Motion Picture Ad. Serv. Co. v. FEDERAL TRADE COM'N, 13493.

• Citation: 194 F.2d 633
• Decision Date: 21 February 1952
• Docket Number: No. 13493.,13493.
• Parties: MOTION PICTURE ADVERTISING SERVICE CO., Inc. v. FEDERAL TRADE COMMISSION.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

194 F.2d 633 (1952)

MOTION PICTURE ADVERTISING SERVICE CO., Inc. v. FEDERAL TRADE COMMISSION.

No. 13493.

United States Court of Appeals Fifth Circuit.

February 21, 1952.

Louis L. Rosen, New Orleans, La., for petitioner.

J. B. Truly, Jno. W. Carter, Jr., W. T. Kelley, Gen. Attys., Counsel, James W. Cassedy, Asst. Gen. Counsel, Federal Trade Commission, Washington, D. C., for respondent.

Before HOLMES, BORAH, and STRUM, Circuit Judges.

HOLMES, Circuit Judge.

This is a proceeding under Section 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 41, wherein the petitioner is charged with engaging in unfair methods of competition in commerce by entering into long-time exclusive screening agreements. The defense is, first, a plea of res judicata and, second, a denial that the alleged exclusive agreements have a tendency or effect unduly to lessen, restrain, suppress, or injure, competition in the distribution or exhibition of advertising films in motion picture theatres. The plea of res judicata was overruled by the Commission, and the case tried upon its merits.

There is no charge in the complaint of any combination or conspiracy; the sole charge is that the petitioner, individually, has been guilty of an unfair method of competition within the intent and meaning of the act. The Commission found the petitioner guilty as charged, and ordered it to cease and desist in the future from entering into theatre screening agreements for a term in excess of one year; and also to discontinue in operation or effect any exclusive theatre screening provisions in existing contracts when the unexpired term thereof extended for a period of more than one year from the date of the service of the cease and desist order. Three separate and similar complaints were issued at the same time against three other corporations engaged in the same business. The cases were tried together under a stipulation that need not be fully stated here, but that was intended to avoid the necessity of having certain witnesses repeat their testimony.

Passing the question of res judicata, we proceed to a consideration and determination of the case on its merits. In the conduct of its business, the respondent enters into written screening agreements with exhibitors for a maximum period of five years, the majority being written for terms of one year or two years. About 25 per cent of petitioner's screening agreements are for a period of five years. These agreements provide that the exhibitor shall properly display advertising films supplied by petitioner, return such films at the end of the screening period, and that the petitioner will pay the exhibitor each month for screening as designated in the contract. A substantial number of the contracts provide that the exhibitor will display only advertising films furnished by petitioner, except slides for charitable or governmental organizations or announcements of the theatre's coming attractions. The available space for screening advertisements is limited, as only about 60 per cent of the theatres accept film advertising; in addition, theatre patrons resent the showing of too much of this character of advertising, and thus impose economic barriers on the amount that may be run. The time consumed that will be tolerated by the public is said to be from three to six minutes, or from two to four per cent of the time consumed by the show.

The Commission concluded that an exclusive screening agreement for a period of one year was not an undue restraint on competition, but that such agreement for a longer period should be prohibited. The record shows that there is free and open competition among the distributors to secure such agreements, and that, from the beginning of the industry, distributors have sought and obtained exclusive screening agreements. The Commission having determined that exclusive agreements are not unfair or illegal per se but are necessary for the operation of the business, we are confronted with preponderating testimony that no prudent person would invest sufficient capital in the business without assurance of exclusive screening space for a longer period than one year; and that theatres themselves frequently demand guaranties for a longer period, or otherwise refuse to exhibit motion picture advertisements. As pointed out by the dissenting member of the Commission, the prohibition runs to the length of the lease rather than to its terms. We quote further from the dissent as follows:

"To understand the subject of this litigation one must know what trailer ads are because we are here concerned with the leasing of screen time in theatres for the exhibition of respondent's trailer ads. * * Generally, people believe any form of advertising in a place of amusement is a bore and ought to be done away with. The small theatre owner benefits from trailer ads. He is paid to show them. Features, news reels, and shorts, cost him money. However, trailer ads actually reverse the flow of film money back into his own till.

"The order in this case prohibits the trailer ad maker from leasing screen time from a theatre owner for a greater period than one year. If we could do this, it might be a great favor to audiences. Unfortunately, the privilege of boring the public for pay is a theatre owner's inalienable right, provided he doesn't carry the thing too far.

"People know trailer ads help eke out an existence for the small exhibitor. It's sort of a subsidy to keep the marginal operator alive. This is why audiences in small towns and communities sit quietly every night whilst the community theatre parades a variety of commercial plugs across the screen.

"I do not believe we should prohibit a theatre owner from leasing exclusive space in his lobby, his basement, his roof or even on his screen for as long as he wants, provided the subject matter of the ad is legal. Yet that is in...