Orson, Inc., owned and operated the Roxy, a movie theater located in downtown Center City, Philadelphia, from January 1992 until the permanent closing of the theater in October 1994. The Roxy exhibited art films-as opposed to movies that may be characterized as mainstream-on two screens. The total seating capacity at the Roxy was 260. The Ritz theaters, which competed with the Roxy in the showing of art films in the Center City area, consisted of two five-screen facilities with a total seating capacity of approximately 1,800. The ticket prices at the Roxy and at the Ritz theaters (referred to collectively as "the Ritz") were essentially the same. In addition to the Roxy and the Ritz, there were six other Center City area theaters that showed art films at least part of the time. Miramax Film Corp., a nationwide distributor of feature-length motion pictures (including art films), distributed movies to all of the theaters in Center City and elsewhere in the greater metropolitan Philadelphia area. Miramax licensed films for exhibition for a limited period of time. Consistent with the usual practice in the motion picture industry, these licenses normally were exclusive- meaning that during the time period established in the license, the film would not be licensed to other theaters located in a specified area. Such licenses, called clearances, contained compensation terms entitling Miramax to a portion of the exhibiting theater's box office gross. In the motion picture industry, a first run is the initial exhibition of a film in a given geographic area. A subsequent run is an exhibition of that film in the same geographic area after the first run has expired. Between January 1992 and February 1994 (when discovery ended in the lawsuit described below), Miramax licensed 28 films on a first-run basis, as well as one on a subsequent-run basis, to the Ritz. During the same time period, Miramax granted the Roxy one first-run license and 14 subsequent-run licenses, and issued various first-run licenses to Center City area theaters other than the Roxy and the Ritz. In addition, during the same time period, 59 distributors other than Miramax granted a total of 73 first-run licenses to the Roxy. All of the first-run licenses Miramax granted to the Ritz were exclusive in nature. On occasion, Orson sought a first-run nonexclusive license on a Miramax film and indicated that Orson would offer Miramax a higher percentage of the Roxy's box office receipts than the percentage the Ritz would pay. Nevertheless, Miramax did not grant Orson the licenses it had requested for the Roxy. Orson sued Miramax in August 1993, alleging that it had violated § 1 of the Sherman Act by conspiring with the Ritz to exclude the Roxy from the art film market. According to Orson's complaint, this conspiracy involved an agreement to (1) make the Ritz Miramax's exclusive Philadelphia exhibitor for first run art film features, and (2) grant the Ritz exclusive first-run rights to any Miramax film the Ritz wished to exhibit. The district court concluded that rule of reason analysis was appropriate because the supposed agreement between Miramax and the Ritz was "clearly a vertical agreement" between a distributor and an exhibitor. After undertaking such an analysis, the district court granted summary judgment in favor of Miramax. Orson appealed to the U.S. Court of Appeals for the Third Circuit. Was rule of reason treatment appropriate in this case? Did the trial court rule correctly in granting summary judgment to Miramax?
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