1. Respondent produces advertising motion pictures and
distributes them in interstate commerce. It had exclusive contracts
with 40% of the theaters which exhibit such films in the area where
it operates. It and three other companies had exclusive contracts
with 75% of such theaters in the United States. The Federal Trade
Commission found, upon substantial evidence, that respondent's
exclusive contracts unreasonably restrain competition and tend to
monopoly, and that their use was an "unfair method of competition"
in violation of § 5 of the Federal Trade Commission Act. It issued
an order prohibiting respondent from entering into any such
exclusive contract for more than a year or from continuing in
effect any exclusive provision of an existing contract longer than
a year after service of the order.
the order is sustained. Pp. 344 U. S.
(a) The Commission did not exceed the limits of its allowable
judgment in restricting the exclusive contracts to one-year terms.
Pp. 344 U. S.
2. A plea of res judicata
to the present proceeding of
the Commission, based on a former proceeding which was directed at
a conspiracy between respondent and other distributors involving
the use of exclusive agreements, cannot be sustained, since the
present proceeding charges no conspiracy and the issues litigated
and determined are not the same as those in the earlier one. Pp.
344 U. S.
194 F.2d 633 reversed.
In a proceeding upon a complaint charging "unfair methods of
competition" in violation of § 5 of the Federal Trade Commission
Act, the Commission entered a cease and desist order against
respondent. 47 F.T.C. 378. The Court of Appeals reversed. 194 F.2d
633. This Court granted certiorari. 344 U.S. 811.
p. 344 U. S.
Page 344 U. S. 393
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
Respondent is a producer and distributor of advertising motion
pictures which depict and describe commodities offered for sale by
commercial establishments. Respondent contracts with theater owners
for the display of these advertising films and ships the films from
its place of business in Louisiana to theaters in twenty-seven
states and the District of Columbia. These contracts run for terms
up to five years, the majority being for one or two years. A
substantial number of them contains a provision that the theater
owner will display only advertising films furnished by respondent,
with the exception of films for charities or for governmental
organizations, or announcements of coming attractions. Respondent
and three other companies in the same business (against which
proceedings were also brought) together had exclusive arrangements
for advertising films with approximately three-fourths of the total
number of theaters in the United States which display advertising
films for compensation. Respondent had exclusive contracts with
almost 40 percent of the theaters in the area where it
The Federal Trade Commission, the petitioner, filed a complaint
charging respondent with the use of "unfair methods of competition"
in violation of § 5 of the Federal Trade Commission Act, 38 Stat.
717, 719, 52 Stat.
Page 344 U. S. 394
111, 15 U.S.C. § 45. The Commission found that respondent was in
substantial competition with other companies engaged in the
business of distributing advertising films, that its exclusive
contracts have limited the outlets for films of competitors and has
forced some competitors out of business because of their inability
to obtain outlets for their advertising films. It held by a divided
vote that the exclusive contracts are unduly restrictive of
competition when they extend for periods in excess of one year. It
accordingly entered a cease and desist order which prohibits
respondent from entering into any such contract that grants an
exclusive privilege for more than a year or from continuing in
effect any exclusive provision of an existing contract longer than
a year after the date of service in the Commission's order.
] 47 F.T.C. 378. The
Court of Appeals reversed, holding that the exclusive contracts are
not unfair methods of competition, and that their prohibition would
not be in the public interest. 194 F.2d 633.
The "unfair methods of competition," which are condemned by §
5(a) of the Act, are not confined to those that were illegal at
common law or that were condemned by the Sherman Act. Federal
Trade Commission v. Keppel & Bro., 291 U.
. Congress advisedly left the concept flexible to
be defined with particularity by the myriad of cases from the field
of business. Id.,
pp. 291 U. S.
-312. It is also clear that the Federal Trade
Commission Act was designed to supplement and bolster the Sherman
Act and the Clayton Act, see Federal Trade Commission v.
Beech-Nut Co., 257 U. S. 441
257 U. S. 453
-- to stop in their incipiency acts and practices which, when full
Page 344 U. S. 395
would violate those Acts, see Fashion Originators' Guild v.
Federal Trade Commission, 312 U. S. 457
312 U. S. 463
312 U. S. 466
as well as to condemn as "unfair method of competition" existing
violations of them. See Federal Trade Commission v. Cement
Institute, 333 U. S. 683
333 U. S.
The Commission found in the present case that respondent's
exclusive contracts unreasonably restrain competition and tend to
monopoly. Those findings are supported by substantial evidence.
This is not a situation where, by the nature of the market, there
is room for newcomers, irrespective of the existing restrictive
practices. The number of outlets for the films is quite limited.
And, due to the exclusive contracts, respondent and the three other
major companies have foreclosed to competitors 75 percent of all
available outlets for this business throughout the United States.
It is, we think, plain from the Commission's findings that a device
which has sewed up a market so tightly for the benefit of a few
falls within the prohibitions of the Sherman Act, and is therefore
an "unfair method of competition" within the meaning of § 5(a) of
the Federal Trade Commission Act.
An attack is made on that part of the order which restricts the
exclusive contracts to one-year terms. It is argued that one-year
contracts will not be practicable. It is said that the expenses of
securing these screening contracts do not warrant one-year
agreements, that investment of capital in the business would not be
justified without assurance of a market for more than one year,
that theaters frequently demand guarantees for more than a year or
otherwise refuse to exhibit advertising films. These and other
business requirements are the basis of the argument that exclusive
contracts of a duration in excess of a year are necessary for the
conduct of the business of the distributors. The Commission
considered this argument and concluded that, although the exclusive
contracts were beneficial to the distributor and preferred
Page 344 U. S. 396
by the theater owners, their use should be restricted in the
public interest. The Commission found that the term of one year had
become a standard practice, and that the continuance of exclusive
contracts so limited would not be an undue restraint upon
competition, in view of the compelling business reasons for some
exclusive arrangement. [Footnote
] The precise impact of a particular practice on the trade is
for the Commission, not the courts, to determine. The point where a
method of competition becomes "unfair" within the meaning of the
Act will often turn on the exigencies of a particular situation,
trade practices, or the practical requirements of the business in
question. Certainly we cannot say that exclusive contracts in this
field should have been banned in their entirety or not at all, that
the Commission exceeded the limits of its allowable judgment,
see Siegel Co. v. Federal Trade Commission, 327 U.
, 327 U. S. 612
Federal Trade Commission v. Cement Institute, 333 U.
, 333 U. S.
-727, in limiting their term to one year. [Footnote 3
Page 344 U. S. 397
The Court of Appeals held that the contracts between respondent
and the theaters were contracts of agency, and therefore governed
by Federal Trade Commission v. Curtis Publishing Co.,
260 U. S. 568
This was on the theory that respondent furnishes the films by
bailment to the exhibitors in exchange for a contract for personal
services which the exhibitors undertake to perform. But the
case would be relevant here only if § 3 of the
Clayton Act [Footnote 4
involved. The vice of the exclusive contract in this particular
field is in its tendency to restrain competition and to develop a
monopoly in violation of the Sherman Act. And, when the Sherman Act
is involved, the crucial fact is the impact of the particular
practice on competition, not the label that it carries. See
United States v. Masonite Corp., 316 U.
, 316 U. S.
Finally, respondent urges that the sole issue raised in the
Commission's complaint had been adjudicated in a former proceeding
instituted by the Commission which resulted in a cease and desist
order. 36 F.T.C. 957.
Page 344 U. S. 398
But that was a proceeding to put an end to a conspiracy between
respondent and other distributors involving the use of these
exclusive agreements. The present proceeding charges no conspiracy;
it is directed against individual acts of respondent. The plea of
is therefore not available, since the issues
litigated and determined in the present case are not the same as
those in the earlier one. Cf. Tait v. Western Maryland R.
Co., 289 U. S. 620
289 U. S.
Comparable findings and like orders were entered in each of the
three companion cases. Matter of Reid H. Ray Film
47 F.T.C. 326; Matter of Alexander Film
47 F.T.C. 345; Matter of United Film Ad Service,
47 F.T.C. 362.
The Commission said:
"Under the general practice, the representative of the
respondent first contacts the theater to determine if space is
available for screen advertising, and makes such arrangements as
conditions warrant with respect to such space. In this way,
respondent's representative is able to show prospective advertisers
where space is available. In contacting the theater, it is
necessary for the respondent to estimate the amount of space it
will be able to sell to advertisers. Since film advertising space
in theaters is limited to four, five, or six advertisements, it is
not unreasonable for respondent to contract for all space available
in such theaters, particularly in territories canvassed by its
salesmen at regular and frequent intervals."
"It is therefore the conclusion of the Commission in the
circumstances here that an exclusive screening agreement for a
period of one year is not an undue restraint upon competition."
47 F.T.C. 389.
A suggestion is made that respondent needs a period longer than
one year in view of the fact that the contracts with advertisers
are often not coterminous with the exclusive screening agreements,
due in large part to the delays in obtaining advertising contracts
after the exclusive screening agreements have been executed. The
Commission rejected this contention, stating that, by custom and by
the terms of the exclusive contracts, the theater completes the
screening of advertisements as required by the advertising
contracts, even though those contracts extend beyond the expiration
date of the exclusive screening agreement. We have concluded that
the order which the Commission entered in this case is consistent
with that construction. It does not prevent the completion of any
particular advertising contract after the expiration of the
exclusive screening agreement. The order merely prevents respondent
from requiring the theater owner to show only its films after that
date. It does not prevent the theater owner from making an
otherwise exclusive agreement with another distributor at that
time. No theater owner is a party to this proceeding. The cease and
desist order binds only respondent.
This section makes unlawful a lease, sale, or contract for sale
which substantially lessens competition or tends to create a
monopoly. 15 U.S.C. § 14.
MR. JUSTICE FRANKFURTER, whom MR. JUSTICE BURTON joins,
My doubts that the Commission has adequately shown that it has
been guided by relevant criteria in dealing with its findings under
§ 5 of the Federal Trade Commission Act are dispelled neither by
those findings nor by the opinion of the Court. The Commission has
not explained its conclusion with the "simplicity and clearness"
necessary to tell us "what a decision means before the duty becomes
ours to say whether it is right or wrong." United States v.
Chicago, M., St. P. & P. R. Co., 294 U.
, 294 U. S.
My primary concern is that the Commission has not related its
analysis of this industry to the standards of illegality in § 5
with sufficient clarity to enable this Court to review the order.
Although we are told that respondent and three other companies have
exclusive exhibition contracts with three-quarters of the theaters
in the country that accept advertising, there are no findings
indicating how many of these contracts extend beyond the one-year
period which the Commission finds not unduly restrictive. We do
have an indication from the record that more than half of
respondent's exclusive contracts run for only one year; if that is
so, that part of respondent's hold on the market found unreasonable
Page 344 U. S. 399
Commission boils down to exclusion of other competitors from
something like 1,250 theaters, or about 6%, of the some 20,000
theaters in the country. The hold is on about 10% of the theaters
that accept advertising.
Apart from uncritical citations in the brief here, [Footnote 2/1
] the Commission merely states
a dogmatic conclusion that the use of these contracts constitutes
an "unreasonable restraint and restriction of competition." In
re Motion Picture Advertising Service Co.,
47 F.T.C. 378, 389.
The Court's opinion is merely an echo of this conclusion, and
states without discussion that such exclusion from a market,
without more, "falls within the prohibitions of the Sherman Act"
because, taken with exclusive contracts of other competitors, 75%
of the market is shut off. But there is no reliance here on
conspiracy or concerted action to foreclose the market, a charge
that would, of course, warrant action under the Sherman Law.
Indeed, we must assume that respondent and the other three
companies are complying with an earlier order of the Commission
directed at concerted action. See In re Screen Broadcast
36 F.T.C. 957. While the existence of the other
exclusive contracts is, of course,
Page 344 U. S. 400
not irrelevant in a market analysis, see Standard Oil Co. v.
United States, 337 U. S. 293
337 U. S. 309
this Court has never decided that they may, in the absence of
conspiracy, be aggregated to support a charge of Sherman Law
violation. Cf. id.
at 337 U. S. 314
If other factors pertinent to a Sherman Law violation were present
here, the Commission could not leave such factors unmentioned, and
simply ask us to review a broad unexplained finding that there is
such a violation. [Footnote 2/2
any event, the Commission has not found any Sherman Law
But we are told, as is, of course, true, that § 5 of the Federal
Trade Commission Act comprehends more than violations of the
Sherman Law. The Federal Trade Commission Act was designed,
doubtless, to enable the
Page 344 U. S. 401
Commission to nip in the bud practices which, when full blown,
would violate the Sherman or Clayton Act. But this record does not
explain to us how these practices, if full blown, would violate one
of those Acts. The Commission has been content to rest on its
conclusion that respondent's exclusive contracts unreasonably
restrain competition and tend to monopoly. If judicial review is to
have a basis for functioning, the Commission must do more than
pronounce a conclusion by way of fiat and without explication. This
is not a tribunal for investigating an industry. Analysis of
practices in the light of definable standards of illegality is for
the Commission. It is for us to determine whether the Commission
has correctly applied the proper standards, and thus exhibited that
familiarity with competitive problems which the Congress
anticipated the Commission would achieve from its experience.
Cf. Federal Trade Commission v. Cement Institute,
333 U. S. 683
333 U. S.
No case is called to our attention which, because of factual
similarity, would serve as a shorthand elucidation of the
Commission's conclusion. The Standard Oil
relied on in the Commission's brief, does not serve
this purpose. Although the Standard Oil
case was brought
under § 3 of the Clayton Act, I shall assume that it could have
been brought under § 5 of the Federal Trade Commission Act, so that
respondent cannot argue the inapplicability of the decision merely
because the language of § 3 may be inapplicable. But taking that
case simply as an expression of "policy" underlying § 5, it is not
sufficient to support the holding in this case. In the Standard
case, we dealt with the largest seller of gasoline in its
market; Standard had entered into exclusive supply contracts with
16% of the retail outlets in the area purchasing over $57,000,000
worth of gasoline. It may be that considerations undisclosed could
be advanced to indicate that the percentage of the market
Page 344 U. S. 402
shut off here, calculated by a juggling of imponderables that we
certainly would not confidently weigh without expert guidance,
ought not to be considered significantly different from that in the
case, or perhaps more important in the light
of that decision, see
337 U.S. at 337 U. S. 314
that the aggregate volume of business is of as great significance
to the public as it was there. Even so, there are apparent
differences whose effects we would need to have explained.
The obvious bargaining power of the seller vis-a-vis
the retailer does not, so far as we are advised, have a parallel
here. Nor are we apprised by proof or analysis to disregard the
fact that, here, the advertising, unlike sales of gasoline by the
retailer in the Standard Oil
case, is not the central
business of the theaters, and apparently accounts for only a small
part of the theaters' revenues. [Footnote 2/3
] In any event, in the Standard Oil
case, we recognized the discrepancy in bargaining power, and
pointed out that the retailers might still insist on exclusive
contracts if they wanted. See
337 U.S. at 337 U. S. 314
And, although we are not told in this case whether the pressure for
exclusive contracts comes mainly from the distributor or the
theater, there are indications that theaters often insist on
exclusive provisions. See
Findings as to the Facts No. 12,
In re Motion Picture Advertising Service Co., supra,
Further, the findings of the Commission indicate that there are
some factual differences in the "exclusive" provisions
Page 344 U. S. 403
here, for, in this industry, as may not have been feasible in
gasoline retailing, distributors of films often do have access to
the theaters having nominally exclusive contracts with competing
distributors. At times, the exclusive provision may do little more
than give the distributor a priority over other distributors in the
use of screen space. Indeed, the degree of exclusion of competitors
in some instances is represented simply by the inadequacy of a 15%
commission paid the "excluded" competitor when he is permitted to
show his films in theaters nominally exclusive. The Commission
found the 15% unprofitable in local advertising, but it did not
find how much of the affected competitors' total business, which
may also have included manufacturer-dealer or cooperative
advertising and national advertising, was in effect excluded
because of the unprofitability of the commission in local
advertising. In short, we are not told that the exclusive feature
here should be considered the economic equivalent of that in the
Although the facts of this case do not meet the Standard
decision, even if that case is taken merely as an
expression of antitrust policy engrafted on § 5, it is urged that
the Commission should be allowed ample discretion in developing the
law of unfair methods of competition to meet the exigencies of a
particular situation without undue hampering by the Court. But, if
judicial review is to have any meaning, extension of principle to
meet new situations must be based on some minimum demonstration to
the courts that the Commission has relied on relevant criteria to
conclude that the new application is in the public interest. In
this case, apart from equivocal statements in the Trial Examiner's
report on the evidence as to the interests affected by exclusion
from this market, we have no specific indication of the need for
enforcement in this area, cf. Federal Trade Commission v.
Keppel & Bro., 291 U. S. 304
291 U. S. 314
even if the Commission
Page 344 U. S. 404
had afforded reasons why the law of unfair methods of
competition should strike down exclusive contracts such as those
here involved. At the least, we should remand this case to the
Commission for adequate explanation of the reasons why the public
interest requires its intervention and this order. [Footnote 2/4
] Cf. Federal Trade Commission v.
Klesner, 280 U. S. 19
It is of great importance to bear in mind that the determination
of the scope of the prohibition of "unfair methods of competition"
has not been left to the administrative agency as part of its
factfinding authority, but is a matter of law to be defined by the
courts. See Federal Trade Commission v. Gratz,
253 U. S. 421
253 U. S. 427
The significance of such judicial review may be indicated by the
dissimilar treatment of comparable standards entrusted to the
enforcement of the Interstate Commerce Commission. In dealing with
the provisions of the Interstate Commerce Act requiring
reasonableness in rates and practices from carriers subject to the
control of the Commerce Commission, we read the Act as making the
application of standards of reasonableness a determination of fact
by that Commission and not an issue of law for the courts. Unlike
the Federal Trade Commission Act, the Interstate Commerce Act dealt
with governmental regulation not only of a limited sector of the
economy, but of economic enterprises that had long been singled out
for public control. The range within which the broadly stated
concepts of reasonableness
Page 344 U. S. 405
moved was confined as well as defined by experience, and
application of the concepts was necessarily limited to easily
comparable economic activity. On the other hand, the Federal Trade
Commission Act gave an administrative agency authority over
economic controls of a different sort that began with the Sherman
Law -- restrictions upon the whole domain of economic enterprise
engaged in interstate commerce. The content of the prohibition of
"unfair methods of competition," to be applied to widely diverse
business practices, was not entrusted to the Commission for ad
determination within the interstices of individualized
records, but was left for ascertainment by this Court.
The vagueness of the Sherman Law was saved by imparting to it
the gloss of history. See Nash v. United States,
229 U. S. 373
Difficulties with this inherent uncertainty in the Sherman Law led
to the particularizations expressed in the Clayton Act. 38 Stat.
730. The creation of the Federal Trade Commission, 38 Stat. 717,
made available a continuous administrative process by which
fruition of Sherman Law violations could be aborted. But it is
another thing to suggest that anything in business activity that
may, if unchecked, offend the particularizations of the Clayton Act
may now be reached by the Federal Trade Commission Act. The curb on
the Commission's power, as expressed by the series of cases
beginning with the Gratz
so as to
leave to the courts, rather than the Commission the final authority
in determining what is an unfair method of competition, would be
relaxed, and unbridled intervention into business practices
I am not unaware that the policies directed at maintaining
effective competition, as expressed in the Sherman Law, the Clayton
Act, as amended by the Robinson-Patman Act, and the Federal Trade
Commission Act, are difficult to formulate and not altogether
Page 344 U. S. 406
Therefore, the interpretation of the Acts by the agency which is
constantly engaged in construing them should carry considerable
weight with courts even in the solution of the legal puzzles these
statutes raise. But he is no friend of administrative law who
thinks that the Commission should be left at large. In any event,
whatever problems would be raised by withholding judicial review
from determinations of the Commission are for Congress to face, at
least in the first instance. See
my views expressed in
Stark v. Wickard, 321 U. S. 288
321 U. S. 311
Until Congress chooses to do so, we cannot shirk our duty by
leaving determinations of law to the discretion of the Federal
Trade Commission. Not only must we abstain from approving a mere
say-so of the Commission, and thus fail to discharge the task
implied by judicial review. It is also incumbent upon us to seek to
rationalize the four statutes directed toward a common end, and
make of them, to the extent that what Congress has written permits,
a harmonious body of law. This opinion is an attempt, at least by
way of adumbration, to carry out this aim.
I would have the Court of Appeals remand this case to the
The decisions of this Court relied on do not dispose of this
case. In International Salt Co. v. United States,
332 U. S. 392
dealt with the largest producer of salt for industrial purposes,
who, by means of tying agreements, rather than exclusive contracts,
attempted an undue extension of his patent monopoly. Apart from
these differences, it deserves to be noted that sale sales in one
year amounted to $500,000 by the patentee. To the extent that that
decision is predicated on a Sherman Law violation, it seems
inapplicable here. In United States v. Yellow Cab Co.,
332 U. S. 218
apart from other differences, conspiracy was charged to shut off a
substantial share of the market permanently by means of vertical
integration. United States v. Pullman Co., 50 F. Supp.
, in which many other factors were present and the share of
the market considerable, was affirmed by an equally divided Court.
330 U.S. 806.
The strongest finding of the Commission, par. 11, Findings as to
the Facts, 47 F.T.C. at 387, states that these contracts have
"of material assistance in permitting the respondent to hold for
its own use the screens of the theaters with which such contracts
were made and has deprived competitors of the respondent from
showing their advertising films in such theaters thereby limiting
the outlets for their films in a more or less limited field and in
some instances resulted in such competitors' being forced to go out
of the screen advertising business because of inability to obtain
outlets for their screen advertising."
Most contracts have the practical effect of excluding those who
are not parties, and failure to obtain business is, of course, a
cause of business failure. If all contracts are not to be bad on
such reasoning, it seems there must be more, particularly in view
of indications here not adverted to by the Commission in its formal
findings that what little business failure there has been among
competitors may to some extent have resulted from the inferior
quality of those competitors' films. See
Report Upon the Evidence, R. 44. In any event, such a finding does
not establish a Sherman Law violation. In Sherman Law proceedings,
we would have issues sharply defined in Sherman Law terms and
findings from relevant evidence specifically directed to those
terms made by the District Judge. Findings adverse to a claim of
violation of the Sherman Law would have the weight given by Rule
52(a) of the Federal Rules of Civil Procedure. Cf. United
States v. Oregon State Med. Soc., 343 U.
, 343 U. S.
It may well be that this factor will turn out to be of little
significance. In an entirely different context, we recognized that
such a factor need not be decisive in an attempt to assess the
competitive effects, as among purchasers, of discriminatory
pricing. See Federal Trade Commission v. Morton Salt Co.,
334 U. S. 37
334 U. S. 49
Since here, however, the factor probably bears more on the relative
bargaining power of theaters and distributors than on competitive
effects among the theaters, different considerations may
Since I take this view of the case, I need not attempt to
determine whether the issues in this case have already been
adjudicated in favor of the respondent. Without consideration of
the record in the former proceedings, I cannot say whether the
issues, raised as they apparently were in the pleadings before the
Commission, were decided so as to preclude a second trial of those
issues. Circumstances now undisclosed may justify the Commission's
exercise of its flexible powers.