Legal Geek No. 198: Theater Owners vie to maintain the Paramount Consent Decrees

Hi, and welcome back to Legal Geek.  This week, we review how theater owner trade groups are trying to stop the Department of Justice from removing rules that have governed conduct of the major film studios they deal with for over 70 years.

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Back in the 1930's and 40's, various antitrust enforcement actions by the U.S. government against major film studios led to what is known as the Paramount Consent Decrees.  These decrees bar several major studios from owning both the distribution and exhibition operations for films, while also banning a number of specific distribution practices such as setting of minimum prices for movie tickets and forcing theaters to license multiple films bundled together instead of individual films.  The decrees were intended to separate theater providers from film studios while also making the film studios "play fair" in distributing films to theaters for viewer consumption.

These decrees have been active since 1949 and are one of over 1300 antitrust judgments with no expiration date.  Periodically the Department of Justice reviews these active judgments on the books to determine if all are still necessary, the most recent such review happening in late 2018.  That review resulted in the Paramount Consent Decrees being identified as one judgment that the DOJ no longer considered necessary.  As such, the DOJ made a court action to terminate these decrees with a two-year sunset period on some of the current bans.

Which brings us to the present, and the counter motions and briefs filed by the theater owner trade groups.  The trade groups argue that these provisions have maintained a thriving film exhibition and distribution market where independent smaller studios can properly compete for screen time, even in towns and regions with fewer screens per theater.  The trade groups specifically call out the block booking rule as crucial, noting that bigger studios could force out competitors and smaller studios by demanding a group of their films be licensed by a theater in order to have access to the big moneymaking blockbuster.

The trade groups also argue that the government hasn't followed the technical standard for removing such consent decrees from the books, which requires a showing that it's in the public interest to remove such decrees.  I expect the DOJ will craft a response arguing that removing this decree is in the public interest to try and overcome this technical legal challenge.

Of course, the trade groups do not directly address the government's position regarding the change in the movie industry with streaming services and the like as alternatives.  This sets up to be the potential core of the court decision, as the theater owners have a legitimate concern about potentially being bullied by major film studios, but they may not really be how small independent studios distribute anymore in the age of streaming services.  It's a close call, in my legal opinion, and the shifting movie consumption landscape makes this a ripe question for handling in 2020.

The Bottom Line is: antitrust law and consent decrees have an important place in our regulatory scheme to protect against monopolies and unfair business practices.  However, times change in industry and when change occurs, the same protections from the past may not be applicable.  It will be fascinating to see if the courts think the movie distribution industry has changed enough to take the reins of control off the major film studios.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy

Legal Geek No. 197: Are Administrative Patent Judges even Legal?

Hi, and welcome back to a new year of Legal Geek.  I survived a nasty holiday bug that took my voice away with coughing fits, but I'm back and ready to roll with 2020 vision.

This week, we review a massive appeals court case decided a few weeks ago on whether all Administrative Patent Judges at the Patent Office, or APJ's, are appointed in an unconstitutional manner.

https://archive.org/details/legalgeekep197 

When the U.S. reformed its patent laws a few years ago, one of the biggest changes was the creation of a more robust challenge system for invalidating patents.  These Inter Parties Review proceedings are heard before 3 judge panels from the Patent Trial and Appeal Board, which is made up of APJ's who are currently appointed to those positions by the Secretary of Commerce and the Patent Office Director rather than the President.  The inventive legal challenge made by the loser of one of these patent challenges was that APJ's are not properly appointed under the rules of the Constitution, therefore making their decisions invalid.  

The potential was there for possibly undermining 6 years of these proceedings that have invalidated many patents.  Hence why this case was a big deal.  The Federal Circuit tackled this question and carved out a way for APJ's to still be constitutional without undermining the validity of the patent owner's challenge in this particular instance.

Under the appointments clause of the constitution, the President appoints all officers of the United States that are not inferior officers.  So if APJ's are principal officers, then they cannot be appointed by the Secretary of Commerce.  The appeals court first confirmed that APJ's are Officers of the United States because they clearly exercise significant authority pursuant to the laws of the U.S. in conducting trials and issuing final written decisions on validity of U.S. Patents.  Then the question turned to whether APJ's are principal or inferior officers. 

The court used a Supreme Court precedent that defined an inferior officer as one whose work is directed and supervised at some level by others appointed by Presidential nomination and consent of the Senate.  The Court applied a 3 factor test for this, looking for review power, supervisory power, and removal power of the closest appointed officer, that being the USPTO Director.  First, the court reviewed whether the Director had power to review or overturn final written decisions of APJ's, and the Court concluded the Director did not have such review power.  The Court also determined that the Director had sufficient supervisory powers over the APJ's, but no power to remove such judges from judicial service other than for cause.  Thus, 2 of the 3 factors favored APJ's being principal officers, which makes their current appointment not done by the President and Senate unconstitutional.

To avoid a quagmire where the entire Patent Trial and Appeal Board is thrown into chaos with all re-appointments to be done by a single President, the Court then modified the patent law to remove the restrictions on removing patent judges to push a second factor in favor of them being inferior officers.  In other words, they made the patent law constitutional again by making the Director have full removal power at will over Administrative Patent Judges.  The patent owner who challenged this patent review would thus be granted a new IPR trial in front a new panel of APJ's that are now properly inferior officers, but this did not cause upheaval of all prior decisions or remove the process for patent reviews.

What will be interesting to see is whether the USPTO Director actually wields this removal power more to take out APJ's who are overly biased for or against patents.  Or if the issue is handled in the future by using Presidential appointments for such judges.

The Bottom Line is: this argument against constitutionality of appointments of all administrative patent judges was a "Hail Mary" of sorts, but sometimes those long shots work.  It remains to be seen if this will create any substantive change for how the Patent Trial and Appeal Board works.  But this is the front line of many battles over IP in America, and so it's vital that the process works properly under the Constitution and all other laws.

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Do you have a question? Send it in!

Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy