Westway Theatre v. Twentieth Century-Fox F. Corp.

• Decision Date: 03 January 1940
• Docket Number: No. 276.,276.
• Citation: 30 F. Supp. 830
• Parties: WESTWAY THEATRE, Inc., v. TWENTIETH CENTURY-FOX FILM CORPORATION et al.
• Court: U.S. District Court — District of Maryland

30 F. Supp. 830

WESTWAY THEATRE, Inc., v. TWENTIETH CENTURY-FOX FILM CORPORATION et al.

No. 276.

District Court, D. Maryland.

January 3, 1940.

Edgar Allan Poe, Sr., Edgar Allan Poe, Jr., and Bartlett, Poe & Claggett, all of Baltimore, Md., for plaintiff.

James Piper, R. Dorsey Watkins, J. Martin McDonough, and Piper, Watkins & Avirett, all of Baltimore, Md., and John Fletcher Caskey and Edward C. Raftery, both of New York City, for the distributor defendants.

Charles G. Page and J. Calvin Carney, both of Baltimore, Md., for Lyndhurst Corporation and individual defendants.

CHESNUT, District Judge.

This case arises out of the general business practice in the motion picture industry known as "clearance and run". In licensing the exhibition of motion pictures the owners of the copyrighted film customarily state a particular time for which the exhibition of the film is permitted, and the written license agreement generally provides in effect that during that time, and for a certain limited period thereafter, the exhibition of the film will not be licensed to other exhibitors in a prescribed competitive area. The time when the particular licensed exhibitor is permitted to show the picture is called the "run" and the interval of time thereafter during which the owner of the film agrees that other exhibitors shall not be permitted to exhibit the film is called the "clearance".

The very rapid and extensive development of the motion picture industry in the last thirty years has given rise to many questions as to the application of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note; to various phases and practices of the industry. A general survey of the judicial decisions can be found in a note in Columbia Law Review, Vol. 36 (1936), pages 635 to 652, and Fordham Law Review, Vol. 7 (1938), pages 189 to 202. The general outline of the course of business of the industry is clearly and succinctly stated by Mr. Justice McReynolds in Paramount Famous Lasky Corp. v. United States, 282 U.S. 30, 36, 51 S.Ct. 42, 75 L.Ed. 145. About 700 pictures are produced annually in the United States, the majority by a comparatively few corporations. After the pictures are produced (most of them in California) they are then distributed for exhibition under license agreements to about 16,000 motion picture theatres throughout the country. The majority of the better pictures, called feature films, are distributed by eight separate corporations, seven of which are named as parties defendant in this case. The eighth is a corporation known as R-K-O.

In the instant case the plaintiff corporation is the lessee of a newly constructed motion picture theatre (called the Westway) at Ten Hills, a suburb of Baltimore City. Its complaint against the seven distributor defendants and certain important motion picture exhibitors in Baltimore City (who own and control the Edgewood Theatre, a competitor of the plaintiff) is that the seven distributors acting in combination and conspiracy in restraint of trade have refused to license the plaintiff to exhibit their motion pictures except after a so-called two weeks "clearance" in favor of the rival exhibitor defendants' competing theatre. The legal theory of the complaint is that the defendants have thus conspired and combined to restrain trade in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, 15 U.S.C.A. § 1; and the plaintiff, alleging special injury to it, seeks an injunction under section 26 of Title 15, U.S. C.A., to abate the alleged unlawful practice. More specifically it is contended that the license contracts between five of the seven distributors with the Lyndhurst Corporation (the corporate owner of the competing theatre) which give the latter a fourteen day clearance over the plaintiff, constitute unlawful contracts in restraint of trade.

A somewhat more detailed description of the competitive situation between the plaintiff and the defendant exhibitor will be helpful in understanding the particular problem. The Edgewood Theatre, owned and operated by the Lyndhurst Corporation, one of the defendants, which in turn is owned and controlled by the defendant Frank M. Durkee and his business associates, is situated on Edmondson Avenue in Baltimore City, a few miles from the heart of Baltimore and about two miles east from the western boundary of the City. Edmondson Avenue runs westerly from approximately the geographical center of Baltimore to its western limits. Proceeding westerly along Edmondson Avenue one comes within about three miles from the center of the City to the Bridge Theatre with the Astor Theatre about a mile further on and then the Edgewood Theatre half a mile further. Still proceeding westerly the area is closely built up with residential property for several blocks, succeeded by undeveloped land for a mile or more until the purely suburban area of Ten Hills is reached, two miles from the Edgewood Theatre. Still proceeding westerly for two miles the town of Catonsville is reached where there is the Alpha Theatre. About three miles easterly of the Alpha Theatre and possibly a mile or so southeast from the Westway Theatre at Ten Hills there is the Irvington Theatre, and a mile or so from this is the Hollywood Theatre. Edmondson Avenue is a main arterial highway from Baltimore City to the western suburbs with a car line running to or near Catonsville. Frederick Road is a parallel arterial highway from the City also with a car line to Catonsville and beyond it for about four miles to Ellicott City where there is another motion picture theatre. Within a radius of about two miles from the plaintiff's Westway Theatre at Ten Hills there are thus four or five motion picture theatres. The Edgewood Theatre was built and equipped about ten years ago at a cost of approximately $150,000. It has seating capacity for 1,100 and is a modern well equipped motion picture house. There is a considerable suburban residential area with a substantial population at and near Ten Hills. In October 1938 Mr. Homand, the principal witness for the plaintiff and the present manager of the Westway Theatre, who had long been identified with the motion picture business in Baltimore City, determined that Ten Hills was a proper location for a new theatre, and having made the necessary financial arrangements with the owner of the land and a Baltimore capitalist had the theatre built and equipped at a cost of $85,000. It has a seating capacity for about 700 persons and is a motion picture theatre with all modern equipment.

Mr. Durkee and his business associates own or control and operate in all twenty-three motion picture theatres in Baltimore City, from the operations of which in the aggregate approximately $500,000 a year is paid for film rentals. The total number of motion picture theatres, large and small, in Baltimore City is upwards of one hundred and it is estimated that the gross amount of film rentals paid to the copyright owners therefrom is approximately $3,000,000 to $4,000,000 a year.

In the latter part of October 1938 a trade journal published a notice of the contemplated erection of the new theatre at Ten Hills. Promptly thereupon, under date of October 27, 1938, Mr. Durkee, on behalf of the Edgewood Theatre, wrote separately to each of the five distributors with which that theatre had motion picture contracts, calling attention to the project for the new theatre at Ten Hills, and claiming under his contract a clearance of fourteen days in favor of the Edgewood Theatre over the new theatre. Three of the five distributors promptly replied that they recognized the request or demand as reasonable and would grant it; the remaining two shortly afterwards did grant it. About the same time Mr. Homand wrote to all eight distributors notifying them of the projected theatre and expressing a desire to make contracts for the licensing of motion picture films. In consequence thereof the representatives of most of them visited Mr. Homand and expressed a willingness to negotiate with him upon the subject when the theatre was ready for operation. The Westway Theatre was completed in April 1939 and the general result of Mr. Homand's negotiations with the representatives of the several distributors was that only one, the R-K-O, was willing to sell him films for exhibition on terms other than clearance of fourteen days in favor of the Edgewood or other theatres. Five of the companies took this position because they considered the clearance reasonable in favor of the Edgewood Theatre. The other two distributors had a somewhat similar contract with the Alpha Theatre at Catonsville, and one distributor also put its position on the lack of available prints. The R-K-O distributor, however, having no outstanding contract with a theatre in the vicinity regarded as competitive, was willing to license films without the so-called fourteen days clearance. Homand then made contracts with the R-K-O and notified the seven other distributors that he regarded their position as unreasonable and would take the matter up with the Department of Justice. Thereafter this suit was filed on July 12, 1939 against all of the eight distributors except R-K-O, and against the Lyndhurst Corporation, the owner of the Edgewood Theatre; and against Durkee and his associates.

The case presents two issues. First, whether there has been conspiracy in restraint of trade between the defendants to deprive the plaintiff of motion picture films except on unreasonable terms; and second, whether the provisions of the separate contracts between five of the distributors and the Edgewood Theatre providing for the alleged unreasonable clearance are invalid as in restraint of interstate trade. The feature of interstate commerce is involved because the picture films are distributed from the branch office of each of the distributors in the District of Columbia. Binderup v. Pathé Exchange, 263 U.S. 291, 44 S.Ct. 96, 68 L.Ed. 308. The several...