Full opinion text
MEMORANDUM OF DECISION AND ORDER OF JUDGMENT FOR DEFENDANTS HAUK, District Judge. Defendant Tracinda Investment Corporation [hereinafter “Tracinda”] is a Nevada corporation, the stock of which is owned entirely by defendant Kirk Kerkorian [hereinafter “Kerkorian”] with Kerkorian serving as its only Director. Kerkorian owns approximately 6% of the outstanding common stock of Metro-Goldwyn-Mayer, Inc. [hereinafter MGM]. Tracinda owns approximately 42% of MGM’s common stock. Thus, Kerkorian, individually, and through Tracinda, owns approximately 48% of MGM’s common stock and is its controlling shareholder. As of November 17, 1978, Kerkorian owned 490,700 shares of the common stock of Columbia Pictures Industries, Inc., [hereinafter “Columbia”], representing approximately five percent (5%) of Columbia’s outstanding common stock. On or about December 26, 1978, Tracinda commenced a tender offer for approximately 1,750,000 shares of the common stock of Columbia, representing approximately nineteen percent (19%) of Columbia’s outstanding common stock. Tracinda’s tender offer for Columbia stock was consummated on or about January 16,1979. As a result of the tender offer and subsequent purchases, Kerkorian individually and through Tracinda now owns 2,438,700 shares of Columbia’s common stock, representing approximately twenty-five percent (25%) of Columbia’s outstanding common stock. In January, 1979, plaintiff had originally sought a Temporary Restraining Order staying the Tracinda tender offer, alleging violation of Section 7 of the Clayton Act. 15 U.S.C. § 18. This Court denied that application for Temporary Restraining Order and Motion for Preliminary Injunction, but allowed plaintiff leave to amend its complaint to seek divestiture of the Columbia stock held by Tracinda. Plaintiff did amend its complaint to seek divestiture, still basing this action upon an alleged violation of Section 7 of the Clayton Act. Court trial in this action commenced on August 1, 1979, and ended August 14, 1979. Having heard the testimony of the witnesses, having read the pleadings and all relevant papers in support of and in opposition to this action, having reviewed the evidence presented in this action and having heard from counsel for plaintiff and counsel for defendants, this court now enters its Memorandum of Decision and Order for Judgment, which shall constitute its findings of fact and conclusions of law herein pursuant to Rule 52(a), F.R.Civ.P. NON-CORPORATE DEFENDANT Plaintiff’s First Amended Complaint names as defendants herein Tracinda and Kerkorian. The prayer of that complaint asks this Court to adjudge the acquisition of Columbia stock by Kerkorian and Tracinda to be in violation of Section 7 of the Clayton Act and to order Kerkorian and Tracinda to divest themselves of their stock in Columbia. Since Section 7 of the Clayton Act only extends to acquisitions made by corporations, Hudson Valley Asbestos Corporation v. Tougher Heating & Plumbing Co., Inc., 510 F.2d 1140, 1145 (2d Cir. 1975); GAF Corporation v. Circle Floor Co., 329 F.Supp. 823, 829 (S.D.N.Y.1971), aff’d 463 F.2d 752 (2d Cir. 1972), cert. dismissed 413 U.S. 901, 93 S.Ct. 3058, 37 L.Ed.2d 1045 (1973), the first question to be confronted by this Court is whether plaintiff may properly seek divestiture under Section 7 of the Clayton Act of the Columbia stock personally purchased and owned by Kerkorian. A corporation may be found to be in violation of Section 7 where the stockholders made purchases on behalf of the corporation. GAF Corporation v. Circus Floor Co., supra. This case, however, does not present such a situation. Plaintiff did not allege, nor was there any evidence presented, that Kerkorian acquired any Columbia stock on behalf of Tracinda or any other corporation or that his personal acquisitions are otherwise attributable to Tracinda or any other corporation. Moreover, in its complaint, plaintiff only alleges the 19% acquisition by Tracinda to be a violation of Section 7 and is silent in this respect upon the acquisitions by Kerkorian. Accordingly, plaintiff has not stated sufficient facts, nor presented evidence, upon which relief may be granted against defendant Kerkorian and, in respect to this defendant, the complaint is hereby dismissed for lack of jurisdiction. Thus this action may be properly maintained only for divestiture of the 19% of Columbia stock acquired by Tracinda. Even if the personal acquisitions by Kerkorian were properly before this Court, since each of the findings of fact and conclusions of law reached by this Court and contained herein apply equally to Tracinda and to Kerkorian, this Court must nevertheless order judgment in favor of Kerkorian as well as Tracinda. Thus the findings and conclusions set forth below apply and cover both defendants in this action. INVESTMENT EXEMPTION Section 7 of the Clayton Act does not condemn every acquisition that may result in the prohibited anticompetitive consequences. An acquisition may escape a challenge under Section 7, even though it may be in violation of the section’s substantive provisions, if it falls within the specific exemptions provided for in Section 7, one of which provides that acquisitions of stock where the acquisition is made solely for purposes of investment are not included in the prohibition of Section 7. 2 Von Kalinowski, Antitrust Laws and Trade Regulations § 15.03. Furthermore, it is necessary to make a clear distinction between an exemption and a defense. 7 Von Kalinowski, supra., § 44.01(2). Some courts have made this distinction, noting that this provision constitutes an exemption rather than a defense, United States v. du Pont & Co., 353 U.S. 586, 589, 77 S.Ct. 872, 1 L.Ed.2d 1057 (1957); Anaconda Co. v. Crane Co., 411 F.Supp. 1210,1218 (S.D.N.Y.1975), while another Court has failed to make this distinction, Gulf & Western Indus., Inc. v. Great A. & P. Tea Co., Inc., 476 F.2d 687, 693 (2d Cir. 1973). In view of the specific language of this section it would appear that the former cases are correct. Once a defendant has demonstrated to the Court that a stock purchase was solely for investment, then the burden is upon the plaintiff to prove that the defendant is not covered by the investment exemption. As stated in Anaconda Co. v. Crane Co., 411 F.Supp. 1210, 1219 (S.D.N.Y. 1975): In cases where the “solely for investment” exemption does not apply, a plaintiff need only show a reasonable probability of a lessening of competition. . Thus the anti-competitive effects may be attacked in their incipiency. The statutory exemption, however, conspicuously omits this language. Once it is established to the satisfaction of the Court that the acquisition is “solely for investment,” the statute requires a showing that the defendant is “using the [stock] by voting or otherwise to bring about or in attempting to bring about, the substantial lessening of competition . . .” Thus, whenever the pleadings of the parties and the evidence adduced at trial in a Section 7 action bring forth facts which reasonably support a determination that the purchase of stock was “solely for investment,” then this exemption issue must be addressed by the Court, regardless of whether it has been raised as an affirmative defense by defendants. Here plaintiff submitted as Exhibit 262, the “Stockholders’ Agreement” — a contract entered into by Kerkorian and Tracinda, and by Columbia, at the time the tender offer was extended. This contract specifically recites that the acquisition of Columbia stock was “solely for investment” and “not with a view to exercising control over the Company” [Columbia]. This contract also limits the extent to which Kerkorian may utilize the newly acquired stock, specifically providing that in a shareholders vote for directors, Kerkorian shall vote his stock in favor of the nominees for election of directors as proposed by the management of Columbia, and shall cast this vote proportionately to the other shares present at the meeting and voting in favor of such nominees. Additionally, the contract places a limit on Tracinda and Kerkorian’s Columbia stock ownership at 25.5%. Accordingly, this contract in and of itself raises the issue of the investment exemption in the first sentence of the third paragraph of Section 7 of the Clayton Act, which the Court is then required to determine at the onset, before it takes up or engages in any meaningful examination of the substantive prohibitions contained in the first and second paragraphs of Section 7. In discussing this investment exemption, the cases have not specifically used any particular approach. The statute and the cases, however, do support a 2-pronged test: (1) a factual determination of whether the acquisition was made solely for investment; and (2) a factual determination of whether the stock is being used by voting or otherwise to bring about or attempt to bring about a substantial lessening of competition. United States v. du Pont & Co., supra; Pennsylvania R. Co. v. Interstate Commerce Commission, 66 F.2d 37, 39 — 40 (3d Cir. 1933) aff’d per curiam, 291 U.S. 651, 54 S.Ct. 559, 78 L.Ed. 1045 (1934); Swift & Co. v. Federal Trade Commission, 8 F.2d 595, 599 (7th Cir. 1925); Anaconda Co. v. Crane Co., supra, at 1218-1219; Hamilton Watch Co. v. Benrus Watch Co., 114 F.Supp. 307, 314 (D.Conn.1953). Before the Court can make a determination of whether the stock acquisition here was made solely for the purpose of investment, it is necessary to determine what is meant by the term “investment” as used in the context of Section 7. In one case it was noted that the word “investment” is one of broad application, including in its various uses purchases of practically every kind and description and for every purpose. It ordinarily signifies the use of money to purchase property, personal or real, for any purpose from which income or profit is expected, presently or in the future, speculatively or permanently. Pennsylvania R. Co., v. Interstate Commerce Commission, supra, at 39. The factors courts have viewed to make this factual determination are as varied as the extent of human endeavor. Courts have looked at such factors as subsequent agreements restricting the use of the newly acquired stock, Anaconda Co. v. Crane Co., supra, at 1218; and the extent to which the defendant already maintains a diversified investment portfolio as well as the price paid for the stock in comparison to the market value of the stock. Hamilton Watch Co. v. Benrus Watch Co., 114 F.Supp. 307, 316 (D.Conn. 1953). The ultimate definitive factor the courts have looked to, however, is whether the stock was purchased for the purpose of taking over the active management and control of the acquired company. Anaconda Co. v. Crane Co., supra, at 1218-19; Hamilton Watch Co. v. Benrus Watch Co., supra, at 316; United States v. Wilson-Sporting Goods Co., 288 F.Supp. 543, 556 (N.D.Ill.1968); Gulf & Western Indus., Inc. v. Great A. & P. Tea Co., Inc., supra, at 674; Swift & Co. v. Federal Trade Commission, supra, at 598. Acquiring the stock of a company for the purpose of control and acquiring the stock for the purpose of investment are not necessarily inconsistent, nor are they mutually exclusive concepts in the practical business world. The use of these concepts in the context of Section 7, however, must be restrained by the legislative intent of that statute. The purpose of Section 7 was to arrest combinations in their incipiency and before consummation. United States v. du Pont & Co., supra, 353 U.S. at 597, 77 S.Ct. 872. Where by stock acquisition one corporation controls another, a combination of the two companies is necessarily created. Where control is nonexistent, there is no combination. Accordingly, in the context of a Section 7 action, this control-investment distinction is not only a valid dichotomy, but is a most useful judicial tool in tackling the investment exemption issue. We find that there has been absolutely no showing that the stock acquisition herein in question was made for the purpose or even with the slightest intent of controlling Columbia. The evidence clearly shows that both Kerkorian and Tracinda made their stock acquisitions solely for investment, and with no intention of controlling Columbia. Central to this finding is the already mentioned contract between the defendants and Columbia, placing in concrete written form the assurances Kerkorian and Tracinda had previously orally given to the Columbia directors and management. We also properly rely upon and cite Kerkorian’s reaffirmation of that contract during his testimony at the trial. The contract bears a striking resemblance to the consent order submitted by the defendants in the case of Anaconda Co. v. Crane Co., 411 F.Supp. 1210 (S.D.N.Y.1975). That case arose out of an offer by Crane Company to exchange certain subordinate debentures to be issued by it for five million common shares (22.6%) of the Anaconda Company, a corporation which owned a major competitor of Crane. In response to an action filed by Anaconda to restrain that offer, Crane submitted a consent order providing that Crane would be limited to the 22.6% acquisition and that Crane would not seek representation on the Board of Directors of Anaconda. Id. at 1217. On the basis of the consent order, the Court in that case determined that Crane did intend to hold the Anaconda stock solely as an investment. Id. at 1218. As in the Anaconda case, the defendants here have voluntarily restricted themselves in the amount of stock they can acquire and in the extent to which they may utilize their stock to vote for directors. Moreover, unlike the Anaconda case where the consent order was submitted only after the offer was challenged, the contract here was agreed to well before Court action was instituted herein, and serves as even stronger evidence that at the time of the acquisition, the stock purchase was made solely for investment. The Government attempts to rebut this overwhelming demonstration by arguing that the contract, upon defendants’ insistence, will expire in three years. The Government claims that defendants’ insistence upon this time limitation shows an intent other than solely for investment. Additionally, the Government asserts that since the defendants will be free of these restrictions at the end of the three year period, they are of little effect and the Court should make a determination based upon the circumstances that will exist after the termination of the three year period. The fact that'this contract will last three years, as opposed to ten, twenty or fifty years, bears very little weight upon the ultimate determination of intent at the time of acquisition, although the Court does take it into consideration. Defendants’ willingness to enter into any such agreement providing for such restrictions for a reasonable period of time clearly shows defendants’ intent at the time of the acquisition. There is no special magic to a ten year or a five year or even a three year commitment. Furthermore, the fact that Kerkorian wanted a definite time limit only shows that he did not wish to be restricted in perpetuity, foreclosing all choices in the future. An unwillingness so to restrict oneself in order to maintain some flexibility is not inconsistent with a present intent to purchase solely for investment. Furthermore, this Court will not engage in the guessing game argued by the Government. We do not know, in fact no one knows or can know, what conditions will exist upon the termination of this contract, and we refuse to base any judgment on pure speculation. The Government further argues against the applicability of the investment exemption here by pointing to a consultation provision in the Stockholders’ Agreement. This provision requires Columbia to consult with Kerkorian on certain major and material financial matters and any changes in top management. The Government seems to argue that this shows an intent to control, and that through such consultation and other business and social meetings Kerkorian will or could dominate the present directors and management to such an extent that he would control Columbia. The Government, however, ignores that portion of the Agreement that provides that “[n]othing in this section shall limit the absolute and unfettered discretion of [Columbia] after such advice and consultation to act on such matters in any manner it deems appropriate.” Plaintiff’s Exhibit 262, at p. 5. This provision clearly convinces us that the power to control always has been, now is, and will continue to be in the present top management and Board of Directors. Furthermore, a consultation provision such as this one is not inconsistent with a present intent that the acquisition is solely for investment. Any substantial investor, acting reasonably, would want to be kept informed about the possible major financial and top management changes contemplated in any corporation where he has placed his money. Likewise, the Court gives little credence to the second main thrust of plaintiff’s argument here, that Kerkorian will control Columbia through his influence over the present management and directors of Columbia. The Court has had the opportunity to observe two members of this group testifying during the course of this trial, Francis T. Vincent, Jr., President of Columbia, and Herbert A. Allen, a member of the Board of Directors of Columbia. Both of these men are confident, intelligent, articulate, self-assured, alert and responsible men. It is inconceivable to this Court how anyone could argue that these men could be mere “toadies” or “lackies” serving anyone, even Kerkorian: It is true that both of these men testified that they will listen to Kerkorian’s advice and consultation. This inclination, however, is not the result of Kerkorian’s stock position, but is in recognition of Kerkorian’s vast knowledge and experience in the business world. Accordingly, the uncontradicted evidence clearly shows that the stock acquisition in question was made solely for investment purposes and was not made with any intent to take over active managerial control of Columbia, or for any purpose other than investment. As to the second prong of the investment exemption test, there can be no doubt. The Government failed to produce a single scintilla of evidence to show that Kerkorian has used, is using, or is threatening to use, the stock by voting or otherwise, to bring about or in attempting to bring about, the substantial lessening of competition. On the contrary, all the witnesses testified that there has been no actual or threatened lessening of competition since the acquisition. Accordingly, it is the determination of this Court that this acquisition of Columbia stock comes squarely within the investment exemption and thus no violation of Section 7 of the Clayton Act can be shown. And in fact none has been shown. POTENTIAL ANTICOMPETITIVE EFFECTS This Court could but does not rest its decision and judgment solely on the investment exemption. The evidence clearly has shown that there will be no reasonably probable anticompetitive effects of the acquisition in question. In arriving at this conclusion it is necessary to review the evidence and applicable law with respect to the substantive prohibitions contained in the first two paragraphs of Section 7. A. INTERFACE BETWEEN COLUMBIA AND MGM Columbia is engaged in the production and distribution of theatrical motion pictures, television series and features, and phonograph records and tapes. Columbia also manufactures and sells amusement games through its Gottlieb division, prints and sells sheet music, and operates radio and television stations. Columbia distributes both motion pictures produced by others and motion pictures which Columbia itself produces. In recent years, approximately one-fourth to almost one-half of the motion pictures distributed by Columbia have been produced by others. MGM owns and operates two hotel-casinos in Nevada, has begun construction of a third hotel-casino in New Jersey, owns and operates a laboratory which processes motion picture film, owns and operates a sound studio where space is leased to others, owns an office building where space is leased to others, owns a library of motion pictures, produces motion pictures and other programs intended for initial viewing on television, and produces theatrical motion pictures. The theatrical motion pictures produced by MGM are distributed in the United States and Canada by United Artists Corporation (hereinafter “UA”). Cinema International Corporation (hereinafter “CIC”) distributes MGM pictures in other countries. MGM was a distributor of motion pictures to theatres until it went out of that business in approximately October 1973. Since that time MGM has not distributed to any theatre any motion picture, whether produced by MGM or by any other producer. When MGM went out of the distribution business it. sold all its distribution facilities located in the United States and abroad and severed its employment relationship with every one of the persons employed in its distribution operations, except for a few persons who were offered positions in other parts of MGM’s business. In accordance with a contract entered into between MGM and UA in October 1973, MGM pays UA 22.5 percent of the gross film rentals of each MGM-produced picture, as a fee for UA’s distribution of the picture. None of MGM’s capital is invested in any facility for the distribution of motion pictures. Since it went out of the distribution business, MGM has not entered into any contract with any exhibitor of motion pictures to license the exhibition of any motion picture. At the time MGM left the business of distribution, it made a major change in its production arm as well. At that time, MGM decided to reduce substantially its production of motion pictures. From late 1973 to date MGM has produced only two to five pictures in each year, while in the past MGM had produced three to four times that many motion pictures in each of the prior five years. MGM hoped that by this action it could maintain better control of the quality of its product. It is in the context of potential competition between these two companies that this acquisition is to be judged. As noted in Brown Shoe v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962), the Clayton Act only prohibits acquisitions where the effect may be substantially to lessen competition, “in any line of commerce in any section of the country.” Accordingly, this Court is first required to determine the relevant market, the area of effective competition. This determination is to be made by reference to a product market (“the line of commerce”) and a geographic market (“the section of the country”). Brown Shoe Co. v. United States, supra, at 324, 82 S.Ct. 1502, 1523. B. THE PRODUCT MARKET The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. Within this broad market, however, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. Brown Shoe Co. v. United States, supra, at 325, 82 S.Ct. 1502. Throughout its complaint, plaintiff referred to the product market as the production and distribution of motion pictures. In pretrial and in trial, plaintiff attempted to narrow this product market in two respects: (1) to motion pictures grossing over one million dollars and (2) to “quality” motion pictures. This Court finds both of these attempts to narrow the product market inappropriate when measured against the Brown Shoe criteria. Plaintiff’s contention that only motion pictures grossing over one million dollars are in the effective area of competition draws an arbitrary distinction with no basis in fact. Relative success of a particular product is not a factor contained in the Brown Shoe analysis. To argue that motion pictures grossing one million dollars compete with each other while motion pictures grossing $999,999 do not compete is a flight of fantasy this Court will not take. This distinction is not recognized by the public; whether grossing more than one million dollars, or grossing less, each motion picture is manufactured with the same facilities; as a product line, each does not have characteristics peculiar to itself rendering it generally noncompetitive with others; and each is not directed toward a distinct class of customers. This same analysis is equally applicable to the “quality” distinction asserted by plaintiff. Again, this distinction bears little relation to reality. Time and again this Court was presented with examples of low-budget or “non-quality” motion pictures made by independent or minor producers that were very successful in the market place and that effectively competed with the high budget or “quality” motion pictures produced by various of the major producers. The distinctions plaintiff has attempted to draw are as unrealistic in this case as the “price/quality” differences rejected in the Brown Shoe case. Accordingly, this Court finds the relevant product market to encompass motion pictures generally. ■ Plaintiff also has maintained throughout this action that production and distribution of motion pictures represents a cluster of activities composing a single line of commerce. The concept of a “cluster of activities” giving rise to a single line of commerce has previously been raised in United States v. Philadelphia National Bank, 374 U.S. 321, 356, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963), and in United States v. Phillipsburg National Bank, 399 U.S. 350, 359, 90 S.Ct. 2035, 26 L.Ed.2d 658 (1970). In these cases, the cluster of activities, such as demand deposits, savings and time deposits, consumer loans, commercial and industrial loans, real estate mortgages, trust services, safe deposit boxes and escrow services were customarily provided by commercial banks, the Court finding the line of commerce to be “commercial banking.” A review of these facts leads to the conclusion that plaintiff herein has not properly applied this concept of a “cluster of activities.” The activities in the two bank cases were all activities that would be provided a customer at the same level of a vertical chain of a particular product. In the present action, however, the activities involved, production and distribution, are not on the same level but are on two different vertical steps leading ultimately to the exhibition of motion pictures to the public. Thus this action is more closely aligned with the Brown Shoe case. The Brown Shoe case dealt with the merger of two large shoe companies. Each shoe company engaged in both the manufacturing and retailing of shoes, again two different steps in the vertical chain of this particular product. The Court in Brown Shoe did not define the line of commerce as the manufacture and retail of shoes. Rather the line of commerce was defined by the product itself, men’s, women’s and children’s shoes, separately. It is interesting to note, moreover, that in discussing the horizontal effects of the merger, both the lower court and the Supreme Court considered manufacturing and retailing separately and not jointly. Thus, implicitly, if not expressly, both courts by their analysis found these two different steps on the vertical chain of this product to be two separate and distinct lines of commerce. In the present action, the evidence is overwhelming and virtually without contradiction that motion picture production, motion picture distribution, and motion picture exhibition are each separate and distinct lines of commerce within the commercial realities of the motion picture industries. The evidence is equally overwhelming and again virtually uncontradicted that the production and distribution of motion pictures, taken together, is not a single line of commerce within the commercial realities of the motion picture industry. Production and distribution are recognized as separate and distinct activities; each utilizes separate and distinct facilities; and each has characteristics peculiar to itself rendering it generally noncompetitive with the other. In the present action, production of motion pictures is the only relevant line of commerce. As stated earlier, in determining the relevant line of commerce, the Court’s attention should be directed to the effective area of competition. Columbia engages in both the production and distribution of motion pictures. There is no question, however, that since 1974, MGM has not engaged in motion picture distribution. Plaintiff has attempted to assert that MGM still is in the business of distribution of motion pictures based upon its relationship with UA. Under the terms of the distribution contract between MGM and UA, the power of approval of the policy decisions is mutual while UA has control over the day to day operation of the distribution of MGM motion pictures. It is common in the motion picture industry for producers to participate with their distributors in making the decisions regarding key aspects of the distribution process, such as the release date, the release pattern, the selection of theaters to exhibit the picture, the advertising budget, and the terms of contracts with exhibitors. That practice is reflected in the contracts between producers and distributors, such as MGM’s distribution agreements with UA and CIC; a producer such as MGM does not become a distributor by reason of such joint participation with its distributor in such distribution decisions. Some producers engage independent contractors called “producers’ representatives” to assist them in dealing with distributors on such matters as release patterns, advertising campaigns, marketing strategies, and other matters relating to the distribution of the producer’s picture. MGM uses several of its employees to perform these same functions. The use of “producers’ representatives,” whether they be independent contractors or employees, does not transform a producer into a distributor. It is clear from the evidence at trial that MGM does not compete with Columbia in distribution and has not done so since late 1973. Accordingly, the only effective area of competition herein involved is the production of motion pictures. It inevitably follows that the relevant product market, or line of commerce, is production; not production and distribution. C. GEOGRAPHIC MARKET The criteria to be used in determining the appropriate geographic market are essentially similar to those used to determine the relevant product market. Congress prescribed a pragmatic, factual approach to the definition of the relevant market and not a formal, legalistic one. The geographic market selected must, therefore, both correspond to the commercial realities of the industry and be economically significant. Brown Shoe Co. v. United States, supra, 370 U.S. at 336, 82 S.Ct. 1502. The Court has also looked to the area where the effect of the merger on competition will be direct and immediate. United States v. Marine Bancorporation, 418 U.S. 602, 619, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1973). Additionally, the relevant geographic market is the market area in which the seller operates “and to which the purchaser can practically turn for supplies.” United States v. Phillipsburg National Bank & Trust Co., supra, 399 U.S. at 357-358, 90 S.Ct. at 2043; United States v. Philadelphia National Bank, supra, 374 U.S. at 359, 83 S.Ct. 1715; Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961). The evidence shows in the present action that the market for production of motion pictures is world-wide. Foreign produced motion pictures directly compete in the United States with films domestically produced. Furthermore, domestic production companies derive a substantial portion of their income from foreign distribution and this in turn substantially affects the ability of these companies to compete domestically. Accordingly, the most relevant geographic market for motion picture production in this action is the entire world, since that is the market area in which motion picture producers operate and to which the distributors of motion pictures can practically turn for supplies of motion pictures. D. ABSENCE OF ANTICOMPETITIVE EFFECT OR PROBABLE ANTICOM-PETITIVE EFFECT In determining whether the subject acquisition violates Section 7, this Court is bound by prior case law which has held that a plaintiff must show that the particular acquisition is reasonably probable to effect a substantial lessening of competition or tend to create a monopoly. This section does not require certainty concerning the proscribed effect, neither does the statute deal with ephemeral possibilities. This Court is required to look to the probable future effects of the acquisition. Brown Shoe, supra, 370 U.S. at 323, 82 S.Ct. 1502. Prior cases have looked at various factors in making this determination. The Brown Shoe case was primarily concerned with the relative market share which companies may control by merger and also the trend in that particular industry toward an increased concentration of the market by the top producers and retailers. Brown Shoe Co. v. United States, supra, 370 U.S. at 343, 82 S.Ct. 1502. Later cases, however, have moved away from this strict reliance on statistics and toward a more comprehensive view of the industry. The Court has stated that Congress indicated plainly that a merger had to be functionally viewed, in the context of its particular industry. Statistics reflecting the shares of the market controlled by the industry leaders and the parties to the merger are, of course, the primary index of market power; but only a further examination of the particular market — its structure, history and probable future — can provide the appropriate setting for judging the probable anticompetitive effect of the merger. United States v. General Dynamics Corp., 415 U.S. 486, 498, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1973). The primary question then is the effect on competition generally in an economically significant market. In the present action, plaintiff has utterly failed to show any anticompetitive effect. All the credible evidence points to the opposite direction, that there will be no substantial lessening of competition as a result of the subject acquisition. There has been no evidence that competition between MGM and Columbia will be affected, let alone evidence that competition in the line of commerce would be affected. Much of the prior case law speaks in terms of merger. While defendants have effective control of MGM, they do not control Columbia by reason of this acquisition. As discussed earlier, defendants are limited in their use of the stock in question and the day to day operation of Columbia is and will remain in the hands of the present management. Accordingly, at the present time it is absurd to talk of merger. The evidence clearly and uncontradictorily points to the conclusion that these two companies will remain separate companies, operating separately and competing against each other. Plaintiff has suggested the existence of anticompetitive effects in only two particulars: (1) defendants will use their position to gain access to competitively sensitive information to better the position of one company to the detriment of the other; and (2) defendants will use their control of MGM to cease production of motion pictures in that company. Neither of these fears are supported by the evidence. The Stockholders’ Agreement entered into by the defendants and Columbia specifically restricts the defendants’ access to competitively sensitive information. Furthermore, it is ludicrous to argue that the defendants, who have substantial investments in both companies, would do anything that would competitively hurt either company. This is not a situation where the investment in the acquired company is minor compared to the investment in the acquiring company. Additionally, it is equally illogical to suggest that the management of Columbia would allow the defendants access to competitively damaging information when they are not required to do so. In regard to the second alleged anticompetitive effect, all the credible evidence showed that both Columbia and MGM are still in the motion picture production business with no proclivities to lessening production below present levels. Accordingly, the Court is absolutely convinced that the subject stock acquisition will not result in a substantial lessening of competition. Even assuming a merger of MGM and Columbia, plaintiff has failed to show the requisite anticompetitive effect. Plaintiff primarily relied upon a statistical showing of relative market shares. These statistics were taken from data published annually by Variety, a newspaper specializing in news events in the entertainment industry. Annually, Variety publishes lists purporting to show all motion pictures having gross rentals in the United States and Canada of one million dollars or more, together with a figure purporting to be the gross rentals for each particular picture. This data, however, is totally irrelevant for use in this action. The effective area of competition herein relevant is the production of motion pictures. This data does not even purport to represent relative market shares in this line of commerce. The figures contained in the Variety data are the rentals received by the distributors not the producers. It may be argued that the Court could extrapolate upon this data to determine various producers’ market share, since many of the major producers distribute their product through their own company and as a result the distribution figures are relevant in determining production figures. This, however, is folly, because while some major producers distribute through their own companies, the distribution arms of these major companies also distribute many motion pictures produced by other companies. Additionally, the terms of these distribution agreements between the distribution arms of major companies and the independent producers vary considerably; as a result, any sort of factual division of these revenues between distribution and production is impossible without more specific data. The use of the Variety lists as a proxy for dollar volume of commerce would ignore these facts and attribute to each distributor the full rentals, even if that distributor kept only its fee and its expenses, and remitted the balance to an unrelated and independent producer. Two important distortions would occur: (1) A highly disproportionate amount of the dollar volume of commerce would be attributed to distributors and therefore improperly imply a degree of concentration among those firms; and (2) Columbia’s market position would be overstated because it would incorrectly attribute to Columbia as a producer the revenues Columbia remits to the independent producers whose many pictures it distributes. In any event, Variety lumps together the totals for the United States and Canada, whereas the uncontradicted testimony of one of plaintiff’s own witnesses was that there can be very sharp differences in the popularity of particular pictures in the United States and in Canada. Since this data does not represent a measure of the relevant line of commerce, it is irrelevant for these proceedings. Assuming this data is relevant, its obvious unreliability leads this Court to totally discount it. This data is derived from lists compiled by Variety reporters from data supplied voluntarily by some, but not all distributors, on a non-uniform basis, subject to no systematic verification, but subject to such adjustments as the intuitive judgments of Variety reporters dictate. Mistakes are common. For example, the 1978 Variety list of annual film rentals, while purporting to report every motion picture having rentals in the United States and Canada of one million dollars or more in 1978, omitted at least 29 pictures having total rentals of $195.3 million, including “Saturday Night Fever,” a Paramount picture having gross rentals of about $71.5 million. “Saturday Night Fever,” if not omitted, would have been Variety’s second ranking picture of 1978. Plaintiff’s efforts to supply some of the omitted film rental data during trial, and after defendants had pointed out many Variety deficiencies, failed to discharge plaintiff’s burden to show the volume of commerce in the relevant line of commerce. The corrections were themselves based on other stories appearing in Variety, the accuracy of which is subject to many of the doubts which apply to the Variety lists initially relied on by plaintiff. In this case, there is no market share data at all on production; and only totally unreliable data has been offered by plaintiff as to distribution, and as to “production and distribution.” Moreover, plaintiff’s so-called “production and distribution” data, as modified at trial, would not, even if reliable, make out a prima facie violation of Section 7. Even plaintiff’s revised data, as shown on plaintiff’s exhibit 315, set forth for the period 1975-1978 an MGM average share of 2.2% and a Columbia average share of 9.7%, well below the level normally considered by plaintiff for legal action under its Merger Guidelines. 1 CCH 1977 Trade Reg. Rptr. ¶ 4510, at 1, 6, pp. 6881, 6884. Furthermore, the data, as shown on defendant’s exhibit GGGG, set forth for the period 1974-1978 an MGM average share of 1.75% and a Columbia average share of 6.72%, even further below plaintiff’s Merger Guidelines. While those Guidelines do not bind this Court, they reinforce this Court’s conclusion that no tendency toward a lessening a competition will ensue from the subject acquisition. Accordingly, while the Court has rejected plaintiff’s theory that the production and distribution of motion pictures constitutes a single line of commerce, if the Court were to assume the existence of such line of commerce and if the Court were to assume the merger of MGM and Columbia, there would be no reasonable probability of a substantial lessening of competition or any tendency to create a monopoly in any geographic market, either in the United States, any section of the United States or throughout the world. The history, structure and probable future of the motion picture industry support this Court’s conclusions. There are hundreds of firms (even thousands) engaged in motion picture production and many new firms have entered motion picture production recently. There are no barriers to entry into the business of motion picture production. A relatively small investment is required to enter motion picture production, and all of the elements necessary to carry on the business of motion picture production are in plentiful supply and easily available, including numerous sources for financing production. Approximately four hundred theatrical motion pictures are produced in the United States alone each year and rated by the Motion Picture Association of America Rating Service. According to the Motion Picture Association of America, about three-fourths of the rated motion pictures are released each year. Motion picture producers individually and as a whole lack significant market power because many other forms of entertainment and leisure collectively constitute a good substitute for consumer expenditures on motion pictures. Any numerical expression of a firm’s share of the motion picture production market, while not provided by plaintiff at the trial herein, would necessarily depict significantly less market power than the same numerical expression would depict in industries where there are no individual or collective substitutes for the product. There are no dominant firms engaged in the production of motion pictures who engage in interdependent or parallel behavior with the capacity effectively to determine price and total output of goods and services. Plaintiff attempted to show a dominance by eight major companies. Plaintiff’s data, however, failed to show a highly concentrated market. On the contrary, the evidence has shown a dynamic market with heavy competition from outside these major eight and within these majors, with one additional company, American International Pictures, on the verge of being recognized, and indeed being recognized, as a “major” and an additional company, Associated Film Distributors, thereby entering the market on the scale of a “major” company. In ranking the various companies plaintiff has placed Columbia fifth and MGM ninth among the major companies. There is little argument concerning the placing of Columbia within the “major” companies. MGM’s placement, however, is based on nostalgia rather than present day fact. MGM, since 1974, has produced approximately four theatrical motion pictures per year, or approximately one percent or less of the total number of theatrical motion pictures produced in the United States alone. While MGM is an important producer, it is by choice no longer one of the major companies, as compared to other production companies. Even taking into consideration the distribution of motion pictures, the structure and history of this market shows dynamic competition. Entry into motion picture distribution, while not as easy as entry into motion picture production, is also relatively easy. There are a large number of firms, probably more than one hundred, engaged in motion picture distribution in the United States alone. Recent entrants into motion picture distribution, such as Associated Film Distributors, demonstrate that entry is not difficult. This healthy competition, and lack of substantial barriers to entry, limit the ability of any company or companies to establish a monopoly or exert market power. Motion picture distributors individually and as a whole lack significant market power because many other forms of entertainment and leisure collectively constitute a good substitute for consumer expenditures on motion pictures. There are no dominant firms engaged in the distribution of motion pictures who engage in interdependent or parallel behavior with the capacity effectively to determine price and total output of goods and services. Plaintiff has failed to prove that there is concentration in the relevant market. Plaintiff has therefore failed to make out a prima facie case of an antitrust violation. Such a case is made out only if there is also proof that the industry is one “where concentration is already great or has been recently increasing . . . .” United States v. General Dynamics Corp., 415 U.S. 486, 497, 94 S.Ct. 1186, 1194, 39 L.Ed.2d 530 (1974) . In any event the production of motion pictures is not an industry where concentration is already great or has been recently increasing. Thus, no prima facie case could have been made solely by the use of statistics asserted by plaintiff to show MGM’s and Columbia’s shares of “production and distribution.” Even if plaintiff had shown that motion picture production were greatly concentrated or recently increasing in concentration, and even if plaintiff had shown the combined share of MGM and Columbia of either of such markets, such market-share statistics would have given- “an inaccurate account of the acquisition’s probable effects on competition.” United States v. Citizens and Southern National Bank, 422 U.S. 86, 121-122, 95 S.Ct. 2099, 2119, 45 L.Ed.2d 41 (1975); United States v. Marine Bancorporation, 418 U.S. 602, 631, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974); United States v. General Dynamics Corp., 415 U.S. 486,497-498, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974). Even if the statistical data offered by plaintiff were reliable, all relevant industrial facts show that the subject acquisition would not lessen competition in violation of section 7 of the Clayton Act. Id. At this point, the Court perhaps should indicate that both during the trial and in the decisional process it discounted as unreliable and unscientific much of the expert testimony offered by the plaintiff, while relying heavily upon the technical economic skills and knowledge of the defense expert and the two Court appointed experts. The reasons for this preferential conclusion of the Court on expert credibility is best illustrated by a comparison of the curricula vitae and expertise of the Government witnesses, Gerald Hellerman, a “Financial Analyst” and Philip M. Eisenstat, an “Applied Statistics” expert, both employees of the Antitrust Division of the United States Department of Justice, on the one hand, with those of the defense witness, James Mack Folsom, Vice-President of Glassman-Oliver Economic Consultants, Inc., and the Court appointed witnesses, Dr. Robert Wayne Clower, U.C.L.A. Professor of Economics, and Dr. J. Fred Weston, Professor, Graduate School of Management at U.C.L.A. It is informative and interesting to compare the resume of Eisenstat, and testimony of Hellerman (Appendix A), with Curriculum Vitae of Folsom, Biographical Summary, etc., of Clower, and Bio-Bibliography of Weston (Appendix B). Moreover, their respective testimonial statements confirm the Court’s belief in the superior knowledge and expertise of Folsom, Clower and Weston, as conclusively becomes evident when one compares the testimony of Hellerman, Rep. Tr. pp. 1356-1440, and Eisenstat, Rep. Tr. pp. 1709-1932, with the testimony of Folsom, Rep. Tr. pp. 1935-2100, Clower, Rep. Tr. pp. 2111-2263, and Weston, Rep. Tr. pp. 2264r-24U. Plaintiff has not shown that the production or the distribution of motion pictures is either concentrated or recently increasing in concentration. The statistical showing by plaintiff of MGM and Columbia combined market shares — MGM 2.2% plus Columbia 9.7%, combined shares 11.9% for the years 1975-1978 (Ex. 315), or MGM 1.75% plus Columbia 6.72%, combined shares 8.47% for the years 1974-1978 (Ex. GGGG) —even if reliable, does not make out a violation of Section 7 of the Clayton Act. United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974). In United States v. Tidewater Marine Service, Inc., 284 F.Supp. 324, 338-342 (E.D.La.1968), the court held that even if the combined shares were 31 percent, the merger would not be unlawful because the market was not concentrated but was vigorously competitive, and entry was not difficult. To like effect is United States v. International Harvester Co., 1976-2 Trade Cases ¶ 61,028 at 69,527 (N.D.Ill.1976), aff’d, 564 F.2d 769, 773 (7th Cir. 1977), reh. denied and reh. en banc denied (1978), where the court ruled that the combination of market shares of 8 percent and 14 percent of four-wheel drive tractors was not unlawful in context, where the top four firms had a 73 percent share, where one of the participants had a weak financial position (but was not a failing company), and where the industry was vigorously competitive and trending away from concentration. See also United States v. Crowell, Collier & MacMillan, Inc., 361 F.Supp. 983 (S.D.N.Y.1973) (combination of firms of 41.9% and 0.6% not barred); United States v. M.P.M., Inc., 397 F.Supp. 78 (D.Col.1975) (combined market share of 31.6% held not anticompetitive); United States v. Consolidated Foods Corp., 455 F.Supp. 108, 134-141 (E.D.Pa.1978) (combining nation’s fourth largest firm in industry having a 7% share with the eleventh firm having a 3% share, where top three ranking firms after the merger would control 62.5% of the market, held not anticompetitive); In re the Pillsbury Company and Fox Deluxe Foods, FTC Dkt. 9091, opinion of the Commission, 17-18 (June 15, 1979) (combining 15.4% with 1.7% is not unlawful, even though industry was “concentrated”). Conditions in the production of motion pictures differ from conditions in the grocery industry as described in United States v. Von’s Grocery Co., 384 U.S. 270, 86 S.Ct. 1478, 16 L.Ed.2d 555 (1966), conditions in the beer brewing industry as described in United States v. Pabst Brewing Co., 384 U.S. 546, 86 S.Ct. 1665, 16 L.Ed.2d 765 (1966) and conditions in the business of manufacturing aluminum and copper conductors as described in United States v. Aluminum Co. of America, 377 U.S. 271, 84 S.Ct. 1283, 12 L.Ed.2d 314 (1964), in these important ways: (a) there is no trend in concentration in the production of motion pictures; (b) there is no trend toward horizontal integration in the production of motion pictures; (c) there are no significant economic barriers to entry into motion picture production; and (d) there is no shrinkage in the number of firms engaged in motion picture production. Further, in Alcoa, the products in question were made by the leading firm (27.8% and 32.5% of the relevant markets) in a highly oligopolistic industry. CONCLUSION AND ORDER The Government attempted to shape the contours of the action by referring to the profiles of totally unreliable statistics which happened to be readily available. The slavish reliance placed on this unreliable data by the Government is not warranted when one looks at the realities of this industry and, specifically, the realities of the two motion picture production companies, MGM and Columbia. These realities as found by this Court, based upon all the evidence before it, clearly show that neither the subject stock acquisition, nor the use of such stock by voting or granting of proxies or otherwise, nor the possible merger of Columbia and MGM does or would substantially lessen competition, or does or would tend to create a monopoly; nor is there any threat whatsoever that any such thing may occur. Therefore, there is no possible violation of section 7 of the Clayton Act. And, finally, as initially found and concluded by the Court, the investment exemption set forth in the first sentence of the third paragraph of Section 7 of the Clayton Act, 15 U.S.C. § 18, clearly and convincingly applies to this stock acquisition and takes both defendants, Kerkorian, and Tracinda, out of its prohibitory parameters. It ineluctably follows that the plaintiff is not entitled to any order requiring the defendants or either of them to divest themselves of any of the stock of Columbia purchased and now held by them. One last matter remains and that is the question of whether to award the usual allowable costs to defendants and against plaintiff. All parties agree that this determination is within the discretionary power of the Court. After consideration of the entire case, its complexity, the difficult questions of law involved, and the tremendous factual work load and legal burden undertaken and so successfully carried by defendants, the Court exercises its discretion in favor of defendants and against plaintiff, even though plaintiff is the Government. Rule 54(d), F.R.Civ.P.; 28 U.S.C. § 2412; Local Rule 15, C.D.Cal.; United States v. O.K. Tire & Rubber Co., 1978-2 CCH Trade Cases, par. 62,331, p. 75,973 (D. Idaho 1978); Subscription Television, Inc. v. Southern California Theatre Owners Assoc., 576 F.2d 230, 234 (9th Cir. 1978); United California Bank v. THC Financial Corp., 557 F.2d 1351, 1361 (9th Cir. 1977). LET JUDGMENT BE ENTERED ACCORDINGLY. APPENDIX A 1. Resume of Philip M. Eisenstat 2. Curriculum Vitae (via testimony) of Gerald Hellerman RESUME OP PHILIP M. EISENSTAT Education: B.B.A. (1970) Temple University. 1971-1974 Graduate School Northwestern University. Completed all course requirements for Ph.D. 1977-1978 Georgetown University Law School. Work Experience: Economist, Antitrust Division, U.S. Department of Justice, testified in: U. S. v. Dairymen Inc. U. S. v. Mid-America Dairymen, Inc. U. S. v. Culbro Publication & Papers: Joint papers written with Rob Masson, Regulation as a Source of Monopoly. An Economic Analysis of the Associated Milk Producers Inc. Monopoly. A Stochastic Rationale for Predatory Pricing. HELLERMAN — DIRECT Transcript of his Deposition. Mr. Weidman: That’s right. Mr. Heller-man had been deposed by counsel. The Court: Well, all right. At least I take it the defendants are aware of it, but we still don’t have a curriculum vitae. Where is that little piece of paper that apparently was given to the defense. Has anybody got it? Mr. Rothman: Your honor, we can’t locate it. The Court: All right, Mr. Hellerman, but go ahead. But I’ll give you five minutes at the most. Give us your curriculum vitae. Don’t ask any questions. He can just narrate it to save time. The Witness: In 1959,1 received a Bachelor of Arts degree with a major in economics from the University of Massachusetts in Amhurst. In 1962, I received a Masters of Business Administration, also from the University of Massachusetts. At graduate school, I received a teaching fellowship based on class standing. My Work: In 1962, I started to work at the Securities and Exchange Commission as a financial analyst in the branch of investment companies. The Court: In what? The Witness: In the branch involved with investment company regulation. The Court: Branch investment companies? The Witness: The branch involving the work of regulating investment companies. The Court: All right. The Witness: Under the Investment Company Act of 1940. The Court: All right. The Witness: In 1967,1 was promoted to Branch Chief of the Public Utility Holding Company Act of 1935. The Court: All right. The Witness: In 1972,1 was requested by Senator Phillip A. Hart, Chairman of the Anti-Trust and Monopoly Subcommittee of the United States Senate, to be detailed to his subcommittee to act as special adviser. The Court: Subcommittee of what? The Witness: Of the judiciary committee. The Court: All right. The Witness: Of the United States Senate. The Court: All right. The Witness: In 1976, I joined the antitrust division of the Department of Justice and I am presently employed there. The Court: All right. I think that’s enough. Go ahead. I think he’s qualified as an expert. By Mr. Weidman: Q. Mr. Hellerman, as part of your duties with the anti-trust division, have you been an advisor to the trial staff of United States vs. Tracindal A. That is correct. Q. And what have you done along those lines? A. I have made recommendations as to witnesses, potential witnesses or people knowledgeable in the industry. I have accompanied counsel to various interviews, and I have advised during the court proceeding on matters which dealt with finance and corporate matters. Q. As part of your duties, did you study the financial condition of Columbia and MGM? A. Yes. I’ve had a computer print out done at one point of all the companies — or of many of the companies in the motion picture industry which is sort of a knee jerk reaction when assigned to an industry or asked to work on an industry. APPENDIX B 1. Curriculum Vitae of James Mark Folsom 2. Biographical Summary, etc., of Robert Wayne Clower 3. Bio-Bibliography of J. Fred Weston JAMES MACK FOLSOM CURRICULUM VITAE HOME: 6200 Wilson Blvd. # 1116 Falls Church, Virginia 22044 (Telephone: 703-534-0682) OFFICE: Vice-President Glassman-Oliver Economic Consultants, Inc. 1725 K Street, N.W. Suite 801 Washington, D.C. 20006 (Telephone: 202-331-1946) DATE & PLACE OF BIRTH: May 16, 1932 Barney, Georgia EDUCATION: Institution Attended Dates Degree Georgia Southwestern College 1949-51 University of Georgia 1951-53 BBA (Marketing) Vanderbilt University 1953-54 1956-59 (Completed all requirements for Ph.D. except thesis.) Major Fields: Industrial Organization and Agricultural Economies HONORS, SCHOLARSHIPS, FELLO