Opinion: DOJ Oscars Threat Exposes Politicized Department

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The recent letter from the head of the Antitrust Division of the Department of Justice to Academy CEO Dawn Hudson sure raised some eyebrows in the industry. In sum, division chief Makan Delrahim warned Hudson that changes to Oscar eligibility rules against streaming services would be viewed with suspicion. The Academy has not made any rule changes, to be clear. But, Steven Spielberg made waves of late with plans to push for such rules. This was a result, no doubt, of “Roma‘s” recent three wins at the Academy Awards. What to make of the DOJ Oscars letter? Does it have any teeth? Or is it political grandstanding and bluster in the age of showmanship?

It is no secret that the sitting President is no fan of the Academy. Plop on over to the Twitter feed–if you dare–for some examples. Since before he even ran for office, you can find missives against the organization. These include variations on some Trump favorite/classics like “sad,” “failing,” and “lackluster.” You get the idea. Hollywood never fully embraced Donald Trump the reality TV star and has resoundingly rejected Donald Trump the President. I am not really in the business of psychology but there appears some truth to the theory that there is some…resentment there.

It is difficult, then, not to be increasingly cynical about the DOJ Oscars letter. Delrahim is a well-respected anti-trust lawyer but he is also a relatively close Trump associate. It is not hard to imagine–again, at least cynically–that he is simply doing the President’s bidding here. After all, how often does the Antitrust Division send these types of letters? I am not an antitrust expert–or practitioner, for that matter. But, it seems contrary to Department practice to take such a vocal, visible step when exactly nothing at all has happened. And, on the heels of the same DOJ letting through the Disney/Fox merger, creating the greatest entertainment behemoth in history, it all really does reek of foul play.

And what of the merits of the legal warning in the DOJ Oscars letter? My cynicism only doubled after I read it. Allow me some legalese to explain.

In the letter, Delrahim referred to the Supreme Court’s decision in 1985 in a case called Northwest Wholesale Stationers v. Pacific Stationery. The DOJ Oscars letter is a demand letter: if you don’t do this or that, I may sue you. Typically, you put one of your best feet forward in this letter. Litigation is costly and amicable resolutions are always easier to procure. You want the other side to take your threat seriously and reconsider their position.

Why then, would Delrahim cite a case that goes the other way–i.e., against his position? In Pacific Stationery, a stationery retailer sued a trade organization that sold supplies wholesale to its members at a discount. The retailer said that the expulsion limited its ability to compete and was, therefore, an intrinsic violation of Antitrust law. The Supreme Court, unanimously, disagreed. The Court said that to violate the law, an expulsion of this nature would have to come from a cooperative with “market power” or “exclusive access to an element essential to effective competition.” Further, the Court elaborated, it would be practicing with such “pernicious effect on competition and lack of any redeeming virtue” that will be considered presumptively illegal.

It is almost laughable to see how this could possibly apply to an Academy eligibility rule change. First of all, where is the expulsion? The Academy is not proposing, for example, to kick off Netflix employees from voting membership. Instead, the Academy is setting rules for the doling out of its awards. As a private association, does it not have the right to do so?

There is so enough irony to split the universe in half in the legal position taken by the DOJ Oscars letter. So, the Republican Party is the Party of participation trophies now? Does everyone have to get one? What about the seminal and horrendous Boy Scouts v. Dale decision by a conservative Supreme Court in 2000? There, they said that the Boy Scouts of America, as a private association, had a First Amendment right to exclude gay scout members. The idea was that they have a right to thus control their messaging. Of course, Dale did not involve anti-competitive concerns, but the First Amendment principle is the same.

Second, and going back to Pacific Stationary, what market power does the Academy have? The Academy is not a distributor, it is not a filmmaker, and it is not a theater. Nor is it, as far as I know, controlled by a cadre of families composing the big studios. That may be true of the original Academy. But, absent proof that traditional studios or theaters are using the Academy to collude secretly against Netflix and Amazon…In legal parlance, the Academy and its members are not competitors of Netflix. How, then, can they be engaged in anti-competitive practices against it?

Third, does the Academy really have “access to an exclusive element necessary to competition”? This is the most hysterical part. If my theory is correct that this is a political grandstanding move, the consequences may be unintended. In Court, the Trump DOJ will have to convince a Judge that access to an Oscar is so “exclusive” that it is vital for a studio to compete in the movie business. This proposal cannot be taken seriously. Netflix has become a behemoth in the industry without any Academy recognition. And also, what “business” exactly are we talking about here? The theater business? The movie business? Netflix has elected to take itself out of the former and dominates in the latter.

The Supreme Court in Pacific Stationary itself provided an answer. It reminded us of one of its many rulings–in defiance of rational antitrust principles–to protect organized sports. In NCAA v. Board of Regents of the University of Oklahoma, the Supreme Court permitted against an anti-trust challenge NCAA rules limiting televised broadcast of college football. The Court said that the restraint was “essential if the product is to be available at all.” The Court has similarly blessed anti-competitive practices from MLB and other sports organizations. Would the Academy not have an argument that propping up theater distribution is necessary so that the movie industry exists in the first place?

Ultimately, it is hard to take the arguments in the DOJ Oscars letter very seriously, at least from 30,000 feet.

But, that does not mean that the Academy should or take the threat glibly. Most notably, litigation would entail “discovery,” i.e., scrutiny into its membership and their internal discussions. The exact composition of the people making this decision may well be the key to whether the Academy would win this case. I doubt the Academy wants that sort of exposure. The Academy does not shy away from litigation, and it typically hires some of the most expensive Los Angeles law firms for its copyright and patent work, to great successes in the federal courts. But taking on the DOJ is a whole separate matter. Nor do I think the Academy was going to actually limit streaming eligibility rules. The net effect of the DOJ Oscars letter may simply be that we will never know how close a vote would have been.

Part of me now wants the Academy to rule ineligible streaming films. Would the DOJ really move against it? What would the outcome be? From a legal perspective, alone, this is a fascinating question. And, from an industry-watchers’ one, even more so. It was about time that the Hollywood Presidency gave us some real Hollywood drama.

What do you think? Should the Department of Justice take action against the Academy if they deem streaming films ineligible?

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