Interstate Circuit, Inc. v. United States
306 U.S. 208, 59 S. Ct. 467 (1939)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An unlawful conspiracy under the Sherman Act can be inferred from circumstantial evidence, such as competitors' parallel conduct and unanimity of action in response to a common invitation, even without direct proof of an explicit agreement. A copyright holder cannot use its statutory monopoly to enter into contracts with a non-copyright holder to suppress competition for the benefit of that non-copyright holder.
Facts:
- Interstate Circuit, Inc. and its affiliate, Texas Consolidated Theatres, Inc., operated by Hoblitzelle and O’Donnell, dominated the first-run motion picture theater market in many Texas and New Mexico cities.
- Eight major film distributors, controlling about 75% of all first-class feature films, licensed their copyrighted films to these and other exhibitors.
- On July 11, 1934, O'Donnell, manager for Interstate, sent a letter simultaneously to the eight distributors, naming all of them as addressees.
- The letter demanded that as a condition for Interstate continuing to show the distributors' films in its first-run theaters, the distributors must require all subsequent-run theaters in those cities to charge a minimum adult evening admission of 25 cents.
- The letter also demanded that these top-tier 'A' pictures never be exhibited by subsequent-run theaters as part of a double feature.
- At the time, the vast majority of independent subsequent-run theaters charged admission prices of 15 cents or less and commonly offered double features.
- Following negotiations, each of the eight distributors agreed to impose both restrictions on their subsequent-run licensees in four major Texas cities served by Interstate.
- As a result, competing theaters were forced to raise their prices and abandon double-billing, or they were deprived of the opportunity to exhibit the most popular films.
Procedural Posture:
- The United States filed suit against Interstate Circuit, Inc., Texas Consolidated Theatres, Inc., and eight motion picture distributors in the U.S. District Court for the Northern District of Texas, alleging violations of the Sherman Anti-Trust Act.
- The District Court, as a court of first instance, found for the government and issued a decree enjoining the defendants.
- The defendants appealed to the U.S. Supreme Court, which vacated the decree and remanded the case because the trial court had failed to make specific findings of fact and conclusions of law.
- On remand, the District Court made the required findings and again entered a decree against the defendants.
- The defendants (appellants) filed a direct appeal to the U.S. Supreme Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an agreement between a dominant motion picture exhibitor and multiple film distributors, whereby the distributors agree to impose minimum admission prices and restrictions on double features upon competing exhibitors as a condition of licensing films to the dominant exhibitor, constitute a conspiracy in restraint of trade in violation of Section 1 of the Sherman Act?
Opinions:
Majority - Mr. Justice Stone
Yes, an agreement between a dominant exhibitor and multiple film distributors to impose restrictive conditions on competing exhibitors constitutes a conspiracy in restraint of trade in violation of the Sherman Act. An unlawful agreement can be inferred from a course of conduct. Here, the distributors' substantially unanimous action on a proposal that represented a radical departure from prior business practice is strong circumstantial evidence of a concert of action. It taxes credulity to believe this unanimity was the result of mere chance. The inference of conspiracy was strengthened by the distributors' failure to call as witnesses the senior officials who negotiated the contracts and could have testified about the existence or non-existence of an agreement. Even without an explicit agreement among the distributors, it was enough that they knew concerted action was invited and essential for the plan's success, and they gave their adherence to the scheme. The Copyright Act does not shield these agreements from the Sherman Act, as a copyright cannot be used as an instrument to restrain commerce in order to protect a non-copyright holder's monopoly. The restraints were unreasonable because they suppressed competition, imposed oppressive price maintenance, and were injurious to Interstate's competitors and the public.
Dissenting - Mr. Justice Roberts
No, the separate agreements between the distributors and the exhibitor do not constitute an unlawful conspiracy because they were a reasonable exercise of the distributors' rights as copyright holders to protect the value of their property. There is insufficient evidence to support the finding of a conspiracy among the distributors; the majority mistakes parallel but independent business decisions for an illegal agreement. Each distributor, acting in its own self-interest, responded to the demands of an important customer, Interstate. Knowledge that competitors were facing the same demand is a feature of a competitive market, not proof of conspiracy. The restrictions were a legitimate use of the property rights granted by copyright law, analogous to providing a 'clearance' period between first and second runs, which is necessary to protect the high value of first-run licenses. These agreements were not an unreasonable restraint of trade but a proper and necessary measure to protect the distributors' copyrighted property from practices that would devalue it.
Analysis:
This landmark decision established that an antitrust conspiracy can be proven through circumstantial evidence, a concept often referred to as 'conscious parallelism.' The Court's inference of an agreement from the distributors' parallel behavior and their failure to provide rebutting testimony significantly lowered the evidentiary burden for plaintiffs in such cases. The case is a classic example of a 'hub-and-spoke' conspiracy, where a central party (the 'hub,' Interstate) makes separate but parallel agreements with multiple other parties (the 'spokes,' the distributors) to achieve an anticompetitive outcome. Furthermore, the ruling clarified that intellectual property rights, like copyrights, cannot be used as a shield to protect anticompetitive conduct that primarily benefits a third party's market power.
Unlock the full brief for Interstate Circuit, Inc. v. United States