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March 29, 1956


The opinion of the court was delivered by: Hoffman, District Judge.

The original injunctive decree in this private antitrust action was entered on April 14, 1950. The decree was modified in accordance with the opinion of the Court of Appeals, 7 Cir., 190 F.2d 561, on January 25, 1952. An order interpreting the original decree was entered on June 10, 1953, in accordance with the opinion of the Court of Appeals, 7 Cir., 201 F.2d 19. The decree was further modified on December 21, 1953, on agreement of all the parties. On June 8, 1954, the plaintiff (petitioner here) filed this petition for a rule to show cause why the defendants (respondents)*fn1 should not be held in (civil) contempt for violation of the original decree as modified. The period covered by the record in this case is the years 1952-54.

Pursuant to Rule 53(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A., the matter was referred to Special Master James P. Carey, Jr., who took the evidence and prepared a report incorporating his findings of fact and conclusions of law. The Master found the issues in the defendants' favor. The petitioner filed objections to the Master's report, and a full hearing was had before this court. All of the evidence before the Master was documentary; no testimony was taken. The parties do not dispute the validity of the facts in evidence, but they draw sharply different conclusions from them.

While the petition for a rule to show cause, the Master's findings and the objections thereto cover several different issues, there is, as the court interprets this record, only one major (and one minor) ground upon which the alleged contempt is predicated — and that is the employment by the defendants of competitive bidding in a manner violative of Section V(b) of the decree. All of the more detailed findings and objections are simply particularized aspects of this central problem.

Brief reference may be had to the one activity complained of which is distinct from the problems raised by competitive bidding. The petitioner alleged that the distributors "staggered" the release of their films in such a way that they did not compete with one another in licensing pictures for first-run exhibition. The Master found no evidence to support the charge, and the court must agree. The exhibits which are said to reveal "staggering" are Pl. Ex. 1-6, which list all of the release data on pictures distributed by each of the six distributors, and Loew's Ex. 2, which is a composite list in chronological order of the films released by all six of the distributors. Hundreds of films were offered for exhibition during the 1952-54 period, and six (sometimes seven) theatres were playing first run in the downtown area. In the natural course of events films of the several distributors would become ready for release at different times, and of course playing dates would have to be adjusted to the availability of the theatre or theatres interested in showing the film. A considerable amount of "staggering" both in offering dates and in play dates seems inevitable. The petitioner has not pointed out a pattern of release which would demonstrate deliberate non-competition on the part of the distributors. If there is such a pattern, it eludes the court.

Section V(b) of the decree provides that the defendant distributors and exhibitors are perpetually enjoined from:

  "preventing plaintiff, in the operation of the Towne
  Theatre in the City of Milwaukee, Wisconsin, from
  contracting for or from securing in the course of
  interstate trade and commerce, at fair and reasonable
  film rental, any motion picture film or films
  suitable for first-run exhibition in the City of
  Milwaukee, Wisconsin, by refusing to offer such
  picture to plaintiff at such fair and reasonable film

This provision has previously been a subject of dispute between the parties. In 1952 the defendants sought a judicial interpretation of the provision. Specifically, defendants asked for an order saying that Towne was not entitled to a competitive position superior to that of any other exhibitor, but, in effect, they also sought approval of competitive bidding. In interpreting Section V(b), the Court of Appeals said that it was its belief that "competition would be the yardstick for determining a fair and reasonable rental." 201 F.2d at page 23. It continued:

This court, on June 10, 1953, entered a judgment order interpreting the decree in substantially the same language used by the Court of Appeals.

From time to time during this proceeding petitioner has directed a broadside attack at competitive bidding, arguing that it is not productive of fair and reasonable film rentals and that the system itself constitutes a violation of Section V(b) of the decree. While not always expressed, the theory behind this position is that the Towne, as a bulwark of independence in Milwaukee first-run exhibition, was to be guaranteed the right to stay in business — that is, to obtain films at a price which it could afford to pay. In other words, the competitive picture in Milwaukee and the nature of the alliance between the defendant distributors and exhibitors requires the presence of a healthy independent in order to avoid the realization of the original objective of the conspiracy — monopolizing first-run exhibition for the Fox and Warner theatres (which were then affiliated theatres). Competitive bidding is unlikely to preserve the independent as, it is claimed, has been demonstrated by this record, because Fox and Warner, as part of a nationwide chain, can afford to bid prices which the independent cannot meet, thus forcing it out of business. There is considerable evidence that Judge Barnes, who presided at all of the earlier proceedings in this litigation, held this view and for that reason would not approve competitive bidding. But however much merit there may be to the petitioner's general opposition to competitive bidding, we believe that the Court of Appeals has precluded this court from condemning the system as a whole, even on this record. The petitioner emphasizes a statement from the Bigelow opinion (Bigelow v. Loew's, Inc., 7 Cir., 201 F.2d 25, a decision rendered on the same day as Towne and involving interpretation of an identical provision) in which the Court of Appeals said:

    "It can be said, however, that there is nothing in
  the decree, either in the Towne or the instant case,
  which either requires or prohibits the distributors
  from utilizing a system of bidding as a means of
  determining a `fair and reasonable film rental.' In
  any event, it is the end result and not the system
  employed which is important." 201 F.2d at page 28;
  emphasis added.

But to focus attention on the language of "fair and reasonable film rental" is to ignore the underlying principle of the Towne and Bigelow decisions. The crucial holding was the manner in which a fair and reasonable film rental was to be established (and judged by the courts) — that is, by the operation of competition. It seems to the court that the only limitation on the defendant distributors, as a result of these decisions, is that they offer films to all exhibitors without discrimination in an atmosphere of free and open competition. If this is done, the resulting film rentals are the fair and reasonable rental required by the decree. Thus, operating losses of the Towne and the increased film rentals it pays — standing alone — do not show that films are being offered at unfair or unreasonable rentals. To state it bluntly, the Court of Appeals would permit the Towne to be forced out of business if this resulted only from natural competitive forces. So far as this record shows, the Towne has been offered the same right and opportunity to bid as its competitors.

The petitioner's contentions in this proceeding, however, go beyond a general condemnation of competitive bidding. What it is saying, if we may rephrase it in the language used here, is that the prices are not being determined in an atmosphere of free and open competition. Rather, the defendants — distributors and exhibitors — are manipulating the system to force up the cost of film rentals to an artificial level at which petitioner's losses will force it out of business. This would, in petitioner's view, achieve the goal of the original conspiracy — to confine first-run exhibition to the Fox and Warner theatres —, and it is possible because the much greater resources of the Fox and Warner chains enable them to operate at a loss until the goal is realized. The court agrees that if the petitioner's evidence supported this charge, a violation of the decree would be shown.

There are two ways in which petitioner could sustain this charge. The first would be to produce direct evidence of either a specific design on the part of each of the defendants individually or a joint plan of action to utilize competitive bidding in the manner charged. The former would constitute a violation because the decree operates against the defendants or any one of them. Not surprisingly, however, there is no direct evidence of individual or group design. The petitioner could also sustain its charge by pointing to facts so striking that they can lead only to the inference that the defendants cooperated (that is, conspired) to employ competitive bidding in the manner and for ...

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