Motion Picture Herald (Jan-Feb 1945)

^. S. DEMANDING CLEARANCE jlECULATION BY INJUNCTION ^resent Practice Violates Sherman Anti-Trust Act, Decree Brief Holds The United States Department of Justice is ifoving from regulation of the industry by deree to regulation by injunction, charging spe[fically that present clearance practices are in ftolation of the Sherman Anti-Trust Act. Monday of this week the Government filed a p-page memorandum and notice of motion in le Federal District Court in New York ask I 1. A Consent Decree provision for the jbolition of clearance between theatres "not A substantial competition with each other." 2. Another Decree provision directed jainst "unreasonable clearance in favor of filiated theatres" ; and 3. An injunction to prevent the signabries to the Consent Decree from granting [unreasonable clearance" pending a revision jif the Decree embodying the first two demands. The memorandum and notice were served on ittorneys for the eight distributor defendants 1 the anti-trust suit "The U. S. vs. Paramount t al," together with a notice that the Departnent of Justice would make an oral plea for isuance of the injunction March 5 in New York efore Federal Judge Henry W. Goddard. 'Unreasonable Clearance" s Attacked in Brief The memorandum also attacked "unreasonilible clearance" held by large independent cir;uits but said that relief for smaller indepenlents could only come from dissolution of such arge circuits. The primary evil of clearance between theares which are not substantially competitive, he Department said, "is not that it suppresses :ompetitibn for patronage but that it establishes 1 discriminatory sequence of exhibition which las no relation to the legitimate needs of the iistributor or the public." After outlining certain provisions to be added to Section VIII of the Consent Decree dealjmg with clearance, the document said : "Insofar as the clearance abuses inherent n the suppression of the business of smaller independent operators by large independent circuits are concerned, the plaintiff believes that the ultimate relief required to obviate such violations lies in dissoluton of such circuits. "To the extent that such violations involve licenses made by the distributor defendants here they may be dealt with in this proceeding and for that reason unreasonable clearances which results from the use of independent cir|cuit-buying power should also be outlawed in Ijthis suit. |ll "The general provisions previously suggestfed should be adequate temporary relief for this [purpose but they do not deal specifically with the problem of clearance discrimination arising from the affiliation of theatres with distributors, which is at the heart of this case, and for which a special provision directed at unreasonable clearance for affiliated theatres is neces sary. In its review of cases dimissing complaints agamst clearance granted by one or more of the distributor defendants, the Department stressed that they were exempted from arbitration by Section XVII of the decree, although similar clearances granted by others were found to be unreasonable. The brief went on to say: "A serious defect in the existing section VIII of the Consent Decree is that the burden of showing a partictdar clearance imposed by these defendants to be improper is placed upon the complaining exhibitor instead of on the defendant imposing it." Early in the memorandum, the Department pointed out that, in its opinion, the defendant since the suit was filed had imposed unreasonable clearances which violated the Sherman Anti-Trust Act, and that the Decree in its present form had not provided adequate temporary relief. The Department supported its application by citing cases where the Arbitration Appeal Board had found clearance unreasonable and had ordered reductions. Unwarranted Interference With Distributor's Right "In holding that there should be some clearance between theatres which were not in substantial competition, but merely drew patronage from the same general area" it explained in this connection, "the Board apparently assumed that entering an award prohibiting a distributor from granting clearance in favor of one theatre over another in the same competitive area, was an unwarranted interference with the distributor's right to license the competing exhibitors on such runs as he may deem necessary to exploit his films properly." It was added that a result has been that the consenting companies had been allowed to impose clearance between theatres only slightly competitive. The Department went on to say: "We respectfully submit that a provision prohibiting the imposition of any clearance between theatres not in substantial competition with each other should be added to the existing decree." There was no legitimate purpose in granting clearance between theatres which charged the same admission price, whether they drew from precisely the same area, or whether they were 20 miles apart, the court was told. It was conceded that a theatre playing first runs at a high admission price might ordinarily be expected to require clearance over a second run charging a lower price. "An adequate temporary provision must also flatly prohibit the granting of any clearance between theatres charging substantially the same admission price," the Department said. Clearance Should Be Based On Price Differential After declaring that the maximum clearance in competitive situations where different admission prices are charged should be adjusted proportionately to the price differential, the Department said : "Apart from these general provisions, specific temporary relief expressly directed against unreasonable clearance arising from distributor affiliation is urgently required. There is no dispute that each of the distributor defendants controls a large circuit of theatres ; each licenses films to its own circuit;' the circuits owned by the others and theatres competing with them by license agreements which fix the minimum admission prices to be charged by all the theatres licensed ; that the maintenance of those admission prices is tied to run and clearance provisions determining the relative time at which the films licensed become available for exhibition in competing theatres." This system of price fixing by cross-licensing, the court was told, was prima facie illegal because affiliated operators, through their distribution affiliates, agreed on admission prices of their theatres in the competitive areas in which they operate, and as to the admission prices to be charged by independent operators who competed with these affiliated houses. The Department stressed its opinoin that clearances had violated the Sherman AntiTrust Act. It continued : "The persistent use by the consenting defendants, during the pendency of this suit, as a means of unreasonably restricting the terms on which theatres may compete in licensing their films, and the inadequacy of the present decree to afford adequate relief against such violations of the Sherman Act are beyond dispute. "We respectfully submit that the provisions suggested are the minimum which the court may properly grant if the persons now subjected to the illegal restrictions in question are to be given adequae protection pending the entry of a final decree in this case." The Department pointed out that it would not offer oral testimony in support of its motion at the March 5 hearing, but will rely principally upon a consideration by the court of the facts established under the course of arbitration proceedings under Section VIII. It said that its objects was to advise the defendants of the arbitration decisions upon which it would rely at the hearing. Have Until February 20 To Advise Government The defendants have until February 20 to advise the Government of their position on the relief to be sought by the Department March S, and particularly as to what testimony, if any, they will seek to offer at the hearing. The memorandum in support of the motion was signed by Wendell Berge, Assistant U. S. Attorney General in charge of the Department's anti-trust division, and by Robert L. Wright, chief of the division's film section. Attached was an eight-page appendix of five exhibits. They comprised photostatic copies of sample license agreements, one for each defendant, and voluntarily supplied by the companies. K.-B. Circuit Announce Plans For I.OOO-Seat House Fred S. Kogod, president of the K-B Theatres, Washington, D. C, has announced that a new 1,000-seat house, to be known as the MacArthur, will be constructed as material and equipment permit. This is the third new theatre to be announced by Mr. Kogod in the past six months. The Avon is already under construction and the new Southern will be constructed as soon as materials become available. MOTION PICTURE HERALD, FEBRUARY 10, 1945 13