United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948)
United States v. Paramount Pictures, Inc.
No. 79
Argued February 9-11, 1948
Decided May 3, 1948 *
334 U.S. 131
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK
Syllabus
The United States sued to restrain violations of §§ 1 and 2 of the Sherman Act by (1) five corporations which produce motion pictures and their respective subsidiaries or affiliates which distribute and exhibit films and own or control theaters, (2) two corporations which produce motion pictures and their subsidiaries which distribute films, and (3) one corporation engaged only in the distribution of motion pictures. The complaint charged that the first group of defendants conspired to and did restrain and monopolize interstate trade in the exhibition of motion pictures in most of the larger cities of the country and that their combination of producing, distributing and exhibiting motion pictures violated §§ 1 and 2 of the Act. It also charged that all of the defendants, as distributors, conspired to and did restrain and monopolize interstate trade in the distribution and exhibition of films. After a trial, the District Court granted an injunction and other relief.
Held:
1. The District Court’s finding that price-fixing conspiracies existed between all defendants and between each distributor defendant and its licensees which resulted in exhibitors’ being required to charge substantially uniform minimum admission prices, is sustained. Pp. 141-142.
2. Its injunction against defendants or their affiliates granting any license (except to their own theaters) in which minimum prices for admission to a theater are fixed, is sustained. Pp. 142-144.
(a) The fact that defendants owned copyrights to their films and merely licensed their use by exhibitors did not entitle them to conspire with each other to fix uniform prices of admission to be charged by exhibitors. P. 143.
(b) Nor did it justify the conspiracy between each distributor defendant and its licensees to fix and maintain uniform minimum admission prices which had the effect of suppressing price competition between exhibitors. Pp. 143-144.
(c) A copyright may no more be used than a patent to deter competition between rivals in the exploitation of their licenses. P. 144.
3. The District Court’s finding that there was a conspiracy to restrain trade by imposing unreasonable "clearances" is sustained. Pp. 144-147.
4. Its injunction against defendants’ and their affiliates’ agreeing with each other or with any exhibitors or distributors to maintain a system of "clearances," or granting any "clearance" between theaters not in substantial competition, or granting or enforcing any "clearance" against theaters in substantial competition with the theater receiving the license for exhibition in excess of what is reasonably necessary to protect the licensee, is sustained. Pp. 147-148.
(a) A request that it be construed or modified so as to allow licensors in granting "clearances" to take into consideration what is reasonably necessary for a fair return to the licensor is rejected. Pp. 147-148.
(b) 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. P. 148.
5. A provision of the decree that, "Whenever any clearance provision is attacked as not legal . . . , the burden shall be upon the distributor to sustain the legality thereof," is sustained. P. 148.
6. The District Court’s finding that the exhibitor defendants had "pooling agreements" whereby normally competitive theaters 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, and that these agreements resulted in the elimination of competition pro tanto both in exhibition and in distribution of feature pictures, is sustained. P. 149.
7. Its requirement that existing "pooling agreements" be dissolved and its injunction against any future arrangement of that character are sustained. P. 149.
8. Its findings as to the restraint of trade by means of arrangements under which many theaters are owned jointly by two or more exhibitor defendants, its requirement that the exhibitor defendants terminate such joint ownership of theaters, and its injunction against future acquisitions of such interests, are sustained. Pp. 149-151.
9. Its order that certain other relationships involving joint ownership of theaters by an exhibitor defendant and an independent be dissolved, and its injunction against future acquisitions of such joint interests, must be revised after further inquiries and findings upon remand of the cases. Pp. 151-153.
(a) It erred in failing to inquire into the circumstances under which each particular interest had been acquired and in treating all relationships alike in this portion of the decree. P. 152.
(b) 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. P. 152.
(c) Even if lawfully acquired, divestiture of such interests would be justified if they have been utilized as part of the conspiracy to eliminate or suppress competition. P. 152.
(d) If the joint ownership is an alliance with one who is or would be an operator but for the joint ownership, divorce should be decreed, even though the affiliation was innocently acquired. P. 153.
(e) In those instances where joint ownership involves no more than innocent investments by those who are not actual or potential operators, and it was not used in furtherance of the conspiracy and did not result in a monopoly, its retention by defendants would be justified, and they might be given permission 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. P. 153.
10. The District Court’s findings that certain "formula deals" covering the exhibition of feature pictures in entire circuits of theaters and certain "master agreements" covering their exhibition in two or more theaters in a particular circuit unlawfully restrain trade, and its injunction against the making or further performance of such arrangements, are sustained. Pp. 153-155.
(a) Such arrangements are devices or stifling competition and diverting the cream of the business to the large operators. P. 154.
(b) The pooling of the purchasing power of an entire circuit in bidding for films is a misuse of monopoly power insofar as it combines theaters having no competitors with those having competitors. United States v. Griffith, ante p. 100; Schine Chain Theaters v. United States, ante p. 110. Pp. 154-155.
(c) Distributors who join in such arrangements by exhibitors are active participants in effectuating a restraint of trade and a monopolistic practice. P. 155.
11. The findings of the District Court with reference to "franchises" whereby exhibitors obtain all feature pictures released by a distributor over a period of more than a motion picture season are set aside so that the court may examine the problem in the light of the elimination from the decree of the provision for competitive bidding. Pp. 155-156.
12. On the record in this case, it cannot be said that "franchises" are illegal per se when extended to any theater or circuit, no matter how small. P. 156.
13. The findings of the District Court as to "block-booking" and its injunction against defendants 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, are sustained. Pp. 156-159.
(a) The result of this practice is to add to the monopoly of the copyright, in violation of the principle of the patent cases involving tying clauses. P. 158.
(b) Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 329 U.S. 637, distinguished. P. 159.
(c) The selling of films in blocks or groups when there is no requirement, express or implied, for the purchase of more than one film is not illegal, but it is illegal to refuse to license one or more copyrights unless another copyright is accepted. P. 159.
14. The provision of the decree regulating the practice of "blind-selling," whereby a distributor licenses a feature picture before the exhibitor is afforded an opportunity to view it, is sustained. P. 157, n. 11.
15. The District Court’s findings that defendants had unreasonably discriminated against small independent exhibitors and in favor of large affiliated and unaffiliated circuits through various kinds of contract provisions, and that these discriminators resulted in restraints of trade in violation of the Sherman Act, are sustained. Pp. 159-160.
16. On remand of these cases, the District Court should provide effective relief against continuance of these discriminatory practices, in the light of the elimination from the decree of the provision for competitive bidding. P. 161.
17. That large exhibitors with whom defendants dealt fathered the illegal practices and forced them onto defendants is no excuse, if true, since acquiescence in an illegal scheme is as much a violation of the Sherman Act as the creation and promotion of one. P. 161.
18. The requirement of the decree that films be licensed on a competitive bidding basis should be eliminated, because it would involve the judiciary too deeply in the daily operation of this nationwide business, and would uproot business arrangements and established relationships without opening up to competition the markets which defendants’ unlawful restraints have dominated. Pp. 161-166.
19. On remand of these cases, the freedom of the District Court to reconsider the adequacy of the decree in the light of the elimination of the provision for competitive bidding is not limited to those parts specifically indicated. P. 166.
20. Motion pictures, like newspapers and radio, are included in the press whose freedom is guaranteed by the First Amendment; but the problem involved in these cases 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. Pp. 166-167.
21. The findings of the District Court on the subjects of monopoly in exhibition and the need for divestiture are set aside as being deficient in the light of the principles stated in this opinion, in United States v. Griffith, ante, p. 100, and in Schine Chain Theaters v. United States, ante, p. 110, and because of the elimination from the decree of the provisions for competitive bidding. The injunction against the five major defendants’ expanding their theater holdings in any manner is also set aside in order that the District Court may make an entirely fresh start on these phases of the problems. Pp. 167-175.
(a) In determining the need for divestiture, it is not enough to conclude, as the District Court did, that none of the defendants was organized or has been maintained for the purpose of achieving a "national monopoly," nor that the five major defendants, through their present theater holdings "alone," do not and cannot collectively or individually have a monopoly of exhibition. P. 171.
(b) 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. P. 171.
(c) While a monopoly resulting from the ownership of the only theater in a town usually does not constitute a violation of the Sherman Act, even such an ownership is vulnerable in a suit 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. United States v. Griffith, ante, p. 100. P. 171.
(d) The problem of the District Court did not end with enjoining continuance of the unlawful restraints, nor with dissolving the combination which launched their conspiracy; its function includes also undoing what the conspiracy achieved. P. 171.
(e) 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." P. 172.
(f) 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. P. 172.
(g) The fruits of the conspiracy must be denied to the five major defendants, as they were to the independents in Schine Chain Theaters v. United States, ante p. 110. P. 172.
(h) Section 1 of the Sherman Act outlaws unreasonable restraints, irrespective of the amount of trade or commerce involved, and § 2 condemns monopoly of any appreciable part of trade or commerce. P. 173.
(i) Specific intent is not a necessary element of a purpose or intent to create a monopoly; the requisite purpose or intent is present if monopoly results as a necessary consequence of what was done. P. 173.
(j) Monopoly power, whether lawfully or unlawfully acquired, may violate § 2 of the Sherman Act though it remains unexercised; the existence of the power to exclude competition when it is desired to do so is itself a violation of § 2 if it is coupled with the purpose or intent to exercise that power. P. 173.
(k) The setting aside of the provision of the decree enjoining the five major defendants from further expanding their theater holdings is not to be taken as intimating in any way that the District Court erred in including this prohibition. P. 175.
22. Vertical integration of producing, distributing, and exhibiting motion pictures is not illegal per se; its legality depends upon (1) the purpose or intent with which it was conceived, or (2) the power it creates and the attendant purpose or intent. Pp. 173-174.
(a) It violates 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. P. 174.
(b) A vertically integrated enterprise will constitute a monopoly which, though unexercised, violates the Sherman Act if a power to exclude competition is coupled with a purpose or intent to do so. P. 174.
(c) The fact 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. P. 174.
(d) Likewise bearing on the question whether monopoly power is created by a vertical integration is the nature of the market to be served and the leverage on the market which the particular vertical integration creates or makes possible. P. 174.
23. Whether an injunction against the licensing of films among the five major defendants would, in the absence of competitive bidding, serve as a short-range remedy in certain situations to dissipate the effects of the conspiracy is a question for the District Court. P. 175.
24. 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 antitrust laws, but it may authorize the maintenance of a voluntary system of arbitration by those parties who consent, and it may provide the rules and procedure under which such a system is to operate. P. 176.
(a) The Government did not consent to a permanent system of arbitration under the consent decree. P. 176.
(b) Whether a voluntary system of arbitration should be inaugurated is for the discretion of the District Court . P. 176.
25. In view of the elimination from the decree of the provision for competitive bidding, the District Court’s denial of motions of certain associations of exhibitors and a number of independent exhibitors for leave to intervene in opposition to the system of competitive bidding is affirmed, and their motions for leave to intervene in this Court are denied. Pp. 176-178.
66 F.Supp. 323; 70 F.Supp. 53, affirmed in part and reversed in part.
In a suit by the United States to restrain violations of §§ 1 and 2 of the Sherman Act by major motion picture producers, distributors, and exhibitors, the District Court granted an injunction and other relief. 66 F.Supp. 323; 70 F.Supp. 53. On appeal to this Court, affirmed in part, reversed in part, and remanded, p. 178.