Home Box Office v. Directors Guild of America
| Decision Date | 02 February 1982 |
| Docket Number | No. 78 Civ. 3095.,78 Civ. 3095. |
| Parties | HOME BOX OFFICE, INC., Plaintiff, v. DIRECTORS GUILD OF AMERICA, INC., Robert B. Aldrich, Michael H. Franklin, Ernest Ricca, and Glenn Gumpel, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Proskauer, Rose, Goetz & Mendelsohn, New York City, for plaintiff; George G. Gallantz, Bettina B. Plevan, and David Aronson, New York City, of counsel.
Peter A. Gross, Gen. Counsel, and Shelley D. LaVine, Associate Counsel, New York City, for Home Box Office, Inc.
Dickstein, Shapiro & Morin, New York City, for defendants; Sidney Dickstein, William W. Osborne, Jr., Joel B. Kleinman, Michael E. Nannes, and Charles W. Saber, New York City, of counsel.
Alan Gordon, Gen. Counsel, New York City, for Directors Guild of America, Inc.
Home Box Office, Inc. ("HBO"), brought this action to enjoin defendants from enforcing certain agreements and engaging in certain conduct alleged to violate section 1 of the Sherman Act, 15 U.S.C. § 1 (1976). HBO, a subsidiary of Time, Inc., is a pioneer in the pay-television business. It transmits television programs, often via satellite, to cable television systems for purchase by subscribing consumers. Approximately two-thirds of its programming consists of motion pictures licensed from others. HBO is the industry leader, however, in developing original programming, currently consisting in large part of sports and entertainment programs. All original programming produced by HBO, or by separate production companies that sell or license their programs to HBO, requires the use of television directors, associate directors, and other personnel.
Defendant Directors Guild of America, Inc. (the "Guild"), is the collective bargaining representative of television film directors, associate directors, and other production personnel. The Guild seeks to represent all directors and accepts as a member any person who has previously worked as a director and who is willing to pay membership dues and to abide by the Guild's conditions of membership. The Guild is the successor by merger of the Screen Directors Guild, founded in 1936, and the Radio Directors Guild, founded in the mid-1940s.1 At present, the Guild has approximately 3,500 director members, of whom only about one-third, or 1200, are actively engaged in directing, the others having retired or moved on to other specialties. It has collective bargaining agreements with about 1,500 employers, as well as with some 400 "loan-out companies" established to hire out the services of individual directors who are Guild members. The Guild seeks, in all the ways a union usually does, to protect and advance the interests of its membership, and it is a bona fide labor organization. The other defendants are former or present officers of the Guild.
The Guild concedes that it has engaged in the activities alleged by HBO to violate the antitrust laws. In brief, the Guild has bargained for and signed certain standardized agreements, with companies that produce programs for pay television ("signatories"), that specify the terms on which directors may provide their services. The two key Guild agreements are the Freelance Live and Tape Television Agreement of 1978 (the "Freelance Agreement"), Pl.Ex. 38, and the Basic Agreement of 1978 (the "Basic Agreement"), Def.Ex. 48 (). The Freelance Agreement is the Guild's agreement for live programs and those recorded on videotape; the Basic Agreement is the Guild's agreement for motion pictures and television programs recorded on film. The Guild sought such agreements with all production companies, including HBO, and has repeatedly used its authority over its members to prevent their working as directors on programs intended for pay television and produced by companies that have not signed a Guild agreement ("nonsignatories").
HBO challenges the Guild's conduct and agreements on several grounds. HBO contends that certain Guild members—freelance directors, producer-directors, and director-packagers—are independent contractors or entrepreneurs and therefore may not lawfully combine to restrain the sale of their services. HBO also attacks the Guild's agreements with "loan-out companies"—companies that are owned by Guild directors and whose only business is to provide their owners' services to production companies. HBO alleges that those agreements, which forbid the sale of directors' services to nonsignatories, are an unlawful restraint on the market in directors' services. Finally, HBO asserts that the Guild's agreements with production companies operate unlawfully to restrain competition in the market for television programs.
The Guild contends in response that its actions and agreements are exempt from the antitrust laws. The Guild argues that its combinations with freelance directors, individually or through loan-out companies, with producer-directors, and with director-packagers are protected by the "statutory" exemption afforded unilateral labor activity. The Guild also contends that its agreements with production companies, including those owned by director-packagers, are exempt from the antitrust laws under the judicially developed "nonstatutory" exemption. Finally, the Guild asserts that its actions and agreements, even if not exempt, do not constitute an unreasonable restraint on trade and hence do not violate the Sherman Act.
The case was tried to the Court from March 10 to March 27, 1980. Thereafter, the parties engaged in extensive briefing. Based on the findings of fact and conclusions of law set forth below, plaintiff has failed to establish any proper ground for enjoining the Guild's activities.
HBO's difficulties with the Guild stem from a relationship commencing at the very beginning of pay television. Guild contracts with production companies, networks, and other signatories have recognized since at least 1965 that pay television was a subject for future collective bargaining over wages and other terms and conditions of employment. The 1965 network agreement required any signatory that intended to produce a program for "initial release in home pay television" to notify the Guild prior to production. The agreement provided that the Guild and the signatory would then bargain and that, failing agreement on the terms of compensation for such work, the Guild could terminate the entire agreement. Def.Ex. 38 at 28. Similar provisions exist in the current Basic Agreement and in the Freelance Agreement, except that now the Guild has only the power to instruct its members to refuse to render services with respect to pay-television programs rather than the power to terminate the entire agreement. In 1970, Guild members were specifically advised of the requirement that their terms of compensation for work on programs intended for primary use on pay television were subject to negotiation. They were told to inform the Guild before rendering any services in connection with productions intended for any use other than exhibition on commercial (or "free") television. Def.Ex. 117.
The Guild has had much more definitive agreements concerning reruns and other subsequent use on pay television of programs produced primarily for exhibition on free television or in motion-picture theaters. Compensation for reruns on pay television has been governed by the "supplemental market" provisions of the Guild's collective bargaining agreements. Those provisions grant the director and other Guild employees who work on a program additional compensation for supplemental use aggregating 1.2% of the gross receipts obtained by the signatory from such supplemental exhibitions. Pl.Ex. 39 at 79-98; Def.Ex. 44 at 117-33; Franklin Tr. 1234-35. In the event that the signatory sells or licenses its television rights in a program, the agreements provide that the signatory is absolved from its responsibility to pay additional compensation for reruns if it obtains from the buyer or licensee a separate assumption agreement for the express benefit of the Guild and its members. See Pl.Ex. 38 at 32-34.
The Guild has never had a collective bargaining agreement with HBO, although HBO has employed Guild members in its own productions since at least 1973. The Guild initially permitted this activity, even though HBO's wages to directors were below the levels agreed on by the Guild and its signatories. The Guild apparently also permitted its members to work on projects produced by signatory companies, but intended for exhibition by HBO, on the terms generally applicable under Guild agreements. Witnesses at the trial convincingly testified that the Guild's waiver of its requirement that members work only for signatories was aimed at enabling HBO (and pay television generally) to become established.2 In 1975 and 1976, Guild representatives met with HBO personnel to obtain information concerning HBO's growth and operations. In 1977, HBO entered into a collective bargaining agreement with the American Federation of Television and Radio Artists (AFTRA), at roughly 80% of network rates. The Guild thereupon proposed that HBO become a signatory to the Freelance Agreement. HBO rejected the request, refusing to pay network rates, and sought instead an agreement at lower rates.
During 1978, the Guild withdrew its proposal and revised its demands. Acting on the advice of Michael Franklin, its newly appointed National Executive Secretary, the Guild demanded the greater of the network prime-time rate and a certain percentage of the revenues derived from pay television's exhibition of each program. Franklin was convinced that, due to ease of transmission plus relatively fixed distribution costs, pay television would have far higher returns than free television or theaters, and he urged an effort to secure for...
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