Paramount Film Distributing Corp. v. Village Theatre

• Decision Date: 30 January 1956
• Docket Number: No. 5002.,5002.
• Parties: PARAMOUNT FILM DISTRIBUTING CORPORATION; American Broadcasting-Paramount Theatres, Inc.; and Intermountain Theatres, Inc., Appellants, v. VILLAGE THEATRE, Inc., a Utah Corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

228 F.2d 721 (1955)

PARAMOUNT FILM DISTRIBUTING CORPORATION; American Broadcasting-Paramount Theatres, Inc.; and Intermountain Theatres, Inc., Appellants, v. VILLAGE THEATRE, Inc., a Utah Corporation, Appellee.

No. 5002.

United States Court of Appeals Tenth Circuit.

December 9, 1955.

Rehearing Denied January 30, 1956.

Dennis McCarthy, Salt Lake City, Utah, and Milton Handler, New York City (Stanley D. Robinson, New York City, on the briefs), for appellants.

Joseph L. Alioto, San Francisco, Cal. (Maxwell Keith, San Francisco, Cal., and Elwood S. Kendrick, Los Angeles, Cal., on the brief), for appellee.

Before PHILLIPS, Chief Judge, HUXMAN, Circuit Judge, and SAVAGE, District Judge.

PHILLIPS, Chief Judge.

Village Theatre, Inc., brought this action against Paramount Film Distributing Corporation,¹ RKO Radio Pictures, Inc., United Paramount Theatres, Inc., now American Broadcasting-Paramount Theatres, Inc.,² and Intermountain Theatres, Inc.,³ under §§ 4 and 16 of the Clayton Act,⁴ seeking treble damages and an injunction, based on alleged violations of the anti-trust laws during a period from December, 1949, to October, 1952. The defendants below, other than RKO Radio Pictures, Inc., will be referred to hereinafter collectively as the defendants.

Paramount Film is a distributor of motion pictures. United is a theatre holding company and Intermountain is an exhibitor of motion pictures and the wholly-owned subsidiary of United.

The basic theory of the action, as originally commenced, was that Paramount Film, RKO Radio Pictures, Inc., another distributor, United and Intermountain agreed and conspired to deprive the Villa Theatre of the opportunity to play pictures on their first run exhibition and to play day and date pictures and to discriminate in favor of Intermountain and against the Villa Theatre in restraint of trade and commerce in the interstate distribution of motion picture films in Salt Lake City, Utah.

On the eve of the trial below, the action was dismissed as to RKO Radio Pictures, Inc. Thereafter, Village Theatre undertook to maintain the action on the theory of a vertical conspiracy among Paramount Film, United and Intermountain.

Salt Lake City is the center of a film exhibition area covering Utah, Idaho, Montana and parts of Wyoming and Nevada. It has six regular first run downtown theatres located in the heart of the city. Two of the downtown theatres, the Uptown and Rialto, are operated by Joseph L. Lawrence and his associates, who also operate the Villa Theatre. Downtown theatres Center, Utah and Capitol are operated by Intermountain. Downtown theatre Lyric is operated by Mr. Rosenfield. In addition, Studio, a small downtown theatre operated by Intermountain, on occasions exhibits first run pictures, but it is primarily a move-over house playing a continuation of first run pictures without an intervening clearance.

The Villa Theatre and the downtown theatres in Salt Lake City are in substantial competition.

At the trial the jury returned a verdict in the sum of $20,000. The court entered a judgment for $60,000, plus $27,500 attorneys' fees, and the costs. It also entered a decree for an injunction, but stayed the injunction pending appeal. The defendants have appealed.

A decree entered in the United States District Court for the Southern District of New York in 1946 required Paramount Pictures, Inc., to divorce its domestic theatre holdings from its production and distribution business by March 3, 1950.⁵ On January 1, 1950, Paramount Pictures, Inc., transferred all of its theatres in the United States to United, which was an entirely new and independently controlled company, created for that purpose. All the stock of Intermountain was acquired by United. At the same time, Paramount Film became the sole distributor of Paramount Pictures in the United States and Paramount Pictures, Inc. was dissolved.

The Villa Theatre had modern equipment and appointments. It was situated in a suburban area in the southeast section of Salt Lake City, six and one-half miles from the downtown business district. It commenced operations on December 23, 1949. Shortly before its opening, George A. Smith, Western Division Manager of Paramount Film, and Frank Smith, Salt Lake Branch Manager of Paramount Film, made an inspection of the site and surrounding area of the Villa Theatre. No study was made of the population of the area or of population trends.

Primarily because of the location of the Villa Theatre, George A. Smith recommended to Edward K. O'Shea, Vice-President and Assistant Sales Manager of Paramount Film, that the Villa Theatre not be licensed to show first run Paramount Pictures. O'Shea adopted that recommendation.

On January 6, 1950, Smith wrote a letter to O'Shea setting forth "a list of the accounts in the Salt Lake territory that we are not serving." In Salt Lake City he listed the Villa, Rialto, Lyric and Southeast and stated the reason why each of such theatres was not being served was "This is an opposition situation to the Intermountain Theatres in Salt Lake which are using our product."

However, such letter is susceptible of a construction that it referred to prior licensing of pictures to Intermountain to the exclusion of other exhibitors, which, under the decree in United States v. Paramount Pictures, Inc., supra, Paramount Film had the right to do up to March 3, 1950.

In February, 1950, Paramount Film inaugurated a system of competitive bidding for its first run films in Salt Lake City. Uptown, Rialto, Center, United and Capitol Theatres were permitted to participate in such competitive bidding. Studio may have been permitted to participate in certain instances. It did show two first run pictures during the period in controversy.

Under such system, Paramount Film would issue a request for offers, stating the name of the picture to be released and the date the bids were due. Paramount Film reserved the right to reject all bids and to enter into negotiations for the licensing of the pictures. Paramount Film refused to permit the Villa Theatre to participate in such competitive bidding and also refused the Villa Theatre permission to run Paramount products on a day and date basis. In so doing, Paramount followed its general policy of distributing its first run films in large cities to downtown theatres, sometimes called the "showcase" method of distribution. However, such policy was not followed in all cities. For various reasons, Paramount's first run pictures were made available in suburban theatres in Portland, Los Angeles, Phoenix, Tucson, Pocatello and Albuquerque.

In support of the "showcase" distribution method, defendants below introduced evidence which tended to establish distinct advantages resulting from the first run exhibition of motion pictures in a large and finely appointed downtown theatre, as follows: More patrons are attracted to such downtown theatres than to suburban areas; the advertising on the marquee of the downtown theatres reaches many people and establishes the picture in the minds of many persons, even though they do not go to see the picture at the first showing; the downtown theatre has the benefit of "drop in" trade from hotels and shopping centers; the downtown theatres have better transportation facilities from all portions of the city than suburban theatres; a suburban theatre draws its patronage largely from the area in which it is located; where pictures are exhibited first run in well appointed downtown theatres, the rental rate to the film distributor, both from the first run exhibition and from subsequent exhibitions, will be greater. The showing of a picture in a downtown theatre, which has a large sphere of influence, not only in the city, but for a considerable distance, may be very advantageous and enhance the value of a picture over a wide area. On the other hand, a showing of a picture in a suburban theatre may injure it in a wide area.

In a letter dated February 2, 1951, from Paramount Film to its Branch Managers, Paramount Film set out the reasons stated above for its general policy of distributing first run pictures under a "showcase" method of distribution. It recognized, however, that there might be exceptions where a first run exhibition in a suburban theatre should be permitted and directed the Branch Managers to examine the facts, weigh the various factors and reach a conclusion.⁶

During the period in which the conspiracy was alleged to exist, the Villa Theatre had access through competitive bidding to the first run products of all the major distributors, except Paramount Film and RKO Radio Pictures, Inc. On occasion some of these distributors would grant the Villa Theatre an exclusive first run, but most of the time they licensed the Villa Theatre day and date with either the Uptown or Rialto. Beginning in April, 1953, RKO Radio Pictures, Inc. permitted the Villa Theatre to compete for first run pictures.

The defendants introduced evidence which tended to establish that Paramount Film, under the "showcase" method of distribution, realized a substantially large average film rental than that realized by other major distributors, who permitted the Villa Theatre to bid for first run pictures.

In 1950, 3 Paramount first run pictures were awarded to Uptown and Rialto and 25 were awarded to Intermountain.⁷ In 1951, 2 Paramount first run pictures were awarded to Uptown and Rialto Theatres; 27 to Intermountain and 2 to others. In 1952, Paramount Film awarded 3 of its first run pictures to Uptown and Rialto. Intermountain was awarded 20 first run pictures and 2 were awarded to other theatres.

During the years 1951 and 1952, inclusive, Uptown and Rialto were awarded 5 percentage pictures and Intermountain was awarded 66 percentage pictures distributed by Paramount Film.

The Villa Theatre offered evidence which tended to show that pictures were tentatively awarded to Intermountain prior to bid due dates; that negotiation for...