The opinion of the court was delivered by: DAWSON
This is an action tried by the Court without a jury wherein the plaintiffs seek treble damages under the anti-trust laws, 15 U.S.C.A. §§ 1, 2, 15, against Loew's, Inc. (hereinafter called 'Loew's') and RKO Theatres, Inc. and RKO Film Booking Corp. (hereinafter called 'RKO').
Proceedings Prior To Trial.
The complaint was filed on October 3, 1950. It named as defendants all of the distributor defendants named in United States v. Paramount Pictures, Inc.
(hereinafter called the 'Paramount case'). As to the distributor defendants, it sought injunctive relief. As to the present defendants, it sought injunctive relief and treble damages in the amount of $ 15,000,000 plus attorneys' fees.
In the original complaint, Eagle Lion Classics, Inc. was named as one of the parties plaintiff. In 1951, this corporation was sold to United Artists Corp., one of the distributor defendants. Following a settlement of disputes which arose over the contract of purchase, Chesapeake Industries, Inc., the parent corporation among the plaintiffs, gave United Artists a release on December 31, 1953. Thereafter, on the defendants' motion, Judge A.N. Hand dismissed the complaint, Eagle Lion Classics, Inc., v. Loew's, Inc., D.C., 121 F.Supp. 128, on the grounds that the sale of Eagle Lion Classics, Inc., the only party plaintiff threatened by the conspiracy, made the claim for injunctive relief moot, and that the claim for damages against the exhibitor defendants had been released by the release of one joint tortfeasor without reserving rights against the others. The plaintiffs appealed the dismissal of the complaint, insofar as it related to the damage claims. The Court of Appeals reversed on the ground that none of the claims for damages was the subject of the release, 2 Cir., Feb. 1, 1955, 219 F.2d 196. This action, therefore, involves only the claim for damages against the two remaining defendants, Loew's and RKO.
The complaint is based exclusively on alleged violations of the anti-trust laws. The issues were framed in a pre-trial order entered by Judge Ryan of this Court on November 2, 1953. Such issues must, in the absence of modification, control the subsequent course of the action, Calendar Rule 18, S.D.N.Y. The issues as set forth in the pre-trial order are as follows:
'1. Did the defendants combine and conspire in violation of the anti-trust laws of the United States to exclude the plaintiffs from the opportunity of licensing on a competitive basis their feature motion pictures to Loew and RKO theatres which exhibit feature motion pictures in the New York metropolitan area on runs subsequent to first run Broadway?
'2. If so, were the plaintiffs directly damaged in their business or property as the result of the said illegal combination and conspiracy and, if so, in what amount?'
There are four affiliated parties plaintiff (referred to herein as 'the plaintiffs') to the present suit:
Eagle Lion Studios, Inc. -- a California corporation engaged in the business of producing motion pictures up to 1949;
Eagle Lion Films, Inc. -- an Ohio corporation engaged in the business of distributing the films produced both by its affiliate (above) and by other producers from 1945 until June, 1950;
PRC Productions, Inc. -- a Delaware corporation organized in 1943 and engaged in the business of producing motion pictures until 1946 when all of its assets were transferred to Eagle Lion Studios, Inc., above; and
Chesapeake Industries, Inc. (formerly Pathe Industries, Inc.) -- an Ohio corporation which owns all of the stock of the other three parties plaintiff.
There are at present three defendants:
Loew's, Inc. -- a Delaware corporation, now engaged in the business of producing and distributing motion pictures and formerly, at the times material to this action, engaged in the exhibition of motion pictures in theatres owned or controlled by it either directly or through subsidiaries;
RKO Theatres, Inc. -- a New York corporation engaged in the business of exhibiting motion pictures in theatres owned or controlled by it; and
RKO Film Booking Corp. -- a New York corporation engaged in the business of booking films for exhibition.
Originally there were six other defendants, all nationwide film distributors, but the action was dismissed as to them.
The defendants are corporations which operate those motion picture theatres in metropolitan New York which are known, respectively, as the Loew's and RKO circuits.
2. Area involved in the action.
The New York metropolitan area, which under the pretrial order is the area involved in this action, is defined in the complaint as 'the five boroughs of greater New York City, southern portion of Westchester County and western portion of Nassau County, New York State'. No part of the State of New Jersey is included in the New York metropolitan area, as defined in the complaint and in the interrogatories submitted by the plaintiff.
3. Period of time involved in the action.
The complaint alleged that the conspiracy which caused it damage began prior to 1944, but it was stipulated that the only claim for damages was in the period from September 1, 1946 to September 1, 1950. The action was instituted on October 3, 1950.
4. The activities of the plaintiffs prior to September 1, 1946.
In 1943, PRC Productions, Inc. was created to produce low budget pictures, and PRC Pictures, Inc. was created to distribute those low budget pictures. In 1946, PRC Pictures, Inc. was dissolved, and its distribution activities were assumed by Eagle Lion Films, Inc. and its assets were transferred to Eagle Lion Studios, Inc. In that year, the parent company, Chesapeake Industries, Inc. (then known as Pathe Industries, Inc.) decided to make and distribute higher budget pictures, and determined that its subsidiary, Eagle Lion Studios, Inc. would produce them and Eagle Lion Films, Inc. would distribute them. This was in part because of the fact that in 1945, an informal agreement was reached with the J. Arthur Rank organization of England which provided, in effect, that Chesapeake Industries, Inc. would produce a minimum of five pictures a year for distribution by the J. Arthur Rank organization in England and other areas, and that the English company would produce five pictures to be distributed by Chesapeake Industries, Inc. or its affiliates. This agreement was reached informally in 1945.
In September, 1946, Chesapeake created Eagle Lion Films, Inc. to distribute the pictures in accordance with this contract, and in November, 1946, created Eagle Lion Studios, Inc. to produce the pictures. The agreement with the J. Arthur Rank organization was not formally signed until April 18, 1947. Eagle Lion Studios, Inc. was put into funds to take over the production facilities of a studio in Hollywood, California, and a million and a half dollars was invested to put it in condition to make these pictures. Eagle Lion Studios, Inc. continued to make some low budget pictures and some westerns, but also embarked upon a program of making some more expensive pictures.
During all of the years from 1946 through 1951, plaintiffs' motion pictures activities resulted in a loss. This loss, however, was not merely in the distribution of pictures. The figures introduced in evidence showed that in this five-year period, the average annual loss of the plaintiffs was $ 2,271,573 in its production activities, and $ 495,425 in its distribution activities. These figures represent plaintiffs' activities on a worldwide basis. This action is merely limited to the situation in the New York metropolitan area and in connection with the licensing of pictures on runs 'subsequent' to first run theatres.
5. Subsequent run theatres.
'Subsequent run' means all theatres except the approximately 40 first run theatres principally concentrated in the Broadway midtown area and includes first subsequent run, second subsequent run, and so forth. The total number of subsequent run theatres in the area involved and in the period involved has been variously estimated at from 600 to 800. Subsequent run theatres are frequently called 'neighborhood theatres'.
Of these subsequent run theatres, there were during 1946-1950 operating on a first neighborhood run basis some 44 or 45 theatres belonging to Loew's, some 31 to 36 theatres belonging to RKO, and some 17 others. Loew's also operated 13 or 14 second neighborhood run theatres, and RKO operated from 1 to 3 second neighborhood run theatres. First run neighborhood theatres were theatres which ordinarily displayed the pictures following a run in the first run theatres. However, there were times when pictures would be shown in the first run neighborhood theatres even though they had not been shown in first run theatres. The plaintiffs have not complained of any discrimination against their pictures in the first run theatres, but base their complaint solely upon the failure to license their pictures for the first run neighborhood theatres of the RKO and Loew's chains.
In addition to the Loew's and RKO circuits, there were in 1948 seven other subsequent run circuits in the area comprised of between 29 and 78 theatres each ...