Motion Picture Herald (May-Jun 1946)

I4f 50 Stat. 693 (1937). 15 U.S.C.A. §1 (1940). The amendment pertains, however, only to "contracts or agreements prescribing minimum prices for the resale of a commodity", and the undisputed evidence is that the distributors merely grant licenses to the exhibitors for exhibition of their films and that title to none of their films at any time passes to the exhibitors. Furthermore, the distributor-defendants have engaged in a conspiracy, and the amendment explicitly states that despite its other provisions, contracts or agreements between "persons, firms, or corporations in competition with each other" to establish or maintain minimum prices remain illegal. United States v. Frankfort Distilleries, Inc., 324 U. S. 293; United States v. Bausch & Lomb Co., 321 U. S. 707; United States V. Univis Lens Co., 316 U. S. 241. The foregoing holding that the defendants have all engaged in unlawful price-fixing does not prevent the distributors from continuing their present methods of determining film rentals ; they may measure their compensation by stated sums, by a given percentage of a particular theatre's receipts, by a combination of these two, or by any other appropriate means. What is held to be violative of the Sherman Act is not the distributors' devices for measuring rentals, but their fixing of minimum admission prices which automatically regulates the ability of one licensee to compete against another for the patron's dollar and tends to increase such prices as well as profits from exhibition. If the exhibitors are not restrained by the distributors in the right to fix their own prices, there will be an opportunity for the exhibitors, whether they be affiliates or independents, to compete with one another. This is because one exhibitor by lowering admission prices will be able to compete with other exhibitors in obtaining patrons for his theatre — a competition which may well benefit both exhibitors and the public paying the admission fees. Clearance and Run Among provisions common to the licensing contracts of all the distributor-defendants are those by which the licensor agrees not to exhibit or grant a license to exhibit a certain motion picture before a specified number of days after the last date of the exhibition therein licensed. This so-called period of "clearance" or "protection" is stated in the various licenses in differing ways : in terms of a given period between designated runs, as for example in the Chicago area, Plaintiff's Exh. 369, see Bigelow V. RKO Radio Pictures, Inc., 150 F. 2d 877 (CCA. 7), affirmed 326 U. S. (February 25, 1946), and as in Washington and New York, Plaintiff's Exhibits 244, 471; in terms of admission prices charged by competing theatres, as "20 days over 30c theatres, 28 days over 25c theatres," Plaintiff's Exhibits 57, 173, 178, 189 ; in terms of a given period of clearance over specifically named theatres. Plaintiff's Exhibits 94, 181, 242, 253, 259; in terms of so many days' clearance over specified areas or towns. Plaintiff's Exhibits 126, 175, 182, 182A, 183, 194, 244, 250, 255, 470, 476 ; in terms of clearances as fixed by other distributors. Plaintiff's Exhibits 188, 417; or in terms of combinations of these formulae. It appears to be plaintiff's contention that clearance practices inherently operate to produce unreasonable restrictions of competition among theatres and are therefore per se violative of the Sherman Act. With this we do not agree, for it seems to us that a grant of clearance, when not accompanied bv a fixing of mmimum prices or not unduly extended as to area or duration, affords a fair protection to the interests of the licensee without unreasonably mterfermg with the interests of the public. At common law a vendor of income-producing property may validly covenant with his purchaser not to compete for a given time or within a given area so long as the restrictions are reasonably necessary to protect the value of the property purchased. Cincinnati, Portsmouth ?Af tT^o*^^,.^"*^ Pomeroy Packet Co. v. Bay, 2U0 U. S. 179 ; see Rogers v. Parry, 2 Cro. 326 (K. B. 1613) ; United States v. Addyston Pipe & Steel Co., 85 Fed. 271 (CCA. 6). It is true that licenses of property rather than sales are here concerned and that the distributors covenant not only not to exhibit the films themselves, but also not to license them to others. Nevertheless, we believe these are not differences which affect the applicability of the common-law rule to the present case, for licenses between one distributor and one exhibitor with reasonable clearance provision's do not, in our opinion, involve anything unlawful. Such provisions are no more than safeguards against concurrent or subsequent licenses in the same area until the exhibitor whose theatre is involved has had a chance to exhibit the pictures licensed without invasion by a subsequent exhibitor at a lower price. It seems nothing more than an adoption of the common law rule to restrict subsequent exhibitions for a reasonable time within a reasonable area. While clearance may indirectly affect admission prices, it does not fix them and is, we believe, a reasonable restraint permitted by the Sherman Act. Standard Oil Co. V. United States 221 U. S. 1 ; United States v. American Tobacco Co., 221 U. S. 106 ; Westway Theatre, Inc. v. Twentieth Century-Fox Film Corp., 30 F. Supp. 830, affirmed on opinion below, 113 F. 2d 932 (CCA. 4) ; see United States v. Masonite Corp., 316 U. S. 265; Ethyl Gasoline Corp. v. United States, 309 U. S. 436. The costs of each black and white print is from $150 to $300, and of a technicolor print is from $600 to $800. Many of the bookings are for less than the cost of the print so that exhibitions would be confined to the larger highpriced theatres unless a system of successive runs with a reasonable protection for the earlier runs is adopted in the way of clearance. In Section VIII of the Consent Decree, moreover, there is the explicit statement to which all parties, including the plaintiff, consented. "It is recognized that clearance, reasonable as to time and area, is essential in the distribution and exhibition of motion pictures." While, as previously stated, we do not deem ourselves bound by any provision of the consent decree, if we now find that it violates the Sherman Act, the forcefulness of the phrasing of this sentence indicates the proved utility of clearance practices in the movie industry and also their apparent necessity for a reasonable conduct of the business. Indeed, it is practically conceded that exhibitors would find extremely perilous the acceptance of licenses for the exhibition of films without assurance by the distributor that a nearby competitor would not be licensed to show the same film either at the same time or so soon thereafter that the exhibitor's expected income — perhaps on the basis of which he agreed to the specified rental — would be greatly diminished. Moreover, we understand the plaintiff to concede that the licensor may license its pictures for different successive dates. A reasonable clearance is in practical effect much the same. Either a license for successive dates, or one providing for clearance, permits the public to see the picture in a later-exhibiting theatre at lower than prior rates. Several courts have previously considered the validity of clearances under the Sherman Act and have concluded that in the absence of an unconscionably long time or too extensive an area ernbraced by the clearance, or a conspiracy of distributors to fix clearances, there was nothing of itself illegal in their use. Westway Theatre, Inc. V. Twentieth Century-Fox Film Corp., 30 F. Supp. 830 (D. Md.), affirmed on opinion below, 113 F. 2d 932 (CCA. 4), and unreported cases therein cited ; Gary Theatre Co. v. Columbia Pictures Corp., 120 F. 2d 891 (CCA. 7). We find the reasoning of these cases persuasive. It is true that in some instances large theatre circuits by use of their great film-buying power have been able to negotiate successfully with the distributor-defendants for grants of unreasonable clearances or unjustified prior runs for their theatres. United States v. Crescent Amusement Co., 323 U. S. 173; Bigelow v. RKO Radio Pictures, Inc., 150 F. 2d 877 MOTION PICTURE HERALD (CCA. 7), affirmed 326 U. S. (February 25, 19-10) ; Goldman v. Loew's, 150 F. 2d 738 (CCA. 3) ; United States v. Schine Chain Theatres, Inc., 63 F. Supp. 229 (W.D. N.Y.). While we cannot find sufficient evidence to support an inference that the major defendants here, though controlling some of the largest circuits of theatres in the country and thus possessing potential weapons of great strength, have either collectively or severally entered upon a general policy of discriminating against independents in their grants of clearances, yet they have acquiesced in and forwarded a uniform system of clearances and in numerous instances have maintained unreasonable clearances to the prejudice of independents and perhaps even of affiliates. The decision of such controversies as may arise over clearances should be left to local suits in the area concerned, or, even more appropriately, to litigation before an Arbitration Board composed of men versed in the complexities of this industry. In determining the reasonableness of the specific clearances which may come before these tribunals, they should consider whether the clearance has been set so as to favor affiliates or control the admission prices of the theatres involved. A distributor will naturally tend to grant a subsequent run to and clearance over a theatre for which the owner of his own volition sets a low admission price, for the distributor will be inclined to seek out the higher priced theatres first where the revenue is likely to be greater and consequently in case of licenses on a percentage basis where a percentage share will be higher. This, however, would seem the inevitable result of the competition for the distributor's films from theatres which are the larger or better equipped, and for which higher admissJbn prices may therefore be charged by their operators. Such competition the lower priced theatres must be prepared to meet, or else be content with subsequent runs and grants of clearance over them. The temptations to the distributor to use clearance grants to force a theatre to raise its prices and thus to qualify for prior runs having less clearance over it, and more clearance over competitors are nevertheless obvious and the courts or arbitration board should guard that this is not done. Clearance should be granted on the basis of theatre conditions which the exhibitor creates, not the distributor. The line to be drawn is indeed indistinct, but its existence is no less real. In determining whether any clearance complained of is unreasonable, the following factors should be taken into consideration and accorded the importance and weight to which each is entitled, regardless of the order in which they are listed: (1) The admission prices, as set by the exhibitors, of the theatres involved ; (2) The character and location of the theatres involved, including size, type of entertainment, appointments, transit facilities, etc. ; (3) The policy of operation of the theatres involved, such as the showing of double features, gift nights, giveaways, premiums, cut-rate tickets, lotteries, etc. ; (4) The rental terms and license fees paid by the theatres involved and the revenues. derived by the distributor-defendant from such theatres ; (5) The extent to which the theatres involved compete with each other for patronage ; (6) The fact that a theatre involved is affiliated with a defendant-distributor or with an independent circuit of theatres should be disregarded; and (7) There should be no clearance between theatres not in substantial competition. The foregoing has been directed to the validity of clearance provisions resulting from separate negotiations between individual distributors and exhibitors in free and open competition with other distributors and exhibitors, and, as stated, we believe their reasonable use to be lawful. It is here claimed by plaintiff, however, that the distributor-defendants have acted in concert in the formation of a uniform system of clearances for the theatres to which they license their films and that the exhibitor-defendants have assisted in creating and have acquiesced in this system.