The opinion of the court was delivered by: Mills, District Judge:
A criminal antitrust prosecution.
The jury returned a verdict of not guilty as to each Defendant.
The Court agrees — in aces, spades, and trumps!
Judgment is hereby entered in favor of the Defendants and against the
Government on that verdict.
On May 8, 1985, a federal grand jury sitting in Springfield, Illinois,
returned a one-count indictment charging Kerasotes-Illinois Theatres,
Inc., Kerasotes Enterprises (collectively called "Kerasotes"), and Dan
Owen with having engaged in a conspiracy in restraint of trade in
violation of section 1 of the Sherman Act, 15 U.S.C. § 1. The
specific business practices that allegedly violated the Sherman Act in
this case are called "split agreements" which, until recently, were a
common phenomena in the motion picture industry.
As defined by the Justice Department, a split agreement, also known as
a "split-of-product," is an arrangement by which motion picture
exhibitors in a particular market allocate among themselves the right to
negotiate or bid for films offered by distributors for exhibition in that
locale. Exhibitors also agree that they will refrain, either completely
or for a stated period, from negotiating or bidding against each other
for the right to exhibit films so allocated. Occasionally, film
distributors are parties to the split agreements, but in many instances
they involve only exhibitors.
This case involved motion picture splitting in Quincy, a small city in
West Central Illinois on the Mississippi River with a population of
approximately 42,000. There are two theatre chains in Quincy: Kerasotes,
the larger of the two, operates three theatres with a total of 7
screens. The other, Dickenson, operates one theatre with 3 screens.
As was their practice for numerous years, every few months employees of
Kerasotes and Dickenson talked on the phone to allocate which films each
of them would purchase from the film distributors. In the telephone
conferences, Kerasotes and Dickenson would take turns choosing a
first-run film, with the exhibitor that chose second the previous time
The distributors were well aware of — and even encouraged
— this practice. For instance, when a movie was about to be
released, distributors would often call and ask one of these Quincy
exhibitors if it had split yet. In addition, both Kerasotes and Dickenson
attempted to accommodate the distributors in their selection of movies by
playing first run movies as they were scheduled for release by the
producers and distributors. These arrangements worked well, as is
demonstrated by their prevalance across the nation. There was ample
testimony in this case that everyone — film producers,
distributors, exhibitors and viewing public — benefited by the
split agreements. In fact, when splits between exhibitors ceased, the
distributors merely took over the job of allocating the films to the
exhibitors, receiving whatever prices they charged or negotiated, as
At trial, Defendants contended that during the time periods covered
by the indictment (December 1983 — July 1985), the legality of
splits was unsettled. Here is the unchallenged chronology of the pertinent
II. Prior to 1977, federal courts held that splits
were to be judged under the "rule of reason" analysis
and found them lawful when the distributor consented.
See, e.g., United States v. Lowe's, Inc., 1962 CCH
Trade Cases ¶ 70, 347 at p. 76,374 (S.D.N.Y.
1962); Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17, 19
(9th Cir. 1971). Under these guidelines, motion
picture splitting flourished and remained a widespread
practice among exhibitors.
III. Then, in April of 1977, the Justice Department
issued a press release*fn1 stating that it regarded
any form of split agreement ...