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November 28, 1950

MILGRAM et al.
LOEW'S, Inc., et al.

The opinion of the court was delivered by: KIRKPATRICK

The plaintiff's theatre, the Boulevard, was constructed in 1949 at a cost of a quarter of a million dollars. It is located in not unattractive surroundings within the city limits of Allentown, 2.4 miles from the business center of that city, 1.7 miles from the common boundary line between Allentown and Bethlehem and 4.4 miles from the business center of Bethlehem. In equipment, appointments and conveniences the theatre is probably one of the best drive-ins in the country. It can accommodate over 900 cars, with an estimated capacity of 2,500 patrons. The plaintiff, David E. Milgram, is an experienced operator and under his management the theatre has been conducted along lines consistent with the highest grade of moving picture entertainment.

 The six theatres operated by the intervening defendants are all centrally located. Five of them, with a combined seating capacity of about 6,000, are suitable for the exhibition of first-run feature pictures. These defendants have no affiliations with each other or with any distributor and there is genuine competition by competitive bidding among them for first-run pictures.

 Without exception, the distributors have refused to consider any bids from the plaintiff for first-run feature films and have stated with substantial unanimity that they will not license such films to him, even though he may offer (as he already has offered on two occasions) higher prices than could be obtained from the exhibitor defendants. Having denied the plaintiff the opportunity to bid for first runs, six of the eight distributors followed up their action by offering him second runs at a uniform clearance period of 28 days after the first showing in Allentown.

 The distributors all deny that there has ever been any agreement among them to exclude the plaintiff from first runs. Moreover, the responsible official in each organization testified that the decision to do so was made without any knowledge of similar action on the part of the others.

 Some argument, based upon the precise form in which the question was put to one or two of the witnesses, was offered to support the literal truthfulness of their answers, but if it was intended by the branch managers to deny knowledge of the uniform course which was being followed by all with regard to the plaintiff, I cannot accept their testimony. The advent of a first-class drive-in theatre demanding first-run showings in the Allentown district created a novel problem of the keenest interest to every branch manager. It is incredible that each proceeded in ignorance of how the others were dealing with it. Certainly the exhibitors (who vigorously opposed the plaintiff's requests) knew what was being done by each distributor and the information would speedily get to the others through them, if no other way. There may or may not have been a direct interchange of information as to action and policies between them, but it is simply not possible that branch managers did not keep track of what their competitors were doing or that, if any one of them had licensed first-run pictures to the plaintiff, the others would not have known of it without delay. I find, therefore, that every distributor adopting and adhering to the uniform course of excluding the plaintiff from competing for first-runs did so knowing that the others were doing the same thing.

 The burden of the prosecution in proving the conspiracy element in anti-trust cases has been lightened and simplified to a marked degree by the decision of the Supreme Court in Interstate Circuit v. United States, 306 U.S. 208, 59 S. Ct. 467, 83 L. Ed. 610, followed by United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S. Ct. 811, 84 L. Ed. 1129, and American Tobacco Co. v. United States, 329 U.S. 781, 66 S. Ct. 1125, 90 L. Ed. 1575. It may be taken as settled that proof of concert of action is of itself sufficient evidence from which an 'agreement', as that term is used in the Act, may be found. In practical effect, consciously parallel business practices have taken the place of the concept of meeting of the minds which some of the earlier cases emphasized. Present concert of action, further proof of actual agreement among the defendants is unnecessary, and it then becomes the duty of the Court to evaluate all the evidence in the setting of the case at hand and to determine whether a finding of a conspiracy to violate the Act is warranted. In the Interstate Circuit case the Court plainly said that a conspiracy could exist by adherence to a scheme of concerted action without any agreement. ' * * * we think that in the circumstances of this case such agreement for the imposition of the restrictions upon subsequent-run exhibitors was not a prerequisite to an unlawful conspiracy. It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it.' (306 U.S. 208, 59 S. Ct. 474.) In neither the Socony-Vacuum case, supra, nor the American Tobacco case, supra, the latter of which upheld a conviction under both Section 1 and Section 2 of the Act, 15 U.S.C.A. ยงยง 1, 2, was there any real evidence of agreement other than knowingly joining in a system of parallel activities by a number of defendants who were in a position to control the market for their product.

 The decisions of the Court of Appeals for the Third Circuit are in full accord. In William Goldman Theatres v. Loew's, Inc., 150 F.2d 738, 745, the Court said, 'Uniform participation by competitors in a particular system of doing business where each is aware of the other's activities, the effect of which is restraint of interstate commerce, is sufficient to establish an unlawful conspiracy under the statutes before us.' In Ball v. Paramount Pictures, 169 F.2d 317, 320, the same Court said, quoting from United States v. Paramount Pictures, 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260, 'It is not necessary to find an express agreement in order to find a conspiracy. It is enough that a concert of action is contemplated and that the defendants conformed to the arrangement.' In the present case the evidence shows that the members of a group in full control of the supply of motion pictures in the market in which the plaintiff is endeavoring to compete are pursuing a uniform course of conduct the effect of which is to impose restrictions upon commerce, each with awareness that the others are also pursuing it. This is evidence from which an agreement may be found.

 Of course, similarity of the business practices of defendants in an anti-trust case does not necessarily lead to the conclusion that they are in a conspiracy to violate the law. Given a concerted course of action the result of which is to restrain commerce, the charge that the agreement which may be inferred therefrom is a conspiracy in violation of the law must be tested by the reasonableness of the restraint and, upon this point, its scope and the objectives of the defendants are important considerations. If the Court be convinced that it 'results from nothing more than common business solutions to identical problems in competitive industry, the similarity of conduct would not require the conclusion that a conspiracy existed', charge of the Court, affirmed in Fifth & Walnut, Inc., v. Loew's Incorporated, 2 Cir., 176 F.2d 587- an excellent statement, but it must be borne in mind that the problem of which the Court was speaking was a local one and the 'common solution' reached made no attempt to go beyond the local situation. The principle is applicable to cases like Westway Theatre v. Twentieth Century-Fox Film Corp., D.C., 30 F.Supp. 830, affirmed 4 Cir., 113 F.2d 932, of which the Court of Appeals, in its opinion in Ball v. Paramount Pictures, supra, said 'Westway concerned a peculiarly local situation in Baltimore.' How far it is applicable to a case in which the common problem is industry-wide and the common solution is to eliminate completely one type of competition is another matter.

 The defendants state the case, in their brief as follows: 'It is undisputed that the drive-in is a new and radically different medium for the exhibition of motion pictures. Its proper position in the complicated system of clearance and run which necessarily characterizes the distribution of motion pictures is not yet known, and must ultimately be found on the basis of experience and the judgment of businessmen charged with the responsibility of obtaining the most advantageous outlets for their products. At the present time, that judgment dictates that a neighborhood drive-in play on a subsequent run.'

 The defendants amplified this statement by testimony as to the reasons for the judgment reached. Primarily, they are apprehensive that the exhibition in a drive-in theatre of any good feature picture on its first run would depreciate the sales value of the picture, both for subsequent runs in the neighborhood and for first runs in other communities so that, even if the distributor could get a very good price for first runs from a drive-in, he would fail to get the maximum return from the picture. Another reason, not so strongly pressed, is the possibility that, unless prohibitively high guarantees were given, the returns from the first-run showing in a drive-in of any given picture, arising from percentage payments, would be less than if it were shown in a conventional theatre. Comparatively little was said about the protection of established customers against competition, though it was mentioned as a part of the whole problem.

 Whether they are right or wrong about these matters I would not attempt to say. It is, of course, possible that if it became common knowledge that first-class drive-ins were playing good features on first run, the reputation they now have for showing old and inferior films would be dispelled. It is also true that the revenue from second runs is a minor, (though not negligible) consideration, the 'cream of the business' being in the revenue derived from the short term monopolies which the first-run theatres enjoy. Certainly the executives who testified know a great deal more about their business than any judge and they can make a better guess as to what might happen; but the fact remains that their opinions as to the effect of drive-in competition in the industry were purely conjectural. Apparently the experiment of licensing first territorial runs to drive-in theatres has never been made and no data are available. Nor, with regard to their effect upon the conventional first-run theatres, was any evidence produced to indicate to what extent the drive-ins take patronage away from them.

 The objectives of these defendants and the grounds on which they justify the uniform practices adopted to attain them are essentially the same as those of the defendants in the Interstate Circuit case, supra. In fact the substance of the defendants' argument is to be found in Mr. Justice Roberts' dissenting opinion, in which it was pointed out that the restrictions condemned by the majority of the Court 'were imposed to prevent destruction of the good will which made possible the continued exhibition of first run feature pictures and to avoid decrease of the revenue from those pictures * * * ' (306 U.S. 208, 59 S. ...

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