Orson Inc v. Miramax Film Corp

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit

4-1-1996

Orson Inc v. Miramax Film Corp
Precedential or Non-Precedential:

Docket 95-1399

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________

No. 95-1399
___________

ORSON, INC.
t/a ROXY SCREENING ROOMS

vs.

MIRAMAX FILM CORP.

Orson, Inc., d/b/a/ Roxy Screening Rooms,

Appellant
___________

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 93-cv-04145)
___________

Argued
January 22, 1996
Before: MANSMANN and LEWIS, Circuit Judges, and
RESTANI, Judge, Court of International Trade.*

(Filed April 1, 1996)
___________

Paul R. Rosen, Esquire (Argued)
Jeffrey M. Goldstein, Esquire (Argued)
Spector, Gadon & Rosen
1700 Market Street
29th Floor
Philadelphia, PA 19103

COUNSEL FOR APPELLANT

Thomas E. Zemaitis, Esquire (Argued)
Barbara T. Sicalides, Esquire
James W. McGarry, Esquire
Pepper, Hamilton & Scheetz
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103

COUNSEL FOR APPELLEE

1
* Honorable Jane A. Restani, Judge, United States Court
of International Trade, sitting by designation.
___________

OPINION OF THE COURT
__________

MANSMANN, Circuit Judge.
This antitrust case arises out of a business

arrangement in the motion picture industry. The plaintiff,

Orson, Inc., the owner of the Roxy Screening Rooms, a movie

theater, alleged that the defendant, Miramax Film Corporation, a

film distributor, violated section 1 of the Sherman Act, 15

U.S.C. § 1, and Pennsylvania common law by conspiring with

another theater to drive the Roxy out of business and by granting

that other theater exclusive, first-run licenses on Miramax

films. Orson also charged that the licenses violated the length-

of-run provision of Pennsylvania's Feature Motion Picture Fair

Business Practices Law. 73 P.S. § 203-7. Orson now appeals the

district court's decision to grant Miramax's motion for summary

judgment.

We hold that Orson failed to present evidence

sufficient to show that Miramax engaged in an antitrust

conspiracy or that the licenses were unreasonable restraints of

trade. We further hold that the district court erred in

interpreting 73 P.S. § 203-7's requirement concerning the

geographic expansion of first-run films. Thus, we will affirm

the judgment of the district court granting summary judgment to

Miramax on Orson's antitrust claims. We will, however, vacate

2
the district court's grant of summary judgment to Miramax on

Orson's state statutory claim and remand for further proceedings.

I.0

In January of 1992, Orson assumed the operations of the

Roxy, a movie theater located in downtown "Center City"

Philadelphia. The Roxy exhibited "art films," as opposed to

movies that may be characterized as "commercial" or "mainstream,"

on two screens, each with a 130 person seating capacity. The

Roxy charged between $3.50 and $5.50 for tickets.

The Ritz theaters, consisting of two separate five-

screen facilities, the Ritz Five Theaters and the Ritz at the

Bourse (collectively, the "Ritz"), also exhibited art films in

Center City. The Ritz Five Theater, which opened in 1976 with

about 1,125 seats, was owned and operated by the Posel

Corporation; the Ritz at the Bourse, opened in 1990 with

approximately 710 seats, was owned and operated by the Raysid

Corporation. Ramon L. Posel was the President of both

corporations. The Ritz's admission prices typically ranged from

$3.50 to $6.00.

In addition to the Roxy and the Ritz, there were six

other theaters in Center City; four theaters with a total of 20

0
We begin our analysis by reviewing the evidence
presented in this case. In considering a motion for summary
judgment, a court does not resolve factual disputes or make
credibility determinations, and must view the facts and
inferences in the light most favorable to the party opposing the
motion. Big Apple BMW, Inc. v. BMW of North America, Inc., 974
F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912
(1993).

3
screens were operated by United Artists and two theaters with two

screens each were operated by American Multi-Cinema.

Miramax, a nationwide distributor of feature-length

motion pictures, including art films, distributed movies to all

of the theaters located in Center City and to theaters in the

greater metropolitan Philadelphia area.

In the motion picture industry, film distributors

license films to theaters for exhibition for a given amount of

time. Frequently, the license is exclusive, providing that

during its duration, the film will not be licensed to other

exhibitors in a prescribed area. Such licenses are called

"clearances."

In the usual case, films are licensed for a sum which

consists of a film rental amount and a house allowance. Under

this system, the distributor and the exhibitor agree on a

separate dollar amount which represents the exhibitor's weekly

expenses. The exhibitor retains a percentage of the weekly gross

from ticket receipts above the house expense allowance; the

remaining percentage inures to the distributor. Typically, the

license provides that the distributor will receive a minimum

percentage of the exhibiting theater's box office gross. A film

distributor's revenues, therefore, depend directly upon a

theater's capacity to attract the public. Thus, the decision to

license a movie to one theater or another is premised in

considerable measure on a distributor's assessment of a theater's

grossing ability.

4
 The time a particular exhibitor is licensed to show a

film is called the "run." A "first-run" is the first exhibition

of a film in a given geographic area; "subsequent" runs are

exhibitions of that film in the area after the first-run has

expired. Successive runs of motion pictures are a practical

necessity in the industry because commonly, there are a limited

number of prints made of any one film.

Between January of 1992, when Orson began operating the

Roxy, and February of 1994, the close of discovery, Miramax

licensed about 28 films on a first-run basis and one film on a

subsequent-run basis to the Ritz. By comparison, during this

period, Miramax licensed one film on a first-run basis and

approximately 14 films on a subsequent-run basis to the Roxy.

Miramax also granted eight first-run licenses to the theaters in

Center City operated by either United Artists or American Multi-

Cinema0 and six first-run licenses to theaters in the suburbs of

Philadelphia.

At this same time, a number of other distributors also

licensed films to the exhibitors in Center City. From the Roxy's

opening in January of 1992 until March of 1994, Orson was granted

about 73 first-run, exclusive licenses by 59 different

distributors. According to Orson's President, Max L. Raab, art

film distributors included, in addition to Miramax, three

0
As Miramax points out, any theater is equipped to
exhibit art films and theaters which are not known as "art
houses" can and do decide to show such films, as well as the more
commercial fare.

5
"distributors of consequence" -- Sony Pictures Classics, the

Samuel Goldwyn Company and Tristar Pictures.

All of the first-run licenses for films that Miramax

granted to the Ritz were exclusive; that is, they provided that

the films would not be licensed to another Center City theater

while playing there. The licenses were established quite

informally. Typically, Posel of the Ritz telephoned Martin

Zeidman, Miramax's Senior Executive Vice President and head of

domestic distribution, to discuss the Ritz's desire for a first-

run license on a particular Miramax film. Having done business

with one another for several years, Posel and Zeidman understood

that the license would be exclusive and include standard terms.

Once the parties agreed upon an opening date, Zeidman completed a

"Theatrical Booking Worksheet," which set forth the title of the

film and the opening date, listed the Ritz Five Theaters or the

Ritz at the Bourse as the exhibitor, identified Posel as the

buyer, marked the rental percentage terms, and designated the

shipping territory as "Phila[delphia]." A day or two later, the

booking worksheet was telefaxed from Zeidman's office in Los

Angeles to Miramax's office in New York, which was responsible

for shipping Miramax film prints to theaters in time for the

opening date.

On occasion, Orson's film buyer, Jeffrey Fox Jacobs,

asked Zeidman for a first-run, non-exclusive license on a Miramax

film, indicating that Orson was prepared to offer Miramax a

higher percentage of the Roxy's box office receipts and a lower

6
house allowance than those negotiated by the Ritz. Jacobs'

requests, however, were refused.

From time to time, Miramax held trade screenings for

the movies it distributed in Philadelphia. Miramax would send a

notice to exhibitors, inviting them to attend the trade screening

of a certain film on a certain date. Most of the notices stated

that "[w]e expect to avail this film for first run Philadelphia

on or about [date], for an exclusive or non-exclusive run. After

the first run theater or theaters have exhibited the film for 42

days we will consider offers for subsequent runs." The notice

requested that a "written offer" be submitted by interested

exhibitors by a specified time and day.

With respect to some of the clearances that Miramax

granted the Roxy, the booking worksheet that Zeidman completed

memorializing the clearance bore a date that was prior in time to

the date of the trade screening notice that Miramax sent to

exhibitors.0

Fifteen of the films that Miramax licensed to the Ritz

played there for a period of more than 42 days. Of these, nine

expanded to other Philadelphia area theaters outside of Center

City before the 42 days expired; six, however, ran at the Ritz,

without expanding to other theaters.

0
For example, the trade screening notice for "The Crying
Game" was dated December 1, 1992. The notice announced that the
first Philadelphia run would occur on or about December 18, 1992,
invited Philadelphia exhibitors to a December 8, 1992, screening,
and requested that written offers be submitted no later than 12
noon on December 10, 1992. Zeidman's worksheet, which
memorialized the clearance given to the Ritz for "The Crying"
Game, however, had a telefax legend dated November 30, 1992.

7
 According to the parties' briefs, the Roxy closed its

doors in October of 1994.

On or about August 2, 1993, Orson commenced this action

against Miramax. On August 19, 1993, Orson filed an amended

complaint in three counts: Count I alleged that Miramax violated

section 1 of the Sherman Act by, inter alia, conspiring with the

Ritz to exclude the Roxy from the art film market by making the

Ritz its "exclusive Philadelphia exhibitor for first-run art film

features" and by granting the Ritz "exclusive first-run rights to

those of Miramax'[s] films which the Ritz want[ed] to exhibit

. . . ."0 Count II alleged that Miramax violated Pennsylvania's

0
Orson's amended complaint included allegations of
additional anticompetitive practices by Miramax. These
allegations were abandoned, with the exception of allegations of
retaliatory conduct on Miramax's part, which Orson subsequently
pursued by way of a motion for injunctive relief. See supra, p.
9. In its motion, Orson relied on Bergen Drug Co. v. Parke,
Davis & Co., 307 F.2d 725, 728 (3d Cir. 1962), an antitrust case
where we held that a court may grant a preliminary injunction
when a party engages in conduct calculated to frustrate
litigation, and alleged that Miramax's refusal to grant the Roxy
any more licenses, including a license for a subsequent run on
"Strictly Ballroom" was retaliatory. The district court denied
Orson's motion, finding that Miramax's reason for refusing Orson
a license on "Strictly Ballroom" was not solely retaliatory; that
Miramax films were not indispensable to Orson's survival; that
Orson had delayed asking for preliminary relief; that a
preliminary injunction would, under the circumstances, be
difficult to administer; that Orson's contention that it would be
unable to secure witnesses for trial because of other theaters'
fear of retaliation was speculative; that Orson's alleged harm
was compensable in money damages; that the preliminary injunction
would be oppressive to Miramax; that Orson had not shown that it
was likely to succeed on its antitrust claims; and that Orson's
request for Miramax films exceeded the status quo. Orson, Inc.
v. Miramax Film Corp., 836 F. Supp. 309 (E.D. Pa. 1993).

In this appeal, Orson has also challenged the district
court's decision to deny the motion for injunctive relief. This
issue, however, is moot, in light both of our decision to uphold

8
"common law doctrine against unreasonable restraint of trade";

and Count III alleged that Miramax violated section 203-7 of

Pennsylvania's Feature Motion Picture Fair Business Practices

Law, 73 P.S. § 203-1 et seq. (the "Pennsylvania Act") by

"consistently grant[ing] the Ritz licenses for its feature art

films for exclusive first runs for more than 42 days. . . ."0

On October 8, 1993, Orson filed a "Motion for

Injunctive Relief to Restore the Status Quo during Pendency of

Litigation." On November 9, 1993, the district court denied

Orson's motion, Orson Inc. v. Miramax Film Corp., 836 F. Supp.

309 (E.D. Pa. 1993); on January 12, 1994, the court denied

Orson's motion for reconsideration.

On March 22, 1994, Orson filed a motion for partial

summary judgment on its common law restraint of trade claim and

its Pennsylvania Act claim. Miramax filed a motion for summary

the court's order granting summary judgment to Miramax on Orson's
antitrust claims and of the Roxy's cessation of operations.
0
Section 203-7 of Pennsylvania's Feature Motion Picture
Fair Business Practices Law, 73 P.S. § 203-1 et seq. (the
"Pennsylvania Act"), states:

§ 203-7. Length of run

No license agreement shall be entered into
between distributor and exhibitor to grant an
exclusive first run or an exclusive multiple
first run for more than 42 days without
provision to expand the run to second run or
subsequent run theaters within the
geographical area and license agreements and
prints of said feature motion picture shall
be made available by the distributor to those
subsequent run theaters that would normally
be served on subsequent run availability.

73 P.S. § 203-7.

9
judgment as to all of Orson's claims on January 4, 1994. On

April 5, 1994, Miramax filed a cross-motion for summary judgment

on two claims which, according to Miramax, were not set forth in

Orson's complaint, but nonetheless discussed in Orson's summary

judgment motion, namely, violations of sections 203-4 (bidding)

and 203-8 (screening procedures) of the Pennsylvania Act.

On October 5, 1994, the district court denied Orson's

motion for partial summary judgment in its entirety. Orson, Inc.

v. Miramax Film Corp., 862 F. Supp. 1378, 1390 (E.D. Pa. 1994).

As for Miramax's motion, the district court granted

summary judgment to Miramax on both Orson's federal and state

antitrust claims.0 Id. Characterizing the Miramax-Ritz

agreement "by which Miramax grant[ed] exclusive licenses to the

Ritz for the exhibition of its art films" as "clearly a vertical

agreement between a distributor and an exhibitor," the court

applied the rule of reason to the "restraint at issue." Id. at

1385-86. Focusing on the competitive effects of the exclusive

0
On summary judgment, the parties agreed that
Pennsylvania's common law against unreasonable restraints of
trade follows federal antitrust law. Orson, Inc. v. Miramax Film
Corp., 862 F. Supp. 1378, 1381 n.3 (E.D. Pa. 1994). Accordingly,
the district court treated Orson's federal and antitrust claims
identically. Id. Likewise, in this appeal, Orson briefs only
the federal antitrust issues.

Further, since Orson had raised, in the district
court's view, an issue for summary judgment by arguing in its
brief in opposition to Miramax's motion that the Miramax-Ritz
agreement should be declared illegal per se, the court evaluated
the parties' submissions as though it had before it cross-motions
for summary judgment as to Orson's entire complaint, even though
Orson had moved expressly for summary judgment on only its
Pennsylvania law claims. Id. at 1382. Orson does not question
this aspect of the district court's decision on appeal.

10
licenses, otherwise known in the industry as "clearances," the

court concluded that the clearances were reasonable:
[T]his Court holds that the clearances at
issue here are reasonable. First while the
clearances stifle intrabrand competition to a
small degree--no Miramax art film playing at
the Ritz can play contemporaneously at the
Roxy, the clearances serve to stimulate
competition between art films distributed by
Miramax and art films originating with other
distributors. As a result, art film-goers in
Center City Philadelphia are offered a wider
array of selections from which to choose.
Further, it is apparent that the Ritz and the
Roxy are in substantial competition. By
Orson's own admission, the Ritz and the Roxy
are the only two art houses in Center City
Philadelphia. Thus, if the Ritz and the Roxy
were to exhibit the same film on the same
dates, not only would the overall degree of
choice be reduced, but the Ritz would
assuredly lose income as a result. At its
core, Orson's complaint asks the Court to
compel Miramax to lease its films to Orson
for exhibition at the Roxy. The antitrust
laws were not enacted to achieve such ends.

Id. at 1386.
With regard to Miramax's summary judgment motion on

Orson's section 203-7 Pennsylvania Act claim, the district court

concluded that Miramax was not liable for the nine films that

were expanded to suburban Philadelphia theaters on or before the

forty-third day of their runs at the Ritz, reasoning that section

203-7 only required that Miramax expand the films to other

theaters in the Philadelphia area, not to other theaters located

within Center City. Id. at 1387-88. As to the six films that

were licensed exclusively to the Ritz without expanding to other

theaters within 42 days, the court denied Miramax summary

11
judgment, concluding that material issues of fact had been raised

as to the existence and terms of the licenses and as to Orson's

damages and Miramax's intent.0 Id. at 1388.

Finally, agreeing with Miramax that a party may not be

granted summary judgment on claims that are not set forth in its

complaint, the court granted Miramax's cross-motion for summary

judgment. Id. at 1388-90. At the same time, however, the court

granted Orson leave to amend its complaint to add claims under

sections 203-4 and 203-8 of the Pennsylvania Act. Id. at 1390.

After filing a second amended complaint on October 19,

1994, which added section 203-4 and section 203-8 Pennsylvania

Act claims in Counts IV and V respectively, Orson sought

certification of the district court's October 5, 1994 order

pursuant to 28 U.S.C. § 1292(b). The court denied Orson's

request for certification.

Ultimately, based on its rulings on summary judgment

and the parties' stipulation, the district court issued a final

0
Section 203-10 of the Pennsylvania Act, which covers
the actions that an exhibitor may bring for alleged violations of
the Act, states:

§ 203-10. Actions against distributors and exhibitors

Any exhibitor may bring an action against a
distributor or exhibitor or both in the respective
courts of common pleas wherein the exhibitor's business
is located to recover damages sustained by reason of a
willful and intentional violation of his act and, where
appropriate, shall be entitled to injunctive relief.
Such exhibitor, if successful, shall also be awarded
the costs of the action include, but not limited to,
reasonable attorneys' fees.

73 P.S. § 203-10.

12
order on May 10, 1995, entering judgment in Miramax's favor on

Orson's federal and state antitrust claims and on Orson's section

203-7 claim as to the nine films that Miramax distributed on a

subsequent-run basis to theaters in the greater metropolitan

Philadelphia area. The court's May 10 order also dismissed

without prejudice Orson's section 203-4 and 203-8 claims and

Orson's section 203-7 claim with respect to the six Miramax films

that did not expand to other theaters after showing at the Ritz

for 42 days.

This timely appeal by Orson followed. It involves the

district court's decision to grant summary judgment to Miramax on

Orson's antitrust claims and on Orson's Pennsylvania Act section

203-7 claim with respect to the nine subsequent-run Miramax films

that played in Philadelphia theaters located outside of Center

City on or before the forty-second day of their first-run at the

Ritz,0 as well as the court's denial of Orson's request for

preliminary injunctive relief. We will first address the federal

antitrust issues this appeal raises, and the state statutory law

question second.

II.

0
Since the district court's May 10, 1995 order was a
final order, 28 U.S.C. § 1291 gives us appellate jurisdiction
over this entire case. Thus, our power of review extends not
only to that portion of the district court's order which reflects
its decision to grant summary judgment to Miramax, but to that
portion of its order which reflects its decision to deny Orson's
cross-motion for summary judgment as well. International Union,
United Mine Workers of America v. Racho Trucking Co., 897 F.2d
1248, 1252 n.2 (3d Cir. 1990).

13
 Summary judgment may present the district court with an

opportunity to dispose of meritless cases and avoid wasteful

trials. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).

This is true even in antitrust cases "`where motive and intent

play leading roles, proof is largely in the hands of alleged

conspirators, and hostile witnesses thicken the plot.'" Big

Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358,

1362 (3d Cir. 1992), cert. denied, 507 U.S. 912 (1993),(quoting

Poller v. Columbia Broadcasting Sys., Inc., 368 U.S. 464, 473

(1962)).

Summary judgment must be granted where no genuine issue

of material fact exists for resolution at trial and the moving

party is entitled to judgment as a matter of law. Fed. R. Civ.

P. 56(c). On summary judgment, the moving party need not

disprove the opposing party's claim, but does have the burden to

show the absence of any genuine issues of material fact. Celotex,

477 U.S. at 322-23. If the movant meets this burden, then the

opponent may not rest on allegations in pleadings, but must

counter with specific facts which demonstrate that there exists a

genuine issue for trial. Id. at 323. When the nonmoving party

will bear the burden of proof at trial, the moving party may meet

its burden by showing that the nonmoving party has not offered

evidence sufficient to establish the existence of an element

essential to its case. Id. at 322. We remain mindful that in

ruling on a motion for summary judgment, a court must assess the

material facts in light of the proof required of the plaintiff on

substantive issues.

14
 III.

Section 1 of the Sherman Act provides in pertinent part

that "[e]very contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or commerce among

the several States . . . is declared to be illegal." 15 U.S.C.

§1. For a section 1 claim under the Sherman Act, "a plaintiff

must prove `concerted action,' a collective reference to the

`contract . . . combination or conspiracy." Big Apple BMW, 974

F.2d at 1364 (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434,

445 (3d Cir. 1977), cert. denied, 434 U.S. 1086 (1978)), cert

denied, 507 U.S. 912 (1993). A "`unity of purpose or a common

design and understanding, or a meeting of minds in an unlawful

arrangement'" must exist to trigger section 1 liability.

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771

(1984) (quoting American Tobacco Co. v. United States, 328 U.S.

781, 810 (1946)). In addition to the element of concerted

action, a plaintiff must prove that anticompetitive effects were

produced within the relevant product and geographic markets; that

the objects of the conduct pursuant to the concerted action were

illegal; and that it was injured as a proximate result of the

conspiracy. Petruzzi's IGA Supermarkets, Inc. v. Darling-

Delaware Co., 998 F.2d 1224, 1229 (3d Cir.), cert. denied, ___

U.S. ___, 114 S. Ct. 554 (1993).

Virtually all business agreements restrain trade to

some extent; section 1, therefore, has been construed to make

illegal only those contracts that constitute unreasonable

15
restraints of trade. Business Elecs. Corp. v. Sharp Elecs.

Corp., 485 U.S. 717, 723 (1988). Whether a business arrangement

unreasonably restrains trade is determined by the courts, on a

case-by-case basis, using a rule of reason which considers all

relevant factors in examining a defendant's purpose in

implementing the restraint and the restraint's effect on

competition. Board of Trade of Chicago v. United States, 246

U.S. 231, 238 (1918).0 Indeed, the traditional rule of reason
0
There are certain agreements or practices which
"because of their pernicious effect on competition and lack of
any redeeming virtue are conclusively presumed to be unreasonable
and therefore illegal without elaborate inquiry as to the precise
harm they have caused or the business excuse for their use."
Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5 (1958).
Such "plainly anticompetitive" agreements are "`illegal per se.'"
National Soc'y of Professional Eng'rs v. United States, 435 U.S.
679, 692 (1978). Horizontal boycotts have received illegal per
se treatment. Klor's, Inc. v. Broadway-Hale Stores, Inc., 359
U.S. 207 (1959). Although Orson contended in the district court
that Miramax's relationship with the Ritz was illegal per se, and
occasionally speaks of the relationship as a "boycott," it does
not contend in this appeal that the per se rule applies.

In addition to the traditional rule of reason and the
per se rules, courts sometimes apply what amounts to an
abbreviated or "quick look" rule of reason analysis. United
States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993). This
abbreviated rule applies where per se condemnation is
inappropriate, but where a full-blown industry analysis is not
required to demonstrate the anticompetitive character of an
inherently suspect restraint. Id. For example, in cases
involving agreements not to compete in terms of price or output
among members of professional associations, the Supreme Court did
not apply a per se analysis, opting instead for an abbreviated
rule of reason test where "`no elaborate industry analysis [was]
required to demonstrate the anticompetitive character of such an
agreement.'" FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459
(1986)(quoting Professional Eng'rs, 435 U.S. at 692).

Asserting in its brief that "[t]he restraint's negative
effect on competition is manifest given the abundance of record
evidence showing that the Miramax-Ritz boycott of the Roxy ha[d]
the effect of decreasing output and increasing prices in the

16
inquiry has essentially remained unchanged since it was first

announced by the Supreme Court in Chicago Board of Trade and

focuses on the competitive significance of the restraint:
The true test of legality is whether the
restraint imposed is such as merely regulates
and perhaps thereby promotes competition or
whether it is such as may suppress or even
destroy competition. To determine that
question the court must ordinarily consider
the facts peculiar to the business to which
the restraint is applied; its condition
before and after the restraint was imposed;
the nature of the restraint and its effect,
actual or probable. The history of the
restraint, the evil believed to exist, the
reason for adopting the particular remedy,
the purpose or end sought to be attained, are
all relevant facts.

Chicago Board of Trade, 246 U.S. at 238.
In rule of reason cases, the plaintiff bears the

initial burden of showing that the alleged combination or

agreement produced adverse, anticompetitive effects within the

relevant product and geographic markets. Brown Univ., 5 F.3d at

668. The plaintiff may satisfy this burden by proving the

existence of actual anticompetitive effects, such as reduction of

output, increase in price, or deterioration in quality of goods

and services. Id. Due to the difficulty of isolating the market

effects of the challenged conduct, however, such proof is often

Center City art-film market," Orson suggests that an abbreviated
rule of reason market analysis should be used here. Orson
failed, however, to substantiate its assertion with facts. We
have stated that arguments made in legal memoranda are not
evidence. Jersey Cent. Power & Light Co. v. Township of Lacey,
772 F.2d 1103, 1109-10 (3d Cir. 1985), cert. denied, 475 U.S.
1013 (1986). We, therefore, need not consider Orson's suggestion
further.

17
impossible to make. Id. Accordingly, the courts allow proof of

the defendant's "market power" instead. Id. Market power -- the

ability to raise prices above those that would prevail in a

competitive market -- is essentially a "`surrogate for

detrimental effects.'" Id. at 668-69 (quoting FTC v. Indiana

Fed'n of Dentists, 476 U.S. 447, 460-61 (1986)).

If a plaintiff meets his initial burden of adducing

adequate evidence of market power or actual anticompetitive

effects, the burden shifts to the defendant to show that the

challenged conduct promotes a sufficiently pro-competitive

objective. Id. at 669. To rebut, the plaintiff must demonstrate

that the restraint is not reasonably necessary to achieve the

stated objective. Id.

Agreements between entities at different market levels

are termed "vertical restraints." See United States v. Topco

Assocs., Inc., 405 U.S. 596, 608 (1972). The Supreme Court has

instructed that vertical restraints of trade, which do not

present an express or implied agreement to set resale prices, are

evaluated under the rule of reason. Business Elec. Corp., 485

U.S. at 724; see also Continental T.V., Inc. v. GTE Sylvania,

Inc., 433 U.S. 36 (1977).

The Supreme Court has also repeatedly confirmed in

vertical restraint cases that interbrand competition, as opposed

to intrabrand competition, is the primary goal of the antitrust

laws. Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722-23

(3d Cir. 1991) (citing Business Elecs. Corp., 485 U.S. 717, and

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984), and

18
GTE Sylvania, 433 U.S. at 36), cert. denied, 505 U.S. 1221

(1992).0

IV.

We now address the antitrust issues raised by the

business arrangement in this case. We note at this point that

Miramax conceded for purposes of summary judgment that the

relevant product market was art films and that the relevant

0
In Continental T.V., Inc. v. GTE Sylvania, Inc., 433
U.S. 36 (1977), a television manufacturer entered into franchise
agreements which prohibited the sale of its products from other
than specified locations. Discussing the application of the rule
of reason to vertical restraints, the Supreme Court explained the
difference between interbrand and intrabrand competition:

Interbrand competition is the
competition among the manufacturers of the
same generic product -- television sets in
this case -- and is the primary concern of
antitrust law. The extreme example of a
deficiency of interbrand competition is
monopoly, where there is only one
manufacturer. In contrast, intrabrand
competition is the competition between the
distributors -- wholesale or retail -- of the
product of a particular manufacturer.
The degree of intrabrand competition is
wholly independent of the level of interbrand
competition confronting the manufacturer.
Thus, there may be fierce intrabrand
competition among the distributors of a
product produced by a monopolist and no
intrabrand competition among the distributors
of a product produced by a firm in a highly
competitive industry. But when interbrand
competition exists, as it does among
television manufacturers, it provides a
significant check on the exploitation of
intrabrand market power because of the
ability of consumers to substitute a
different brand of the same product.

Id. at 52 n.19.

19
geographic market was Center City, Philadelphia. Our evaluation

of Orson's antitrust claim, therefore, proceeds on this basis.

The first issue we consider is the precise nature of

the agreement between Miramax and the Ritz. Orson alleges in its

second amended complaint that Miramax committed to make the Ritz

its "exclusive Philadelphia exhibitor for first-run art film

features. . . ." Based on our careful review of the evidence, we

disagree. The record is devoid of any proof of a promise on

Miramax's part that it would grant first-run licenses on its

films in Center City to the Ritz only. Moreover, the evidence is

to the contrary; the Roxy received a first-run license from

Miramax, as did the theaters operated in Center City by United

Artists and American Multi-Cinema. The record shows, instead, a

series of clearances granted by Miramax to the Ritz, based on an

understanding between the parties' respective principals that any

time the Ritz was showing a first-run Miramax film, its license

would be exclusive.

Before we consider the antitrust significance of the

clearances, however, we will address the alleged conspiracy that

we believe lies at the heart of Orson's second amended complaint.

As we understand it, Orson's antitrust theory does not primarily

challenge the clearances themselves; but rather, claims that the

clearances were mere vehicles that Miramax and the Ritz used to

further a secret conspiracy to drive the Roxy out of business by

denying that theater first-run Miramax films.

A.

20
 Our evaluation of Orson's allegations concerning a

scheme on the part of Miramax and the Ritz to destroy the Roxy is

controlled by our decision in Houser v. Fox Theaters Management

Corp., 845 F.2d 1225 (3d Cir. 1988). There the owners of the

Colonial Theater (the "Housers") brought an antitrust action

against several motion picture distributors and the owners of the

Fox Theaters ("Fox"), alleging, inter alia, that each of the

distributor defendants violated section 1 of the Sherman Act by

conspiring individually with Fox to deny the Colonial first-run

films. Id. at 1229. To support this claim, we required the

Housers to present "direct or circumstantial evidence that

reasonably tend[ed] to prove the alleged conspirators `had a

conscious commitment to a common scheme designed to achieve an

unlawful objective.'" Id. at 1232 (quoting Monsanto Co. v.

Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)). We further

instructed that in doing so, the Housers had to show "'(1) that

the defendants acted in contradiction of their economic

interests, and (2) that the defendants had a motive to enter into

an agreement.'" Id. (quoting Schoenkopf v. Brown & Williamson

Tobacco Corp., 637 F.2d 205, 208 (3d Cir. 1980)).

As to our first enumerated element, the Housers

asserted that the distributors had acted against their economic

interests by consistently choosing to license films to the Fox

Theaters rather than the Colonial. They argued that "`[o]n a

purely objective basis, the Colonial was a better theater than

any of the five Fox theaters'" in view of its "large seating

capacity, elegant and well-maintained condition, and its location

21
in a nice section of downtown in contrast to the alleged `dark

and dingy' quality of the narrow suburban twin theaters and the

downtown theater owned by Fox." Id. at 1232. Despite the

Housers' assertion, we held that there was not sufficient

evidence of record to permit a factfinder to conclude that the

distributor defendants had acted contrary to their economic

interests; we affirmed the order of the district court granting

the defendants summary judgment. Id. at 1233. We observed that

"the decision to license a picture to one theater rather than

another is based on a complicated subjective estimation of a

theater's grossing potential" and that the courts have recognized

that "motion picture distributors have broad discretion to make

licensing decisions based on their own independent judgments."

Id. at 1232. Pointing out that the Housers' argument failed for

emphasizing just a few of the factors that a distributor

considers in making its licensing decision while ignoring others,

we stated that "[s]uch factors as a proven track record of high

box office receipts and an unblemished payment history are as

important as the seating capacity or aesthetic qualities of a

theater when estimating its grossing potential." Id. at 1232. We

also concluded that the Housers did not substantiate their

allegations that the distributors conspired with Fox because they

feared that Fox would use its "circuit power" and refuse to do

business with them. Id. at 1233. We, therefore, further held

that even if the distributors had acted contrary to their

economic interests, the Housers failed to present evidence to

support the second essential element we had articulated, namely,

22
that the distributors were motivated to conspire individually

with Fox. Id.

Orson makes similar assertions here. It contends that

given its willingness to pay a higher percentage of the Roxy's

gross for first-run Miramax films than paid by the Ritz, Miramax

acted contrary to its economic well-being by choosing to grant

clearances to the Ritz; it further maintains that Miramax was

coerced into favoring the Ritz because the Ritz had made it clear

that unless it was granted an exclusive arrangement it would use

its clout and refuse to play Miramax films.

We do not find sufficient evidence in the record for

either assertion. To the contrary, the evidence establishes that

the clearances were consistent with Miramax's business interests,

granted by the distributor to, as between the Roxy and the Ritz,

the theater it reasonably predicted would generate greater

income. The record demonstrated that the Ritz had ten screens at

two locations with seating capacities of 1,125 and 710

respectively, while the Roxy had two screens with a seating

capacity of 130 each. The Ritz had a solid history of box office

receipts; by comparison, the Roxy was not nearly as profitable.

The theaters which comprised the Ritz had been in continuous

operation since their inception; the Roxy, on the other hand, had

ceased operations from time to time over the years. The Ritz

marketed the films it exhibited and was known to have outstanding

sound and projection equipment. Simply put, "[i]n light of the

broad discretion that must be given to film distributors in

making complex licensing decisions," id. at 1233, Orson's

23
position, premised solely on the financial terms of its offer, is

insufficient to call into question the wisdom of Miramax's

decision. We, therefore, hold that the evidence in the record is

insufficient to permit the factfinder to conclude that Miramax

acted contrary to its self-interest by choosing to license

exclusively to the Ritz rather than the Roxy.

Moreover, the deposition testimony that Orson offered

to support its assertion that the Ritz had unduly pressured

Miramax in its licensing decisions, even when viewed in Orson's

favor, shows nothing of the kind. The testimony of Raymond Posel

and Martin Zeidman demonstrates only that there existed a mutual

understanding between the representatives of Miramax and the Ritz

that the Ritz first-run licenses on Miramax films would be

exclusive. Thus, we also conclude that Orson failed to show that

Miramax had a motive to conspire with the Ritz to drive the Roxy

out of business.

Lastly, we observe that Orson expended considerable

effort describing the "trade screening charade" and the "sham

bidding" in which Miramax and the Ritz allegedly engaged,

contending that these practices were perpetuated by the parties

to conceal their unlawful scheme. We have concluded, however,

that Orson failed to present sufficient evidence to show that

Miramax and the Ritz conspired to drive the Roxy from the market;

we need not, therefore, consider Orson's allegations of a cover-

up on their part. Further, Orson's assertions about improper

bidding, without more, lack antitrust significance in this case.

As we recognized in Sitkin Smelting & Refining Co. v. FMC Corp.,

24
575 F.2d 440 (3d Cir.), cert. denied, 439 U.S. 866 (1978), "`the

Sherman Act is neither a lowest-responsible-bidder statute nor a

panacea for all business affronts which seem to fit nowhere

else.'" Id. at 448 (citation omitted).0

Therefore, we conclude that Orson failed to sustain its

burden on summary judgment regarding the essential elements of

its antitrust conspiracy claim.

B.

Our inquiry does not end here. The fact remains that

clearances existed between Miramax and the Ritz, and that Orson

contends that they violated section 1 of the Sherman Act.

We begin our analysis of this aspect of Orson's case

with a general discussion of clearances. We first observe that

clearances, which involve entities at different levels of the

0
We do not suggest that allegations concerning the
bidding process lack antitrust significance in all contexts. For
example, in Movie 1 & 2 v. United Artists Communications, 909
F.2d 1245 (9th Cir. 1990), cert. denied, 502 U.S. 1030 (1991) and
502 U.S. 1039 (1992), the plaintiff, a movie theater, alleged
that two competing motion picture exhibitors and 19 national film
exhibitors participated in an illegal "split agreement" in
violation of Section 1 of the Sherman Act. In the motion picture
industry, a split agreement is "an exhibitor agreement which
divides a normally competitive market by allocating films to
particular members for licensing rights to the films assigned."
Id. at 1248. On summary judgment, the plaintiff submitted
evidence which indicated that the distributor-defendants refused
to receive any bids from the plaintiff for first-run films, that
the exhibitor-defendants did not bid against one another and that
the exhibitor-defendants earned respectively about 96.9% and
69.9% of all revenues in the relevant market. Id. at 1251. Under
these circumstances, the Court of Appeals for the Ninth Circuit
held that the plaintiff presented a triable issue on its Section
1 claim of a conspiracy to restrain trade in the form of a group
boycott through split agreements. Id. at 1252.

25
film distribution industry, are vertical, nonprice restraints of

trade. See Theee Movies of Tarzana v. Pacific Theatres, Inc.,

828 F.2d 1395, 1399 (9th Cir. 1987), cert. denied, 484 U.S. 1066

(1988); see also United States v. Paramount Pictures, Inc., 334

U.S. 131 (1948). As such, they are subject under section 1 to a

rule of reason analysis. Three Movies of Tarzana, 828 F.2d at

1399.

Clearances have undergone antitrust scrutiny. Some

time ago, in Paramount Pictures, 334 U.S. 131, the Supreme Court

reviewed a district court decree which resolved an antitrust

action brought by the Department of Justice against several

producers, distributors and exhibitors of motion pictures for

various Sherman Act violations, including the maintenance of a

system of allegedly unlawful clearances. Affirming the district

court's decision to enjoin the defendants from continuing their

clearance practices, the Court approvingly referenced the

district court's view that clearances are justified by "the

assurance they give the exhibitor that the distributor will not

license a competitor to show the film either at the same time or

so soon thereafter that the exhibitor's expected income from the

run will be greatly diminished," as well as the court's

conclusion that reasonable clearances require that the theaters

involved substantially compete. Id. at 144-47.0

0
The clearances at issue in United States v. Paramount
Pictures, 334 U.S. 131 (1948), involved, inter alia, five major
defendants which produced motion pictures and their respective
subsidiaries or affiliates which distributed and exhibited films.
The evidence showed that the clearances were not typical, bearing
no relation to the competitive factors which usually justify

26
 More recently, in Theee Movies of Tarzana, 828 F.2d

1395, the Court of Appeals for the Ninth Circuit considered

whether certain clearances were reasonable restraints of trade

under the circumstances presented. There the owner of a movie

theater ("TMT") brought suit against a competing exhibitor

("Pacific") and several movie distributors, alleging that first-

run clearances granted to Pacific's Galleria Theater by the

distributors violated section 1 of the Sherman Act. The district

court granted summary judgment to the defendants; the court of

appeals affirmed, noting that the courts have acknowledged over

the years that "`the whole system of runs and clearances . . .

purposely, and legitimately, discriminates between competing

exhibitors.'" Id. at 1399 (citations omitted). After initially

observing that the reasonableness of a particular restraint

depends upon an understanding of the industry at issue and a

balancing of the restraint's positive and negative effects on

them. Id. at 146. By way of illustration, the Court set forth
the following finding of the district court:

"Some licenses granted clearance to sell to
all theatres which the exhibitor party to the
contract might thereafter own, lease,
control, manage, or operate against all
theatres in the immediate vicinity of the
exhibitor's theatre thereafter erected or
opened. The purpose of this type of
clearance agreements was to fix the run and
clearance status of any theatre thereafter
opened not on the basis of its appointments,
size, location, and other competitive
features normally entering into such
determination, but rather upon the sole basis
of whether it were operated by the exhibitor
party to the agreement."

Id. at n.7.

27
competition, the court of appeals concluded that although the

clearances the Galleria received reduced intrabrand competition

to a minor degree, they "also encouraged interbrand competition

by forcing TMT to find alternative subrun movies to exhibit and

to promote." Id. at 1399. Considering next the relationship

between the Galleria and TMT, the court determined that in view

of the fact that the theaters competed, the clearances reflected

a reasonable business decision on both sides of the transaction:
Because the two theaters were in
substantial competition, Pacific [the
exhibitor] was properly concerned that
exhibiting first runs at TMT's theater
simultaneously with the Galleria would
diminish the Galleria's income. Pacific
wanted to recoup its investment in the
Galleria and advertising, rather than allow
TMT's theater to "free ride" on its
advertising.

The distributors had a legitimate
business interest in the revenue generated by
the theaters they licensed, because the
distributors were paid, in part, out of each
movie's gross profits. The distributors
wished to reach the largest number of viewers
with the smallest number of movie prints, to
recoup quickly their own investment.

Id. at 1399-40 (citations omitted).
Guided by applicable rules of federal antitrust law and

the cases we have reviewed, we conclude that the reasonableness

of a clearance under section 1 of the Sherman Act depends on the

competitive stance of the theaters involved and the clearance's

effect on competition, especially the interbrand competition

which, as the Supreme Court has instructed, is our primary

concern in an antitrust action.

28
 Applying these criteria to the clearances before us, we

begin with the fact that the parties agreed that the Roxy and the

Ritz were in competition. Thus, the clearances served their

accepted purpose of assuring both Miramax and the Ritz that the

return from one run of a particular Miramax film would not be

diminished.

Turning to the touchstone of the rule of reason, the

clearances' competitive effects, the uncontroverted facts of

record reveal a market in which competition thrived at both the

distributor and exhibitor levels. In Center City, the Roxy, the

Ritz, and the theaters owned by United Artists and American

Multi-Cinema vied for the films of at least 59 distributors.

Indeed, it is the indisputable existence of alternative sources

of supply for the Roxy which negates the existence of

anticompetitive effects in this case. Although the Miramax-Ritz

clearances most certainly reduced intrabrand competition to some

degree by disallowing the Roxy from showing on a first-run basis

any Miramax film that the Ritz had selected, they undeniably

promoted interbrand competition by requiring the Roxy to seek out

and exhibit the films of other distributors, which it

consistently accomplished. Thus, in our view, the record

conclusively establishes that the clearances did not produce the

anticompetitive effects the Sherman Act was designed to prevent.

On the contrary, competition in the relevant market was enhanced;

art film consumers in Center City had more movies from which to

choose. In an apparent attempt to avoid this absence of proof on

an essential element of its case, Orson alluded in its brief to

29
Miramax's having market power, arguing that the distributor had

"enormous financial clout" and "solidified its leading position

among independent film distributors" subsequent to its

acquisition by the Walt Disney Company in 1993. Orson did not,

however, present a factual basis for this belief. As we have

stated, "[l]egal memoranda and oral argument are not evidence and

cannot by themselves create a factual dispute sufficient to

defeat a summary judgment motion." Jersey Cent. Power & Light

Co. v. Township of Lacey, 772 F.2d 1103, 1109 (3d Cir. 1985),

cert. denied, 475 U.S. 1013 (1986).0

We thus conclude that Orson failed to present

sufficient evidence to support its claim that the Miramax-Ritz

clearances were unreasonable restraints of trade.

V.

We turn now to Orson's state law claim brought under

section 203-7 of the Pennsylvania Act. Orson alleges that

Miramax violated 73 P.S. § 203-7 when it expanded the runs of
0
Miramax contends that Orson also failed to show that it
suffered antitrust injury. Since Orson did not meet its burden
of presenting sufficient evidence to demonstrate that competition
was suppressed, we need not address this issue.

We also note that Orson did not allege nor did it
present evidence to show that Miramax was a monopolist or that
only Miramax films constituted the relevant product market. See
Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 723 (3d Cir.
1991) ("[I]t is also true that a well-defined submarket may
constitute a relevant product market and so under certain
circumstances a relevant product market could consist of one
brand of a product, placing intrabrand competition at issue."),
cert. denied, 505 U.S. 1221 (1992). We make these points
because Orson's antitrust theory frequently seemed premised on an
analysis of a market which was limited to Miramax's product.

30
nine films that had played exclusively at the Ritz for 42 days or

less to theaters located in the suburbs of Philadelphia, but not

to other Center City theaters.

Section 203-7 provides in pertinent part that "[n]o

license agreement shall be entered into between distributor and

exhibitor to grant an exclusive first run or an exclusive

multiple first run for more than 42 days without provision to

expand the run to second run or subsequent run theaters within

the geographical area . . . ." 73 P.S. § 203-7 (emphasis added).

On summary judgment, Miramax argued that it complied

with section 203-7 because the relevant "geographical area" as

contemplated by section 203-7 was the greater Philadelphia

metropolitan area; Orson, by contrast, contended that the

expansions to suburban theaters were legally irrelevant because

section 203-7 required that Miramax expand the run of each film

it licensed exclusively to the Ritz to theaters located within

the geographical area covered by the license, namely, Center

City.0
0
Believing that Orson is "apparently contending that
[s]ection 203-7 compels distributors to terminate a first run at
one theater, such as the Ritz, after 42 days and open another run
at a competing theater, such as the Roxy," Miramax argues that,
if interpreted this way, the Pennsylvania Act would be preempted
by the Federal Copyright Act, 17 U.S.C. §§ 101-914. Orson,
however, states in its reply brief that it does not maintain that
section 203-7 compels distributors to terminate a first run at
one theater and appears to argue that section 203-7 would only
require that another theater in the relevant geographic area be
permitted to share in the run after 42 days. In the trade, a
first-run "day and date" refers to the first-run exhibition of a
film by two theaters at the same time. Theatre Enterprises, Inc.
v. Paramount Film Distributing Corp., 346 U.S. 537, 539 n.7
(1954).

31
 The district court found section 203-7's wording

"sufficiently vague" to permit these alternative interpretations.

Orson Inc. v. Miramax Film Corp., 862 F. Supp. 1378, 1387 (E.D.

Pa. 1994). Noting that one of the purposes of the Pennsylvania

Act is to "`promote the wide geographical dissemination at

reasonable prices to the public of ideas, opinions and artistic

expression in feature motion pictures,'" 73 P.S. § 203-2(4), and

that another identified purpose of the Act is to "`foster

vigorous and healthy competition'" in the film business, id.

§203-2(3), the court agreed with Miramax and held that since the

Pennsylvania legislature's "primary purpose in enacting section

203-7 was not to increase market rivalry among direct

competitors, but instead to promote the wide distribution of

movies throughout Pennsylvania[,] . . . Miramax can incur no 203-

7 liability for the 9 films that were expanded to other

Philadelphia area theaters on or before the forty-third day of

their runs at the Ritz." Id. (footnote omitted).

At any rate, we have already rejected a facial
challenge to section 203-7 under the Copyright Act, holding that
"the Act on its face contains no threat to the copyrights
themselves . . . ." Associated Film Distribution Corp. v.
Thornburgh, 683 F.2d 808, 816 (3d Cir. 1982), cert. denied, 480
U.S. 933 (1987). See Associated Film Distribution Corp. v.
Thornburgh, 800 F.2d 369, 377 (3d Cir. 1986), cert. denied, 480
U.S. 933 (1987) ("There may be merit to the distributors'
argument that the 42-day provision, when construed as limiting
the distributors' right to license an exclusive run to 42 days,
is preempted by the Copyright Act. However, such preemption
would be apparent on the face of the statute and cannot be
reconciled with [our] earlier decision [in Associated Films, 683
F.2d at 816] that the Act is not facially invalid under the
Copyright Act.").

32
 The Pennsylvania Supreme Court has not interpreted

section 203-7. We, therefore, must predict how the Court would

interpret and apply that section. Borman v. Raymark Indus. Inc.,

960 F.2d 327, 331 (3d Cir. 1992). Unfortunately, there are no

intermediate appellate court decisions to assist us.0

Pennsylvania abides by well-known rules of statutory

construction. When construing a statute, the Pennsylvania courts

must ascertain and effectuate the Pennsylvania Legislature's

intent. 1 Pa. Cons. Stat. Ann. § 1921(a); Commonwealth v. Lopez,

444 Pa. Super. 206, 663 A.2d 746, 748 (1995). The courts'

"starting point is the language therein, absent any evidence to

the contrary. A statute's plain meaning must prevail." Retenauer

v. Flaherty, 164 Pa. Commw. 182, 191, 642 A.2d 587, 591 (1994); 1

Pa. Cons. Stat. Ann. § 1921(a). Any word or phrase, not

otherwise defined, must be construed according to the rules of

grammar and according to the common and approved usage. 1 Pa.

Cons. Stat. Ann. § 1903(a); Martin Media v. Commonwealth, ___ Pa.

Commw. ___, 661 A.2d 479, 481 n.2 (1995). Further, the letter of
0
When a federal district court exercises diversity
jurisdiction, it must apply the substantive law as decided by the
highest court of the state whose law governs the action. See
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Commercial
Union Ins. Co. v. Bituminous Casualty Corp., 851 F.2d 98, 100 (3d
Cir. 1988). When the state's highest court has not addressed the
precise question presented, a federal court must predict how the
state's highest court would resolve the issue. Borman v. Raymark
Indus., Inc., 960 F.2d 327, 331 (3d Cir. 1992). Although not
dispositive, decisions of state intermediate appellate courts
should be accorded significant weight in the absence of an
indication that the highest state court would rule otherwise. See
Rolick v. Collins Pine Co., 925 F.2d 661, 664 (3d Cir. 1991),
cert. denied, 507 U.S. 973 (1993). Our review of the district
court's prediction and application of state law is plenary. Borse
v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992).

33
the statute is not to be disregarded under the pretext of

pursuing its spirit, 1 Pa. Cons. Stat. Ann. § 1921(b), and the

courts may not insert language into a statutory provision where

the legislature has failed to supply it. Key Savings and Loan

Ass'n v. Louis John, Inc., 379 Pa. Super. 226, 232, 549 A.2d 988,

991 (1988). The courts should give effect to all sections of an

act rather than interpreting the language in such a way that one

clause is rendered superfluous or meaningless for the benefit of

another. 1 Pa. Cons. Stat. Ann. § 1921(a); Key Savings and Loan

Ass'n, 379 Pa. Super. at 232, 549 A.2d at 991. Finally, when a

word or phrase is ambiguous, the courts must look beyond the

statutory language and attempt to ascertain the intention of the

legislature by reference to various statutory factors, including

the occasion and necessity for the statute, the circumstances of

its enactment; the mischief it remedies; the object it seeks to

attain; former law; the consequences of a particular

interpretation; contemporaneous legislative history; and

legislative and administrative interpretations of the statute. 1

Pa. Cons. Stat. Ann. § 1921(c).

With these principles in mind, we conclude that the

district court's interpretation of section 203-7 is erroneous.

Although section 203-7 may be less than clear in certain

respects, it is not ambiguous as to where an exclusive first-run

license must provide for expansion. We believe that as a matter

of simple semantics, the statute's "within the geographical

34
area"0 phrase can only refer to the place where the license was

granted in the first place. In our view, when the district court

interpreted section 203-7 to sanction expansion to theaters

outside of Center City, the plain meaning of the statute's

language was distorted since the word "within" in that phrase was

ignored. Moreover, in referring to the Act's expressed purposes

to support its interpretation, the court overlooked the purpose

which reflects the Pennsylvania Legislature's intention to limit,

as Orson argues, the length of first-run licenses in the very

areas they cover:
[to] benefit the movie going public by
limiting the long and extensive first runs so
that additional theaters, in a given area,
may also exhibit the same feature motion
picture and at possibly a lower admission
price . . . .

73 P.S. § 203-2(9).

We therefore conclude that section 203-7 prohibits a

distributor and exhibitor from entering into a license agreement

which grants an exclusive first-run for more than 42 days without
providing for expansion in the same geographic area covered by

0
We note that the Pennsylvania Act does not define
"geographical area". The Act, however, defines "Run" in section
203-3 as "[t]he continuous exhibition of a feature motion picture
in a defined geographical area for a specified period of time."
73 P.S. § 203-3 (emphasis added). Section 203-7, unlike section
203-3, does not have the word "defined" before "geographical
area." This omission does not change our analysis, even though a
Pennsylvania rule of statutory construction provides that "where
a section of a statute contains a given word, the omission of
such word from a similar section of the statute shows a different
legislative intent." Commonwealth v. Berryman, 437 Pa. Super.
258, 267, 649 A.2d 961, 965 (1994). This single rule cannot
overcome what we see as the plain meaning of section 203-7 and
the Pennsylvania Legislature's intent in enacting it.

35
the license. Because the record is either disputed or incomplete

in critical respects, however, we cannot resolve Orson's section

203-7 claim on summary judgment. Further proceedings are

necessary to resolve, for example, the length of run and

expansion terms, if any, of the licenses; the availability of

license agreements and film prints, if relevant, to subsequent

run theaters; Orson's damages; and Miramax's intent. See 73 P.S.

§§ 203-7, 203-10.

Thus, we conclude that Miramax was not entitled to

summary judgment on Orson's section 203-7 Pennsylvania Act claim.

VI.

For the foregoing reasons, we will affirm the district

court's grant of summary judgment on Counts I and II of the

second amended complaint in Miramax's favor. We will vacate the

district court's order granting summary judgment to Miramax on

Count III as to the nine films that expanded to Philadelphia

theaters outside of Center City on or before the forty-second day

of their runs at the Ritz and remand for further proceedings on

Orson's claim that Miramax's actions as to these nine films

violated section 203-7 of the Pennsylvania Act.0

0
Each party is entitled to the costs it incurred on
those claims on which it prevailed on appeal. The parties shall
notify the Clerk's Office if they are unable to resolve this
division of costs between themselves.

36