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Lawlor v. National Screen Service Corp.

filed: August 27, 1959.


Author: Staley

Before GOODRICH, KALODNER and STALEY, Circuit Judges.

Opinion of the Court

By STALEY, Circuit Judge,:

In this long-protracted litigation, plaintiffs Charles Lawlor and Mitchell Pantzer seek injunctive relief and money damages pursuant to Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, averring violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2.

The plaintiffs, in 1942, instituted a treble-damage suit, also praying an injunction, against National Screen Service Corporation and three of the eight producers who are defendants in the present action. By stipulation of the parties the suit was dismissed with prejudice on April 21, 1943. On August 18, 1949, the present complaint was filed seeking an injunction and treble damages for the period from 1943 to 1949. In 1951 Judge McGranery granted plaintiff's motion for summary judgment as against National Screen, but a final decree was never framed. Thereafter, in 1953, Judge Kirkpatrick granted defendants' motion to dismiss on the grounds that the 1943 judgment was res judicata of this claim. This court affirmed the judgment, 211 F.2d 934 (C.A. 3, 1954). The Supreme Court reversed, 349 U.S. 322 (1955), and remanded the case. Chief Judge Kirkpatrick thereupon entered summary judgment against National Screen and upon review this court reversed, 238 F.2d 59 (1956). Certiorari was granted and the Supreme Court vacated the judgments and remanded the cause to the district court for trial, 352 U.S. 992 (1957).

The case was then tried to the court, without a jury, and after a lengthy trial the court concluded that none of the defendants had violated the antitrust laws. The district court made 140 findings of fact and 12 conclusions of law. Based upon the foregoing, the court entall defendants, and the plaintiffs appealed. In effect the trial court held that plaintiffs had failed to sustain their burden of proof. For the plaintiffs to succeed on this appeal they must show that erroneous legal tests were applied to essential findings of fact or that the findings themselves were clearly erroneous within Rule 52(a) of the Federal Rules of Civil Procedure. United States v. E.I. duPont de Nemours & Co ., 351 U.S. 377 (1956).

This case involves a field of endeavor collateral to the distribution and exhibition of motion picture films, the distribution of motion picture advertising accessories. These accessories consist primarily of lithographed posters containing photographs of scenes from the pictures which they are intended to advertise, and other articles for theater lobby and billboard display in and about motion picture theaters.*fn1 They are designed to stimulate public attendance at the current or future exhibition of the particular motion picture for which they are created.

Plaintiffs, as partners trading under the name of Independent Poster Exchange, have been engaged since 1940 in the business of leasing standard accessories to motion picture exhibitors in the Philadelphia motion picture area (comprising eastern Pennsylvania, southern New Jersey, and Delaware). Defendant National Screen, during part of the period covered by this suit, was engaged, among other things, in the business (a) of distributing to exhibitors advertising accessories for motion pictures of some producers; and (b) of creating, manufacturing and distributing such accessories of other producers; and for part of the period in suit (c) of creating, manufacturing and distributing such accessories of all of the producers or distributors alleged here to be involved. The other defendants are the eight major American motion picture distributors, hereinafter referred to as the film companies.*fn2

Inasmuch as motion pictures are dependent in great measure upon effective advertising for their success, the film companies necessarily expend large amounts of money for that purpose. The direct interest of the motion picture distributors in the results of this advertising is pointed up by the fact that the pictures are at times licensed at a rental based upon a percentage of box office receipts. Among the numerous means of advertising employed in such promotions are the local pin-point advertising by the exhibitors which includes standard accessories. The court found that regular use by exhibitors of such accessories is one of the essential means of obtaining maximum attendance at and revenue from the exhibition of motion pictures; however, the degree to which they are responsible for motion picture patronage is not established.

Standard accessories have been in use for many years and, historically, the general practice had been for the motion picture company to design and manufacture the various types of accessories and distribute them to exhibitors through the company's branch offices or exchanges. As standard accessories cannot be used for any motion picture other than the one for which they are created, and as it is impossible to predict accurately the future success of a motion picture and therefore the quantity of accessories that will be required, there is an obsolescence risk that varies from item to item.

As it is a practice in the industry to exhibit feature motion pictures in a number of theaters on successive runs, the same accessories may be repeatedly used by different exhibitors. This fact resulted in the appearance upon the business scene of what came to be known as "poster renters." These individuals or organizations were unconnected with any producer or distributor of motion pictures, but rather obtained supplies of standard accessories and rented them to exhibitors for use with the particular picture being exhibited. The supplies were originally obtained by purchase from the film companies' exchanges, from exhibitors, or from other poster renters. By the nature of their business they were in competition with the local exchanges of the film companies for exhibitor customers. The poster renters offered a complete or almost complete rental service for accessories of all the major film companies, while the local exchanges serviced only their own films. The latter, however, made them available along with the film itself. Thus each had advantages, and by 1940 there was at least one poster renter in business in nearly every motion picture exchange area.

As a result of the competition from poster renters, the obsolescence risk, the cost of maintaing a special accessories department, the supervision and personnel requirements both in the national offices and the district exchanges, Paramount in 1939 recognized that the accessories feature of its business was operating at a substantial annual loss. Although it was apparent that one possible solution for reducing the losses was to increase the license fees, this alternative was considered undesirable as it was likely to decrease the use of such advertising and therefore be self-defeating. The Paramount executives concluded that it was preferable to delegate the tasks of creating and distributing standard accessories to an independent contractor who possessed the experience, skill and facilities necessary to successfully undertake the operation. Paramount approached National Screen in the latter part of 1939 with a proposition to turn over these functions to it. National Screen, although it was not then in the business of creating standard accessories, had been engaged, since about 1935, in the business of producing and distributing certain motion picture specialty accessories. It had invested substantial sums in and was chiefly responsible for the development of a full line of specialty accessories. Under contracts licensing it to do so, National Screen was producing and distributing to exhibitors specialty accessories for films produced or distributed by United Artists, Loew's, and Columbia.

Paramount indicated that it would require National Screen to maintain a local branch in each city where Paramount had a film exchange, to open these new offices and staff them at its own expense, to manufacture and distribute a full line of standard accessories for Paramount pictures, and to purchase its existing inventory of standard accessories. As these obligations would involve substantial expenditures, National Screen required that it be given an exclusive license to produce and distribute Paramount standard accessories for a five-year term. On December 22, 1939, the parties formally entered into such a contract, to expire on January 31, 1945.*fn3

Shortly thereafter, RKO, which also had a long history of unprofitable results from its accessories business and had even engaged an expert in the field to no avail, was approached by National Screen with an offer to undertake distribution of its accessories. On January 31, 1940, Advertising Accessories, Inc., the affiliate of National Screen, entered into a five-year contract with ...

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