Motion Picture Herald (May-Jun 1946)

MOTION PICTURE HERALD I4e the five major distributor defendants, and about the first five pictures licensed by .each of the three minor defendants, and about that picture of each defendant which during the season received the most billings in the United States. It is apparent from the foregoing that there was great similarity and in many cases identity in the minimum prices fixed for the same theatre in the licenses of all the defendants. Where there was a marked dift'erence in price, as for example in the admissions specified by RKO, Columbia and Universal, in a theatre in Charleston, South Carolina, it is likely to have been due to the showing of a picture of a different class from the others, or upon a different run. Such uniformity of action spells a deliberately unlawful system, the existence of which is not dispelled by the testimony of interested witnesses that one distributor does not know what another distributor is doing ; and there can, in our opinion, be no reasonable inference that the defendants are not all planning to fix minimum prices to which their licenses must adhere. See Record p. 1322. In addition, several of the exhibits disclose operating agreements between the five distributor-defendants who are also theatre owners, or between them and independent theatre owners in which joint operation of the theatres covered by the agreements is provided and minimum admission prices to be charged are either stated therein, or are to be jointly determined by other means. Apparently those particular price-fixing agreements do not involve the three minor defendants or their subsidiaries. For example, in Plaintiff's Exh. 220 there are agreements between subsidiaries of Loew's and Warner, covering the period of May 5, 1938 to August 31, 1947, according to which the admission prices for three theatres in Pittsburgh — two of Warner and one of Loew's — are to be fixed by a joint committee. In Plaintiff's Exh. 218, an agreement between Warner and Paramount provides that from March 1, 1936, to August 31, 1953, two theatres previously operated by Warner, and one theatre previously operated by Paramount in Hammond, Indiana, should be managed by Warner Bros. Circuit Management Corporation and the then present scale of admission prices maintained. By other agreements in Plaintiff's Exh. 219, RKO and Warner provided for joint operation from August 27, 1937, to August 31, 1950, of five theatres in Cleveland — three of RKO and two of Warner — for which minimum prices are to be determined by a joint operating committee. See also, e.g.. Plaintiff's Exh. 229 (Warner and independent) ; Exh. 213 (Loew's and independents) ; Exh. 202 (RKO and independent) ; Exhs. 226, 226a (Paramount, Warner, and independent) ; Exh. 223 (Warner and independent) ; Exh. 386 (Paramount, RKO and independent) ; Exhs. 238, 239 (Fox and independents) ; Exh. 387 (Paramount, RKO and independent) ; Exh. 206 (RKO and Paramount) ; Exh. 221 (Warner and Paramount) ; Exh. 209 (RKO and Paramount) ; Exh. 205 (Paramount and independent). These agreements show the express intent of the major defendants to maintain prices at artificial levels. As further evidence of a conspiracy among the distributors to fix prices, we find master agreements and franchises between various of the defendants in their capacities as distributors and various of the defendants in their capacities as exhibitors. These contracts stipulate minimum admission prices often for dozens of theatres owned by an exhibitor-defendant in a particular area of the United States. Loew's as distributor, for example, fixed minimum prices for nearly all of Paramount's 133 theatres in Florida in an agreement covering the 1943-44 season. Plaintiff's Exh. 57 (11). In the Chicago area Loew's again as distributor specified prices in a single agreement for upwards of 50 theatres owned by a Paramount subsidiary, Balaban & Katz Corporation. Plaintiff's Exhs. 250, 173. United Artists as distributor also specified prices for the Balaban & Katz theatres in Chicago for the 1941-43 season. Plaintiff's Exh. 369 (6). Similarly, Loew's specified prices for the entire Warner circuit of theatres for the 1943-44 season. Plaintiff's Exh. 57 (8-10, 21-2, 30, 32, 35, 38, 48) ; for the same season United Artists specified prices for five RKO theatres in Cincinnati, Plaintiff's Exh. 274; Paramount for seven RKO theatres in Cincinnati, Plaintiff's Exh. 240 ; Loew's for the same seven RKO theatres in Cincinnati, Plaintiff's Exh. 248 ; Warner for forty or more RKO theatres in Greater New York, Plaintiff's Exh. 126 ; Loew's for six Fox theatres in Los Angeles County, Plaintiff's Exh. 249 ; Warner for subsequent run Paramount theatres in Detroit and Birmingham, Michigan, Plaintiff's Exh. 244. A master agreement between United Artists as distributor and Fox as exhibitor for the season 1938-39 covered distribution of pictures of five independent producers in Fox theatre circuits in Los Angeles, San Francisco, Salt Lake City, St. Louis, Milwaukee, Omaha, Denver, and other cities, all on a percentage basis. It contained the following clause: "Where pictures are licensed on a percentage rental basis the scale of admission prices to be not less than the scale of admission prices charged to view pictures of comparable quality exhibited by the exhibitor and distributed by distributors other than United Artists." The foregoing quotation shows an acquiescence of United Artists in admission prices fixed by any other distributor and an adherence to those prices in its own licenses. Plaintiff's Exh. 199. A franchise agreement between Universal Corporation as distributor and Interstate Theatres, Inc., and Texas Consolidated Theatres, Inc., for the seasons 1941-44 is similar. Plaintiff's Exh. 261. In each of the two latter companies Paramount had a 50% interest. The franchise covered pictures distributed by Universal to the theatres of the two licensees and contained the ordinary provisions for penalties if minimum admission prices were not maintained. See note 2 supra. While no minimum prices were specified in the agreements it is not really questioned that in such circumstances the current prices were implied as part of the contract. See Record pp. 433, 724, 782, 1082, 1210-11. There is also in evidence a franchise agreement between Columbia Pictures Corporation as distributor and Marcus Loew Booking Agency, a Loew's subsidiary, for the seasons 1944-46 covering pictures distributed to Loew's Metropolitan New York Circuit. Plaintiff's Exh. 471. Minimum admission prices were not specified, but, as in other cases, were implied. Licenses granted by one defendant to another for exhibition in only one theatre, while less striking evidence of conspiracy than the above master agreements and franchises, disclose the same inter-relationship among the defendants. Each of the five major defendants as a theatreowning exhibitor has been licensed by the other seven defendants as distributors to exhibit the pictures of the latter at specified minimum prices. RKO, for example, as a theatre-owner, has been granted licenses with price restrictions by the other defendant-distributors. In turn, RKO, being itself a distributor, has granted similar licenses to the other four exhibiting defendants. We think that RKO, Loew's, Warner, Paramount and Fox, in granting and accepting licenses with minimum prices specified, have among themselves engaged in a national system to fix prices, and that Columbia, Universal and United Artists, in requiring the maintenance of minimum prices in their licenses granted to these exhibitor-defendants, have participated in that system. It is a reasonable inference from all the foregoing that the distributor-defendants have acquiesced in the establishment of a price-fixing system and have conspired with one another to maintain prices. Such a conspiracy is per se a violation of the Sherman Act. Ethyl Gasoline Corp. V. United States, 309 U. S. 436; United States V. Frankfort Distilleries, Inc., 324 U. S. 293; United States v. Masonite Corp., 316 U S. 265. Moreover, irrespective of the conspiracy among distributors to which we have referred, each distributor-defendant has illegally combined with its licensees, for in agreeing to maintain a stipulated minimum admission price, each exhibitor thereby consents to 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 prices. Each licensee knows from the general uniformity of admission price practices that other licensees having theatres suitable for exhibition of a distributor's picture in the particular competitive area will also be restricted as to maintenance of minimum prices, and this acquiescence of the exhibitors in the distributor's control of price competition renders the whole a conspiracy between each distributor and its licensees. An effective system of price control in which the distributor and its licensees knowingly take part by entering into pricerestricting contracts is thereby created. That the combination is made up of a sum of separate licensing contracts, individually executed, does not affect its illegality, for tacit participation in a general scheme to control prices is as violative of the Sherman Act as an explicit agreement. Interstate Circuit v. United States, 306 U. S. 208; United States v. Masonite Corp., 316 U. S. 265; Goldman Theatres, Inc. v. Loew's Inc., 150 F. 2d 738 (CCA. 3). This practice of stipulating minimum admission prices in the contracts of license is illegal in another respect. The differentials in price set by a distributor in licensing a particular picture in theatres exhibiting on different runs in the same competitive area are calculated to encourage as many patrons as possible to see the picture in the prior-run theatres where they will pay higher prices than in the subsequent runs. The reason for this is that if 10,000 people of a city's population are ultimately to see the picture — no matter on what run — the gross revenue to be realized from their patronage is increased relatively to the increase in numbers seeing it in the higher-priced prior-run theatres. In effect, the distributor, by the fixing of minimum prices, attempts to give the prior-run exhibitors as near a monopoly of the patronage as possible. This, we believe, to be in violation of S2 of the Sherman Act, at least when the distributor's own theatres are not exhibiting its picture on a prior-run and it is to theatres other than its own that it attempts to give a monopoly. It IS argued that the practice of minimum admission price-fixing is permitted under the Copyright Act. But that act has never been held to sanction a conspiracy among licensors and licensees artificially to maintain prices. We do not question that the Copyright Act permits the owner of a copyrighted picture to exhibit it in its own theatres upon such terms as it sees fit, nor need we now decide whether a copyright owner may lawfully fix admission prices to be charged by a single independent exhibitor for the exhibition of its film, if other licensors and exhibitors are not in competition. Interstate Circuit v. United States, 306 U. S. 208; cf. United States v. General Electric Co., 272 U. S. 476. As other licensors and exhibitors are always in competition, so far as we can see, the question would appear academic. This does not contravene the rule announced in United States v. General Electric Co., 272 U. S. 476, for there a license to only a single licensee — the Westinghouse Company — was involved, and, therefore, no conspiracy which sought to amplify the rights of the licensor under the Patent Act. The other question involved in that case was whether a patentee might lawfully require its bona fide agents to maintain minimum prices in selling the former's patented articles. The court held that it could. There is no claim here, however, that the exhibitors as licensees under the distributors' copyrights are agents in any sense, and we do not see that such a claim could be made. In any event. United States v. Masonite Corp., 316 U. S. 265, involved facts closely analogous to those here and affords ample basis for our decision. Some argument has been made that the defendants' fixing of minimum admission prices is exempted from operation of the Sherman Act by the Miller-Tydings Amendment to that act.