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Loew''s Inc. v. Somerville Drive-In Theatre Corp.

Decided: February 18, 1959.


Goldmann, Freund and Haneman. The opinion of the court was delivered by Goldmann, S.j.a.d.


This is an appeal, taken by leave granted pursuant to R.R. 2:2-3, from an order of the Superior Court, Law Division, striking as insufficient in law (R.R. 4:12-6) the affirmative defense interposed in each of eight consolidated actions. Four were commenced in the district court and the rest in the Law Division; all eight were consolidated in the Superior Court. The cases present identical questions of law and fact.


Plaintiff in each case is a distributor of motion pictures and is suing defendant, which operates a drive-in motion picture theatre in Somerville, N.J., for the balance of license fees allegedly due under license agreements for the exhibition of plaintiff's films. The complaints are identical except for plaintiff's name and the amount of damages sought. We may therefore treat one complaint as typical

of the others and, for the moment, refer to the respective plaintiffs as "plaintiff."

The complaint, as amplified by the pretrial order, alleges that plaintiff, by means of license agreements, granted defendant the right to exhibit at its theatre and at certain fixed times various copyrighted motion pictures distributed by it. Defendant was to pay a license fee, known as a percentage rental, in an amount determinable by a percentage of the gross box office receipts. Defendant's original admission charge was 70 cents for each patron over 12 years of age. Beginning with the fall of 1954 defendant concededly charged 80 cents, except for certain brief periods. In accounting to plaintiff for gross box office receipts for the purpose of computing and paying percentage rentals, defendant reported its receipts at only 70 cents per patron. Plaintiff claims the unpaid percentage balance due on the remaining 10 cents. Defendant alleges that the unreported 10 cents represented a charge to patrons for the use of car heaters supplied during cold weather, or for the privilege of their children's use during the summer months of a small playground located on the theatre premises. It contends that such charges should not be considered part of the admission fee. Defendant concedes that if this contention is not upheld, the eight plaintiffs will be entitled to claims aggregating $9,020.57. However, in addition to denying liability, defendant raises the affirmative defense that plaintiff cannot recover because the license agreements sued upon are illegal and unenforceable, in that they violate the Sherman Anti-Trust Act, 15 U.S.C.A. ยงยง 1 to 7, inclusive.

Plaintiffs distribute over 90% of the films available for exhibition at defendant's theatre. The business of distributing and licensing motion pictures is conceded to be in interstate commerce. The defense alleges that the "run" and "clearance" provisions in the license agreements "set the time when a theatre operator may exhibit a certain picture in relation to the time when said picture is exhibited in other theatres"; that these provisions are integral parts of the agreements and substantially affect the license fee terms;

and that "clearance" is legal only when reasonable. Defendant further alleges that it requested, but was refused, "a run free and clear of clearance over defendant's theatre from any other theatre"; that any run in its theatre which was based on clearance in favor of any other theatre, or which conditioned the time when defendant could exhibit a picture upon the time when any other theatre exhibited, or upon any fact other than the general release of the picture in New Jersey, is unreasonable, arbitrary and illegal. Defendant also claims that the refusal of the several plaintiffs to agree to license their pictures on the terms defendant had requested, was the result of a conspiracy among them (in which certain unnamed exhibitors also participated) to impose upon defendant a uniform system of runs and clearances which it was obliged to accept in order to obtain films. All these actions, it is alleged, effected an unreasonable restraint on interstate commerce, and hence violated the Sherman Act. Defendant demanded judgment dismissing the several complaints.

In granting plaintiffs' motion to strike the defense as insufficient, the trial judge held it to be settled law that

"* * * the contracts of an unlawful combination, or its members, which are collateral to and independent of the unlawful contract by which the conspiracy was created, and which are not in furtherance of its unlawful purpose, are valid and enforceable. It is generally agreed that the mere fact that the plaintiff is a member of an unlawful conspiracy or combination, created with the intent and purpose of restraining trade or establishing a monopoly, will not disable or prevent it in law from selling goods or services within or affected by the provisions of such trust or combination, and recovering their price or value, either at common law or under statutes making unlawful contracts in restraint of trade or commerce."

He concluded that the alleged illegality pleaded by defendant was collateral to the contracts in suit.


Plaintiffs argue, and defendant readily concedes, that the system of staggered releases of motion pictures, whereby

certain theatres exhibit a particular picture ahead of others, i.e. , on an earlier "run," is an economic necessity in the motion picture business and has judicially been sanctioned when reasonably employed. Fanchon & Marco v. Paramount Pictures , 100 F. Supp. 84, 89 et seq. (D.C.S.D. Cal. 1951), affirmed 215 F.2d 167 (9 Cir. 1954), certiorari denied 348 U.S. 912, 75 S. Ct. 293, 99 L. Ed. 715 (1955). It is also well settled that no exhibitor has a right, as a matter of law, to a priority of run. Paramount Pictures Theatres Corp. v. Partmar Corp. , 97 F. Supp. 552, 559 (D.C.S.D. Cal. 1951), affirmed on opinion below 200 F.2d 561 (9 Cir. 1952), affirmed 347 U.S. 89, 74 S. Ct. 414, 98 L. Ed. 532 (1954), rehearing denied 347 U.S. 931, 74 S. Ct. 527, 98 L. Ed. 1083 (1954); Orbo Theatre Corp. v. Loew's, Inc. , 156 F. Supp. 770, 779 (D.C.D.C. 1957). Defendant, however, insists that the clearance and run provisions inserted in the licenses in suit are unreasonable and arbitrary, and therefore illegal.

Clearance and run provisions in a film license contract fix the time when a theatre may exhibit the licensed picture. The meaning of "clearance" was set out in the leading case of United States v. Paramount Pictures, Inc. , 66 F. Supp. 323 (statutory court D.C.S.D.N.Y. 1946); findings, conclusions and decree published in 70 F. Supp. 53 (D.C.S.D.N.Y. 1947); affirmed in part and reversed in part, 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260 (1948). The lower court there said (66 F. Supp. , at page 341):

"Among provisions common to the licensing contracts of all the distributor-defendants are those by which the licensor agrees not to exhibit or grant a license to exhibit a certain motion picture before a specified number of days after the last date of the exhibition therein licensed."

The United States Supreme Court in the same case (334 U.S. at page 144, 68 S. Ct. at page 923) said that "Clearances are designed to protect a particular run of a film against a subsequent run." In the findings of fact of the statutory court, reported in 70 F. Supp. 53, at page 54,

clearance is defined as "the period of time, usually stipulated in license contracts, which must elapse between runs of the same feature within a particular area or in specified theatres."

We note, in passing, that a clearance is not illegal per se , even though it may restrict trade to some extent. As was squarely held by the statutory court in United States v. Paramount Pictures, Inc. , above, 66 F. Supp. , at page 341 et seq.:

"* * * a grant of a clearance, when not accompanied by a fixing of minimum prices or not unduly extended as to area or duration, affords a fair protection to the interests of the licensee without unreasonably interfering with the interests of the public. * * * [L]icenses between one distributor and one exhibitor with reasonable clearance provisions do not, in our opinion, involve anything unlawful. Such provisions are no more than safeguards against concurrent or subsequent licenses in the same area until the exhibitor whose theatre is involved has had a chance to exhibit the pictures licensed without invasion by a subsequent exhibitor at a lower price. It seems nothing more than an adoption of the common law rule to restrict subsequent exhibitions for a reasonable time within a reasonable area." (The court was here referring to its comment that at common law "a vendor of ...

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