \16\ Even if Regal's Stonecrest and the Village Theatre were in 
substantial competition and Regal's Stonecrest had demonstrated a 
need to protect against diminution of its income, as opposed to 
demonstrating the opposite by waiving clearance against the 
Arboretum, the clearance Regal's Stonecrest is invoking against the 
Village Theatre is unduly extended as to duration. See United States 
v. Paramount, 334 U.S. 131 at 145-46. The common duration of 
dearance is generally fourteen days. See, e.g., Westway Theatre v. 
Twentieth Century-Fox Film Corporation, 30 F.Supp. 830, 836 D.C. MD. 
1940. (fourteen-day period for clearance was not uncommon in 
duration and did not, under the particular facts of the case, 
constitute an unreasonable restraint of trade).
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BILLING CODE 4410-11-C

B

Sent: Tuesday, July 22, 2008 12:01 PM

To: Malawer, Gregg
Cc: Wamsley, Jennifer
Subject: Regal--Consolidated Merger

July 22, 2008
Delivery Via E-mail & Overnight

John R. Read, Chief,

[[Page 62556]]

Antitrust Division/Litigation III,
450 5th Street, NW., Suite 4000,
Washington, DC 20530.

    This letter is Supplement <greek-i>1 to my letter dated June 26, 
2008 (the ``Comment Letter'') commenting on the proposed Final 
Judgment regarding the merger of Regal Cinemas, Inc. (``Regal'') and 
Consolidated Theatres, GP (``Consolidated'') (the ``Merger''). The 
Comment Letter and this Supplement <greek-i>1 focus on the 
competitive effect of the Merger in the Southern Charlotte, North 
Carolina, market area. For purposes of this Supplement <greek-i>1 
all terms used herein shall have the same meanings as used in the 
Comment Letter.
    On July 9, 2008, in the case styled as Village Theatre, LLC,  v. 
Consolidated Theatres Management, LLC, et al., Civil Action No. 008-
CVS-11031, currently pending in the General Court of Justice, 
Superior Court Division, Mecklenburg County, North Carolina, Regal 
filed a Motion to Dismiss, Answer and Counterclaims, in which they 
declared as follows:

    ``The [Village] Theatre has been operated as an independent art 
film theatre since its March 2006 opening date.''

Therefore, Regal admits that the Village Theatre, as it operates 
today, should not be treated as a ``first-run commercial movie 
theatre'' in the Southern Charlotte market.
    This allegation is in direct conflict with the Department of 
Justice's proposed Final Judgment, which is predicated in part upon 
the fact that the Village Theatre was a ``first-run commercial movie 
theatre''. Since this is not the case then the relevant market is 
incorrectly defined in the proposed Final Judgment.
    From an anti-trust point of view, the Merger remains highly 
suspect. The Merger was determined by the United States to be 
illegal and in violation of Section 7 of the Clayton Act. As stated 
in the Comment Letter and as shown in the Exhibits to the Comment 
Letter, the exclusion of the Village Theatre as a first-run 
commercial movie theatre further increases the market concentration 
of Regal's Stonecrest Theatre in the Southern Charlotte market. 
Without the inclusion of the Village Theatre as a ``first-run 
commercial movie theatre'', the post-Merger market concentration of 
Regal in the Southern Charlotte area (even after the sale of the 
Crown Point 12 Theatre and irrespective of the treatment of the Park 
Terrace Theatre) will be excessively high. The United States should 
impose requirements on Regal necessary to reduce its market 
concentration in the Southern Charlotte market to as close to the 
pre-Merger level as is possible.
    The most obvious, and simplest, pro-competitive, pro-consumer 
solution is to require Regal's Stonecrest Theatre to waive clearance 
against the Village Theatre. This is obvious and simple because 
Regal's Stonecrest Theatre has for years voluntarily waived 
clearance with respect to the Arboretum Theatre which is also in the 
Regal's Stonecrest Theatre film zone. Regal's Stonecrest Theatre's 
voluntary waiver of clearance against the Arboretum Theatre 
demonstrates that Regal's Stonecrest Theatre does not need clearance 
in this film zone. Since Regal's Stonecrest Theatre has already 
waived clearance against the 12-screen Arboretum Theatre it is not 
too burdensome to require the waiver of clearance in the same film 
zone against the much smaller five-screen Village Theatre. This 
small action will greatly increase consumer choice and increase 
competition.
    Clearance must be removed so that the Village Theatre can be 
considered a ``first-run commercial movie theatre'' and, thus, 
reduce Regal's market concentration in the Southern Charlotte area. 
Requiring Regal to waive clearance with the five screen Village 
Theatre simply authenticates the proposed Final Judgment, greatly 
enhances consumer choice, and is necessary given the excessively 
high post-Merger market concentration of Regal.

Sincerely submitted,

Robert B. Bruner,

14825 John J. Delaney Dr., Suite 240-17, Charlotte, North Carolina 
28277, 704-369-5001.

C

United States District Court for the District of Columbia

Case 1:08-cv-00746
    United States of America, Plaintiff, v. Regal Cinemas, Inc., and 
Consolidated Theatres Holdings, GP, Defendants; Public Comments of the 
Voluntary Trade Council, Inc.
    Before: Judge Richard J. Leon
    Filed: July 13, 2008.

    The Voluntary Trade Council, Inc., a Virginia non-profit 
corporation, respectfully files the following public comments regarding 
the Proposed Final Judgment in the above-captioned case.

Introduction and Interest of Commenter

    On April 29, 2008, the Antitrust Division of the United States 
Department of Justice (the Division) filed with the Court a Complaint 
against Regal Cinemas, Inc. (Regal) and Consolidated Theatres Holdings, 
GP (Consolidated), alleging Regal's contract to purchase Consolidated 
was illegal under 15 U.S.C. 18, commonly known as the Clayton Act.
    Regal and Consolidated did not contest the Division's Complaint, 
and they acceded to the Division's demand to sell certain assets in 
order to allow their merger to proceed. Accordingly, on May 15, 2008, 
the Division published a notice in the Federal Register containing a 
proposed Final Judgment and supporting documents. Under 15 U.S.C. 16, 
the proposed Final Judgment is subject to a 60-day public comment 
period, and the Court is required to review any comments received, 
along with the Division's response, before deciding whether entry of 
the Proposed Final Judgment is in the ``public interest.''
    The Voluntary Trade Council, Inc.\1\ (VTC), is a research center 
dedicated to antitrust and competition regulation. Working in the 
tradition of the Austrian School of economics, VTC offers free-market 
criticism of the Department of Justice, the Federal Trade Commission 
and other agencies that intervene to prevent the voluntary exchange of 
goods, services and ideas. In the past six years, VTC has filed public 
comments in dozens of DOJ antitrust cases, providing independent 
economic and legal analysis.\2\
---------------------------------------------------------------------------

    \1\ Formerly known as Citizens for Voluntary Trade.
    \2\ For a compilation of VTC's public comments, see http://www.voluntarytrade.org/joomla15/index.php/docs/cat_view/12-voluntary-trade-council-documents/23-public-comments.
---------------------------------------------------------------------------

Summary

    The Division claims it was necessary to intervene in Regal's 
acquisition of Consolidated in order to preserve competition in the 
market for the ``theatrical distribution of feature length motion 
picture films'' in the Charlotte, Raleigh and Asheville areas of North 
Carolina. The Division alleges a voluntary combination of Regal and 
Consolidated's movie theaters in these markets would ``eliminate 
competition'' and likely lead to higher ticket prices and ``reduced 
incentives to maintain, upgrade, and renovate their theaters.'' To 
remedy these hypothetical harms, the proposed Final Judgment requires 
Regal and Consolidated to sell four movie theaters located in the three 
areas to a buyer approved by the Division.
    The Division's claims of consumer harm are not supported by the 
facts or economic principles. The Complaint presents a false and 
misleading analysis of the marketplace and relies heavily on an 
irrelevant mathematical formula to justify the violation of Regal and 
Consolidated's property rights. The ``public interest'' in this case is 
best served by rejecting the Division's meritless intervention. The 
Court should not enter the Proposed Final Judgment.

Argument

    ``Movies are a unique form of entertainment,'' according to the 
Division's complaint.\3\ Beyond this unremarkable insight, the 
Division's attempt to define a ``relevant market'' presents a work of 
economic fiction that is comparable to the fantastic movies of Steven 
Spielberg (or even his ``non-union Mexican equivalent'' \4\). The 
Division misrepresents the nature of

[[Page 62557]]

consumer time preference, confuses products with methods of 
distribution and wastes an inordinate amount of energy on ``special 
effects'' in the form of a useless mathematical formula. In short, 
there is no economic substance to the Division's complaint--and thus no 
rational basis for seeking the relief contained in the proposed Final 
Judgment.
---------------------------------------------------------------------------

    \3\ Complaint para. 11.
    \4\ With apologies to Al Jean, Mike Reiss and Ken Keeler.
---------------------------------------------------------------------------

A. Method of Distribution Is Not a Distinct Product

    Thomas A. Lambert, an associate professor at the University of 
Missouri School of Law, responding to the Federal Trade Commission's 
lawsuit against the merger of Whole Foods Market, Inc. and Wild Oats 
Markets, Inc. (which this court rejected \5\), said, ``defining markets 
to consist of specific types of distribution channels, rather than 
groups of products and services, opens the door to finding narrow 
`markets' (and thus market power) everywhere.'' \6\ The essence of 
marketing, Lambert writes, is when sellers ``distinguish their products 
or services by offering them differently than their competitors.'' \7\
---------------------------------------------------------------------------

    \5\ Federal Trade Commission v. Whole Food Market, Inc., Civil 
Action No. 07-1021 (D.D.C. Aug. 16, 2007).
    \6\ Thom Lambert, ``Ignoring the Lessons of Von's Grocery: Some 
Thoughts on the FTC's Opposition to the Whole Foods/Wild Oats 
Merger,'' eSapience Center for Competition Policy June 2007).
    \7\ Id.
---------------------------------------------------------------------------

    The Division repeats the FTC's Whole Foods error in this case by 
improperly defining a method of distribution as a distinct product 
market. Regal and Consolidated do not manufacture the product--motion 
pictures--but rather provide distinct venues for their distribution. 
Like Whole Foods, Regal and Consolidated offer a place where sellers 
(movie producers) and buyers (movie consumers) meet to engage in 
voluntary exchange. But the distinctiveness of the venue should not be 
confused with the nature of the products themselves.
    A motion picture can be distributed through several channels: 
First-run theatrical exhibition, sub-run theatrical exhibition, 
television (including over-the-air broadcast, basic cable, pay and 
premium cable, and satellite), and direct sales and rentals (VHS, DVD, 
Blu-Ray, iTunes). A theatrical producer can utilize one, several or all 
of these channels depending on the nature of the motion picture and its 
expected audience. Many films begin their journey to the consumer in 
first-run theatres like those operated by Regal and Consolidated. 
Others are marketed directly to the consumer, such as the Walt Disney 
Company's practice of straight-to-video sequels of its classic animated 
films. However a particular film is marketed to the consumer, the 
product is the film and not the method of distribution.
    The Division argues there's a ``significant difference between 
viewing a newly-released, first-run movie and an older sub-run movie,'' 
because first-run theatres usually charge higher ticket prices. Sub-run 
theatres show films that ``are no longer new releases, and moviegoers 
generally do not regard sub-movies as an adequate substitute for first-
run movies * * *'' It's not clear what ``moviegoers'' the Division 
interviewed or surveyed to reach this conclusion. Without any empirical 
data or deductive arguments, the Division simply concludes there are 
wholly distinct markets for ``first-run'' and ``sub-run'' moviegoers, 
and never the two shall meet. This argument is just plain wrong.
    What distinguishes one movie-distribution channel from another is 
consumers' aggregate time preference. Many consumers will pay a premium 
to see a ``first-run'' movie when it is first released, while others 
may wait and spend less to view the film in a ``sub-run'' theatre; and 
others will wait even longer and spend even less to view the film on 
home video.
    The problem, which the Division fails to acknowledge, is that time 
preference varies from product to product--that is, from movie to 
movie. Some films perform poorly in first-run theatres only to enjoy 
greater success in later distribution channels (hence the phenomenon of 
``cult'' films). Other films enjoy overwhelming first-run success and 
spawn one or more sequels, such as the James Bond, Star Trek and Star 
Wars films. In the case of these movie franchises, time preference is 
such that moviegoers will purchase tickets well in advance of these 
films' release. In other cases, an unknown film may start out with 
modest sales and gather momentum as ``word of mouth'' spreads.
    First-run theatres clearly compete against other distribution 
channels by persuading consumers that their entertainment demand is 
best satisfied by paying a premium to see a particular movie now rather 
than paying less to see it in another distribution channel later. To 
that end, first-run theatres always have an incentive to improve the 
quality of their product regardless of the number of first-run theatres 
in a given geographical area. The Division itself makes a big deal 
about movie theaters having ``stadium seating''--which was an 
innovation developed in response to competition from other distribution 
channels such as home video and pay per view cable.
    Similarly, movie producers are now promoting 3D projection as the 
future of first-run exhibition. Jeffrey Katzenberg, CEO of DreamWorks 
Animation, recently announced that his studio's future films will be 
exclusively in 3D. Disney and its subsidiary Pixar Animation Studios 
also plan to release (and re-release) future films in 3D. (And the same 
weekend as this comment was filed, Walden Media released a 3D version 
of ``Journey to the Center of the Earth''.) Kevin Maney explains in the 
July 2008 issue of Portfolio that,

    Studios are latching onto 3-D for much the same reason that Bob 
Dole took Viagra. Most of Hollywood's businesses are making money--
for all Katzenberg's complaining, DreamWorks' first-quarter profit 
was up 69 percent--but the sector that makes Hollywood feel best 
about itself, theatrical showings, is deflating, in large part 
because the difference between seeing a movie in your local 
multiplex and on a 52-inch high-definition TV in your family room is 
not that vast.
    The Motion Picture Association of America claims that 2007 was a 
good year for the cinema business, with U.S. box office revenue up 5 
percent to $9.6 billion. But that's unsupportable spin. The jump can 
be almost entirely attributed to a bump in ticket prices. The number 
of tickets sold in the U.S. stayed flat from 2006 to 2007, at 1.5 
billion. (In 1950, while TV was taking off, US. theaters sold 3 
billion tickets a year--and the population was half what it is 
today.) Meanwhile, 379 screens were added between 2006 and 2007. Do 
the math and movies are doing worse than ever in theaters.\8\ 
(Emphasis added)
---------------------------------------------------------------------------

    \8\ Kevin Meaney, ``The 3-D Dilemma,'' available at http://www.portfolio.com/culture-lifestyle/culture-inc/arts/2008/06/16/Hollywoods-3-D-Cinema-Dreams.

    The Division incorrectly believes that intra-theater competition 
between Regal and Consolidated drive innovation and hold ticket prices 
down. That's not the case, and the Court should not accept the 
Division's ``market definition'' at face value.

B. The Division's Market Definition Improperly Excluded Other Types of 
Motion Pictures and Entertainment

    The Division argues, ``The experience of viewing a movie in a 
theatre is an inherently different experience from live entertainment 
(e.g., a stage production), a sporting event, or viewing a movie in the 
home (e.g., on a DVD or via pay-per-view),'' \9\ But the question isn't 
whether these are different experiences; it's whether they are 
competing experiences that

[[Page 62558]]

individuals consider when allocating scarce time and money towards 
entertainment. The Division treats consumers as a monolith that 
considers only first-run movie theaters to the exclusion of all other 
forms of entertainment. This approach insults consumers by reducing 
them to a reactionary mob and has no empirical or deductive foundation.
---------------------------------------------------------------------------

    \9\ Complaint para. 11.
---------------------------------------------------------------------------

    In the Division's perfect economic world, no consumer ever asks, 
``Should I go to a movie tonight or stay home and watch the football 
game?'' Nor does anyone think, ``I really don't want to see that chick 
flick with my wife and her friends, so I'll shoot pool with the guys.'' 
Perfect consumers behave in unison--like background characters in an 
animated film--and in direct, negative response to short-term price 
increases.
    The Division goes to great lengths to explain why ``moviegoers do 
not regard'' art and foreign language movies ``as adequate substitutes 
for first-run commercial movies,'' thus justifying their exclusion from 
the market definition. Again, the Division misses the point. Every 
consumer has individual preferences. Sure, many consumers don't watch 
art and foreign films. But other consumers never watch animated films. 
Or war films. Or ``chick flicks.'' Or films featuring Mike Myers. And 
it's unlikely that any moviegoer anytime, anywhere has said, ``Honey, I 
want to see a first-run commercial movie tonight, and nothing else will 
suffice!''
    The Division's attempted market definition also ignores the cross-
competition that occurs within the entertainment industry. ``First-run 
commercial movies'' are not a closed system. Many popular commercial 
films are derived from other entertainment sources. In 2008 alone, 
several number-one U.S. box office films were derived from non-film 
sources: Hellboy II, The Incredible Hulk and Iron Man were based on 
popular comic books; Sex and the City was based on a long-running 
premium cable series (which itself was based on a compilation of 
popular newspaper columns); and Horton Hears a Who! and The Chronicles 
of Narnia: Prince Caspian were based on popular books.\10\ Demand for 
non-film entertainment drives demand for motion pictures, and vice 
versa. And once again, the number of first-run theatres in a given 
geographic area is irrelevant to the market's competitiveness.
---------------------------------------------------------------------------

    \10\ See ``Box office number-one films of 2008 (USA),'' http://en.wikipedia.org/wiki/Box_office_number-one_films_of_2008_
(USA).
---------------------------------------------------------------------------

C. The Herfindahl Index Proves Nothing Aside From the Division's 
Ability To Perform Basic Multiplication

    Relying on its misleading market definition, the Division offers a 
lengthy series of random numbers purportedly representing the 
``Herfindahl-Hirschman Index'' (HHI), which the Division claims is a 
``measure of market concentration.'' \11\ For example, in part of 
Charlotte, North Carolina, the Division alleges the Regal Consolidated 
merger would ``yield a post-merger HHI of approximately 6,058, 
representing an increase of roughly 2,535 points.'' \12\ The 
implication is that a higher HHI indicates a greater likelihood of 
post-merger consumer ``injury'' in the form of higher prices. But even 
assuming that the HHI figures given in the complaint are valid, this 
alone does not prove the existence of ``market power'' or justify the 
Division's proposed Final Judgment. As economics professor Dominick T. 
Armentano has explained, there is no economic merit to the HHI:
---------------------------------------------------------------------------

    \11\ Complaint para. 30.
    \12\ Id.

    Although the general public has the impression that there must 
be some good reason for the antitrust authorities' choice of 
particular limits in the Herfindahl Index of market concentration, 
those limits are completely arbitrary. No one--and certainly not the 
antitrust authorities--can ever know whether a merger of firms that 
creates, say, a 36-percent market share, or one that raises the 
Herfindahl Index by 150 points, can create sufficient economic power 
to reduce market output and raise market price. No one knows, or can 
know, whether monopoly power begins at a 36 percent market share or 
a 36.74-percent market share. Neither economic theory nor empirical 
evidence can justify any merger guideline or prohibition.\13\
---------------------------------------------------------------------------

    \13\ Dominick T. Armentano Antitrust: The Case for Repeal, at 
85-86 (2d ed., Ludwig von Mises Institute 1999).
---------------------------------------------------------------------------

D. Consumers Were Never in Danger of the Type of ``Injury'' Alleged in 
the Complaint

    Ultimately, the Division's complaint rests on the ridiculous 
proposition that consumers would have been injured by higher post-
merger prices but for the redistribution of property mandated in the 
proposed Final Judgment. The Division's argument is that ``[o]ver the 
next two years, the demand for more movie theatres in [the identified 
geographic areas] is not likely to support entry of a new theatre,'' 
and without additional theaters there would be ``an increase in movie 
ticket prices or a decline in theatre quality.'' \14\ The decline in 
quality issue has already been addressed and dismissed above. As for a 
hypothetical increase in ticket prices, it's unclear how this would 
``injure'' consumers who are willing to pay. There's no question of 
fraud: Ticket prices are generally posted and well known to the 
customer before purchase. Nor has the Division explained how 
``competitive'' ticket prices should be determined outside of, well, 
the competitive process of the market. The Division simply draws an 
arbitrary line where pre-merger prices are assumed to be 
``competitive'' and any hypothetical future increase--regardless of 
cause--is ``anticompetitive.'' By this reasoning, the most logical 
course of action would be for the Division to simply fix ticket prices, 
which of course would violate Section 1 of the Sherman Act.
---------------------------------------------------------------------------

    \14\ Complant para. 37.
---------------------------------------------------------------------------

    The Division's real concern, which it states, is that it fears 
consumers won't immediately respond to an increase in ticket prices by 
reducing demand sufficiently to make the increase ``unprofitable.'' But 
that has nothing to do with consumer injury. Consumers are not legally 
obligated to adjust their spending habits to accommodate the Division's 
mathematical models. Nor should sellers be punished because there's 
insufficient demand to support the number of competing sellers that the 
Division deems ideal. Ultimately, real markets don't function according 
to the whims of government lawyers.

Conclusion

    The proposed Final Judgment is built on a series of false, 
misleading and laughably nonsensical arguments. Just as the ``movie 
palaces'' of the 1930s gave way to the multiplexes of the late 20th 
century, which in turn yielded to the ``stadium seating'' megaplexes at 
issue in this case, the subset of the entertainment industry dedicated 
to first-run theatrical exhibition continually evolves to satisfy 
shifting consumer demand. This process works best with a minimum of 
government intervention, especially from unqualified mid-level Justice 
Department attorneys. The Court can best serve the public interest by 
rejecting the proposed Final Judgment and ordering the Division to 
spend less time pretending they're movie theatre executives and more 
time * * * well, going to the movies.

    Dated: July 13, 2008.

 Respectfully Submitted,

S.M. Oliva,

President, The Voluntary Trade Council, Inc., Post Office Box 
100073, Arlington, Virginia 22210, (703) 740-8309, 
<a href="/cdn-cgi/l/email-protection#1e777078715e6871726b706a7f6c676a6c7f7a7b30716c79"><span class="__cf_email__" data-cfemail="076e6961684771686b72697366757e737566636229687560">[email protected]</span></a>.
[FR Doc. E8-23357 Filed 10-20-08; 8:45 am]
BILLING CODE 4410-11-M


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