Judge Alex Kozinski Website
Writings
His judicial chambers are just over the hills from Hollywood in Pasadena, but whatever the inspiration, Judge Alex Kozinski found a way to grab the attention of antitrust paranoids. He managed to weave the names of more than 200 movies into his court opinion declaring the innocence of a movie-theater operator accused of being a dirty rotten monopolist.
Judge Kozinski deserves a special-category Oscar for the style and substance of U.S. v. Syufy Enterprises. His 25-page opinion, issued May 9, is a witty reminder that even the free-market antitrust revolutionaries of the Reagan Justice Department committed abusive prosecutions.
To be fair, if we're going to have government review of mergers it's not surprising that the business strategy of Raymond Syufy sounded alarm bells. Mr. Syufy, who owns several hundred movie theaters in the West, decided to enter the Las Vegas market in 1981. He was a fierce competitor, driving up bids to distributors for the rights to show top films. By 1984, three competitors, including national chains Mann and Plitt, sold out to Mr. Syufy, leaving only a small competitor.
In a complaint signed by then-antitrust chief Douglas Ginsburg, now a federal appeals-court judge, Justice accused Mr. Syufy of monopoly by gobbling up competitors. But a funny thing had happened by the time the case reached the courts.
Syufy may well have intended to become a monopolist, but only results count. Syufy itself provided the best evidence that there was no barrier preventing competitors from entering the market. When Syufy cornered the first-run market, it apparently tested its new market power by reneging on a deal with Orion distributors. Orion responded by suing, cutting off all Syufy theaters nationwide and giving first-run films to the remaining Las Vegas competitor. Quickly, Syufy's "utopia proved to be only a mirage," Judge Kozinski wrote.
(Lawyers will probably read this case as much for movie spotting as for its holding. A footnote hints there are 204 film titles secreted in the text, but I could find only 31. Journal movie reviewer Julie Salamon, armed with her law degree, managed to find 70 movies including the obscure Static, The Gate and Avalanche. Try your luck with the excerpts nearby, with the consolation that Judge Kozinski says he's been a buff since he learned about America through movies while growing up in Romania.)
Syufy went from locking up rights to more than 90% of the first-run movies in 1985 to less than 40% by 1988. Judge Kozinski wrote that the competing theater owner "evolved from absolute beginners, barely staying alive, into a big business." Within two years, the competitor had more screens than Syufy. "Syufy's acquisitions did not short circuit the operation of the natural market forces."
Judge Kozinski rejected the idea that Syufy somehow broke any law by knocking the other theater operators out of business by tough competition. He cited a classic judicial opinion of this big-is-bad school, Judge Learned Hand's opinion demanding the breakup of Alcoa in 1945 because it had become too efficient. Alcoa's success may be "evidence of the skill, energy and initiative with which it has always conducted its business," Judge Hand wrote, "but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened. . . ."
Competing too well has now been decriminalized by several Supreme Court cases interpreting the vague antitrust laws. As Judge Kozinski noted, "While the successful competitor should not be raised above the law, neither should he be held down by law." Indeed, if Justice had followed its own merger guidelines there probably would have been no case. Its test is whether a new competitor is likely to enter the market within two years. Even if a firm has a huge market share, there is no violation of the Sherman Act if there's no power to exclude competitors; there's no Clayton Act problem where there are no barriers to entry for competitors.
This case earned the ultimate insult a court can give government lawyers -- it was a waste of time. Judge Kozinski, appointed by President Reagan in 1985, wrote that "It is a tribute to the state of competition in America that the Antitrust Division of the Department of Justice has found no worthier target than this paper tiger on which to expend taxpayer resources."
Indeed, if there is any barrier to competition it may be this kind of government-instigated litigation. "Regulation often helps entrench existing businesses by placing new entrants at a competitive disadvantage," Judge Kozinski wrote. "It is perhaps less well appreciated that litigation itself can be a form of regulation; lawsuits brought by the government impose significant costs." He said that "for competitors in a free market to fear buying each other lest they be hit with the expense and misery of an antitrust enforcement action amounts to a burden only slightly less palpable than a direct governmental prohibition against such a purchase."
This prosecution means it's still what Judge Kozinski might call high noon for the free-market revolution in antitrust law. Monopoly seems impossible without some barrier to entry created by the government, such as limiting landing slots at airports or granting utility monopolies. Indeed, the lesson of the Syufy case is that overenforcement may be the greater sin.
How about a new approach? Why not require Justice first to find some evidence that there is a government barrier to competitors entering a market. Only if some government interference is found should regulators or prosecutors even begin to consider bringing an antitrust case.
There is no reason to go back to the days of bureaucrats mandating the "correct" size of firms. Give the last word to Judge Kozinski, with supporting roles by Ayn Rand and Gary Cooper: "Personal initiative, not government control, is the fountainhead of progress in a capitalist economy."
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Federal judge Alex Kozinski inserted the names of 204 films into his opinion in favor of a movie theater operator. Treat yourself to popcorn if you can find 10 or more titles in these excerpts:
"unlike centrally planned economies, where decisions about production and allocation are made by government bureaucrats who ostensibly see the big picture and know to do the right thing, capitalism relies on decentralized planning."
"The antitrust laws do not require that rivals compete in a dead heat, only that neither is unfairly kept from doing his personal best."
"Syufy always treated moviegoers fairly: The movie tickets, popcorn, nuts and the seven-ups cost about the same in Las Vegas as in other, comparable markets."
"Support is missing in the record for the Justice Department's theory of a shakedown by a ruthless predator."
Movie titles: The Big Picture, Big, Do The Right Thing, Dead Heat, Personal Best, Always, Popcorn, Nuts, The Seven-Ups, Missing, Shakedown, Ruthless and Predator.
In regard to L. Gordon Crovitz's May 23 Rule of Law column, "Verdict: Frantic Antitrust Ideas Are Gone With the Wind," Mr. Crovitz properly praised both the court's "style and substance" in U.S. v. Syufy Enterprises. The "unforgettable" parts of Syufy are, however, not the incidental references to obscure movie titles but, instead, the court's instructive and entertaining analysis of an apparently unsound government prosecution. While expressly reminding us that market power should not be uncritically measured by market share, Syufy also illustrates that the state of antitrust law enforcement should not be crudely measured by the number of prosecutions brought by antitrust enforcement units.
Richard E.V. Harris
San Francisco