Source: https://casetext.com/case/interstate-circuit-v-us-2
Timestamp: 2019-11-22 08:40:36
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Matched Legal Cases: ['§ 2', '§ 29', '§ 238', '§ 345', '§ 1', '§ 1']

Interstate Circuit v. U.S, 306 U.S. 208 | Casetext
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Interstate Circuitv.U.S.
U.S.Feb 13, 1939
The geographically exclusive license still remains subject to the antitrust laws; the copyright monopoly…
In re Nexium (Esomeprazole) Antitrust Litig.
While the Defendants are correct to state that “discrete, bilateral agreements” are not necessarily evidence…
holding proof of an explicit agreement unnecessary to establish antitrust conspiracy among movie distributors where, "knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it"
Summary of this case from Sheet Metal Workers Local No. 20 Welfare & Benefit Fund v. CVS Pharmacy, Inc.
finding a Section 1 violation where a group of movie distributors all vertically agreed with first run movie theaters to implement minimum-price and no-double-feature restrictions on subsequent run movie theaters for certain movies
Argued January 11, 1939. Decided February 13, 1939.
1. Where distributors of motion picture films, owning or controlling the copyrights and engaged, interstate, in the business of supplying the films to theaters for exhibition under license contracts, join in making and carrying out an agreement with the owners of the theaters in certain cities to whom their licenses for first run exhibitions of "feature" pictures in those cities are confined, whereby the distributors, in granting licenses to other theaters in the same places for subsequent runs of such films require of them that they observe a minimum price of admission and abstain from presenting a picture so licensed with any other feature picture at the same show, — the purpose and effect of these restrictions being to maintain the higher prices of the first run theaters and protect them from the competition of the others, — such agreement is an unreasonable restraint of interstate commerce and contrary to the Federal Anti-Trust Act. Pp. 221, 232. 2. The evidence in this case supported the inference that the distributors of the films acted in concert, in making their several agreements with the first run exhibitors, and in imposing the restrictions so stipulated on the subsequent-run exhibitors. P. 221. 3. Upon the production of such proof, the burden rested upon those implicated to explain away or contradict it. P. 225. 4. The production of weak evidence when strong is available leads to the conclusion that the strong would have been adverse. Silence then becomes evidence of the most convincing character. P. 226. 5. Acceptance by competitors, knowing that concerted action is contemplated, of an invitation to participate in a plan, the necessary consequence of which, if carried out, is restraint of interstate commerce, is sufficient to establish an unlawful conspiracy under the Sherman Act. P. 227. 6. A contract between the copyright owner of motion picture films and the owner of motion picture theaters, restraining the competitive distribution of the films in the open market in order to protect the theater owner from competition of other theaters is not protected by the Copyright Act. P. 227. 7. The owner of those motion picture theaters in several cities in which the first runs of copyrighted "feature" pictures were exhibited, taking advantage of its monopoly, secured from each of several copyright owners who distributed such films in interstate commerce, an agreement binding the distributor when licensing subsequent runs of his films at other theaters in those cities to require the licensee to observe a certain minimum admission price and to abstain from exhibiting the picture in a double bill with any other "feature" film. The purpose of the arrangement was to protect the owner of the first-run theaters from competition of subsequent-run theaters, and its effect was to impose undue restraints upon competing theater businesses habitually exhibiting the competitive pictures of different copyright owners, and to enable the favored theater owner to dominate the business of his competitors. Held: That the contracts were not protected by the Copyright Act, and that, aside from any agreement between the distributors themselves, they were contrary to the Anti-Trust Act. P. 230. 20 F. Supp. 868, affirmed.
A licensee of the first run exhibition of a copyrighted motion picture photoplay has the legal right to obtain from the licensor a covenant that the right shall not be impaired by a subsequent exhibition of the photoplay at an admission price of less than 25¢ or as part of a double feature program.
A distributor, the owner of a copyrighted motion picture photoplay, acting independently of any other distributor, has the legal right to agree with a first run exhibitor to include either or both of the restrictions here in question in subsequent run license agreements. Metro-Goldwyn-Mayer D. Corp. v. Bijou Theatre Co., 59 F.2d 70; Manners v. Morosco, 252 U.S. 317; Bement v. National Harrow Co., 180 U.S. 70; United States v. General Electric Co., 272 U.S. 476; Carbice Corporation v. American Patents Development Corp., 283 U.S. 27; Standard Oil Co. v. United States, 283 U.S. 163; General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124.
The right of the owner of a patent or a copyright is to exclude all from exercising his exclusive rights, and he may select his licensees at will, preferring the large or the small business units and granting his monopoly to one or more as he wishes, and for his own reasons, which no doubt under ordinary circumstances will be dictated by his desire for profit in the form of royalties. American Equipment Co. v. Tuthill, 69 F.2d 406. He may impose any conditions reasonably adapted to the realization of the value of his monopoly, as, for instance, by fixing the price at which the licensee may sell unpatented articles manufactured under license by patented machinery ( Straight Side Basket Corp. v. Webster Basket Co., 82 F.2d 245; Murphy v. Christian Press Assn. Pub. Co., 38 A.D. 426), and by dictating the customers to whom articles may be sold by the licensee. Becton, Dickinson Co. v. Eisele Co., 86 F.2d 267. He may also license the public performance of copyrighted works to some licensees on more favorable terms than to others. Buck v. Hillsgrove Country Club, 17 F. Supp. 643. He is not required to give reasons or deal fairly with those seeking to share in his monopoly. Victor Talking Mach. Co. v. The Fair, 123 F. 424; Dr. Miles Medical Co. v. Platt, 142 F. 606.
Of course, the protection of the Copyright Act does not extend to unreasonable restraints of trade imposed pursuant to a combination, agreement or conspiracy between two or more copyright owners who have combined for the purpose of monopoly or restraint of trade. Straus v. American Publishers' Assn., 231 U.S. 222; Paramount Famous Corp. v. United States, 282 U.S. 30. But in the absence of such prior agreement, combination or conspiracy, the owner of the copyright has an absolute monopoly within the field of his copyright.
The specific contracts involved in the case at bar were considered and upheld by the appellate court of Texas in Glass v. Hoblitzelle, 83 S.W.2d 796. The principles applied are settled law in Texas with regard to purely intrastate transactions. Coca-Cola Co. v. State, 225 S.W. 791. See Shubert Theatre Players Co. v. Metro-Goldwyn-Mayer Distributing Corp., unreported, Jan. 30, 1936 (D. Minn.).
Even if there had been no copyright, the agreements with individual distributors would still be valid. A contract containing a covenant in restraint of trade is nonetheless valid if the restraint is reasonably necessary for the protection of the right granted by the contract. Cincinnati Packet Co. v. Bay, 200 U.S. 179; Oregon Steam Navigation Co. v. Winsor, 20 Wall. 67; United States v. Addyston Pipe Steel Co., 85 F. 271; Allison v. Seigle, 79 F.2d 170; A. Booth Co. v. Davis, 127 F. 875.
See Fowl v. Park, 131 U.S. 88; Oregon Steam Navigation Co. v. Winsor, supra; Moore v. New York Cotton Exchange, 270 U.S. 593; United States v. General Electric Co., 272 U.S. 476; Board of Trade v. Christie Grain Stock Co., 198 U.S. 236, 250, 252.
The protection given by the law to the copyright owner is still greater. Apart from agreements to impose restraints unrelated to the reward of the statutory monopoly, or to monopolize trade in articles not covered by the statutory monopoly, a copyright proprietor in granting an exhibition right may bind and restrain himself by any covenant which has reasonable relation to the reward of the copyright or the protection of the granted right even though such covenants directly restrain interstate commerce. The Sherman Anti-Trust Act has no application to such restraints, which under all the authorities are within the statutory monopoly of the copyright.
The decree must be reversed in so far as it enjoins separate agreements between each of the exhibitor defendants and each of the distributor defendants, not acting in concert with any other distributors, to impose restrictions necessary for the protection of their mutual interests in the copyright reward.
The court's inference that the distributor defendants agreed and conspired among themselves to take uniform action on the proposals made by Interstate Circuit, and to impose the restrictions requested by Interstate, is unsupported by the preceding findings upon which it is expressly predicated, and is contrary to the stipulated facts and the undisputed evidence.
In order to make out unlawful conspiracy something more than mere uniformity of action must be shown. Frey Son v. Cudahy Packing Co., 256 U.S. 208. To warrant the injunction invalidating such transactions, there must be a "definite factual showing of illegality," i.e., a clear purpose to monopolize or restrain trade. Standard Oil Co. v. United States, 283 U.S. 163, 179. From the plurality and similarity of such lawful acts unlawful combination may not be inferred. Terminal Warehouse v. Pennsylvania R. Co., 297 U.S. 500, 516.
If one would infer conspiracy from similarity of lawful acts there must be accuracy in statement of the facts upon which the inference is predicated, and if the inference is inconsistent with any of the facts established by agreement of the parties it must be rejected. Hackfeld Co. v. United States, 197 U.S. 442; Kings County Lighting Co. v. Nixon, 268 F. 143, 149, affirmed, 258 U.S. 180.
The burden upon a plaintiff to prove his case by substantive evidence can not be met by failure of the defendant to call witnesses. As this Court stated in the case of Northern Ry. Co. v. Page, 274 U.S. 65, 74, the failure of the defendant to call a witness can not be "taken as substantive evidence of any fact." See also Mammoth Oil Co. v. United States, 275 U.S. 13, 52.
The restrictions in question do not unreasonably restrain trade or commerce. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359; Nash v. United States, 229 U.S. 373, 376; Chicago Board of Trade v. United States, 246 U.S. 231, 238.
This case is here on appeal under § 2 of the Act of February 11, 1903, 32 Stat. 823, 15 U.S.C. § 29, and § 238 of the Judicial Code, as amended by the Act of February 13, 1925, 43 Stat. 936, 938, 28 U.S.C. § 345, from a final decree of the District Court for northern Texas restraining appellants from continuing in a combination and conspiracy condemned by the court as a violation of § 1 of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C. § 1, and from enforcing or renewing certain contracts found by the court to have been entered into in pursuance of the conspiracy. 20 F. Supp. 868. Upon a previous appeal this Court set aside the decree and remanded the cause to the District Court for further proceedings because of its failure to state findings of fact and conclusions of law as required by Equity Rule 70 1/2. 304 U.S. 55. The case is now before us on findings of the District Court specifically stating that appellants did in fact agree with each other to enter into and carry out the contracts, which the court found to result in unreasonable and therefore unlawful restraints of interstate commerce.
Interstate operates forty-three first-run and second-run motion picture theatres, located in six Texas cities. It has a complete monopoly of first-run theatres in these cities, except for one in Houston operated by one distributor's Texas agent. In most of these theatres the admission price for adults for the better seats at night is 40 cents or more. Interstate also operates several subsequent-run theatres in each of these cities, twenty-two in all, but in all but Galveston there are other subsequent-run theatres which compete with both its first- and subsequent-run theatres in those cities.
Texas Consolidated operates sixty-six theatres, some first- and some subsequent-run houses, in various cities and towns in the Rio Grande Valley and elsewhere in Texas and in New Mexico. In some of these cities there are no competing theatres, and in six leading cities there are no competing first-run theatres. It has no theatres in the six Texas cities in which Interstate operates. That Interstate and Texas Consolidated dominate the motion picture business in the cities where their theatres are located is indicated by the fact that at the time of the contracts in question Interstate and Consolidated each contributed more than 74 per cent. of all the license fees paid by the motion picture theatres in their respective territories to the distributor appellants.
Payments of license fees by Interstate to distributor appellants in the 1934-35 season aggregated $1,077,819.58. Payments by all other exhibitors operating theatres in the same cities aggregated $369,594.72. Texas Consolidated payments for the same period aggregated $594,863.68. All other exhibitors operating in the same cities paid $47,928.22.
On July 11, 1934, following a previous communication on the subject to the eight branch managers of the distributor appellants, O'Donnell, the manager of Interstate and Consolidated, sent to each of them a letter on the letterhead of Interstate, each letter naming all of them as addressees, in which he asked compliance with two demands as a condition of Interstate's continued exhibition of the distributors' films in its `A' or first-run theaters at a night admission of 40 cents or more. One demand was that the distributors "agree that in selling their product to subsequent runs, that this `A' product will never be exhibited at any time or in any theatre at a smaller admission price than 25¢ for adults in the evening." The other was that "on `A' pictures which are exhibited at a night admission of 40¢ or more — they shall never be exhibited in conjunction with another feature picture under the so-called policy of double features." The letter added that with respect to the "Rio Grande Valley situation," with which Consolidated alone was concerned, "We must insist that all pictures exhibited in our `A' theatres at a maximum night admission price of 35¢ must also be restricted to subsequent runs in the Valley at 25¢."
"INTERSTATE CIRCUIT, INC., MAJESTIC THEATRE BUILDING, Dallas, Texas, July 11, 1934.
In addition to this price restriction, we also request that on `A' pictures which are exhibited at a night admission price of 40¢ or more — they shall never be exhibited in conjunction with another feature picture under the so-called policy of double-features.
Right at this time the writer wishes to call your attention to the Rio Grande Valley situation. We must insist that all pictures exhibited in our `A' theatres at a maximum night admission price of Page 217 35¢ must also be restricted to subsequent runs in the Valley at 25¢. Regardless of the number of days which may intervene, we feel that in exploiting and selling the distributors' product, that subsequent runs should be restricted to at least a 25¢ admission scale.
A Class `A' picture is a "feature picture" having five reels or more of film each approximately 1,000 feet in length, shown in theatres of the specified Texas cities charging 40 cents or more for adult admission at night. Approximately fifty per cent. of the pictures released by the distributor defendants in Texas cities in 1934-1935 were Class `A' pictures.
The local representatives of the distributors, having no authority to enter into the proposed agreements, communicated the proposal to their home offices. Conferences followed between Hoblitzelle and O'Donnell, acting for Interstate and Consolidated, and the representatives of the various distributors. In these conferences each distributor was represented by its local branch manager and by one or more superior officials from outside the state of Texas. In the course of them each distributor agreed with Interstate for the 1934-35 season to impose both the demanded restrictions upon their subsequent-run licensees in the six Texas cities served by Interstate, except Austin and Galveston. While only two of the distributors incorporated the agreement to impose the restrictions in their license contracts with Interstate, the evidence establishes, and it is not denied, that all joined in the agreement, four of them after some delay in negotiating terms other than the restrictions and not now material. These agreements for the restrictions — with the immaterial exceptions noted — were carried into effect by each of the distributors' imposing them on their subsequent-run licensees in the four Texas cities during the 1934-35 season. One agreement, that of Metro-Goldwyn-Mayer Distributing Corporation, was for three years. The others were renewed in the two following seasons and all were in force when the present suit was begun.
The Metro-Goldwyn-Mayer Distributing Corporation agreement with Interstate did not include Houston, where it operated through a subsidiary a first-run theatre, and where it did not until the 1936-1937 season license any subsequent-run pictures. It agreed with Interstate to impose the restrictions in Houston for the 1936-1937 season.
It accordingly enjoined the conspiracy and restrained the distributors from enforcing the restrictions in their license agreements with subsequent-run exhibitors and from enforcing the contracts or any of them. This included both the contracts of Interstate with the distributors and the contract between Consolidated and Paramount, whereby the latter agreed to impose the restrictions upon subsequent-run theatres in Texas and New Mexico served by it.
One distributor, it is true, did not agree to impose the restrictions in Houston, but this was evidently because it did not grant licenses to any subsequent-run exhibitor in that city, where its own affiliate operated a first-run theatre. The proposal was unanimously rejected as to Galveston and Austin, as was the request that the restrictions should be extended to the cities of the Rio Grande Valley served by Consolidated. We may infer that Galveston was omitted because in that city there were no subsequent-run theatres in competition with Interstate. But we are unable to find in the record any persuasive explanation, other than agreed concert of action, of the singular unanimity of action on the part of the distributors by which the proposals were carried into effect as written in four Texas cities but not in a fifth or in the Rio Grande Valley. Numerous variations in the form of the provisions in the distributors' license agreements and the fact that in later years two of them extended the restrictions into all six cities, do not weaken the significance or force of the nature of the response to the proposals made by all the distributor appellants. It taxes credulity to believe that the several distributors would, in the circumstances, have accepted and put into operation with substantial unanimity such far-reaching changes in their business methods without some understanding that all were to join, and we reject as beyond the range of probability that it was the result of mere chance.
The benefit, at such a cost, does not justify the restraint. Eastern States Lumber Assn. v. United States, supra, 613; Duplex Co. v. Deering, 254 U.S. 443, 468; Anderson v. Shipowners Association, 272 U.S. 359, 363; Bedford Cut Stone Co. v. Stone Cutters' Assn., 274 U.S. 37, 47. It does not appear that the competition at which they were aimed was unfair or abnormal. Cf. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 363, 372. The consequence of the price restriction, though more oppressive, is comparable with the effect of resale price maintenance agreements, which have been held to be unreasonable restraints in violation of the Sherman Act. Dr. Miles Medical Co. v. Park Sons Co., 220 U.S. 373; United States v. Schrader's Son, Inc., 252 U.S. 85. Cf. United States v. Trenton Potteries Co., 273 U.S. 392, 397, et seq.
I agree that while the Copyright Act gives a distributor a so-called monopoly, that monopoly cannot be made the cover for a conspiracy to restrain trade or commerce. But I think it obscures the issue to use the phrase "monopoly." What the copyright gives is much the same as what is conferred by the patent law. The exhibition of a photoplay, were it not for the copyright law, would amount to a public disclosure and the use of the material would thereafter be open to the public. All the Copyright Act does is to create a form of property in the literary or artistic production of the author or artist. The Act attaches to the product of his brain certain attributes of property. One of these is the right of exclusive use similar to that attaching to physical property; another is the right to sell the production with consequent exclusive enjoyment in the vendee; another is the right to license others to use the product as one might lease or bail real or personal property. The monopoly, so called, amounts to no more than the attachment to the work of an author or composer or producer of motion pictures of the same rights as inhere in other property under the common law. Therefore, the standing of the distributor defendants toward their customers, as respects the productions proposed to be licensed, differs in no way from that of the owner of any other property toward those to whom he leases or licenses its use or sale.
Straus v. American Publishers' Assn., 231 U.S. 222; Paramount Famous Corp. v. United States, 282 U.S. 30.
See United States v. Dubilier Condenser Corp., 289 U.S. 178, 186.
I am of opinion that the restrictions in the licenses of second run exhibitors were not unreasonable restraints of commerce under the Sherman Act. There is no contention that the action of the distributor defendants discouraged competition between them either for the business of Interstate or for that of subsequent run licensees. The restrictions upon the latter were not intended to increase license fees paid by them or those paid by Interstate; they were imposed to prevent destruction of the good will which made possible the continued exhibition of first run feature pictures and to avoid decrease of the revenue from those pictures then and theretofore enjoyed under licenses to Interstate and other first run feature exhibitors. The reasonableness of the restrictions must be judged by the situation of the industry and the propriety of its protection from practices which would seriously injure it. The question always is whether an agreement unduly restrains competition and, in applying this test, consideration must be given both to the intent and effect of the agreement in the light of realities.
Appalachian Coals, Inc. v. United States, 288 U.S. 344, 358, 359, 360, 362. Compare Chicago Board of Trade v. United States, 246 U.S. 231, 238.
It is settled that the proprietor of a copyright may grant an exclusive license; that is, may covenant with his licensee that he will not license anyone else, as the owner of a patent may grant a similar exclusive license to make or sell the patented article. It is settled that the distributor defendants could lawfully stipulate with their licensees, whether first run or subsequent run, as to the admission price to be paid by patrons and that, so to do, would not be a violation of the Sherman Act. But it is said that if, in order to protect its earnings from first run licenses by enabling its licensees to pay the demanded consideration, the distributor agrees to restrict in anywise the exhibition of the same feature by a subsequent run exhibitor he has violated the Anti-Trust Law. In the nature of things this cannot be true. The record discloses that the distributors have always provided a so-called "clearance" between the first run and subsequent runs of feature pictures. By this is meant that the distributors refuse to license a subsequent run theatre to show such a feature until the expiration of a given number of days or months after the picture has been shown in a first run house. This is a perfectly natural procedure and one obviously required to protect the value of the first run license. Under the decision here, however, if a distributor should agree with a first run house that if it will contract for a given feature picture at a given price the distributor will impose a clearance on second run houses this would be a conspiracy in restraint of trade. Other restrictions tending to preserve the value of the first exhibition of a feature picture such as those challenged in this case are just as necessary and, I suppose, in the absence of agreement would be held just as lawful as the restriction known as a clearance.
Manners v. Morosco, 252 U.S. 317; Bement v. National Harrow Co., 186 U.S. 70.
United States v. General Electric Co., 272 U.S. 476, 488-490; Standard Oil Co. v. United States, 283 U.S. 163, 179.
Once the property rights conferred by the Copyright Law are recognized it must follow that the principles governing the right to use, sell, or turn to account other forms of property are equally applicable here. We have often held that a contract containing a covenant in restraint of trade is valid if the restraint is reasonably necessary for the protection of the right granted by the owner of the property. Examples of such lawful contracts are those by which the vendor of a business sold as a going concern agrees that for the protection of its value he will for a period of years refrain from engaging in the same business in a prescribed territory; and those by the vendor with the vendee of an article to be used in business or trade that it shall not be used so as to interfere with the vendor's business; which are held not to offend the Sherman Act if the prohibition has a reasonable relation to the value of the business of the vendor.
Cincinnati Packet Co. v. Bay, 200 U.S. 179; Oregon Steam Navigation Co. v. Winsor, 20 Wall. 64, 67.
Fowle v. Park, 131 U.S. 88; Board of Trade v. Christie Grain Stock Co., 198 U.S. 236, 250, 252; Moore v. New York Cotton Exchange, 270 U.S. 593; United States v. General Electric Co., 272 U.S. 476; United States v. Addyston Steel Co., 85 F. 271.