United States v. Griffith
92 L. Ed. 2d 1236, 1948 U.S. LEXIS 2833, 334 U.S. 100 (1948)
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Rule of Law:
The use of monopoly power, even if lawfully acquired in one market, to foreclose competition or gain a competitive advantage in another market constitutes a violation of Section 2 of the Sherman Act, regardless of whether a specific intent to monopolize is proven.
Facts:
- Appellees, including Griffith Amusement Co. (Griffith), were affiliated corporations operating a circuit of movie theaters in Oklahoma, Texas, and New Mexico.
- Griffith's circuit included theaters in towns where it had no competitors ('closed' towns) and theaters in towns where it faced competition.
- Over a five-year period, the percentage of towns where Griffith operated without competition grew from 51% to 62%.
- Griffith used common agents to negotiate master agreements with film distributors for the entire circuit, covering both closed and competitive towns in a single negotiation.
- These master agreements licensed first-run exhibition rights for substantially all of a distributor's films for an entire season to Griffith's theaters.
- The rental for films was often a lump sum for the entire circuit, which Griffith would then allocate internally among its theaters.
- This circuit-wide bargaining gave Griffith exclusive privileges and preferential film access in competitive towns, which independent competitors could not obtain.
Procedural Posture:
- The United States brought suit against Griffith Amusement Co. and its affiliates in the U.S. District Court, alleging violations of Sections 1 and 2 of the Sherman Act.
- The District Court, as the court of first instance, found that Griffith had not violated the Act and dismissed the complaint on the merits.
- The United States, as appellant, filed a direct appeal of the District Court's decision to the Supreme Court of the United States.
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Issue:
Does a movie theater circuit violate Sections 1 and 2 of the Sherman Act by using the combined buying power of its theaters in both non-competitive ('closed') and competitive towns to obtain exclusive film licensing agreements that foreclose competition in those competitive towns, regardless of whether there is a specific intent to monopolize?
Opinions:
Majority - Mr. Justice Douglas
Yes. The use of monopoly power derived from non-competitive markets to gain a competitive advantage and foreclose competition in other markets violates the Sherman Act, even without a specific finding of intent to monopolize. While large-scale buying is not unlawful per se, it may not be used to stifle competition. Here, Griffith used its monopoly power in the 'closed' towns as leverage to obtain exclusive film licenses in towns where it had competitors. By combining its closed and competitive towns into a single bargaining unit, Griffith made access to its monopoly towns contingent on receiving preferential treatment in competitive towns. This practice is a misuse of monopoly power to beget more monopoly, as its necessary and direct consequence is the restraint of trade by preventing competitors from accessing the market on a competitive basis. It is unlawful to use monopoly power, however lawfully acquired, to foreclose competition or gain a competitive advantage.
Dissenting - Mr. Justice Frankfurter
No. The dissent adopts the reasoning of the District Court, which found no violation of the Sherman Act. The District Court concluded that there was no avowed purpose or specific intent by Griffith to eliminate competition or acquire a monopoly. It distinguished the case from precedents where such intent was present, finding that any harm to competitors was the lawful consequence of normal competitive practices rather than the result of unlawful coercion or conspiracy.
Analysis:
This decision is significant for establishing the principle of 'monopoly leveraging,' where a firm uses lawfully-held monopoly power in one market to gain an unfair competitive advantage in a second market. The Court shifted the focus of Sherman Act Section 2 analysis from a defendant's specific intent to the actual effects of its conduct on the market. By holding that a restraint of trade that is the 'necessary and direct consequence' of a business practice is sufficient for a violation, the Court broadened the scope of illegal monopolization. This precedent makes it easier for the government to challenge dominant firms that use their power in one area to distort competition in another, even without direct evidence of predatory intent.
