United States v. Paramount Pictures, Inc.

Last updated

United States v. Paramount Pictures, Inc.
Seal of the United States Supreme Court.svg
Argued February 9–11, 1948
Decided May 3, 1948
Full case nameUnited States v. Paramount Pictures, Inc. et al.
Citations334 U.S. 131 ( more )
68 S. Ct. 915; 92 L. Ed. 1260; 1948 U.S. LEXIS 2850; 77 U.S.P.Q. (BNA) 243; 1948 Trade Cas. (CCH) ¶ 62,244
Case history
PriorInjunction granted, 66 F. Supp. 323 (S.D.N.Y. 1946)
Holding
Practice of block booking and ownership of theater chains by film studios constituted anti-competitive and monopolistic trade practices.
Court membership
Chief Justice
Fred M. Vinson
Associate Justices
Hugo Black  · Stanley F. Reed
Felix Frankfurter  · William O. Douglas
Frank Murphy  · Robert H. Jackson
Wiley B. Rutledge  · Harold H. Burton
Case opinions
MajorityDouglas, joined by Vinson, Black, Reed, Murphy, Rutledge, Burton
Concur/dissentFrankfurter
Jackson took no part in the consideration or decision of the case.
Laws applied
Sherman Antitrust Act; 15 U.S.C.   § 1, 2

United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948) (also known as the Hollywood Antitrust Case of 1948, the Paramount Case, or the Paramount Decision), was a landmark United States Supreme Court antitrust case that decided the fate of film studios owning their own theatres and holding exclusivity rights on which theatres would show their movies. It would also change the way Hollywood movies were produced, distributed, and exhibited. It also opened the door for more foreign and independent films to be shown in U.S. theaters. The Supreme Court affirmed the United States District Court for the Southern District of New York's ruling that the existing distribution scheme was in violation of United States antitrust law, which prohibits certain exclusive dealing arrangements. [1]

Contents

The decision created the Paramount Decree, a standard held by the United States Department of Justice that prevented film production companies from owning exhibition companies. [2] The case is important both in American antitrust law and film history. In the former, it remains a landmark decision in vertical integration cases; in the latter, it is responsible for putting an end to the old Hollywood studio system. As part of a 2019 review of its ongoing decrees, the Department of Justice issued a two-year sunsetting notice for the Paramount Decree in August 2020, believing the antitrust restriction was no longer necessary as the old model could never be recreated in contemporary settings. [3]

Background

The legal issues originated in the silent era, when the Federal Trade Commission began investigating film companies for potential violations under the Sherman Antitrust Act of 1890.

The major film studios owned the theaters where their motion pictures were shown, either in partnerships or outright. Thus specific theater chains showed only the films produced by the studio that owned them. The studios created the films, had the writers, directors, producers and actors on staff (under contract), owned the film processing and laboratories, created the prints and distributed them through the theaters that they owned: In other words, the studios were vertically integrated, creating a de facto oligopoly. By 1945, the studios owned either partially or outright 17% of the theaters in the country, accounting for 45% of the film-rental revenue.

Ultimately, this issue of the studios' then-alleged (and later upheld) illegal trade practices led to all the major movie studios being sued in 1938 by the U.S. Department of Justice. [2] As the largest studio, Paramount Pictures was the primary defendant, but all of the other Big Five (Metro-Goldwyn-Mayer, Warner Bros., 20th Century Fox, and RKO Pictures) and Little Three (Universal Pictures, Columbia Pictures, and United Artists) were named, and additional defendants included numerous subsidiaries and executives from each company. [4] Separate cases were also filed against large independent chains, including the 148-theater Schine. [5]

The federal government's case was initially settled in 1940 in the District Court for the Southern District of New York with a consent decree, [6] [7] which allowed the government to resume prosecution if studios were noncompliant by November, 1943. Among other requirements, the District Court-imposed consent decree included the following conditions:

  1. The Big Five studios could no longer block-book short film subjects along with feature films (known as one-shot, or full force, block booking);
  2. The Big Five studios could continue to block-book features, but the block size would be limited to five films;
  3. Blind buying (buying of films by theater districts[ clarification needed ] without seeing films beforehand) would be outlawed and replaced with "trade showing", special screenings every two weeks at which representatives of all 31 theater districts in the United States could see films before theatres decided to book a film; and
  4. The creation of an administration board to enforce these requirements.

The studios did not fully comply with the consent decree. In 1942, they instead, with Allied Theatre Owners, proposed an alternate "Unity Plan". Under the Plan, larger blocks of theatres were blocked with the caveat of allowing theaters to reject films. [8] Consequently, the Society of Independent Motion Picture Producers (SIMPP) [8] came into existence and thence filed a lawsuit against Paramount Detroit Theaters, representing the first major lawsuit of producers against exhibitors. The government declined to pursue the Unity proposal and instead, owing to noncompliance with the District Court's binding consent decree, resumed prosecution via the 1943 lawsuit. [9] The 1943 case went to trial on October 8, 1945, one month and six days after the end of World War II. [2] The District Court ruled in favor of the studios, and the government immediately appealed to the Supreme Court.

The case reached the United States Supreme Court in 1948; their verdict went against the movie studios, forcing all of them to divest themselves of their movie theater chains. [1] This, coupled with the advent of television and the attendance drop in movie ticket sales, brought about a severe slump in the movie business.

The Paramount decision is a bedrock of corporate antitrust law and as such is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.

Decision

The Supreme Court ruled 7–1 in the government's favor, affirming much of the consent decree (Justice Robert H. Jackson took no part in the proceedings). William O. Douglas delivered the Court's opinion, with Felix Frankfurter dissenting in part, arguing the Court should have left all of the decree intact except its arbitration provisions. [1]

Douglas' majority opinion

Douglas's opinion reiterated the facts and history of the case and reviewed the Supreme Court's opinion, agreeing that its conclusion was "incontestable". [1] He considered five different trade practices addressed by the consent decree:

Douglas let stand the Court's sevenfold test for when a clearance agreement could be considered a restraint of trade, as he agreed they had a legitimate purpose. Pooling agreements and joint ownership, he agreed, were "bald efforts to substitute monopoly for competition ... Clearer restraints of trade are difficult to imagine." [1] :149 He allowed, however, that courts could consider how an interest in an exhibitor was acquired; thus, he remanded some other issues back to the District Court for further inquiry and resolution. He set aside the lower court's findings on franchises so that they might be reconsidered from the perspective of allowing competitive bidding. On the block booking question, he rejected the studios' argument that it was necessary to profit from their copyrights: "The copyright law, like the patent statutes, makes reward to the owner a secondary consideration". [1] :158 The prohibitions on discrimination he let stand entirely.

Frankfurter's concurrence/dissent

Frankfurter took exception to the extent to which his colleagues had agreed with the studios that the District Court had not adequately explored the underlying facts in affirming the consent decree. He pointed to then-contemporary Court decision, International Salt Co. v. United States that lower courts are the proper place for such findings of fact, to be deferred to by higher courts. Also, he reminded the (Supreme) Court that the District Court had spent fifteen months considering the case and reviewed almost 4,000 pages of documentary evidence: "I cannot bring myself to conclude that the product of such a painstaking process of adjudication as to a decree appropriate for such a complicated situation as this record discloses was an abuse of discretion." [1] :180 He would have modified the District Court decision only to permit the use of arbitration to resolve disputes.

Aftermath

The court orders forcing the separation of motion picture production and exhibition companies are commonly referred to as the Paramount Decrees. Paramount Pictures Inc. was forced to split into two companies: the film company Paramount Pictures Corp. and the theater chain (United Paramount Theaters), which merged in 1953 with the American Broadcasting Company.

Consequences of the decision include:

Reviews and termination of the Paramount Decrees

In 1980, the United States Department of Justice under President Ronald Reagan began a review of all consent decrees that were more than 10 years old. [11] :97–98 In 1983, the Department of Justice announced that it was in the "final stages" of reviewing the Paramount Decrees. Eventually, in February 1985, the Department of Justice announced that, although it was not formally terminating the Paramount Decrees, it would no longer pursue enforcement of the decrees in cases where doing so was “in the public interest.” According to media historian Jennifer Holt, "Effectively, this statement dissolved the authority of the decrees, if not legally then practically." [11] :98

In April 2018, the United States Department of Justice Antitrust Division began a review of antitrust decrees that did not have expiration dates. [12] In 2019, the DOJ sought to terminate the Paramount Decrees, which would include a two-year sunset period as to the practices of block booking and circuit dealing to allow theater chains to adjust. The Department stated it was "unlikely that the remaining defendants can reinstate their cartel" as reasoning for terminating the decrees. [13] The DOJ formally filed its motion for a court order to terminate the decrees on November 22, 2019. [14] The move was opposed by independent movie theater owners, including the Independent Cinema Alliance, and independent filmmakers. [10]

The court granted the DOJ's motion to lift the decrees on August 7, 2020, starting a two-year sunset termination period of the decrees. [3]

See also

Related Research Articles

<i>United States v. Microsoft Corp.</i> 2001 American antitrust law case

United States of America v. Microsoft Corporation, 253 F.3d 34, was a landmark American antitrust law case at the United States Court of Appeals for the District of Columbia Circuit. The U.S. government accused Microsoft of illegally monopolizing the web browser market for Windows, primarily through the legal and technical restrictions it put on the abilities of PC manufacturers (OEMs) and users to uninstall Internet Explorer and use other programs such as Netscape and Java.

<span class="mw-page-title-main">Paramount Pictures</span> American film studio, subsidiary of Paramount Global

Paramount Pictures Corporation, commonly known as Paramount Pictures or simply Paramount, is an American film and television production and distribution company and the namesake subsidiary of Paramount Global. It is the sixth-oldest film studio in the world, the second-oldest film studio in the United States, and the sole member of the "Big Five" film studios located within the city limits of Los Angeles.

<span class="mw-page-title-main">Adolph Zukor</span> Hungarian-American film producer (1873–1976)

Adolph Zukor was a Hungarian-American film producer best known as one of the three founders of Paramount Pictures. He produced one of America's first feature-length films, The Prisoner of Zenda, in 1913.

<span class="mw-page-title-main">Loews Cineplex Entertainment</span> American theater chain

Loews Cineplex Entertainment, also known as Loews Incorporated, was an American theater chain operating in North America.

<span class="mw-page-title-main">Cinema of the United States</span> American cinema

The cinema of the United States, consisting mainly of major film studios along with some independent films, has had a large effect on the global film industry since the early 20th century.

A consent decree is an agreement or settlement that resolves a dispute between two parties without admission of guilt or liability. Most often it is such a type of settlement in the United States. The plaintiff and the defendant ask the court to enter into their agreement, and the court maintains supervision over the implementation of the decree in monetary exchanges or restructured interactions between parties. It is similar to and sometimes referred to as an antitrust decree, stipulated judgment, or consent judgment. Consent decrees are frequently used by federal courts to ensure that businesses and industries adhere to regulatory laws in areas such as antitrust law, employment discrimination, and environmental regulation.

<span class="mw-page-title-main">Double feature</span> Exhibition of two films for the price of one

The double feature is a motion picture industry phenomenon in which theatres would exhibit two films for the price of one, supplanting an earlier format in which the presentation of one feature film would be followed by various short subject reels.

<span class="mw-page-title-main">El Capitan Theatre</span> Cinema in Hollywood

El Capitan Theatre is a fully restored movie palace at 6838 Hollywood Boulevard in the Hollywood neighborhood in Los Angeles, California, United States. The theater and adjacent Hollywood Masonic Temple are owned by The Walt Disney Company and serve as the venue for a majority of the Walt Disney Studios' film premieres.

Cinemark Holdings, Inc. is an American movie theater chain that started operations in 1984 and since then it has operated theaters with hundreds of locations throughout the Americas. It is headquartered in Plano, Texas, in the Dallas–Fort Worth area. Cinemark is a leader in the theatrical exhibition industry with 521 theaters and 5,855 screens in the U.S. and Latin America as of June 30, 2022. It is also the largest movie theatre chain in Brazil, with a 30 percent market share.

<span class="mw-page-title-main">Leonard Goldenson</span> American businessman

Leonard H. Goldenson was the founder and president of the United States-based television network American Broadcasting Company (ABC), from 1953 to 1986. Goldenson, as CEO of United Paramount Theatres, acquired a then-struggling ABC from candy industrialist Edward J. Noble. Goldenson focused on investing heavily on sports and news coverage along with creating synergy between Hollywood studios and television networks. Goldenson turned ABC into a media conglomerate, owning television and radio stations along with newspapers and book publishers.

A studio system is a method of filmmaking wherein the production and distribution of films is dominated by a small number of large movie studios. It is most often used in reference to Hollywood motion picture studios during the early years of the Golden Age of Hollywood from 1927 to 1948, wherein studios produced films primarily on their own filmmaking lots with creative personnel under often long-term contract, and dominated exhibition through vertical integration, i.e., the ownership or effective control of distributors and exhibition, guaranteeing additional sales of films through manipulative booking techniques such as block booking.

<span class="mw-page-title-main">Famous Players–Lasky</span> American motion picture company

The Famous Players–Lasky Corporation was an American motion picture and distribution company formed on June 28, 1916, from the merger of Adolph Zukor's Famous Players Film Company – originally formed by Zukor as Famous Players in Famous Plays – and the Jesse L. Lasky Feature Play Company.

<span class="mw-page-title-main">Block booking</span> Historical practice of selling multiple films to a theater as a unit

Block booking is a system of selling multiple films to a theater as a unit. Block booking was the prevailing practice in the Hollywood studio system from the turn of the 1930s until it was outlawed by the U.S. Supreme Court's decision in United States v. Paramount Pictures, Inc. (1948). Under block booking, "independent ('unaffiliated') theater owners were forced to take large numbers of a studio's pictures without knowing much about them. Those studios could then parcel out B movies along with A-class features and star vehicles, which made both production and distribution operations more economical." The element of the system involving the purchase of unseen pictures is known as blind bidding.

Plitt Theatres was a major movie theater chain in the United States and went under a number of names, Publix Theaters Corporation, Paramount Publix Corporation, United Paramount Theatres, American Broadcasting-Paramount Theatres and ABC Theatres and operated a number of theater circuits under various names.

National General Corporation (NGC) was a theater chain holding company, film distribution and production company and was considered one of the "instant majors". It was in operation from 1951 to 1974.

Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946), was a decision by the United States Supreme Court allowing an action to recover compensatory damages under the antitrust statutes. The jury had returned a verdict for $120,000 in petitioner's favor, covering a five-year period where plaintiff suffered due to respondents' antitrust conspiracy. The trial court, sitting in the Northern District of Illinois, gave judgment for treble damages, as prescribed by § 4 of the Clayton Act. The 7th Circuit reversed on the sole ground that the evidence of damage was not sufficient for submission to the jury, and directed the entry of judgment for respondents non obstante veredicto. The Supreme Court granted certiorari to determine whether the evidence of damage was sufficient to support the verdict. Respondents argued that any measure of damages would be too speculative and uncertain to afford an accurate measure of the amount of the damage. The Supreme Court disagreed, not wanting to let the respondent defeat a remedy because its antitrust violation was so effective and complete. The Court held that the jury could return a verdict for the plaintiffs, even though damages could not be measured with the exactness which would otherwise have been possible, so long as the jury made a "just and reasonable estimate of the damage based on relevant data". The judgment of the district court was affirmed and the judgment of the court of appeals was reversed.

Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939), is a 1939 decision of the United States Supreme Court finding an antitrust price-fixing conspiracy based on what subsequently came to be known a hub-and-spoke conspiracy theory.

Henry G. Plitt was an American businessman and war hero who founded Plitt Theatres.

<span class="mw-page-title-main">Independent movie theater</span> Movie theater which screens non-mainstream films

An independent movie theater or indie cinema is a movie theater which screens independent, art house, foreign, or other non-mainstream films. It can be contrasted with a mainstream theater, which is more likely to screen blockbusters and other popular films.

<i>United States v. Live Nation Entertainment</i> 2024 American court case

United States, et al. v. Live Nation Entertainment, Inc. and Ticketmaster Entertainment, LLC is an antitrust lawsuit brought by the U.S. Department of Justice (DOJ) and twenty-nine states and Washington, D.C., against entertainment company Live Nation Entertainment and its subsidiary Ticketmaster, following the Taylor Swift–Ticketmaster controversy in 2022.

References

  1. 1 2 3 4 5 6 7 United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948).
  2. 1 2 3 "The Hollywood Antitrust Case". 2005.
  3. 1 2 Johnson, Ted (August 7, 2020). "Federal Judge Approves Termination Of Paramount Consent Decrees". Deadline Hollywood . Retrieved August 7, 2020.
  4. "List of Original Defendants in the Paramount Case". 2005.
  5. "The Theater Monopoly Cases". 2005.
  6. "Part 3: The Consent Decree of 1940". 2005.
  7. "SHOW BUSINESS: Consent Decree". Time. November 11, 1940. Archived from the original on January 5, 2013. Retrieved May 27, 2010.
  8. 1 2 "Independents Protest the United Motion Picture Industry (1942)". 2005.
  9. "The Government Reactivates the Paramount Case". 2005.
  10. 1 2 Horowitz-Ghazi, Alexi (December 6, 2019). "Why The DOJ Is Concerning Itself With The Old Anti-Trust Paramount Consent Decrees". NPR.org. Retrieved December 28, 2019.
  11. 1 2 Holt, Jennifer (June 1, 2011). Empires of Entertainment: Media Industries and the Politics of Deregulation, 1980-1996. Rutgers University Press. ISBN   978-0-8135-5086-2.
  12. Shepardson, David (April 25, 2018). "U.S. to seek court approval to terminate 'outdated' antitrust judgments". Reuters . Archived from the original on April 25, 2018. Retrieved April 18, 2024.
  13. Weprin, Alex (November 18, 2019). "Justice Department Moves to Terminate Paramount Consent Decrees". The Hollywood Reporter . Retrieved November 18, 2019.
  14. Maddaus, Gene (November 22, 2019). "Justice Department Goes to Court to Lift Paramount Consent Decrees". Variety . Retrieved November 22, 2019.

Further reading