Cook County Record

Wednesday, February 26, 2020

Appeals panel turns out lights on Chicago film studio's antitrust suit vs IL Film Office

Federal Court

By Scott Holland | Oct 18, 2019

Divergent poster
The "Divergent" series of films were among the cinematic and television programs filmed at Cinespace studios in Chicago.

CHICAGO — A federal appeals panel has ruled an Illinois state agency didn't violate antitrust laws in how it apportioned the state's support for competing Chicago film studios.

Chicago Studio Rental and Chicago Studio Real Estate Holdings, which does business as CSC, accused Betsy Steinberg, former managing director for the Illinois Film Office, of steering business to their competitor, Cinespace. In September 2018, U.S. District Judge Sara Ellis granted summary judgment in favor of Steinberg, the IFO and the Illinois Department of Commerce and Economic Opportunity.

A three-judge panel of the U.S. Seventh Circuit Court of Appeals ruled on CSC’s appeal in an opinion issued Oct. 16. Judge Ilana Rovner wrote the opinion. Judges Michael Scudder and Amy St. Eve concurred.

The panel, echoing Ellis, said CSC was the only film studio in the city for nearly 30 years. Cinespace opened in 2009 and “rapidly expanded its studio to include 26 more stages and 24 times more floor space” than CSC, according to Rovner, who added CSC “could not keep up, failed to attract production business and ultimately stopped making a profit.”

The panel noted CSC mandates that companies lease its production equipment for a 0.4 percent charge, while Cinespace allows companies to use any provider, “including an unaffiliated equipment rental company called Cinelease that charges 0.2 percent.” While CSC’s studio lacks permanent air conditioning or scene docks, “Cinespace’s studio can accommodate two-story sets and includes air conditioning, inside breezeways and scene docks, concrete floors, soundproof walls and new offices,” Rovner wrote.

In dismissing the antitrust claim with prejudice, Ellis determined IDCEO, IFO and Steinberg, in her official capacity, all have 11th Amendment immunity protection. The panel said resolving the issue of immunity was irrelevant because it agreed with Ellis’ determination CSC didn’t adequately allege an antitrust injury.

In its complaint, CSC accused Steinberg of using her office to promote Cinespace at the expense of CSC, allegedly violating CSC’s 14th Amendment equal protection rights. CSC said Cinespace received $23.3 million in state grants from 2009-2015, while CSC received none. But the panel, again echoing Ellis, said the state’s job, and specifically Steinberg’s and the IFO’s was to grow the local film industry, and it did so within the rules.

“Cinespace came into the market, brought new capacity and the Illinois film industry grew,” Rovner wrote. “The number of film studios in Chicago increased from one to two, and the Illinois film industry generated about $184 million and $350 million in revenue in 2012 and 2013, respectively.”

CSC did not allege it was excluded from the market and also did not provide “facts to support its one-sentence, conclusory statement that transactional costs increased,” Rovner wrote. “The complaint does not allege what transactional costs increased, how much they increased by and who experienced the increased costs.”

Further, the panel said, naming the state agencies as defendants requires establishing them as participants in the film studio market, which they are not. Neither does the CSC complaint allege the defendants have any market power or that they wielded such power in an anticompetitive fashion.

With regard to the 14th Amendment claim against Steinberg, the judges rule that CSC failed to show how it was treated differently from a similarly situated company. “The undisputed facts demonstrate (CS and Cinespace) differed in material ways,” Rovner wrote, while also saying “there are rational bases for Steinberg’s conduct.”

Cinespace sought state help, while CSC did not, the panel said. Some of the projects Steinberg directed to Cinespace — such as the “Empire” television show and the “Divergent” film series — were too large for CSC, giving Steinberg no choice but to refer them to Cinespace.

In addition to affirming Ellis’ ruling, the panel also said she did not abuse discretion in striking CSC’s statement of additional facts because it wasn’t compliant with federal court procedural rules.

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Organizations in this Story

Illinois Department of Commerce and Economic OpportunityU.S. District Court for the Northern District of IllinoisChicago Studio CityU.S. Court of Appeals for the Seventh DistrictCinespace Chicago

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