Iwerks sues competitor over unfair practices.

In 1994, Iwerks Entertainment Inc. was in the closing stages of a deal to sell a giant-screen movie theater system to the city-owned retail/entertainment boardwalk at Navy Pier in Chicago. But at the last minute, the buyers pulled out to rent a similar system made by Imax Corp.

Incidents like that one point up the main reason Burbank-based Iwerks filed an antitrust lawsuit last week against its greatest rival. According to Iwerks, Toronto, Canada-based Imax has used unfair trade practices to build a virtual monopoly on the large-screen movie theater format, which is beginning to explode on the commercial entertainment scene after decades as a somewhat academic phenomenon.

Publicly held Iwerks builds motion-simulation rides for amusement parks, arcades, shopping malls and other locations. In 1993, it went into direct competition with Imax by entering the large-screen movie business, selling specially built projectors and other equipment capable of exhibiting high-resolution movies on screens up to 80 feet high. These films are typically created by cameras built for the "15/70" format, meaning they use 70-millimeter film that has 15 perforations per side.

After nearly three years in the business, Iwerks has managed to sell only three 15/70 projection systems. The reason, according to the complaint filed Feb. 26 in U.S. District Court in Los Angeles, is that Imax has used its position as the developer of the large-screen format to make exclusive deals with film producers and monopolize the distribution of 15/70 cameras.

Closing in

According to attorney Alicia Rosenberg, a partner with downtown L.A.-based Blecher & Collins who represents Iwerks, there are only two companies in the world that make 15/70 cameras: Imax and a Hayden Lake, Idaho-based company called Imagery Rentals.

Before filmmakers can rent an Imax 15/70 camera (Imax does not sell its cameras or projection systems, instead relying on lease agreements), they must sign an agreement that their films will only be exhibited in Imax theaters, Rosenberg said. That means the only way anyone can make a movie for exhibition in an Iwerks theater is by getting a camera from Imagery Rentals.

But in September 1995, Imax announced a deal to acquire Imagery Rentals. Iwerks claims this has placed an effective monopoly on the format.

In addition, the suit claims Imax will not release any films in its substantial 15/70-format library to non-Imax theaters, and that Imax officials have told potential Iwerks customers that it would be very difficult for them to acquire movies unless they purchased an Imax system.

"Imax is using threats, and intimidation, and exclusionary contracts to make it nearly impossible for Iwerks to market its systems," Rosenberg said.

Imax officials said last week that they had not yet seen the lawsuit, and declined to comment on it.

In fiscal 1995 ended June 30, Iwerks lost $13.5 million, or $1.32 a share, on revenue of $45 million. In fiscal 1994, it lost $8.1 million, or $1.05 a share, on revenue of $36.6 million.

At Imax, meanwhile, business is looking up. The company earned $3.7 million, or 23 cents a share, on revenue of $88.5 million in fiscal 1995, which for Imax ended Dec. 31. The previous year, the company had lost $15.8 million, or $1.12 a share, on revenue of $102.8 million.

Until recently, the large-screen format was used exclusively for documentaries shown in specially constructed theaters at amusement parks and museums. But following a buyout in 1994 by the company's new management team, Imax embarked on a more commercial strategy. Imax theaters are now being built in conventional cinemas, and more than 35 new theaters are scheduled to open in coming years.

The company is now signing production agreements with major Hollywood studios to create fictional films in the big-screen format, after the success of an action flick starring Val Kilmer that was exhibited at an Imax theater in New York last year.

It has also created a new 3-D projector that, when combined with goggles worn by patrons, gives the illusion of three-dimensional images. There are 14 Imax theaters equipped with 3-D projectors worldwide, including a soon-to-open theater in Irvine.