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American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres Inc.

decided: December 15, 1967.

AMERICAN MANUFACTURERS MUTUAL INSURANCE CO., AMERICAN MOTORISTS INSURANCE CO., FEDERAL MUTUAL INSURANCE CO. AND LUMBERMENS MUTUAL CASUALTY CO.
v.
AMERICAN BROADCASTING-PARAMOUNT THEATRES, INC.



Friendly, Kaufman and Anderson, Circuit Judges.

Author: Kaufman

KAUFMAN, Circuit Judge:

Several insurance companies generally known as the Kemper Insurance Companies group, the appellants here, instituted this action on May 23, 1963 against American Broadcasting-Paramount Theatres, Inc. seeking a declaratory judgment that a television sponsoring agreement between Kemper and ABC constituted a tie-in which violated Section 1 of the Sherman Act, 15 U.S.C. ยง 1. The complaint, inter alia, sought treble damages in addition to a decree that the agreement was illegal and unenforceable. On May 31, 1967 -- almost 2 years after the parties had moved for summary judgment -- the District Court granted ABC's motion and denied Kemper's. This appeal followed from the judgment against Kemper. We believe that summary judgment, as intended to be utilized pursuant to Rule 56 of the Federal Rules of Civil Procedure, was inappropriately and imprudently employed in this case to resolve the important and exceedingly complex factual and legal dispute presented to the trial judge. We are of the view that the antitrust questions cannot be resolved for there remain material issues of fact that are not brought into sharp focus or clarified by the record before us. We therefore reverse and remand for further proceedings consistent with this opinion.

I.

A substantial portion of the District Court's careful and elaborate opinion (reported at 270 F. Supp. 619) is devoted to a detailed presentation of the factual background of the dispute. While we shall make an effort to avoid repetition, the complexities of the litigation will be sketched in order to clarify the reasons for our belief that summary judgment was inappropriate in this case.

ABC is one of 3 major television networks in the United States and during 1962-1963 approximately 260 television stations were affiliated with that network.*fn1 The greater part of network income is derived from selling programs to sponsors (advertisers). All the networks arrange financial terms and details with their advertisers, such as providing network programs, technical facilities and scheduling programs for clearance. The programs and "commercials" are ultimately broadcast to the public over the facilities of local stations which are licensed by the Federal Communications Commission.*fn2 The networks and local stations share the sponsor's payments on a percentage basis under the terms of an affiliation agreement.

In April 1961, ABC announced it would produce a nightly news program -- the "Evening Report" -- which it offered to its network stations on a 5-nights-per-week basis and by August, 95 stations had "cleared" (accepted) the program. These cleared stations are known in industry parlance as the "going lineup."

Under the typical affiliation agreement then employed by ABC, when a station cleared a program it was compelled to accept the sponsor provided by the network as well as those portions of the program for which the network could not find a sponsor. The local station did not receive any payment from ABC for broadcasting the unsponsored parts, but the apparent harshness of this arrangement was mitigated by the network's practice of "releasing" the unsold time to its affiliates for direct sale by them.*fn3 Another facet of these complex arrangements was that the local stations were required to "option" certain time periods and to accept programs (and sponsors) provided by ABC for those hours. "Evening Report," however, was not broadcast during an option period and the local stations were therefore free to accept or reject the program as they saw fit.

From time to time, it was the practice of ABC to issue "offering sheets" concerning "Evening Report." In essence, these are notices advising potential advertisers of the number of clearing stations, the prospective cost of the program, the names of other advertisers, if any, already sponsoring the program, and other relevant details. The gross price mentioned in the offering sheets was in large measure dependent on the hourly station rates of the individual local stations which had cleared the program. ABC published these rates in a so-called "rate card" which was designed to reflect such factors as the number of homes with television sets reached by the particular station, the quality of its signal and the number of competing stations. In addition to the rate card time charge, the gross price contained in the offering sheet included a program charge and a "networking" charge. The offering sheet of April 27, 1961 is typical and its essential terms are set out in the margin.*fn4 We have been told that the offering sheet gross price was only a starting point for negotiations; a variety of "special discounts" were offered potential advertisers.*fn5 And, the ultimate price charged was the product of detailed negotiations between advertiser and network.*fn6 In fact, Kemper alleges and ABC does not deny that "Evening Report" was not sold by ABC to a single sponsor at full rate card.

The Kemper-ABC contract, dated August 15, 1962 (and resulting from extended negotiations), provided inter alia, that Kemper would sponsor "Evening Report" one evening per week for 26 weeks over 130 local television stations. But Kemper insists that it did not want to advertise over 32 of these stations and that it had agreed to take them only because ABC refused to make available the 95 stations it did want -- except at an unreasonable cost -- unless Kemper agreed to take the entire lineup.*fn7 According to Kemper, a detailed analysis convinced it that it did not do a sufficient amount of business in the markets served by the 32 stations to justify advertising over them. Moreover, it claims that it did not seek business from these areas because it could not adequately service customers located there. ABC admits that Kemper sought to eliminate the 32 stations but contends that the lineup question was of minor importance in Kemper's advertising policies. It also states that Kemper ultimately took the entire package offered by ABC because it best served Kemper's needs. On its surface, it would appear that the contract does not reflect an illegal tie-in; it merely recites an agreement to sponsor a program over 130 different stations. But, we are urged not to overlook that ABC's alleged coercion is said to have taken place during the extensive period of negotiations which culminated in the contract.

Since the history of the negotiations is fully set forth in Judge Tenney's opinion, we will repeat only so much of it as will aid in comprehending our ultimate conclusion. It is not disputed that at a meeting in ABC's New York offices on January 25, 1962, Edgar Sherick, then ABC's vice president in charge of network sales, offered Buckingham W. Gunn, a senior official of Kemper's advertising agency, Clinton E. Frank, Inc., the right to sponsor "Evening Report" at a package price of $22,000 per one quarter-hour segment for 2 segments per week over a 26 week period. The talks were preliminary, and detailed negotiations continued between officials of Kemper and the Frank agency and members of ABC's Chicago office. These talks culminated in a meeting that was held in the Chicago offices of the Frank agency on April 27, 1962 -- by which time the going lineup consisted of approximately 99 stations. The subject matter under considerable discussion was that Kemper would order 39 segments of "Evening Report" over a 26 week period but would have the right to reduce its order to one segment per week if within 30 days of signing the contract not all the stations in Kemper's key markets cleared the program. The price was to be $22,000 per segment for 39 segments and $24,000 if only 26 segments were ordered. In addition, Kemper expressed an interest in 28 stations which had not yet cleared the program. ABC was willing to agree to furnish 15 of these stations at a maximum charge of $3,000 (assuming all cleared) and the remaining 13 at "no charge."

On or about May 4, 1962 Kemper submitted its first "order letter" for "Evening Report" in which it asked for 39 segments over a 26 week period. The lineup requested consisted of 95 stations -- 67 of the 99 already cleared as well as the 28 requested at the April 27th meeting. For this package Kemper offered a total price of $24,250 which its order letter broke down into a time charge which was not to exceed $18,750, a program charge of $5,000 and a $500 networking charge. The time charges were to be reduced by the "package rate" of any of the ordered stations that did not clear the program. Kemper conditioned its order on all the stations in its 41 "key markets" clearing.

According to ABC, Kemper's May 4th order improperly substituted the 28 stations it had requested at the April 27th meeting for 32 of the stations that were part of the going lineup which ABC had offered. And, Kemper attempted to get these stations at the package rates discussed at the April 27th meeting even though the time charges for the 28 stations totaled more than twice those for the 32 stations. Accordingly, ABC rejected Kemper's order and on May 10, 1967 counter-offered Kemper the full 99 station lineup (which included the 67 stations ordered on May 4th) at a time charge of $15,750 and the 28 stations at a total cost of $3,000. With the program and network charges included, the cost was $24,250 -- the same as in Kemper's May 4th order. Although it was thus offered extra stations at no extra cost, Kemper maintains that it wanted and preferred the package as it ordered it on May 4th. It alleges that ABC consistently refused to sell it the lineup it sought except at full rate card -- that is, without the 47 1/2 per cent discount reflected in the April 27th discussions. ABC admits that it refused to sell Kemper its limited lineup at the April 27th package rate although Kemper was asking for fewer stations at the same price; but, it responds (and Kemper denies) that it would be expensive to black out Kemper's commercials on the unwanted stations. Also, ABC tells us that it never insisted on Kemper paying full rate card for the smaller lineup but rather offered to negotiate further. In any event, Kemper ultimately accepted the entire lineup of 130 stations and a contract was signed.

II.

The life of the Kemper-ABC agreement (dated August 15, 1962) proved to be less than the period consumed by the negotiations already discussed. After only 4 of the 26 ordered broadcasts, Kemper notified ABC that it considered its obligations under the contract at an end. It declared that on November 11, 1962, ABC had broadcast a program titled "The Political Obituary of Richard M. Nixon" during which Alger Hiss was permitted to evaluate Mr. Nixon's role in the Hiss perjury case. The program was promoted on broadcast time sponsored and paid for by Kemper and in substance it contended that ABC violated the contract by associating Kemper with a program that was in poor taste. Two days later Kemper advised ABC that it was cancelling its sponsorship. Efforts at reconciliation proved fruitless and on January 9, 1963 ABC filed suit in the New York Supreme Court for breach of contract. A final judgment was ultimately entered for $265,047.21. 48 Misc. 2d 397, 265 N.Y.S. 2d 76, aff'd, 24 App. Div. 2d 851, 265 N.Y.S. 2d 577 (1st Dept. ...


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