Documents from the Paramount Antitrust Case, 1938-1949
The Supreme Court Brings the Studio Era to an End
The Complete Text of the Decision in the Paramount
U.S. Supreme Court
United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948)
UNITED STATES v. PARAMOUNT PICTURES, Inc., et al.
LOEW'S Inc., et al. v. UNITED STATES.
PARAMOUNT PICTURES, Inc., et al. v. SAME.
COLUMBIA PICTURES CORPORATION et al. v. SAME.
UNITED ARTISTS CORPORATION v. SAME.
UNIVERSAL PICTURES COMPANY, Inc., et al. v. SAME.
AMERICAN THEATRES ASS'N, Inc., et al. v. UNITED STATES et al.
ALLRED et al. v. SAME.
Nos. 79 to 86.
Argued Feb. 9, 10, 11, 1948.
Decided May 3, 1948.
Appeals from the District Court of the United States for the
Southern District of New York.[ U.S. v. Paramount Pictures, Inc. 334 U.S. 131
[334 U.S. 131 , 138]
Messrs. Tom C. Clark, Atty. Gen., Robert L. Wright, of Washington, D. C.,
and John F. Sonnett, Asst. Atty. Gen., for the United States.
Mr. Thurman Arnold, of Washington, D.C., for American Theatres
Ass'n and others.
Messrs. John G. Jackson, of New York City, and Robert T.
Barton, of Richmond, Va., for W. C. Allred and others.
Mr. John W. Davis, of New York City, for Loew's Inc.
Mr. William J. Donovan, of Washington, D.C., for
Radio-Keith-Orpheum Corporation and others.
Mr. Joseph M. Proskauer, of New York City, for Warner Bros.
Pictures, Inc., and others.
Mr. James F. Byrnes, of Washington, D.C., for Twentieth
Century-Fox and others. [334 U.S.
131 , 139] Mr. Whitney North Seymour, of New York City,
for Paramount Pictures, Inc., and another.
Mr. Louis D. Frohlich, of New York City, for Columbia Pictures
Corporation and another.
Mr. Thomas Turner Cooke, of New York City, for Universal
Pictures Co. and others Mr. George A. Raftery, of New York City, for United
[334 U.S. 131 , 140]
Mr. Justice DOUGLAS delivered the opinion of the Court.
These cases are here on appeal1 from a judgment of a three-judge District
Court2 holding that the defendants had violated 1 and 2 of the Sherman Act, 26
Stat. 209, as amended, 50 Stat. 693, 15 U.S.C. 1, 2, 15 U.S.C.A. 1, 2, and
granting an injunction and other relief. D.C., 66 F.Supp. 323; Id., D.C., 70
The suit was instituted by the United States under 4 of the Sherman Act, 15
U.S.C.A. 4, to prevent and restrain violations of it. The defendants fall into
three groups: (1) Paramount Pictures, Inc., Loew's, Incorporated,
Radio-Keith-Orpheum Corporation, Warner Bros. Pictures, Inc., Twentieth
Century-Fox Film Corporation, which produce motion pictures, and their
respective subsidiaries or affiliates which distribute and exhibit films. These
are known as the five major defendants or exhibitor- defendants. (2) Columbia
Pictures Corporation and Universal Corporation, which produce motion pictures,
and their subsidiaries which distribute films. (3) United Artists Corporation,
which is engaged only in the distribution of motion pictures. The five majors,
through their subsidiaries or affiliates, own or control theatres; the other
defendants do not.
The complaint charged that the producer defendants had attempted to
monopolize and had monopolized the production of motion pictures. The District
Court found to the contrary and that finding is not challenged here. The
complaint charged that all the defendants, as distributors, had conspired to
restrain and monopolize and [334
U.S. 131 , 141] had restrained and monopolized interstate
trade in the distribution and exhibition of films by specific practices which we
will shortly relate. It also charged that the five major defendants had engaged
in a conspiracy to restrain and nonopolize, and had restrained and monopolized,
interstate trade in the exhibition of motion pictures in most of the larger
cities of the country. It charged that the vertical combination of producing,
distributing, and exhibiting motion pictures by each of the five major
defendants violated 1 and 2 of the Act. It charged that each
distributor-defendant had entered into various contracts with exhibitors which
unreasonably restrained trade. Issue was joined; and a trial was had. 3
No film is sold to an exhibitor in the distribution of motion pictures. The
right to exhibit under copyright is licensed. The District Court found that the
defendants in the licenses they issued fixed minimum admission prices which the
exhibitors agreed to charge, whether the rental of the film was a flat amount or
a percentage of the receipts. It found that substantially uniform minimum prices
had been established in the licenses of all defendans . Minimum prices were
established in master agreements or franchises which were made between various
defendants as distributors and various defendants as exhibitors and in joint
operating agreements made by the five majors with each other [334
U.S. 131 , 142] and with independent theatre owners
covering the operation of certain theatres. 4 By these later contracts minimum
admission prices were often fixed for dozens of theatres owned by a particular
defendant in a given area of the United States. Minimum prices were fixed in
licenses of each of the five major defendants. The other three defendants made
the same requirement in licenses granted to the exhibitor-defendants. We do not
stop to elaborate on these findings. They are adequately detailed by the
District Court in its opinion. See 66 F.Supp. 334-339.
The District Court found that two price-fixing conspiracies existed-a
horizontal one between all the defendants, a vertical one between each
distributor-defendant and its licensees. The latter was based on express
agreements and was plainly established. The former was inferred from the pattern
of price-fixing disclosed in the record. We think there was adequate foundation
for it too. It is not necessary to find an express agreement in order to find a
conspiracy. It is enough that a concert of action is contemplated and that the
defendants conformed to the arrangement. Interstate Circuit v. United States,
306 U.S. 208 , 226, 227, 474; United States v. Masonite Corp., 316 U.S. 265, 275
, 1076. That was shown here.
On this phase of the case the main attack is on the decree which enjoins the
defendants and their affili- [334
U.S. 131 , 143] ates from granting any license, except to
their own theatres, in which minimum prices for admission to a theatre are fixed
in any manner or by any means. The argument runs as follows: United States v.
General Electric Co., 272 U.S. 476 , held that an owner of a patent could,
without violating the Sherman Act, grant a license to manufacture and vend and
could fix the price at which the licensee could sell the patented article. It is
pointed out that defendants do not sell the films to exhibitors, but only
license them and that the Copyright Act, 35 Stat. 1075, 1088, 17 U.S.C. 1, 17
U.S.C.A. 1, like the patent statutes, grants the owner exclusive rights. 5
And it is argued that if the patentee can fix the price at which his
licensee may sell the patented article, the owner of the copyright should be
allowed the same privilege. It is maintained that such a privilege is essential
to protect the value of the copyrighted films.
We start, of course, from the premise that so far as the Sherman Act is
concerned, a price-fixing combination is illegal per se. United States v.
Socony-Vacuum Oil Co., 310 U.S. 150 ; United States v. Masonite Corporation,
supra. We recently held in United States v. United States Gypsum Co., 333 U.S.
364 , that even patentees could not regiment an entire industry by licenses
containing price-fixing agreements. What was said there is adequate to bar
defendants, through their horizontal conspiracy, from fixing prices for the
exhibition of films in the movie industry. Certainly the rights of the copyright
owner are no greater than those of the patene e.
Nor can the result be different when we come to the vertical conspiracy
between each distributor-defendant and his licensees. The District Court stated
in its findings (70 F.Supp. 61): 'In agreeing to maintain a stipulated minimum
admission price, each exhibitor thereby consents to [334
U.S. 131 , 144] the minimum price level at which it will
compete against other licensees of the same distributor whether they exhibit on
the same run or not. The total effect is that through the separate contracts
between the distributor and its licensees a price structure is erected which
regulates the licensees' ability to compete against one another in admission
That consequence seems to us to be incontestable. We stated in United States
v. United States Gypsum Co., supra, at page 401 of 333 U.S., at page 545 of 68
S.Ct., that 'The rewards which flow to the patentee and his licensees from the
suppression of competition through the regulation of an industry are not
reasonably and normally adapted to secure pecuniary reward for the patentee's
monopoly.' The same is true of the rewards of the copyright owners and their
licensees in the present case. For here too the licenses are but a part of the
general plan to suppress competition. The case where a distributor fixes
admission prices to be charged by a single independent exhibitor, no other
licensees or exhibitors being in contemplation, seems to be wholly academic, as
the District Court pointed out. It is, therefore, plain that United States v.
General Electric Co., supra, as applied in the patent cases, affords no haven to
the defendants in this case. For a copyright may no more be used than a patent
to deter competition between rivals in the exploitation of their licenses. See
Interstate Circuit v. United States, supra, 306 U.S. at page 230, 59 S.Ct. at
(2) Clearances and Runs.
Clearances are designed to protect a particular run of a film against a
subsequent run. 6 The District Court [334
U.S. 131 , 145] found that all of the
distributor-defendants used clearance provisions and that they were stated in
several different ways or in combinations: in terms of a given period between
designated runs; in terms of admission prices charged by competing theatres; in
terms of a given period of clearance over specifically named theatres; in terms
of so many days' clearance over specified areas or towns; or in terms of
clearances as fixed by other distributors.
The Department of Justice maintained below that clearances are unlawful per
se under the Sherman Act. But that is a question we need not consider, for the
District Court ruled otherwise and that conclusion is not challenged here. In
its view their justification was found in the assurance they give the exhibitor
that the distributor will not license a competitor to show the film either at
the same time or so soon thereafter that the exhibitor's expected income from
the run will be greatly diminished. A clearance when used to protect that
interest of the exhibitor was reasonable, in the view of the court, when not
unduly extended as to area or duration. Thus the court concluded that although
clearances might indirectly affect admission prices, they do not fix them and
that they may be reasonable restraints of trade under the Sherman Act.
The District Court held that in determining whether a clearance is
unreasonable, the following factors are relevant:
(1) The admission prices of the theatres involved, as set by the exhibitors;
(2) The character and location of the theatres iv olved, including size, type
of entertainment, appointments, transit facilities, etc.; [334
U.S. 131 , 146] (3) The policy of operation of the
theatres involved, such as the showing of double features, gift nights,
give-aways, premiums, cut-rate tickets, lotteries, etc.;
(4) The rental terms and license fees paid by the theatres involved and the
revenues derived by the distributor-defendant from such theatres;
(5) The extent to which the theatres involved compete with each other for
(6) The fact that a theatre involved is affiliated with a defendant-
distributor or with an independent circuit of theatres should be disregarded;
(7) There should be no clearance between theatres not in substantial
It reviewed the evidence in light of these standards and concluded that many
of the clearances granted by the defendants were unreasonable. We do not stop to
retrace those steps. The evidence is ample to show, as the District Court
plainly demonstrated, see 66 F.Supp. pages 343-346, that many clearances had no
relation to the competitive factors which alone could justify them. 7
The clearances which were in vogue had, indeed, acquired a fixed and uniform
character and were made applicable to situations without regard to the special
circumstances which are necessary to sustain them as reasonable restraints of
trade. The evidence is ample to support the [334
U.S. 131 , 147] finding of the District Court that the
defendants either participated in evolving this uniform system of clearances or
acquiesced in it and so furthered its existence. That evidence, like the
evidence on the price- fixing phase of the case, is therefore adequate to
support the finding of a conspiracy to restrain trade by imposing unreasonable
The District Court enjoined defendants and their affiliates from agreeing
with each other or with any exhibitors or distributors to maintain a system of
clearances, or from granting any clearance between theatres not in substantial
competition, or from granting or enforcing any clearance against theatres in
substantial competition with the theatre receiving the license for exhibition in
excess of what is reasonably necessary to protect the licensee in the run
granted. In view of the findings this relief was plainly warranted.
Some of the defendants ask that this provision be construed (or, if
necessary, modified) to allow licensors in granting clearances to take into
consideration what is reasonably necessary for a fair return to the licensor. We
reject that suggestion. If that were allowed, then the exhibitor-defendants
would have an easy method of keeping alive at least some of the consequences of
the effective conspiracy which they launched. For they could then justify
clearances granted by other distributors in favor of their theatres in terms of
the competitive requirements of those theatres, and at the same time justify the
restrictions they impose upon independents in terms of the necessity of
protecting their film rental as licensor. That is too potent a weapon to leave
in the hands of those whose proclivity to unlawful conduct has been so marked.
It plainly should not be allowed so long as the exhibitor-defendants own
theatres. For in its baldest terms it is in the hands of the defendants no less
than a power to restrict the competition of others in the way [334
U.S. 131 , 148] deeme most desirable by them. In the
setting of this case the only measure of reasonableness of a clearance by
Sherman Act standards is the special needs of the licensee for the competitive
advantages it affords.
Whether the same restrictions would be applicable to a producer who had not
been a party to such a conspiracy is a question we do not reach.
Objection is made to a further provision of this part of the decree stating
that 'Whenever any clearance provision is attacked as not legal under the
provisions of this decree, the burden shall be upon the distributor to sustain
the legality thereof.' We think that provision was justified. Clearances have
been used along with price fixing to suppress competition with the theatres of
the exhibitor-defendants and with other favored exhibitors. The District Court
could therefore have eliminated clearances completely for a substantial period
of time, even though, as it thought, they were not illegal per se. For equity
has the power to uproot all parts of an illegal scheme-the valid as well as the
invalid-in order to rid the trade or commerce of all taint of the conspiracy.
United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 724 , 814. The
court certainly then could take the lesser step of making them prima facie
invalid. But we do not rest on that alone. As we have said, the only
justification for clearances in the setting of this case is in terms of the
special needs of the licensee for the competitive advantages they afford. To
place on the distributor the burden of showing their reasonableness is to place
it on the one party in the best position to evaluate their competitive effects.
Those who have shown such a marked proclivity for unlawful conduct are in no
position to complain that they carry the burden of showing that their future
clearances come within the law. Cf. United States v. Crescent Amusement Co., 323
U.S. 173, 188 , 65 S. Ct. 254, 261. [334
U.S. 131 , 149] (3) Pooling Agreements; Joint Ownership.
The District Court found the exhibitor-defendants had agreements with each
other and their affiliates by which theatres of two or more of them, normally
competitive, were operated as a unit, or managed by a joint committee or by one
of the exhibitors, the profits being shared according to prearranged
percentages. Some of these agreements provided that the parties might not
acquire other competitive theatres without first offering them for inclusion in
the pool. The court concluded that the result of these agreements was to
eliminate competition pro tanto both in exhibition and in distribution of
features,8 since the parties would naturally direct the films to the theatres in
whose earnings they were interested.
The District Court also found that the exhibitor-defendants had like
agreements with certain independent exhibitors. Those alliances had, in its
view, the effect of nullifying competition between the allied theatres and of
making more effective the competition of the group against theatres not members
of the pool. The court found that in some cases the operating agreements were
achieved through leases of theatres, the rentals being measured by a percentage
of profits earned by the theatres in the pool. The District Court required the
dissolution of existing pooling agreements and enjoined any future arrangement
of that character.
These provisions of the decree will stand. The practices were bald efforts to
substitute monopoly for competition and to strengthen the hold of the
exhibitor-defendants on the industry by alignment of competitors on their side.
Clearer restraints of trade are difficult to imagine.
There was another type of business arrangement that the District Court found
to have the same effect as the [334
U.S. 131 , 150] pooling agreements just mentioned. Many
theatres are owned jointly by two or more exhibitor-defendants or by an
exhibitord efendant and an independent. 9 The result
is, according to the District Court, that the theatres are operated
'collectively rather than competitively.' And where the joint owners are an
exhibitor-defendant and an independent the effect is, according to the District
Court, the elimination by the exhibitor- defendant of 'putative competition
between itself and the other joint owner, who otherwise would be in a position
to operate theatres independently.' The District Court found these joint
ownerships of theatres to be unreasonable restraints of trade within the meaning
of the Sherman Act.
The District Court ordered the exhibitor-defendants to disaffiliate by
terminating their joint ownership of the- [334
U.S. 131 , 151] atres; and it enjoined future
acquisitions of such interests. One is authorized to buy out the other if it
shows to the satisfaction of the District Court and that court first finds that
such acquisition 'will not unduly restrain competition in the exhibition of
feature motion pictures.' This dissolution and prohibition of joint ownership as
between exhibitor- defendants was plainly warranted. To the extent that they
have joint interests in the outlets for their films each in practical effect
grants the other a priority for the exhibition of its films. For in this
situation, as in the case where theatres are jointly managed, the natural
gravitation of films is to the theatres in whose earnings the distributors have
an interest. Joint ownership between exhibitor-defendants then becomes a device
for strengthening their competitive position as exhibitors by forming an
alliance as distributors. An express agreement to grant each other the
preference would be a most effective weapon to stifle competition. A working
arrangement or business device that has that necessary consequence gathers no
immunity because of its subtlety. Each is a restraint of trade condemned by the
The District Court also ordered disaffiliation in those instances where
theatres were jointly owned by an exhibitor-defendant and an independent, and
where the interest of the exhibitor-defendant was 'greater than 5% unless such
interest shall be 95% or more,' an independent being defined for this part of
the decree as 'any former, present or putative motion picture theatre operator
which is not owned or controlled by the defendant holding the interest in
question.' The exhibitor-defendants are authorized to acquire existing interests
of the independents in these theatres if they establish, and if the District
Court first finds that the acquisition 'will not unduly restrain competition in
the [334 U.S. 131 , 152]
exhibition of feature motion pictures.' All other acquisitions of such
joint interests were enjoined.
This phase of the decree is strenuously attacked. We are asked to eliminate
it for lack of findings to support it. The argument is that the findings show no
more than the existence of joint ownership of theatres by exhibitor-defendants
and independents. The statement by the District Court that the joint ownership
eliminates 'putative competition' is said to be a mere conclusion without
evidentiary support. For it is said that the facts of the record show that many
of the instances of joint ownership with an independent interest are cases
wholly devoid of any history of or relationship to restraints of trade or
monopolistic practices. Some are said to be rather fortuio us results of
bankruptcies; others are said to be the results of investments by outside
interests who have no desire or capacity to operate theatres, and so on.
It is conceded that the District Court made no inquiry into the circumstances
under which a particular interest had been acquired. It treated all
relationships alike, insofar as the disaffiliation provision of the decree is
concerned. In this we think it erred.
We have gone into the record far enough to be confident that at least some of
these acquisitions by the exhibitor-defendants were the products of the unlawful
practices which the defendants have inflicted on the industry. To the extent
that these acquisitions were the fruits of monopolistic practices or restraints
of trade, they should be divested. And no permission to buy out the other owner
should be given a defendant. United States v. Crescent Amusement Co., supra, 323
U.S. at page 189, 65 S. Ct. at page 262; Schine Chain Theatres, Inc., v. United
States, 334 U.S. 110 . Moreover, even if lawfully acquired, they may have been
utilized as part of the conspiracy to eliminate or suppress competition in
furtherance of the ends of the conspiracy. In that event divestiture would
likewise be justified. United [334
U.S. 131 , 153] States v. Crescent Amusement Co., supra,
323 U.S. at pages 189, 190, 65 S. Ct. at page 262. In that situation permission
to acquire the interest of the independent would have the unlawful effect of
permitting the defendants to complete their plan to eliminate him.
Furthermore, if the joint ownership is an alliance with one who is or would
be an operator but for the join ownership, divorce should be decreed even though
the affiliation was innocently acquired. For that joint ownership would afford
opportunity to perpetuate the effects of the restraints of trade which the
exhibitor-defendants have inflicted on the industry.
It seems, however, that some of the cases of joint ownership do not fall into
any of the categories we have listed. Some apparently involve no more than
innocent investments by those who are not actual or potential operators. If in
such cases the acquisition was not improperly used in furtherance of the
conspiracy, its retention by defendants would be justified absent a finding that
no monopoly resulted. And in those instances permission might be given the
defendants to acquire the interests of the independents on a showing by them and
a finding by the court that neither monopoly nor unreasonable restraint of trade
in the exhibition of films would result. In short, we see no reason to place a
ban on this type of ownership, at least so long as theatre ownership by the five
majors is not prohibited. The results of inquiry along the lines we have
indicated must await further findings of the District Court on remand of the
(4) Formula Deals, Master Agreements, and Franchises.
A formula deal is a licensing agreement with a circuit of theatres in which
the license fee of a given feature is measured, for the theatres covered by the
agreement, by a specified percentage of the feature's national gross. The
District Court found that Paramount and RKO [334
U.S. 131 , 154] had made formula deals with independent
and affiliated circuits. The circuit was allowed to allocate playing time and
film rentals among the various theatres as it saw fit. The inclusion of theatres
of a circuit into a single agreement gives no opportunity for other theatre
owners to bid for the feature in their respective areas and, in the view of the
District Court, is therefore an unreasonable restraint of trade. The District
Court found some master agreements10 open to the same objection. Those are the
master agreements that cover exhibition in two or more theatres in a particular
circuit and allow the exhibitor to allocate the film rental paid among the
theatres as it sees fit and to exhibit the features upon such playing time as it
deems best, and leaves other terms to the discretion of the circuit. The i
strict Court enjoined the making or further performance of any formula deal of
the type described above. It also enjoined the making or further performance of
any master agreement covering the exhibition of features in a number of
The findings of the District Court in these respects are supported by facts,
its conclusion that formula deals and master agreements constitute restraint of
trade is valid, and the relief is proper. The formula deals and master
agreements are unlawful restraints of trade in two respects. In the first place,
they eliminate the possiblity of bidding for films theatre by theatre. In that
way they eliminate the opportunity for the small competitor to obtain the choice
first runs, and put a premium on the size of the circuit. They are, therefore,
devices for stifling competition and diverting the cream of the business to the
large operators. In the second place, the pooling of the purchasing power of an
entire circuit in bidding for films is a misuse of monopoly power [334
U.S. 131 , 155] insofar as it combines the theatres in
closed towns with competitive situations. The reasons have been stated in United
States v. Griffith, 334 U.s,. 100, and Schine Chain Theatres, Inc., v. United
States, 334 U.S. 110 , and need not be repeated here. It is hardly necessary to
add that distributors who join in such arrangements by exhibitors are active
participants in effectuating a restraint of trade and a monopolistic practice.
See United States v. Crescent Amusement Co., supra, 323 U.S. at page 183, 65
S.Ct. at page 259.
The District Court also enjoined the making or further performance of any
franchise. A franchise is a contract with an exhibitor which extends over a
period of more than a motion picture season and covers the exhibition of
features released by the distributor during the period of the agreement. The
District Court held that a franchise constituted a restraint of trade because a
period of more than one season was too long and the inclusion of all features
was disadvantageous to competitors. At least that is the way we read its
Universal and United Artists object to the outlawry of franchise agreements.
Universal points out that the charge of illegality of franchises in these cases
was restricted to franchises with theatres owned by the major defendants and to
franchises with circuits or theatres in a circuit, a circuit being defined in
the complaint as a group of more than five theatres controlled by the same
person or a group of more than five theatres which franchises with circuits or
theatres in a films. It seems, therefore, that the legality of franchises to
other exhibitors (except as to block-booking, a practice to which we will later
advert) was not in issue in the litigation. Moreover, the findings on franchises
are clouded by the statement of the District Court in the opinion that
franchises 'necessarily contravene the plan of licensing each picture, theatre
by theatre, to the highest bidder.' As will be seen hereafter, we eliminate from
the decree [334 U.S. 131 ,
156] the provision for competitive bidding. But for its
inclusion of competitive bidding the District Court might well have treated the
problem of franchises differently.
We can see how if franchises were allowed to be used between the
exhibitor-defendants each might be able to strengthen its strategic position in
the exhibition field and continue the ill effects of the conspiracy which the
decree is designed to dissipate. Franchise agreements may have been employed as
devices to discriminate against some independents in favor of others. We know
from the record that franchise agreements often contained discriminatory clauses
operating in favor not only of theatres owned by the defendants but also of the
large circuits. But we cannot say on this record that franchises are illegal per
se when extended to any theatre or circuit no matter how small. The findings do
not deal with the issue doubtlessly due o the fact that any system of franchises
would necessarily conflict with the system of competitive bidding adopted by the
District Court. Hence we set aside the findings on franchises so that the court
may examine the problem in the light of the elimination from the decree of
We do not take that course in the case of formula deals and master
agreements, for the findings in these instances seem to stand on their own
bottom and apparently have no necessary dependency on the provision for
Block-booking is the practice of licensing, or offering for license, one
feature or group of features on condition that the exhibitor will also license
another feature or group of features released by the distributors during a given
period. The films are licensed in blocks before they are actually produced. All
the defendants, except United Artists, have engaged in the practice.
Block-booking prevents competitors from bidding for single features on their [334
U.S. 131 , 157] individual merits. The District Court (66
F.Supp. 349) held it illegal for that reason and for the reason that it 'adds to
the monopoly of a single copyrighted picture that of another copyrighted picture
which must be taken and exhibited in order to secure the first.' That
enlargement of the monopoly of the copyright was condemned below in reliance on
the principle which forbids the owner of a patent to condition its use on the
purchase or use of patented or unpatented materials. See Ethyl Gasoline
Corporation v. United States, 309 U.S. 436, 459 , 626; Morton Salt Co. v.
Suppiger Co., 314 U.S. 488, 491 , 404; Mercoid Corp. v. Mid-Continent Investment
Co., 320 U.S. 661, 665 , 271. The court enjoined defendants from performing or
entering into any license in which the right to exhibit one feature is
conditioned upon the licensee's taking one or more other features. 11
[334 U.S. 131 , 158]
We approve that restriction. The copyright law, like the patent statutes,
makes reward to the owner a secondary consideration. In Fox Film Corp. v. Doyal,
286 U.S. 123, 127 , 547, Chief Justice Hughes spoke as follows respecting the
copyright monopoly granted by Congress 'The sole interest of the United States
and the primary object in conferring the monopoly lie in the general benefits
derived by the public from the labors of authors.' It is said that reward to the
author or artist serves to induce release to the public of the products of his
creative genius. But the reward does not serve its public purpose if it is not
related to the quality of the copyright. Where a high quality film greatly
desired is licensed only if an inferior one is taken, the latter borrows quality
from the former and strengthens its monopoly by drawing on the other. The
practice tends to equalize rather than differentiate the reward for the
individual copyrights. Even where all the films included in the package are of
equal quality, the requirements that all be taken if one is desired increases
the market for some. Each stands not on its own footing but in whole or in part
on the appeal which another film may have. As the District Court said, the
result is to add to the monopoly of the copyright in violation of the principle
of the patent cases involving tying clauses. 12
[334 U.S. 131 , 159]
It is argued that Transparent-Wrap Machine Corp. v. Stokes & Smith Co
., 329 U.S. 637 , points to a contrary result. That case held that the inclusion
in a patent license of a condition requiring the licensee to assign improvement
patents was not per se illegal. But that decision, confined to improvement
patents, was greatly influenced by the federal statute governing assignments of
patents. It therefore has no controlling significance here.
Columbia Pictures makes an earnest argument that enforcement of the
restriction as to block-booking will be very disadvantageous to it and will
greatly impair its ability to operate profitably. But the policy of the
anti-trust laws is not qualified or conditioned by the convenience of those
whose conduct is regulated. Nor can a vested interest, in a practice which
contravenes the policy of the anti-trust laws, receive judicial sanction.
We do not suggest that films may not be sold in blocks or groups, when there
is no requirement, express or implied, for the purchase of more than one film.
All we hold to be illegal is a refusal to license one or more copyrights unless
another copyright is accepted.
The District Court found that defendants had discriminated against small
independent exhibitiors and in favor of large affiliated and unaffiliated
circuits through various kinds of contract provisions. These included suspension
of the terms of a contract if a circuit theatre remained closed for more than
eight weeks with reinstatement without liability on reopening; allowing large
privileges in the selection and elimination of films; [334
U.S. 131 , 160] allowing deductions in film rentals if
double bills are played; granting moveovers13 and extended runs; granting road
show privileges;14 allowing overage and underage;15 granting unlimited playing
time; excluding foreign pictures and those of independent producers; and
granting rights to question the classification of features for rental purposes.
The District Court found that the competitive advantages of these provisions
were so great that their inclusion in contracts witht he larger circuits and
their exclusion from contracts with the small independents constituted an
unreasonable discriminatory contract constituted a conspiracy discriminatory
contract constituted a conspiracy between licensor and licensee. Hence the
District Court deemed it unnecessary to decide whether the defendants had
conspired among themselves to make these discriminations. No provision of the
decree specifically enjoins these discriminatory practices because they were
thought to be impossible under the system of competitive bidding adopted by the
These findings are amply supported by the evidence. We concur in the
conclusion that these discriminatory practices are included among the restraints
of trade which the Sherman Act condemns. See Interstate Circuit v. United
States, supra, 306 U.S. at page 231, 59 S.Ct. at page 476; United States v.
Crescent Amusement Co., supra, 323 U.S. at pages 182, 183, 65 S.Ct. at page 259.
It will be for the [334 U.S. 131 ,
161] District Court on remand of these cases to provide
effective relief against their continuance, as our elimination of the provision
for competitive bidding leaves this phase of the cases unguarded.
There is some suggestion on this as well as on other phases of the cases that
large exhibitors with whom defendants dealt fathered the illegal practices and
forced them onto the defendants. But as the District Court observed, that
circumstance if true does not help the defendants. For acquiescence in an
illegal scheme is as much a violation of the Sherman Act as the creation and
promotion of one.
The District Court concluded that the only way competition could be
introduced into the existing system of fixed prices, clearances and runs was to
require that films be licensed on a competitive bidding basis. Films are to be
offered to all exhibitors in each competitive area. 16
The license for the desired run is to be granted to the highest responsible
bidder, unless the distributor rejects all offers. The licenses are to be
offered and taken theatre by theatre and picture by picture. Licenses to show
films in theatres, in which the licensor owns directly or indirectly an interest
of ninety-five per cent or more, are excluded from the requirement for
Paramount is the only one of the five majors who opposes the competitive
bidding system. Columbia Pictures, Universal, and United Artists oppose it. The
intervenors representing certain independents oppose it. And [334
U.S. 131 , 162] the Department of Justice, which
apparently proposed the system originally, speaks strongly against it here.
At first blush there is much to commend the system of competitive bidding.
The trade victims of this conspiracy have in large measure been the small
independent operators. They are the ones that have felt most keenly the
discriminatory practices and predatory activities in which defendants have
freely indulged. They have been the victims of the massed purchasing power of
the larger units in the industry. It is largely out of the ruins of the small
operators that the large empires of exhb itors have been built. Thus it would
appear to be a great boon to them to substitute open bidding for the private
deals and favors on which the large operators have thrived. But after reflection
we have concluded that competitive bidding involves the judiciary so deeply in
the daily operation of this nation-wide business and promises such dubious
benefits that it should not be undertaken.
Each film is to be licensed on a particular run to 'the highest responsible
bidder, having a theatre of a size, location and equipment adequate to yield a
reasonable return to the licensor.' The bid 'shall state what run such exhibitor
desires and what he is willing to pay for such feature, which statement may
specify a flat rental, or a percentage of gross receipts, or both, or any other
form of rental, and shall also specify what clearance such exhibitor is willing
to accept, the time and days when such exhibitor desires to exhibit it, and any
other offers which such exhibitor may care to make.' We do not doubt that if a
competitive bidding system is adopted all these provisions are necessary. For
the licensing of films at auction is quite obviously a more complicated matter
than the like sales for cash of tabacco, wheat, or other produce. Columbia puts
these pertinent queries: 'No two exhibitors are likely to make the same bid as
to [334 U.S. 131 , 163]
dates, clearance, method of fixing rental, etc. May bids containing such
diverse factors be readily compared? May a flat rental bid be compared with a
percentage bid? May the value of any percentage bid be determined unless the
admission price is fixed by the license?'
The question as to who is the highest bidder involves the use of standards
incapable of precise definition because the bids being compared contain
different ingredients. Determining who is the most responsible bidder likewise
cannot be reduced to a formula. The distributor's judgment of the character and
integrity of a particular exhibitor might result in acceptance of a lower that
favoritism was shown would be well that favoritism was shown would be well nigh
impossible, unless perhaps all the exhibitors in the country were given
classifications of responsibility. If, indeed, the choice between bidders is not
to be entrusted to the uncontrolled discretion of the distributors, some effort
to standardize the factors involved in determining 'a reasonable return to the
licensor' would seem necessary.
We mention these matters merely to indicate the character of the job of
supervising such a competitive bidding system. It would involve the judiciary in
the administration of intricate and detailed rules governing priority, period of
clearance, length of run, competitive areas, reasonable return, and the like.
The system would be apt to require as close a supervision as a continuous
receivership, unless the defendants were to be entrusted with vast discretion.
The judiciary is unsuited to affairs of business management; and control through
the power of contempt is crude and clumsy and lacking in the flexibility
necessary to make continuous and detailed supervision effective. Yet delegation
of the management of the system to the discretion of those who had the genius to
conceive the present conspiracy and to execute it with the subtlety which this
record reveals, could be done only with the [334
U.S. 131 , 164] greatest reluctance. At least such
choices should not be faced unless the need for the system is great and its
The system uproots business arrangements and established relationships with
no apparent overall benefit to the small independent exhibitor. If each feature
must go to the highest responsible bidder, those with the greatest purchasing
power would seem to be in a favored position. Those with the longest purse-the
exhibitor-defendants and the large circuits-would seem to stand in a preferred
position. If in fact they were enabled through the competitive bidding system to
take the cream of the business, eliminate the smaller independents, and thus
increase thi r own strategic hold on the industry, they would have the cloak of
the court's decree around them for protection. Hence the natural advantage which
the larger and financially stronger exhibitors would seem to have in the bidding
gives us pause. If a premium is placed on purchasing power, the court-created
system may be a powerful factor towards increasing the concentration of economic
power in the industry rather than cleansing the competitive system of
unwholesome practices. For where the system in operation promises the advantage
to the exhibitor who is in the strongest financial position, the injunction
against discrimination17 is apt to hold an empty promise. In this connection it
should be noted that even though the independents in a given competitive area do
not want competitive bidding, the exhibitor-defendants can invoke the system.
Our doubts concerning the conpetitive bidding system are increased by the
fact that defendants who own theatres are allowed to pre-empt their own
features. They thus start with an inventory which all other exhib- [334
U.S. 131 , 165] itors lack. The latter have no prospect
of assured runs except what they get by competitive bidding. The proposed system
does not offset in any way the advantages which the exhibitor-defendants have by
way of theatre ownership. It would seem in fact to increase them. For the
independents are deprived of the stability which flows from established business
relationships. Under the proposed system they can get features only if they are
the highest responsible bidders. They can no longer depend on their private
sources of supply which their ingenuity has created. Those sources, built
perhaps on private relationships and representing important items of good will,
are banned, even though they are free of any taint of illegality.
The system was designed, as some of the defendants put it, to remedy the
difficulty of any theatre to break into or change the existing system of runs
and clearances. But we do not see how, in practical operation, the proposed
system of competitive bidding is likely to open up to competition the markets
which defendants' unlawful restraints have dominated. Rather real danger seems
to us to lie in the opportunities the system affords the exhibitor-defendants
and the other large operators to strengthen their hold in the industry. We are
reluctant to alter decrees in these cases where there is agreement with the
District Court on the nature of the violations. United States v. Crescent
Amusement Co., supra, 323 U.S. at page 185, 65 S.Ct. at page 260; International
Salt Co. v. United States, 332 U.S. 392, 400 , 17. But the provisions for
competitive bidding in these cases promise little in the way of relief against
the real evils of the conspiracy. They implicate the judiciary heavily in the
details of business management if supervision is to be effective. They vest
powerful control in the exhibitor-defendants over their competitors if close
supervision by the court is not undertaken. In light of these considerations we
conclude that the competitive [334
U.S. 131 , 166] bidding provisions of the decree should
be eliminated so that a more effective decree may be fashioned.
We have already indicated in preceding parts of this opinion that this
alteration in the decree leaves a hiatus or two which will have to be filled on
remand of the cases. We will indicate hereafter another phase of the problem
which the District Court should also reconsider in view of this alteration in
the decree. But out of an abundance of caution we add this additional word. The
competitive bidding system was perhaps the central arch of the decree designed
by the District Court. Its elimination may effect the cases in ways other than
those which we expressly memtion. Hence on remand of the cases the freedom of
the Disr ict Court to reconsider the adequacy of decree is not limited to those
parts we have specifically indicated.
Third. Monopoly, Expansion of Theatre Holdings, Divestiture.
There is a suggestion that the hold the defendants have on the industry is so
great that a problem under the First Amendment is raised. Cf. Associated Press
v. United States, 326 U.S. 1 . We have no doubt that moving pictures, like
newspapers and radio, are included in the press whose freedom is guaranteed by
the First Amendment. That issue would be focused here if we had any question
concerning monopoly in the production of moving pictures. But monopoly in
production was eliminated as an issue in these cases, as we have noted. The
chief argument at the bar is phrased in terms of monopoly of exhibition,
restraints on exhibition, and the like. Actually, the issue is even narrower
than that. The main contest is over the cream of the exhibition business-that of
the first-run theatres. By defining the issue so narrowly we do not intend to
belittle its importance. It shows, however, tha the question here is not [334
U.S. 131 , 167] what the public will see or if the public
will be permitted to see certain features. It is clear that under the existing
system the public will be denied access to none. If the public cannot see the
features on the first- run, it may do so on the second, third, fourth, or later
run. The central problem presented by these cases is which exhibitors get the
highly profitable first-run business. That problem has important aspects under
the Sherman Act. But it bears only remotely, if at all, on any question of
freedom of the press, save only as timeliness of release may be a factor of
importance in specific situations.
The controversy over monopoly relates to monopoly in exhibition and more
particularly monopoly in the first-run phase of the exhibition business.
The five majors in 1945 had interests in somewhat over 17 per cent of the
theatres in the United States-3,137 out of 18,076.18 Those theatres paid 45 per
cent of the total domestic film rental received by all eight defendants.
In the 92 cities of the country with populations over 100,000 at least 70 per
cent of all the first-run theatres are affiliated with one or more of the five
majors. In 4 of those cities the five majors have no theatres. In 38 of those
cities there are no independent first-run theatres. In none of the remaining 50
cities did less [334 U.S. 131 ,
168] than three of the distributor-defendants license
their product on first run to theatres of the five majors. In 19 of the 50
cities less than three of the distributor-defendants licensed their product on
first run to independent theatres. In a majority of the 50 cities the greater
share of all of the features of defendants were licensed for first-run
exhibition in the theatres of the five majors.
In about 60 per cent of the 92 cities having populations of over 100, 000,
independent theatres compete with those of the five majors in first- run
exhibition. In about 91 per cent of the 92 cities there is competition between
independent theatres and the theatres of the five majors or between theatres of
the five majors themselves for first-run exhibition. In all of the 92 cities thr
e is always competition in some run even where there is no competition in first
In cities between 25,000 and 100,000 populations the five majors have
interests in 577 of a total of 978 first-run theatres or about 60 per cent. In
about 300 additional towns, mostly under 25,000, an operator affiliated with one
of the five majors has all of the theatres in the town.
The District Court held that the five majors could not be treated
collectively so as to establish claims of general monopolization in exhibition.
It found that none of them was organized or had been maintained 'for the purpose
of achieving a national monopoly' in exhibition. It found that the five majors
by their present theatre holdings 'alone' (which aggregate a little more than
one-sixth of all the theatres in the United States), 'do not and cannot
collectively or individually have a monopoly of exhibition.' The District Court
also found that where a single defendant owns all of the first-run theatres in a
town, there is no sufficient proof that the acquisition was for the purpose of
creating a monopoly. It found rather that such consequence resulted from the
inertness [334 U.S. 131 ,
169] of competitors, their lack of financial ability to
build theatres comparable to those of the five majors, or the preference of the
public for the best equipped theatres. And the percentage of features on the
market which any of the five majors could play in its own theatres was found to
be relatively small and in nowise to approximate a monopoly of film exhibition. 19
Even in respect of the theatres jointly owned or jointly operated by the
defendants with each other or with independents the District Court found no
monopoly or attempt to monopolize. Those joint agreements or ownership were
found only to be unreasonable restraints of trade. The District Court, indeed,
found no monopoly on any phase of the cases, although it did find an attempt to
monopolize in the fixing of prices, the granting of un- [334
U.S. 131 , 170] reasonable clearances, block-booking and
the other unlawful restraints of trade we have already discussed. The 'root of
the difficulties,' according to the District Court, lay not in theatre ownership
but in those unlawful practices.
The District Court did, however, enjoin the five majors from expanding their
present theatre holdings in any manner. 20 It
refused to grant the request of the Department of Justice for total divestiture
by the five majors of their theatre holdings. It found that total divestiture
would be injurious to the five majors and damaging to the public. Its thought on
the latter score was that the new set of theatre owners who would take the place
of the five majors would be unlikely for some years to give the public as good
service as those they supplanted 'in view of the latter's demonstrated
experience and skill in operating what must be regarded as in general the
largest and best equipped theatres.' Divestiture was, it thought, too harsh a
remedy where there was available the alternative of competitive bidding. It
accordingly concluded that divestiture was unnecessary 'at least until the
efficiency of that system has been tried and found wanting.'
It is clear, so far as the five majors are concerned, that the aim of the
conspiracy was exclusionary, i.e. it was designed to strengthen their hold on
the exhibition field. In other words, the conspiracy had monopoly in exhibition
for one of its goals, as the District Court held. Price, clearance, and run are
interdependent. The clearance and run provisions of the licenses fixed the
relative playing positions of all theatres in a certain area; the minimum price
provisions were based on playing position- the first-run theatres being required
to charge the highest prices, [334
U.S. 131 , 171] the second-run theatres the next highest,
and so on. As the District Court found, 'In effect, the distributor, by the
fixing of minimum admission prices attempts to give the prior-run exhibitors as
near a monopoly of the patronage as possible.'
It is, therefore, not enough in determining the need for divestiture to
conclude with the District Court that none of the defendants was organized or
has been maintained for the purpose of achieving a 'national monopoly,' nor that
the five majors through their present theatre holdings 'alone' do not and cannot
collectively or individually have a monopoly of exhibition. For when the
starting point is a conspiracy to effect a monopoly through restraints of trade,
it is relevant to determine what the results of the conspiracy were even if they
fell short of monopoly.
An example will illustrate the problem. In the popular sense there is a
monopoly if one person owns the only theatre in town. That usually does not,
however, constitute a violation of the Sherman Act. But as we noted in United
States v. Griffith, 334 U.S. 100 , and see Schine Chain Theatres, Inc., v.
United States, 334 U.S. 110 , even such an ownership is vulnerable in a suit by
the United States under the Sherman Act if the property was acquired, or its
strategic position maintained, as a result of practices which constitute
unreasonable restraints of trade. Otherwise, there would be reward from the
conspiracy through retention of its fruits. Hence the problem of the District
Court does not end with enjoining continuance of the unlawful restraints nor
with dissolving the combination which launched the conspiracy. Its function
includes undoing what the conspiracy achieved. As we have discussed in Schine
Chain Theatres, Inc., v. United States, 334 U.S. 110 , the requirement that the
defendants restore what they unlawfully obtained is no more punishment than the
familiar remedy [334 U.S. 131 ,
172] of restitution. What findings would be warranted
after such an inquiry in the present cases, we do not know. For the findings of
the District Court do not cover this point beyond stating that monopoly was an
objective of the several restraints of trade that stand condemned.
Moreover, the problem under the Sherman Act is not solved merely by measuring
monopoly in terms of size or extent of holdings or by concluding that single
ownerships were not obtained 'for the purpose of achieving a national monopoly.'
It is the relationship of the unreasonable restraints of trade to the position
of the defendants in the exhibition field (and more particularly in the
first-run phase of that business) that is of first importance on the divestiture
phase of these cases. That is the position we have taken in Schine Chain
Theatres, Inc., v. United States, 334 U.S. 110 , in dealing with a projection of
the same conspiracy through certain large circuits. Parity of treatment of the
unaffiliated and the affiliated circuits requires the same approach here. For
the fruits of the conspiracy which are denied the independents must also be
denied the five majors. In this connection there is a suggestion that one result
of the conspiracy was a geographical division of territory among the five
majors. We mention it not to intimate that it is true but only to indicate the
appropriate extent of the n quiry concerning the effect of the conspiracy in
theatre ownership by the five majors.
The findings of the District Court are deficient on that score and obscure on
another. The District Court in its findings speaks of the absence of a 'purpose'
on the part of any of the five majors to achieve a 'national monopoly' in the
exhibition of motion pictures. First, there is no finding as to the presence or
absence of monopoly on the part of the five majors in the first-run field for
the entire country, in the first- run field in the 92 largest cities of the
country, or in the first-run field in separate localities. Yet the first-run
field, which constitutes the cream of the [334
U.S. 131 , 173] exhibition business, is the core of the
present cases. Section 1 of the Sherman Act out-laws unreasonable restraints
irrespective of the amount of trade or commerce involved (United States v.
Socony-Vacuum Oil Co., 310 U.S. 150, 224 , 225, n. 59, 844-846), and 2 condemns
monopoly of 'any part' of trade or commerce.' Any part' is construed to mean an
appreciable part of interstate or foreign trade or commerce. United States v.
Yellow Cab Co., 332 U.S. 218, 225 , 1564. Second, we pointed out in United
States v. Griffith, 334 U.S. 100 , that 'specific intent' is not necessary to
establish a 'purpose or intent' to create a monopoly but that the requisite
'purpose or intent' is present if monopoly results as a necessary consequence of
what was done. The findings of the District Court on this phase of the cases are
not clear, though we take them to mean by the absence of 'purpose' the absence
of a specific intent. So construed they are inconclusive. In any event they are
ambiguous and must be recast on remand of the cases. Third, monopoly power,
whether lawfully or unlawfully acquired, may violate 2 of the Sherman Act though
it remains unexercised (United States v. Griffith, 334 U.S. 100 ), for as we
stated in American Tobacco Co. v. United States, 328 U.S. 781 , 809, 811, 1140,
the existence of power 'to exclude competition when it is desired to do so' is
itself a violation of 2, provided it is coupled with the purpose or intent to
exercise that power. The District Court, being primarily concerned with the
number and extent of the theatre holdings of defendants, did not address itself
to this phase of the monopoly problem. Here also, parity of treatment as between
independents and the five majors as theatre owners, who were tied into the same
general conspiracy necessitates consideration of this question.
Exploration of these phases of the cases would not be necessary if, as the
Department of Justice argues, vertical integration of producing, distributing
and exhibit- [334 U.S. 131 ,
174] ing motion pictures is illegal per se. But the
majority of the Court does not take that view. In the opinion of the majority
the legality of vertical integration under the Sherman Act turns on (1) the
purpose or intent with which it was conceived, or (2) the power it creates and
the attendant purpose or intent. First, it runs afoul of the Sherman Act if it
was a calculated scheme to gain control over an appreciable segment of the
market and to restrain or suppress competition, rather than an expansion to meet
legitimate business needs. United States v. Reading Co., 253 U.S. 26, 57 , 432;
United States v. Lehigh Valley R. Co., 254 U.S. 255, 269 , 270, 108, 109.
Second, a vertically integrated enterprise, like other aggregations of business
units (United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416), will
constitute monopoly which, though unexercised, violates the Sherman Act provided
a power to exclude competition is coupled with a purpose or intent to do so. As
we pointed out in United States v. Griffith, 334 U.S. 107 , n. 10, size is
itself an earmark of monopoly power. For size carries with it an opportunity for
abuse. And thef act that the power created by size was utilized in the past to
crush or prevent competition is potent evidence that the requisite purpose or
intent attends the presence of monopoly power. See United States v. Swift &
Co., 286 U.S. 106, 116 , 463; United States v. Aluminum Co. of America, supra,
148 F.2d at page 430. Likewise bearing on the question whether monopoly power is
created by the vertical integration, is the nature of the market to be served
(United States v. Aluminum Co. of America, supra, 148 F.2d at page 430), and the
leverage on the market which the particular vertical integration creates or
These matters were not considered by the District Court. For that reason, as
well as the others we have mentioned, the findings on monopoly and divestiture
which we have discussed in this part of the opinion will be set aside. There is
an independent reason for doing [334
U.S. 131 , 175] that. As we have seen, the District Court
considered competitive bidding as an alternative to divestiture in the sense
that it concluded that further consideration of divestiture should not be had
until competitive bidding had been tried and found wanting. Since we eliminate
from the decree the provisions for competitive bidding, it is necessary to set
aside the findings on divestiture so that a new start on this phase of the cases
may be made on their remand.
It follows that the provision of the decree barring the five majors from
further theatre expansion should likewise be eliminated. For it too is related
to the monopoly question; and the District Court should be allowed to make an
entirely fresh start on the whole of the problem. We in no way intimate,
however, that the District Court erred in prohibiting further theatre expansion
by the five majors.
The Department of Justice maintains that if total divestiture is denied,
licensing of films among the five majors should be barred. As a permanent
requirement it would seem to be only an indirect way of forcing divestiture. For
the findings reveal that the theatres of the five majors could not operate their
theatres full time on their own films. 21 Whether
that step would, in absence of competitive bidding, serve as a short range
remedy in certain situations to dissipate the effects of the conspiracy ( United
States v. Univis Lens Co., 316 U.S. 241, 254 , 1095; United States v. Bausch
& Lomb Co., supra, 321 U.S. at page 724, 64 S.Ct. at page 814; United States
v. Crescent Amusement Co., supra, 323 U.S. at page 188, 65 S.Ct. at page 261) is
a question for the District Court. [334
U.S. 131 , 176] Fourth.
The consent decree created an arbitration system which had, in the view of
the District Court, proved useful in its operation. The court indeed thought
that the arbitration system had dealt with the problems of clearances and runs
'with rare efficiency.' But it did not think it had the power to continue an
arbitration system which would be binding on the parties, since the consent
decree did not bind the defendants who had not consented to it and since the
government, acting pursuant to the powers reserved under the consent decree,
moved for trial of the issues charged in the complaint. The District Court
recommended, however, that some such system be continued. But it included no
such provision in its decree.
We agree that the government did not consent to a permanent system of
arbitration under the consent decree and that the District Court has no power to
force or require parties to submit to arbitration in lieu of the remedies
afforded by Congress for enforcing the anti-trust laws. But the District Court
has the power to authorize the maintenance of sc h a system by those parties who
consent and to provide the rules and procedure under which it is to operate. The
use of the system would not, of course, be mandatory. It would be merely an
auxiliary enforcement procedure, barring no one from the use of other remedies
the law affords for violations either of the Sherman Act or of the decree of the
court. Whether such a system of arbitration should be inaugurated is for the
discretion of the District Court.
Certain associations of exhibitors and a number of independent exhibitors,
appellant-intervenors in Nos. 85 and 86, were denied leave to intervene in the
District [334 U.S. 131 ,
177] Court. They appeal from those orders. They also
filed original motions for leave to intervene in this Court. We postponed
consideration of the original motions and of our jurisdiction to hear the
appeals until a hearing on the merits of the cases.
Rule 24(a) of the Rules of Civil Procedure, 28 U.S.C.A. following section
723c, which provides for intervention as of right, reads in part as follows:
'Upon timely application anyone shall be permitted to intervene in an action: *
* * (2) when the representation of the applicant's interest by existing parties
is or may be inadequate and the applicant is or may be bound by a judgment in
The complaint of the intervenors was directed towards the system of
competitive bidding. The Department of Justice is the representative of the
public in these anti-trust suits. So far as the protection of the public
interest in free competition is concerned, the interests of those intervenors
was adequately represented. The intervenors, however, claim that the system of
competitive bidding would have operated prejudicially to their rights. Cf.
United States v. Terminal R. Ass'n of St. Louis, 236 U.S. 194, 199 , 410. Their
argument is that the plan of competitive bidding under the control of the
defendants would be a concert of action that would be illegal but for the
decree. If pursuant to the decree defendants acted under that plan, they would
gain immunity from any liability under the anti-trust laws which otherwise they
might have to the intervenors. Thus, it is argued, the decree would affect their
legal rights and be binding on them. The representation of their interests by
the Department of Justice on that score was said to be inadequate since that
agency proposed the idea of competitive bidding in the District Court.
We need not consider the merits of that argument. Even if we assume that the
intervenors are correct in their [334
U.S. 131 , 178] position, intervention should be denied
here and the orders of the District Court denying leave to intervene must be
affirmed. Now that the provisions for competitive bidding have been eliminated
from the decree there is no basis for saying that the decree affects their legal
rights. Whatever may have been the situation below, no other reason appears why
at this stage their intervention is warranted. Any justification for making them
parties has disappeared.
The judgment in these cases is affirmed in part and reversed in part, and the
cases are remanded to the District Court for proceedings in conformity with this
Affirmed in part and reversed in part.
Mr. Justice JACKSON took no part in the consideration or decision of these
Mr. Justice FRANKFURTER, dissenting in part.
'The framing of decrees should take place in the District rather than in
Appellate Courts. They are invested with large discretion to model their
judgments to fit the exigencies of the particular case.' On this guiding
consideration, the Court earlier this Term sustained a Sherman Law decree,
which was not the outcome of a long trial involving complicated and contested
facts and their significance, but the formulation of a summary judgment on the
bare bones of pleadings. International Salt Co. v. United States, 332 U.S. 392
, 400, 401, 17, 18. The record in this case bespeaks more compelln g respect
for the decree fashioned by the District Court of three judges to put an end
to violations of the Sherman Law and to prevent the recurrence, than that
which led this Court not to find abuse of discretion in the decree by a single
district judge in the International Salt case. [334
U.S. 131 , 179] This Court has both the authority and
duty to consider whether a decree is well calculated to undo, as far as is
possible, the result of transactions forbidden by the Sherman Law and to guard
against their repetition. But it is not the function of this Court, and it
would ill discharge it, to displace the district courts and write decrees de
novo. We are, after all, an appellate tribunal even in Sherman Law cases. It
could not be fairly claimed that this Court possesses greater experience,
understanding and prophetic insight in relation to the movie industry, and is
therefore better equipped to formulate a decree for the movie industry than
was the District Court in this case, presided over as it was by one of the
wisest of judges.
The terms of the decree in this litigation amount, in effect, to the
formulation of a regime for the future conduct of the movie industry. The terms
of such a regime, within the scope of judicial oversight, are not to be derived
from precedents in the law reports, nor, for that matter, from any other
available repository of knowledge. Inescapably the terms must be derived from an
assessment of conflicting interests, not quantitatively measurable, and a
prophecy regarding the workings of untried remedies for dealing with disclosed
evils so as to advance most the comprehensive public interest.
The crucial legal question before us is not whether we would have drawn the
decree as the District Court drew it, but whether, on the basis of what came
before the District Court, we can say that in fashioning remedies it did not
fairly respond to disclosed violations and therefore abused a discretion, the
fair exercise of which we should respect and not treat as an abuse. Discretion
means a choice of available remedies. As bearing upon this question, it is most
relevant to consider whether the District Court showed a sympathetic or mere
niggling awareness of the proper scope of the Sherman Law and the range of [334
U.S. 131 , 180] its condemnation. Adequate remedies are
not likely to be fashioned by those who are not hostile to evils to be remedied.
The District Court's opinion manifests a stout purpose on the part of that court
to enforce its thoroughgoing uncerstanding of the requirements of the Sherman
Law as elucidated by this Court. And so we have before us the decree of a
district court thoroughly aware of the demands of the Sherman Law and manifestly
determined to enforce it in all its rigors.
How did the District Court go about working out the terms of the decree some
of which this Court now displaces? The case was before the lower court from
October 8, 1945, to January 22, 1947. A vast body of the evidence which had to
be considered below, and must be considered here in overturning the lower
court's decree, consisted of documents. A mere enumeration of these documents,
not printed in the record before us, required a pamphlet of 42 pages. It took
460 pages for a selection of exhibits deemed appropriate for printing by the
Government. The printed record in this Court consists of 3,841 pages. It is on
the basis of this vast mass of evidence that the District Court, on June 11,
1946, filed its careful opinion, approved here, as to the substantive issues.
Thereafter, it heard argument for three days as to the terms of the judgment.
The parties then submitted their proposals for findings of fact and conclusions
of law by the District Court. After a long trial, an elaborate opinion on the
merits, full discussion as to the terms of the decree, more than two months for
the gestation of the decree, the terms were finally promulgated.
I cannot bring myself to conclude that the product of such a painstaking
process of adjudication as to a decree appropriate fors uch a complicated
sitation as this record discloses was an abuse of discretion, arrived at as it
was after due absorption of all the light that [334
U.S. 131 , 181] could be shed upon remedies appropriate
for the future. After all, as to such remedies there is no test, ultimately,
except the wisdom of men judged by events.
Accordingly, I would affirm the decree except as to one paticular, that
regarding an arbitration system for controversies that may arise under the
decree. This raises a pure question of law and not a judgment based upon facts
and their significance, as are those features of the decree which the Court sets
aside. The District Court indicated that 'in view of its demonstrated
usefulness' such an arbitration system was desirable to aid in the enforcement
of the decree. The District Court, however, deemed itself powerless to continue
an arbitration system without the consent of the parties. I do not find such
want of power in the Distirct Court to select this means of enforcing the decree
most effectively, with the least friction and by the most fruitful methods. A
decree as detailed and as complicated as is necessary to fit a situation like
the one before us is bound, even under the best of circumstances, to raise
controversies involving conflicting claims as to facts and their meaning. A
court could certainly appoint a master to deal with questions arising under the
decree. I do not appreciate why a proved system of arbitration, appropriate as
experience has found it to be appropriate for adjudicating numberless questions
that arise under such a decree, is not to be treated in effect as a standing
master for purposes of this decree. See Ex parte Peterson, 253 U.S. 300 . I
would therefore leave it to the discretion of the District Court to determine
whether such a system is not available as an instrument of auxiliary
enforcement. With this exception I would affirm the decree of the District
[ Footnote 1 ] Sec. 2 of the Expediting Act of
February 11, 1903, 32 Stat. 823, as amended, 15 U.S.C. 29, 15 U.S.C.A. 29, and
238 of the Judicial Code, as amended by the Act of February 13, 1925, 43 Stat.
936, 938, 28 U.S.C. 345, 28 U.S.C.A. 345.
[ Footnote 2 ] The court was convened pursuant to
the provisions of the Act of April 6, 1942, 56 Stat. 198, 199, 15 U.S.C. 28, 15
[ Footnote 3 ] Before trial, negotiations for a
settlement were undertaken. As a result, a consent decree against the five major
defendants was entered November 20, 1940. The consent decree contained no
admission of violation of law and adjudicated no issue of fact or law, except
that the complaint stated a cause of action. The decree reserved to the United
States the right at the end of a three-year trial period to seek the relief
prayed for in the amended complaint. After the end of the three-year period the
United States moved for trial against all the defendants.
First. Restraint of Tradeč(1) Price Fixing.
[ Footnote 4 ] A master agreement is a licensing
agreement or 'blanket deal' covering the exhibition of features in a number of
theatres, usually comprising a circuit.
A franchise is a licensing agreement, or series of licensing agreements,
entered into as part of the same transaction, in effect for more than one motion
picture season and covering the exhibition of features released by one
distributor during the entire period of the agreement.
An independent as used in these cases means a producer, distributor, or
exhibitor, as the context requires, which is not a defendant in the action, or a
subsidiary or affiliate of a defendant.
[ Footnote 5 ] See note 12, infra.
[ Footnote 6 ] A clearance is the period of time,
usually stipulated in license contracts, which must elapse between runs of the
same feature within a particular area or in specified theatres.
Runs are successive exhibitions of a feature in a given area, first- run
being the first exhibition in that area, second-run being the next subsequent,
and so on, and include successive exhibitions in different theatres, even though
such theatres may be under a common ownership or management.
[ Footnote 7 ] Thus the District Court found:
'Some licenses granted clearance (to sell) to all theatres which the exhibitor
party to the contract might thereafter own, lease, control, manage, or operate
against all theatres in the immediate vicinity of the exhibitor's theatre
thereafter erected or opened. The purpose of this type of clearance agreements
was to fix the run and clearance status of any theatre thereafter opened not on
the basis of its appointments, size, location, and other competitive features
normally entering into such determination, but rather upon the sole basis of
whether it were operated by the exhibitor party to the agreement.'
[ Footnote 8 ] A feature is any motion picture,
regardless of topic, the length of film of which is in excess of 4,000 feet.
[ Footnote 9 ] Theatres jointly owned with
Paramount 993 Warner 20 Fox 66 RKO 187 Loew's 21 --------- Total 1287
Theatres jointly owned by two defendants:
Parmount-Fox 6 Paramount-Loew's 14 Paramount-Warner 25 Paramount-RKO 150
Loew's-RKO 3 Loew's-Warner 5 Fox-RKO 1 Warner-RKO 10 --------- Total 214
Of the 1287 jointly owned with independents, 209 would not be affected by the
decree since one of the ownership interests is less than 5 per cent, an amount
which the District Court treated as de minimis.
[ Footnote 10 ] See note 4, supra.
[ Footnote 11 ] Blind-selling is a practice
whereby a distributor licenses a feature before the exhibitor is afforded an
opportunity to view it. To remedy the problems created by that practice the
District Court included the following provision in its decree: 'To the extent
that any of the features have not been trade-shown prior to the granting of the
license for more than a single feature, the licensee shall be given by the
licensor the right to reject twenty per cent of such features not trade- shown
prior to the granting of the license, such right of rejection to be exercised in
the order of release within ten days after there has been an opportunity
afforded to the licenssee to inspect the feature.'
The court advanced the following as its reason for inclusion of this
provision: 'Blind-selling does not appear to be as inherently restrictive of
competition as block-booking, although it is capable of some abuse. By this
practice a distributor could promise a picture of good quality or of a certain
type which when produced might prove to be of poor quality or of another typeča
competing distributor meanwhile being unable to market its product and in the
end losing its outlets for future pictures. The evidence indicates that
trade-shows, which are designated to prevent such blind-selling, are poorly
attended by exhibitors. Accordingly, exhibitors who choose to obtain their films
for exhibition in quantities, need to be protected against burdensome agreements
by being given an option to reject a certain percentage of their blind-licensed
pictures within a reasonable time after they shall have become available for
inspection.' We approve this provision of the decree.
[ Footnote 12 ] The exclusive right granted by
the Copyright Act, 35 Stat. 1075, 17 U.S.C. 1, 17 U.S.C.A. 1, includes no such
privilege. It provides, so far as material here, as follows:
'That any person entitled thereto, upon complying with the provisions of this
Act, shall have the exclusive right: * * * '(d) To perform or represent the
copyrighted work publicly if it be a drama or, if it be a dramatic work and
not reproduced in copies for sale, to vend any manuscript or any record
whatsoever thereof; to make or to procure the making of any transcription or
record thereof by or from which, in whole or in part, it may in any manner or
by any method be exhibited, performed, represented, produced, or reproduced;
and to exhibit, perform, represent, produce, or reproduce it in any manner or
by any method whatsoever;'
[ Footnote 13 ] A moveover is the privilege
given a licensee to move a picture from one theatre to another as a continuation
of the run at the licensee's first theatre.
[ Footnote 14 ] A road show is a public
exhibition of a feature in a limited number of theatres, in advance of its
general release, at admission prices higher than those customarily charged in
first-run theatres in those areas.
[ Footnote 15 ] Underage and overage refer to
the practice of using excess film rental earned in one circuit theatre to
fulfill a rental commitment defaulted by another.
[ Footnote 16 ] Competitive bidding is required
only in a 'competitive area' where it is 'desired by the exhibitors.' As the
District Court said, 'the decree provides an opportunity to bid for any
exhibitor in a competitive area who may desire to do so.'
The details of the competitive bidding system will be found in 70 F. Supp.
pages 73, 74.
[ Footnote 17 ] The competitive bidding part of
the decree provides: 'Each license shall be granted solely upon the merits and
without discrimination in favor of affiliates, old customers or others.'
[ Footnote 18 ] The theatres which each of the
five majors owned independently of the others were: Paramount 1,395 or 7.72 per
cent; Warner 501 or 2.77 per cent; Loew's 135 or .74 per cent; Fox 636 or 3.52
per cent; RKO 109 or .60 per cent. There were in addition 361 theatres or about
2 per cent in which two or more of the five majors had joint interests. These
figures exclude connections through filmbuying, or management contracts or
through corporations in which a defendant owns an indirect minority stock
There theatres are located in 922 towns in 48 States and the District of
Columbia. For further description of the distribution of theatres see Bertrand,
Evans, and Blanchard, The Motion Picture Industry-A Pattern of Control 15-16
(TNEC Monograph 43, 1941).
[ Footnote 19 ] The number of feature films
released during the 1943-44 season by the eleven largest distributors is as
No. OF FILMS
| OF TOTAL
||With "Westerns" Excluded
[ Footnote 20 ] excepted from this prohibition
was the acquisition of interests in theatres jon tly owned, a matter we have
discussed in a preceding portion of this opinion.
[ Footnote 21 ] The District Court found,
'Except for a very limited number of theatres in the very largest cities, the
18,000 and more theatres in the United States exhibit the product of more than
one distributor. Such theatres could not be operated on the product of only one
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