Documents from the Paramount Antitrust Case, 1938-1949

SIMPP Reaction to the Decision in the New York Equity Suit

On January 7, 1947, the president of the Society of Independent Motion Picture Producers wrote to the independent producers regarding the suggestions of SIMPP attorney Morris Ernst. SIMPP's comments were made within three days of the decision in District Court decision in the Paramount case that had come on New Year's Eve.

To All Members:
Transmitted herewith is a copy of a letter received from Morris L. Ernst. setting forth his comments concerning the decree handed down in U.S. vs. Paramount, et al. Should you be interested in pursuing any of the suggestions outlined in the letter, we will discuss them at the full membership meeting on Thursday of this week.
Sincerely yours,
Donald M. Nelson

January 3, 1947

Mr. Donald M. Nelson, President Society of Motion Picture Producers
6233 Hollywood Boulevard
Hollywood 28 California

Dear Don:

Pursuant to your wired request, we have already airmailed to you thirty-five copies of the complete decree in the Paramount case; You also asked for our comments on the decree. They are:

1. The restraints contained in the decree apply only to the defendants in the case, namely, the five majors , Metro , Paramount, RKO, Warners and 20th Century-Fox, and the three non-

theatre-owning defendants, Columbia, Universal and United Artists.

(a) We assume that companies like PRC, Monogram, etc., will continue to operate as before without regard to the decree, and Which obviously does not affect them.

2. While it is unfortunate that the Independents for the most part must distribute through the defendants United Artists and RKO, nevertheless it is our opinion that insofar as the independent producer retains control over the distribution of his picture, he likewise should not be subject to the decree;

(a) No independent should be any more subject to the restraints of the decree than PRC or Monogram. It is suggested that each independent producer consider changes in his distribution agreement with his distributor with a view to obtaining full and complete control if he does not have it now. It is necessary that the independent be relieved of the taint of the tieup with the distributor dependent. What is necessary in order to be relieved from the taint imposed by the decree on distributors is that an independent producer fully control his own product just as if he had his salesman out selling it. We have examined samples of contracts now in existence and as you know, they vary greatly. We are not suggesting any concerted action by the Independent~ because such concerted action itself might run afoul of the Sherman Anti-Trust Act.

(b) An independent might demand of his distributor that his picture be treated in accordance with the above suggestions, and possibly confer with him to so arrange his distribution. If such demand meets with a refusal by the distributor on the ground that the distributor feels it is bound by the decree even on an independent picture, each independent should give some thought to the possibility of obtaining a judicial clarification of his position, for example, by seeking guidance of the court or by possible joint court action with the distributor in obtaining a declaratory judgment.

3. It is certainly not remote to contemplate the formation of a truly cooperative distributing organization which would operate without those devices now frowned upon by the court, namely, horizontal accords and conspiracies, and would thus be able to distribute an Independent's picture free of the restraints of the decree now imposed on the defendants.

4. When we say that the Independents should be free from the restraints of the decree, we mean that they should be able to agree to maintain prices, agree on clearance and run provisions , avoid the burden of proof of showing the clearance to be reasonable (which burden the defendants now have under the decree) and agree on percentage provisions in their exhibition contracts, and proving that they do all those things without horizontal accords. It has been and still is our opinion that an agreement to maintain admission prices on a copyrighted film is lawful when done singly and not in concert with others. As you know, we took a somewhat similar case to the court for the book publishers. Again I revert to PRC and like companies who no doubt will continue their old practices which includes the making of agreements to maintain admission prices. The Independents certainly should be in no different position. I should point out, however, that the Government takes and urges a different view as to maintenance of admission prices claiming that even an individual distributor alone cannot fix admission prices of a copyrighted film. As far as I know, the Government does not propose to take any action against companies like PRC to cause them to cease such practices. The only cases in which the Government has proceeded are those where there have been conspiracies and horizontal accords.

(a) It may well be that the Society might consider a program of action to clarify the present situation, one facet of which program might be the urging of an amendment to the Miller Tydings Act so as to permit the maintenance of prices of leased articles. As you know, the Miller Tydings Act does permit price maintenance on articles sold.

(b) One of the reasons that I have been of the opinion that agreement on price maintenance has been lawful if done singly and without concert of action is that I believe the authors of the Miller Tydings Act, by design, omitted the leasing of copyrighted articles on the theory that under existing cases it was already lawful.

5. At this writing, we know that the Government is definitely determined to take an appeal to the Supreme Court of the United States and it is possible that some of the defendants may also cross appeal. In any event it will be many months before the final determination will be rendered by the Supreme Court and unnecessary strictures on the Independents may be imposed in the meantime unless the Independents take some affirmative action to obtain a clarification of their position. Although the court did not affirmatively mention freedom of enterprise as applying to independent producers, this failure to do so may have been on the assumption that nothing in the decree could possibly apply to independent producers to prevent their full control of their own product in the market place. This is one of the phases of the problem that ought to be put up to the Supreme Court.

6. While the determination of the appeal by the Supreme Court may be months off, the taking of the appeal and the submission of briefs will be imminent and thought should be immediately given to the Society's position in the Supreme Court. While we feel comfortable with the amicus brief we prepared over the weekend on behalf of the Society and on forty-eight hours notice, (submitted to the court on the questions raised on the decree) that situation should not now be repeated for many obvious reasons. Work on the Society's brief to the Supreme Court should be gotten under way at once. There is a tremendous amount of research to be undertaken, regardless of the number of points to be covered; great care should be taken on the Society’s brief to the court because it not only speaks to the court; it speaks to the rest of the industry; it will take time to clear the Society's position among its many members, and last, but not the least important reason for urgency, is that it will take time to obtain the necessary consents before leave will be granted. The Society would certainly want to avoid the embarrassing position it faced for that reason in the Crescent case a couple of years ago.

I know you wanted this memorandum in a hurry so as to have it ready for your membership meeting) so I did not now take time to include a discussion of some of the minor points of the decree but I think you will find them sufficiently covered in the tearsheets from the Motion Picture Herald accompanying the text of the decree which we sent you a few days ago. Likewise, in order to save you time, I had this letter mimeographed in sufficient numbers for the purpose of your distribution to the members.

Above all, we want to thank you personally for that high degree of wise cooperation which you gave us and which is your habit.

Let me know if there is anything more you want or if there is anything more I can do to help.

Best,

Morris L. Ernst

MLE/rk 

MORE: Documents from the Paramount Antitrust Case