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BALL v. PARAMOUNT PICTURES

August 30, 1946

BALL
v.
PARAMOUNT PICTURES, Inc., et al.



The opinion of the court was delivered by: GIBSON

The prior proceedings and the bulk of the testimony taken in this suit were before Judge SCHOONMAKER. After his death the case was continued under the following stipulation:

'Now, February 4, 1946, the Honorable Frederic P. Schoonmaker, Judge of this court, having died after the beginning of the trial of this action, it is hereby stipulated that the trial may be continued before such Judge of this court as may be assigned thereto, and that all proceedings before Judge Schoonmaker on and after July 24, 1944, shall be deemed to have been before such assigned Judge.'

 By the original complaint, filed April 12, 1944, the defendants named were Paramount Pictures, Inc., Pennware Theatre Corporation and A. N. Notopoulos. On July 6, 1944, by amendment the other defendants were joined.

 The defendants will hereinafter be referred to as follows: R.K.O. Radio Pictures, Inc. -- 'R.K.O.'; Twentieth Century-Fox Corporation -- 'Twentieth Century-Fox'; Paramount Pictures, Inc. -- 'Paramount Pictures'; Paramount Film Distributing Corporation -- 'Paramount Film'; Pennware Theatre Corporation -- 'Pennware'; and A. N. Notopoulos as 'Notopoulos'.

 Prior to May 15, 1933, Paramount Pictures owned all the stock of Atlantic States Theatre Corporation, which in turn owned all the stock of Pennware. On May 15, 1933, Notopoulos purchased from the Paramount subsidiary, for $ 1,000, one-half of the stock of Pennware. He had been a motion picture theatre operator since 1912. After acquiring his interest in Pennware, he entered into a contract with Paramount Pictures pursuant to which he became manager and supervisor of the local Penn Theatre, and thereafter he negotiated with the distributors of moving pictures for those which were exhibited in the Penn Theatre, which then, and thereafter until April 30, 1044, was under lease by Pennware. Paramount Pictures, under the arrangement, was only interested in the leasing and purchase of theatres and in borrowing money.

 In 1939, one Goldstein, owner of the Penn Theatre, leased it to Pennware for a five-year term ending April 30, 1944. By a supplemental contract the ownership by Pennware of all equipment and fixtures was determined and also the right to remove them upon termination of the lease.

 From the time when Notopoulos obtained his interest in the Penn Theatre, Paramount Film licensed all its first run pictures at that theatre. And for more than ten years prior to April 30, 1944, R.K.O., Loew's and Twentieth Century-Fox had licensed Pennware to exhibit one-half of their first run motion pictures at that theatre, and the other half of such first run pictures was licensed to Warner Brothers Circuit Management in Ambridge, at either the Ambridge or Prince Theatre, both operated by Warner Brothers.

 Shortly after the purchase of the theatre site the plaintiff proposed to Joseph Bernhard, executive vice-president of Warner Brothers Pictures, Inc., that the Penn Theatre be operated in a pool with the Ambridge and Prince Theatres. Mr. Bernard postponed a discussion of this proposition until plaintiff should be in possession of his theatre. Plaintiff did not discuss the matter of a lease with Notopoulos until he had title to the Penn Theatre for some months.

 Pennware having reason to anticipate trouble in renewing its lease of the Penn Theatre, early in 1943 had bought ground for a theatre at 745-751 Merchant Street in Ambridge, the same street on which was the Penn Theatre, and several squares from it. In October, 1943, construction work began. Plaintiff learned of the work in November. His first action thereafter was to notify Pennware that its lease was cancelled and to demand possession. This followed a dispute with Notopoulos over a claim by the latter that plaintiff owed for heat and janitor service. This notice was repeated, but the matter was settled without any eviction.

 After the proposed eviction plaintiff sent a telegram to the War Production Board in which he urged that body to stop the building of Pennware's theatre.

 Then began negotiations for the lease of the Penn Theatre. Plaintiff demanded 15% of the gross income. This would have resulted in a loss to Pennware during the last six years of operation and it refused to agree to such terms. The rent therefrom had been $ 3,600 per year. Pennware offered to pay $ 6,000 per year during the war time, and $ 5,000 annually thereafter. Plaintiff persisted in his claim of 15% rental. This demand was not in accordance with ordinary usage in Ambridge or a town of a like size.

 Negotiations for the renewal of the lease failed and Pennware continued with the construction of his State Theatre, and plaintiff instituted his present action. As stated, supra, the first defendants were Paramount Picutres, Inc., Pennware Theatre Corporation and A. N. Notopoulos. Plaintiff was apparently unaware that Pennware was the owner of the equipment and fixtures in the Penn Theatre and was authorized to remove them at the expiration of the lease. His first effort was to secure a preliminary injunction to restrain the removal of the fixtures from his theatre. After hearing, and being informed of the ownership of Pennware the application for the preliminary injunction was abandoned. Later the other exhibitor defendants were added.

 The complaint, as amended, recites ownership of the Penn Theatre property in the plaintiff as trustee, and describes the defendants. Jurisdiction is averred as under the Sherman Anti-Trust Act, 15 U.S.C.A. § 1-7, 15 note, and Clayton Act, 38 Stat. 730, and the venue is set forth. The defendants, other than Notopoulos, were alleged to be engaged in interstate commerce in the production, distribution and exhibition of motion pictures. As such they are alleged to have 'circuit buying power, by reason of their connection with the numerous theatres in which their pictures are exhibited. The importance of Paramount Pictures and its subsidiaries is accentuated.

 In charging violations of the Sherman and Clayton Acts the complaint sets forth the possession of the Penn Theatre by Pennware under the lease expiring April 30, 1944, and that for many years past that theatre had enjoyed first run exhibition pictures of all Paramount Pictures, and one-half of the product of R.K.O., Loew's and Twentieth Century-Fox. It then declares that: 'The Paramount defendants' (as describing Paramount Pictures, Paramount Film, Pennware and Notopoulos) in 1943 entered into a conspiracy to depreciate and destroy the value and productive possibilities of the Penn Theatre. This conspiracy was to be carried out by depriving that theatre of the runs theretofore enjoyed by it, this is to be effected by the power in the industry of the Paramount defendants. This charge was repeated as to Paramount defendants and R.K.0., Twentieth Century-Fox and Loew's and the object of the combination was alleged to be the ruin of the Penn Theatre by depriving it of the runs of motion pictures theretofore enjoyed by it. To effect the object of the conspiracy it is asserted that all the defendants refused to license their product to the Penn Theatre, and imposed other uniform restraints upon it. The complaint further contains a charge that 'the Paramount defendants', while removing after expiration of the lease, maliciously damaged the theatre for the purpose of delaying its use and to accomplish the general objective. As part of the violation of law charged it is further generally alleged that the acquisition by Paramount of the stock of Pennware, and the acquisition by Paramount and the other producer-exhibitor defendants of stock in other motion picture exhibiting companies has the effect of substantially lessening competition and restraining trade 'in the section or community where such corporation or corporations operate.'

 After praying that summons be issued, and that the combinations in restraint of interstate trade and commerce described in the complaint be declared in violation of the Sherman and Clayton Acts, the plaintiff further prays for relief, in part as follows:

 '(3) That the acquisition by Paramount of the stock of Pennware Theatre Corporation and other corporations, where such acquisition has the effect of substantially lessening competition between Paramount and the corporation whose stock is so acquired, or to restrain such commerce in any section or community, be declared illegal and violative of the Sherman Anti-Trust Act and the Clayton Act.

 '(4) That the acquisition by any defendant of the stock of any other defendant or subsidiary thereof, where such acquisition has the effect of substantially lessening competition between the acquiring defendants and the corporation, whose stock is so acquired, or to restrain such commerce in any section or community, be declared illegal and violative of the Sherman Anti-Trust Act and the Clayton Act.

 '(5) That the integration of production and exhibition in the Paramount defendant be declared violative of the Sherman Anti-Trust Act and the Clayton Act.

 '(6) That preliminary until hearing and perpetually thereafter, the defendants herein, and each and all of their respective officers and directors, and each and all of their respective agents, servants and employees, and all persons acting and claiming to act on their behalf, or any of them, be enjoined and restrained from the commission of any act in restrain of interstate trade, and from carrying out any plans, agreements or contracts to impair or damage the Penn Theatre or withhold or deprive the Penn Theatre of motion picture product on the run formerly enjoyed by the Penn Theatre.

 '(7) That preliminarily until hearing and perpetually thereafter, the defendants herein be enjoined and restrained from entering into any contracts or agreements for the licensing of feature product on the run formerly enjoyed by the Penn Theatre. '(8) That preliminarily until hearing and perpetually thereafter the defendants be enjoined and restrained from continuing the discriminatory practices against the Penn Theatre and from enforcing contracts heretofore made or from making new contracts imposing protection against the Penn Theatre in favor of any other theatre or theatres in the exhibition of motion pictures.'

 The 7th prayer reflects the plaintiff's theory, or at least his earliest theory, of the case, and which has not been wholly abandoned. The contention was, in substance, that if a certain run of motion pictures had been exhibited in a theatre for several years, that theatre was entitled to the run as against any subsequently constructed theatre, even though its management had changed; or, to put the claim in other words, that the theatre, the house, is entitled to the run no matter who is operating it. Such a position is not tenable. Those producers or exhibitors of motion pictures who have granted preferred runs for a number of years to a particular theatre, with intent to prefer it to an equally desirable independent theatre, may be guilty of a violation of the anti-trust laws. See Goldman Theatres v. Loew's et al., 3 Cir., 150 F.2d 738 in which the principle is laid down. That decision does not state a method of enforcing the right of the independent theatre except that injunctive relief was approved.

 Both parties herein have called the attention of the court to the opinion of a three-judge expediting court, United States v. Paramount Pictures, Inc., D.C., 66 F.Supp. 323, and some seven others of the chief moving picture producers and exhibitors. Counsel for the plaintiff have endeavored to strengthen the findings of fact in the instant case by adding those of the expediting court as set forth in the opinion in that case. No decree has been filed in the New York case, but even if it had been this court cannot adopt the findings of fact in one case and apply them in another. Mackay v. Easton, 19 Wall. 619, 86 U.S. 619, 22 L. Ed. 211. This is elementary.

 United States v. Paramount et al., supra, was an action brought by the Department of Justice by which the regulation of the exhibition of moving pictures by the eight largest producers and exhibitors and some thirteen others was sought throughout this entire country. Assuming that the decree will reflect the opinion, it will be appealed by both parties in all probability. This likelihood possibly weakens it as a citation of legal principles, but time and again the opinion declares that the only correct way of licensing pictures, as between theatres of equal size and qualifications, is to grant each picture to the highest bidder -- and this irrespective of past connection of the producer with the exhibiting theatre. If a dispute exists as to the relative ability of the theatres to return revenue, that is a matter for determination by a regulating body, as contemplated by the opinion. If such a body is not in existence it would seem that the producer might be trusted to decide the matter, provided it was acting from a consideration of the essential facts involved, such as capacity of the theatres, financial responsibility of the operators, and the comparative ability of the operators as showmen.

 It must be kept in mind that the instant action is not one in which the United States is seeking to regulate the industry throughout the entire country, but is one which had its origin in a dispute between the owner and a proposed lessee of a theatre. The court is called upon to say whether the defendants conspired to violate the anti-trust laws of the United States, and if their actions affected the legal rights of the plaintiff. This means that many contentions which have been ...


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