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In the 1980s, the film processing industry became extremely
competitive, and studios were readily changing film processing
companies and negotiating lower prices, large up-front incentive
payments, and most-favored-nation provisions. As a result,
Technicolor was experiencing a high rate of client turnover. In
fact, only 2 of Technicolor’s 12 major contractual customers in
1983 was a customer on the acquisition date. Carlton’s
expectation that MCEG, MGM/UA, and Paramount would remain
customers in perpetuity is unreasonable and not supported by the
evidence.
With respect to MCEG, petitioners’ expectation is
unreasonable because MCEG did not, prior to the acquisition date,
have a contractual relationship with, or generate any income for,
Technicolor. Moreover, MCEG had no track record, a dubious
future, and no film processing history with Technicolor or any
other film processing companies. Indeed, Technicolor had
concerns about MCEG’s long-term viability (i.e., subsequently
validated by MCEG’s 1992 bankruptcy) and required MCEG to
collateralize the 1988 loan. Thus, petitioners failed to
establish a value relating to the MCEG relationship. See Rule
142(a)(1); Newark Morning Ledger Co. v. United States, 507 U.S.
546, 566 (1993).
Similarly, petitioners’ expectation, that MGM/UA and
Paramount would remain customers in perpetuity, was unreasonable.
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