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ORBO THEATRE CORP. v. LOEW'S

December 4, 1957

ORBO THEATRE CORPORATION, Plaintiff,
v.
LOEW'S, Incorporated, et al., Defendants



The opinion of the court was delivered by: HOLTZOFF

This is the trial of a private civil action for an injunction and triple damages based on an alleged violation of the antitrust laws. Since no jury was demanded, the trial was by the Court alone. Accordingly, at the opening of the trial, the Court directed that the issue of liability be heard first and announced that if the plaintiff prevailed the trial would be resumed for the purpose of ascertaining the amount of damages, if any. The trial on the issue of liability having been concluded, this opinion deals with that subject.

This action is brought by the lessee and operator of a motion picture theater in Rockville, Maryland, against a number of motion picture producers and distributors. The plaintiff complains that it is the practice of the defendants to withhold the relase of motion pictures to the plaintiff's theater until after the expiration of a waiting period of twenty-one days following the completion of their premiere showing in Washington, D.C. It is contended that this course is illegal as a violation of the Sherman Act. The complaint prays for an injunction against the continuation of the alleged conspiracy and for triple damages.

 Section 3 of the Sherman Act, 15 U.S.C.A. § 3, under which this action was brought, provides as follows:

 'Every contract, * * * or conspiracy, in restraint of trade or commerce in * * * the District of Columbia, or in restraint of trade or commerce between * * * the District of Columbia and any State or States * * * is declared illegal.'

 Section 4 of the Clayton Act, 15 U.S.C.A. § 15, which permits a suit to be maintained by any person who has been injured by a violation of the Sherman Act, reads as follows:

 'Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.'

 The following facts appear from the evidence. All of the defendants, with the exception of United Artists Corporation, are producers and distributors of motion picture films. The defendant, United Artists Corporation, is a distributor of pictures originated by various producers. Distributors are engaged in the business of renting motion picture films for public showing on specified dates by exhibitors, who own or operate motion picture theaters. It would be manifestly impracticable, and even tend to create chaos, to throw the product on the market for contemporaneous use in all theaters in the country or even in the same vicinity. The general usage of distributors is, therefore, to begin the circulation of a new picture by first renting it to a large centrally situated theater in several selected localities, and then after its showing is completed in that theater and after the lapse of a specified waiting period, to rent the film to smaller theaters in the same general area. The practice is not to show a picture simultaneously at two competing theaters. Frequently competing houses are accorded an opportunity to bid for an available picture, which is then awarded to the exhibitor submitting the most favorable proposal.

 Ordinarily, a separate contract is drawn for the showing of each individual picture. Contracts with the so-called 'first run' theaters commonly contain a negative covenant to the effect that the picture is not to be released for exhibition to any other theater until after the expiration of a specified waiting period subsequent to the close of the first showing. In the jargon of the trade this waiting period is known as a 'clearance'. In Washington and surrounding areas in Maryland the clearance period generally adopted is three weeks after the end of the first showing. In Alexandria, Virginia, which is close to Washington, on the south bank of the Potomac River, the period commonly used is fourteen days after the close of the first exhibition in Washington. It is contended by the defendants that such negative covenants are indispensable for the protection of the first exhibitors against undue inroads by competition. It is claimed that if a film were released to neighborhood theaters either simultaneously or immediately following its first showing, many potential customers, who would otherwise view the picture at the first run theater, would wait until it reached their neighborhood houses. It is customary for theaters to publicize a picture at least a few days before its exhibition commences and unless there were an interval such as has been described above, neighborhood theaters would be advertising the picture while it was still being shown at a centrally located, large theater and thereby adversely affect the patronage of the latter. By the same token, it is to the best interests of distributors to cooperate with the first run houses in obtaining as large an attendance as possible at the first exhibition. The rental charged for a picture is ordinarily not a flat sum, except for old films, but a percentage of the gross receipts. The percentage exacted is generally higher on the first display than it is on the subsequent neighborhood exhibitions. Moreover, the theaters utilized for premiere showings usually have a greater seating capacity and charge higher admission prices than the others. Consequently, a large proportion of the income of distributors is derived from first run displays, and a relatively smaller percentage from later local exhibitions. These are legitimate business considerations.

 Each of the defendants has a head office in New York, and also maintains a regional or branch office in Washington, to serve the District of Columbia, Maryland, Virginia, and parts of West Virginia and Delaware. All contracts for the exhibition of films in this territory are negotiated through the Washington office and the films are shipped from there to the various theaters. Apparently the business is conducted in a highly centralized manner, because all contracts are approved or confirmed in New York, and all clearance periods are ratified by the head office. Unquestionably, therefore, the defendants are engaged in commerce in the District of Columbia, as well as in commerce between the District of Columbia and a State or States, and, therefore, their transactions are within the cognizance of the Sherman Act.

 Prior to the time involved in this action, there had been established in Rockville a motion picture theater known as the Rockville Drive-In which, as its name indicates, is a theater catering to motorists. There was also a small deteriorated theater in Rockville, known as the Milo Theater. In the fall of 1955, the plaintiff purchased the Milo Theater, and renovated and remodeled it at considerable expense. New seats and new sound and projection apparatus were installed. Its name was changed to the Villa Theater. It opened for operation under the new management on December 1, 1955.

 About a month previously to the opening of the Villa Theater, the plaintiff wrote similar letters to all of the defendants, requesting that pictures be furnished to the Villa on a fourteen-day clearance. It was contended that the new theater was entitled to clearance and 'protection' over the Drive-In Theater, since the latter operated only during nine months of the year, while the Villa planned to be open the year round. None of the letters gave any indication that an identical demand was being made on anyone else. This request posed a problem for the distributors. The Drive-In Theater is commodious, has a considerable capacity, and was in successful operation. To have yielded to the demand would have been to discriminate against the Drive-In Theater. Moreover, pressure on the part of theaters in Bethesda, Silver Spring and Wheaton for similar treatment and, therefore, a reduction of the twenty-one day clearance to a fourteen-day clearance could reasonably be anticipated in the event that the request of the Villa were granted. In turn, there was a possibility of repercussion from neighborbood houses in Washington.

 Each of the defendants, with the exception of Warner Brothers, in the course of the ensuing two or three weeks replied to the plaintiff pointing out some of the above-mentioned considerations and declining the request. Each of these distributors, however, offered to institute a system of competitive bidding as between the Rockville Drive-In Theater and the Villa Theater during the parts of the year when the Drive-In Theater was in operation, and to supply pictures to the Villa on a twenty-one day clearance during other periods. The defendant Warner Brothers replied by a note offering to discuss the matter orally with the plaintiff's representative at his convenience. A system of competitive bids on the basis of a twenty-one day clearance was ...


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