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Viking Theatre Corp. v. Paramount Film Distributing Corp.

filed: June 21, 1963.


Author: Smith

Before: BIGGS, Chief Judge, GANEY and SMITH, Circuit Judges.

Opinion of the Court

SMITH, Circuit Judge: This is an action under the antitrust laws, and particularly under Sections 4 and 16 of the Clayton Act, 15 U.S.C.A., 15 and 26. The plaintiff is the owner and operator of a first-run motion picture theatre*fn1 located in downtown Philadelphia. The defendants are three exhibitors,*fn2 whose theatres are in competition with that of the plaintiff, and six major distributors*fn3 of motion pictures. The complaint alleges generally that during the period here in question the defendants were engaged in a conspiracy to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C.A. 1; the allegation is denied in the answers.

The plaintiff charges specifically that the defendants entered into or consciously adhered to certain agreements, the objects of which were to maintain an equal division of product among the defendant exhibitors and to eliminate the plaintiff from the competitive market. It is argued that each of the defendant distributors, in furtherance of the objects of the said agreements, engaged in conduct from which it may be inferred that an illegal conspiracy existed. This conduct is said to have consisted of:

(1) the routine rejection of "superior" bids or offers submitted by Viking, and the allocation of films to the defendant exhibitors pursuant to the said agreements;

(2) the requirement that Viking offer "excessive" rentals as a prerequisite to its right to license film;

(3) the adjustment of film rentals and playing time for the defendant exhibitors and the denial of similar adjustments to Viking;

(4) the requirement that Viking, but not the defendant exhibitors, submit written bids;

(5) the imposition of discriminatory advertising conditions on Viking;

(6) the requirement that Viking make extensive commitments as to playing time in order to license film;

(7) the institution of discriminatory law suits against Viking; and

(8) the requirement that Viking license unwanted pictures in order to obtain those it desired.

A full and detailed discussion of these charges will follow.

The action came to trial before the Court and a jury. At the close of the plaintiff's evidence and on the motion of the defendants, the Court directed a verdict in favor of the defendants on the ground that the evidence was legally insufficient to sustain either the charge of conspiracy or the claim that the plaintiff had been injured in its business. This appeal is from the judgment entered on the said verdict. The plaintiff challenges as erroneous the said ruling of the Court, and in addition thereto, several rulings which resulted in the exclusion of certain evidence.

The plaintiff argues that notwithstanding "the erroneous exclusions" of certain evidence, the evidence in the record was sufficient as a matter of law to support the charge of conspiracy and to warrant the submission of the case to the jury. The determination of the legal issue raised by this argument requires consideration of the evidence in its entirety, and as it relates to each of the defendants.The evidence, including the inferences of which it is reasonably susceptible, must be viewed in the light most favorable to the plaintiff. Continental Co. v. Union Carbide, 370 U.S. 690, 696, 697 (1962); Delaware Valley Marine Sup. Co. v. American Tobacco Co ., 297 F.2d 199 (3rd Cir. 1961), cert. den. 369 U.S. 839 (1962). The question is whether the evidence thus viewed was legally sufficient to warrant submission of the case to the jury.

Distribution of Motion Pictures

The distribution of films constitutes the wholesaling sector of the motion picture industry. Because of the cost of reproducing a film print from the master negative, only a limited number of prints of each picture are available for distribution. The distributors procure the prints from producers and license them to exhibitors for a limited time on a rental basis. The pictures are distributed nation-wide, and it is through the distributors that all exhibitors must obtain prints for exhibition. It is the objective of the distributors to secure the greatest amount of film rental which can be realized from the exhibition of their films throughout the country.

This action encompasses a period of 123 weeks, between July 2, 1954, and November 13, 1956, during which the defendants distributed approximately 420 pictures for first-run exhibition. There were twelve theatres in the downtown Philadelphia area engaged in the first-run exhibition of films. The number of exhibitors competing for a particular picture depended generally upon the exhibitors' opinions of the grossing potential of the film, the availability of open playing time, and other factors hereinafter discussed. There were many times in which only one exhibitor manifested an interest in licensing particular pictures; there were other times in which several exhibitors manifested such an interest.

The nature of the charges made here requires some consideration of the quality of the films distributed by the defendants. The term "qaulity," in the context of this suit, is meaningful solely in the sense that it represents the earning power of a particular film. The earning power can be determined only after the film has been exhibited.There is in evidence a stipulation which shows the national film rental*fn4 earned by each picture distributed by the defendants. The national film rental reflects neither the total gross achieved by a picture nor its earning power in any particular area. However, absent any other evidence, the criterion may be regarded as some indication of earning power.

The national film rental earned by pictures distributed by the defendants varied over a wide range. The stipulation reflects the film rental earned by only 405 of the pictures distributed. Of this number, 195 earned less than $1 million, and among these were 107 which earned less than $500,000. Of the 210 films earning more than $1 million, 101 earned more than $2 million, 55 earned more than $3 million, 34 earned more than $4 million, and 19 earned more than $5 million. There were only 11 pictures which earned more than $6 million.

Methods of Distribution

The evidence in this case discloses that the defendant distributors in several respects followed a general pattern in the distribution of feature films for first-run exhibition. It was their usual and customary practice to give notice to the exhibitors of the expected release of films and the approximate dates of availability.*fn5 The exhibitors were then afforded the opportunity to "screen"*fn6 the pictures at places designated by the distributors. The films were licensed theatre by theatre and picture by picture. There was otherwise little similarity in the methods employed.

Films were usually licensed on a competitive basis but practices varied from distributor to distributor. There were instances in which the distributors solicited competitive bids, reserving the right to reject all bids and to thereafter negotiate with interested exhibitors. There were other instances in which the exhibitors were requested to submit offers which were then used as a basis for negotiation. There were still other instances in which the distributors would invite selected exhibitors either to submit bids or to negotiate for particular pictures. The method employed, and any variance therefrom, was the independent and individual choice of each distributor.

Terms and conditions of both bids and offers varied from exhibitor to exhibitor and picture by picture. Film rental was usually based on a percentage of gross receipts. There were proposals in which film rental was based on a flat percentage of weekly gross receipts less house costs for each week, the percentage remaining constant. There were others in which film rental was based on a scale of percentages adjusted downwardly week by week. There were still others in which film rental was based on a sliding scale of percentages, the proposal providing for the upward or downward adjustment of percentages within certain limits, depending on gross receipts. Offers and bids were frequently accompanied by cash guarantees which were payable in the event earned film rental fell below the amount of the guarantee.

The evidence shows that it was customary for bids and offers submitted by the exhibitors to include provisions fixing responsibility for the payment of advertising expenses. In most instances, this responsibility was shared by the distributors and the exhibitors on a percentage basis. The share of advertising expense to be borne by each party oftern corresponded with the percentages provided for the payment of film rental.In other cases, the percentage of advertising expense was arbitrarily selected, with no relation to film rental terms.In still other cases, bids and offers remained silent on the matter of advertising, it being understood that further negotiations were contemplated. In each case, the responsibility for determining the amount and type of advertising for any picture remained with the distributor.

Exhibitors ordinarily indicated the date upon which they proposed to commence the exhibition of a picture. It was important to the distributors that this date correspond with the availability date because of the importance of the latter date in the predetermined pattern of national exploitation. Changes in opening dates were negotiated in some instances to accommodate exhibitors, the final decision as to any change resting exclusively with the distributor.

Bids and offers submitted by exhibitors also provided for the length of playing time to be afforded a film. The length of playing time varied from picture to picture. In most cases the exhibitors guaranteed a minimum playing time, with any additional time contingent on the realization of a fixed minimum in gross receipts. In other cases there was solely a guaranteed minimum playing time, with no provision for additional time. There were several cases in which the length of playing time was determined by negotiations subsequent to the opening date of the picture. The evidence indicates that the exhibitors were, on occasion, permitted to exhibit a picture for a shorter period than that provided by the licensing agreement, and, on other occasions were requested by the distributors to terminate the exhibition of a film short of the agreed date. Any adjustment in the guaranteed playing time required the consent of the distributor.

Evaluation of Bids and Offers

As heretofore noted, distributors of motion pictures are primarily concerned with the maximum return of rental from the exhibition of films throughout the country. Prior to the release of a picture the distributor endeavors to evaluate it in terms of earning potential. This evaluation requires consideration of such factors as the intrinsic merit of the film, the prospects of public acceptance, and the setting of the film in an overall national release pattern. While earning potential cannot be determined with precision, it plays a significant role in the licensing of film.

There are numerous factors which, in the judgment of the distributor, may be determinative of the relative superiority of the bids and offers submitted and of the degree to which they correspond to the expected earning potential of the picture. The financial terms and conditions proposed by the exhibitor are, of course, important. Also of importance are the earning and exploitation potential of the theatres, as may be indicated by their locations and seating capacities, their performance records, the experience of their management, the suitability of their accommodations, and their standards of maintenance. Additional considerations of consequence to the distributor, as hereinabove noted, are the opening date and the proposed length of playing time. Finally, as in any business relationship, the distributor will be concerned with the commercial practices of the exhibitors and their financial integrity.

The final account between the exhibitor and the distributor is settled at the conclusion of the exhibition period. The settlement involves a determination of the film rental earned and payable, and the allocation of the advertising expenses.The evidence shows that the final accounting resulted on occasion in the downward adjustment of the agreed film rental terms. These adjustments were essentially rebates and were negotiated in those cases where a distributor responded to a complaint that an exhibitor had incurred losses from the exhibition of a film. The grant of an adjustment was within the sole discretion of the distributor.

History and Performance of Viking Theatre

The plaintiff is the owner of the Viking Theatre, which was purchased from the defendant Stanley Warner in 1953. Prior to its acquisition by the plaintiff the theatre had been operated as a first-run house under the name of the Aldine. When control of the Stanley Warner circuit was acquired by Simon Fabian, also in 1953, he decided to sell the theatre for commercial purposes and thus eliminate it as a theatre. The decision was prompted by the then existing scarcity of pictures and the fact that the theatre had been operating at a loss. When Simon Fabian learned that it was the intention of the plaintiff to renovate and operate the theatre, he attempted to repurchase it, but the parties failed to agree on the price.The theatre was completely renovated, and thereafter, on July 2, 1954, opened as a first-run house.

It is here conceded that the plaintiff, by letters addressed to each of the defendant distributors, requested the opportunity to either share in or bid for available pictures suitable for exhibition in a first-run theatre. Thereafter, and during the period in suit, the plaintiff licensed and exhibited first-run pictures. At the same time there were in the area eleven other first-run theatres, and of this number, seven were owned by the defendant exhibitors and four were owned by non-defendants. These exhibitors were actively engaged in competition for available pictures.The names of the theatres, their ownership, location and seating capacities, are set forth in Appendix A.

The plaintiff made known to the distributors its interest in eighty-seven pictures and, of these, licensed and exhibited thirty-four. Films were licensed to Viking on bids submitted as well as by competitive negotiation. The pictures sought and not obtained by Viking were licensed to non-defendant as well as defendant exhibitors. Of the films licensed to Viking, twenty-one had a national film rental in excess of $1 million, and of these, eight had a national film rental in excess of $2 million; two had a national film rental in excess of $3 million, and of these, one had a national film rental in excess of $6 million.

The Viking opened on July 2, 1953, with a picture licensed from Metro. Thereafter, for a period of a year, it exhibited Metro product almost exclusively and manifested little interest in the pictures of other distributors. The plaintiff licensed nine of ten Metro pictures on which it submitted bids.

The harmonious business relationship between plaintiff and Metro continued until June of 1955, when a dispute arose over film rental and advertising expenses. As a result of this dispute Viking discontinued the relationship until August of 1956, when it submitted an offer for the picture "Tea and Sympathy."

The only United pitcure on which the plaintiff submitted a bid during its first year of operations was "Barefoot Contessa." The bid, submitted on October 5, 1954, was rejected and the film was licensed to Goldman. The second year of Viking's operations opened with "Not As A Stranger," one of the two best pictures distributed by United during the entire period of suit. This picture was licensed to the plaintiff on a bid submitted on April 25, 1955. Thereafter, the ...

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