Regal Entertainment Group v. IPIC-Gold Class Entertainment, LLC and IPIC Texas, LLC ( 2016 )

Opinion issued September 29, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-16-00102-CV
———————————
REGAL ENTERTAINMENT GROUP, Appellant
V.
IPIC-GOLD CLASS ENTERTAINMENT, LLC AND IPIC TEXAS, LLC
Appellees
On Appeal from the 234th District Court
Harris County, Texas
Trial Court Case No. 2015-68745
OPINION
iPic-Gold Class Entertainment, LLC and iPic Texas, LLC (iPic), a boutique
upscale movie theater chain, sued Regal Entertainment Group and AMC, two large
theater chains, for alleged violations of Texas antitrust law. iPic alleges that Regal
violated the Texas Free Enterprise and Antitrust Act by requesting from major film
distributors a “clearance” for its Greenway Grand Palace 24 theater located near the
iPic Houston theater. In other words, Regal told major film distributors that the 24-
screen, 5,000-seat Greenway would not play first-run films simultaneously, or “day-
and-date”, with the nearby 8-screen, 578-seat iPic Houston. This, according to iPic,
harms competition by preventing the iPic Houston from licensing films shown at the
Greenway to play at the same time at the iPic Houston, thereby diminishing the
quality of the iPic Houston’s product. iPic sought temporary injunctive relief, and
the trial court entered a temporary injunction prohibiting Regal from requesting from
any film distributor the right to exhibit films to the exclusion of iPic Houston.
On appeal, Regal argues that the trial court abused its discretion by entering
the temporary injunction because iPic did not demonstrate (1) a probable right to
relief on its claims or (2) probable, imminent, and irreparable injury. We affirm.
Background
iPic Houston opens and sues
In November 2015, iPic opened a new 8-screen, 578-seat theater near River
Oaks, an upscale Houston neighborhood. According to iPic’s CEO, Hamid
Hashemi, and other iPic witnesses who testified at the temporary injunction hearing,
iPic offers a different product—a “premium experience”—to moviegoers. Hashemi
testified that iPic Houston boasts several amenities that are unavailable at Regal’s
nearby Greenway and other major megaplexes: reserved “pod” seating in leather
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reclining seats, blankets, pillows, free popcorn, and wait service for those who order
from iPic’s full bar or from its food menu designed by a James Beard-award-winning
chef. Hashemi also testified that the iPic experience carries a heftier price tag: iPic
Houston’s top ticket price is $28, while the Greenway’s highest ticket price is in the
range of $11.50.
iPic sued Regal and AMC during iPic Houston’s opening month, alleging
(1) unlawful restraint of trade under section 15.05(a) of the Texas Free Enterprise
and Antitrust Act, (2) monopolization and attempted monopolization under section
15.05(b), and (3) tortious interference with contracts and business relationships.
According to iPic’s petition, in July 2014, more than a year before iPic Houston
opened, Regal informed six major film distributors that Regal’s Greenway theater,
which is 1.4 miles from iPic Houston, would be “clearing” iPic Houston, meaning
that Regal would not license a film to play at the Greenway if the distributor licensed
the film to play simultaneously, or “day-and-date,” at iPic Houston.
According to iPic, Regal’s clearance request forces film distributors to choose
between licensing a film to iPic Houston or the nearby Greenway, owned by Regal,
contrary to distributors’ ordinary incentive, which is to license films to play on the
maximum number of screens possible. iPic also alleges that, as the country’s largest
movie exhibitor, Regal has the market power to force distributors to honor its
clearance request. According to iPic’s petition, Regal’s clearance request not only
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harms iPic but also the market for premium exhibition of first-run films by reducing
the number of films that iPic Houston exhibits and thereby diminishing consumer
choice in the premium movie exhibition market. iPic also alleges that iPic Houston
cannot survive without access to the first-run films that form a core part of its
product. iPic’s petition requested temporary and permanent injunctions prohibiting
Regal and AMC from clearing the iPic theaters in their respective areas and from
conspiring with each other to do the same.1
Temporary injunction hearing
iPic executive Clark Woods testified that he learned about Regal’s clearance
request in July 2014. According to Woods, Regal called six major distributors to
inform them that its Greenway theater would not play films day-and-date with iPic
Houston. The films distributed by these six distributors account for 90% of box
office revenues. Woods testified that these distributors responded in different
ways—three offered their films to both the Greenway and iPic Houston
notwithstanding the request, while the other three effectively honored the request by
1
iPic’s petition alleges that AMC contacted the same six distributors and informed
them that AMC’s megaplex in Frisco, Texas would be clearing iPic’s planned
theater in Frisco. iPic alleges, based on the timing of Regal and AMC’s
communications with distributors, that Regal and AMC conspired to drive iPic
theaters out of business. These allegations notwithstanding, the temporary
injunction does not mention AMC, and AMC is not a party to this appeal.
Accordingly, we confine our analysis to the claims asserted against Regal.
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“allocating” their films between the Greenway and iPic Houston.2 Woods testified
that the allocating distributors reported that they were allocating to avoid having
Regal “boycott” or refuse to play their films at the Greenway.
Woods testified that Regal’s clearance harms consumers as well as itself.
According to Woods, iPic had been able to license every film it wanted at its other
12 theaters, but was unable to license some films in Houston due to Regal’s clearance
request. Houston consumers are therefore unable to see certain films in a premium
theater setting.
Woods and iPic’s CEO, Hamid Hashemi, who also testified at the hearing,
emphasized that iPic Houston and the Greenway are different types of theaters with
different markets. In addition to highlighting iPic’s upscale amenities, both
compared the theaters’ ticket prices: Woods testified that the average price of an
iPic ticket is $21 to $28, while the average ticket price at a mainstream megaplex is
$9. They also testified that iPic attracts older consumers, who do not patronize
mainstream theaters and can more easily absorb the higher cost of iPic tickets. The
upshot of these differences is that the Greenway and iPic Houston offer different
products and do not substantially compete with each another. iPic’s consultant on
clearances, Paul Springer, echoed these themes, testifying that the two theaters do
2
Allocation is the process by which distributors choose, in the context of a clearance,
to license some films to one theater and other films to the other.
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not substantially compete. iPic’s antitrust expert, Frederick Warren-Bolton,
likewise testified that the percentage of people who view the Greenway and the iPic
Houston as interchangeable is “de minimis” and “the crossover is very, very small.”
Warren-Boulton also testified about other factors to be considered under the rule of
reason. He testified that Regal has market power in the relevant geographic market
sufficient to harm competition and that Regal’s clearance has, in fact, harmed
competition. Warren-Boulton testified that Regal’s clearance reduced distributors’
revenue. In particular, he pointed to an email in which Regal told distributors that
allocating certain films to iPic Houston “resulted in significant revenue loss for both
distribution and Regal.” Warren-Boulton also testified that consumers are harmed
if they cannot see a film at iPic Houston, because the moviegoing experience at the
Greenway is not a “close substitute[].”
With respect to iPic Houston’s damages, iPic presented the testimony of
Hashemi to the effect that there is “no way . . . to measure what [iPic’s] losses are,”
because there is no way to know how many customers would have seen movies that
iPic Houston was unable to show, and no way to measure how many customers iPic
would not be able to “bring . . . back” once its reputation has been damaged.
Regal also presented evidence at the hearing. Amy Miles, its CEO, testified
that the Greenway/iPic Houston clearance is consistent with Regal’s nationwide
policy, which is to clear any competing theaters within three miles of a Regal theater,
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even if it is another Regal-owned theater. Miles testified that there are 70 Regal
theater clearance zones nationwide, although the others are mutually agreed. Miles
testified that clearances yield pro-competitive benefits: they increase film supply
and ensure that different films get played.
Michael Viane, Regal’s senior vice-president and head film-buyer, likewise
testified that clearance zones result in the exhibition of a greater diversity of films
and the exhibition of films for longer periods of time. Viane discounted the notion
that iPic Houston had been harmed by the Greenway/iPic Houston clearance: he
testified that iPic Houston licensed several high-performing films that were not
licensed to the Greenway in the two months iPic Houston was open before the
temporary injunction was entered. Viane cited Star Wars: The Force Awakens and
Spectre, two box office hits, as examples of films that played at iPic Houston and
not the Greenway.
Regal presented two expert witnesses. Mark Israel, a competition economist,
opined that Regal’s conduct was not anticompetitive and does not render iPic
Houston incapable of competing for films or customers. His analysis showed that
the Greenway lacks sufficient market power to exclude iPic Houston from the
market for film licenses, as evidenced by the fact that the iPic Houston has licensed
multiple sought-after box office hits and become one of the top performing iPic
theaters in the country despite the clearance.
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Rajiv Gokhale addressed harm, echoing Viane’s testimony that iPic Houston
had not suffered any harm from Regal’s clearance request. Gokhale pointed out that
iPic Houston was performing above iPic expectations and ranked second among all
iPic theaters in dollar amount of box office gross per theater, third in gross per
screen, and fourth in gross per seat. Gokhale also testified that harm to iPic, if any,
could be quantified through the use of financial models, particularly with the
additional financial data that would become available before trial.
At the close of the hearing, the trial court orally granted the temporary
injunction. The trial court’s written temporary injunction order, among other things,
prohibited Regal from:
directly or indirectly, demanding or requesting exclusive film licenses
or the right to exhibit films from any studio to the exclusion of [iPic’s]
Houston theater; indicating to a studio that such defendant will refuse
to play a film at any of its theaters if the studio licenses the film for
exhibition at the iPic Houston, or carrying out such refusal[.]
Regal appealed.
Standard of Review
To obtain a temporary injunction, the applicant must plead and prove: (1) a
cause of action against the defendant; (2) a probable right to the relief sought; and
(3) a probable, imminent, and irreparable injury in the interim. Butnaru v. Ford
Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); TMC Worldwide, L.P. v. Gray, 178
S.W.3d 29, 36 (Tex. App.—Houston [1st Dist.] 2005, no pet.). The decision to grant
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or deny a temporary injunction lies in the sound discretion of the trial court, and the
court’s ruling is subject to reversal only for a clear abuse of discretion. Butnaru, 84
S.W.3d at 204. “Our review of the trial court’s decision is limited to the validity of
its temporary injunction order; we do not consider the merits of the underlying case.”
Intercontinental Terminals v. Vopak N. Am., Inc., 354 S.W.3d 887, 892 (Tex. App.—
Houston [1st Dist.] 2011, no pet.).
“Probable right to relief” is a term of art in the injunction context. Id. at 897.
“To show a probable right to recover, an applicant need not show that it will prevail
at trial. Nor does a finding of probable right of recovery indicate a trial court’s
evaluation of the probability that the applicant will prevail at trial.” Id. (citing
Butnaru, 84 S.W.3d at 211 (demonstrating probable right to relief does not require
establishing that applicant will prevail on final trial)); see DeSantis v. Wackenhut
Corp., 793 S.W.2d 670, 686 (Tex. 1990) (injunction plaintiff “need not establish the
correctness of his claim to obtain temporary relief”).
“Instead, to show a probable right of recovery, the applicant must plead a
cause of action and present some evidence that tends to sustain it,” meaning that
“[t]he evidence must be sufficient to raise a bona fide issue as to the applicant’s right
to ultimate relief.” Intercontinental Terminals, 354 S.W.3d at 897 (first citing Camp
v. Shannon, 348 S.W.2d 517, 519 (Tex. 1961), then citing T–N–T Motorsports, Inc.
v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 23–24 (Tex. App.—Houston [1st
9
Dist.] 1998, pet. dism’d), then citing 183/620 Group Joint Venture v. SPF Joint
Venture, 765 S.W.2d 901, 904 (Tex. App.—Austin 1989, writ dism’d w.o.j.))
(internal quotations omitted). Because the entry of a temporary injunction does not
indicate that the applicant will prevail at trial, the applicant who obtains one must
post a bond “to protect the defendant from the harm he may sustain as a result of
temporary relief granted upon the reduced showing required of the injunction
plaintiff, pending full consideration of all issues.” DeSantis, 793 S.W.2d at 686; see
TEX. R. CIV. P. 684 (temporary injunction applicant must file bond payable to
adverse party in event injunction dissolved).
In reviewing an order granting or denying a temporary injunction, we draw all
legitimate inferences from the evidence in a manner most favorable to the trial
court’s order. See Butnaru, 84 S.W.3d at 204; Gray, 178 S.W.3d at 36 (citing CRC–
Evans Pipeline Int’l v. Myers, 927 S.W.2d 259, 262 (Tex. App.—Houston [1st Dist.]
1996, no writ)). A trial court does not abuse its discretion if it heard conflicting
evidence, and evidence appears in the record that reasonably supports the trial
court’s decision. Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978); see Unifund
CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex. 2009).
When reviewing a temporary injunction where findings of fact were not
requested or filed, we imply all findings that would support the trial court’s order
unless there is no evidence to support such a finding and affirm if the order can be
10
upheld on any legal theory that finds support in the evidence. See BMC Software
Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). If the judgment can be
upheld on any legal theory supported by the evidence, “[w]e must uphold the
judgment regardless of whether the trial court articulates the correct legal reason for
the judgment.” Conseco Fin. Servicing Corp. v. J & J Mobile Homes, Inc., 120
S.W.3d 878, 880–81 (Tex. App.—Fort Worth 2003, pet. denied).
Applicable Law
The Texas Free Enterprise and Antitrust Act of 1983 provides that “[e]very
contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”
TEX. BUS. & COM. CODE § 15.05(a). The purpose of the Act is to maintain and
promote competition in trade and commerce within Texas and to provide the benefits
of that competition to Texas consumers. Id. § 15.04. We construe the Act “in
harmony with federal judicial interpretations of comparable federal antitrust statutes
to the extent consistent with this purpose.” Id.; see also Coca-Cola Co. v. Harmar
Bottling Co., 218 S.W.3d 671, 688–89 (Tex. 2006). Texas caselaw applying the Act
is limited, and, accordingly, we rely heavily on the jurisprudence of the federal
courts applying the Sherman Antitrust Act. Harmar Bottling, 218 S.W.3d at 688–
89; see DeSantis, 793 S.W.2d at 687 (Texas courts do not write on a clean slate but
rather look to federal judicial interpretations of section 1 of Sherman Act in applying
section 15.05(a) of our state antitrust law); see also 15 U.S.C. § 1 (declaring
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illegal“[e]very contract, combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States. . . .”).
The Texas Free Enterprise and Antitrust Act does not prohibit all restraints of
trade; it prohibits only unreasonable restraints of trade that have an adverse effect on
competition in the relevant market. Winston v. Am. Med. Int’l, 930 S.W.2d 945,
951–52 (Tex. App.—Houston [1st Dist.] 1996, writ denied); see also Business Elecs.
Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723, 108 S. Ct. 1515, 1519 (1988). When
the allegedly anticompetitive conduct is a vertical nonprice restraint, such as a
clearance, we evaluate it under the rule of reason. Business Elecs. Corp., 485 U.S.
at 723; see also Red Wing Shoe Co., Inc. v. Shearer’s, Inc., 769 S.W.2d 339, 343
(Tex. App.—Houston [1st Dist.] 1989, no pet.) (vertical nonprice restraints are
evaluated under rule of reason); Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358,
1371 (3rd Cir. 1996) (clearances are vertical, nonprice restraints evaluated under rule
of reason); Cobb Theatres III, LLC v. AMC Entmt. Holdings, Inc., 101 F. Supp. 3d
1319, 1332 (N.D. Ga. 2015) (alleged clearance agreement between premium theater
and distributor is vertical agreement scrutinized under rule of reason).
To establish a violation of section 15.05(a) of the Act under the rule of reason,
a plaintiff must show (1) a contract, combination, or conspiracy (2) that had an
adverse effect on competition (3) in a relevant market. See Business Elecs., 485 U.S.
at 723, 108 S. Ct. at 1518–19; DeSantis, 793 S.W.2d at 687. To prove a contract,
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combination, or conspiracy in restraint of trade, the plaintiff must show some kind
of “common design and understanding, or a meeting of minds in an unlawful
arrangement.” Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Assn.,
776 F.3d 321, 330 (5th Cir. 2015) (citing Am. Tobacco Co. v. United States, 328
U.S. 781, 810, 66 S. Ct. 1125, 1139 (1946)); see also Monsanto Co. v. Spray–Rite
Serv. Corp., 465 U.S. 752, 761, 104 S. Ct. 1464, 1469 (1984). And a plaintiff may
demonstrate the existence of a conspiracy with evidence that a party took action
based upon the antitrust defendant’s economic threat. See Abraham & Veneklasen,
776 F.3d at 330; Spectators’ Commc’n Network Inc. v. Colonial Country Club, 253
F.3d 215, 221 (5th Cir. 2001) (antitrust law “implicitly recognizes that an integral
part of a boycott is often bringing pressure to bear (‘persuading or coercing’) on
other participants who have no direct motive to restrain trade”).
To prove that competition in the relevant market was adversely affected, a
plaintiff must define the relevant market—which has both geographic and product
components—and prove that a defendant has market power in that market. See
Business Elecs., 485 U.S. at 725, 108 S. Ct. at 1520; Jacobs v. Tempur–Pedic Int’l,
Inc., 626 F.3d 1327, 1336 (11th Cir. 2010); Apani Sw., Inc. v. Coca-Cola Enters.,
Inc., 300 F.3d 620, 625–26 (5th Cir. 2002); Cobb Theatres, 101 F. Supp. 3d at 1335;
DeSantis, 793 S.W.2d at 688. The relevant product market is “determined by the
availability of substitutes to which consumers can turn in response to price increases
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and other existing or potential producer’s ability to expand output.” Cobb Theatres,
101 F. Supp. 3d at 1336 (citing L.A. Draper & Son v. Wheelabrator–Frye, Inc., 735
F.2d 414, 423 (11th Cir. 1984)). The relevant geographic market is defined as the
area in which consumers may obtain a given product. Apani, 300 F.3d at 625; Cobb
Theatres, 101 F. Supp. 3d at 1336 (citing L.A. Draper, 735 F.2d at 423). The
parameters of the geographic and product markets are questions of fact. Cobb
Theatres, 101 F. Supp. 3d at 1335 (citing Thompson v. Metro. Multi–List, Inc., 934
F.2d 1566, 1573 (11th Cir. 1991)).
When determining whether two products are in the same product market, the
factfinder should consider cross-elasticity on both the demand side—the degree to
which consumers consider the products to be substitutes—and the supply side—how
easily and costlessly a party can sell the same product as the other. See Rebel Oil
Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1436 (9th Cir. 1995); see also IIB Phillip
E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 561, at 378 (4th ed. 2014) (“Two
products . . . are in the same relevant market if substitutability at the competitive
price is very high as measured from either the demand side or the supply side.”).
The factfinder considers “the uses to which the product is put by consumers in
general,” Jacobs, 626 F.3d at 1337, and gives “special consideration ‘to evidence of
the cross-elasticity of demand and reasonable substitutability of the products . . . .”
Cobb Theatres, 101 F. Supp. 3d at 1336 (quoting Jacobs, 626 F.3d at 1337–38); see
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Apani, 300 F.3d at 626 (in ascertaining relevant product market, factfinder considers
extent to which seller’s product is interchangeable in use and degree of cross-
elasticity of demand between product and substitutes).
To satisfy the rule of reason, “[t]here must be evidence of ‘demonstrable
economic effect,’ not just an inference of possible effect.” Harmar Bottling, 218
S.W.3d at 689 (quoting Business Elecs., 485 U.S. at 724, 108 S. Ct. at 1519). And
the rule of reason condemns only those restraints that actually have an adverse effect
on competition in a market, as opposed to merely hurting a competitor. National
Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 688, 98 S. Ct. 1355, 1363
(1978). In other words, a plaintiff cannot demonstrate the unreasonableness of a
restraint merely by showing that it caused him an economic injury. Oksanen v. Page
Mem’l Hosp., 945 F.2d 696, 709 (4th Cir. 1991); see Marlin v. Robertson, 307
S.W.3d 418, 425 (Tex. App.—San Antonio 2009, no pet.). But an antitrust plaintiff
may satisfy his burden to show an adverse effect on competition “by proving the
existence of actual anticompetitive effects, such as reduction of output, increase in
price, or deterioration in quality of goods and services.” Orson, 79 F.3d at 1367.
Analysis
A. “Substantial competition” does not displace rule of reason
We address first Regal’s contention that the trial court erroneously
disregarded the rule of reason and granted injunctive relief solely on the basis of its
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oral finding that the Greenway and the iPic Houston are not in “substantial
competition.” In United States v. Paramount Pictures, 334 U.S. 131, 68 S. Ct. 915
(1948), the United States Supreme Court recognized that a clearance could be a
lawful means to protect an exhibitor’s investment in a film license if the clearance
was not “unduly extended as to area or duration,” and affirmed the injunction of a
clearance between two theaters that were not in “substantial competition” where the
clearance lacked relation to competitive factors which could justify it. 334 U.S. at
146–47, 68 S. Ct. at 924. Since Paramount, courts evaluating clearances have
considered whether theaters are in “substantial competition” as part of the rule of
reason analysis. See, e.g., Orson, 79 F.3d at 1371–72 (first determining that theaters
were in “substantial competition” and then analyzing competitive effects of
clearance); Theee Movies v. Pacific Theatres, Inc., 828 F.2d 1395, 1399 (9th Cir.
1987) (analyzing clearance under rule of reason and noting “[c]ourts have found
clearances in particular to be reasonable restraints of trade . . . when the theaters are
in substantial competition”); Cobb Theatres, 101 F. Supp. 3d at 1333 (courts
evaluating clearances consider whether theaters are in “substantial competition” and
clearance’s positive and negative effects on competition).
Whether theaters are in substantial competition turns on whether they sell a
reasonably interchangeable product in the same geographic area. See Theee Movies,
828 F.2d at 1399 (noting district court properly found two theaters to be in
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substantial competition where they were “located on the same major thoroughfare
only a short distance apart,” and drew patrons from the same area); Orson, 79 F.3d
at 1365 (two “art house” theaters located in Center City Philadelphia were in
“substantial competition”). Thus, although a “substantial competition” inquiry
cannot displace a rule of reason analysis, the factors that determine whether
substantial competition exists are necessarily considered in evaluating a clearance
under the rule of reason. See Orson, 79 F.3d at 1372; Theee Movies, 828 F.2d at
1399; Cobb Theatres, 101 F. Supp. 3d at 1334. Accordingly, the trial court did not
err in considering, as part of its rule of reason analysis, whether iPic Houston and
the Greenway are in substantial competition.
Additionally, even if, as Regal argues, the trial court applied an incorrect
standard or misplaced the burden of proof, the applicable standard of review requires
us to uphold the trial court’s order if the record supports upholding it under the
correct legal theory. See BMC Software, 83 S.W.3d at 795. We therefore turn to
whether the trial court could have found iPic had a probable right to relief on each
element of its restraint-of-trade claim under the proper legal standard, the rule of
reason.
B. Probable right to relief on restraint-of-trade claim under rule of reason
In its first issue, Regal contends that the trial court erred in entering the
temporary injunction because iPic did not demonstrate a probable right to relief on
17
its unlawful restraint-of-trade claim under the correct legal standard, the rule of
reason. In particular, Regal argues that iPic did not adduce sufficient evidence to
support findings of (1) a contract, combination, or conspiracy (2) having an adverse
effect on competition (3) in a relevant market. We address each of these elements
in turn.
1. Contract, combination, or conspiracy
The evidence at the temporary injunction hearing showed that, before iPic
Houston opened, Regal contacted six major film distributors to request a
Greenway/iPic Houston clearance. Three responded by allocating films between the
two theaters, licensing some films only to the iPic Houston and others only to the
Greenway. iPic executives, Hashemi and Woods, testified that these allocating
distributors told iPic they would have licensed films to the iPic Houston but for
Regal’s clearance request.
Although the other three distributors did not allocate, and instead offered to
license films to both theaters, Regal declined to have the Greenway exhibit any film
these distributors licensed to the iPic Houston. And there was evidence that Regal
pointed out to these distributors that licensing films to the iPic Houston and not the
Greenway was costing the distributors revenue.
Regal contends that this evidence is “as consistent with permissible
competition as with illegal conspiracy” and thus, does not constitute evidence from
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which a conspiracy as opposed to independent conduct may be inferred. See
Abraham & Veneklasen, 776 F.3d at 330. In particular, Regal argues that the record
shows merely that it unilaterally requested a clearance and each distributor exercised
its own independent business judgment in determining whether to honor the request.
But antitrust law “implicitly recognizes that an integral part of a boycott is often
bringing pressure to bear (‘persuading or coercing’) on other participants who have
no direct motive to restrain trade.” Spectators’ Commc’n, 253 F.3d at 221.
Here, the evidence showed that film distributors were incentivized against
allocation, yet three allocated against their self-interest and reported to iPic that they
did so because of Regal’s request. Likewise, Regal’s costly decision not to have the
Greenway play Star Wars: The Force Awakens, because it was offered to iPic
Houston, was inconsistent with Regal’s self-interest. The evidence that Regal and
half of the major film distributors acted contrary to their self-interest is what permits
a rational inference of conspiracy or coercion as opposed to permissible independent
conduct. See Admiral Theater Corp. v. Douglas Theater Co., 585 F.2d 877, 884 (8th
Cir. 1978) (when conduct is inconsistent with self-interest of actors, were they acting
alone, agreement may be inferred solely from action); cf. Abraham & Veneklasen,
776 F.3d at 330 (reversing judgment based on jury verdict where evidence showed
that actors’ independent financial incentives and ethical concerns could have
motivated defendants’ conduct); see also Cobb Theatres, 101 F. Supp. 3d at 1331
19
(noting that most conspiracies are inferred from behavior of alleged conspirators and
denying motion to dismiss restraint-of-trade claim where premium theater alleged
that megaplex requested clearance, implicitly threatening economic harm if
distributors did not accede, and premium theater subsequently received fewer films).
Accordingly, we conclude that iPic adduced some evidence from which the
trial court could have inferred the existence of a conspiracy or coercion. See
Admiral Theater Corp., 585 F.2d at 884; Spectators’ Commc’n, 253 F.3d at 221;
Cobb Theatres, 101 F. Supp. 3d at 1331. Therefore, the trial court did not abuse its
discretion in impliedly finding that iPic raised a bona fide issue with respect to the
first element of its restraint-of-trade claim. Intercontinental Terminals, 354 S.W.3d
at 897 (to show probable right to relief, applicant must adduce evidence sufficient to
raise a bona fide issue as to applicant’s right to ultimate relief); Davis, 571 S.W.2d
at 862 (in reviewing temporary injunction, appellate court views evidence in light
most favorable to trial court’s resolution of conflicting evidence).
2. Relevant markets
a. The product markets
The parties agree that there is more than one relevant product market. They
also agree that they both participate in the first of these product markets—the market
for film licenses. In this market, both the Greenway and iPic Houston compete to
purchase film licenses from film distributors.
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The parties disagree and presented conflicting evidence about a second
relevant product market in which iPic Houston and Regal are sellers: the market for
film exhibition in which moviegoers are the buyers. Regal argues that the Greenway
and iPic Houston both operate in the same market—the market for first-run film
exhibition. For its part, iPic contends that it participates in a distinct first-run film
exhibition market—the market for premium exhibition of first-run films—to the
exclusion of the Greenway and megaplexes generally.
When determining whether two products are in the same market, the factfinder
should consider cross-elasticity on both the demand side and the supply side. See
Rebel Oil, 51 F3.d at 1436. In other words, the factfinder considers the extent to
which the products are interchangeable from the perspective of consumers. Id. It
also considers interchangeability from the supply side, asking how easily and
costlessly one party could sell the same product as the other. Id.; see also Apani,
300 F.3d at 626.
In support of its contention that the Greenway and iPic Houston compete in
the same first-run film exhibition market, Regal adduced evidence that an internal
iPic report prepared in advance of iPic Houston’s opening referenced the Greenway
and other Houston megaplexes as competitors. Regal also adduced evidence that
iPic parked a van advertising the iPic Houston in front of the Greenway to lure
Greenway patrons to the iPic Houston. Regal argues that the trial court should have
21
credited this evidence as demonstrating cross-elasticity in both supply and demand
between the Greenway and the iPic Houston and concluded that both theaters
participate in the same film exhibition market—the market for display of first-run
films. See Apani, 300 F.3d at 626; see also Rebel Oil, 51 F.3d at 1435 (“If consumers
view the products as substitutes, the products are part of the same market.”).
iPic’s witnesses testified that the iPic Houston offers a different product to
consumers than the Greenway—a luxury film-watching experience in which iPic’s
unique amenities are integral. iPic presented evidence that iPic Houston was the
only theater of its kind in Houston, targeting a different demographic, and charging
twice or more the price of the average ticket at the Greenway for its premium plus
seats, which comprise 60% of the total number of seats at iPic Houston.
With respect to cross-elasticity of demand, Warren-Boulton acknowledged
that some moviegoers might choose to go to either the Greenway or the iPic, but he
opined that they “are not close substitutes,” and the amount of consumers who treat
the two as interchangeable is “de minimis” because of the difference in both price
and quality of experience. See Apani, 300 F.3d at 626; Rebel Oil, 51 F.3d at 1435.
Regarding the supply side, Hashemi testified that iPic invested over $10 million in
the build-out of iPic Houston, which included the construction of the pod seating
and a full kitchen and bar. iPic also invested a significant sum in the training of over
200 employees to operate the theater and its bar and food service. And Miles
22
acknowledged that converting a mainstream theater to one with VIP amenities was
costly. See Rebel Oil, 51 F.3d at 1436 (cross-elasticity of supply is shown when
sellers can readily, with ease and low cost, switch to selling what other is selling).
Thus, although the parties adduced conflicting evidence, there was some
evidence that the trial court could have credited to conclude that the two theaters
offer consumers distinct products that are not reasonably interchangeable from
consumers’ perspective. See FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1039
(D.C. Cir. 2008) (“premium natural and organic supermarkets” operate in distinct
product market where they target distinct customers paying distinct prices for a
particular shopping experience they found “uniquely attractive”); Hanover 3201
Realty, LLC v. Village Supermarkets, Inc., 806 F.3d 162, 183 (3d Cir. 2015) (full-
service supermarkets plausibly in distinct product market from traditional grocery
suppliers where they provide one-stop shopping experience including prepared
foods, on-site dining, wine and liquor, and specialty products not sold in traditional
grocery suppliers), cert. denied, 2016 WL 1046885 (2016)).
Likewise, there was some evidence that the trial court could have credited to
conclude that the theaters were not cross-elastic on the supply side. See Rebel Oil,
51 F.3d at 1436. Although the trial court could have credited either side’s evidence,
having found some evidence supporting the trial court’s implied fact-finding that the
Greenway and the iPic Houston participate in distinct first-run film exhibition
23
markets, i.e., that iPic Houston participates in the market for premium exhibition of
first-run films to the exclusion of the Greenway, we must defer to that finding on
appeal. See Davis, 571 S.W.2d at 862 (appellate court defers to trial court’s
credibility judgments and resolution of conflicting evidence when reviewing
temporary injunction order); Cobb Theatres, 101 F. Supp. 3d at 1335 (citing
Thompson, 934 F.2d at 1573) (parameters of relevant product market is question of
fact).
b. The geographic market
Because we have concluded that iPic adduced some evidence to support a
finding that the two theaters operate in distinct first-run film exhibition product
markets, we next consider the geographic scope of the product market in which the
two theaters do compete and in which Regal allegedly used its power to harm
competition—the market for first-run film licenses.
Regal asserts that the geographic market for first-run film licensing is
coextensive with the first-run film exhibition market and far broader than the
Greenway zone, which is the area within a 3-mile radius of the Greenway.
Specifically, Regal points to its expert’s opinion that the geographic market for first-
run film exhibition spans 10 miles from the Greenway, as evidenced by proof that a
substantial percentage of moviegoers divert to theaters outside the Greenway zone
if the Greenway does not play a particular film. It argues that the trial court
24
disregarded its proof of eight other commercial first-run theaters within this larger
area. Regal asserts that when all theaters in this broader geographic market are
considered, the Greenway’s market share is only 12–16%, which is insufficient to
show market power.
For its part, iPic contends that a detailed inquiry into the geographic market
for film licenses is unnecessary because it demonstrated actual harm to competition.
See Toys “R” Us, Inc. v. F.T.C., 221 F.3d 928, 937 (7th Cir. 2000) (“The Supreme
Court has made it clear that there are two ways of proving market power. One is
through direct evidence of anticompetitive effects.”). Alternatively, iPic asserts that
it adduced sufficient evidence of a geographic market coextensive with the
Greenway zone, in which Greenway has only one competitor—iPic Houston—for
the purchase of film licenses.
iPic’s expert, Warren-Boulton, testified that the relevant market for film
licenses was “a very, very narrow small market” approximating the 3-mile
Greenway zone, although he acknowledged that the Greenway draws customers
from up to five to seven miles away. iPic also relies, in support of its proposed
geographic market, on the proof that Regal and AMC’s clearance policies extend
only to theaters in close proximity, within 3 miles. Finally, iPic points out that the
Greenway does not clear any theater other than the iPic Houston, and that no other
theater clears the Greenway or the iPic Houston. According to iPic, this evidence is
25
sufficient to show that no other theater impacts the Greenway’s or the iPic Houston’s
film licensing.
When determining the geographic market, the factfinder may consider
economic and physical barriers to expansion such as customer convenience and
preference. Cobb Theatres, 101 F. Supp. 3d at 1336. Markets involving services
that can only be offered from a particular location, such as theaters, are often defined
by how far consumers are willing to travel. Id. Regal proved that moviegoers
diverted to other megaplexes in substantial numbers when the Greenway did not
exhibit a film, but did not adduce evidence that such diversion indicates the existence
of competition between the Greenway and those megaplexes in the film licensing
market. iPic offered expert and other evidence to support a narrower geographic
market for film licenses than Regal posits. In short, although the parties offered
conflicting evidence, the trial court could have concluded that the geographic market
spans, roughly, an area contiguous with the 3-mile range iPic posited, with Regal’s
resulting market share being sufficient to bespeak market power. See id. (allegation
of geographic market consisting of “Buckhead-Brookhaven film licensing zone”
comprised of moviegoers who reside in or around Buckhead and Brookhaven
sufficient to withstand motion to dismiss despite defendants’ claim that market
should not be so narrowly drawn as to exclude various nearby theaters). Although
reasonable minds could reach different conclusions, because the record supports the
26
trial court’s implied finding of a properly defined geographic market, we do not
disturb the finding on appeal. Davis, 571 S.W.2d at 862 (appellate court defers to
trial court’s credibility judgments and resolution of conflicting evidence when
reviewing temporary injunction order); see also Butnaru, 84 S.W.3d at 204.
c. Market power
Regal argues that the trial court’s implied finding that Regal has market power
sufficient to harm competition is unsupported by the record because Regal held only
12–16% of the market share in the market for film licenses, and therefore lacked
power to inflict competitive harm. This assumes the trial court adopted Regal’s
definition of the relevant geographic market. iPic asserts that the decision by some
distributors to allocate films between the theaters is itself proof of Regal’s market
power sufficient to support the temporary injunction.
Market power may be shown in different ways, including by proof of power
to exclude competition. See Cohlmia v. St. John Med. Ctr., 693 F.3d 1269, 1282
(10th Cir. 2012) (proof of market power requires evidence of either power to control
prices or to exclude competition). Here, the evidence showed that the Greenway has
over 5,000 seats, outnumbering the iPic Houston’s seats by almost ten times. It is
undisputed that the Greenway’s relative size gives it the capacity to generate more
total revenue for distributors than the iPic. Viane, Regal’s head film-buyer, told the
27
distributors as much, emphasizing that distributors who licensed films to iPic
Houston instead of the Greenway lost revenue.
There was also evidence from which the trial court could conclude that
Regal’s clearance request was the but-for cause of the allocating distributors’
decisions not to license films to iPic Houston—iPic witnesses testified that those
distributors said as much. And Warren-Boulton testified that Regal’s ability to
convince distributors to allocate films between the two theaters demonstrated that
Regal had market power. See Cohlmia, 693 F.3d at 1282 (market power requires
“evidence of either power to control prices or the power to exclude competition”).
Regal argues that the record contains conflicting evidence negating market
power. It emphasizes that three of the major film distributors denied its clearance
request and that iPic Houston was able to secure desirable films from the allocating
distributors. This evidence demonstrates only that Regal’s market power is not
unfettered. Because some evidence supports the trial court’s resolution of the
conflicting evidence to find that Regal has sufficient market power to restrain, in
part, iPic’s ability to obtain film licenses, we cannot disturb its implied finding on
appeal. See Davis, 571 S.W.2d at 862; Butnaru, 84 S.W.3d at 204; see also
Intercontinental Terminals, 354 S.W.3d at 897 (stating that “[t]he evidence must be
sufficient to raise ‘a bona fide issue [ ] as to [the applicant’s] right to ultimate
relief.’”).
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3. Harm to competition
Regal contends that iPic was required but failed to show substantial harm to
competition market-wide. Relying on Coca-Cola Company v. Harmar Bottling
Company, 218 S.W.3d 671 (Tex. 2006), Regal asserts that iPic, at most, showed that
it occasionally failed to secure licenses for particular films, which is insufficient.
218 S.W.3d at 688 (isolated instances that impacted consumers through reduced
choices insufficient absent showing of market-wide harm to competition). iPic
counters that it met its burden to show harm by demonstrating a reduction in output
in both product markets. See Orson, 79 F.3d at 1367 (antitrust plaintiff satisfies his
burden to show anticompetitive effects with evidence of reduction of output or
deterioration in quality of goods and services).
iPic adduced some evidence that Regal’s clearance request reduced the
number of films that iPic Houston was able to exhibit. Woods testified that Regal’s
clearance request resulted in the iPic Houston showing fewer films than it wanted to
show—only 12 during the period in which every other iPic theater exhibited 21 to
30. Hashemi testified that this constraint on iPic Houston’s ability to obtain film
licenses, in turn, reduced the quality of the product available to Houston consumers
in the market for premium exhibition of first-run films. This is sufficient under
Orson. Id.
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Regal contends that Paddock Publications, Inc. v. Chicago Tribune Co., 103
F.3d 42 (7th Cir. 1996), and Harmar Bottling compel a different conclusion. But
neither of these cases involved distinct secondary product markets. See Paddock
Publ’n, 103 F.3d at 44 (plaintiff and defendants all participated in general-interest
newspaper market); Harmar Bottling, 218 S.W.3d at 675 (relevant product market
was market for carbonated soft drinks). Here, the trial court implicitly found that
iPic Houston participates in the premium film exhibition market to the exclusion of
the Greenway, and the evidence is sufficient to support the trial court’s implied
finding that Regal’s clearance request reduced the number of first-run films available
to consumers in that market. See Orson, 79 F.3d at 1367 (antitrust plaintiff satisfies
burden to show anticompetitive effects with evidence of reduction of output or
deterioration in quality of goods and services); Harmar Bottling, 218 S.W.3d at 688
(adverse impact on output or choice in market is evidence of market-wide harm); see
also Cobb Theatres, 101 F. Supp. 3d at 1335 (allegation that clearance of premium
movie theater by megaplex forced consumers to purchase product that was less
desirable and of inferior quality adequately alleged harm to competition).
Accordingly, we hold that iPic adduced some evidence that Regal’s conduct harmed
the market for premium exhibition of first-run films, and we therefore must defer to
30
the trial court’s implied finding.3 See Butnaru, 84 S.W.3d at 204; Intercontinental
Terminals, 354 S.W.3d at 897.
We overrule Regal’s first issue.
C. Probable, imminent, and irreparable injury
In its second issue, Regal contends that the trial court erred in granting
temporary injunctive relief because iPic did not adduce sufficient evidence that it
would suffer probable, imminent, and irreparable injury without it. In particular,
Regal contends that iPic failed to show an imminent, actual injury or that any injury
was irreparable.
1. Threat of imminent, actual injury
Woods and Hashemi testified that iPic Houston was unsuccessful in licensing
several films due to Regal’s clearance request. Hashemi also testified that customers
in the premium first-run film exhibition market expect that a premium first-run film
exhibitor would play those movies, that the iPic Houston’s reputation and goodwill
is dependent upon being able to offer these movies, and that the clearance therefore
negatively affected the iPic’s reputation and ability to deliver the experience
consumers expected. Woods testified along the same lines, adding that Regal’s
3
Because we have concluded that the trial court did not abuse its discretion in
concluding that iPic demonstrated a probable right to relief on its unlawful restraint-
of-trade claim, and that claim is sufficient to support the temporary injunction, we
do not address Pic’s three other claims—monopolization, attempted
monopolization, and tortious interference with contracts and prospective business
relationships.
31
clearance was having a “direct impact [on] our long-term viability.” This evidence
would permit the trial court to conclude that iPic would suffer imminent harm if
Regal’s conduct was not enjoined. See Intercontinental Terminals, 354 S.W.3d at
895 (evidence that defendant’s actions were causing loss of goodwill and reputation
was evidence of imminent actual injury).
Regal contends it demonstrated that the clearance did not threaten imminent
harm. For example, Regal emphasizes that iPic Houston was exceeding
performance projections and outperforming other iPic theaters. Regal points out
that, far from leaving only leftovers for iPic Houston, it was the Greenway that
played several films only after iPic passed.
Although the record contains conflicting evidence regarding whether iPic
Houston would suffer imminent harm absent an injunction, we may not disturb the
trial court’s resolution of conflicting evidence. The trial court was free to choose
which evidence to credit and discredit, and we must view the evidence in the light
most favorable to its ruling. See Butnaru, 84 S.W.3d at 204; Davis, 571 S.W.2d at
862. Accordingly, we hold that the trial court did not abuse its discretion in
concluding that Regal’s clearance threatened imminent injury to iPic.
2. Irreparable injury
Regal also contends that iPic did not demonstrate that any harm threatened
would be irreparable. As discussed above, some evidence adduced by iPic pertained
32
to harm to iPic Houston’s goodwill and reputation. “While [goodwill and
reputational injuries] are not categorically irreparable, the irreparable injury
requirement is satisfied when injuries of this nature are difficult to calculate or
monetize.” Intercontinental Terminals, 354 S.W.3d at 895; see also Butnaru, 84
S.W.3d at 204.
Hashemi testified that there was “no way . . . to measure what [iPic’s] losses
are,” because there was no way to know how many customers would have been
drawn to particular movies that the iPic was unable to show, and no way to measure
how many customers the iPic would not be able to “bring . . . back” once it earned a
reputation for showing lesser-quality films.
Regal contends that the trial court could not have concluded that any imminent
harm to iPic would be irreparable because Regal’s expert, Gokhale, testified that the
harm to iPic, if any, could be calculated with a reasonable degree of certainty using
iPic’s internal performance benchmarks. While the parties adduced conflicting
evidence, the trial court was not required to accept Gokhale’s testimony. It could
have concluded that at least some of the harm that iPic would suffer was
reputational—an injury to its goodwill—and irreparable. See, e.g., Frequent Flyer
Depot, Inc. v. Am. Airlines, Inc., 281 S.W.3d 215, 228 (Tex. App.—Fort Worth
2009, pet. ref’d) (“Disruption to a business can be irreparable harm. Moreover,
assigning a dollar amount to such intangibles as a company’s loss of clientele,
33
goodwill, marketing techniques, and office stability, among others, is not easy.”)
(internal citations omitted)); T–N–T Motorsports, 965 S.W.2d at 24 (affirming
temporary injunction based on testimony that lost goodwill would be
“immeasurable”); Intercontinental Terminals, 354 S.W.3d at 896 (trial court was
free to credit testimony of plaintiff’s general manager that it would be “extremely
difficult” to calculate harm to plaintiff’s business reputation and discredit
defendant’s damage expert’s testimony that the harm was quantifiable). Viewing
the evidence in the light most favorable to the trial court’s ruling, we hold that the
trial court did not abuse its discretion in finding that the imminent harm with which
iPic was threatened would be irreparable.
In sum, we hold that the trial court did not abuse its discretion in concluding
that iPic demonstrated a probable, imminent, and irreparable injury.
We overrule Regal’s second issue.
Conclusion
We affirm the trial court’s temporary injunction order.
Rebeca Huddle
Justice
Panel consists of Justices Keyes, Brown, and Huddle.
34