Source: https://supreme.justia.com/cases/federal/us/306/208/case.html
Timestamp: 2017-09-26 00:20:30
Document Index: 154739994

Matched Legal Cases: ['§ 2', '§ 29', '§ 238', '§ 345', '§ 1', '§ 1', '§ 1', '§ 1']

Interstate Circuit, Inc. v. United States (full text) :: 306 U.S. 208 (1939) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 306 › Interstate Circuit, Inc. v. United States › Case
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. 304 U.S. 55. The case is
The exhibitor group of appellants consists of Interstate Circuit, Inc., and Texas Consolidated Theaters, Inc., and Hoblitzelle and O'Donnell, who are, respectively, president and general manager of both, and in active charge of their business operations. The two corporations are affiliated with each other and with Paramount Pictures Distributing Co., Inc., one of the distributor appellants.
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 [Footnote 3] 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 theatres
The admission price customarily charged for preferred seats at night in independently operated subsequent-run theaters in Texas at the time of these letters was less than 25 cents. In seventeen of the eighteen independent theaters of this kind whose operations were described by witnesses, the admission price was less than 25 cents. In one only was it 25 cents. In most of them, the admission was 15 cents or less. It was also the general practice
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 [Footnote 5] -- were carried into effect by each of the distributors'
The trial court found that the distributor appellants agreed and conspired among themselves to take uniform action upon the proposals made by Interstate, and that they agreed and conspired with each other and with Interstate to impose the demanded restrictions upon all subsequent-run exhibitors in Dallas, Fort Worth, Houston, and San Antonio; that they carried out the agreement by imposing the restrictions upon their subsequent-run licensees in those cities, causing some of them to increase their admission price to 25 cents, either generally or when restricted pictures were shown, and to abandon double-billing of all such pictures, and causing the other subsequent-run exhibitors, who were either unable or unwilling to accept the restrictions, to be deprived of any opportunity to exhibit the restricted pictures, which were the best and most popular of all new feature pictures; that the effect of the restrictions upon "low income members of the community" patronizing the theaters of these exhibitors was to withhold from them altogether the "best entertainment furnished by the motion picture industry," and that the restrictions operated to increase the income of the distributors and of Interstate and to deflect attendance from later-run exhibitors who yielded to the restrictions to the first-run theaters of Interstate.
Appellants assail the decree of the District Court upon three principal grounds: (a) that the finding of agreement and conspiracy among the distributor appellants to impose the restrictions upon later-run exhibitors is not supported by the court's subsidiary findings or by the evidence; (b) that the several separate contracts entered into by Interstate with the distributors are within the protection of the Copyright Act, and consequently
The trial court drew the inference of agreement from the nature of the proposals made on behalf of Interstate and Consolidated; from the manner in which they were made; from the substantial unanimity of action taken upon them by the distributors, and from the fact that appellants did not call as witnesses any of the superior officials who negotiated the contracts with Interstate or any official who, in the normal course of business, would have had knowledge of the existence or nonexistence of such an agreement among the distributors. This conclusion is challenged by appellants because not supported by subsidiary findings or by the evidence. We think this inference of the trial court was rightly drawn from the evidence. In the view we take of the legal effect of the cooperative action of the distributor appellants in carrying into effect the restrictions imposed upon subsequent-run theaters in the four Texas cities and of the legal effect of the separate agreements for the imposition
There was risk, too, that, without agreement, diversity of action would follow. Compliance with the proposals involved a radical departure from the previous business practices of the industry and a drastic increase in admission prices of most of the subsequent-run theaters. Acceptance of the proposals was discouraged by at least three of the distributors' local managers. Independent exhibitors met and organized a futile protest which they presented to the representatives of Interstate and Consolidated. While, as a result of independent negotiations, either of the two restrictions without the other could have been put into effect by any one or more of the distributors and in any one or more of the Texas cities served by Interstate, the negotiations which ensued, and which, in fact, did result in modifications of the proposals, resulted in substantially unanimous action of the distributors, both as to the terms of the restrictions and in the selection of the four cities where they were to operate.
Appellants present an elaborate argument, based on the minutiae of the evidence, that other inferences are to be drawn which explain, at least in some respects, the unanimity of action both in accepting the restrictions for some territories and rejecting them for others. It is said that the rejection of Consolidated's proposal for the
The trial court, interpreting the letter in the light of the whole evidence, which showed unmistakably that one purpose of both demands was to protect first-run houses from competition of subsequent-run houses, concluded that the substance of the proposals in one, case as in the other, was that the restrictions upon the subsequent-run theaters were to be imposed only in the same city in which the first run had occurred. We agree with its conclusion, but, in any event, since the demand made by Interstate was phrased as broadly as that made by Texas Consolidated, both as to the kind of pictures affected and the scope of the restriction, we can find no basis for saying that one was more limited in its essentials than the other, or that any explanation is thus afforded of the unanimous acceptance of the demands of Interstate in
This inference was supported and strengthened when the distributors, with like unanimity, failed to tender the testimony at their command of any officer or agent of a distributor who knew, or was in a position to know, whether in fact an agreement had been reached among them for concerted action. When the proof supported, as we think it did, the inference of such concert, the
burden rested on appellants of going forward with the evidence to explain away or contradict it. They undertook to carry that burden by calling upon local managers of the distributors to testify that they had acted independently of the other distributors, and that they did not have conferences with or reach agreements with the other distributors or their representatives. The failure, under the circumstances, to call as witnesses those officers who did have authority to act for the distributors and who were in a position to know whether they had acted in pursuance of agreement is itself persuasive that their testimony, if given, would have been unfavorable to appellants. The production of weak evidence when strong is available can lead only to the conclusion that the strong would have been adverse. Clifton v. United States, 4 How. 242, 45 U. S. 247. Silence then becomes evidence of the most convincing character. Runkle v. Burnham, 153 U. S. 216, 153 U. S. 225; Kirby v. Tallmadge, 160 U. S. 379, 160 U. S. 383; United States ex rel. Bilokumsky v. Tod, 263 U. S. 149, 263 U. S. 153-154; United States ex rel. Vajtauer v. Commissioner of Immigration, 273 U. S. 103, 273 U. S. 111-112; Mammoth Oil Co. v. United States, 275 U. S. 13, 275 U. S. 52; Local 167 v. United States, 291 U. S. 293, 291 U. S. 298.
While the District Court's finding of an agreement of the distributors among themselves is supported by the evidence, we think that, in the circumstances of this case, such agreement for the imposition of the restrictions upon subsequent-run exhibitors was not a prerequisite to an unlawful conspiracy. It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it. Each distributor was advised that the others were asked to participate; each knew that cooperation was essential to successful operation of the plan. They knew that the plan, if carried out, would result in a restraint of commerce, which, we will presently point out, was unreasonable within the meaning of the Sherman
It is elementary that an unlawful conspiracy may be and often is formed without simultaneous action or agreement on the part of the conspirators. United States v. Schenck, 253 F. 212, 213, aff'd, 249 U. S. 249 U.S. 47; Levey v. United States, 92 F.2d 688, 691. Acceptance by competitors, without previous agreement, 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. Eastern States Retail Lumber Dealers' Assn. v. United States, 234 U. S. 600; Lawlor v. Loewe, 235 U. S. 522, 235 U. S. 534; American Column & Lumber Co. v. United States, 257 U. S. 377; United States v. American Linseed Oil Co., 262 U. S. 371.
Under § 1 of the Copyright Act, 35 Stat. 1075, 17 U.S.C. § 1, the owners of the copyright of a motion picture film acquire the right to exhibit the picture and to grant an exclusive or restrictive license to others to exhibit it.
We have no occasion now to pass upon these or related questions. Granted that each distributor, in the protection of his own copyright monopoly, was free to impose the present restrictions upon his licensees, we are nevertheless of the opinion that they were not free to use their copyrights as implements for restraining commerce in order to protect Interstate's motion picture theater monopoly by suppressing competition with it. The restrictions imposed upon Interstate's competitors did not have their origin in the voluntary act of the distributors or any of them. They gave effect to the will, and were subject to the control, of Interstate, not by virtue of any copyright of Interstate, for it had none, but through its contract with each distributor. Interstate was able to acquire the control and impose its will by force of its monopoly of first-run theaters in the principal cities of Texas and the threat to use its monopoly position against copyright owners who did not yield to its demands. The purpose
The case is not one of the mere restriction of competition between the first showing of a copyrighted film by Interstate and a subsequent showing of the same film by a licensee of the copyright owner. The contract, when applied to the situation existing in the four Texas cities, had a more extensive effect. Both Interstate's first-run and second-run theaters in each of the cities regularly compete with the independent second-run theaters in those cities. Since all are in practically continuous operation during the season, competition between them extends to the exhibition of films furnished by different distributors, including those of copyright owners shown by independents, which compete with those of other copyright owners shown at the same time by Interstate. Moreover, the provision in Interstate's contracts for the restriction against double-billing stipulated for restraint upon competition with Interstate in the exhibition of films in the double-bill in which neither Interstate nor the licensor had any interest by way of copyright or otherwise. The patent effect of the contract was to impose an undue restraint both as to admission price and the character of the exhibition upon competing theater businesses habitually exhibiting the competitive pictures of different copyright owners. Through acceptance of its terms by the principal distributors, the contract became the ready instrument by which Interstate succeeded in dominating the business of its competitors in the Texas cities. The fact that the restrictions may have been of a kind which a distributor could voluntarily have imposed, but
The restrictions imposed on the subsequent-run exhibitors were harsh and arbitrary. As we have seen, they were forced upon the distributors and upon their customers as a result of the agreements entered into by Interstate with the distributors. Compliance with the restrictions was a uniform condition of exhibition of the films by subsequent-run theaters. There were wide differences in the location and character of the subsequent-run
The benefit at such a cost does not justify the restraint. Eastern States Retail Lumber Dealers' Assn. v. United States, supra, 234 U. S. 613; Duplex Printing Press Co. v. Deering, 254 U. S. 443, 254 U. S. 468; Anderson v. Shipowners' Assn., 272 U. S. 359, 272 U. S. 363; Bedford Cut Stone Co. v. Journeyman Stone Cutters' Assn., 274 U. S. 37, 274 U. S. 47.
"GENTLEMEN: On April 25th, the writer notified you that, in purchasing product for the coming season 34-35, it would be necessary for all distributors to take into consideration in the sale of subsequent runs that Interstate Circuit, Inc., will not agree to purchase produce to be exhibited in its 'A' theaters at a price of 40 or more for night admission, unless distributors agree that, in selling their product to subsequent runs, that this 'A' product will never be exhibited at any time or in any theater at a smaller admission price than 25 for adults in the evening."
"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."
"We naturally, in purchasing subsequent runs from the distributors in certain of our cities, must necessarily eliminate double featuring and maintain the maximum 25 admission price, which we are willing to do."
"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' theaters at a maximum night admission price of 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."
I think the decree should be reversed. The bill charges that the two exhibitor defendants which were under the same management, knowing that subsequent-run houses in Dallas, Houston, San Antonio, Fort Worth, Austin, and Galveston, the largest cities in Texas, and in Waco, Wichita Falls, Tyler, Amarillo, Texas, and Albuquerque, New Mexico, could not operate without the showing of feature films, in order to strengthen these two defendants' monopoly in first-run exhibition of such feature films, and to monopolize the business of exhibiting feature films in second or subsequent-run houses operated by them in those cities, conspired to notify the distributor defendants that, during the 1934-1935 season, and subsequent seasons, the latter must advise second and subsequent-run
The District Court made ten findings (numbered from 12 to 21, inclusive) of subsidiary or evidentiary facts, and, based upon these specific findings, one conclusion of ultimate fact -- that the distributor defendants conspired amongst themselves to take uniform action upon the proposals of Interstate and conspired with each other and with Interstate to impose the restrictions requested by Interstate upon all subsequent-run exhibitors in Dallas, Fort Worth, Houston, and San Antonio.
Separately considered, I think these agreements are not conspiracies contemplated by the Sherman Act, and the holding that they are goes far beyond anything this Court has ever decided. The distributor defendants are owners of copyrights on moving picture films. The copyright law gives them the exclusive privilege of licensing performances of the photoplays recorded. On the other
I agree that, while the Copyright Act gives a distributors a so-called monopoly, that monopoly cannot be made the cover for a conspiracy to restrain trade or commerce. [Footnote 2/1]
The decision of the court necessarily means that the owner of a product may not agree with an important customer that the former will not sell the product at a cut rate to the latter's competitors in the same city in which he conducts his business. The decision leads to the necessary conclusion that a manufacturer whose skill results in the production of apparatus of superior quality may not, in consideration of a price to be paid him for the bailment of that apparatus to certain users in a city, contract, as an inducement to the users, that he will not bail the same apparatus at lower and destructive
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. [Footnote 2/3] The question always is whether an agreement unduly restrains competition and, in applying
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. [Footnote 2/4] 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. [Footnote 2/5] 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 theater 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
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; [Footnote 2/6] 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, [Footnote 2/7] 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, 87 U. S. 67.
Fowle v. Park, 131 U. S. 88; Board of Trade v. Christie Grain & Stock Co., 198 U. S. 236, 198 U. S. 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 Pipe & Steel Co., 85 F. 271.