United States v. Syufy Enterprises Raymond J. Syufy
1990 U.S. App. LEXIS 7396, 1990 WL 58643, 903 F.2d 659 (1990)
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Rule of Law:
Monopoly power under antitrust law requires the ability to control prices or exclude competition, and a high market share alone is insufficient to establish such power where there are no significant barriers to entry that prevent new competitors from entering the market.
Facts:
- In 1981, Raymond Syufy (Syufy) entered the Las Vegas movie market by opening a six-screen theatre, which led to a fierce bidding war for film licenses.
- By 1982, two of Syufy's rivals, Mann Theatres and Plitt Theatres, sold their Las Vegas operations to Syufy.
- In October 1984, Syufy acquired Cragin Industries' 11-screen Redrock Theatre, his largest remaining competitor, leaving Roberts Company as Syufy’s only competitor for first-run films and giving Syufy a temporary 100% share of the first-run film market in Las Vegas.
- Later in October 1984, Orion, a major movie distributor, ceased doing business with Syufy after Syufy attempted to renege on large guarantees for the film 'The Cotton Club,' and instead began licensing all its first-run films to Roberts Company.
- Between 1985 and December 1986, Roberts Company expanded significantly, opening three multiplexes with six or more screens each, and grew its operations from 5 screens to 28, displaying a healthy portion of first-run films and directly competing with Syufy.
- By 1987, Roberts Company sold its theaters to United Artists, the largest theatre chain in the country, which continued to compete vigorously with Syufy.
- By the first quarter of 1988, Syufy’s exclusive exhibition rights to first-run films in Las Vegas dropped from 91% (in 1985) to 39%, and its share of gross box office receipts from first-run films fell from 93% (in 1985) to 75%.
Procedural Posture:
- The United States Department of Justice brought a civil antitrust action against Raymond Syufy and Syufy Enterprises in federal district court (Northern District of California), alleging monopolization and/or attempted monopolization under Section 2 of the Sherman Act and substantial lessening of competition by acquisition under Section 7 of the Clayton Act.
- After extensive discovery and an 8.5-day trial, the district court entered comprehensive findings of fact and conclusions of law, holding in favor of Syufy.
- The United States (Justice Department) appealed the district court's decision to the Ninth Circuit Court of Appeals.
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Issue:
Does a movie theater chain that acquires all its competitors in a local market, resulting in a temporary 100% market share, possess unlawful monopoly power under antitrust laws if there are no significant barriers to entry and it cannot control prices or exclude new competitors?
Opinions:
Majority - Kozinski, Circuit Judge
No, Syufy Enterprises did not possess unlawful monopoly power because there were no significant barriers to entry in the Las Vegas first-run film market, and Syufy consequently lacked the power to control prices or exclude competition. The court affirmed the district court's findings that Syufy did not possess monopoly power, which is defined as the power to exclude competition or control prices. The court emphasized that a high market share, while ordinarily raising an inference of monopoly power, does not do so in a market with low entry barriers, as new competitors will be lured in by any attempt to raise prices above competitive levels. The record overwhelmingly supported the district court's finding of no barriers to entry, evidenced by the successful and aggressive entry and expansion of Roberts Company, which later sold to United Artists, significantly eroding Syufy's market share and exclusive exhibition rights after the acquisitions. Furthermore, movie distributors uniformly testified that Syufy paid fair license fees, and Syufy's attempt to dictate terms to Orion resulted in Orion cutting off all business with Syufy, demonstrating a lack of power to control prices. The court concluded that antitrust laws protect competition, not competitors, and that efficient, vigorous, and aggressive competition is not the target of these laws.
Concurring - Quackenbush, District Judge
Yes, Syufy did not have monopoly power over first-run movie distributors, and the district court's findings were not clearly erroneous. However, the concurring judge disagreed with the implication that a finding of lack of barriers to entry mandates a finding of no monopoly power as a matter of law. Instead, the concurrence argued that while barriers to entry are an important factor, the analysis for monopoly power should also consider the extent of market share, the ability to maintain that share, the power to control prices, the capability of excluding competitors, and the alleged monopolist's intent. The concurrence cited Supreme Court cases like Standard Oil and FTC v. Proctor & Gamble, which found monopolies with less than 100% market share and implied the existence of other competitors. The concurrence also disagreed with the majority's characterization of Syufy as a 'paper tiger' and the criticism of the Justice Department's lawsuit, noting Syufy's prior finding of monopolization in San Jose and the initial 100% market share in Las Vegas as valid reasons for the government's action.
Analysis:
This case significantly reinforces the principle that high market share, even approaching 100% temporarily, does not automatically equate to unlawful monopoly power under Section 2 of the Sherman Act if the market is characterized by low barriers to entry. It shifts the focus from static market share analysis to a dynamic assessment of market forces, particularly the ease with which new competitors can enter and constrain an incumbent's power. The decision emphasizes that antitrust laws protect the process of competition itself, not individual competitors, and distinguishes between aggressive, efficient business practices and truly anticompetitive conduct. This approach can make it more challenging for plaintiffs to prove monopolization in markets with fluid entry conditions, even after significant consolidation.
