Vitagraph, Inc. v. Perelman

• Decision Date: 09 March 1938
• Docket Number: No. 5841.,5841.
• Citation: 95 F.2d 142
• Parties: VITAGRAPH, Inc., et al. v. PERELMAN et al.
• Court: U.S. Court of Appeals — Third Circuit

95 F.2d 142 (1936)

VITAGRAPH, Inc., et al. v. PERELMAN et al.

No. 5841.

Circuit Court of Appeals, Third Circuit.

January 16, 1936.

On Rehearing March 9, 1938.

Morris Wolf, of Philadelphia, Pa., and Edwin L. Weisl, of New York City, for appellants.

Benjamin M. Golder and Otto Kraus, Jr., both of Philadelphia, Pa., for appellees.

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

BUFFINGTON, Circuit Judge.

This is an appeal from a decree of the District Court in a suit in equity under sections 12 and 16 of the Clayton Act (15 U.S.C.A. §§ 22, 26) for an injunction to restrain violations of sections 1 and 2 of the Sherman Act (15 U.S.C.A. §§ 1, 2) and section 3 of the Clayton Act (15 U.S. C.A. § 14). The District Court held that the appellants, hereinafter called defendants, as they were below, had violated certain provisions of those acts and entered a decree restraining them from further violations.

The appellees, Harry Perelman and Louis Perelman, hereinafter called plaintiffs, are the owners and operators of two motion picture theaters in Philadelphia.

The defendants, Vitagraph, Inc., RKO Distributing Corporation, Paramount Pictures Distributing Corporation, Metro-Goldwyn-Mayer Distributing Corporation, United Artists Corporation, and Fox Films Corporation, are distributors of motion pictures in interstate commerce. The Fox Films Corporation is the only one of the defendants who also produces motion pictures.

Motion pictures are exhibited either in theaters which are controlled in some fashion by producing companies or their subsidiaries or in theaters operated by persons who are not connected with producers or their subsidiaries, such as the two theaters owned and operated by the plaintiffs. The first group of exhibitors is called "affiliated theaters" and the second "independent theaters."

There are a number of affiliated theaters in Philadelphia. With their connections, they are able to display the earliest exhibitions of motion pictures released by the largest producers through their distributors. Naturally, this gives to them a considerable advantage.

Theaters which are operated by persons who lack the connections or resources to display "first run" motion pictures are able to exist only by offering the public something other than novelty. A common means of attracting audiences has been to offer an exhibition of two full-length motion pictures at one performance and for one admission.

The group of producers which the defendants represent furnish considerably more than half of all the motion pictures exhibited in the United States. The remainder of the pictures are produced by a few other large producers, not defendants here, and a group of small companies, sometimes called "independent" or "minor" producers.

The independent theaters are required by necessity to purchase motion pictures from the defendants. They would be unable to remain in business without offering such exhibitions, and the defendants and their connections derive a large share of their income from these theaters.

The independent theaters, including the plaintiffs, purchase motion pictures for the purpose of exhibition from the major producers or their distributors by contract for a period of time in anticipation of their needs. The method used is known to the industry as "block booking." At the time the contracts are made, the motion pictures are not identified, the contracts simply call for a supply of films to fill the number of exhibitions anticipated.

In the case of the plaintiffs, the contracts with the defendants contain a clause in which the plaintiffs agree not to display another full length motion picture or feature with the one supplied by the contract. The causes prohibiting double featuring are worded differently, but are contained in one form or another in the plaintiffs' contracts with all of the defendants. The following clauses appear to be typical of those used:

"Exhibitor agrees not to exhibit any other pictures of feature length."

"The exhibitor agrees not to exhibit any of the feature photoplays licensed for exhibition hereunder at the same performance with any other photoplay of feature length, that is, as part of a double feature program; that upon violation hereof Distributor shall have the right to terminate this agreement and recover from the exhibitor as damages for such violation the license fee payable in respect of all photoplays not theretofore exhibited hereunder."

"Exhibitor agrees not to exhibit any of the photoplays licensed for exhibition hereunder at the same performance with any other photoplay of feature length. That is as part of a double feature program and that upon violation hereof distributor shall have the right to change or modify the run, availability and or protection herein provided for."

The plaintiffs base their suit on the clauses in their contracts prohibiting double featuring.

The District Court found as facts that in order to obtain feature motion pictures which are necessary to the continued existence of the plaintiffs and other independent theaters they must sign the contracts in the form offered by the defendants, that they cannot survive by exhibiting features produced solely by minor producers; that the double feature clauses cause such independent theaters to purchase fewer feature films and lessens the production of such films by minor or independent producers; that double featuring increases the production of full length films.

The court further found as facts that the prohibiting of double featuring tends to create a monopoly in the production and distribution of pictures in the defendants and their affiliates and connections in the motion picture industry; that it tends to lessen competition by restricting such independent theaters from purchasing from the defendants' competitors; that the restrictive clauses are the result of an agreement among the defendants and the other major interests in the industry; and that the insertion of the restrictive clauses in the contracts is the result of a combination and conspiracy among the defendants and other major companies in the industry.

The court concluded as a matter of law that the restrictive double feature clauses were inserted in their contracts with the plaintiffs as the result of a combination and conspiracy in restraint of trade and commerce among the several states, and that the combination or conspiracy lessens competition and tends to create a monopoly of interstate commerce and trade, and that by placing such clauses in the contracts, the defendants have violated section 1 of the Sherman Act (15 U.S.C.A. § 1) and section 3 of the Clayton Act (15 U.S.C.A. § 14) and that the plaintiffs are entitled to an injunction. These sections provide as follows:

Section 1 of the Sherman Act: "Section 1. Trusts, etc., in restraint of trade illegal; penalty. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding $5,000, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. (July 2, 1890, c. 647, § 1, 26 Stat. 209.)" 15 U.S.C.A. § 1.

Section 3 of the Clayton Act: "§ 14. Sale, etc., on agreement not to use goods of competitor. It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, * * * on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce. (Oct. 15, 1914, c. 323, § 3, 38 Stat. 731.)" 15 U.S.C.A. § 14.

The defendants contend that there is no evidence of a combination or conspiracy among the defendants concerning the double feature clauses contained in the plaintiffs' contracts and that if the evidence supported such a finding, the restrictive clauses constitute neither a violation of the Sherman Act nor of the Clayton Act.

The first question is whether or not the defendants have as a fact combined and conspired to prohibit the exhibition of double features. We have no power to disturb the finding of the District Court if there is any substantial evidence to support it.

It is admitted that double featuring has been a serious problem in the industry. In some sections of the country it is a common practice in motion picture theaters. In certain urban districts, small theaters generally independently owned have resorted to the practice to enable them to compete with the larger, more luxurious theaters which enjoy the privileges of exhibiting first run motion pictures and other attractions. Without enlarging on that condition in the industry, a great many implications immediately arise.

The testimony bears them out despite the insistence of the defendants by a greater number of witnesses that they have neither combined, nor conspired, nor agreed to destroy the practice of exhibiting double features.

There is testimony to the following effect:

The defendants are connected with the strongest interests of the industry. They distribute more than half of the annual production in which the artists who command the largest audiences are displayed. Their productions are the most comprehensive and pleasing. While they compete among themselves, they have a common interest in confronting the minor or independent producers who lack the resources to manufacture exhibitions...