Harrison's Reports (1949)

136 HARRISON'S REPORTS August 20, 1949 in the licensing of pictures on a particular run, nevertheless the history of the word 'discrimination' as used in this htigation plus Judge Hand's disclaimer knocks the props from under those distributors who claim that they must license on bids in all competitive situations. "It is a monstrous concept and a greedy one that unlawful discrimination can be avoided only by awarding the pic' ture in every instance to the highest bidder. Certain distributors in order to extract the highest possible film rental in every competitive situation are pitting the circuits against the independents, the weak against the strong, and are thereby perpetuating the evils which the Supreme Court saw in the bidding system and which caused it to strike that system from the District Court's decree. "Granting that the language employed by the Court is not entirely clear, and that the situation of the distributors is difficult, we seriously doubt if they really believe that the highest bid in every situation meets the Court's test of merit. The shallowness of the claim has been apparent from the beginning. It is a mere cover lor a device which enables the distributor to raise film rentals to exorbitant heights. " 'Discrimination' like 'fraud' is hard to define but we recognize it when we see it. We do not believe that the distributors blindly fell into discriminatory practices because no signs had been erected for their guidance. No one ever practices discrimination without experiencing the sharp prick of conscience. And when a distributor regularly awards his pictures to a circuit on its high bids, knowing that the circuit must recoup its losses in non-competitive spots, he is wilfully practicing discrimination notwithstanding the mumbo jumbo of competitive bidding. "The purpose ot the distributors to conform to the decisions in letter and spirit would be much more impressive if they made a sincere effort to license their pictures theatre by theatre on the merits — all of them — and to work out amicable adjustments by splitting the product or otherwise, instead of clinging to the bidding method which the Courts have frowned upon. "One gets the impression that some of the companies are wilfully trying to perpetuate the methods and practices which have kept them in legal hot water for so many years. It is quite apparent that it they insist in every case, regardless of all other considerations, upon selling to the highest bidder, the complaints will continue and they will not attain that peace which they proclaim is their goal. For one thing, all modern decrees contain a reservation of jurisdiction which enables the case to be reopened for modifications and for additional relief. If the distributors continue to use bidding for the purpose of raising film rentals and ignore all the other equities entering into the 'merits,' a cry will go up for the reopening of this case. "RESTORATION OF ARBITRATION SYSTEM UNLIKELY "So long as it seems possible that the Court might impose measures of relief short of divorcement, the five theatreowning defendants were keen for perpetuating the consent decree arbitration system and applying it to the new decree. They thought that this would appeal to the Courts and, perhaps, be accepted as a substitute for divorcement. Also, they hoped that the arbitration system could be used as a refuge against contempt proceedings, as it was under the consent decree. When the Government withdrew its support from the system, counsel for Warner Bros, argued very earnestly that it could, nevertheless, be imposed by the Court notwithstanding the Government's objections. "The Supreme Court held 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.' It did hold, however, that the District Court could authorize the maintenance of such a system 'by those parties who consent. . . .' Then it took all the joy out of its ruling by adding that such system '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.' "Since then, of course, the District Court has decided that there shall be total divorcement for all theatre-owning companies and it seems unlikely that an arbitration system will be of sufficient benefit to the distributors to justify the expense of maintaining it. "The controversy over arbitration has always seemed to us to be unreal. There never has been a time when a distributor and an exhibitor could not voluntarily submit to arbitration any controversy based on a contract or a decree that might arise between them. For this they do not need a highly organized and expensive system, they do not need the services of the American Arbitration Association and most cer tainly they do not require the services of three high-salaried, ultra-conservative gentlemen sitting as an Appeal Board. "Commercial arbitration of controversies growing out of interstate transactions is provided for by an act of Congress and most ot the states have arbitration laws. All that is needed is the will of the parties to arbitrate. Once they agree to submit their differences to arbitration they can go ahead and select their arbitrators and go to it. The law will recognize the award as valid and binding. It's as easy as that. "This was recognized when the Allied representatives met with other elements ot the industry years ago and worked out the Optional Arbitration Clause which was included in the license agreements of most of the companies tor a number of years. In order to arbitrate any dispute arising under the contract the parties had only to sign this clause and choose their arbitrators. We do not recall a single arbitration case growing out of that clause, though there may have been some. We do recall a few complaints by exhibitors that the distributors would not agree to submit their differences to arbitration. But that was true, voluntary, commercial arbitration, not the compulsory, processed arbitration which was struck down by the Supreme Court in Paramount et al. v. United States, 283 U.S. 30 (decided Nov. 24, 1930), and it seemed to hold no charm for the distributors. "An experiment with that kind of voluntary arbitration would test the sincerity of those who render lip service to arbitration as a concept but who have always steered clear of any form of arbitration that was not narrowly restricted both as to the awards that could be made and the procedure to be followed. Controversies over clearance and availability are especially appropriate for submission to arbitration. We should like very much to see voluntary arbitration tried out in such a controversy. An award based on the factors set forth in the District Court's first opinion (and affirmed by the Supreme Court), even if it resulted in uniform clearances as between the several distributors in a given area, would protect the distributors against any charge of collusion and could be of benefit to all concerned. "WIDESPREAD APPROVAL OF THE DECISION "Ever since theatre divorcement emerged as a probability important industry figures began to realize that it was a good thing for the industry. Some of their expressions have been guarded, some were uttered under the ban of secrecy, but the change in attitude has been apparent. The benefits to the independent producers are obvious and SIMPP for several years has supported the Government's demand for divorcement. Latest among the big company executives to see the light is the redoubtable Al Lichtman, of 20th Century-Fox. According to The Film Daily for July 29, Mr. Lichtman expressed the view that the District Court's decision 'in the long run may be a blessing in disguise'; that it 'may mean better results for us and stimulate what is good for any line of business.' According to the publication Mr. Lichtman based his view 'on the theory that divorcement likely would force the production of better pictures since the majors would not have their own theatre to rely upon for the boxoffice success of their product.' "We assume the three minor defendants — Columbia, United Artists and Universal — did not openly support divorcement because they did not wish to jeopardize the business which they were getting from the affiliated circuits. But the film rentals which these companies received from the affiliated theatres ranged from 26% to 15% of the total, whereas the five major companies together received 71%. The opening up of the affiliated screens to competition obviously was in the interest of the minor companies. Judge Hand pointed this out in his opinion: " 'When separation of the business of distribution from that of the operation of theatres is effected, there will be a favorable market for the three minor defendants in which to license their pictures. This will be not only a compensation for their inability to prefer their old customers3 but apparently a substantial added advantage to them in obtaining a greater opportunity to license their pictures than they had heretofore.' "We are confident that all important industry leaders will soon be reconciled to the new order and that a harmonious industry will surge forward in harmony. The future can be faced with assurance that at last the industry is on firm legal ground. This optimistic prospect is not dimmed by the croakings of a few chronic bad guessers. Their hyperacidity is induced by their inability to forecast the outcome of the Government suit and the proceedings involving ASCAP. They pretend to see no good in the reforms ordered by the Courts under the laws of Congress. But rage based on disappointment will influence no one. (Continued on inside page)