Schine Chain Theatres v. United States

• Decision Date: 03 May 1948
• Docket Number: No. 10,10
• Citation: 68 S.Ct. 947,334 U.S. 110,92 L.Ed. 1245
• Parties: SCHINE CHAIN THEATRES, Inc., et al. v. UNITED STATES
• Court: U.S. Supreme Court

334 U.S. 110

68 S.Ct. 947

92 L.Ed. 1245

SCHINE CHAIN THEATRES, Inc., et al.

v UNITED STATES.

No. 10.

Argued Dec. 15, 1947.

Decided May 3, 1948.

Petition for Clarification Denied June 1, 1948.

See 334 U.S. 831, 68 S.Ct. 1343.

Appeal from the District Court of the United States for the Western District of New York.

[Syllabus from pages 110-112 intentionally omitted] Mr. Bruce Bromley, of New York City, for appellants.

Mr. Robert L. Wright, of Washington, D.C., for appellee.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This is a companion case to United States v. Griffith, 334 U.S. 100, 68 S.Ct. 941, and is here by way of appeal from the District Court. The appellants, who were defendants below, are a parent company, three of its officers and directors, and five of its wholly owned subsidiaries—to whom we refer collectively as Schine. As of May 19, 1942, Schine owned or had a financial interest in a chain of approximately 148 motion picture theatres¹ located in 76 towns in 6 states,² the greater portion being 78 theatres in 41 towns in New York and 36 theatres in 17 towns in Ohio. Of the 76 towns, 60 were closed towns, i.e., places where Schine had the only theatre or all the theatres in town.³ This chain was acquired beginning in 1920 and is the largest independent theatre circuit in the country. Since 1931 Schine acquired 118 theatres. Since 1928 the closed towns increased by 56. In 1941 there were only three towns in which Schine's competitors were playing major film products.

The United States sued to prevent and restrain appellants from violating §§ 1 and 2 of the Sherman Act. 26 Stat. 209, 50 Stat. 693, 15 U.S.C. §§ 1, 2, 15 U.S.C.A. §§ 1, 2. The complaint charged that the Schine interests by pooling their entire circuit buying power in the negotiation of films from the distributors so as to combine its closed and open towns got advantages for itself and imposed restrictions on its competitors which otherwise would not have been possible. It charged that the distributors granted certain favors to Schine which were withheld from Schine's competitors, e.g., giving Schine the first run, refusing at times second runs to Schine's competitors, charging Schine with lower rentals than it charged others, licensing to Schine films in excess of Schine's reasonable requirements.

The complaint also charged that Schine had forced or attempted to force competitors out of business and where competitors would not sell out to Schine had threatened to build or had built an opposition theatre, had threatened to deprive or had deprived competitors of a desirable film or run, had cut admission prices, and had engaged in other unfair practices. In these and other ways it was charged that Schine had used its circuit buying power to maintain its monopoly n d to restrain trade. The conspiracy charged was between the Schine defendants themselves and between them and the distributors.

The District Court found that the appellants had conspired with each other and with the eight major film distributors⁴ to violate § 1 and § 2 of the Sherman Act. Its findings may be summarized as follows:

The entire circuit buying power was utilized to negotiate films for all the theatres from the distributors, the negotiations ending in master agreements between a distributor and the exhibitor. This large buying power⁵ gave Schine the 'opportunity to exert pressure on the distributors to obtain preferences.' Moreover, Schine by combining its closed and open towns in its negotiations for films was able 'to dictate terms to the distributors.' Schine bought films for some theatres in which it had no financial interest (but as respects most of which it had an option to purchase). It also performed the service (under so-called pooling agreements) for groups of theatres in which it and others were interested. Through the use of such buying power Schine arbitrarily deprived competitors of first and second-run pictures, was able in many towns to secure unreasonable clearances⁶ year after year of from 90 to 180 days. obtained long-term agreements for rental of film (franchises) which gave it preferences not given independent operators,⁷ and re- ceived more advantageous concessions from the distributors respecting admission prices than competitors were able to get. Schine made threats to build or to open closed theatres in order to force sales of theatres in various towns or to prevent entry by an independent operator. Schine cut admission prices. Schine obtained from competitors whom it bought out agreements not to compete for long terms of years which agreements at times extended to other towns as well. Schine obtained filmrental concessions not made available to independents. The District Court entered a decree enjoining these practices and requiring a divestiture by Schine of various of its theatres. 63 F.Supp. 229.

First. For the reasons stated in United States v. Griffiths, 334 U.S. 100, 68 S.Ct. 941, combining of the open and closed towns for the negotiation of films for the circuit was a restraint of trade and the use of monopoly power in violation of § 1 and § 2 of the Act. The concerted action of the parent company, its subsidiaries, and the named officers and directors in that endeavor was a conspiracy which was not immunized by reason of the fact that the members were closely affiliated rather than independent. See United States v. Yellow Cab Co., 332 U.S. 218, 227, 67 S.Ct. 1560, 1565, 91 L.Ed. 2010; United States v. Crescent Amusement Co., 323 U.S. 173, 65 S.Ct. 254, 89 L.Ed. 650. The negotiations which Schine had with the distributors resulted in the execution of master agreements between the distributors and exhibitors. This brought the distributors into unlawful combinations with the Schine defendants. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915. The course of business makes plain that the commerce affected was interstate. United States v. Crescent Amusement Co. supra, 332 U.S. pages 180, 183, 184, 65 S.Ct. page 259, 89 L.Ed. 650.

Second. Appellants object to admission in evidence of numerous inter-office communications between officials of the distributors with whom Schine dealt. The District Court placed considerable relianceo n them in mak- ing its findings. We will advert later to the use of these documents to prove the unreasonableness of clearances. It is sufficient at this point to say that since a conspiracy between Schine and each of the named distributors was established by independent evidence, these inter-office letters and memoranda were admissible against all conspirators as declarations of some of the associates so far as they were in furtherance of the unlawful project. Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229, 249, 38 S.Ct. 65, 71, 62 L.Ed. 260, L.R.A.1918C, 497, Ann.Cas.1918B, 461; United States v. Crescent Amusement Co., supra, 323 U.S. page 184, 65 S.Ct. page 259, 89 L.Ed. 650; United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525.

Third. Appellants make detailed challenges to many of the other findings of the District Court on which it based its holdings that appellants violated the Act.

(1) They vigorously attack the findings that Schine arbitrarily deprived independents of first-and second-run pictures. Their chief contention is that there is no support for the finding of arbitrary action on the part of Schine, that Schine did not buy pictures beyond its needs in order to keep them away from its competitors, that any successful purchaser of a first- or second-run picture has an exclusive privilege that necessarily deprives competitors of the film for the period of the run, and that any advantage which Schine obtained in this regard was the result of the operation of forces of competiton.

As we read the evidence underlying this finding, it was the use of Schine's monopoly power—represented by combining the buying power of the open and closed towns—which enabled it to obtain that which its competitors could not obtain. Deprivation of competitors of first-and second-run pictures in that way was indeed arbitrary in the sense that it was the product of monopoly power, not of competitive forces. That is the construction we give the finding of the District Court; and as so construed it is supported by substantial evidence. There may be exceptions in the case of some subsidiary findings. But we do not stop to relate them. For even if we lay them aside as clearly erroneous for lack of support in the evidence, the conclusion is irresistible that Schine so used its monopoly power to gain advantages and preferences which, on a purely competitive basis, it could not have achieved.

(2) Defense of the long-term filmrental agreements—the franchises—is made on the ground that they were accepted methods of doing business in the industry, ⁸ that they were favored by distributors as devices to stabilize their end of the business and to save expense, and that they were not chosen by Schine as instruments to suppress competition. But it seems to us apparent that their use served to intensify the impact of Schine's monopoly power on its competitors. For when Schine's buying power was used to acquire films produced by a distributor for two or three years rather than for one year alone, it plainly strengthened through the exercise of monopoly power such dominant position as Schine had over each of its competitors.

Appellants also challenge the finding that Schine obtained preferences through the franchises, in addition to long-term supplies of pictures, which were not granted independent operators. One of these preferences was found to be the unfair and inequitable clearance provisions; another, special film-rental concessions. We will consider these later. The other aspects of the findings we do not stop to analyze. For the franchise agreements § employed by Schine are unreasonable restraints of trade for the reasons stated; and they must be permanently...