Cozen O’Connor: DOJ Warns Academy that Excluding Streaming Platforms from Awards Eligibility May Violate Sherman Act [Alert]

DOJ Warns Academy that Excluding Streaming Platforms from Awards Eligibility May Violate Sherman Act

April 10, 2019
On March 21, 2019, Assistant Attorney General Makan Delrahim, Chief of the Antitrust Division of the Department of Justice (the Antitrust Division), wrote a letter to Dawn Hudson, CEO of the Academy of Motion Picture Arts & Sciences (the Academy), warning her that contemplated changes to eligibility requirements for the Academy Awards could run afoul of the Sherman Act. Delrahim’s letter is in response to recent reports1 that Steven Spielberg, a member of the Academy’s Board of Governors, intends to propose rule changes that would exclude films debuting on streaming platforms, such as Netflix, Amazon Video, or the forthcoming Apple TV+, from consideration for Academy Awards. While this letter came as a surprise to some, as discussed below, it is a continuation of the Antitrust Division’s efforts to apply antitrust enforcement in areas subject to other important policy goals.
 
Invoking Section 1 of the Sherman Act,2 Delrahim’s letter to the Academy cautions that “agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition by goods or services that consumers purchase and enjoy but which threaten the profits of incumbent firms.” Delrahim suggests that the prospective exclusion of films debuting on streaming services could serve to “diminish the excluded films’ sales,” which would violate Section 1.
 
Delrahim’s letter to the Academy previews the antitrust theory that DOJ would potentially pursue against the Academy if it follows through on changing its eligibility requirements. Delrahim references the Supreme Court’s decision in Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., which held that a cooperative association’s collective agreement to expel a member of a wholesale buying group could constitute a per se violation of the Sherman Act under certain circumstances.3 By citing Northwest Wholesale Stationers, Delrahim’s letter to the Academy suggests that the Academy is akin to a trade association where competitors gather, and should the Academy decide to exclude streaming platforms from its forum, the Academy would constrain competition via the wholesale exclusion of one segment of the market.
 
Delrahim’s letter is in direct response to the motion picture industry’s difficulty in adapting to the advent of technological advancements in the public’s access to feature films. Streaming platforms are making undeniable inroads in the motion picture industry’s institutions, as Netflix became a member of the Motion Picture Association of America (MPAA) earlier this year. Spielberg’s proposed restrictions on access to the preeminent market of a film’s success, however, have raised concerns about restricting such technological advancements in streaming. 
 
A parallel enforcement effort suggested in Delrahim’s letter to the Academy involves DOJ’s prosecution of “no poach” agreements (between competitors not to solicit or hire each other’s employees), even criminally, to further a policy goal of employee freedom and mobility. In United States v. Adobe Systems, DOJ alleged that tech companies, including Adobe, Apple, Intel, and Google, agreed to not cold call each other’s employees in an attempt to poach an employee from a competitor. DOJ argued that although such no poach agreements did not necessarily impact the customer directly, such agreements were still “naked restraints of trade” in violation of Section 1 of the Sherman Act because they “eliminated a significant form of competition to attract high tech employees.”4
 
In October 2016, DOJ formally announced that its enforcement of no-poach agreements in the employment sphere would not be limited to the tech sector. In joint guidance co-authored with the Federal Trade Commission (the 2016 Antitrust Guidance), DOJ announced its intention, on a going-forward basis, to criminally prosecute “naked” wage-fixing or no-poach agreements.5
 
The first high-profile example of DOJ antitrust enforcement in the employment context after the 2016 Antitrust Guidance was in its 2018 settlement with two large rail equipment suppliers, Knorr-Bremse AG (Knorr) and Westinghouse Air Brake Technologies Corporation (Wabtec).6 Making allegations that largely reiterated those made in the tech industry actions, DOJ argued that the companies agreed neither to solicit, nor in some cases hire, each other’s employees without its competitor’s assent. Mirroring its earlier position, DOJ argued that “market allocation agreements,” regardless of whether they involve product output or employment input, are per se violations of Section 1 of the Sherman Act.7
 
Delrahim’s letter to the Academy reflects another example of DOJ’s use of antitrust enforcement as a tool to advance policy goals it deems important. As the motion picture industry adapts to the increasing presence of streaming platforms as an alternative to the traditional theatre-going experience, Delrahim’s letter serves as a reminder that antitrust laws present a formidable tool for weakening the grasp that entrenched interests and old-fashioned ideas have in this evolving market. 
 
2 15 U.S.C. § 1.
3 472 U.S. 284, 294-95 (1985).
4  Competitive Impact Statement at 1, 7, U.S. v. Adobe Sys., Inc., (No. 10-CV-01629) (J. Kollar-Kotelly) (D.D.C. 2010). 
7 Competitive Impact Statement at 9, U.S. v. Knorr-Bremse AG, (No. 18-CV-00747) (J. Kollar-Kotelly) (D.D.C. 2018).

 


Authors

David Reichenberg

Member

dreichenberg@cozen.com

(212) 883-4956

Alexander M. Kargher

Member

akargher@cozen.com

(213) 892-7954

Matthew W. Kinskey

Associate

mkinskey@cozen.com

(202) 747-0774

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To discuss any questions you may have regarding the issues discussed in this Alert, please contact Dave Reichenberg at (212) 883-4956 or dreichenberg@cozen.com, Alexander Kargher at (213) 892-7954 or akargher@cozen.com, Matt Kinskey at (202) 747-0774 or mkinskey@cozen.com, or any other member of Cozen O’Connor’s Antitrust team.