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

November 26, 2003

TRANSCRIPT OF THE HEARING

ANTIDOTE INTERNATIONAL FILMS
vs
MOTION PICTURE ASSOCIATION OF AMERICA

_____________________________________________________________

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x

ANTIDOTE INTERNATIONAL FILMS,
et al.,

Plaintiffs,

v. 03 CV 9373 (MBM)

MOTION PICTURE ASSOCIATION OF
AMERICA,

Defendant.

------------------------------x
New York, N.Y.
November 26, 2003
0:00 a.m.

Before:

HON. MICHAEL B. MUKASEY,
District Judge

APPEARANCES

MILLER, CANFIELD, PADDOCK & STONE
Attorneys for Plaintiffs
BY: GREGORY L. CURTNER
FREDERICK RICHARD JUCKNIESS

WILLIAMS & CONNOLLY
Attorneys for Defendant
BY: RICHARD M. COOPER
-and-
LOEB & LOEB
BY: JONATHAN ZAVIN
-and-
SARGOY, STEIN, ROSEN & SHAPIRO
BY: JEFFREY A. ROSEN

Conference
(In open court)

THE COURT: Good morning. Thanks for coming in on short notice. What I'd like to do is to try to get some kind of agreement on at least what it is that's going on here. And then we can see whether we have to haggle about what the legal effect of it is or not. As I understand it, the MPAA has a rule that says its members who are the principal movie producers don't distribute screeners. And screeners are distributed to critics and other people who give awards. So far, is that right?

MR. CURTNER: That's correct, your Honor.

THE COURT: Do you dispute it? I see heads shaking in the back table.

MR. COOPER: I am Richard Cooper from Williams & Connolly in Washington D.C. I think I need to be admitted pro hac.

THE COURT: You are in good standing in D.C.?

MR. COOPER: I'm sorry?

THE COURT: Federal courts and U.S. Supreme Court, no recent indictments?

MR. COOPER: No, that's correct.

THE COURT: Good. You are admitted.

MR. COOPER: Thank you. It's not actually a rule of the MPAA. The MPAA has no administration enforcement role with respect to it. A number of studios, the MPAA announced that a number of studios would not be sending award screeners to groups other than the Academy of Motion Picture Arts and Sciences, but it's not a rule that the MPAA imposes, administers or enforces.

THE COURT: So, you wouldn't object simply doing away with it since it has no effect at all?

MR. COOPER: If an order were directed to us solely, it would have no effect. The order would have no effect.

THE COURT: According to the plaintiffs, it would have the effect of permitting each studio to decide for itself whether it is going to distribute the screener or not.

MR. COOPER: Indeed, they allege in the motion that the Motion Picture Association is controlled by the studios, not the other way around.

THE COURT: I think the strong suggestion is that this is something the studios want to do, and they've got the MPAA as kind of a stuffed dummy with them inside of it as a way of doing it, no offense to your client.

MR. COOPER: I understand. The MPAA has no control over the studios.

THE COURT: How is it that the MPAA has announced this policy?

MR. COOPER: The MPAA was the spokesperson with respect to the policy. The MPAA ---

THE COURT: It is a mere mouthpiece?

MR. COOPER: Essentially.

THE COURT: Okay.

MR. COOPER: It had a role in helping to bring it about. It conducted the discussions with the academy on the modifications that occurred in October. That modification was announced in a press release in October 23. Initially, your Honor, there was an announcement on September the 30th that there would be no screeners sent out for awards.

THE COURT: So the plaintiffs have waited essentially two months before coming into court.

MR. COOPER: And the MPAA was the announcing body for the official policy back in September. And then for the modification of the policy, in October. And Jack Valenti, the head of the MPAA, has met with many people in connection with this matter. But it's not something that the MPAA as an institution decides on, imposes, administers or enforces. There is no enforcement mechanism.

THE COURT: Again, if that's the case, your client has no objection to withdrawing whatever statement it made about there being such a policy.

MR. COOPER: That we would, your Honor.

THE COURT: Why?

MR. COOPER: There is a reason. The statement is a taking of a stand on a matter that is of grave peril to this industry. Piracy is in the process of imposing catastrophic results on the recording music industry and the motion picture industry may not be far behind. And this was an effort to send a message, in part, to everyone in the industry that this is something that threatens thousands and thousands of jobs and livelihoods, and people need to be greatly concerned about it. And all the old ways of doing business need to be reexamined with respect to the risk of piracy they entail. For the MPAA to be ordered to withdraw that statement, would send precisely the wrong message with respect to a very grave threat.

THE COURT: I don't think they're advocating making the MPAA withdraw any opposition it has to piracy.

MR. COOPER: Jaw boning in the past hasn't worked. This is an effort in effect --

THE COURT: What makes this work is that everybody adheres to it, correct?

MR. COOPER: No. There are distributors outside the MPAA member companies and the two other companies.

THE COURT: I am talking about the MPAA member companies.

MR. COOPER: That's right. And they adhere to it with respect to films in which they have made an investment. This is their own films to which they have -- distribution rights.

THE COURT: Each of them would remain free if the statement were withdrawn, correct?

1 MR. COOPER: That's true. There is a further - there is a further problem here. Because if studio A sends out screeners for one of its films, and those screeners lead to piracy, that piracy has a negative effect not only on studio A's films, but on the films of studios B, C, and D, because they are now competing not merely with the legitimate version of studio A's film, but also with the pirated version of studio A's films. Those may be available for virtually nothing in the Internet or abnormally low prices in contraband markets. There are external effects from piracy, and therefore external effects from screeners -

THE COURT: The principal effect, the pirates don't pirate unsuccessful or obscure films, do they?

MR. COOPER: They pirate whatever films they can get their hands on. There is a worldwide infrastructure -

THE COURT: They try to pirate mostly the successful films.

MR. COOPER: I don't think that's correct. They pirate all sorts of films, with respect, your Honor. In 2002, over 60 films had screeners sent out for them in connection with awards campaigns. MPAA has documented that more than 30 of those screeners led to piracy, that pirated copies that were seized by the MPAA anti-pirate program were traced back to screeners for approximately half the films for which screeners were sent out.

THE COURT: Each of the studios though remains free to either send them out or not send them out, regardless of what the MPAA says about it.

MR. COOPER: That's true. But there is a tragedy of the commons problem here. As an example, it's been in the papers, the New England fishery. It's in the interest of every individual fisherman to catch as many fish that they can. If every individual fisherman catch as many fish as they can, the fishery gets destroyed and the market for the catching of fish is destroyed and disappears. There are external effects from sending out screeners, all the benefit, if any, and we submit it is not -

THE COURT: The analogy doesn't hold, it really doesn't.

MR. COOPER: Well, can I take a moment to try to argue for it?

THE COURT: Sure. Take as long as you want.

MR. COOPER: The way the analogy holds is that there is that -- if I am making an action film, and Mr. Rosen's making an action film, and I send out a screener for my action film and I get whatever the benefits are, those go solely to me. But if my film is pirated, then Mr. Rosen's film is competing not only against my legitimate copy in theaters and whatever distributors charge for the DVD of my film, but his action film is now competing against Internet versions of my film, it is competing against contraband DVDs or cassettes of my film, at much lower prices. And that erodes his market, not just mine. That is an external effect for which I'm not paying, he's paying. And for the studios that distribute 20, 25 films a year, that is a very significant effect. If I'm interested -- if I am a producer and I'm only involved in one film, I may not worry about that too much. All I care about is my film. If you have an institutional investment in this market, and you want it to continue for years to come, then you don't want piracy to destroy it and you don't want thousands of layoffs as have occurred in the recording music industry in the last couple of years, with precipitous declines of sales and revenues of legitimate copies. That's what's facing this industry. This case is about piracy.

MR. CURTNER: May I be heard, your Honor?

THE COURT: Yes.

MR. CURTNER: Good morning. I'm Greg Curtner representing plaintiffs. Mr. Cooper is making an argument that is not permitted or allowed under the antitrust laws. While there may be external effects from piracy, there may be external effects in various industries such as fishing, the remedy for those kinds of external effects is governmental action. It is not private collective action. That very argument has been rejected again and again and again by the United States Supreme Court under Sherman Act cases. Most notably and most prominently in the National Society of Professional Engineers decision, when the argument was made by the professional engineers that if they compete on price, if they competed by engaging in competitive bidding, the bridges might fall down and the buildings might fall down because they wouldn't be constructed strongly enough. The Supreme Court said that may be an argument for some kind of regulation of some kind, but it is not an argument for economic elimination of rivalry among competitors. That is just not an acceptable argument. The ruinous competition defense is not a legitimate defense under the antitrust laws. It's been established over and over and over again.

Secondly, this is a new rule. It was sprung upon the industry with ruinous effect on the small film makers and the small film producers and the artists who appear in them at the last minute after their campaigns, after their distribution -

THE COURT: The last minute was in September, wasn't it?

MR. CURTNER: That's correct, your Honor.

THE COURT: This is November 26.

MR. CURTNER: And they have been protesting, seeking relief from this ever since they've met with Mr. Valenti. The first time anyone has ever said the MPAA was not the lynchpin, the controlling party in this conspiracy, is this morning in this courtroom. Mr. Valenti has been the leader, the spokesperson and the ramrod of this initiative. My clients have met with him on several occasions, he admitted that the small films of which my clients are the makers and producers, are not a source of piracy. There is no evidence that we know of and we are prepared to put on evidence that our films are not a source of piracy.

As your Honor has correctly noted, all we seek is to allow the distributors, 80 percent or more of whom are controlled by the organizations that make up and dominate the MPAA, to make up their own mind on a film by film basis. As they did prior to September. And I think I've responded to the arguments, but I believe that the claim of piracy is a red herring. It's fictitious. It is not really what's going on here. What's going on here is entrenchment of the big budget films, the big budget studios. Everybody is free to take whatever steps they want, if we get the relief we want, to combat piracy.

THE COURT: Do I have to find that piracy is not an issue in order to rule for you?

MR. CURTNER: I don't believe so.

THE COURT: I don't think so either. Why are you biting that off?

MR. CURTNER: Only because Mr. Cooper raised it.

THE COURT: He may occasionally raise legitimate issues. It does happen from time to time that one's adversary has a point. He may have a point, it may not be a dispositive one.

MR. CURTNER: I have nothing else to add at the moment, your Honor. We are prepared to put on evidence if the Court wishes or prepared to argue if the Court wishes.

THE COURT: You're the lawyers. Go ahead.

MR. COOPER: I'd like to respond. First, on the timing point, your Honor. On September 30, it was announced by Mr. Valenti, and the plaintiffs get it almost right in their complaint, paragraph 16 --

THE COURT: If Mr. Valenti doesn't control anything, what's he doing meeting with these folks?

MR. COOPER: He's a representative. He is not - he does not control the studios. No trade association controls its members. This is not a regulatory body. This isn't the New York Stock Exchange or self-regulatory body. This is a trade association.

THE COURT: These people who are objecting to this, right, they come to Valenti, and Valenti, instead of saying listen, I can't do anything about this, go elsewhere, he sits and has meetings with them.

MR. COOPER: He's a messenger. It is convenient for all concerned for messages to be delivered through Valenti and to Valenti. He transmits them.

THE COURT: He is a medium.

MR. COOPER: He is a medium. That is what he is, among other things, but that's what he is for these purposes. He is not a decision maker. What they say in paragraph 16, on September 30, 2003, Jack Valenti, president of the MPAA, announced that the member companies of the MPAA and their subsidiaries, including specifically divisions along with New Line Cinema, Inc. which is a wholly-owned subsidiary of Time Warner, DreamWorks, collectively signatory companies agreed to a joint ban. It was the studios that did something and Mr. Valenti announced it. They knew that on September the 30th. That policy went into effect immediately. So there was the screener policy went into effect immediately and across the board. So they knew at that time. It was not as though it was an announcement we are considering something. It was done and they waited two months to come into court and say we need relief immediately before the defendants have a chance even to put together a response.

We received the complaint after close of business hours on Monday. We received the moving papers in the middle of the afternoon about 2:45 yesterday. Almost a hundred pages of papers. That seems to me unfair. Simply unfair. That we haven't been given an adequate opportunity to respond when they have had two months to put together their papers and apparently to prepare witnesses. To come into the court today on very short notice, I asked Mr. Curtner on Friday, last Friday if he was going to sue us. I did know he was going to sue us, but where he would sue us, and he declined to tell me. We couldn't be sure we were doing legal research for the right jurisdiction. I think it's unfair to proceed on to do something substantive today. That's number one.

THE COURT: Let's stop with that. Mr. Curtner, I asked you earlier what took you so long. You said you were talking to their medium, Mr. Valenti. If you want equitable relief, don't you have to act promptly?

MR. CURTNER: Yes, your Honor, although the deadlines which are actually causing the irreparable harm are immediately in the near future. They hadn't occurred in September or October. They are --

THE COURT: You knew they were coming, didn't you?

MR. CURTNER: Yes, your Honor, we did know they were coming.

THE COURT: Then why did you wait?

MR. CURTNER: My clients have been taking every step they can to get this overturned, your Honor.

THE COURT: You waited two days before Thanksgiving to bring on a TRO.

MR. CURTNER: They are afraid to file a lawsuit because of retaliation.

THE COURT: They suddenly got their gumption up two days before Thanksgiving?

MR. CURTNER: Because everything else failed. Mr. Valenti met with them, he promised to get back to them. He said he was considering their position. He said he was moved by their plight. Other industry insiders, including some of the coconspirators, have been saying we think this ban is wrong and should be changed. It was partially repealed a month after it was announced. So we had hoped that it might be repealed as to the other awards organizations.

THE COURT: When is your actual deadline?

MR. CURTNER: Your Honor, the Golden Globes final screening date is December 9, the deadline for ballots, 15 December 15. Directors Guild of America deadline, January 5. Screen Actors Guild, January 13. British Academy of Film and Television Arts -

THE COURT: The earliest one is December 9?

MR. CURTNER: There are some on December 3rd. The Independent Producers Spirit Awards, I think we've already missed that one.

THE COURT: So that horse is out of the barn.

MR. CURTNER: The bulk of them are going on right now, your Honor. And screeners have just -

THE COURT: You say the bulk of them are going on right now?

MR. CURTNER: In the month of December and January, and the screeners that are being allowed are just now going in the mail and being delivered. So it is not too late; it is timely. We had hoped for better, but it is now the time when the irreparable harm is being felt.

THE COURT: Which you waited for a good month and a half to approach until you did something about it.

MR. CURTNER: I suppose if I had come earlier, Mr. Cooper would argue that the harm hadn't occurred yet and wasn't immediate. Which is what's required under the law.

THE COURT: No, it requires that it be imminent. It requires it happen before. That's why it is preliminary. It is preliminary to a trial on the merits. You have to show you are going to be irreparably harmed before the matter can be heard on the merits.

MR. CURTNER: It has taken --

THE COURT: You could've shown that in September.

MR. CURTNER: It has taken about a week or two weeks since we got the final no from Mr. Valenti. That's how long it's taken. Your Honor, it seems to me that based on Mr. Cooper's argument, that the MPAA doesn't really object to the elimination of this rule, and is not a party to it, they allege, although all the documents say they are a party to all of these agreements. We could accept relief as proposed by the Court that the MPAA is restrained from enforcing the adoption or taking any objection to implement this rule.

THE COURT: They say it would constitute a retreat on the piracy front.

MR. CURTNER: And everybody's free to make their own --

THE COURT: -- that they would suffer great embarrassment or something like that.

MR. CURTNER: They have laws on the books in Congress, the Theft Digital Millennium Copyright Act. They are very active in policing piracy, and my clients and all the independent producers have the same interest in avoiding piracy. Nobody is in favor of piracy involved in this lawsuit. And this relief we seek will have no effect, absolutely not one iota of effect on creating piracy. People -- the screeners, the pirates get copies of films -

THE COURT: You say you are prepared to put on witnesses who will testify presumably that your stuff isn't pirated. What else will they testify?

MR. CURTNER: They will testify to the harm on them and imminent deadlines and also to the effect on the films that they have in the pipeline for this year that will be irreparably harmed by the absence of fair consideration by the awards bodies.

MR. COOPER: I addressed the timing issue, but I'd also like to the address the antitrust issue. I think it is incorrect that there is any case that the Supreme Court or elsewhere that reads on the problem presented by this case.

THE COURT: What about Indiana dentists who banned everybody from distributing X-rays, kind of like banning everybody from distributing screeners?

MR. COOPER: We don't have a rule that is binding on everybody and enforced by an organization that has power over its members.

THE COURT: I don't know whether the Indiana board of dentists had power over their dentists either. They were simply announcing a policy they all followed.

MR. COOPER: That policy was significant reduction in competition by them. What we have here is something that is -

THE COURT: A significant reduction in the distribution of screeners.

MR. COOPER: Which is a minor part of the competition.

THE COURT: Depends on your point of view.

MR. COOPER: Let me submit the alternative point of view to the plaintiffs' point of view. Not all films are serious contenders for awards. Studios decide film by film whether they will mount a campaign to win awards for the film. These are films that studios have invested in. Some films they conclude --

THE COURT: You mean these awards aren't given on the merits?

MR. COOPER: They are given on the merits, just like political elections are on the merits. But campaigns are conducted. It is very analogous to a political campaign. There is advertising, there are special events, there are interviews, there are screenings in theaters, special screenings to which people are invited to see the films.

THE COURT: They are not making you do any of that.

MR. COOPER: Let me just explain, please. So the studios make an initial cut as to which films they are going to mount campaigns for and which they are not. If a film is not the subject of a campaign, a screener is useless. If a film is the subject of a campaign, it is a small part of all the things that are done in the campaign, including screenings. There is vigorous competition for awards among the member companies, most especially the Academy Awards, by far the most important awards.

THE COURT: There are regional and small city awards for which these folks would like to compete, in which your studios probably aren't interested.

MR. COOPER: No, they are interested. If you think of a small group of awards, say a group of film critics in a particular city, let's say the 25 or 50 film critics screenings can be held, multiple screenings, 8, 10, 12, 15 screenings are held to invite those film critics to come see the film in the circumstances in which it is best assessed.

THE COURT: You're going to have a witness who will testify to that, right?

MR. COOPER: I don't have a witness today.

THE COURT: I know. But you will?

MR. COOPER: We will if you give us the opportunity.

THE COURT: That's what we are talking about, giving you the opportunity.

MR. COOPER: Before you impose an order on us and we do object to, no one wants to be subjected to a court order. No one wants to be held even preliminarily in violation of the law. And also, the order they want is that we should prevent the member companies from doing and other companies who aren't even members.

THE COURT: They are not asking you to prevent anything, as far as I can tell.

MR. COOPER: That's their proposed order, your Honor.

THE COURT: I'm not going to sign it.

MR. COOPER: That's all I saw before I came here.

THE COURT: Okay.

MR. CURTNER: Your Honor, the Court is correct. Our proposed relief would simply restore freedom of choice to the distributors to make decisions on a film-by-film basis. I might point out that one of the agents of the coconspirators was quoted yesterday and gave an interview on NPR Radio, Harvey Weinstein of Miramax, which is owned by Disney. He stated, I think this is admissible as an admission -

THE COURT: Save it for the hearing.

MR. COOPER: It is not an admission by the MPAA.

MR. CURTNER: It is a coconspirator admission.

THE COURT: Gentlemen, have you already start working on answering papers?

MR. COOPER: Yes. And to be candid with the Court, we have some that we could -- they are not as good as we would like them to be, but we could file something if we had to. Worked on them early this morning.

THE COURT: You mean file them today?

MR. COOPER: We could if we had to. I'd rather not because I'd like to make them the best we can do.

THE COURT: I used to use that with term papers all the time. "I can hand it in on time, but if you really want them to be good, give me a couple of days."

MR. COOPER: I assume for term papers you were given more than a day's notice.

THE COURT: That's true. Unfair analogy. Let's do this. Why don't you hand in what you have. And I take it most of the other people sitting in the back are your associates?

MR. COOPER: No.

THE COURT: Somebody's associates?

MR. COOPER: Maybe film lovers.

MR. CURTNER: They've got a few and we've got a bunch, your Honor.

THE COURT: I want to avoid having associates work over a holiday weekend, because I used to practice law once. What I'd like you to do is to get in the revised form by Tuesday the 2nd. But serve the ones you have today, today, so everybody gets coming attractions as it were. And we'll have a hearing on Wednesday. And I will rule on Wednesday.

MR. COOPER: The ruling will be on the TRO?

THE COURT: Yes.

MR. COOPER: Not a preliminary.

THE COURT: Correct. Wait a second. What else would you have at a preliminary injunction hearing that you can't give me on Wednesday?

MR. COOPER: The Thanksgiving holiday is not the best time to round up witnesses.

THE COURT: Fair enough. TRO.

MR. CURTNER: Your Honor, we have some awards that will be at some deadlines that are coming up even next week. If we could have interim relief from now until then.

THE COURT: No. You did this. You delayed and you sat on your rights and I don't think they should be penalized as a result.

MR. CURTNER: I agree with that, your Honor. We did the best we could in terms of trying to negotiate a resolution of this. And then coming there is a small amount of lead time required for duplication from the date of getting relief. But we'll be prepared to proceed whenever the Court wishes.

THE COURT: All right. 9:30 on Wednesday. What I want to hear, obviously, you are the lawyers and you decide what you're going to put on. But what I would expect to hear, is evidence relating to the effect of the ban; evidence, if there is any, relating to effect of what the requested relief would be; and I want you to exchange summaries of what your witnesses are going to testify to. In other words, I don't want any rabbits coming out of any hats on Wednesday. So you're to talk about it and let each other know what's coming and who's coming. Okay? Please.

MR. CURTNER: Yes, we understand, your Honor.

THE COURT: Wednesday, 9:30. And have a happy Thanksgiving.

MR. CURTNER: Thank you.

MR. COOPER: Thank you.