Owner of Las Vegas Movie Houses Wins Landmark Lawsuit

A San Francisco company’s aggressive buyout of Las Vegas movie theater competitors did not violate antitrust laws because--whatever its intentions--its actions could not keep others out of the market, the U.S. 9th Circuit Court of Appeals ruled Wednesday in a major antitrust decision.

The unanimous decision arose in a case the Justice Department brought against Raymond J. Syufy, a San Francisco-based theater owner, after his company, Syufy Enterprises, bought out the theaters of all his first-run competitors in Las Vegas between 1982 and 1984.

Evidence introduced at trial showed that even though Syufy garnered 100% of the market for a time, there was still plenty of opportunity for other entrepreneurs to enter the field, and they, in turn, quickly grabbed a significant chunk of his market.

By the end of 1987, Syufy’s exclusive exhibition rights dropped to 36% of the market, and his share of box office receipts dropped to 75%.

Appeals Court Judge Alex Kozinski conceded that this is still a large market share, but he added, “The antitrust laws do not require that rivals compete in a dead heat, only that neither is unfairly kept from doing his personal best.”

Kozinski, in an unusually humorous opinion, chided the government for asserting that Syufy, “a regional entrepreneur,” had established power over such major movie companies as Columbia, Paramount and 20th Century Fox.

The government, Kozinski wrote, was trying to rescue a “platoon of Goliaths from a single David.”

He noted that the Justice Department had conceded that Las Vegas moviegoers had not been injured by Syufy’s conduct because box office prices were not driven up: “The movie tickets, popcorn, nuts and the 7-Ups cost about the same in Las Vegas as in other comparable markets.” Kozinski also stressed that large movie companies testified at trial that Syufy was unable to dictate prices to them.

“The decision holds that a program of acquiring competitors doesn’t necessarily violate the antitrust laws,” said Max Blecher, a Los Angeles lawyer who represented Syufy.

Blecher, one of the country’s leading antitrust lawyers, said the decision represents “an articulate departure” from the reasoning of past antitrust decisions in that it is based on what has happened in the marketplace, rather than on the intent of the alleged law violator.

Both Blecher and several law professors said that courts had moved away from the theory espoused by Judge Learned Hand in a landmark 1945 case that there is an inherent benefit in having a number of small competitors in any field.

The decision “will turn out to be a significant precedent in years to come,” said William F. Baxter, a Stanford Law School professor who is an antitrust specialist.

The case started when the Justice Department filed a civil suit against Syufy seeking to force him to sell theaters he had purchased from Mann Theatres, Plitt Theatres and Cragin Theatres. Syufy, a veteran film exhibitor, owns 326 screens in five Western states, including California.

Syufy’s move into Las Vegas precipitated a bidding battle that resulted in Las Vegas theaters paying some of the highest licensing fees in the country for the right to show films.

Kozinski said Syufy, while highly successful in Las Vegas, had never been able to squeeze film distributors to get better prices. In fact, Syufy lost the opportunity to show several money-making Orion films after he got cold feet about showing “The Cotton Club” and Orion sued him for breach of contract and awarded exhibition rights to Roberts theaters, which previously had shown only second-run films.

The judge, a movie buff, referred to about 200 films in his 25-page opinion. As a result of the dispute with Orion, Syufy lost the chance to show “Robocop,” “Platoon,” “Hannah and Her Sisters,” “Amadeus” and “Bull Durham,” said the judge, adding, “and the unforgettable ‘Throw Mama From the Train.’ ”

Kozinski, a 1985 appointee of President Ronald Reagan, is an apostle of free market economics. Wednesday’s decision strongly reflected those views.

“In a competitive market, buying out competitors is not merely permissible, it contributes to market stability and promotes the efficient allocation of resources,” Kozinski wrote. “The fact is, a relentless growing competitor is frequently the most logical buyer of a business that is declining.

“For competitors in a free market to fear buying each other out lest they be hit with the expense and misery of an antitrust enforcement action amounts to a burden only slightly less palpable than direct governmental prohibition against such a purchase. In a free enterprise system decisions such as these should be made by market actors responding to market forces, not by government bureaucrats pursuing their notions of how the market should operate.

“Personal initiative, not government control, is the fountainhead of progress in a capitalist economy,” he concluded.

Kozinski took the unusual step of lambasting the Justice Department for bringing the suit: “It is a tribute to the state of competition in America that the Antitrust Division of the Department of Justice has no worthier target than this paper tiger on which to expend limited taxpayer resources.”

“It seems to me that Judge Kozinski was right on the money,” said Wesley J. Liebeler, a UCLA law professor and antitrust specialist. The decision said “you have to take account of potential entrants” in defining a market, Liebeler said.