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UNITED STATES v. LOEW'S INC.

January 20, 1966

United States
v.
Loew's Inc., et al.


Palmieri, District Judge.


The opinion of the court was delivered by: PALMIERI

PALMIERI, District Judge.

This is a petition by National General Corporation (National) pursuant to Article III, para. 7(b) of the Consent Judgment as to Twentieth-Century-Fox Film Corporation for permission to acquire eight conventional theatres, presently operated under the trade name of Town & Country Theatres. Six of these theatres are in Nassau County, Long Island, one in Warwick, Rhode Island, and one in Brooklyn, New York.

 It is common ground that Nassau County is a rapidly developing suburban area of New York City with a population of about 1,400,000, well served by public transportation facilities as well as a network of high speed parkways. It is a highly prosperous community.

 There is active and substantial competition in the motion picture exhibition business in Nassau County and there is every indication that this competition will increase. Including the six theatres that are here involved, there are 67 conventional theatres in Nassau County in addition to three drive-ins, with a total seating capacity of over 76,000. All but six of these 70 theatres are owned by eleven large circuit exhibitors who operate principally outside Nassau County. Thirty-three theatres customarily play on a first run while seven play first run for part of the time. The six Nassau County theatres here involved have operated and are intended to be operated on a showcase run *fn1" for virtually all their playing time. The evidence adduced at the hearing indicated that these theatres represented 18% to 26% *fn2" of the theatres in Nassau County which have been operating on the showcase run for substantially all of their playing time. The special characteristics of showcase exhibition tend to make this activity a special type of enterprise. It is recognized as such both by the trade and the public. In short, petitioner seeks to acquire a theatre chain, of which six of the eight components comprise an important segment of the competitive activity in first run motion picture exhibition in Nassau County.

 Relying upon two recent decisions of the Supreme Court, United States v. Penn-Olin Chemical Co., 378 U.S. 158, 12 L. Ed. 2d 775, 84 S. Ct. 1710 (1964), and United States v. El Paso Natural Gas Co., 376 U.S. 651, 12 L. Ed. 2d 12, 84 S. Ct. 1044 (1964), the Attorney General and an amicus curiae, Century Circuit, Inc. (Century) oppose the petition on the ground that the proposed acquisition "may be substantially to lessen competition" within the meaning of Section 7 of the Clayton Act. *fn3" In support of this contention, the following facts, which are substantially undisputed, are cited:

 1. Responsible representatives of petitioner made public statements early in 1965 through the motion picture trade press, that petitioner expected to open five to ten theatres on the east coast within the year, as part of a five year expansion program involving a major suburban theatre building program looking to the construction of 60 to 75 new theatres. It should be added, parenthetically, that in two of these statements allusion was made to the necessity for approvals of this Court under the consent decree.

 2. A new subsidiary has been formed by petitioner, Fox Eastern Theatres Corporation, to operate its planned eastern circuit.

 3. A senior member of petitioner's supervisory staff has been transferred from California to head the operation of the new theatres in the east, with headquarters in New York.

 4. Petitioner opened an office in New York City in September 1965 as headquarters for its planned eastern circuit, and for other purposes.

 5. The two principal executives of petitioner made a public statement in July 1965 to the effect that it was embarking upon a $50,000,000 three year, 100 theatre expansion program; that negotiations had been concluded for 32 new theatres and that of these, 13 were in the east. It can reasonably be assumed that of these 13 theatres, four have been involved in applications already submitted to this Court, *fn4" and eight are involved in the very petition now under consideration.

 The Government's opposition to the petition has been vigorously supported by Century appearing as amicus. Century is an independent circuit operating 14 theatres in Nassau County, at least 8 of them on a first run basis, and 21 theatres elsewhere. It is the most important exhibitor in Nassau County. *fn5" It contends, as does the Government, that the proposed acquisition of the Nassau County theatres will violate § 7 of the Clayton Act; that its effect will be "substantially to lessen competition" within the purview of that section; and consequently would unduly restrain competition within the meaning of the consent decree. The Government argues that "what National is doing by acquiring this Circuit is eliminating the potential competition of Town & Country" *fn6" (p. 77). Century argues that it would be deprived of the benefits of § 7 by being deprived of "a fair shot at the process of competition, at participating in the process of competition" (p. 98).

 The "Potential Competition" Cases Are Not Appropriately Invoked in this Case

 The El Paso Natural Gas case (supra) and the Penn-Olin case (supra), heavily relied on by the Government and the amicus in urging denial of the petition, were landmark cases decided within a short time of each other during the same term of the Supreme Court in 1964. Both involved § 7 of the Clayton Act (note 3, supra) and in both cases the Supreme Court reversed judgments for defendants on the ground that a substantial lessening of "potential competition" might result from defendants' acquisitions. The El Paso case was the first case in the Supreme Court to turn on the single question of potential competition. The decision ordered a large gas pipeline company (El Paso Natural Gas Co.) to divest itself of a smaller company (Pacific Northwest Pipeline Corp.) allegedly acquired to avoid competition with it in the potentially lucrative California market. Without using the term "potential competition", the opinion defined the area being protected as "the new increments of demand that may emerge with an expanding population and with an expanding industrial or household use of gas" (supra, 376 U.S. at p. 660), stressing that it was dealing with a regulated industry having special characteristics. The Court pointed out that "this is not a field where merchants are in a continuous daily struggle to hold old customers and to win new ones over from their rivals" (supra, 376 U.S. at p. 659).

 The Penn-Olin case was the first to reach the Supreme Court directly involving the application of § 7 of the Clayton Act to a domestic corporate joint venture. Acknowledging this, the Court added (378 U.S. at p. 169), "We are, therefore, plowing new ...


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