The federal government's case, filed in 1938, was settled with a consent decree in 1940,[2] which allowed the government to reinstate the lawsuit if, in three years' time, it had not seen a satisfactory level of compliance. Among other requirements, the consent decree included the following conditions:
The Big Five studios could no longer block-book short film subjects along with feature films (known as one-shot, or full force, block booking);
the Big Five studios could continue to block-book features, but the block size would be limited to five films;
(3) blind buying (buying of films by theater districts without seeing films beforehand) would now be outlawed and replaced with "trade showing," special screenings every two weeks at which representatives of all 31 theater districts in the United States could see films before they decided to book a film; and
the creation of an administration board to enforce these requirements.[3] The film industry did not satisfactorily meet the requirements of the consent decree, forcing the government to reinstate the lawsuit—as promised—three years later, in 1943. The case went to trial—with now all of the Big Eight as defendants—on October 8, 1945, months after the end of World War II.[4]
The case reached the U.S. Supreme Court in 1948. The verdict went against the movie studios, forcing all of them to divest themselves of their movie theater chains. In addition to Paramount, RKO Radio Pictures, Inc., Loew's, 20th Century-Fox Film Corporation, Columbia Pictures Corporation, Universal-International, Warner Bros., the American Theatres Association and W.C. Allred (the former of which no longer exists as a film studio) were named as defendants.
This, coupled with the advent of television and the attendant drop in movie ticket sales, brought about a severe slump in the movie business, a slump that would not be reversed until 1972, with the release of The Godfather, the first modern blockbuster.
The Paramount decision is a bedrock of corporate antitrust law, and as such is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.
Decision[edit]
The Court ruled 7-1 in the government's favor, affirming much of the consent decree (Justice Robert H. Jackson took no part in the proceedings). William O. Douglas delivered the Court's opinion, with Felix Frankfurter dissenting in part, arguing the Court should have left all of the decree intact but its arbitration provisions.
Douglas[edit]
Douglas's opinion reiterated the facts and history of the case and reviewed the District Court's opinion, agreeing that its conclusion was "incontestable".[5] He considered five different trade practices addressed by the consent decree:
Clearances and runs, under which movies were scheduled so they would only be showing at particular theatres at any given time, to avoid competing with another theater's showing;
Pooling agreements, the joint ownership of theaters by two nominally competitive studios;
Formula deals, master agreements, and franchises: arrangements by which an exhibitor or distributor allocated profits among theaters that had shown a particular film, and awarded exclusive rights to independent theatres, sometimes without competitive bidding;
Block booking, the studios' practice of requiring theaters to take an entire slate of its films, sometimes without even seeing them, sometimes before the films had even been produced ("blind bidding"), and
Discrimination against smaller, independent theaters in favor of larger chains.
Douglas let stand the District Court's sevenfold test for when a clearance agreement was a restraint of trade
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