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Federal Trade Commission v. Paramount Famous-Lasky Corp.

April 4, 1932

FEDERAL TRADE COMMISSION
v.
PARAMOUNT FAMOUS-LASKY CORPORATION ET AL.



Petition to enforce an order of the Federal Trade Commission, entered against Famous Players-Lasky Corporation, Adolph Zukor, and Jesse L. Lasky, which order directed them to cease and desist from practices found by the Commission to constitute unfair methods of competition in violation of section 5 of the Federal Trade Commission Act (15 USCA § 45).

Author: Manton

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

The Federal Trade Commission issued an order against the respondents directing them to cease and desist from certain practices found by it to constitute methods unfair competition in violation of section 5 of the Federal Trade Commission Act (38 Stat. 719, 15 USCA § 45). That part of the order sought to be enforced directs the respondents to cease and desist "from leasing or offering to lease for exhibition in a theater or theaters motion picture films in a block or group of two or more films at a designated lump sum price for the entire block or group only and requiring the exhibitor to lease all such films or be permitted to lease none; and from leasing or offering to lease for exhibition such motion picture films in a block or group of two or more at a designated lump sum price for the entire block or group and at separate and several prices for separate and several films, or for a number or numbers thereof less than the total number, which total or lump sum price and separate and several prices shall bear to each other such relation as to operate as an unreasonable restraint upon the freedom of an exhibitor to select and lease for use and exhibition only such film or films of such block or group as he may desire and prefer to procure for exhibition; or shall bear such relation to each other as to tend to require an exhibitor to lease such entire block or group of forego the lease of any portion or portions thereof; or shall bear such relations to each other that the effect of such proposed contract for the lease of such films may be substantially to lessen competition or tend to create a monopoly in any part of the certain line of commerce among the several States, or with foreign nations, involved in the said proposed sale, to wit: the business of the production, distribution and exhibition of motion picture films to the public, or the business of production and distribution, or of production or distribution of moving picture films for public exhibition." No review of all of any part of the order entered has been sought by the respondents. However, upon an application to enforce the order, it is not essential to establish a violation of the Commission's order, for the first question we must examine in the proceeding is whether or not there has been a violation of the law. Fed. Trade Comm v. Balme, 23 F.2d 615 (C.C.A. 2), certiorari denied, 277 U.S. 598, 48 S. Ct. 560, 72 L. Ed. 1007. The statute grant jurisdiction to the court to enter, upon the pleadings, testimony, and proceedings, a decree affirming, modifying, or setting aside an order entered by the Commission, and in so doing the court has the power to examine the whole record and ascertain for itself the issues presented and whether there are material facts not reported by the Commission. Fed. Trade Comm. v. Curtis Pub. Co., 260 U.S. 568, 43 S. Ct. 210, 67 L. Ed. 408. Section 5, which is alleged to have been violated, has reference to unfair methods of competition in commerce, which are declared to be unlawful, and, in determining whether given acts amount to unfair methods of competition within the meaning of the act, the standard is the one "established by the Sherman Anti-Trust Act [15 USCA § 1 et seq.] in the words 'restraint of trade or commerce' and 'monopolize, or attempt to monopolize,' and by the courts in construing the Sherman Act with reference to acts 'which operate to the prejudice of the public interest by unduly restricting competition or unduly obstructing the due course of trade,' and 'restrict the common liberty to engage therein.'" Fed. Trade Comm. v. Beech Nut Packing Co., 257 U.S. 441, 42 S. Ct. 150, 66 L. Ed. 307, 19 A.L.R. 882; Standard Oil Co. of N.J. v. Fed. Fed. Trade Comm., 282 F. 81, 87 (C.C.A. 3). A practice which is against public policy because of its dangerous tendency unduly to hinder competition or create a monopoly, is declared to be unfair and unlawful by section 5. Fed. Trade Comm. v. Gratz, 253 U.S. 421, 40 S. Ct. 572, 64 L. Ed. 993. And public policy is the policy of the common law, equity or statutory, with statutes paramount. Chicago, B. & Q.R. Co. v. McGuire, 219 U.S. 549, 31 S. Ct. 259, 55 L. Ed. 328.

The Famous Players-Lasky Corporation is a New York Corporation engaged in the business, interstate and foreign, of producing, leasing, transporting, and distributing to exhibitors, and exhibiting for profit, motion picture films. These films are produced at their studios located in several states of the United States, and are distributed and transported therefrom in interstate commerce to theaters located in several other states. It is in competition with other producers. The individual respondents are officers of the corporation, and as such operate and control its business activities. The Commission found that it adopted a method of leasing its films under a system known as "block booking." Under such plan, films were offered in blocks only. A block is a group of films offered as a unit, containing a number of individual motion pictures which are available for lease by exhibitors for three months or for one year. Such blocks contain 13 or 26 films, or 52 or 104 films, according to whether the theater changes films once or twice a week. The individual films in blocks being offered are not always identical. The blocks offered to an exhibitor contain certain films which the exhibitor may not want to lease, but he must lease all or none. He may not select some of the individual films and reject others contained in the block unless he exercises the option to pay prices found by the Commission to be arbitrarily fixed from 50 to 75 per cent. higher than the estimated prices of such films as part of the block. If the exhibitor declines to take all, the block is successively offered to his competitors until a lease is made. Only if all competitors refuse the block are the individual films offered to exhibitors upon some other basis arrived at by negotiation between the producer and exhibitors. The Commission determined this method of distribution to be unfair, and that the purpose and effect of the alternative offer is to coerce and intimidate an exhibitor into surrendering his free choice in the leasing of films, and into leasing films in blocks as offered, thereby denying to such exhibitor the opportunity and profit of leasing and exhibiting certain other films of higher qualities and which such exhibitor's patrons demand and which such exhibitor desires to exhibit. It is thus concluded by the Commission that this distribution policy lessens competition and tends to create a monopoly in the motion picture industry by tending to exclude from the market and industry independent producers and distributors of films, and denies to the exhibitors freedom of choice in leasing films.

There are seven other producers of major rank and some smaller who are in competition with the respondents. The evidence discloses the total number of feature pictures released annually, and the percentage thereof produced by the respondent in the years 1919 to 1923 is shown in the table a below. Since 1919 there has been a reduction in the percentage of feature films released by the respondent, and table b below sets forth the percentage which film rentals received by the respondent from feature pictures were of the total rentals paid to all producers and distributors for feature pictures for the same period.

Per Cent. FPL

Year All Companies FPL Released Released

1919 815 139 17

1920 735 116 16

1921 830 120 14

1922 707 95 13

1923 527 61 12

Percentage of

film rentals for

Period ...


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