Opinion ID: 560410
Heading Depth: 2
Heading Rank: 2

Heading: The Merits: Antitrust Injury

Text: 14 A grant of summary judgment is reviewed de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990); State Farm Fire and Casualty Co. v. Martin, 872 F.2d 319, 320 (9th Cir.1989). Viewing the evidence in the light most favorable to the nonmoving party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989); Judie v. Hamilton, 872 F.2d 919, 920 (9th Cir.1989). 15 The anticompetitive activity that Z Channel complains of in Count One occurred in response to Z Channel's decision, announced in early 1988, to carry advertising in connection with its sports broadcasts. Implementing that decision would have violated prohibitions on advertising contained in preexisting contracts between Z Channel and its distributors, and between those distributors and HBO. Much or all of the alleged harm to Z Channel arose either from the enforcement of those preexisting contract terms, or from the refusal to modify those terms in new contracts referencing the preexisting contracts. For that reason, the district court concluded that Z Channel's claim failed for lack of any showing of antitrust injury, under the rule announced in Newman v. Universal Pictures, 813 F.2d 1519 (9th Cir.1987), cert. denied, 486 U.S. 1059, 108 S.Ct. 2831, 100 L.Ed.2d 931 (1988). We conclude that the district court applied Newman too broadly, and we accordingly reverse. 16 Newman was a claim brought by Paul Newman, the actor, and George Roy Hill, a director, who had contracted to supply their services to Universal in the making of the feature films Slapshot and The Sting. The contracts provided for Newman and Hill to receive a percentage of revenue from exhibition of the films. Subsequently, technological developments led to a market for the films in videocassettes. Newman and Hill claimed that Universal and other major studios had conspired to apply the profit participation clauses in their contracts in such a way as to minimize the amounts paid to Newman, Hill and other artists. 17 We upheld a dismissal of Newman's and Hill's action for failure to state a claim of antitrust injury. Crucial to our analysis was the fact that the only injury to competition that was alleged or urged was the competition for Newman's and Hill's services in making the two named films. We said: 18 The subsequent conspiracy could not have affected the competition for Newman and Hill's services at the time the contracts were made. Furthermore, the alleged conspiracy could not have affected appellants' ability to negotiate with other studios for distribution of the video cassettes, because the existing contract covered distribution of the film in all forms.... Thus, if the alleged conspiracy did not restrain competition for Newman and Hill's services in The Sting and Slapshot, there can be no resulting antitrust violation. 19 Id. at 1522. 20 The defendants extract from Newman a broad rule that interpretations and applications of contracts that preexist the anticompetitive activity cannot, as a matter of law, cause antitrust injury. The key, however, is not merely that Newman's and Hill's contracts predated the conspiracy; it was that the only competition alleged to be injured predated the conspiracy. When Newman and Hill signed contracts to perform in or direct The Sting and Slapshot, the competition among movie producers for those services ended. A later conspiracy, whatever other damage it may have caused, could not injure that competition. 21 It is true in the case before us that some competition ended when Z Channel entered contracts to exhibit certain movies on its channel. Competition among distributors to rent those movies to Z Channel for cablecasting at the specified times clearly ended with the signing of that contract. Any later conspiracy to enforce that agreement could not cause injury to the competition among distributors for sale of the contracted movies or times. 22 But the present case involves two other forms of competition in existence when the defendants allegedly acted illegally. First, during the time when Z Channel was contemplating its inclusion of paid advertising during sports broadcasting, it was negotiating with distributors for licenses for new movies. Those negotiations involved competition among distributors to rent movies to Z Channel, and conversely, among cable channels (including Z Channel) to rent movies from distributors. Included (at least implicitly) in those negotiations for new licenses was Z Channel's proposal to advertise during sports broadcasting. 23 Those negotiations were conducted in the shadow of the preexisting master licensing agreements, but they were, nevertheless, negotiations for new contracts. The master licenses permitted subsequent modification of any term, and the terms of the master license controlled only if new terms were not adopted by agreement of the parties. 24 Thus, the competition between cable channels and distributors for the license rights to films was continuing when the distributors were insisting on retaining their no-advertising clauses in new licenses, and, more significantly, when HBO was insisting that the other distributors continue to insist upon those clauses in any new licenses they might grant. To the extent that these actions by HBO and the other distributors injured that competition, the requirements of causation and competitive injury to Z Channel have been met. 25 Z Channel has also alleged injury to another, more general, area of competition in which it was participating at the time of the alleged antitrust violations--the struggle for competitive viability in the cable television market. Z Channel alleged that HBO coerced the distributor defendants to apply their licensing agreements with Z Channel to prevent Z Channel from advertising during its cablecasting of sports events. Second Amended Complaint para. 41. It further alleged that this action was taken so that Z Channel, in the short run, will be a less effective and viable competitor to HBO and barred from entering the market for pay television offering both movie and sports programming, and, in the long run, would likely be eliminated as a competitor altogether.... Id. at para. 46. Thus, 26 Defendants' interpretations and applications of their licensing agreements with plaintiff Z Channel Limited Partnership would have injurious effects on competition, including the diminishment of competition among and between pay television services and a restriction on consumer choice among pay television services and different pay television programming. 27 Id. at para. 53. 28 We think it clear from these allegations that Z Channel is asserting an injury to competition that postdates the anti-competitive activity of which it complains--the actions by HBO and the other defendants to enforce the no-advertising clauses in their existing licensing contracts, and to retain those clauses in new contracts. It may be true, as to those licenses already negotiated, that Z Channel had prospectively limited its future competition with other cable services when it entered the license agreements with no-advertising clauses. 5 However, as to those licenses for which Z Channel was continuing to negotiate, it was clearly competing with other cable channels, not only for the rights to certain films, but also for survival and success in the cable television market. 29 Those distributors who, of their own independent choice, elected to enforce their no-advertising restrictions, or insisted on retaining those restrictions in subsequent licenses were doubtless entitled to do so. Assuming the legality of the contract, 6 its collateral effect of limiting competition between Z Channel and other cable services would have been permissible. 30 Part of Z Channel's case, however, is that the distributors were not free to relax their restrictions and permit Z Channel more vigorously to compete with other cable services, because HBO in its capacity as a competing cable service 7 coerced the distributor defendants to enforce their agreements against Z Channel. According to Z Channel, HBO could accomplish this result because of its dominant market position and because its own contracts with distributors, at HBO's insistence, contained clauses prohibiting distributors from licensing films covered by the HBO licensing agreement to other services if they advertised. 8 This action by HBO and the acquiescence of the distributor defendants, enforced with the aid of HBO's contracts with the distributors, is the anti-competitive activity of which Z Channel complains. 9 And that conduct was clearly capable of causing an injury to the competition between Z Channel and the other cable services, including HBO. 31 The defendant distributors contend that each acted wholly independently in enforcing its no-advertising clause against Z Channel. They offered evidence in support of that position. Z Channel, however, offered contradictory evidence that HBO threatened action against the distributors under HBO's contracts if the distributors did not enforce and retain the no-advertising restrictions against Z Channel, and that the distributors responded to that pressure. We cannot say as a matter of law that there is no triable issue whether HBO's actions, acting upon the distributors, caused competitive injury to Z Channel. 32 We conclude, therefore, that Z Channel's case is not foreclosed by Newman, 10 because the anticompetitive activity of which Z Channel complains could have caused injury to competition between Z Channel and other cable services. 11 Having concluded that Newman does not control this case, we decide nothing further. The district court did not rule on the legality of the contracts in issue, the reasonableness of any restraints on trade, or any other possibly decisive issues, nor do we. We reverse simply because the district court's conclusion that Newman controls was in error, and we remand for further proceedings. Nor, for lack of a sufficient record, do we address the asserted deficiencies in plaintiff's standing that were likewise not ruled on in the disposition of the motion for summary judgment. 33 REVERSED AND REMANDED.