346 U.S. 537, Theater Enterprises, Inc. v. Paramount Film Distributing Corp. et al (1954)
- Abstract of case
The case relates to a Supreme Court appeal decided on January 4th 1954 in which the petitioner was seeking to have the court find the defendants liable in violation of the Anti-Trust laws. The petitioner resided on the Sherman Act and the Clayton Act. The contention lay in the manner in which the first and subsequent runs of a film were conducted by the defendants to the detriment of the petitioner and whether their action (which in the opinion of the petitioner) amounted to conspiracy in restrain to trade as envisaged by the Ant-Trust laws. It was well enunciated by the defendants that their actions were within the law and that they did not act contrary to the provisions of the Sherman Act and the Clayton Act. In addition, the judges found that the petitioner was confronted with a business encumbrance that did not as such amount to a violation of the Anti-Trust laws. In that context, the judges distinguished this case from United States v Paramount Pictures, Inc.; it was the position of the court that the defendants were not in violation of the law by the mere fact of conspiracy to deny the petitioner the rights in respect to holding the first and subsequent runs to the exclusion of the downtown theaters.
- Provisions invoked to show presence of anticompetitive behavior
The petitioner relied on section 4 and 16 of the Clayton Act asserting that by the defendants conspiring to deny it the permission to have the first and or subsequent runs, they had acted contrary to the spirit of competition laws. In more detail, the petitioner argued that the fact that it could not have the opportunity to display the first and subsequent runs limited its potential in the market to the advantage of the others in the downtown locations.
- Basis of Ruling
Foremost, the judges appreciated the fact that the market was monopolistic in nature. In that context, the market was free in terms of entry and exit. It allowed fair and perfect competition. The judges, therefore, did not find reason or persuasion to order for the petitioner to be given the opportunity to have the runs. The judges were of the opinion that as the market was basically perfect, so was the competition to be left among the competitors. In that vein, it was uneconomical and non-viable for the petitioner to be granted either an exclusive run or a run based on a date and time basis. That arrangement would have acted to the detriment of the downtown theaters. Incidentally, the theaters were also owned by two of the defendants who had their own economic interests to pursue and protect. Interestingly, even though the market was perfectly monopolistic in nature, the defendants controlled 63% of the market hence strengthening their grasp and position in the market. It was consequently outside normal practice for the system to favor the petitioner whose interests in the case were merely secondary to the interests of the defendants. It equally needs to be appreciated that the market in question was perfect hence the need for free systems without interference by court.
- Anticompetitive conduct
In the case the petitioner inferred that the act of denying it the opportunity to participate in the first and subsequent runs and clearances amounted to an anticompetitive conduct. It was the submission of the petitioner that the runs by their sensitive and business nature, the defendants were supposed to be gracious enough to either allow it an exclusive run or at the least allow a run on a date and time basis. The petitioner relied in the decrees as outlined in the United States v Paramount Pictures, Inc. and the provisions of the Sherman Act as to conspiracy. However, as the judges found, the conspiracy as held in the Paramount case was distinguished from the particular case and it was held that no anticompetitive conduct had been proved to the satisfaction of the court.
- Effect of Defendant’s conduct
The defendants’ conduct had the effect of winning customers to their theaters. Consequently, to the other market players, the fact that they did not participate in the first and subsequent runs denied them customers and clients. However, that was the whole purpose and tradition of the business. In the open and free market, the players are left to compete within the framework and structure of the law. By denying other players the opportunity to participate in the first and subsequent runs of that particular film, the defendants were able to limit the amount of competition and subsequently earn more revenue from the market. However, it should be appreciated that the manner of the conduct of the defendants was within the provisions of the law.
- Initial legal action
The appeal was from the Court of Appeal which had upheld the decision of the jury at the District Court. The Supreme Court, therefore, merely upheld the decision that had long been arrived at by the lower courts.
- No subsequent legal action has the case had been decided at the Supreme Court which is the final arbiter in the judicial system of the United States of America.
- Structure, Conduct and Performance
The courts must have looked at the case in its entirety and not merely arrived at its decisions based on isolated views of the issues at hand. This argument is arrived at from the structure, conduct and performance analysis. Foremost, it needs to be appreciated that the market in question was the film market involving a number of players. In other words, the market was a perfect monopolistic market with free entry and exit to players. In addition, the customers exercised freedom of choice and reverted to the supplier with the best product. Given the monopolistic market, the defendants were merely acting within the law of competition to ensure they reap the most from the market. In that context, it can be reported that their conduct was dictated by the market conditions. Their denial of the petitioner the right to participate in the runs was, therefore, not contrary to the competition law but an act entertained by the law under the free market concept. In addition, consideration should be put on the inconvenience they would have suffered if they granted the petitioner his demands. For instance, the permission to participate either exclusively or by a date and time basis would have had detrimental effect to the downtown theaters. As it has been cited the suburban petitioner’s theater was within a small locality with little space and less market. In that context, it would have been uneconomical for the defendants to grant the petitioner the exclusive rights of the first and subsequent runs.
The conduct of the market needs to be examined in the purview of the law and the developments from the case. The conduct of the market which ideally refers to the behavior of the sellers and buyers is dictated by the structure of the market. As it stood, the market was monopolistic leading the defendants as the suppliers to behave in a particular manner. It was the conditions of the market which cumulatively informed the defendants’ actions as to restriction of the runs and features. In addition, the reaction of the buyers (consumers) was informed by the market conditions. The consumers have been attuned to receive and appreciate the best the market offers. It was, therefore, expected that the consumers would rush to watch the new releases in the first and subsequent runs. The petitioner’s interests were premised on the same. Indeed, the performance thereof was successful because of the ultimate holding of the case. The court in the long run ruled in favor of the defendants. It should be appreciated that the defendants were within the confines of the law in their actions. What they did merely amounted to an exploitation of the market opportunities. They had used their discretion and by not allowing the petitioner the opportunity to participate in the first and subsequent runs, they had effectively shaped the nature of the performance. The outcome was evidently in favor of the defendants in economic terms as they were able to make sufficient returns by not foregoing any dates as requested by the petitioners. In the long run, the case brought forth matters of interpretation of Anti-Trust Laws. It laid the distinction between the holding in United States v Paramount and the particular case in matters of conspiracy.
Works Cited
Theater Enterprises, Inc. v. Paramount Film Distributing Corp. et al, 346 U.S. 537 (Supreme Court January 4, 1954).
Hovenkamp, H. (2006). The Antitrust Enterprise: Principle And Execution. Boston: Harvard University Press.
Hylton, K. N. (2010). Antitrust Law and Economics. New York: Edward Elgar Publishing.
