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A N 8 8 D 8 B 1 AR SINCE WWW. NYLJ.COM Volume 262—No. 112 TUESDAY, DECEMBER 10, 2019

ANtitrust trAde ANd PrActice Expert Analysis The DOJ Moves To Terminate The Paramount Consent Decrees

ast month, the Department a result of this drastic shift in the of Justice (DOJ) asked a ways consumers access movies, the federal district court to ter- DOJ believes a change is needed minate the Paramount Con- in how the market is regulated. sent De-crees (Decrees), a The Decrees stem from a late 1930s Lset of rules governing major flm By And DOJ enforcement action where the Karen Kenneth studios for the last 70 years. In Hofman lent schwartz DOJ alleged that the fve major flm effect, these rules prohibited movie studios of that time—Paramount Pic- studios from owning downstream Antitrust Division Makan Delrahim tures, Twentieth Century-Fox, War- movie theaters and banned a vari- explained that the DOJ found that ner Brothers Pictures, Radio-Keith- ety of vertical agreements, such as the Decrees “have served their Orpheum (defunct as of 1959), and block booking—the practice of bun- purpose, and their continued exis- Loew’s (now known as Metro-Gold- dling multiple flms into one the- tence may actually harm American wyn-Mayer)—were engaged in ille- ater license. This decision comes consumers by standing in the way gal price fxing and monopolization after the DOJ said last year that of innovative business models for of both the movie theater and flm it planned to review almost 1,300 the exhibition of America’s great- distribution markets with distribu- “legacy” antitrust orders to deter- est creative flms.” See DOJ Offce tors Columbia Pictures, Universal, mine which are “outdated” and do of Public Affairs, Department of and United Artists. Importantly, at little more than “clog court dock- Justice Files Motion to Terminate the time, the fve major flm studios ets, create unnecessary uncertain- Paramount Consent Decrees (Nov. owned or controlled movie theaters, ty for businesses or … elicit anti- 22, 2019). The DOJ emphasized that which was the main driver of the competitive market conditions.” signifcant structural changes in alleged horizontal conspiracy. Spe- See DOJ Offce of Public Affairs, the industry, coupled with tech- cifcally, the DOJ alleged that these Department of Justice Announces nological innovations, new movie companies, led by the five major Initiative to Terminate “Legacy” platforms, new business models, flm studios, violated the Sherman Antitrust Judgments (April 25, 2018). and changing consumer demands Act by colluding to set minimum Pursuant to that process, Assis- no longer make the Decrees neces- prices for tickets, divide markets, tant Attorney General of the DOJ sary. Id. In other words, going to and bundle films. After years of a movie theater is no longer the litigation, the parties involved in only way to see the newest flm. the action entered into a series of KAREN HOFFMAN LENT and KENNETH SCHWARTZ Consumers can access movies from consent decrees, beginning in 1949, are partners at Skadden, Arps, Slate, Meagher & Flom. ADAM G. KOCHMAN, a law clerk at the firm, their homes with just a few clicks called the Decrees. See, e.g., United assisted in the preparation of this column. of their TVs, tablets, or phones. As States v. Paramount Pictures, 1949-1 TUESDAY, DECEMBER 10, 2019

Trade Cas. (CCH) ¶ 62,337 (S.D.N.Y. prior to 1979, the DOJ did not include the 1930s and was the main facilitator March 3, 1949). “sunset” provisions—a time when of the horizontal conspiracy. Rather, the consent decree expires—in their these flm studios are more likely to Antitrust Consent Decrees consent decrees. Thus, the Decrees focus their resources on assets that A consent decree is a settle- could have theoretically existed in drive business in today’s market, ment between a private party and perpetuity without the DOJ’s advo- such as their direct to consumer the government. It is entered as a cating for their termination. streaming services. That said, the court order and is enforceable by door is open for these major film Practical Implications the court. Consent decrees bind the studios to invest in or own movie Of Termination government and the consenting par- theaters if they so choose. ty to the terms stated in the consent Given the dynamic changes to the The DOJ’s decision has received decree. In the antitrust context, pri- movie industry, such as the prolifera- some criticism. Detractors predomi- vate parties often enter into consent tion of new distribution channels, it nantly point to the eradication of the decrees as a result of a regulatory is unclear if the termination of the prohibition on block booking, as they investigation into certain anticom- Decrees will have a major impact on believe block booking may permit petitive conduct. Some third parties the market. That is, there are signif- major studios to bundle a less suc- prefer to enter into a consent decree cant questions regarding the future of cessful movie with a big hit, essential- rather than go through an expansive the movie business. See Brent Lang, ly forcing the lesser movie on to the regulatory investigation or litigation, The Reckoning: Why the Movie Busi- movie theater. See, e.g., Jim Amos, as entering a consent decree saves ness Is in Big Trouble, Variety (March Why the DOJ Review of a 1940s costs and provides certainty to a 27, 2017). Further, many of the movie Decree Could Hurt Both Movie The- private party. studios at issue here are owned by aters and Moviegoers, Forbes (Nov. 12, 2018). Smaller movie theaters are The Paramount particularly concerned by this. For Consent Decrees The DOJ’s decision has received example, in a public comment argu- The Decrees had two major com- some criticism. Detractors pre- ing against removing the Decrees, a ponents. First, the Decrees pre- dominantly point to the eradica- smaller movie theater, Bow Tie Cin- vented major movie studios from tion of the prohibition on block emas, said they fear they would be being both a creator of movies and booking, as they believe block “disproportionately affected” by the a downstream exhibitor of movies removal of the block booking prohi- booking may permit major stu- through their ownership of movie bition because they “do not have as theaters. Thus, the Decrees forced dios to bundle a less successful many screens to potentially spread the movie studios to divest their movie with a big hit, essentially out the major studio flms we would movie theater businesses. Second, forcing the lesser movie on to be required to book in order to have the Decrees banned the following the movie theater. access to the flms our customers vertical agreements: (1) the setting desire.” Bow Tie Cinemas, Comment of minimum prices on movie tick- parent companies that “already have Letter on Potential Modifcation or ets (known as resale price mainte- a direct distribution relationship Outright Termination of Consent nance); (2) the granting of exclusive with customers.” Brent Lang, Why Decrees Entered Against Various flm licenses for geographic areas Eliminating the Paramount Antitrust Movie Studios (Oct. 3, 2018). The (known as overbroad clearances); Decrees Won’t Shake Up the Movie block booking restriction will not (3) the bundling of multiple flms into Business, Variety (Nov. 19, 2019). go into effect for two years to allow one theater license (known as block Practically speaking then, there movie theaters and other affected booking); and (4) the entering into may not be much concern that these parties a chance to transition to the one license that covered an entire major flm studios will be interested new regime. As a result, we may not theater circuit (known as circuit deal- in purchasing movie theaters, which understand the practical effects of ing). Of note to the Decrees is that, was the crux of the DOJ’s concern in the DOJ’s decision for some time. TUESDAY, DECEMBER 10, 2019

Legal Implications 551 U.S. 877 (2007). In so doing, removal of the Decrees. Assuming Of Termination the Supreme Court overturned the the Decrees are formally terminated The DOJ has stressed that ter- 96-year old precedent set in Dr. Miles by a federal court, any changes will mination of the Decrees does not Medical Co. v. John D Park & Sons take time to implement. Moreover, mean antitrust scrutiny over the Co., which held that minimum resale studios would still be prohibited agreements and practices at issue price maintenance was per se illegal. from block booking, the most con- will automatically disappear. Rather, 220 U.S. 373 (1911). troversial of the removals, for anoth- eliminating the Decrees means that While the amount of challenges will er two years. To truly see how the any of the formerly illegal practices depend on how many agreements Decrees’ termination will play out, we will warrant typical antitrust scru- are enacted, it will also depend on will have to wait for the previously tiny. Under the Sherman Act, it would how the DOJ chooses to allocate illegal agreements to enter the movie be per se illegal were the major flm their limited resources. On the one industry, and see how the inevitable studios to engage in another horizon- hand, it is possible that the DOJ is legal challenges to said agreements tal conspiracy to fx prices or divide signaling that it will be fairly permis- unfold. As the DOJ stated, each of markets. Regarding the vertical prac- sive with respect to all but the most these agreements will be reviewed tices in the Decrees, Assistant Attor- egregious forms of the practices under the rule of reason, meaning ney General Delrahim explained at previously deemed per se illegal. each will be looked at on a case-by- the American Bar Association’s 2019 On the other hand, the DOJ could case basis. Put differently, the spe- Antitrust Fall Forum that removing cifc facts and circumstances of the the ban on these practices does Time will tell how serious the agreements will dictate the outcome not mean that they “are now con- to any potential legal challenge. DOJ was when they claimed the sidered per se lawful under the anti- Time will tell how serious the DOJ trust laws.” See DOJ Offce of Public termination of the Decrees does was when they claimed the termina- Affairs, Assistant Attorney General not mean antitrust enforcement tion of the Decrees does not mean Makan Delrahim Delivers Remarks would disappear from the verti- antitrust enforcement would disap- at ABA’s 2019 Antitrust Fall Forum cal agreements at issue in the pear from the vertical agreements (Nov. 18, 2019). Instead, he wants the at issue in the Decrees. In any event, Decrees. DOJ to “review the vertical practices however, practitioners in this space initially prohibited by the [Decrees] choose to aggressively challenge would be wise to brush up on ver- using the rule of reason.” Id. Thus, any formerly prohibited vertical tical price restraint rule of reason if there is “credible evidence” that agreement that takes effect once the precedent, as the door will soon be shows “a practice harms consumer Decrees are formally terminated. The open for challenges to the vertical welfare, antitrust enforcers remain latter approach may fall in line with agreements that were previously per ready to act.” Id. the DOJ’s current practice. That is, se unlawful under the Decrees. Assistant Attorney General Del- the DOJ has become increasingly rahim seems to be adopting the interventionist, and continue to fle approach affrmed by the Supreme amicus briefs in a variety of cases. Court and contemporary antitrust This interventionist stance demon- thought that the vertical agreements strates that they may want to take like the ones in the Decrees are not a leadership role in how the vertical per se illegal and are subject to the practices at issue in the Decrees will rule of reason. Specifcally, in Leegin get reviewed once enacted. Creative Leather Prod. v. PSKS, the Conclusion Supreme Court held that minimum resale price maintenance agreements Ultimately, we are unlikely to see Reprinted with permission from the December 10, 2019 edition of the NEW are not per se illegal and must be any drastic, immediate changes to YORK LAW JOURNAL © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, analyzed under the rule of reason. the movie industry as a result of the contact 877-257-3382 or [email protected]. # NYLJ-12102019-429318