ALAN N. BLOCH, UNITED STATES DISTRICT JUDGE.
The indictment in this case charges the defendants with a violation of § 1 of the Sherman Act, 15 U.S.C. § 1. The charges arise out of an alleged conspiracy to eliminate competition in the operation of motion picture theatres in the Altoona, Pennsylvania area. Pending before the Court is defendants' motion to dismiss the indictment.
Defendants present several arguments in support of their motion. The first argument rests upon the due process clause of the Fifth Amendment; defendants contend that, as of the time of the charged offense, the decisional law interpreting § 1 of the Sherman Act did not provide fair warning that the conduct in question might expose the defendants to criminal liability. In addition, defendants claim that the government represented that it would not initiate criminal prosecutions concerning split agreements until civil cases in the area had established a framework for determining the legality of such conduct under § 1 of the Sherman Act. Related to these arguments is the defendants' contention that, due to the unresolved nature of the case law regarding the legality under § 1 of the Sherman Act of the type of agreement at issue, this prosecution constitutes an application of ex post facto law.
Defendants also argue that the indictment should be dismissed because it fails to properly charge specific intent as an element of the offense and that, in any event, as a matter of law, they could not have possessed the required intent. Finally, defendants claim that the government has impermissibly singled them out for prosecution while failing to prosecute others who allegedly have engaged in similar conduct. Therefore, they contend, the indictment must be dismissed.
I. Factual Background
In ruling upon a motion to dismiss an indictment, the Court must accept the factual allegations set forth therein as true. United States v. National Dairy Products Corporation, 372 U.S. 29, 33 n. 2, 9 L. Ed. 2d 561, 83 S. Ct. 594 (1963); Boyce Motor Lines v. United States, 342 U.S. 337, 343 n. 16, 96 L. Ed. 367, 72 S. Ct. 329 (1952).
The government alleges that during the period covered by the indictment distributors of motion pictures licensed those pictures on a picture-by-picture, theatre-by-theatre basis. Where two or more exhibitors operated theatres within a given local market, a distributor would license its films by competitive bidding or by negotiating with competing theatres. Under ordinary circumstances, the license would be awarded to the exhibitor making the best offer, after considering licensing terms offered by competing exhibitors, seating capacity, theatre location, and other factors.
The indictment alleges that from at least early January, 1985, until approximately August, 1986, the defendants and other co-conspirators entered into a "split agreement," the purpose of which was to eliminate competition among theatres in the Altoona, Pennsylvania area in connection with the acquisition of licenses to exhibit motion pictures.
The government describes a split agreement as an agreement among film exhibitors to allocate the films for which they otherwise would be competing and to refrain from competing for those films. Defendants contend that a split agreement is simply a non-binding allocation among film exhibitors of the first rights to negotiate with particular distributors for specific films.
The indictment charges that the defendants and their alleged co-conspirators refrained from submitting bids for motion picture licenses, submitted offers only for the exhibition of motion pictures at theatres to which the motion pictures previously had been allocated or "split" pursuant to the agreement, refrained from dealing with distributors with respect to motion pictures split to other participants in the conspiracy, and generally refrained from competing against each other for the licensing of motion pictures.
II. The Merits of Defendants' Claims
A. Due Process Concerns
Defendants argue that at the time of the actions charged in the indictment, no court had held that split agreements amounted to criminal violations of the Sherman Act. Moreover, they argue, several courts had held that split agreements did not constitute even civil antitrust violations. In the absence of a definitive judicial interpretation holding such conduct illegal, defendants contend, this prosecution violates due process because the scope of application of the law was unclear.
The standard to be applied in determining whether a statute fails to provide adequate warning of possible criminal penalties is set forth in United States v. Harriss, 347 U.S. 612, 617, 98 L. Ed. 989, 74 S. Ct. 808 (1954), as follows:
The constitutional requirement of definiteness is violated by a criminal statute that fails to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden by the statute. The underlying principle is that no man shall be held criminally responsible for conduct which he could not reasonably understand to be proscribed.
On its face, § 1 of the Sherman Act proscribes a broad range of conduct, making unlawful any contract, combination or conspiracy which restrains interstate or foreign trade or commerce. "With certain exceptions for conduct regarded as per se illegal because of its unquestionably anti-competitive effects, . . . the behavior proscribed by the Act is often difficult to distinguish from the gray zone of socially acceptable and economically justifiable business conduct." United States v. United States Gypsum Company, 438 U.S. 422, 440-41, 57 L. Ed. 2d 854, 98 S. Ct. 2864 (1978) (citation omitted).
A determination of the proper scope of application of § 1 and, accordingly, resolution of the defendants' vagueness challenge, requires reference to judicial interpretations of the Act's language. National Society of Professional Engineers v. United States, 435 U.S. 679, 688, 55 L. Ed. 2d 637, 98 S. Ct. 1355 (1978). As the Court has noted, § 1 "cannot mean what it says. . . . Restraint is the very essence of every contract; read literally, § 1 would outlaw the entire body of private contract law . . . . [Congress] expected the courts to give shape to the statute's broad mandate." Professional Engineers, supra, 435 U.S. at 687-88.
Early in the history of Sherman Act litigation, it was established that only those contracts and agreements which "unreasonably" restrain trade are unlawful. Standard Oil Company of New Jersey v. United States, 221 U.S. 1, 55 L. Ed. 619, 31 S. Ct. 502 (1911). It long has been recognized that "agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific R.R. Company v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). See also Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 64 L. Ed. 2d 580, 100 S. Ct. 1925 (1980).
Price-fixing is one type of business practice which falls within the category of per se illegality since price-fixing agreements are patently anti-competitive and can serve no legitimate purpose other than restraint of competition. United States v. Socony-Vacuum Oil Company, 310 U.S. 150, 212-13, 84 L. Ed. 1129, 60 S. Ct. 811 (1940) (citing United States v. Trenton Potteries Company, 273 U.S. 392, 397-98, 71 L. Ed. 700, 47 S. Ct. 377 (1927)).
An agreement between competitors pursuant to which contract offers are to be submitted to or withheld from a third party constitutes bid rigging, United States v. Portsmouth Paving Corporation, 694 F.2d 312, 325 (4th Cir. 1982), and bid rigging repeatedly has been held to be a per se violation of § 1 of the Sherman Act, as a type of price-fixing. Portsmouth Paving, supra; United States v. Brighton Building and Maintenance Company, 598 F.2d 1101, 1106 (7th Cir. 1979); United States v. Flom, 558 F.2d 1179, 1183 (5th Cir. 1977); United States v. Bensinger Company, 430 F.2d 584 (8th Cir. 1970).
In National Society of Professional Engineers, supra, the Supreme Court examined an agreement among competing engineers to refuse to discuss prices with potential customers until negotiations had resulted in selection by the customer of a particular engineer's services. The Court noted that such an agreement, while not amounting to price-fixing as such, "operates as an absolute ban on competitive bidding" which "impedes the ordinary give and take of the market place" and "deprives the customer of the ability to utilize and compare prices" in determining whose services it would prefer to obtain. Id. 435 U.S. at 692-93. The Court concluded that the agreement "on its face . . . restrain[ed] trade within the meaning of § 1 of the Sherman Act."
In light of the decision in Professional Engineers, supra, and the substantial case law holding that restrictions upon competitive bidding constitute price-fixing, a per se violation of the Sherman Act, the Court finds little merit in defendants' claims that they were not given fair notice that split agreements could constitute violations of § 1. Due process requires "no more than a reasonable degree of certainty" in the law. Boyce Motor Lines, Inc., supra, 342 U.S. at 340. The aforementioned decisions, all of which appeared on the books prior to the period of time during which the alleged offense occurred, provided clear notice that agreements among competitors to submit collusive, non-competitive bids violate the law. The split agreement described in the instant indictment, if proven, would fall within this definition.
2. History of Government Actions Against Split Agreements
Defendants claim that the government represented that it would pursue civil enforcement actions in an attempt to clarify the law with regard to split agreements prior to initiating criminal prosecutions, and that the instant prosecution was initiated despite the fact that the law remains unclear concerning the legality of such agreements. In order to address this argument, the history of the government's enforcement policies concerning the agreements must be reviewed.
On April 1, 1977, the Department of Justice issued a press release announcing that henceforth it would take the position that the use of split agreements by motion picture exhibitors violated the antitrust laws and that "continuation of this practice will subject participants to appropriate legal action by the Department's Antitrust Division." Split agreements had been widely used by motion picture exhibitors for decades, particularly following the Supreme Court's decision in United States v. Paramount Pictures, Inc., 334 U.S. 131, 92 L. Ed. 1260, 68 S. Ct. 915 (1948). The press release served to notify the industry that the Justice Department considered split agreements to be "virtually indistinguishable from bid rigging practices, a traditional per se violation of § 1 of the Sherman Act."
In response to the press release of April 1, 1977, the National Association of Theatre Owners directed a letter to Assistant Attorney General Donald Baker, of the Antitrust Division of the Justice Department, concerning the change in policy. Baker responded in a letter, which read in pertinent part as follows:
We entirely agree with you that the federal courts are the appropriate forum for determining the legality of "split" agreements. While we believe that such "split" agreements are per se illegal, we recognize that the Department has not taken this view in earlier years and has not brought any prior action. Accordingly, it is our present enforcement intention that the initial case or cases which we may bring against "split" agreements will be civil cases seeking equitable relief. However, if we discover a "split" agreement which involved clearly predatory or coercive conduct, we might well proceed criminally there because of the special nature of the conduct.