Ten corporations, competitors in the business of supplying the
film prints used by exhibitors of motion pictures throughout the
Union and controlling 60% of that business, agreed amongst
themselves to contract with exhibitors for future exhibition of
pictures
Page 282 U. S. 31
only by a standard form of contract which, in connection with
certain rules, required, among other things: that disputes and
claims under the contract be submitted to a board of arbitration;
that the award be accepted as conclusive; that, upon failure of the
contracting exhibitor to submit to arbitration or to abide by an
award, the distributor party to that contract, and all others
having like contracts with such exhibitor, must demand security
from him on each of their contracts; that those to whom he failed
to pay security within a time fixed must suspend service under
their contracts until he paid it or complied with the award; that,
when service under a contract had been so suspended ten days, the
distributor party might cancel it, and that no distributor, having
so suspended service, should resume it before the exhibitor
furnished the security or obeyed the award.
Held:
1. That the necessary and inevitable tendency of the agreement
and combination is to produce material and unreasonable restraint
of interstate commerce in violation of the Sherman Act. P.
282 U. S.
41.
2. The fact that the standard exhibition contract and rules of
arbitration were evolved after six years of discussion and
experimentation does not show that they were either normal or
reasonable regulations. The arrangement existing between the
parties is unusual, and necessarily and directly tends to destroy
the kind of competition to which the public has long looked for
protection. P.
282 U. S.
43.
3. The Sherman Act seeks to protect the public against evils
commonly incident to the unreasonable destruction of competition,
and no length of discussion or experimentation amongst parties to a
combination which produces the inhibited result can give validity
to their action.
Id.
4. It may be that arbitration is well adapted to the needs of
the motion picture industry, but when, under the guise of
arbitration, parties enter into unusual arrangements which
unreasonably suppress normal competition, their action becomes
illegal.
Id.
5. In order to establish violation of the Sherman Act, it is not
necessary to show that the challenged arrangement suppresses all
competition between the parties, or that the parties themselves are
discontented with the arrangement. The interest of the public in
the preservation of competition is the primary consideration. P.
282 U. S. 44.
6. The prohibitions of the statute cannot be evaded by good
motives.
Id.
34 F.2d 984
affirmed.
Page 282 U. S. 32
Appeal from a decree of the district court condemning an
agreement and combination of appellants under the Sherman Act.
Page 282 U. S. 36
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
By this proceeding, the United States seek to prevent further
violation of ยง 1, Act of Congress approved July 2, 1890 (Sherman
Anti-Trust Act) c. 647, 26 Stat. 209, through an alleged
combination and conspiracy to restrain 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 60 percent of the films used for displaying
motion pictures by some 25,000 theater owners (exhibitors), the
Motion Picture Producers and Distributors of America, a corporation
with class B membership composed of the above-mentioned
distributors, and thirty-two film boards of trade, which severally
function within certain defined regions.
Each distributor produces and then distributes films through its
own exchanges, maintained in thirty-two 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
Page 282 U. S. 37
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 percent 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 twelve 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 amongst 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 photoplays at a designated theater
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 in the margin)
* provides, in
substance, that each party shall submit any controversy that
may
Page 282 U. S. 38
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 and 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
Page 282 U. S. 39
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, at its option,
demand, for its protection and as security for the performance 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
Page 282 U. S. 40
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 against 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, by
written notice to the Exhibitor, suspend service hereunder until
said sum shall be paid and/or terminate this contract."
The rules of arbitration provide for a board, three of whom
shall be members of the local film board of trade and three
proprietors or managers of theaters in its region. This arbitration
board shall have power to determine the controversy, make findings,
direct what shall 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 any such exhibitor shall demand payment by
such exhibitor of such sum as, in the judgment of such member or
distributor, shall be sufficient to protect such member of
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
Page 282 U. S. 41
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 ten
days, such contract, at the option of the distributor, may 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 complied 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 percent 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 with one
who fails to observe such a contract with any distributor, all with
the manifest purpose to coerce the exhibitor and limit the freedom
of trade.
The United States maintain that the necessary and inevitable
tendency of the outlined agreement and combination, described with
greater detail in the opinion below, is to produce material and
unreasonable restraint of interstate commerce in violation of the
Sherman Anti-Trust Act.
Eastern States Lumber Assn. v. United
States, 234 U. S. 600,
234 U. S. 614;
Binderup v. Pathe Exchange, 263 U.
S. 291,
263 U. S. 312.
The court below accepted this view, and directed an appropriate
Page 282 U. S. 42
injunction against future action under the unlawful plan. We
agree with its conclusion, and the challenged decree must be
affirmed.
The appellants claim: (1) the standard exhibition contract and
rules of arbitration, dated May 1, 1928, having been evolved after
six years of discussion and experimentation, are reasonable and
normal regulations, so that whatever restraint follows falls short
of unlawful coercion; (2) arbitration is well adapted to the needs
of the motion picture industry; (3) the manner in which the
contract and rules have worked out in practice, and the significant
absence of complaints, reflect their reasonable character; (4) the
decree is inconsistent with the stipulated facts, also with the
court's findings of fact.
"Founded upon broad conceptions of public policy, the
prohibitions of the statute [Sherman Act] were enacted to prevent
not the mere injury to an individual which would arise from the
doing of the prohibited acts, but the harm to the general public
which would be occasioned by the evils which it was contemplated
would be prevented, and hence not only the prohibitions of the
statute, but the remedies which it provided, were coextensive with
such conceptions."
Wilder Mfg. Co. v. Corn Products Co., 236 U.
S. 165,
236 U. S.
174.
"The purpose of the Sherman Act is to prohibit monopolies,
contracts, and combinations which probably would unduly interfere
with the free exercise of their rights by those engaged, or who
wish to engage, in trade and commerce -- in a word, to preserve the
right of freedom to trade."
United States v. Colgate & Co., 250 U.
S. 300,
250 U. S.
307.
"The fundamental purpose of the Sherman Act was to secure
equality of opportunity and to protect the public against evils
commonly incident to destruction of competition through monopolies
and combinations in restraint of trade."
Ramsay Co. v. Associated Bill Posters Assn.,
260 U. S. 501,
260 U. S. 512.
"The Sherman Act was intended
Page 282 U. S. 43
to secure equality of opportunity and to protect the public
against evils commonly incident to monopolies and those abnormal
contracts and combinations which tend directly to suppress the
conflict for advantage called competition -- the play of the
contending forces ordinarily engendered by an honest desire for
gain."
United States v. American Oil Co., 262 U.
S. 371,
262 U. S.
388.
The fact that the standard exhibition contract and rules of
arbitration were evolved after six years of discussion and
experimentation does not show that they were either normal or
reasonable regulations. That the arrangement existing between the
parties cannot be classed among "those normal and usual agreements
in aid of trade and commerce" spoken of in
Eastern states
Lumber Assn. v. United States, supra, 234 U. S. 612,
is manifest. Certainly it is unusual, and we think it necessarily
and directly tends to destroy "the kind of competition to which the
public has long looked for protection."
United States v.
American Oil Co., supra, 262 U. S. 390.
The Sherman Anti-Trust Act seeks to protect the public against
evils commonly incident to the unreasonable destruction of
competition, and no length of discussion or experimentation amongst
parties to a combination which produces the inhibited result can
give validity to their action. Congress has so legislated
"as to prevent resort to practices which unduly restrain
competition or unduly obstruct the free flow of such commerce, and
private choice of means must yield to the national authority thus
exerted."
Eastern states Lumber Assn. v. United States, supra,
234 U. S.
613.
It may be that arbitration is well adapted to the needs of the
motion picture industry, but when, under the guise of arbitration,
parties enter into unusual arrangements which unreasonably suppress
normal competition, their action becomes illegal.
Page 282 U. S. 44
In order to establish violation of the Sherman Anti-Trust Act,
it is not necessary to show that the challenged arrangement
suppresses all competition between the parties, or that the parties
themselves are discontented with the arrangement. The interest of
the public in the preservation of competition is the primary
consideration. The prohibitions of the statute cannot
"be evaded by good motives. The law is its own measure of right
and wrong, of what it permits or forbids, and the judgment of the
courts cannot be set up against it in a supposed accommodation of
its policy with the good intention of parties, and, it may be, of
some good results."
Standard Sanitary Mfg. Co. v. United States,
226 U. S. 20,
226 U. S.
49.
Upon examination of the record, we cannot say that the decree of
the court below is inconsistent with the stipulated facts or with
proper regard to what that court held in respect of the facts.
The challenged decree must be
Affirmed.
*
"Eighteenth. The parties hereto agree that, before either of
them shall resort to any court to determine, enforce or protect the
legal rights of either hereunder, each shall submit to the Board of
Arbitration, established or constituted pursuant to the Rules of
Arbitration filed with the American Arbitration Association, 342
Madison Avenue, New York City, bearing date May 1, 1928 and
identified by the signatures of the Contract Committee appointed at
the 1927 Motion Picture Trade Practice Conference, a copy of which
will be furnished to the Exhibitor upon request in the city wherein
is situated the exchange of the Distributor from which the
Exhibitor is served, or if there be no such Board of Arbitration in
such city, then to the Board of Arbitration in the city nearest
thereto (unless the parties hereto agree in writing that such
submission shall be made to a Board of Arbitration located in
another specified city), all claims and controversies arising
hereunder for determination pursuant to the said Rules of
Arbitration and the rules of procedure and practice adopted by such
Board of Arbitration."
The parties hereto further agree to abide by and forthwith
comply with any decision and award of such Board of Arbitration in
any such arbitration proceeding, and agree and consent that any
such decision or award shall be enforceable in or by any court of
competent jurisdiction pursuant to the laws of such jurisdiction
now or hereafter in force, and each party hereto hereby waives the
right of trial by jury upon any issue arising under this contract,
and agrees to accept as conclusive the findings of fact made by any
such Board of Arbitration, and consents to the introduction of such
findings in evidence in any judicial proceeding.
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, at its option, demand, for its protection and as
security for the performance 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
against 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 by written notice to the Exhibitor suspend service hereunder
until said sum shall be paid and/or terminate this contract.
In the event that the Distributor shall fail or refuse to
consent to the submission to arbitration of any claim or
controversy arising under this or any other Standard Exhibition
Contract providing for arbitration which the Distributor may have
with the Exhibitor, 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, within the number of days specified in
Article Twenty-Second opposite the name of the City in which such
Board of Arbitration is located, the Exhibitor may, at his option,
terminate this and any other existing contract between the
Exhibitor and the Distributor by mailing notice by registered mail
within two (2) weeks after such failure or refusal, and, in
addition, the Distributor shall not be entitled to redress from
such Board of Arbitration upon any claim or claims against any
exhibitor until the Distributor shall have complied with such
decision, and, in the meanwhile, the provisions of the first
paragraph of this Article Eighteenth shall not apply to any such
claim or claims.
Any such termination by either party, however, shall be without
prejudice to any other right or remedy which the party so
terminating may have by reason of any such breach of contract by
the other party.
The provisions of this contract relating to arbitration shall be
construed according to the law of the New York.