..Gary Dretzka
..Noah Forrest
..Leonard Klady
..R.J. Matson
..David Poland
..Douglas Pratt
..Ray Pride
..Michael Wilmington

November 24 , 2003

COMPLAINT
Indies vs. MPAA
page 5

PIRACY AND THE JOINT SCREENER BAN
63. Jack Valenti admitted on behalf of the MPAA that promotional Screeners, specifically those utilized for marketing during awards season, are a very small source of pirated films. Piracy occurs almost exclusively with major studio releases and is not a source of concern for independent film producers or distributors.

Piracy, additionally, is a global problem with many sources. As a recent study by AT&T Research Labs noted, most piracy of DVD-quality films takes place in-house through insiders. There are many opportunities for piracy during the production, post-production and distribution process unrelated to Screeners. A substantial number of pirated films are stolen by persons who smuggle videocameras into theaters when a film is first released. Moreover, the screenings being utilized by the major studios to "replace" the use of Screeners are not only ineffective marketing tools--they are also not any less likely to result in piracy, even with increased security.

64. The films most likely to be pirated on any significant scale or at all are big-budget major motion pictures, which have large publicity campaigns and marketing budgets, are issued by Major Studios that have the capacity to schedule more screenings than they could ever need and the name recognition to not need very many. Smaller, art-house, limited release independent films, often serious dramas, are those least likely to be pirated.

65. There are many anti-piracy initiatives undertaken by the MPAA that are procompetitive--i.e., that create efficiencies due to the fact that they are undertaken as a joint effort. Public education campaigns, lobbying of state, federal, and international governments to strengthen copyright laws, research and development to create technological weapons against piracy, and even the use of pooled resources and joint investigative teams to trace sources of piracy are all efficient and likely more effective because they are undertaken as a joint effort.

66. The collective agreement leading to the Joint Screener Ban, however, by the MPAA, its signatory members, New Line and DreamWorks, to prohibit the use of a particular competitive promotional tool is not made more efficient because of its joint nature. In fact, there is no legitimate reason distributors, including subsidiaries and specialty-divisions, could not make an independent cost-benefit analysis regarding use of screeners. It would clearly advance competition and be more efficient if all studios, distributors and subsidiaries made film-by-film assessments, weighing the potential benefits of marketing a film with screeners against the risk and cost of minimizing piracy for any given film.

67. The only plausible justification for a collective Ban on the use of promotional Screeners is one that is unacceptable under the antitrust laws. Major Studios believe the Ban should be universal to ensure they will not be competing with each other. The effect of the Ban is to insulate Major Studios from competing with each other by using Screeners and from nearly all competition from independent filmmakers, and it will not lead to any significant decrease in piracy.

68. Recent entertainment news accounts have revealed that the Ban on the use of promotional screeners is likely to be extended to use of screeners for purposes of sending "shopping" films to retailers and obtaining pre-release critics' reviews, which are customary today. As with the Ban during the award season, any extension of this Ban will extend the clear disadvantage to small market, independent and specialty films with smaller budgets and fewer economies of scale.

69. While Plaintiffs and others who oppose the Joint Screener Ban also oppose piracy, the MPAA should not use collective industry resources to stop piracy through illegitimate means. Plaintiffs object to anticompetitive measures that are substantially unrelated to piracy, give significant competitive advantages to Major Studios, entrench monopoly power, and erect barriers to entry to the disadvantage of independent filmmakers. The MPAA, the trade association of the American movie industry, made no effort to enlist aid of the entire movie industry community in dealing with piracy. Only those with the least to lose and the most to gain were consulted in erecting a Ban that will address at most a fraction of the piracy that occurs each year, when obvious less-restrictive alternatives exist. The Plaintiffs and others that oppose the Ban also object to the partial repeal that still competitively disadvantages independents and places competing award shows at competitive disadvantage to Academy Awards.

COUNT I
(Unlawful Restraint of Trade: Sherman Act Section 1)
70. Paragraphs 1-69 are hereby realleged and incorporated by reference.

71. The relevant product market(s) impacted by Defendant's actions are:
(a) the market for motion picture production; (b) the market for motion picture distribution (the "theatrical release market"); (c) the market for post-release motion picture rental and purchase in the form of DVDs and videotapes. These markets have both domestic (in the United States as a whole) and international geographic parameters.

72. Defendant has entered into unlawful and unreasonable agreements with its governing members and various other persons and organizations which have participated as co-conspirators with the MPAA in the offenses charged in this complaint and have performed acts and made statements in furtherance thereof.

73. Defendant's Joint Screener Ban, along with other anticompetitive actions, constitutes an unlawful contract, combination or conspiracy to unreasonably limit competition in one or more of the above-referenced relevant markets and unreasonably restrain both interstate and foreign commerce.

74. The agreement to collectively prohibit the use of all Screeners in marketing is a naked agreement among competitors to forego use of a competitive tool and thus limit competition. It is thus per se unlawful under Section 1 of the Sherman Act; the anticompetitive effects, reduced output, increased price, reduced quality, and inhibited competition on the merits, of such a naked refusal to compete are obvious.

75. The agreement to forego the use of Screeners as a marketing tool is also an unreasonable restraint of trade under Section 1 of the Sherman Act. Defendant is an active participant in these agreements. It and its members, along with the other coconspirators and the captive subsidiaries and specialty divisions, exercise substantial market power in all relevant market(s) in the motion picture industry. Any agreement to limit competition between themselves and all of their respective subdivisions will have a substantial adverse impact on the competitive process to the detriment of new entrants and consumers alike.

76. The heightened barriers to entry, diminished competition, and chilling effect on the motion picture industry caused by the Ban and the MPAA's other anticompetitive actions will result in reduced output and distribution of motion pictures, higher prices, decreased quality, decreased consumer choice in both the theater-release market and the aftermarkets for rental and purchase, and the protection of Defendant and its members' market power and share.

77. No procompetitive purpose is served by the Joint Screener Ban in its current form. Although it is procompetitive for the MPAA to battle piracy, the screener Ban is not tailored to or likely to achieve that goal. Screeners are an insignificant source of pirated films, and the Ban impacts most those movies least likely to be pirated. Even if the Ban on screeners were plausibly related to its stated purpose, the Ban is discriminatory and far more restrictive than necessary to achieve the small impact on piracy it could ever feasibly have.

78. There are several less-restrictive alternatives available to Defendant in the fight against piracy that will be just as, if not more, effective. Indeed, Defendant and its members have proven that such an alternative exists with the partial repeal of the Ban for Academy members. Nearly every other group that has traditionally received screeners in the past has offered to abide by the same conditions as those placed on Academy members.

79. The Ban is too restrictive in that it treats all motion pictures the same, in spite of the fact that it is clearly the big blockbuster movies that are most at risk of being pirated. Moreover, there is no reason why a film distributor or studio should not be permitted to make its own assessment of whether or not the marketing gains from the use of screeners as a marketing tool outweighs the risk of piracy. The few independent, non-captive distributing companies, such as Lion's Gate Films, have made that assessment and are utilizing screeners for their films.

80. Plaintiffs are direct competitors with the Defendant's signatory members in all relevant markets. Defendant's anticompetitive conduct is targeted directly toward Plaintiffs and competing awards shows and their attempts to break into the theatrical release and aftermarket sales and rental markets.

81. Consumers will be injured by Defendant's anticompetitive conduct, through increased prices, restricted output, decreased choices and decreased quality of motion pictures. High quality independent films put pressure on established and powerful filmmakers, production companies and distributors to make and distribute quality films. The exposure high-quality independent films have received over the past several years during the awards season has fueled consumer interest in independent film and facilitated the future success of talented filmmakers, increasing both competition and quality in the relevant markets.

82. Plaintiffs have suffered and/or will suffer readily ascertainable and distinct antitrust injury to their business or property by reason of defendant's unlawful agreement. The Joint Screener Ban is causing irreparable harm to Plaintiffs by, among other things, decreasing by immeasurable amounts the exposure they will receive during this awards season and beyond, limiting future opportunities to obtain financing and/or distribution contracts, and otherwise adversely impacting their current and future films and ability to enter into the motion picture industry market(s). The precise amount of Plaintiffs' compensable damages is currently unknown, but will be proven by expert testimony at the time of trial.

COUNT II
(Monopolization, Attempted Monopolization, and Conspiracy to Monopolize: Sherman Act Section II)
83. Plaintiffs repeat and reallege each of the allegations contained in paragraphs 1 through 82 of this Complaint, which are incorporated herein by reference.

84. Defendant and its members have monopoly power in the relevant markets and aftermarkets in the motion picture industry. Defendant's signatory members control approximately 96% of the theatrical release market and hold captive a substantial portion of the film distribution market in the United States. Defendant's signatory members' films account for a large percentage of the films in the foreign distribution market.

85. Defendant and its members have acquired and/or maintained their monopoly power by exclusionary and anticompetitive acts such as the Joint Screener Ban described herein. Alternatively, the Ban and other anticompetitive acts are an attempt and/or conspiracy to utilize its trade association as a guise to entrench and increase their collective market share and monopoly power. Defendant's members and co-conspirators have a dangerous probability in succeeding in this effort.

COUNT III
(Tortious Interference With Contract and Prospective Economic Advantage)
86. Plaintiffs repeat and reallege each of the allegations contained in paragraphs 1-85.

87. Plaintiff independent film producers have valid, enforceable contracts with various distributors for their current or soon-to-be opening motion pictures. Many of these contracts are with distributors that are captive to the Major Studios' agreement to forego the use of Screeners.

88. Defendant's members and their co-conspirators, as corporate heads or parent companies of the captive distributors, had knowledge of these contracts. With knowledge of these valid, enforceable contracts, Defendant and the Major Studios conspired to and did intentionally interfere with them by issuing the Ban on the use of Screeners.

89. Many of these distribution contracts require the distributors to use their best efforts in the marketing of Plaintiffs' films, particularly with regard to awards season. Marketing plans for each of these films accounted for and are now dependent upon the use of promotional Screeners in order to assure the widest possible exposure for the films.

90. The Joint Ban on the use of Screeners as marketing tools during the awards season was not announced in time to make any feasible adjustments--if, indeed, there are any to be made--to compensate for the unavailability of independent film distributors' most valued marketing tool.

91. The actions of the Defendant, its members and co-conspirators in interfering with the Plaintiffs' distribution agreements are in bad faith and without justification and are knowing, intentional and willful.

92. These actions have ensured that these agreements will not be performed in the manner the parties to the contracts intended, have made the performance of marketing obligations under these contracts more difficult and less advantageous, and will ultimately render performance of the contracts impossible altogether.

93. The Joint Ban on the use of Screeners as a marketing tool interferes with Plaintiffs' future prospective contractual relations with distributors, by collectively and unlawfully eliminating a method of marketing from consideration as a contractual term. The elimination of the use of Screeners as a term in contracting with distributors forces independent producers to either accept Major Studios' terms, which increase promotional costs and decrease the likelihood of exposure and critical acclaim, or be excluded from well over 80% of the distributor market.

94. The Defendant's and Major Studio's actions are aimed at Plaintiff independent film producers and are intended to deprive Plaintiffs of the opportunity to enter into distribution contracts that will enable Plaintiffs' films to compete with Major Studio films as efficiently as possible.

95. The actions of Defendant and its co-conspirators in interfering with Plaintiffs' prospective business relationships are in bad faith and without justification and are knowing, intentional, and willful.

96. Plaintiffs will be injured by reason of this unlawful interference with current and prospective contracts in an amount presently unknown, but which will be proven at the time of trial.

97. Defendant's actions toward Plaintiff were outrageous and were taken with evil motive and/or reckless indifference to the rights of others. Plaintiff is therefore entitled to an award of exemplary and punitive damages in an amount sufficient to punish and to make an example of Defendant and its members.

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