Documents from the Paramount Antitrust Case, 1938-1949

The Government Reactivates the Paramount Case

August 1944

SIMPP underwent a major publicity campaign in 1944 in an effort to spur the Justice Department into re-opening the Hollywood antitrust case. SIMPP's activity culmonated in the August 1944 announcement of Attorney General Francis Biddle, that the major studios would be taken back to court.

SIMPP executive secretary John C. Flinn wrote to William Cagney, Charles Chaplin, Walt Disney, Edward A. Golden, Samuel Goldwyn, Sol Lesser, Mary Pickford, David O. Selznick, Edward Small, Hunt Stromberg, Walter Wanger, Orson Welles:

Enclosed herewith is copy of the official statement issued by the Department of Justice announcing decision of the Attorney General of the United States in the action: United States vs Paramount, Inc., et al.
Sincerely,
John C. Flinn

The full text of the press release is given below:

FOR IMMEDIATE RELEASE: August 7, 1944

DEPARTMENT OF JUSTICE

Attorney General Francis Biddle announced the filing today in the United States District Court in New York City or an application to modify the motion picture consent decree involving the five major theatre-owning distributors.

Today's action followed rejection by the Attorney General of a voluntary modification of the existing decree proposed by the defendants, which would have extended for five more years the three-year ban on proceedings to divorce the distribution of films from the exhibition business. This provision expired on November 20, 1943.

The modification proposed by the Government would require such divorcement within three years. It would further prohibit the defendants from acquiring any theater interests and would provide for divestiture by them of such theaters as may be necessary to restore competition in communities where they now have theater-operating monopolies.

The present decree became effective on November 20, 1940, and involves the following defendants: Twentieth Century-Fox Film Corporation, Loew's, Inc., Paramount Pictures, Inc., RKO Radio Pictures, Inc., Warner Bros. Pictures, Inc., and certain of their subsidiaries. All of these defendants are engaged in production, distribution and exhibition of motion pictures, resulting, according to the Department, in certain illegal discriminatory practices and preferences which the suggested decree seeks to eliminate.

Assistant Attorney General Wendell Berge in charge of the Antitrust Division summarized the modifications sought by the Department as follows:

1. Block Booking

The decree as it stands has no provision against conditioning the licensing of one feature picture or group of features upon the licensing of another feature or group of features. The decree formerly permitted the tying of features together in groups of five but the Department believes that recent Supreme Court decisions have made it clear that the forcing of feature licenses by the tying of one copyright to another is unlawful.

2. Circuit-buying Power

Sections V and X of the present decree, the only provisions expressly designed to check discriminations resulting from circuit-buying power, have proved wholly inadequate for this purpose. The proposed modification of Section V would prohibit the conditioning of a license in one theatre on the making of a license in another theatre. The tying together of numerous theatres in film-licensing deals prevents individual theatres from being licensed in accordance with their individual competitive merits and this provision is intended to give the single theatre operator a chance to compete with theatre chains in licensing films from the defendants.

The proposed modification of Section X wipes out all of the arbitrary requirements limiting the persons who may arbitrate which are now contained in that section and substitutes money damages for individual licensing as the relief granted. It is no longer limited to run discriminations but embraces any discrimination which violates the Sherman Act. The arbitration machinery established by the decree could thus be used to its full capacity as a mechanism for granting prompt and inexpensive relief against violations of the Act.

3. Unreasonable Clearance

The changes proposed for Section VIII may be summarized as follows:

(a) The statement that clearance is essential to the distribution of films is eliminated and a definition of unreasonable clearance is substituted, which declares any clearance which unreasonably restrains competition between theatres to be unreasonable.

(b) The provision that no award shall affect a run is stricken and the arbitrator is given express power to eliminate all clearance even where the theatres involved are highly competitive. Thus, if he finds that by virtue of the other factors enumerated in the section, it is unreasonable for the complainant's theatre to be made to follow the theatre complained against, he may prohibit the granting of clearance in favor of that theatre over the complainant, even where they are in the same competitive area. If he believes that the complainant should have clearance over the theatre complained against, he is still not permitted to make an affirmative award of clearance, but he may give partial relief against such clearance discrimination by providing that no clearance shall be granted in favor of the theatre holding the unreasonable clearance.

(c) Unreasonable clearance held by distributor-owned theatres on the owning distributor's product is made subject to arbitration.

4. Distributor Ownership of Theatres

The existing decree now contains no restrictions on future theatre acquisitions by the defendants. The proposed new Section XI would prohibit all such acquisitions and require the complete divorcement of production and distribution from exhibition within a three-year period. It also declares void the existing agreements between defendants by which various theatre interests owned by them are pooled and prohibits such pooling in the future. It further provides for supplemental proceedings directed at situations where the defendants now monopolize theatre operations for the purpose of divesting the defendants of such theatres as may be necessary to restore competition in those areas.

Section XVII of the present decree exempts theatres affiliated with the defendant distributors from the operation of certain of the arbitration provisions with respect to the terms on which their films are licensed in their own theatres. This exemption is stricken, and in its place is substituted a general prohibition against licensing affiliated theatres on terms which unreasonably restrain the ability of unaffiliated theatres to compete with them.

5. Franchises

Section XV of the present decree expressly exempts certain franchises to which the defendants are parties from their operation. This section is stricken and a provision voiding all of their existing franchises is substituted with an injunction against renewal.

The provisions of the decree relating to the mechanics of the arbitration system, and Sections VI and VII, providing for the arbitration of complaints involving the inability to license any run and the licensing of features found to be locally offensive, respectively, are left unchanged. No change in the terms of Section III, relating to trade showing is proposed, although a request is made that this section again be made effective, as it expired by the terms of the decree on September 1, 1942. The Department believes that the American Arbitration Association and the Appeal Board have administered the arbitration provisions of the decree with marked success, within the limits imposed by the substantive sections of the decree, and that there is no dispute as to the desirability of continuing to use the arbitration system now established for the adjustment of exhibitor complaints. It has, however, reached the conclusion that such a system may not, by itself, be made adequate to bring the operations of the defendants into conformity with the requirements of the Sherman Act. It believes that this objective may only be accomplished by a complete separation of their theatre-operating business from their producing and distributing activities and by the divestiture of a substantial number of theatres from the theatre-operating companies respectively owned by them.

In view of the practical difficulties involved in bringing about such a drastic change in the structure of the industry by judicial means, the Department, in 1940, was willing to postpone

its efforts to secure such relief for a three-year period while the consent decree was given a trial, and other motion picture cases were litigated. The results to date of that litigation and the decisions of the Supreme Court in other Sherman Act cases since 1940 have reinforced the Department's original conclusion first expressed in its complaint filed in 1938, that conformity with law requires such a modification in the industry's economic structure.

MORE: Documents from the Paramount Antitrust Case