United States v. Lowe’s Incorporated

PETITIONER:United States
RESPONDENT:Lowe’s Incorporated
LOCATION:Clauson’s Inn

DOCKET NO.: 42
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 371 US 38 (1962)
ARGUED: Oct 16, 1962
DECIDED: Nov 05, 1962

Facts of the case

Question

Audio Transcription for Oral Argument – October 16, 1962 in United States v. Lowe’s Incorporated

Earl Warren:

Number 42, United States, Appellant, versus Loew’s, Incorporated, et al.

And Number 43, and Number 44, Loew’s, Incorporated et al. versus United States and C & C Super Corporation versus United States.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This is a civil antitrust case, here on direct appeal to the District Court for the Southern District of New York.

It presents issues relating to the legality under Section 1 of the Sherman Act of the block booking of feature motion pictures for television exhibition and also questions relating to appropriate relief to deal with that practice.

Block booking is defined as the practice by the distributors of motion pictures of requiring television stations in order to license certain pictures, generally the pictures which they desire to also accept other pictures generally pictures which they did not desire.

And the phrase “block booking” refers to the fact that when these pictures are offered, they are generally offered in blocks of packages of varying numbers, 50, 60, or 100 and 200.

And the issue as presented arises from the fact as the District Court found that these defendants in offering the pictures had on numerous occasions refused to permit the stations to select among the packages and had required them to take the entire package.

There are six defendants in the case, each of whom is a distributor of feature motion pictures for television.

This particular case involves features known as pre-1948 features.

Those are old motion pictures that were distributed and shown in theaters prior to 1948.

The District Court held that each defendant had violated the Sherman Act by block booking and granted injunctive relief and both sides of appeal to this Court, the Government as well as five of the defendants.

Now, I might just say in passing that of course all of these motion pictures involved are copyrighted.

The issues in the case fall into two distinct categories.

There are questions relating to the substantive issues and questions relating to the relief.

The substantive issues tended by the defendants in their appeal of substantive issue was this, the defendants do not challenge the findings of the District Court that they had entered into block book contracts.

They do, however, challenge the Court’s finding that these block book contracts were illegal.

The Government’s appeal challenges the District Court’s failure to find that a block contract arising out of another set of circumstances that I shall detail in my opinion was not illegal.

Now, on the relief issues, the defendant’s appeal argues that no relief at all should have been granted against the violations which the District Court found.

Conversely, the Government’s appeal argues that additional relief was required.

And in my oral argument, I shall discuss the points in that order.

First, I shall discuss the question of violation, and second, the question of relief.

But before coming to my argument at the outset, I would like to correct four errors which the defendants have pointed out that we have most regretfully made in our reply brief.

This is the brief, the United States in reply to appellant’s brief in Numbers 43 and Number 44.

It’s an intermediate-sized brief of 20 pages.

The first error is at page 8 about one-third of the way down in the first not full paragraph, the last sentence beginning finally one of Loew’s own sales reports discloses that in September 1957, that date should be 1956.

John M. Harlan II:

What page is that please?

Daniel M. Friedman:

Page 8.

Byron R. White:

In which, Mr. Friedman?

Daniel M. Friedman:

That’s the brief — it’s the caption briefed for the United States in reply to appellant’s briefs in Number 43 and Number 44.

All of the errors are in this brief which is the medium-sized brief of the Government.

That’s on page 8, the date should be September 1956.

William O. Douglas:

One of your errors to change a firm to reverse.

Daniel M. Friedman:

No — no Mr. Justice.

These are four errors primarily relating to the dates given in this brief.

On page 17, six lines down from the top, the matter in parenthesis about one month prior to the filing of the complaint is unfortunately should be 13 months prior to the filing of the complaint.

William J. Brennan, Jr.:

What page is that?

Daniel M. Friedman:

Page 17, Mr. Justice.

William J. Brennan, Jr.:

13 months.

Daniel M. Friedman:

13 months, that’s correct.

In Footnote 11, halfway down the beginning of the sixth line where the witness testified on several occasions that should be one occasion.

We overstated the record in that case.

And finally, on page 19, in the middle of the page again, the date 1957 should be 1956.

We read exceedingly these errors, we have no apology to make for them that they are incorrect and we don’t think these errors in any way vitiate our position that the defendants booking —

Potter Stewart:

The case doesn’t turn on it.

Daniel M. Friedman:

No, it does not, Mr. Justice.

Potter Stewart:

What was the last one, I misunderstood?

Daniel M. Friedman:

On page 19, in the middle of the page, was released in 1957 that should be 1956.

Potter Stewart:

Thank you.

Daniel M. Friedman:

Now, coming to the facts of the case, the Government in 1957 filed six separate cases against the defendants.

Each case alleged that the particular defendant had engaged in illegal block booking.

And I want to make it clear in these cases, there’s no charge of any conspiracy or concerted action against all the defendants.

Each case was a separate case against each defendant.

Although as I shall develop in my argument, we think the record shows that there was a common pattern, a common method by which films were distributed to the industry, that is the practice of conditioning them and selling them in blocks.

Now in 1956, early in 1956, there had been no substantial distribution yet of these old movies to television, and the motion picture companies, which had large libraries of films, included that they had a very valuable asset which they wish to realize on.

And they undertook beginning in 1956 to distribute these old movies to television.

They did it in various ways.

Some of the motion picture companies themselves distributed them.

In other instances, some of the defendants acquired the right to license these pictures to television from the motion picture companies by substantial cash payments.

Daniel M. Friedman:

The method by which they distributed it varied.

For example, Loew’s in the first instance attempted to sell its entire library of 723 films.

Other defendants distributed the pictures in smaller packages.One of them distributed 13 packages of 58 pictures each.

But in the course of this distribution, two things, we think, stand out.

The first is that all of them undertook to distribute their films in packages that with one exception, none of them priced the films individually.

John M. Harlan II:

All of these are (Inaudible)

Daniel M. Friedman:

They vary from the early period of the 20s to 1928 or 1929 down to 1948.

William J. Brennan, Jr.:

Nothing later than 1948.

Daniel M. Friedman:

Not in this case.

This case only involves films made before 1948.

John M. Harlan II:

You mean, when you say that all of the defendants undertook to furnish these films in packages, do you mean offer them in packages or the condition there — a use of any of them upon the use of all?

Daniel M. Friedman:

Well, they offered them all in packages and the District Court found that a number of instances they had conditioned them.

We don’t contend of course that in every case, every contract presented into.

John M. Harlan II:

That’s what I’m asking.

Daniel M. Friedman:

And one other factor about them is that where they undertook to sell in smaller packages, not the entire view of package of 39 or package of 58 or 52, they all set up what they called balance packages.

That is, there was no package which contained 39 outstanding movies.

Every package had some good pictures, some average pictures and some poor pictures.

John M. Harlan II:

(Inaudible)

Daniel M. Friedman:

Well that’s — the theater seem to think, the station seem to think they were good and they — the evidence indicates as I shall develop that there were many instances which the stations didn’t want affirmatively some of them.

I think even those who are critical of television recognizes some of these old movies were pretty good.

Earl Warren:

Mr. Friedman, I don’t know whether this is material or not but in these packages, were they pictures all of the same vintage or might you get one of very late vintage and one of very early vintage, and so forth?

Daniel M. Friedman:

That’s correct, they vary completely.

Earl Warren:

Varied completely.

Daniel M. Friedman:

The station set up with it thought it would be a balanced package.

In other words, they have some desirable pictures, they have some poor pictures.

Now, there’s also —

Earl Warren:

There is no classification as to age or anything of that kind.

Daniel M. Friedman:

Well, except to this extent, I think, Mr. Chief Justice that generally, it was felt that the older pictures were sometimes less desirable.

For example, people would recognize the old customs, the old automobiles, but there’s nothing to indicate that the packages were divided up in terms of age of pictures.

They were in what they thought was the quality of the pictures.

Daniel M. Friedman:

The cases were consolidated for trial and after an extensive trial.

The District Court held that each defendant had engaged in illegal block booking.

As to five of the defendants, the District Court found that specific contracts entered into by each defendant were illegally block booked.

I’ll come to those in a moment but I’d like to just in passing, refer to the sixth defendant a corporation known as the C & C Super Corporation.

Without going into the facts in detail, this company followed a somewhat different practice.

Because in order to finance the films which it had purchased from RKO, it found it necessary to enter into an agreement with the International Latex Corporation under which the International Latex Corporation made available to C & C certain payments which C & C and their current venues to pay off the cost of its film line.

And the condition for International Latex making these payments available to C & C was that C & C in turn would procure certain television time for International Latex.

And C & C had no right to any payments from International Latex unless it receives certain minimum amounts, certain minimum airspace or air time on behalf of these pictures.

And the District Court held that with respect to this company that the result of this agreement was to force it to operate under a policy of block booking.

And the Court found it was unnecessary to find any where the particular contracts for block book as the Court held in effect, all of those contracts had to be block booked.

In other words, they were unable because of their financing arrangements to enter into anything less than a contract covering a substantial number of pictures.

John M. Harlan II:

This is how it was exonerated.

Daniel M. Friedman:

No, on the contrary that their argument is that it exonerated and that was an ancillary restraint and we think it clearly was not an ancillary restraint of whatever it may have been the business reasons for C & C entering into this agreement, it could not justify block booking in order to accomplish its business aims.

Now, the — as a proof developed at the trial, at the end of the trial, the Government contended that a total of 59 contracts of the other five defendants had been illegally block booked.

The District Court held that a total of 17 have been block booked breaking down or entering all the way from two contracts by some of the companies to five of the others.

The total payments involved under these 17 contracts that have been found illegally block booked were more than $3 million.

John M. Harlan II:

17 out of how many?

Daniel M. Friedman:

Out of 59 that were challenged by the Government.

Byron R. White:

Out of what?

Daniel M. Friedman:

17 out of 59.

Byron R. White:

More than how much?

Daniel M. Friedman:

$3 million of commerce involved in the contract specifically found block booked.

Of these 17 contracts, six of them involving four of the five defendants, all of the defendants other than Screen Gems Company were entered into after these suits have been filed.

Now, the record in this case contains extensive testimony by many representatives of television stations called by the Government that they purchased films which they did not want.

And in some instances films which they did not use because this was the only way they could get the desirable films in the package.

Now, I would like to just give the Court two examples relating to the negotiations of contracts which the District Court specifically found had been block booked.

The first one involves a contract which Loew’s made with a station in March of 1958 for the entire library of 723 films that Loew’s offered.

The station representative testified they only wanted to take 500 because as they said, “We felt that these approximately 200 films, 200 leftover were a group of films that we would never use on the station at all.”

But he replied that the Loew’s representative made it very clear that we either bought the whole package and that we could not call from it take anything out of it, and that was it, so we renegotiated for the whole package.

This material is at the record 709 — 907, 908, and 909, 915, and 916, it is set forth in our brief.

Daniel M. Friedman:

Now, at the time this witness testified at the trial in March of 1960, approximately two years after this contract had been entered into, they stated that they had not yet run these 200 pictures, that they had no plan to run them at that time, and the reason they were not planning to run them was they said was, “Because there are so many pictures in the group that we feel do not come up to the standard of the operation of our station and the programming that we want to give the people.

That’s one example the contract found block book where the station was required to take 200 films which it not only didn’t want, but was unable to show.

Potter Stewart:

The purchasers or the licensees in every case where individual stations rather than networks, were they?

Daniel M. Friedman:

They are individual stations in one or two examples.

They may have been stations which had a small network.

For example, the Storer Broadcasting Company had a chain of five stations and Triangle Public, Inc.

They were not dealing with the network.

Potter Stewart:

With the national network.

Daniel M. Friedman:

That’s correct.

Now, the second example involved the defendant’s C & C Corporation which is I indicated followed on how it had this policy of block booking.

And among the films included in the RKO Library which were part of the package wasn’t foreign language pictures.

These stations were also required to take and the owner or operator of a station in Huntington, West Virginia explained that he didn’t have much of the market for foreign language pictures in that area.

Now, what the record we think shows in this case is something rather unusual in a tying case.

We have in this record affirmative testimony, testimony of the station owners which establishes the very vice which this Court has repeatedly adverted to in condemning tying agreements.

That is the fact that the necessary result of a tying agreement is to force the buyer to take something he doesn’t want, and that’s precisely what this record shows.

Television stations were forced as a result of these block book contracts to take films they didn’t want.

And in addition to that, the Court has also pointed in the tying agreements.

The inevitable effect of these agreements is to foreclose competing sellers at the tied product from having access to that segment of the market and similarly here, we think, it’s quite clear that in the hypothetical case I gave a moment ago involving Loew’s, when they were forced to take the 200 pictures they didn’t want, a competing seller of these poor motion pictures though they may be was excluded from that segment of the market covered by the tied contract.

Byron R. White:

Mr. Friedman, you feel that this Court has held unequivocally that to tie two contrary articles together that are hearsay a violation of the contract?

Daniel M. Friedman:

We think so Mr. Justice White and I’m just —

Byron R. White:

Is this your — did you feel the lower court have directed its decision on that proposition?

Daniel M. Friedman:

I think so and —

Byron R. White:

And do you stand on that proposition here?

Daniel M. Friedman:

Well, we think we stand on two things.

We think first —

Byron R. White:

I know but do you stand on that?

Daniel M. Friedman:

Oh yes, we do.

Byron R. White:

I’m trying to understand you get some other —

Daniel M. Friedman:

Yes, we stand on that proposition and I would like to come to that —

Byron R. White:

(Voice Overlap) that I suppose that this Court has held that any time you force somebody to take something and he doesn’t want it, he won’t need to pay you.

Daniel M. Friedman:

No Mr. Justice, the Court has recognized — the Court has pointed out that as long as he has — it requires two things, it requires there’d be sufficient economic power.

It has to have an appreciable —

Byron R. White:

What about when I wanted to sell you 100 films and you’d say — you would buy 100 films and then I say if you get the 100, you have to take another 100.

Now, you don’t want those other films not by long term but to get that 100 if you want, you can buy the 200 and you wouldn’t suggest that that’s just hearsay in this issue.

Daniel M. Friedman:

Well, I think there we have the same product, whereas in this case, we have different product.

Byron R. White:

What are the products in this case?

Daniel M. Friedman:

In the case, the product is a copyrighted motion picture.

Each of which is necessarily a unique product as the District Court held.

Byron R. White:

So you said just treating each particular picture as a separate product.

That’s your — that’s what you think.

Daniel M. Friedman:

Well, we — if I may —

Byron R. White:

(Voice Overlap) bad films and good filMs.

Daniel M. Friedman:

No, that’s right.

It’s not bad films and good films.

It’s the requirement that in order to get some copyrighted pictures — to get more — to get a particular copyrighted film, they have to take another copyrighted film.

Now, of course, if you had just one film, that might not be enough because you have to have a substantial restraint on interstate commerce but again it could depend on the value of the film.

Byron R. White:

At least one of — the major part of your position is that this is just an extension of the copyright and I believe it’s —

Daniel M. Friedman:

That’s right and we believe, Mr. Justice, that’s what the Court specifically held in the Paramount case.

I’d like to come to the Paramount case —

Byron R. White:

What does the court held below?

Daniel M. Friedman:

The court below held that this Court’s decision in the Par —

Byron R. White:

It rested firmly on that and nothing else.

Daniel M. Friedman:

It rested on Paramount and the other tying cases of this Court.

Byron R. White:

I mean on the theory of the copyright, one picture, I believe was a copyrighted product.

Daniel M. Friedman:

Yes, I think that’s correct.

That is the basis of the District Court’s decision.

And we think the Paramount case is controlling on this point.

In the Paramount case, this Court specifically held that the block booking of motion pictures for theatrical exhibition was a violation of Section 1 of the Sherman Act.

It specifically held that it was bad because it was an attempt to enlarge on the monopoly of a single copyright to tie other copyrighted films to it.

Potter Stewart:

Mr. Friedman, before you go on, if you will, could you return a moment to the argument you’re making at the time that Mr. Justice White asked you some questions to the effect that this practice of Loew’s insisting and if they take all 723 when the station only wanted 500, excluded competitors from the market, I didn’t understand that.

Daniel M. Friedman:

Oh!

Well, what I’m trying to say is that by requiring them to take 723 when they only wanted 500, this excluded competing sellers —

Potter Stewart:

Who would be the competing sellers?

Daniel M. Friedman:

One of the other defendants perhaps might want to sell the poor pictures but —

Potter Stewart:

Well, but you just told Mr. Justice White that each one of these pictures is unique.

Byron R. White:

Exactly.

Daniel M. Friedman:

Each one of these pictures is unique.

Potter Stewart:

So what — where is the competition?

Daniel M. Friedman:

Well, the competition is selling — complete selling, competing films even though each film is unique otherwise —

Potter Stewart:

You mean each is uniquely bad no matter how many of them would sell that.

Daniel M. Friedman:

Some people think that.

I would put it this way if I may, Mr. Justice.

There’s a market.

There’s a limited market for motion pictures.

Television station can only use or sell many.

If one distributor comes in and says, “Here’s 700.”

You have to take them, and they say, “We don’t want 700, we want 500”, and then say, “It makes no difference at all.”

Potter Stewart:

But they don’t say that, do they?

They say we want these 500 and not those —

Daniel M. Friedman:

That’s right.

Potter Stewart:

They don’t want.

They don’t say, “We just want 500 chosen at random from the 723.”

Daniel M. Friedman:

That’s right.

They want to exclude particular pictures.

Potter Stewart:

Yes.

Daniel M. Friedman:

They’re forced to take those particular pictures.

This necessarily means that someone else who would be selling them pictures that they wanted in place of those 200 is excluded from that segment of the market.

Potter Stewart:

I don’t — I don’t understand the argument.

Daniel M. Friedman:

Well this is really —

Byron R. White:

(Inaudible)

Potter Stewart:

That’s right.

Daniel M. Friedman:

That’s correct.

But I’m just illustrating the evils which flow from these tying as the Court pointed out in the Northern Pacific case if I may give as an example.

There it said that one of the evils of the agreements by the railroad which required the lessees and owners of land to rule traffic by the railroad was that competing sales of transportation would necessarily exclude to the extent that the lessees and the people who would purchase property from Northern Pacific shipped on Northern Pacific in reliance on these agreements, other sales of transportation were excluded from the market.

Now —

Potter Stewart:

Transportation is not unique.

Daniel M. Friedman:

No, but I might point out, Mr. Justice, in Northern Pacific case, we did not have the copyrights.

Potter Stewart:

No.

Daniel M. Friedman:

We did not —

Byron R. White:

(Inaudible)

Potter Stewart:

That’s right.

Daniel M. Friedman:

Well, no I —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

But each one — the reason they’re able to do this, Mr. Justice, the reason they’re able to accomplish this here is because of the fact that they had to copyright monopoly on the particular pictures which the stations wanted.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Well, I don’t know if it said it has to be restraint.

I’m not —

Byron R. White:

Well, it would be again a competitive effect on —

Daniel M. Friedman:

I think Northern Pacific merely illustrated the inevitable —

Byron R. White:

The product is the particular copyrighted picture.

You’re not going to have any competition restraint over that particular picture because there’s only one evidence.

But if you’re going to say it’s a bad picture, you’re going to say that other people who want to sell bad pictures are being foreclosed from selling bad pictures for television.

Daniel M. Friedman:

Well, if I may put it this way.

They are being foreclosed from a market for motion pictures —

Byron R. White:

So it’s one product.

Daniel M. Friedman:

No, I can’t say its one product.

It is a — it is a copyrighted film, its one product and —

Byron R. White:

Are you saying that this is a result, what do you need to show if it’s an anticompetitive effect or not.

I suppose you’re arguing that once you tie the copyrighted films together, its hearsay and reasonably going to show any anticompetitive effect.

As a matter of fact, there was —

Daniel M. Friedman:

That’s precisely it.

William J. Brennan, Jr.:

Well, Mr. Friedman, that station you say it was West Virginia station?

Daniel M. Friedman:

Yes.

William J. Brennan, Jr.:

You said it had to take 700 odd pictures and initially told the seller, “I won’t use 200 odd of them”, and in fact at the time of the hearing had not used and still wouldn’t use.

Well now, how was any seller to that station foreclosed from selling 200 others?

Daniel M. Friedman:

Well, I assume that since part of the price they paid for the library, part of the price they paid for the library reflected these 200 pictures.

I was not suggesting there were instances of course in which the stations did play the pictures.

They did not wish to purchase.

I’m just showing that this is an example of how the effect of these clauses was to force them to take pictures which they didn’t want.

Earl Warren:

(Voice Overlap) that’s the relevant question, isn’t it, whether they’re good or bad?

Daniel M. Friedman:

That’s right.

Earl Warren:

But whether you’re being forced to take pictures that you don’t want.

Daniel M. Friedman:

That’s precisely.

And I think all of these — all of these problems, Mr. Justice White that you have raised were also inherent in the Paramount situation.

And there this Court seem to have no problem withholding that as it stated, it’s a —

Byron R. White:

All I’m saying is that if they — as I ask you, you’re just relying on the fact you don’t have to show any anticompetitive effect.

Daniel M. Friedman:

That’s correct.

Byron R. White:

Yes, but you do want to talk about anticompetitive effects.

Arthur J. Goldberg:

Mr. Friedman, what about the case of (Inaudible)

Daniel M. Friedman:

That’s correct.

Arthur J. Goldberg:

(Inaudible) total showing, is there a distinction with that?

Daniel M. Friedman:

We don’t think that this distinction is this part that it’s significant, Mr. Justice because in both instances, in both instances whether it’s the thing that the State, the theatre depends on entirely or it’s something which the television station either wants.

In both instances, it requires them to take copyrighted pictures that they don’t want in order to get a copyrighted picture which they do and we think this is an invalid extension of the copyright monopoly.

Potter Stewart:

But there’s another way of looking at this whole transaction and that is that Loew’s have said this, you have 500 pictures and these 500 pictures will cost you $500,000.00 and we’re going to be very kind and show him 223 more.

Daniel M. Friedman:

Well, this comes to our argument on the relief.

We think that that is an impermissible way of doing indirectly which we don’t think they can do directly.

Now, the next thing I would like to come to, I think I’m going into fully enough the problem of the legality of these agreements as I say we think they are illegal under the Sherman Act and I would like to come to the issue now posed by the Government’s appeal which is something we have called interim or temporary block booking.

I’d like to give an example which is the example given by the District Court in its findings.

This —

John M. Harlan II:

Is that only instance of the practice?

Daniel M. Friedman:

No, Mr. Justice, we have cited in our brief there are six or seven instances of this practice.

The practice is as follows; a distributor comes into a television station, says, “Well, we have a package.

We’d like to sell you the package.”

The station owner looks and says, “Well, I’d like to take some of these films.

These are very fine and I don’t want some others”, well as they say, “Break the package.

Will you let me have some?”

The individual distributor says, “No.

At this time, we will not break the package.

We’re going to go around and see if we can sell you — sell the entire package to one of your competitive stations in the market.

And if we can’t, then we’ll come back and talk to you about taking individual pictures.”

At this point, the station then says, “Well, rather than run the risk of Loew’s in them all, we’ll enter into a package.

And they entered into a package deal for the entire group of pictures.

The District Court held that this practice was not an illegal tie-in contract.

The District Court held that a defendant as he quoted, “a distributor has the right to test out the market to see whether he can sell a part of the package,” the whole package before undertaking negotiations for a part, and therefore he said, “Such a contract was not illegally block booked.”

We think this was wrong and we think this is wrong basically for two reasons.

First, the fundamental vise of the block book tie-in contract forcing the stations to take some pictures in order to get others is equally present whether the refusal to deal is for an interim period, pending an attempt to sell the package elsewhere or whether it is in terms a complete refusal to deal and absolutely within both instances, if the station enters into a tied contract, it is in those circumstances it is required to take pictures that it doesn’t want as a condition to getting other pictures.

John M. Harlan II:

Well, aren’t you making some assumptions there if you assume that the — in the case that the District Court found as he did that the purchaser wanted to do this to protect himself?

Isn’t that a very different case where he acts to apply the whole — whole group of pictures because he can’t get them because of a condition imposed by the seller?

Daniel M. Friedman:

Well, in each instance I think, Mr. Justice, it is done because he wants to get particular pictures.

He’s trying to protect himself in both instances.

In the first instance, he’s also protecting himself because the only way he can get the good pictures is by taking the ones he doesn’t want in the whole package and I think the same thing is true here.

Earl Warren:

We’ll recess now, Mr. Friedman.

Mr. Friedman you may continue your argument.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

When the Court rose, I was discussing the question of the so-called interim refusal to deal except on a block book basis and I attempted to point out that in terms of the effectiveness on these television stations, the effect is the same whether they purchased the complete package including films that they don’t want because in the first instance, they’re offered only the complete package or in the second instance, they told that they cannot select individually unless and until the station offers the entire package to the competitors.

Now, I think in a realistic sense, this distinction between the temporary refusal to deal and the permanent refusal to deal really doesn’t amount to very much because I think fairly it can be said that when a distributor comes to a particular television station say in the Washington market and says, “Here is a package”, and the station says, “Can I have less than the package?”

and the station says, “No, you have to take the whole package.”

Implicit in this, of course, is a notion that they’re going to try to sell the package as a package elsewhere in this market.

And if everyone of the stations in the Washington area refused to buy the package, it seems likely that the next step they’re going to do is to then come back and attempt to sell as much of it as possible.

So that we think in the situation where they say, no, we’re not going to negotiate with you for individual pictures until we’ve had an opportunity to sell them elsewhere in the market.

Daniel M. Friedman:

This is really making explicit, what we think is implicit in every situation where there’s an absolute refusal to sell less than the entire package pending an attempt to sell the entire package to the entire market.

And we think that both of these situations are equally illegal that it’s not a question — it’s testing the market in both situations because when the distributor who refuses at all to negotiate for less than a package does so he again is testing the market.

He’s trying to see if he can’t sell it to the first station to sell it to one of the other stations.

And when it’s done, said, we’re only going to do this temporarily.

This is basically the same thing and we think that in any realistic sense, these two types of contract, these block contracts, are basically separate from the same vice in each instance, there is the illegal tie-in and we think that they are both illegal, and we think in these circumstances the District Court should have held that this type of situation is also illegal and should have enjoined its use.

Arthur J. Goldberg:

Mr. Friedman, would there be any circumstances where you can lower the pictures and lawfully offer the pictures in the block book package than you did?

Daniel M. Friedman:

He could always — he cannot offer in a block if the station is required to buy some in order to get others.

If the station voluntarily says we’d like to buy them all, they, of course, are free to sell them in a block, and that the judgment so provides and we do not question that.

All that we say and that I’ll come to a moment in our relief provisions, as we said, they have to offer them individually.

But there’s nothing — once they have offered them individually to preclude them negotiating a deal for any number that the station wants to take.

It’s the station.

If the station voluntarily wants to take a package of film then it says, “We want your whole library.

We’d like to buy your whole library.”

This is perfectly proper as far as we’re concerned.

We think this is legitimate business.

But we think what they cannot do is come in to the station and say, “Here is the package and you have to take some in order to get others.”

Potter Stewart:

But now we’ve been talking mostly about the Loew’s and that involved their whole library of 723 pictures but most of these — most of these transactions here involved about 30 or 40 or 50 that general area of magnitude —

Daniel M. Friedman:

That’s right, range —

Potter Stewart:

And you say that — that a — the owner of these pictures that distributed these pictures couldn’t say that we sell them only by a minimum of half a dozen.

It’s not worth our time and the time of our lawyers and everything else just to say — that we sell them a minimum of six, any six you want, they couldn’t say that?

Daniel M. Friedman:

Any six that the station wants.

Potter Stewart:

Yes.

Daniel M. Friedman:

I think — let me put it this way Mr. Justice.

I think if we have nothing else in this record, if that’s all we had, I wouldn’t think this would have been much of a case.

But of course —

Potter Stewart:

But your answer to Mr. Goldberg suggested that you would say that that was a violation.

Daniel M. Friedman:

I would say that’s right, if they initially come and say, you, in order to get any pictures from us, you have to get six.

Now, I would also say that if the — therefore, I want to reiterate this because there seems to be misunderstanding.

The defendant suggests that we are preventing them from selling pictures in groups, we’re not.

Well, they’re perfectly free if the station wants to take a picture together in a group, they’re perfectly free to enter into these negotiations.

Daniel M. Friedman:

But —

Potter Stewart:

If the station wants six, could they (Inaudible)?

Daniel M. Friedman:

Surely, the station — if the station says, “We’d like six”, the thing about it is, Mr. Justice Stewart, that if the station wants six pictures, good pictures or bad pictures, it should be free to select the pictures that wants.

The owner of the —

Potter Stewart:

(Inaudible)

Daniel M. Friedman:

That’s right.

He cannot say that.

Potter Stewart:

He cannot?

Daniel M. Friedman:

He cannot say that.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Oh surely, surely.

He can —

Byron R. White:

He can persuade him?

Daniel M. Friedman:

He can persuade them but not coerce them into buying —

Hugo L. Black:

Suppose he gain his trust (Inaudible).

Daniel M. Friedman:

Well, I would have to say, Mr. Justice, I would think that would be bad because it —

Potter Stewart:

(Inaudible)

Daniel M. Friedman:

That’s right because again he’s conditioning.

William O. Douglas:

Your argument was back to the old tie-in clause cases.

Daniel M. Friedman:

That’s right, it rest on those as this Court has repeatedly been condemned.

And we think that they cannot.

They cannot in the course of their negotiations require the stations to take pictures.

William O. Douglas:

If these were not copyrighted, that wouldn’t make any difference.

The result would be different.

Daniel M. Friedman:

The result might be different depending on the degree of power, economic power they had in the market but we think —

William O. Douglas:

When you get back to the Colgate case that type of thing.

Daniel M. Friedman:

Well, we don’t think we get back to the Colgate case.

William O. Douglas:

In case it didn’t have a copyright, you’d —

Daniel M. Friedman:

You might.

William O. Douglas:

Yes.

Daniel M. Friedman:

But we think here, the copyright does apply as I’ve indicated in the market on this.

William J. Brennan, Jr.:

What is the smallest package?

What smallest package?

Daniel M. Friedman:

Smallest — there is one instance of one package I think of seven which is not frequently referred.

But in most instances the smallest I think is in fact and that was 26 and there were 39, 52, 58 and so on.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Well, let me if I may put —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

No.

No, Mr. Justice.

Let me see if I can explain it this way.

The Northern Pacific case enunciated the doctrine that in order for a tie-in agreement to be illegal, the seller must have certain in this year of economic power over the tying product.

Now we think Northern Pacific was not a patent or copyrighted case and at this time, this Court pointed out in the Times-Picayune case where the tying product is patented or copyrighted, then that fact itself supplies the necessary market power.

If there is not a patent or copyright, then it turns on the basically the amount of the tying product that’s involved.

And I would not concede that if these products were not copyrighted at the amount of the number of pictures that these defendants have would not be —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Pardon sir.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Well, it would still be the different films, I suppose.

Now, I’d like to turn to the question of the relief in this case.

The District Court upon finding that each defendant had violated the Act concluded record 47 and an injunction should of course be granted.

The Court further stated that the necessity for such an injunction flows from the facts of this case and the present state of licensing of feature films to the television industry.

We think the District Court was clearly correct in deciding that injunctive relief should be granted against these violations.

The Court found that each defendant had violated the Act while the telephone number of contracts found who have been block booked was not large admittedly in relation to the total number of these parties contract.

They never list words of substantial number.

It involved a substantial segment of commerce, and it’s well settled, I won’t burden the Court with the rule that upon a finding of violation of the antitrust laws, the District Court has the duty to enter an appropriate relief that will cure the violations and protect the public against their recurrence.

I won’t attempt to take up the arguments of each of the individual defendants as to the particular violations found and particular evidence showing the continuation of these practices.

I just point out one thing, the case of the defendant Loew’s.

Defendant Loew’s is the only one of these defendants, which in 1957, made a public announcement to the trade that it would then support licensed pictures individually any number from one to 723.

No other defendant publicized any such notice.

Daniel M. Friedman:

But and we think this is most significant.

The two contracts of Loew’s which the defendant found were block booked were made in 1958 approximately a year after this policy have been announced.

So we think the District Court was clearly correct and certainly cannot be said to abuse its discretion in entering an injunction and I now like to turn to the terms of the Court’s judgment.

The Court entered substantially identical judgments as to all of the defendants and we have used for less than the purpose of the judgment in the first case, the Loew’s case at pages 52 to 53 of the record.

And the critical portions of the judgment are in paragraphs IV and V.

William J. Brennan, Jr.:

You don’t object to those?

Daniel M. Friedman:

We — no.

We object only in the sense we don’t think they went far enough.

We think the Court was fully justified in entering these provisions but we think these provisions need strengthening as I shall develop.

The provisions —

Hugo L. Black:

What page is that?

Daniel M. Friedman:

At 52 and 53 of Volume 1 of the record.

The judgment provisions in paragraph IV (a) enjoins the defendant from conditioning or tying or attempting to condition or tie the purchase of any film upon the purchase or license of any other film, that’s in (a).

(b), substantial repeats that but it’s in terms of conditioning the acceptance of a film for showing over one station upon taking the film for showing in other stations.

And (c) prohibits entering into any agreement to sell a license of any feature film in which the differential between the price of the film when sold individually and when sold as part of a package has the effect of conditioning.

That is if they say, “Well, here are these pictures and individually they’re priced at A, B, C, $1000, $2,000, $2,500 but if you take them all in a package, the price is so much.”

The Court prohibits a differential between the price of the picture when sold individually and when sold as part of the package which has the effect conditioning.

Now, I’d like to explain to the Court why we think these two provisions are not adequate to terminate the block booking which has existed in this industry.

The record in this case shows that all of the defendants attempted to sell their pictures in packages that one exception they did not quote individual prices that no salesman had authority to close a deal for individual films.

They could close the package but if individual pictures were sold, he had to communicate with the home office.

And of course, in this situation, station owner who was offered a package was a seller who then testified was aware that the package during these negotiations might be sold to a rival station.

But in addition to that and we think this is very significant, six or seven different station representatives testified when they were asked whether or why they had not requested distributors to sell less than the whole package, they said, “Well, we were conditioned to this.

This was the way business was done in this industry.”

As one station representative put it at page 388 of the record, “We have been conditioned in this business for years now to think in terms of conditions of packages.”

And another one stated at record 736, “It was the way the industry was buying, and anytime they came in with a package, you knew it was a package and you just understood it” so that what you have in this industry is a history of selling pictures on a package basis, difficulties experience by stations in getting individual pictures, violations found by the Court of a number of contracts that were tied, and a recognition on the part of the people who were the buyers, that this was the way pictures were being distributed.

And —

Byron R. White:

When did you file the suit?

Daniel M. Friedman:

Filed a suit in 1957.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Early in 1956.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

Well no, that’s from 1956 to 1960, Mr. Justice.

Byron R. White:

This was after the case was tried.

Daniel M. Friedman:

After the time the case was tried.

Of course this aspect of the industry is a road of like novel industry.

In other words, in an industry where this is only been going on for four years, the four years had developed into the accepted practice.

John M. Harlan II:

Is this the first case at the time of this kind that the Government brought?

Daniel M. Friedman:

Against block booking of —

John M. Harlan II:

In a government suit.

Daniel M. Friedman:

Well, it’s the first case that the Government has brought dealing with this particular practice.

We’ve had other cases relating to television.

John M. Harlan II:

Well, I meant this practice.

Daniel M. Friedman:

Yes.

William O. Douglas:

Had there been any triple — trouble damage suits in this field touching block booking by television?

Daniel M. Friedman:

I know of only one, Mr. Justice, which is a Fifth Circuit decision cited by the Court of — District Court in its opinion which involved the tying of Warner Brothers pictures and in Popeye cartoons.

That’s the only one.

There may be others pending.

I don’t know.

Now, we think that this general provision and merely enjoining them from conditioning or tying or attempting to condition or tie would not be adequate to really get at the roots of this problem.

William J. Brennan, Jr.:

(Inaudible)

Daniel M. Friedman:

But that was — that was part of the Government’s aim, yes.

William J. Brennan, Jr.:

(Inaudible) as I gather, the defendants in page 73, (c), (d), (e), (f) and (f) is, I’m talking about (Inaudible) (c) or (f), is that correct?

Daniel M. Friedman:

That is correct and we are — we are suggesting — we have suggested in our brief some revisions in the phraseology of this.

William J. Brennan, Jr.:

But what specifically, we were not given or whatsoever offering at the interim (Inaudible), is that right?

Is that what you have before us?

Daniel M. Friedman:

That is with respect to the differential.

William J. Brennan, Jr.:

Well, I’m looking at (c) at page 73, your closing to the final judgment.

Daniel M. Friedman:

Yes.

William J. Brennan, Jr.:

You did not get what the (Inaudible)

Daniel M. Friedman:

That’s correct.

Daniel M. Friedman:

That’s right.

William J. Brennan, Jr.:

And that’s one of the (Inaudible) that you have at this page?

Daniel M. Friedman:

That is one but we also did not get into the qualifications for the purpose of permitting the defendant to attempt to sell or license such group.

William J. Brennan, Jr.:

That’s at (f) of the subsequent page?

Daniel M. Friedman:

No, that’s the last three lines of (c) on 73.

I may say, Mr. Justice, I’m not sure whether offering to enter might not be covered by the Court’s prohibition on attempting to condition or tie.

I’m not sure of that.

Byron R. White:

(Inaudible)

Daniel M. Friedman:

I think that’s correct, Mr. Justice, if we —

Byron R. White:

The Court has held that (Inaudible)

Daniel M. Friedman:

We would — I think of —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

We would have gotten (c) but I don’t think we would have gotten (d) and (f), which is the individual — we want the individual picture by picture and also a differential, it does not exceed the cost and saving — its cost, savings and distribution or selling.

Now, I think it’s significant in the point in considering the District Court’s refusal to grant the Government this relief which we think is necessary, that is that the stations should come in and offer the pictures individually.

Let me just dwell on that for a moment.

Whereas I’ve indicated, we are not suggesting they cannot enter into a contract covering the entire package but we do suggest that in the first instance, the station has to be given the choice of which pictures it wants.

And we think the — in the light of the history of this practice, the only way that such a choice may be effectively given is to have them offer each picture individually and each picture individually priced.

Now the —

William O. Douglas:

Do you think it would be alright if they offered 10 — if you take 10, you’ll get 10% discount, something like that.

That would be alright.

Daniel M. Friedman:

If that reflected a saving in the pack — and being able to sell it at package.

But coming to that point, Mr. Justice, the record here indicates many instances, we think, although the District Court could not find that any contract had illegally been block booked or itself is differential.

The record shows many instances in which there was a tremendous differential between the prices of pictures when taken individually and when taken as part of a package.

We’ve set a number of those out in our brief.

For example, the defendant NTA and one of its packages had 10 or 11 pictures which have been produced by David O. Selznick which were apparently considered extremely desirable by the television stations.

In some instances when the television station said, “What is the price for the Selznick’s alone?”

They were quoted a price on an individual picture basis for the Selznick’s which in one instance was more than the total price of the package of 30 or 40 films and another instance was within a $1,000.

So that we think that —

Potter Stewart:

The other — the 30 or 40 didn’t — not include any Selznick, did it?

Daniel M. Friedman:

Oh yes.

Potter Stewart:

It did.

Daniel M. Friedman:

In other words, Mr. Justice, let me explain one of the situations.

A station in Baltimore, we’ve cited in our brief, was quoted a price of $61,000 for the 10 Selznick’s.

And after that, it purchased a package of 46 including the 10 Selznick’s for $62,000.In other words, it was being priced to the basis of buying the additional 36 films for $1,000 or roughly $25 to $30 a film as against the price of $6,000 for each of the Selznick.

Potter Stewart:

You said after that, the price was $61,000 for 46, how long was it?

Daniel M. Friedman:

No, in the course of — I’m sorry, in the course of negotiations, they were quoted a price for the Selznick’s which came to within $1,000 of the total price for all the pictures in the package including the Selznick.

Potter Stewart:

And this was in the course of the same negotiation.

Daniel M. Friedman:

That’s right.

Now, there’s another example which I think graphically indicates the danger of this and how this can be used to illegally condition.

Loew’s, there’s an exhibit in the record, Exhibit 20, Loew’s Exhibit 20 which is a long memorandum that Loew’s put out to its salesmen at the time it announced this new practice in 1957 in April that it would sell pictures individually and it listed, instructed there was to be no conditioning, pictures would be sold individually.

And they priced the pictures individually and of course, we don’t say each picture has to be priced with a dollar and cents amount.

You don’t have to say, “This picture is $230.40.”

The station is perfectly free to lump a group of pictures together so these pictures are all category B1, the price is $250 a piece, take as many as you want.

And after the pricing have been set up and the announcement of the policy, Loew’s had included with a schedule of discounts.

I think these are very revealing.

They announced that if the station took a package of 100 films selected by Loew’s, not the station’s choice, but selected by Loew’s, then in that event there’d be a 25% discount from the individual.

If they selected one-half of the Loew’s Library of 723 films as selected by Loew’s, in that event, 37.5% discount.

If they selected the entire Loew’s library, a discount of 50% from the prices for the individual films and this was coupled with greater benefits to the stations in terms of how many times they could show the pictures, for how long they would have the right to show the pictures if they took one of these Loew’s packages and if they pick individual —

Arthur J. Goldberg:

Could the (Voice Overlap) say that Loew intended to pick any given type of a picture, you could have a discount of 10%, could they do that?

Daniel M. Friedman:

As under our construction of the judgment, no, Mr. Justice.

Arthur J. Goldberg:

Not in any quantity discount?

Daniel M. Friedman:

No, only to — only to the extent, they can have any quantity discount to the extent that this discount reflects a difference in the course of distribution.

I think the reason for this is clear because when they give a discount on a picture in a package, it seems to us it can only be for one of two reasons.

Either because it’s costing them less to sell it which we think is alright or alternatively, because they’re trying to get you to take the poorer picture along with the good one.

We think that’s bad and we think that the first is legal as permitted by our judgment.

We think the second is bad as prohibited by our judgment.

I’d like to reserve the balance of my time.

Earl Warren:

You may, Mr. Friedman.

Mr. Nizer.

Louis Nizer:

Thank you sir.

Louis Nizer:

May it please the Chief Justice and the Court.

The defendants, both as appellants and respondents have divided their time for argument so that one of my colleagues will reply to the Government’s appeal position that the decree should be enlarged including the temporary — so-called temporary block booking provision.

Another of my colleagues will address himself to the proposition that there were a minimal, minuscule number of alleged violations found not warranting the sweeping injunction decree which is here in issue.

A third colleague will address himself to the unique position of C & C which followed a practice quite different and which it sold time spots rather than for pictures for money.

And I will limit myself to the proposition that as a matter of law, there was no basis for the finding of an illegal tie-in in the limited number, a few number of cases which the District Court found to exist and that the complaints of the Government should be dismissed.

The Government filed six separate suits against six distributors of motion picture films.

And each of them, it conceded that there was no issue of monopoly, no combination, and no conspiracy.

These six suits were over the process of the defendants that they were being combined although their practices were different for reasons of convenience of trial consolidated by the Court and tried together.

It was the Government’s claim in each of these six separate actions although Your Honors should observe that there are 115 distributors of feature films to television which is a new industry and not analogous at all with the motion picture case, Paramount case.

The Government contended at all times that 100% of all contracts were block booked, illegal tie-ins.

Contended at all times that it was the policy of each company to tie-in and block book every contract.

This was its position through three years of most exhausting and exhausted trial procedures, 21,000 documents were called from the files of the television stations and thousands of others onto the ages of the FBI were taken from our files.

There were 13 pretrial conferences with the Court, hundreds of pages of answers to interrogatories, and at the dates of the trial for the first time, the Government withdrew from its position that there was a policy to block book or that every contract was block booked, and dozens of witnesses who had been subpoenaed for the trial were interviewed by the Government and not put upon stand, and other witnesses took the stand, and testified about matters and never were asked about the very contract which was alleged to have been block booked.

And after 36 days of trial, the Court found that out of 202 Loew contracts in total, made in this new industry, two were allegedly illegal for tie-ins by subordinates in the field.

Out of 221 AAP contracts, four were illegal.

Out of 411 United Artists contracts, three were illegal.

And out of 1,500 Screen Gems contracts, two were illegal.

And this, despite the advantage which the Government had and that these television station executives are sensitive to Government’s subpoena, they’re under the issues of Government license and supervision and the Court in its opinion even commented upon the fact that these witnesses had an ulterior motive of possibly founding a trouble damage suit.

And in the footnote, the Court said that one witness have testified, “If there’s going to be a gravy train, I want to get on it.”

Despite all these, we find, the Government now took into mobile.

They are separate cases in order to give some impact of the number, 16 or as the Government says 17, I think that was inadvertent.

There are 16 alleged tie-in cases of these thousands of contracts which have been made.

Now, I want to —

John M. Harlan II:

What is the figure of the 59?

Mr. Friedman said 17 out of 59, how do they — how does that —

Louis Nizer:

They reduced the number after all of these pretrial proceedings.

They reduced the number which they offered.

John M. Harlan II:

I see.

Louis Nizer:

And at that we think that it’s 80 — 80 something and I think that was inadvertent but it doesn’t matter.

Under the authorities, what prerequisite must exist for the finding of an illegal tie-in?

Louis Nizer:

The crucial test and we accept those authorities as sound law, we do not quarrel with them, a very beneficent law.

The crucial test is whether the seller has the dominance in the market, equivalent to sufficient economic power to coerce the buyer into taking a subdominant product and thus foreclosing competition for the subdominant product.

It is a very evil practice and that it delimits competition in the field.

But this prerequisite among others but particularly this one that there must be a demonstration of sufficient economic power to create coercion is the test in all of the authorities handed down by this Court and indeed the Government in its complaint in this action defines block booking as compulsory sale, not sale, compulsory sale.

Now, the Northern Pacific case, the latest authority of this Court, the majority and minority agreed that this was the test.

The difference of opinion was simply whether the evidence in that case showed sufficient economic power to constitute compulsive —

William O. Douglas:

Of course, that was — there were no copyright of patented material.

Louis Nizer:

No sir and in the cellophane case there was a patented article and it doesn’t matter as I shall soon attempt to demonstrate.

I think you can have, Mr. Justice Douglas, you can have and according to our humble view, you can have economic power in the marketplace without a copyrighted article and you can have none with a copyrighted or patented article and the test is economic power.

And the reason that the block booking case in the Paramount case was sound was that there the copyrighted articles due to the nature of that industry created the complete economic dominance over the industry, 70% of the suppliers of the film that was found by this Court.

Eight companies controlling 78% control the film.

And that film constituted 100% of the entertainment in those theaters.

There was no interchangeable product.

And the life of that theater depended upon that particular motion picture and by combining block booking with blind buying in that industry, not applicable at all to this as I shall soon demonstrate by the practices here.

By combining block booking in which 50 odd pictures were sold before they were made, before anyone knew who the stars would be in them with blind buying so that the exhibitor, the theatre owner had to buy them before he could look at them.

They were arrested from the theater operator the power over his own theater and there was clear dominance and the block booking decision in that case was therefore sound.

William O. Douglas:

Of course the earlier tying agreements went off on a different theory though, didn’t they?

Louis Nizer:

The early ones like the IBM case was the classic case.

A machine —

William O. Douglas:

International Salt.

Louis Nizer:

Or the Salt.

There is not a patent to that.

William O. Douglas:

All you have is a patent and you may not have any part of the market but if you start tying things to the patent then you enlarge by your agreement the things you can only get through a patent.

That was the theory, wasn’t it?

Louis Nizer:

Plus one other ingredient, Your Honor.

Yes but plus one other ingredient that that patented article in that case gave dominance, economic power in the market to compel them and to buy ordinary salt which he could have gotten from any other competitor.

Or as Mr. Justice Black said in the Northern Pacific case, if you tie-in flour and sugar, there is no evil because there is an open competitive market for either product.

And even though there is a patented article as in the cellophane case, if there are competitive, flexible wrappings, this Court has held that there isn’t such an economic power in the market as to constitute the coercion which is the evil in forcing a man to buy that which he doesn’t want to buy it.

All of which is lacking in this case and may I cut right through and say to Your Honors that the remarkable fact about this case is that the District Court found there was no dominance of these defendants of motion picture film sales to the distributors.

He found the crucial test in our favor.

Louis Nizer:

Now, how then if the crucial test was found in our favor, how do we go about finding these few miniscule number of violations?

He did so because he deemed himself compelled by the block booking Paramount case to say that the very copyright of a motion picture creates its own dominance.

And the error, we submit, in that reasoning is that the test is not the dominance over the article or indeed you don’t need a copyright.

Everyone has a complete exclusive ownership over any product he makes.

The test is the dominance or sufficient economic power over the market in which that article competes with other articles for it is that power over the market which makes it possible to tie-in to compel the buyer to give up his independent judgment and buy a product he doesn’t want to buy.

Otherwise, the seller is merely improvident in his own strategy.

He puts down demands because the price is too great.

The buyer defies him and goes to his competitor.

He destroys himself by making it unreasonable demand whether it’d be a tie-in demand and limitation of territory, a tie-in provision in the license.

He must meet the market conditions or he loses out.

And it is only when he has the economic dominance over the market, not over the product, that he has the power to do that which is illegal.

In other words, a benign tie-in becomes evil when it is combined with the economic dominance or sufficient economic power to control the market and thus create the coercion which is the base of the evil.

Now, the authorities clearly hold that to be the case.

In the Northern Pacific case this Court and referring to the patent made this pertinent observation.

The defendant attempts to evade the force of International Salt on the ground that the tying product there was patented, while here it is not, that’s in the Northern Pacific.

But we do not believe this distinction has or should have any significance.

And arriving in its decision in International Salt, the Court placed no reliance on the fact that a patent was involved, nor that it give the slightest intimation that the custom of the outcome would have been any different if it had — if it had not been the case.

And so in the —

William O. Douglas:

That would have surprised Justice Jackson, don’t you think?

Louis Nizer:

Possibly sir, but nevertheless, there was the decision.

And I think the decision is sound in this sense, Your Honor.

That unless we adopt the test which this Court has adopted although it may have differed in various cases as to whether that economic power was sufficiently demonstrated.

But unless we adopt the test that it is that economic dominance which translates this arrangement into a transgression of law, then we interfere with every bargaining enterprise and indeed interfere with competition rather than support the free competitive enterprise.

In the Times-Picayune case in view of Mr. Justice White’s observation, there, Mr. Justice Clark in his opinion held that because the product was the same, namely advertising into theatres, there was missing that the other ingredient, a different product.

In other words, the subdominant product wasn’t available and consequently the Court there said that this is not an illegal tie-in even though that was obviously in two newspapers out of three, a tie-in that you had to advertise in the morning and evening papers.

Similarly, in this case, these motion pictures though copyrighted our interpretation with what the evidence showed 9,000 to 10,000 other copyrighted films available in the market.

We would distribute groups of 30, 58, and 100 in the early days of full library of 712.

That was the largest.

But there were 8,000 to 9,000 films competing with those films all copyrighted.

And if we come to the conclusion that the mere copyright artificially substitutes for the economic power missing in the marketplace as this Court found.

Louis Nizer:

He substituted an artificial concept of copyright for the reality that there was no economic dominance in the market.

If we come to that conclusion, then you reached the absurdity that every article is a monopoly of itself.

Every owner has control of his own product and consequently no product can be sold in connection with any other product even the same or different.

And incidentally, that absurdity was reached in a case in which the Governmet asked this Court to send back the appeal to the District Court and dismiss it.

It was the Guerlain case, a perfume case.

There, the District Court led by — lured by this argument held that since Guerlain was a unique perfume for itself, although it was in competition with others, that it constituted a monopoly over itself.

When the case came to this Court, the Government asked that this Court remanded to the District Court and asked the District Court to dismiss that judgment, because you reached that absurdity that any ownership over your own product constitutes a monopoly of that product which isn’t the monopoly we talked about in order to protect ourselves under the Sherman Act.

And may I also point out that this action is brought under Section 1 of the Sherman Act and not Section 3 of the Clayton Act.

And the distinction is that under Section 1, the tie-in arrangement must be unreasonable as a restraint and there’s a greater burden upon the Government.

And there is no unreasonableness here.

The marketplace was free to all.

The Government —

Byron R. White:

(Inaudible)

Louis Nizer:

The product, not each film because of its copyright, but —

Byron R. White:

(Inaudible)

Louis Nizer:

No, no.

These were all between 12 and 30 years old while there is a distinction between some films and others in entertainment value, their uniqueness, if it be deemed artistic, was never translated into economic uniqueness which I refer to again as the crucial test.

Byron R. White:

(Inaudible)

Louis Nizer:

In substance they were.

It is difficult to —

Byron R. White:

(Inaudible)

Louis Nizer:

Yes there was.

I know that there are certain even old films which are better than some cheap western that was made 30 years ago.

Byron R. White:

(Inaudible)

Louis Nizer:

No.

No may I indicate that the —

Byron R. White:

(Inaudible)

Louis Nizer:

Quite wrong.

I was going to demonstrate it from the record and will.

Byron R. White:

(Inaudible)

Louis Nizer:

I assert the law.

I accept the finding and the few cases the Government — the Court made them because we think they are so minuscule, it isn’t worth reopening the record for those few instances.

Byron R. White:

(Inaudible)

Louis Nizer:

Yes, Your Honor, but the Court did so solely on the basis that the copyright made it so distinctive in itself that the artistic uniqueness of the film as the —

Byron R. White:

(Inaudible)

Louis Nizer:

Yes, that’s right.

Byron R. White:

— of the facts there.

Louis Nizer:

No factually, he filed a notion in those two cases.

Your Honor is quite right that there was tie-in and therefore they weren’t —

Byron R. White:

(Inaudible)

Louis Nizer:

Yes, I think that I should explain the difference in this industry which is not analogous at all to the motion picture industry and there is always the semantic danger that because motion pictures are referred to that the two are deemed to be acquainted.

In television, the practice is to sell advertising time.

You do not buy the picture.

You buy time.

The advertiser does.

And that time is determined by card rates.

And the rate is the same no matter what program is put on that segment of time.

And the rate difference — differs in accordance with the hour at which the time is taken incidentally.

These old motion pictures overplayed in fringe time as it is called in television parlance, late shows, late, late shows, and late, late, late shows and the early hours of the morning.

(Inaudible)

Louis Nizer:

And the — and the reason that they were shown in fringe time was in order to get cheaper rates, the television companies didn’t want to pay for real motion pictures that were current and more important or even the old ones.

That’s why they sample these packages and made averages out of them.

But the point of the matter is that there is no analogy between the Paramount case and this case, this is another industry.

Here, the motion picture is given free.

The man who buys the spot time doesn’t know what motion picture is going to be shown.

He buys that segment of time and pays according to a rate that’s fixed by that station.

Consequently, instead of being the lifeblood of the theater as the motion picture is in that theatre in which the box office results are determined by the attractiveness of that picture.In television, the time is uniform irrespective of whether a better picture or a worst picture or a worst picture is shown or indeed no picture is shown but something else is shown.

And it should be observe that the Court —

Arthur J. Goldberg:

Mr. Nizer, are you arguing that there’s no significance to a station whether they’re a good picture or a bad picture?

Louis Nizer:

No sir, what I’m arguing, Your Honor, is this.

Louis Nizer:

And the evidence overwhelmingly shows this.

There was no tie-in.

The kind of argument that went on was price.

Since the station have to fill — had to fill in this time and could only get a standard rate no matter what kind of a picture it shows, it wanted the best pictures obviously in order to have larger attractiveness for its station.

But its income did not depend upon how that picture did consequently in order to bring down the price to be within its economic range particularly for fringe time, the kind of argument which has been translated by the Government into forcing which took place normally in the marketplace was this.

How much is the average price?

I need 120 pictures.

Incidentally, they always wanted quantities.

I need 500 pictures.

What’s your average price for this package and suppose they fixed $100 as average price.

Now, will you drop out 10 of these very bad ones down here and give me five better ones for.

That was the argument.

The evidence never revealed a tie-in in the sense that one has it in the Northern Pacific or in any of the other classic IBM cases.

And since the Government referred to one case which it deemed horrendous and quoted the evidence, let me illustrate that because I think it dramatically points out what the record really shows.

In the very case that Government counsel indicated show tie-in.

At record 904, the following — the Court asked the following question, “What else did you say?”

Did you try to persuade him to offer it on a different basis or something like that?

The witness, “I simply told him that the price is out of line for our market.”

Mr. Gresham, “And on that basis, we are just not interested.”

A little later, the same witness that he referred to.

Question – “And you were interested on the very sizable quantity of pictures at that time weren’t you?”

Answer – “Well, we were interested on the library of films, yes.”

Question – “And this library wasn’t too large if the price was right, is that correct?”

No, I would say we were interested on the library at 913.

Answer – “I offered him as I recall it $425 for film and that figures up around $300,000.”

Incidentally Loews’ had asked for a million and you just turned them away.

This was a biased market.

This very witness testified he kept all the other companies cooling their heels as he put it outside in his office.

And I said, Morey, you can take it or leave it $300,000.

Question – “Right and he took it?”

Louis Nizer:

Answer – “And he took it.”

Question – “And this was the only proposal, the only offer you ever made to Loew’s for the library in concrete terms I mean.”

Answer – “Yes, sir.”

Final question, this is the tie-in case the Government found.

And he hadn’t used any oppressive tactics on you in this sale of any kind.

He used persuasion as a salesman.

Is that right?

That’s right.

Question – “And you felt you’re under no economic, moral, or any other physical force to do what you did.”

What you did was of your own free will thinking that you have the best deal you could make fairly, is that right?

Answer – “We were satisfied with the deal.”

Question – “The answer to my question is yes.”

Answer – “Yes.”

This is the best illustration they have of what they call coercive buying.

It was simply an argument of price, the tug and pull in the marketplace to obtain a better deal.

The cellophane case, coming back to Mr. Justice Douglas’ observation about patent because since the lower court did based its entire judgment upon the fact that it was deemed, it deemed itself under the features of that Paramount case to be obliged to find dominance in the market despite the fact that there was no actual economic marketplace.

We have found that the — in the announces of these cases that whether there is a copyright or not, whether there is a patent or not, the only test is, does that copyright or patent or without it give the seller the dominance in the market sufficient to create the coercion of tie-in.

That is what is illegal and it certainly doesn’t exist in this case.

Earl Warren:

Mr. Lane.

Myles J. Lane:

Mr. Chief Justice, I shall address my argument to point two of appeal Number 43 which just headed the injunctive relief is not warranted.

I want to make it clear at the outset that these are four separate independent cases that have only one thing in common, and that is there was intense competition among each of the four appellants in this particular case.

I heard counsel for the Government say that there was substantial number of violations.

Well, I want to remind that counsel that as far as Screen Gems was concerned, there were two violations covering a period of four years.

And the two violations will be at one station and were made the contracts involved that were entered into 10 months and seven months before the Government started the suit in 1957.

In other words, from September 1956 up-to-date although Screen Gems had entered into 1,500 contracts, the Government was unable to find one single violation.

I doubt very much whether anybody can consider that substantial.

With respect to Loew’s as Mr. Nizer has pointed out, the Government found two violations, three violations to the United Artists, and four for Associated Artists.

The total amount of the contracts entered into by Screen Gems was not up in $3 million or $4 million I heard here today.

The total amount of the Screen Gems contracts are $60,800 and that amount involving 78 pictures, I think the record will show that the stations did not want probably four or five pictures so the total amount of money involved as far as Screen Gems was concerned was about $5,000 to $6,000.

I think the question presented here, Your Honors, is whether the District Court molded its decree to fit the necessities of this particular case of whether it neglected the admonition of this Court and also the market that was involved, and the number, and the types of cases.

Myles J. Lane:

As Mr. Nizer pointed out, the market here was not motion pictures.

The market here is television programming of which motions — motion pictures constitute about 7% of the entire market.

This Court not so long ago, enunciated four factors which a District Court must consider in determining whether the moving party, in this case the Government, whether it has met its burden of demonstrating the need for injunctive relief.

And those four tests as I quoted are first, the character of the past violations; second, the bona fides of the party’s intent to comply with the law; third, the discontinuance of the violations, and the effectiveness of this discontinuance; and fourth, the danger of a recurrence of violations.

And using these measures against the situation presented by the various appeals in this case, I shall argue that injunction should not have been granted.

With respect to the first test, the question of the type of character of past violations, the Government has found as I have already pointed out that Screen Gems had two contracts that were held violated out of 1,500.

The particular type of violation was not the kind which this Court has enjoined before.

The lower court found there was no competition.

There was no — rather intense competition between all of the defendants in the case below.

It found out that as between the distributors of old motion pictures and the other type of program and those are live shows, taped shows, and so forth.

There was also intense competition.

And it also found that there was nothing here of an antitrust violation which stifle the programming market.

So that with respect to that particular test, it seems to me that it is not the type which this Court has found upon in the past.

The second factor or test where the intent of the appellants to comply with the law, now the record is clear both to documentary, proof and through the testimony of witnesses at the trial that Screen Gems had a policy of selectivity which was put into effect in March of 1956.

It was a testimony by the former vice president of Screen Gems.

There was a testimony by the various salesmen to this effect.

And insofar as Loew’s was concerned as Government counsel pointed out, Loew’s in 1957 put an advertisement in trade papers about their selective policy.

And I believe as far as United Artists were concerned, they sent telegrams in 1957.

But Screen Gems had its policy through 1956 on.

It was a written policy.

It’s in the record.

It was effectuated throughout that period.

And as I say, the best indication of good faith on the part of Screen Gems and the other appellants to comply.

In addition to that, the record is replete with instance after instance where these contracts that were put in evidence by the Government in an attempt to show that there was no selectivity.

If Your Honors will look at the record, you will see that all of these contracts were contracts where the station was given selectivity.

The third criteria were the effectiveness of the discontinuance by the appellants.

This was another test which the Government failed to meet in the court below to show a continuance to the violations involved.

For example, the record is barren of a single instance, not once in September of 1956 of any attempt on the part of Screen Gems to block book.

And I maintain that with all the powers of the Government with the FBI going out and interviewing all of these stations and going through all of our records, the inability of the Government to find one single instance since 1956, a period in which Screen Gems entered into 1,500 contracts as best evidence that there — of the intent of Screen Gems to give up any violations that they have.

If there weren’t any violations in 1956, I maintain that there is no need of an injunction at this period.

Myles J. Lane:

What will the injunction stop if the violation has ceased for the last four or five, or six years and there’s no evidence in the record to show that there was any continuance after that day.

The last and final test which the Government has been unable to show was this danger as I point out of recurrent violation.

The only evidence in the record which indicates the possibility of any recurrence is the testimony of the Government’s key witness.

And I’d like to devote a couple of minutes to that because I think it’s most persuasive.

The Government called to stand a man by the name of Robert Weisberg.

Weisberg was the buyer for an outfit known as TV Television Stations, Inc. and as he testified, he bought for 110 stations which constitute 20% of all the television stations in the United States.

Now, obviously, the Government put this man on the stand for one reason.

To show that there was a cognizable danger of recurrent violation.

As I say, this man was the equivalent of putting 110 station witnesses on the stand.

Now, what did he testify to?

Instead of testifying as the Government hoped he would, he testified just the opposite.

And perhaps this is the reason why the Government has been unable to approve more than two instances of violation against my client and two or three against the other appellants in this case.

He testified that each year, he entered into 5,000 or 6,000 negotiations for these various stations.

And amazingly enough, he said that in all his experience, that 98% of those negotiations, the parties involved wanted selectivity, no.

They wanted to buy in bulk in only two instances or 2% rather of all the cases, did they want selectivity which gives the Court a pretty good idea, number one, of the type — let’s stop here I guess.

Earl Warren:

So that’s — you’re dividing your own time but I’m not governing that.

Myles J. Lane:

Well, it gives the Court a fairly good idea of what the policies in the market were at that time.

In other words, the stations wanted bulk.

They didn’t want selectivity.

For their own economic reasons, they wanted that.

And I say, Your Honors, in conclusion that the function of a court of equity is not to punish past violations but to prevent future violations.

And I think as I’ve demonstrated here, the court below did not meet anyone of the four standards set up by this Court in the Grant case.

And therefore, I submit Your Honor that on the basis of these that the District Court had used its discretion in posing injunctive relief and I respectfully request the decision of the District Court with respect to these four appellants be reversed.

Earl Warren:

Mr. Pollak.

Mervin C. Pollak:

Mr. Chief Justice and members of the Court.

I represent the maverick among these appellants.

The one company whose television licensing practices were different from the others and they were different because of the circumstances under which this company acquired its television rights.

There isn’t time to go into the details of the tried body negotiations which led to them.

Counsel for the Government had summarized the result.

This company instead of receiving unlimited rights to license the RKO films, television stations, received the right to license those films only in accordance with the terms of a very restrictive contract with International Latex which was entered into for a very sound business reasons on the part of Latex and for the reason on the part of C & C that it couldn’t get the RKO financing in any other way.

Mervin C. Pollak:

And that result was that the RKO pictures could be licensed to television stations only if those stations would make available to C & C for transfer to Latex, a large number of television spots to advertise its product.

The large number was needed for a very sound business reasons and C & C had no choice but to comply with that.

If it made any contracts which did not produce minimum numbers of spots, it could not be paid.

And in that effect of this minimum spot demand in each case on the part of a station was the natural conclusion that as long as they had to give away these many spots, they would take all of the pictures that they could get for that many spots.

Now, the District Court observing the practice of television stations and C & C under these arrangements, came to the conclusion, one, that C & C never went to a particular television station and said, “In order to take — in order to get this RKO picture, you must take that one.

Or in order to get some RKO pictures, you must take others or all of our RKO pictures.”

That is what the complaint defined as block booking.

It’s what this Court has defined as block booking and Mr. Friedman described as block booking.

The Court found instead that C & C conditioned every sale on a minimum price, a minimum price expressed in terms of spots.

Then C & C said, this resulted in sales of groups — I mean the Court said, this resulted in sales of groups of films, therefore, it was block booking and C & C operated under a policy of block booking.

Now, it seems to me respectfully that this is error.

It’s an error based on a full syllogism which runs something like this.

Every time there is a block book contract, the result is a sale or a license of a group of films.

Every time C & C made a spot minimum demand on this television station, the result was a license for a group of filMs.

Therefore, C & C’s minimum price demand equals block booking.

This doesn’t necessarily follow and we feel that the legality of C & C’s minimum spot demand must be determined not by the result of that policy but by the purpose and the character of the conduct that led up to it.

Now, Mr. Friedman said, “Nobody in this case challenges the Government’s finding that it entered into block booking contracts”.

C & C does challenge that.

And the first point we make is that the activities of C & C in demanding minimum numbers of spots was not block booking.

We claim it is not block booking, first, because it was not entered into for the purpose of getting a television station to take more than one or several pictures.

It was entered into for the collateral and simple business reason that this was the only way in which C & C could get income from its licensing activities.

Secondly, in the nature of the C & C contracts with television stations, it’s very clear that these stations bought not specific pictures but a bundle of pictures.

For one thing, every C & C license contained what they call the cushion clause.

C & C was permitted under every contract to deliver 7% to 10% less pictures than the contract call for.

There were technical reasons why this was necessary.

And any station contracting to license 742 pictures from C & C would have its contract fulfilled of C & C, gave them only 720 pictures.

And there is no way of telling which 720 C & C would give them.

Likewise, C & C had an escape clause.

If it couldn’t give a particular license picture to a station, it had the right to give a different picture of comparable quality without specifying what the title of that comparable quality should be.

And so it’s apparent that when the television stations bought from C & C, they were never sure exactly which titles they were going to get.

Mervin C. Pollak:

Secondly, when the C & C contracts went into effect, every station got unlimited runs of all the pictures for 10 years.

And so, it didn’t matter to a television station if out of 742 pictures, it did happen to get two Spanish titled pictures which were in the bundle.

C & C just gave them everything it had, but it wasn’t the kind of licensing that took place with respect to the others.

Now, we claim that in this situation, there is no compulsion on the part of the stations to buy from C & C.

This Court held in United States against Bethlehem Steel that economic compulsion or the rest would only be present when two circumstances occurred, one, when there was overpowering strength on one side and feebleness on the other, and two, when the yielding party had no adequate alternative.

In this case, the record shows clearly that the television stations had the bargaining strength and the distributors were in competition with the host of other suppliers, and secondly, that there were many alternatives if a station didn’t like the terms on which C & C offered its pictures.

They could go to other suppliers and suppliers of other programs.

In these circumstances, yielding to bargaining pressure was merely yielding a preference and not a non-volitional act.

The whole business world, every contract has that kind of compromise.

Our second point is that there is a growing recognition in the courts below of a doctrine of business justification where tying is concerned.

When the object and the purpose of tying is something entirely extraneous to the simple benefit or direct benefit of getting a larger share of the market by the leverage of a tie-in device, the courts look to see whether it was reasonable.

That happened in Dehydrating Process against Smith where there was a valid reason why Smith Company would only sell its unloading device in connection with its own silos.

The First Circuit made a very clear opinion of the principles behind this point and this Court denied certiorari.

The same thing took place in United States against General Electric in Court.

The District Court which upheld as an initial practice the right of a new community and 10 assistant companies to sell its component parts only in terms of systems and in connection with the service contract.

When the need for that kind of sale disappeared, the tie-in became illegal.

C & C had a very valid business reason for insisting on minimum spots.

It was the simple need to get paid from his licensing activities.

It had nothing to do with whether the stations would take one or more pictures from C & C.

Lastly, we say, that this practice in the case of C & C was very reasonable, because in the first place, the device of insisting on minimum spots was no greater than C & C needed to protect this interest in getting paid.

Secondly, it had no anticompetitive results.

The stations were not precluded by any C & C contract from licensing hundreds and thousands of other feature films from other suppliers and other program material from their resource.

No supplier of feature films or television program was ever precluded by a C & C license from doing business with that same station.

The Second Circuit in (Inaudible) said this very — in this very situation that where you have a tie-in with no anticompetitive effects, it is not a violation of the law and this Court denied certiorari, and this in turn is exactly the kind of situation Mr. Black posed as a hypothetical case in Northern Pacific when he said, “If there are a number of groceries in town and one will only sell sugar, if the buyer takes flour and nobody is hurt, this is insignificant tie-in.”

In conclusion, we say first that it would be impossible as the Government suggested in its brief for C & C to revise its contract with International Latex because unless Latex got all of the spots it needs for its exposure program, it would do no business with C & C.

And lastly, we say where the First Circuit and other courts that the antitrust laws do not compel a business like C & C to cut its own throat by licensing on a basis from which it could receive no income.

Earl Warren:

Mr. Golenbock.

Justin M. Golenbock:

Mr. Chief Justice, may it please the Court.

As counsel for National Telefilm Associates or NTA, I shall direct my remarks during the few minutes available to me in opposition to the appeal of the Government in case Number 42.

This appeal has been taken by the Government in the five other cases in identical fashion as taken against NTA.

Justin M. Golenbock:

The first question raised by the Government —

William J. Brennan, Jr.:

You have a separate brief, do you?

Justin M. Golenbock:

Yes we do, sir.

And the first question that was raised by the Government on its appeal is a question as to whether or not, the District Court judge erred in permitting a television distributor in canvassing a market in respect to the acquisition of or distribution of a package of films before licensing anyone or few in that group to a willing purchaser.

This question arose primarily in connection with the contract which NTA entered with a Minneapolis television station.

And I do want to mention this contract because I think it bears somewhat on the ultimate determination of this point.

In that case, it became known into the trades that NTA had available a certain number of feature films which it called the fabulous 40.

And the Minneapolis station contacted management of NTA and requested that management to first negotiate with the Minneapolis station before going to its competitors.

In response to that request, the NTA salesman approached the Minneapolis station and conducted negotiations.

In the course of the negotiations, the station asked whether or not it would be possible to obtain fewer than a total group of films.

NTA required not yet indicating that it wanted to solicit the market, to have an opportunity to talk to the competitors first.

Thereafter, a contract was entered into for the entire group of films.

Just the course was properly held we believe that so long as it is known to the offeree that the refusal to deal on less than a group is temporary, so long as that refusal of the deal was not disguised as conditioning, so long as it is done in good faith, it is a proper act.

As Justice Dawson said, a contract arising from the desire of one party to keep the films away from his competitor does not constitute a block booking contract.

A similar case occurred in connection with one of the other defendants where while negotiating with two stations in the market, one station requested less than the total group of films.

The other station requested all the films and it ultimately entered into a license for all of the films.

The Government would have this Court say, in both of these circumstances, that the first station that entered into negotiations would have the priority to determine, to pick and choose among the films and the group that they may wish, and incidentally to deprive the competitors in that market of an opportunity to deal on those films.

The Government does say, however, that if this position does not prove to be proper and the action turns out not to be illegal, they like to have such action enjoined by modification of the lower court decree.

First, I want to say that the Government’s position in respect to this point has shifted since the time of the lower court trial.

At that time, the senior trial counsel indicated to Judge Dawson that this point was not an issue in the case.

Subsequently, the associate trial counsel indicated to Judge Dawson that a distributor need not sell part of a package if at the same time he does have a willing customer to buy all of the packages.

Notwithstanding, the position taken in the lower court, the Government now makes this an important point in its appeal.

It’s interesting to note, however, that when challenged by the various briefs of the defendants, first is the practicality of this position, and second as to the validity of them, the Government has shifted again and now says that they don’t say that a station cannot contact — a distributor cannot contact all of the stations in the market.

As a matter of fact, they say that a distributor may solicit indications, solicit indications on page 4, Government’s reply brief, as to the number of films for the station may desire and also as to the price that the station is willing to pay.

Now, whatever the ambiguous term solicit indications means, and I don’t think that this defendant should be put at the risk of determining it for themselves.

Certainly, there is very little difference between canvassing a market and soliciting invitation — the soliciting indications.

It would appear as if perhaps, the Government has either abandoned its position or has recognized that in any effect it has a very weak position.

Mr. Friedman has said to this Court this morning that there’s no difference between temporary dealings of the type that I’ve been talking about and a permanent restrain.

He says that as a matter of fact, if a television distributor tells a station that it will not break a group temporarily until it has canvassed the market.

A television distributor can utilize this approach in every case in which it decides that it wishes to coerce a block book contract.

Justin M. Golenbock:

Well, obviously, that’s not true.

Obviously, Judge Dawson was able to read out from among the few number of cases that he found who have been coerced.

This case indicated a finding of good faith on a part of a distributor, the matter of the facts under which the distributor works are easily to be found by the trial court and has been found.

In respect to the request by the Government further modifications of the decree, there’s one prevailing vice in the Government’s position.

They would like to have this Court reviewed this matter.

It’s the evidence that they wish they were able to prove in the lower court.

The Government like any other litigant is bound by its failures and its defaults and the findings of fact by the lower court.

In its brief, the Government said that the modifications requested by it are justified in Court, because of the practice of block booking engaged in by the defendants.

They also claimed in its brief, that the price differential amendment which is requested by them is justified by the findings of the use of price differentials as a device for block booking.

However, in its reply brief, the Government now concedes that there never was any finding of fact by the lower court either as to any policy of block booking or as to the use of price differentials.

As a matter of fact, Judge Dawson commented the conclusion of the Government’s case that the Government had put in no evidence whatsoever, the price differentials that have ever been used in connection with the conditioning or coercion of block book contracts.

As far as the Baltimore station is concerned which have been cited by Mr. Friedman, I must make it clear that Judge Dawson did not find that there was a price differential use in connection with the contract which he held to be block booked.

As a matter of fact, there is considerable testimony in the record, both my Mr. Unger, the president of NTA and others, that because of the quality of the films involved, the particular pricing based on quality of the films was not out of bound and I point out again, Judge Dawson did not so find it.

As far as the question of price differentials are concerned, I must point out that the Government has adopted for itself an arbitrary standard which has no connection whatsoever with business usage.

You’ve heard that the stations like to buy both pictures and they like to pay average prices.

The usual negotiation between a station and a distributor involves a negotiation over an average price.

The station comes in with a price which may be a little high that is the cost of the negotiation.

The distributor in the station then negotiates and reaches a final contract price.

The difference between the original offering price and the contract price is not as the Government would have you believe, based either upon an intention to block book or savings and distribution cost.

Basically, those differences first come from a negotiating process.

In addition, you may have a discount for both or financial pressures may cost the distributor to try to enter into contracts quickly.

The distributor maybe fearful of unknown loses if he’s not able to sell his pictures at that time because of new pictures coming into the market.

All number of reasons is involved.

I think that the Government’s proposal in connection with the modification and the decree has been thought up perhaps properly theoretically but it’s not connected with the Government as a business usage.

In closing, I’d like to request that this Court deny the Government’s motion for modification of the judgment in recognition of the fact that Judge Dawson has retained jurisdiction of this case and as in Picayune Publishing case and in other similar cases where a judge has retained jurisdiction any future of abuses can be left to its informed hindsight.

Thank you.

Earl Warren:

I think both sides may want a few more moments and they have — you may have five minutes more Mr. Friedman and you, Mr. Nizer, you may have five extra minutes.

Daniel M. Friedman:

Thank you.

Mr. Chief Justice, may it please the Court.

In this Court’s decision in the Standard Oil case in 337 U.S., in talking about its previous decision in International Salt, it pointed out that in International Salt, the Court had held that the tie-in agreements by the offer of a patented product, which required the lessee of the salt machines to take unpatented salt was held illegal.

Daniel M. Friedman:

And it said, it so held even though, one, it was not established that equivalent machines were unobtainable.

It was not indicated what proportion of the business of supplying such machines was controlled by defendant.

And it was deemed irrelevant that there was no evidence as to the actual effect of the tie-in causes upon competition.

Second one, this Court’s own opinion in the Times-Picayune case which Mr. Nizer has relied on, specifically pointed out in distinguishing the situation there before the Court involving neither a patented nor a copyrighted article it said as follows.

Unlike tie-in cases, where patents or copyrights supplied the requisite market control any equivalent market dominance in this case must rest on comparative marketing data.

Now, we think that this case is taken together with the Paramount case and the International Salt case, clearly do establish that in a tie-in field where you have a patent or a copyrighted article that itself suffice the monopoly.

Of course, these films are not fungible.

These films are not fungible.

There are two things.

First of all, there is evidence in the record in which station owners did testify that it was important to them which particular pictures they have.

One example of this was that several of them indicated there were very desires of getting good pictures during the so-called rating weeks, during the period when these various audience surveys were made to see how many people were looking at the screen because this was important for them to try to get a good picture during the rating week.

It also seems to me the suggestion that these pictures are fungible and that their particular identity is immaterial to the stations as refuted by the fact that the stations wanted the particular pictures and did not want other pictures.

Now, I would like, in closing, to just suggest this.

If the defendants are correct in their argument that the lack of any dominant or sufficient economic power over the entire market absolves these contracts from invalidity of the Sherman Act, this would lead to this following consequence.

Let us assume for the sake of argument that every single distributor of theatrical motion pictures to television entered into a compulsory block contract with for every single contract, with every single station in the United States, the whole market was tied up this way, under the defendants’ theory despite their complete tie up, there would be no illegality because no single defendant itself would have had market dominance over the entire product market.

We —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

No.

I’m assuming that all the sellers in the country, not only these six defendants but all sellers, all distributors, 90 of them or whatever number is —

Byron R. White:

(Inaudible)

Daniel M. Friedman:

This is really a hypo — but it’s really hypothetical but Mr. Justice, under their theory, it seems to us, they would still be able to argue no single one has dominance over the entire market, therefore, there is no illegality.

We believe that cannot be that law and we believe that is not the law, and we believe that these contracts are illegal and that in the circumstances, first, the District Court properly found them illegal, second that the District Court properly did grant injunctive relief, and third, that the modifications, we suggest, are necessary to make the relief effective in this.

John M. Harlan II:

Had their copyright run out in any of these films?

Daniel M. Friedman:

The record doesn’t show copyrighters for 28 years and it’s extended for another 28.

I think these films began around 1929 and 1930 but they may have extended their copyright.

I just don’t know that.

John M. Harlan II:

Are we — are we to deal with this case and the assumption that all of these films are copyrighted?

Daniel M. Friedman:

The District Court so found —

John M. Harlan II:

I haven’t heard anybody suggest the contrary of the District Court —

Daniel M. Friedman:

The District Court expressly so found and of course the more desirable film which the tie-in films presumably are the more recent films and I think it’s the reasonable assumption that as to them at least, the copyright is still extended.

Daniel M. Friedman:

Thank you.

Earl Warren:

Mr. Nizer.

Louis Nizer:

May it please Your Honor.

A reference to the decree two or three weeks ago, the Government entered into a consent decree with MCA, one of the largest according to its complaint in that action, the largest distributor of motion picture films for television.

And in that consent decree, they did not ask for any of the items of relief which they insist are essential here.

And if that relief were to be granted in the event, this complaint is upheld, we would be at the disadvantage with respect to the largest competitor who did not have the restrictions upon them by virtue of the Government’s consent in that case that those requirements were not necessary.

Secondly, recent MCA’s consent decree only two weeks ago.

Secondly, the market in this case which the court below found, we did not dominate or have the economic power was the distribution of motion picture film to television.

But actually, as the Court further found, that is not the relevant market.

The relevant market is much wider even on that manner of restricted basis, we didn’t have economic power.

Actually, the market is not the supply of motion pictures, feature films to television, but the entire programming because all the evidence, there was no contradiction is that these are interchangeable vertically in one particular station depending on the segment of time you can have a taped show, a special motion picture film made for television, a cinemascope or a live program, or a motion picture.

Horizontally, if you flip the dials, you will find a motion picture in competition with the live show or a quiz show so that the programming is interchangeable, which is one of the tests in the tie-in cases, and their relevant market, therefore, is the entire programming of motion picture — of entertainment on television.

And the record shows that for many years, there were no motion picture films.

Indeed, when Your Honor asked whether there’d been a similar case, there was a case in which the Government brought suit in California to compel the motion picture companies to make their films available to television stations.

They said these are our competitors.

We don’t want to supply them now because of economic necessity, we do supply them.

There is another complaint that we’re supplying them too much.

But the fact of the matter is that the market involved is the entire programming of which we have 3% to 8% according to the uncontradicted testimony and each defendant has a fraction of less than a half percent of that market, therefore, the complete absence of the requirement of dominance.

And one quotation from the cellophane case in view of the question as to whether patent of copyrights applies the practical control.

“The power of that automobile or softdrink manufacturers have over their trademark products is not the power that makes an illegal monopoly.

Illegal power must be appraised in terms of a competitive market for the product.

And by that test, the competitive market, there were 1,500 of the distributors of 9,000 to 10,000 films as against the few hundred we were distributing.”