Harrison's Reports (1948)

184 HARRISON'S REPORTS November 13, 1948 no monopoly in the strict sense of the word, the ownership of even a single theatre might be legally vulnerable 'if the property was acquired, or its strategic position was maintained, as a result of practices which constitute unreasonable restraints of trade.' 'Hence,' says the Court, 'the problem of the District Court does not end with enjoining the continuance of the unlawful restraints nor with dissolving the combination which launched the conspiracy. Its function includes undoing what the conspiracy achieved.' " It will be recalled that the lower court ordered each defendant to terminate its joint ownership with an independent of an interest in any theatre greater than five per cent, unless its interest was ninety-five per cent or more, and that such ownership should be dissolved either by a sale to or purchase from the co-owner. In buying out the interest of a co-owner, a defendant was required to establish to the satisfaction of the Court that the acquisition would not restrain competition. The Supreme Court reversed the lower court's judgment on this provision, stating in part: "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 in' flicted 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. . . . 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. "Furthermore, 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. 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." In his analysis, Mr. Myers pointed out that "this can only mean that in all cases of joint ownership where the independent partner is a theatre operator, or but for the affiliation would be a theatre operator, there must be divorcement regardless of any other factors." The only jointly-owned theatres the defendants may retain are described by the Court as those that "involve no more than innocent investments by those who are not actual or potential operators." "If in such cases," the Court added, "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." The Court concluded that "in such 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" would result. The directions given by the Supreme Court to the lower court are so unmistakably clear that one need not be a lawyer to understand that the lower court can hardly avoid ordering almost total divorcement, for few, if any, of the partnership theatres will be found not to have in some way run afoul of the Sherman Act in accordance with what the Supreme Court declares is a violation. In summarizing his analysis, Mr. Myers stated that, "when the proceedings ordered by the Supreme Court have been carried out the percentage of affiliated theatres will be reduced to insignificance and any that remain will have to operate on their own merits and without the preferences and discriminations they have enjoyed in the past." Harrison's Reports wiil go along with the prediction. THE RKO CONSENT DECREE As reported elsewhere in these columns, the New York District Court has approved and entered a consent decree for RKO, thus eliminating the company as a defendant in the ten-year-old anti-trust suit. Under the voluntary agreement signed with the Government, RKO has agreed to complete divorcement. The pact provides for the separation of RKO's production and distribution interests from its theatre interests, this is to be accomplished through a reorganization plan that will split the present RKO set-up into two separate independent companies, one to deal exclusively in exhibition, and the other to confine itself to production and distribution. Each company will operate wholly independent of the other, and will have different officers, directors, and employees. Both companies, however, may be owned by the existing stockholders, with the exception of Howard Hughes, the controlling stockholder, who has agreed to dispose of his interest in one of the companies within a year after the entry of the decree. Hughes is expected to divest himself of the theatre stock. The agreement provides for RKO to dispose of its interests in 241 out of 271 theatres owned jointly with independents, and to either acquire or sell its interests in the remaining 30 jointly-owned theatres. Under no circumstances, however, may it dispose of any interest in a theatre to a party affiliated with a defendant in the anti-trust suit. The new theatre company will consist of 79 whollyowned theatres, giving it a potential of 109 theatres if it acquires the 30 aforementioned jointly-owned theatres. Limitations, however, have been placed on the acquisition of these thirty theatres so that none will serve to restrict competition. The decree provides also for each of the companies to be bound by the decision of the Supreme Court regarding trade practices, with the distribution company agreeing to be bound by any further decisions that may affect Columbia, Universal and United Artists, as non-theatre owning defendants, and with the theatre company required to obtain court approval on all future theatre acquisitions. The decree is subject to the approval of the RKO stockholders within 90 days, but such approval seems to be assured. The settlement with RKO is a major Government victory, not only because it makes divorcement a reality, but also because it breaks the solid front of the theatre-owning defendants, and establishes a precedent that should carry considerable weight in any future settlements the Department cf Justice may undertake with the remaining four theatre-owning defendants.