Motion Picture News (Oct-Dec 1930)

November 29, 19 3 0 Motion Picture News 19 Voluntary Arbitration, Credit Sought to Offset Individual U. S. Edict Relationship Clarified, Is HaysComment With the relationship with regard to arbitration and credits clarified by the Supreme Court decisions, distributors and exhibitors have made progress in developing a new system of voluntary arbitration to the end that the values of arbitration may be saved without including any compulsory provision, Will H. Hays states. The industry, he points out, last October dropped the plan questioned by the government. In the matter of credits the new decision, he said, "simply means that individual distributors will determine with individual exhibitors a system of credit in each case." Prohibitions of Anti Trust Statutes Can't Be "Evaded by Good Motives" Washington — Text of the Supreme Court's decision in the arbitration case follows: SUPREME COURT OF THE UNITED STATES No. 83. October Term, 1930. Paramount Famous Lasky Corporation, et al., Appellants, vs. The United States of America. Appeal from the District Court of the United States ior the Southern District of New York. (November 24, 1930) Mr. Justice McReynolds delivered the opinion of the Court. By this proceeding the United States seek to prevent further violation of Section 1, Act of Congress approved July 2, 1890 (Sherman Act), c. 647, 26 Stat., 209, through an alleged combination and conspiracy to retsrain interstate commerce in motion picture films. Appellants are the Paramount Famous Lasky Corporation and nine other corporations (distributors), producers and distributors throughout the Union of sixty per cent of the films used for displaying motion pictures by some 25,000 theatre owners (exhibitors); the Motion Picture Producers and Distributors of America, a corporation with class "B" membership composed of the above-mentioned distributors; and 32 film boards of trade, which severally function within certain defined regions. Each distributor produces and then distributes films through its own exchanges maintained in 32 centrally located cities — Albany, Atlanta, Chicago, Los Angeles, etc. Each of these exchanges has a manager and under his supervision contracts are made for the use of his distributor's films within the designated territory or region and thereafter placed in the hands of the exhibitors. Other distributors, who with appellants control 98% of the entire business, also have managers with like duties in the same cities. In each region all of these managers are associated through and constitute the entire membership of the local film board of trade. Under the common practice, in the spring, when most of the pictures are still only in contemplation, each distributor announces its intended program of distribution for 12 months. After this announcement exhibitors are solicited to enter into written contracts for permission to display such of the pictures as they desire. And as no distributor can offer enough pictures to supply the average exhibitor's full requirement, he must deal with several. Under an agreement among themselves appellant distributors will only contract with exhibitors according to the terms of the Standard Exhibition Contract, dated May 1, 1928. Ordinarily, neither party gives security for compliance with such agreements, by cash deposit or otherwise. This Standard Contract is an elaborate document, covering eight pages of the record. Under it the distributor licenses the exhibitor to display specified photo plays at a designated theatre on definite dates. Provision is made for cash payment three days in advance of any shipment, time and place of delivery, return of the prints, etc. Section 18 (copied at the end of this opinon*) provides in substance that each party shall submit any controversy that may arise to a board of arbitration, in the city where the distributor's exchange is located, established under and controlled by written rules adopted May 1. 1928; accept as conclusive the findings of this board ; an<T forego the right to trial by jury. And further, "In the event that the exhibitor shall fail or refuse to consent to submit to arbitration any claim or controversy arising under this or any other standard exhibition contract which the exhibitor may have with the distributor or any other distributor or to abide by and forthwith comply with any decision or award of such board of arbitration upon any such claim or controversy so submitted, the distributor may, as its option, demand, for its protection and as security for the performances by the exhibitor of this and all other existing contracts between the parties hereto, payment by the exhibitor of an additional sum not exceeding $500 under each existing contract, such sum to be retained by the distributor until the complete performance of all such contracts and then applied, at the option of the distributor, against any sums finally due or aganst any damages determined by said board of arbitration to be due to the distributor, the balance, if any, to be returned to the exhibitor; and in the event of the exhibitor's failure to pay such additional sum within seven (7) days after demand, the distributor may bv written notice to the exhibit >r suspend service hereunder until said sum shall be paid and/or terminate this contract." The Rules nf Arbitration provide for a board, three of whom shall be members of the local film board of trade and three proprietors or managers of theatres in its region. This arbitration board shall have power to determine the controversy, make findings, direct what shal1 be done with respect to the dispute; "and shall fix the maximum amount" (not exceeding $500) which each distributor may demand as security pursuant to the arbitration clause in the event of the failure of the exhibitor to submit to arbitration or to comply with the award. The secretary of the Board of Arbitration is required to notify the secretary of the Film Board of Trade of the name and address of each exhibitor found to have refused to arbitrate or comply with an award, and the maximum amount of security (not above $500) found by the board. "On receipt of any such notice, each member having a contract (or representing a distributor having a contract) containing the arbitration clause with anv such exhibitor shall demand payment by such exhibitor of such sum as in the judgment of such memher or distributor shall be sufficient to protect such member or distributor in the performance of each contract with such exhibitor. Said sum shall not exceed the actual value of any print thereafter to be delivered under each such contract plus the maximum amount fixed by the Board of Arbitration as aforesaid. Thereafter each distributor (represented in the membership) to whom such exhibitor shall have failed within seven (7) days to pay the amount of security so demanded by such distributor shall proceed to suspend service under each such contract until such exhibitor shall have furnished such security or complied with the decision of such Arbitration Board. If service under any such contract shall be so suspended for a period of 10 days of such contract, at the option of the distributor, then be cancelled. No member or distributor having so suspended service under any such contract with such exhibitor shall thereafter resume service under any such contract unless and until such exhibitor shall have furnished said security to such member or distributor or shall have compi'ed with the decision of the Arbitration Board. Upon the happening of either of such events service under such contract shall be promptly resumed by such member or distributor." The record discloses that ten competitors in interstate commerce, controlling 60 per cent of the entire film business, have agreed to restrict their liberty of action by refusing to contract for display of pictures except upon a standard form which provides for compulsory joint action by them in respect of dealings (Continued on next page) New Standard Contract Relied Upon to Help Bridge Gap Caused by Government New standard licensing agreement drafted by the 5-5-5 conference and the adoption by the various companies of individual systems for handling credits will be relied upon by distributors to meet the situation caused by the outlawing of arbitration and credit systems in two decisions made this week by the United States Supreme Court. The decisions upheld the Thacher decree declaring arbitration illegal, and reversed the other Thacher decree which held the credit system legal. The proposed new form of contract, known as the Standard Licensing Agreement and drafted by representatives of the M. P. T. O. A., Allied States Association, affiliated exhibitors and distributors embodies a voluntary arbitration agreement without any compulsory or punitive provisions. The agreement has been approved by the M. P. T. O. A., and three units of Allied to date, indicating its general acceptance by all exhibitors. Under the plan, a master contract will be submitted to all exhibitors for signature, which will signifv his acceptance or rejection of the agreement. If he accepts, then the contract will be effective so far as he is concerned, and business henceforward will be done on a short-form contract, which will embody the provisions of the master form. The short form will be concerned only with price and playing arrangement. If he rejects, then business will be done on the company's individual contract. In the matter of credit each company will chart its own course. Old Arbitration Illegal In the decisions the Supreme Court upheld the Federal Court in New York in its opinion that the arbitration provisions of the standard contract violated laws regarding restraint of trade, the other reversing the findings of the same court in holding that the credit committees did not violate those laws. The arbitration case was brought against Paramount Famous Lasky and a number of other respondents ; the credit case was brought against First National and others. Both involved the same respondents, but were conducted separately. The court's decisions were read by Associate Justice McReynolds. The arbitration provisions of the uniform contract, it was said, had a "necessary and inevitable" tendency to "produce material and unreasonable restraint of interstate commerce in violation of the Sherman Act." "The court below accepted this view and directed an appropriate injunction against future action under the unlawful plan," the court continued. "We agree with its conclusion and the challenged decree must be affirmed.'' "It may be." the court said, ''that arbitration is well adanted to the needs of the motion picture industry, but when under the (Continued on next four i