Paramount Pictures Inc Vs the United States of America
(Hollywood Antitrust Case of 1948)
About Paramount Pictures:
Paramount Pictures Corporation is an American film and television production and distribution company and the main division of Paramount Global. It is the fifth oldest film studio in the world, and the second oldest film studio in the United States located within the city limits of Los Angeles.
About Case:
Paramount Case was a landmark United States Supreme Court antitrust case that decided the fate of film studios owning their own theatres and holding exclusivity rights on which theatres would show their movies. It would also change the way Hollywood movies were produced, distributed, and exhibited. The legal issues originated in the silent era when the Federal Trade Commission began investigating film companies for potential violations under the Sherman Antitrust Act of 1890.
Sherman Antitrust Act of 1890: The Sherman Antitrust Act of 1890 is a United States antitrust law that prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
The Sherman Act broadly prohibits
1) Anticompetitive agreements
2) Unilateral conduct that monopolizes or attempts to monopolize the relevant market.
The major film studios owned the theatres where their motion pictures were shown, either in partnerships or outright. Thus, specific theatre chains showed only the films produced by the studio that owned them. The studios created the films, had the writers, directors, producers, and actors on staff (under contract), owned the film processing and laboratories, created the prints, and distributed them through the theatres that they owned: In other words, the studios were vertically integrated, creating a de facto oligopoly. By 1945, the studios owned either partially or outright 17% of the theatres in the country, accounting for 45% of the film-rental revenue. Ultimately, this issue of the studios’ then-alleged (and later upheld) illegal trade practices led to all the major movie studios being sued in 1938 by the U.S. Department of Justice. As the largest studio, Paramount Pictures was the primary defendant, but all of the other Big Five (Metro-Goldwyn-Mayer, Warner Bros., 20th Century Fox, and RKO Pictures) and Little Three (Universal Pictures, Columbia Pictures, and United Artists) were named, and additional defendants included numerous subsidiaries and executives from each company. Separate cases were also filed against large independent chains, including the 148-theater Schine. The federal government’s case was initially settled in 1940 in the District Court for the Southern District of New York with a consent decree; which allowed the government to resume prosecution if studios were noncompliant by November 1943. The studios did not fully comply with the consent decree. In 1942, they instead, with Allied Theatre Owners, proposed an alternate “Unity Plan”. Under the Plan, larger blocks of theatres were blocked with the caveat of allowing theatres to reject films. The case reached the United States Supreme Court in 1948; their verdict went against the movie studios, forcing all of them to divest themselves of their movie theatre chains. This, coupled with the advent of television and the attendance drop in movie ticket sales, brought about a severe slump in the movie business. The Paramount decision is a bedrock of corporate antitrust law and is cited in most cases where vertical integration issues play a prominent role in restricting fair trade.
Decision:
The Supreme 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 decrees intact except its arbitration provisions.
Effect on Paramount Pictures:
The United States Department of Justice Antitrust Division began a review of antitrust decrees that did not have expiration dates. In 2019, the DOJ sought to terminate the Paramount Decrees, which would include a two-year sunset period as to the practices of block booking and circuit dealing with allowing theatre chains to adjust. The Department stated it was “unlikely that the remaining defendants can reinstate their cartel” as reasoning for terminating the decrees. The DOJ formally filed its motion for a court order to terminate the decrees on November 22, 2019. The move was opposed by independent movie theatre owners, including the Independent Cinema Alliance, and independent filmmakers. The court granted the DOJ’s motion to lift the decrees on August 7, 2020, starting a two-year sunset termination period of the decrees.