United States v. First National Pictures/Opinion of the Court

The court below denied the relief sought by the United States. The parties are the same as those in No. 83, just decided, Paramount Famous Lasky Corporation et al. v. United States of America, 282 U.S. 30, 51 S.C.t. 42, 75 L. Ed. 145, 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 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.

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 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.

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.

Ten producers and distributors of films, controlling 60 per cent. 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 per cent. 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 No. 83 and to the opinions in Eastern States Lumber Ass'n v. United States, 234 U.S. 600, 34 S.C.t. 951, 58 L. Ed. 1490, L. R. A. 1915A, 788, United States v. American Oil Co., 262 U.S. 371, 43 S.C.t. 607, 67 L. Ed. 1035, Binderup v. Pathe Exchange, 263 U.S. 291, 44 S.C.t. 96, 68 L. Ed. 308, and Anderson v. Shipowners' Ass'n, 272 U.S. 359, 47 S.C.t. 125, 71 L. Ed. 298, will suffice, we think, to show the challenged arrangement conflicts with the Sherman Anti-Trust Act (15 USCA §§ 1-7, 15).

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.