United States v. First National Pictures, Inc., 282 U.S. 44 (1930)

U.S. Supreme Court

United States v. First National Pictures, Inc., 282 U.S. 44 (1930) United States v. First National Pictures, Incorporated

No. 95

Argued October 27, 28, 1930

Decided November 24, 1930

282 U.S. 44

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

Ten competing corporations, which controlled 60% of the business of supplying the motion picture films used by theaters throughout the Union and had agreed amongst themselves upon a standard form of licensing contract for dealing with exhibitors (see Paramount Corp. v. United States, ante, p. 282 U. S. 30), thereafter combined with other distributors, who with themselves controlled 98% of the film distribution, in establishing certain rules. Under these, whenever a theater changed hands, the credit and business arrangements of the new proprietor were inquired into, partly through an elaborate questionnaire addressed to him, special attention being given to his willingness and agreement to assume contracts for film service existing

Page 282 U. S. 45

between his predecessor and any of the distributors, and no contract for the delivery and display of a picture, other than on for delivery in the immediate future, could be made by any distributor with any new proprietor who had not assumed such outstanding contracts unless he furnished cash security to the distributor, fixed as provided in the rule. The effect in such cases was to prevent the exhibitor who would not assume such obligations of his predecessor from meeting the seasonal demands of his theater by booking for future delivery of film through contracts made in advance, such as were customary and necessary in this business. The rules were sought to be justified as reasonable protection against a practice of evading film service contracts by transferring the theatre to which they related. Held that the arrangement conflicts with the Sherman Act. P. 282 U. S. 55.

34 F.2d 815 reversed.

Appeal from a decree of the district court refusing an injunction in a suit under the Sherman Act, and dismissing the bill on the merits.

Page 282 U. S. 49

MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

The court below denied the relief sought by the United States. The parties are the same as those in Paramount Famous Lasky Corporation v. United States, ante, p. 282 U. S. 30, and the opinion there contains sufficient description of them, their business, and operations.

In 1926, the appellee distributors caused each of the thirty-two film boards of trade to adopt written rules for establishment and operation of a local credit committee. These committees were promptly organized, and have continued to function as required. The prescribed rules provide:

That, to correct abuses and unfair practices, the president shall appoint a credit committee of three members to investigate and report the names of all persons who have acquired, by purchase or transfer, theaters in the territory within which the film board operates. The secretary of the film board shall be secretary of the committee, and to him sales and transfers of theaters shall be promptly reported. These shall be placed upon a "credit information list" and copies furnished to all members of the film board for their confidential information. Upon receipt of such list, each member shall advise the secretary concerning its existing contracts for exhibition of pictures at the listed theater, and shall state whether the transfer provided that the new owner should assume and complete outstanding contracts.

That, immediately upon receiving information of the transfer of a theater, the secretary shall request the new owner to furnish, within five days, references concerning his credit standing, etc., and, to secure this information, a prescribed form of questionnaire shall be sent out. The credit committee shall meet weekly to examine and report

Page 282 U. S. 50

upon the credit standing of new owners and furnish a copy of their report to members as confidential information. If a new owner fails to respond to the questionnaire, this fact shall be noted upon the credit information list. Also, the credit committee shall indicate on the list every sale or transfer of a theater which, upon investigation, it concludes was made by the previous owner for the purpose of avoiding or being relieved of uncompleted contracts for exhibiting pictures at such theater. There shall also be indicated opposite the name of each theater listed, excepting those whose new owners have agreed to assume and complete all existing contracts entered into by the prior owners, and of which agreement notice has been given to or received by the credit committee, the amount of cash security, not exceeding $1,000, which, in the judgment of the committee, is a reasonable sum that members shall require to be deposited as security for the full and complete performance of each contract thereafter made and entered into for the exhibition of pictures at such theater.

That no member of the film board shall enter into a contract for the exhibition of pictures at any theater listed on the credit information list for a period of ten days from the date of the first appearance of such theater upon the list nor thereafter unless the new owner or lessee of such theater shall have paid in cash to such member with whom such owner or lessee desires to contract for pictures the amount of security specified on the credit information list. Certain contracts for "spot-booking" -- that is, for a picture to be delivered in the immediate future -- may be made within the ten-day period and prior to the committee's report. The credit committee may from time to time remove from the credit information list the name of any theater owned or operated by a new owner, and thereafter members of the film board may contract with him.

Page 282 U. S. 51

That members, upon demand of the credit committee, shall furnish desired information, permit examination of books and records with respect to any exhibitor who has sold or transferred his theater and has failed to provide for the assumption by the new owner of existing contracts. A member of the film board who violates any of these rules shall be subject to suspension or expulsion.

A copy of the "Questionnaire" is printed in the margin. * It asks for many particulars concerning the new

Page 282 U. S. 52

owner or transferee of the transferred theater, and especially demands specification of outstanding contracts for film service made by the previous owner and a declaration as to whether the new one has or will adopt them.

Page 282 U. S. 53

The definite point of attack in this proceeding is the agreement for the creation and operation of the credit committees and their use under prescribed rules to restrict freedom of sales by Distributors and of purchases by Exhibitors.

Page 282 U. S. 54

Ten producers and distributors of films, controlling 60 percent of the business, agreed to contract with exhibitors only according to a standard form, and then combined through thirty-two local film Boards of Trade with other distributors, who with themselves control 98 percent of the entire business. The film boards appoint credit committees, and these operate under the rules above outlined. The obvious purpose of the arrangement is to restrict the liberty of those who have representatives on the film boards and secure their concerted action for the purpose of coercing certain purchasers of theaters by excluding them from the opportunity to deal in a free and untrammeled market.

Reference to what has just been said in Paramount Famous Lasky Corporation v. United States, ante, p. 234 U. S. v.

Page 282 U. S. 55

United States, 234 U. S. 600, United States v. American Oil Co., 262 U. S. 371, Binderup v. Pathe Exchange, 263 U. S. 291, and Anderson v. Shipowners' Assn., 272 U. S. 359, will suffice, we think, to show the challenged arrangement conflicts with the Sherman Anti-Trust Act.

The court below erred in reaching a different conclusion, and its decree must be reversed. The cause will be remanded for further proceedings in conformity with this opinion.

Reversed.

*

Please answer each question, sign and return to --

CREDIT COMMITTEE

__________ FILM BOARD OF TRADE

Address __________________

1. Name of theater _____________________

2. Street address ____________ City and state _________

Population of City ____________ Seating capacity ______

Policy: Pictures () Vaudeville () Road Shows () _________

Number of days open each week ___ Time of first performance _____

a.m.______ p.m.

What days do you have matinees ______ Time of first performance ______

Telephone No. of office ______: of residence ______

Name of person, firm, or corporation, operating theater _________

If a corporation give corporate name _______________

Name of president __________________

Name of treasurer __________________

Name of secretary __________________

Name of general manager __________________

Is stock of corporation or a substantial amount thereof owned or

held by another corporation? ___

If so, give name of corporation and names of officers and directors

______________________________________________________________________

If partnership, give names of partners. . . . . . . . . . . . . . .

______________________________________________________________________

Who is authorized to enter into and sign contracts

______________________________________________________________________

3. How will the contracts be signed _____________________ .

4. Is theater owned or leased ______ If leased, state expiration date

of lease ______

5. Name of lessor _______________ If owned, state name of owner ___________

6. On what date was theater taken over ______

7. Place where and date of recording bill of sale______

8. Admission prices ______

9. Condition of projection machines ____________

10. Have you or your operator inspected them, if not, do you agree to

have them inspected within thirty days ______

11. Model of machines _________ Year _____

12. Name theaters heretofore conducted, stating location of each _______

_______________________________________________________________

13. If you have never been engaged in the exhibition of pictures, state

previous business __________________

14. Bank references ____________________________________

15. Other references ____________________________________

16. Specify contracts for film service made by previous owner:

Name of distributor Date of contract No. pictures unplayed

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

17. Specify contracts you have assumed _________________________________

_____________________________________________________________________

_____________________________________________________________________

18. If you have not assumed the previous owner's contracts, will you

assume them? ______

(If your answer to this question is "yes," fill out and sign the

attached agreement of assumption.)

The undersigned represents and warrants that the answers to the foregoing questions are true and are made to induce the members of the above-named film board of trade to contract with the undersigned owner or lessee for the exhibition of motion pictures at the above-named theater.

Signature _________________________________

Owner Lessee (Strike out one).

Dated ______ 19__

Assumption of Contracts

____________ 19__

Know all men by these presents, that the undersigned _______________ (owner) (lessee) of the _________Theater, in consideration of one dollar lawful money of the United States in hand paid, the receipt of which is hereby acknowledged, and other valuable considerations, hereby agrees to assume, carry out, and fully perform each of the contracts now existing between [name of previous owner] and the following distributors:

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

for the exhibition of pictures at said theater from the above date.

No. pictures (features, comedies,

Distributors Date of contract employed Class news, other shorts)

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

(New lessee New owner) (Strike out one)

__________________________________Theater

Address_________________________________

Statement of financial condition

Statement of ______________________________________________________

Individual Corporation Partnership (strike out one)

Operating ___________________________ Theater

TO CREDIT COMMITTEE OF THE FILM BOARD:

For the purpose of inducing the members of the firm board of trade to contract with the undersigned owner (or lessee) for the exhibition of motion pictures at the _______________ Theater, I (or we) warrant and represent that the following is a true and correct statement of my (or our) financial condition on the ___ day of ______, 19__, and agree that in case any change occurs that materially reduces my (or our) ability to pay all claims and demands against me (or us) or materially increases my (or our) liabilities or decreases my (or our) assets, I (or we) will forthwith notify you in writing to such effect.

ASSETS LIABILITIES

--------------------------------------------------------------------------------------

Cash on hand, and in Notes payable . . . . . . .

bank . . . . . . . . . . . Money borrowed. . . . . . .

Notes receivable . . . . . . Accounts payable. . . . . .

Real estate (how valued) . . Mortgage -- real estate

Furniture and fixtures . . . Chattel trusts. . . . . . .

Screen, machines, chairs . . Mortgages on personalty

All other assets consisting and fixtures. . . . . . .

of: All other liabilities con-

___________________________ sting of:

___________________________ ___________________________

___________________________ ___________________________

---- ---- ---- ---- ---- ----

Total . . . . . . . . . Total . . . . . . . . . .

--------------------------------------------------------------------------------------

Net worth as of this date _________

_______________

Exhibitor