Viking Theatre Corp. v. Paramount Film Distributing Corp. – Oral Argument – April 27, 1964 (Part 1)

Media for Viking Theatre Corp. v. Paramount Film Distributing Corp.

Audio Transcription for Oral Argument – April 27, 1964 (Part 2) in Viking Theatre Corp. v. Paramount Film Distributing Corp.

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Earl Warren:

Number 481, Viking Theatre Corporation, Petitioner, versus Paramount Film Distributing Corporation et al.

Mr. Williams.

Edward Bennett Williams:

Mr. Chief Justice and may it please the Court.

The case at bar is a civil antitrust case.

It’s here on writ of certiorari to the United States Court of Appeals for the Third Circuit, which affirmed the judgment of the lower court.

The trial judge, if the Court please, had directed a verdict for the defendants at the conclusion of the plaintiff’s case thereby taking the case away from the jury.

With the Court’s indulgence and for convenience of identification, I shall refer to the petitioner, if I may, as the plaintiff and the respondents as the defendants.

The plaintiff in the court below was an exhibitor of motion pictures, first run motion pictures in the City of Philadelphia, the Viking Theatre Company.

The defendants, if the Court please, were the seven major distributors of motion pictures in the United States, Paramount, Warner Brothers, Columbia, Universal, MGM, United Artist, and Twentieth Century-Fox and three chain exhibitors which operated first run houses in the City of Philadelphia, William Goldman Theatres, which operated the Midtown, the Randolph and the Goldman Theaters, Stanley-Warner, which operated the Mastbaum, the Stanley and the Stanton and Fox Philadelphia Building, Incorporated, an affiliate of the National Theaters Chain which operated the Fox Theater.

There were some other very small independent exhibitors in the Philadelphia area.

The Arcadia and the Trans-Lux, each of which had theaters with seating capacity around 650, in the case of the Trans-Lux, 493 and two other theaters, the Studio and the World, which although included by the defendants as first run Philadelphia houses, actually showed only six first run films during the 123-week period involved in this case.

They usually showed reissues or art films.

The thrust of the complaint below was that the defendants and each of them were engaged in a conspiracy violative of the federal antitrust laws injurious to the plaintiff from July 2nd, 1954 to November 12 of 1956.

The defendant exhibitors, if the Court please, dominated the Philadelphia first run exhibition business, as the record shows, controlling 83% of all seats available for first run motion picture exhibition in the City of Philadelphia.

Now, the issue in the case, as presented to this Court, is whether or not the plaintiff made a prima facie case entitling him to have this case decided by the jury, whether or not a jury of reasonable men from the evidence in the record could have concluded a violation of the antitrust laws an injury to this plaintiff.

It’s axiomatic that on an issue of this kind, all reasonable inferences should be drawn in favor of the party plaintiff and adverse to the parties than officiary to the directed verdict.

It’s my purpose, if the Court please, in the time that’s allotted to me, to cut through the mulish of economic (Inaudible) this record and point out to this Court that there is clear, direct evidence of an agreement and an unlawful agreement to which each of the parties, defendant in this case, were parties.

I think it’s — it’s not an overstatement to say that this case is almost unique in the long annals of motion picture antitrust litigation because we are here not relying on — on inferences from conduct or on conscious parallelism of conduct.

We’re here saying, if the Court please, that there is in this record direct evidence of an agreement that is unlawful per se.

And secondly, while the end object of this agreement was economic homicide for this plaintiff, it was not direct sudden homicide of a readily demonstrable nature but rather a slow lingering type induced by creeping pellagra caused by a carefully planned dietary deficiency.

Now, I’d like, in the first instance, to touch upon the evidence in the record of the agreement among the defendants, it’s unlawfulness, how it worked in theory and what’s its purpose was and then point out to the Court an invidious refinement of this agreement known as the Schwalberg agreement and then showed to the Court from the record how the agreement worked in operation vis-à-vis the plaintiff.

Before the Viking Theatre came into the Philadelphia market for first run motion picture exhibition, the Stanley-Warner Chain had five first run theatres in Philadelphia.

Goldman had three, Fox, one.

Stanley-Warner converted its Boyd Theatre from a first run theatre into a Cinerama house, selling reserved seats, thereby taking it out of the first run motion picture exhibition business.

It then closed its Alden Theatre, bringing about a position of perfect parody between IT and Goldman, each then had three first run houses in Philadelphia.

Fox had one.

At this point, an agreement was entered into and this is undisputed.

There is no dispute from the defendants concerning this.

An agreement was entered into between Stanley-Warner and Goldman that they would not compete against each other for acquisition of film from the distributors that they would draw a list.

On one side of the list would be pictures allocated to Goldman, on the other side of the list would be pictures allocated to Stanley-Warner.

Edward Bennett Williams:

Sometimes a list would be drawn by Goldman in which case Stanley-Warner had its first pick and sometimes, the list would be drawn by Stanley-Warner in which case Goldman would have his first pick and in some instances, the lists were drawn by the distributors because in this — in this agreement, the distributors acquiesced.

Arthur J. Goldberg:

(Inaudible)

Edward Bennett Williams:

It did under the Shwalberg agreement which I’ll come to.

Arthur J. Goldberg:

(Inaudible)

Edward Bennett Williams:

Yes.

Arthur J. Goldberg:

(Inaudible)

Edward Bennett Williams:

That’s right, sir.

Now —

Potter Stewart:

So far, you’ve just referred to an agreement between Goldman and Stanley-Warner.

Edward Bennett Williams:

Yes.

Potter Stewart:

Not involving the distributors at all, isn’t that correct, up to now?

Edward Bennett Williams:

I said, Mr. Justice Stewart, that the distributors gave their approbation and their acquiescence to this agreement.

There was no dissent from the distributors and in fact, in the case of Paramount and United Artists, they actually drew the lists.

In volume 6 of the record, over a period of about 30 pages or a space of about 30 pages, there is a physical exhibit showing the split, showing how it was done.

The first page of volume 6 shows the Paramount split and on one side, ours, on the other side, Goldman, that’s a split that was drawn —

William J. Brennan, Jr.:

I can’t understand what you — what do you mean by acquiescence or approbation without hearing something, would that — was there anything that the —

Edward Bennett Williams:

Well, of course —

William J. Brennan, Jr.:

— maybe they should have done?

Edward Bennett Williams:

Well, of course, they could easily have complained and they had ready basis for complaint under the antitrust laws but they do not complain.

In fact, they urged this Court to approve this split arrangement among these exhibitors and in fact, they approved of it at the time that it was in existence in Philadelphia.

William J. Brennan, Jr.:

What I don’t follow is, are you tying the distributors into this agreement?

Edward Bennett Williams:

Yes, sir, and you’ll see that —

William J. Brennan, Jr.:

Well, how, by — by in action?

Edward Bennett Williams:

Well, they — they not only fail to act against it, they cooperated throughout with it.

Its — the record will show as I unfold it to you, Mr. Justice Brennan.

Byron R. White:

But they don’t deny it either.

Edward Bennett Williams:

They don’t deny it, sir.

Byron R. White:

They — as a matter of fact, they admitted?

Edward Bennett Williams:

They admitted and defended.

Byron R. White:

And urged the — urged the —

Edward Bennett Williams:

Court to approve it.

Yes, sir.

Now, how did Fox fit into this split?

(Inaudible)

Edward Bennett Williams:

Yes, I — I shall do that.

(Inaudible)

Edward Bennett Williams:

I’ll — I’ll show you how it — it heard him.

Byron R. White:

Well, Mr. Williams, that issue was not passed upon by the Court of Appeals, was it, it was by the Court — District Court but not by the Court of Appeals?

Edward Bennett Williams:

Yes, it was passed upon by the Court of Appeals, Mr. Justice White.

It refused to hold the split agreement unlawful.

Byron R. White:

Yes, but — on the question of damage —

Edward Bennett Williams:

Oh, the question of damage, no, sir.

That was not pointed.

That was —

Byron R. White:

That — that was passed on by the District Court but not by the Court of Appeals.

Edward Bennett Williams:

But not by the Court of Appeals.

The course of damage, that’s right, sir.

Byron R. White:

Yes.

Or illegal entry to you?

Edward Bennett Williams:

Yes, that’s right, sir.

Now, how did Fox fit into this?

I’d like to describe the split first and then show its operation.

Fox fitted in this way.

Fox took only pictures from Twentieth Century-Fox.

And it agreed that it would not compete for the pictures from the other distributors.

It would leave the pictures from the other distributors to Goldman and Stanley-Warner.

And in return for that, Goldman and Stanley-Warner did not compete for Fox Pictures, so that Fox, for all practical purposes insofar as the parties to this litigation were concerned, had a virtual monopoly on pictures coming from Twentieth Century-Fox.

Now, Viking came into the market (Voice Overlap) —

Potter Stewart:

Did anybody else ever — did anybody else ever exhibit a Fox Picture during the period involved?

Edward Bennett Williams:

Yes, sir, that — that did happen and I’ll explain how it happened as we go into the evidence.

Edward Bennett Williams:

There were times, Mr. Justice Stewart, when there were too many Twentieth Century-Fox Pictures for the Fox Theatre and then on those occasions, they allowed other exhibitors in the Philadelphia area to show Fox Pictures.

Potter Stewart:

Now, whose they?

Who allowed them?

Edward Bennett Williams:

Fox and — Fox Theatre and Twentieth Century-Fox.

Potter Stewart:

And which exhibitors did show the Fox Pictures over the period (Voice Overlap) —

Edward Bennett Williams:

I think the record would show that each of them showed at least one or more, in fact, Viking showed some Fox Pictures during this period.

Potter Stewart:

Is there anything to show that Viking could’ve be it on any Fox Pictures any time?

Edward Bennett Williams:

Viking did, in fact, did on Fox Pictures.

Now, I’ll show you what happened when those — this remained as we go into the —

Potter Stewart:

Well, but at least so far we know they — they got at least some (Voice Overlap) —

Edward Bennett Williams:

Yes.

That’s right.

Now, Viking came into operation this way.

When the Alden Theatre was closed by Stanley-Warner bringing it into perfect position of parity with Goldman, Mr. Harry Sley of Philadelphia, the President of the Viking Corporation, purchased the Alden Theatre.

As soon as he manifested an intension to operate it as a theatre, immediately, Stanley-Warner undertook negotiations to buy it back.

However, the record shows that he spent some $600,000 refurbishing it and making it into one of the finest theatres in the City of Philadelphia for first run motion picture exhibition, and then notified each of the distributors that he intended to compete for film in the Philadelphia market and to operate it as a first run house.

So when Viking came into business on July 2nd of 1954, it entered into a split market.

It entered into a market wherein certain films were split on the Goldman side, certain on Stanley-Warner and the Twentieth Century-Fox Films were reserved for the Fox Theatre.

So Viking immediately found that every time it came into the market for a picture, it was in a competitive market.

It had to compete against one of the major exhibitors for film, whereas when Viking got a film and was committed for a period of weeks to play it, the other defendant exhibitors enjoyed a competitive low in the Philadelphia market and were able to get their pictures without competition from Viking.

So, a vicious cycle set in.

The higher that Viking bid and the longer the playing commitments that it made, the longer the competitive low it made in the — in the market in the City of Philadelphia inuring to the advantage of the defendant exhibitors so that they could get stronger while Viking grew weaker to use a homely analogy.

Assume that here, in the City of Washington, we had three retailers of coal, A, B and C, A with three large storage bins, B with three large storage bins and C with one storage bin.

A and B entered into an agreement that they won’t compete against each other in buying coal from the wholesalers.

Now, what does this mean?

It means that every time C goes into the market to buy coal from a wholesaler for its bin, it’s got to compete against A or B.

When A —

Potter Stewart:

Probably, I guess the both, as — as it would have —

Edward Bennett Williams:

Right.

Potter Stewart:

— there’d been no such a great —

Edward Bennett Williams:

Just against one.

Potter Stewart:

Yes.

Edward Bennett Williams:

And so when A’s bin is filled, if the Court please — when C’s bin is filled, A and B then have a period of competitive tranquility.

There is no competition for the acquisition of coal in the City of Philadelphia.

And whereas C must pay competitive prices, let’s assume $20 a ton, when it fills its bin, A and B, during the period when C is filled, can buy their coal at noncompetitive prices, say $15 a ton, and if the retail price is $20 a ton, with the expiration of the year, you can see that C is constantly buying its coal at $20 a ton, selling it at $20 a ton and you have economic ruin at the end of the year whereas A and B can survive because they have periods when they can buy their coal at noncompetitive prices and sell it at a profit.

This split agreement, if the Court please, is nothing more than a very, very thinly veiled device to circumvent the pronouncements of this Court made four times with respect to pooling agreements for purchasing film.

The first time it was made — it was made in the Crescent Amusement case, United States against Crescent Amusement Company in 1944 where the Court struck down an agreement whereby a number of exhibitors vended together and designated a common purchasing agent to acquire film from the distributors.

And the Court struck it down because they were ally.

They had coerced all of their economic power into one market, allied against the — the nonmember exhibitors.

Again, it spoke in United States against Griffith in 1948 against these pooling agreements among exhibitors for the purchase of film.

It spoke again in 1948 in Shine — Schine Theatre against the United States and finally in the Paramount case in 1948, it said that these pooling agreements were illegal because they used the language of the Court.

They have the effect of nullifying competition between the allied theatres and of making more effective the competition of the group against theatres not members of the pool.

Clear restraints of trade are difficult to imagine.

Byron R. White:

Do you think the antitrust provision agrees with you?

Edward Bennett Williams:

Your Honor, I haven’t been able to get an expression of opinion from them on this subject so I don’t know whether they agree or don’t agree and the —

Byron R. White:

But you — they haven’t — they haven’t taken any position of the Court anywhere that these —

Edward Bennett Williams:

They have not, sir.

Byron R. White:

— that these splits are —

Edward Bennett Williams:

No.

They have said, Your — Mr. Justice White, with respect to two splits, one in Alpine, Texas and the other in Wichita Falls, Texas, one city which had two exhibitors and the others which had three that all inclusive splits were all right.

In other words, splits from which no exhibitor was excluded but they have specifically refused to give their benediction to a split arrangement from which any exhibitor has been excluded as Viking was excluded in the case at bar.

Byron R. White:

Well, then their position must be hearsay such kind of (Inaudible)

Edward Bennett Williams:

I — I don’t like to make that jump because I’ve tried to get them to express themselves on this subject unsuccessfully.

Byron R. White:

Well, how about in administering the Paramount (Inaudible) are they — are they opposed in the split in operation of it?

Edward Bennett Williams:

The Department of Justice has not taken the position insofar as I know, Mr. Justice White, with respect to —

Byron R. White:

But the judge has, isn’t it?

Edward Bennett Williams:

— to splits, with respect to — which some exhibitor has been excluded.

Byron R. White:

But the judge has in that case, I suppose, the Paramount case.

Edward Bennett Williams:

I know that the judge is extremely interested in what this Court says about the splits but I don’t know what his position is.

I have no firsthand information on that.

Edward Bennett Williams:

Now, if the Court please, I — I was about to say that the split arrangement is nothing more or less than a device to circumvent the ruling of this Court on pooling arrangements because the split has exactly the same effect as the pooling arrangement.

Number one, it eliminates competition against otherwise competitive exhibitors.

Number two, it allocates product without competition.

And number three, it affects prices.

Now, what these — what these exhibitors did, if the Court please, was to create in the Philadelphia area three submarkets.

They divided the market.

In one submarket were all the pictures on the Goldman side of the split.

In another submarket were all the pictures on the Stanley-Warner side of the split.

And the other submarkets were those pictures which were allocated without competition to Fox.

Then these exhibitors channeled their total market power.

In the case of Goldman, he put his total market power into this submarket which included those pictures on his side of the split.

Stanley-Warner gave him no competition, Fox gave him no competition, so that the arithmetic as shown in our brief at page 14 was that — whereas he might have had only 22% of the market power in a free open competitive market where he was competing with equal or nearly equal competitors when he went into this submarket and competed against the small independence, he had 80% of the — of the market power measured in terms of seating capacity from the Philadelphia area.

So, if the Court please, we have here a classic division of the market case.

We have the Philadelphia market divided into submarkets.

We have each of them — defendant exhibitors coercing their total economic power, their market power into a submarket against wholly unequal independent exhibitors without any competition from the other nearly equal or coequal chain exhibitors in the City of Philadelphia.

Now, that is just precisely the kind of thing which the Attorney General’s National Antitrust Advisory Committee spoke out against several years ago.

And they said the contracting parties to such a market division gained only if the result is to give each a substantial degree of power in his own market.

There is no doubt either as a matter of principle or precedent that agreements among competitors for market division should be and are treated like price arrangements.

Now, when you add this fact to it, if the Court please, here, these three party exhibitors had films from which no competition would emanate from the other party defendants.

You’ll add this fact that sometimes they got film on their side of the split which they really didn’t even want.

But what did they do?

Notwithstanding that fact, they still bid on it.

Why?

Because when they bid on it, they drove Viking up in order to get pictures.

They drove up the small independents’ — the small independents’ advice even though they didn’t want the picture itself and if the Court would look at page 102 of the record, you — you have that testimony quite clear from Mr. Fabian of Stanley-Warner who said, “Some of the pictures we never even wanted after they were split.

They weren’t suitable.

But then the other exhibitor in the territory wanted the picture, we would be as a rule for us to bid against it,” notwithstanding the fact that they didn’t want it.

Now, if the Court please, this is the way the split arrangement operated vis-à-vis Viking.

But in addition to the split of product, in addition to the split of product in the Philadelphia area, there was, as I indicated earlier, an invidious refinement of this split agreement called the Schwalberg agreement.

Now, with respect to the Schwalberg agreement, not even the defendants are audacious enough to defend its legality.

Edward Bennett Williams:

But they adopt a sort of evidentiary myopia with respect to it and say that there is no evidence in the record that it was operative, that it actually was put into operation.

And I’d like now to address the Court’s attention to the Schwalberg agreement, what it was and how it operated and show that it did in fact operate and there was evidence in this record that it operated across the board.

First of all, volume 6 of the record, plaintiff’s Exhibit Number 8 at page 2393, we have a letter from the Vice President of Paramount to the President of Paramount.

This is an exhibit in evidence in the record.

“Dear George, the so-called Schwalberg agreement, with Goldman of Philadelphia, envisaged an equal division qualitatively and quantitatively of our product between Goldman and Stanley-Warner in Philadelphia.

Under this arrangement, bids were invited from Stanley-Warner and Goldman as well as other theatres in Philadelphia requesting a bid invitation.

If any bid was acceptable, the acceptance closes the sales file.

If no bid was acceptable, Paramount agreed to negotiate with either Stanley-Warner or Goldman governed by whether the individual picture was on Goldman’s or Stanley-Warner’s split.

My understanding is that we were not permitted if all bids were rejected to negotiate with the unsuccessful bidders or any other theatre that did not offer a bid.

We were obligated upon rejection of all bids to negotiate with one of the other and I’m told that in one or more cases, the negotiated deal was reviewed or adjusted.

This arrangement, whether authorized or not, was actually in effect.”

Now, what did Mr. Schwalberg say about this agreement?

(Inaudible)

Edward Bennett Williams:

That’s in volume 6, Mr. Justice Harlan, at page 2393.

William J. Brennan, Jr.:

Are you still quoting when you said this arrangement whether authorized or not?

Edward Bennett Williams:

I was still quoting, sir, yes, from the exhibit.

Now, at volume 4 at page 1834, we have Mr. Schwalberg’s testimony on this subject.

Mr. Schwalberg said, “Yes, Mr. Goldman took this position.”

He said he would not make any formal bids if an exhibitor came in and requested an opportunity, and that picture was put on the block.

He let it be known he wasn’t going to bid because this is the thing he sought to do away with and he was not going to go back on it.

He said, however, if we found that bids received did not measure up to our national policy of what we thought of the picture and we wanted to come back to him and he negotiated a deal and that deal was equal to or better than national policy, he didn’t want Paramount to take that bid and go across the street and try to better it.

Did you agree to that?

Answer, yes.

Hugo L. Black:

What page is that?

Edward Bennett Williams:

That’s at page 1834, Mr. Justice Black.

Then again, I don’t want to suggest that the defendants and their officers were totally devoid — totally devoid of the noble emotion with respect to the small independent exhibitor in the Philadelphia area because at page 1924, we have Mr. Minsky, an officer of the Paramount Company speaking with respect to the arrangement in Philadelphia and this is what he says, talking about the last part of 1955, “So I went to my home office and spoke with those executives under whom I work and I said to them that I would like to have the privilege of doing something unusual.

And coming back to Philadelphia and offering to all the first run theatres in Philadelphia an opportunity to share in Paramount Pictures on both the quantity and quality basis and I was given such approval.”

Question, “Excuse me, when you say share, do you mean?”

Answer, “I mean the split.”

Question, “In the same way that Goldman and Stanley-Warner had a split?”

Edward Bennett Williams:

“Yes, sir.”

Now —

Potter Stewart:

Is that Schwalberg testimony?

Edward Bennett Williams:

That’s Mr. Howard Minsky, the District Manager for Paramount in the Philadelphia area, Mr Justice.

Potter Stewart:

And who is — what title — what position did Schwalberg —

Edward Bennett Williams:

President of Paramount, sir.

Potter Stewart:

President of Paramount.

Edward Bennett Williams:

President of Paramount.

Now, plaintiff’s Exhibit 7, which is in volume 6.

And — and how, in the name of reason, the defendants can say that the Schwalberg agreement was not in — in effect in the light of plaintiff’s Exhibit 7, which appears at page 2391, is beyond comprehension because here, we have a letter from the President — the new President of — of Paramount, Mr. — Mr. Weltner to Mr. William Goldman.

This is dated December 12, 1955, and he says, “Dear Bill, at our conference at the hotel plaza last Thursday in which Harry Calman and Louis Phillips were also present, you turn to me and said, “George, let’s forget, there ever was an agreement between Paramount and me made with Al Schwalberg.

I won’t ever hold Paramount to it.

I want to be a Paramount customer.

Let’s do business with a clean start.”

And then the — the letter writer, Mr. Weltner goes on to say, “If this is not accurate word for word, it isn’t substance.

I express my appreciation and stated that we wanted you as a customer.

We then try to work out a formula that would be mutually satisfactory and practical and yet would not put us in a position where anyone could rightly claim that we favored you and discriminated against him.

At this meeting, we could not come up with such a formula, one that was satisfactory to you.”

Now, consider the Schwalberg agreement for a moment, in the light of the fact, that Goldman wouldn’t bid on motion pictures.

There are about 250 pictures that were released in the Philadelphia area as shown by plaintiff’s Exhibit 1, the splits, the first — very first part of volume 6, which were earmarked for Goldman.

Stanley-Warner couldn’t bid on him because of its agreement, Fox couldn’t bid on him because of its agreement and Goldman wouldn’t bid on him because Goldman wouldn’t bid and this record is ramped with statements from Goldman that he wouldn’t bid.

For example with plaintiff’s Exhibit Number 5 in this record, on one occasion when Goldman made a bid, he was so upset that the fact didn’t broke his policy, he never did a bid but he wrote a letter to Paramount’s lawyers and he said, “This doesn’t set any precedent.

As you know, we take the position we are not to bid on any pictures but only to negotiate for them.”

So what happened with respect to those 250 pictures?

When the distributor came in to the Philadelphia market with pictures that run the Goldman side of the split, he couldn’t get a bid from Stanley-Warner, he couldn’t get a bid from Fox and he couldn’t get one from Goldman because Goldman wouldn’t bid.

So he got one from Viking or Trans-Lux or Arcadia but obviously, he wanted to negotiate with the top chain exhibitor.

He then go over to Goldman and talk to Goldman about the picture and under the Schwalberg agreement, if Goldman made him an offer, he couldn’t take the offer across the street to Viking and give Viking a chance to need it because —

Potter Stewart:

Now, wait a minute.

I — you — you went a little fast at least for me.

If he commend the Philadelphia with a film, I — I suppose his interest wasn’t getting the highest price, wasn’t it?

Edward Bennett Williams:

Certainly.

Potter Stewart:

You told us — you told us that under this agreement that — under the split agreement, Goldman, if it — it was a Goldman — if it was a Goldman split, Stanley-Warner couldn’t bid on it, Fox didn’t bid on it and Goldman wouldn’t bid on it.

Edward Bennett Williams:

He wouldn’t bid on it.

Potter Stewart:

So, what was to prevent Viking from bidding on it?

Edward Bennett Williams:

Well, Viking could bid on it but —

Potter Stewart:

Wouldn’t it be — to the interest of the distributor to get the highest price?

Edward Bennett Williams:

Well, it certainly should be to the interest of the distributor to get the highest price.

But if he offered his picture in a market, in a submarket where he could only get bids from the small independents, obviously, he would want the loss of economic preservation would indicate to him that he ought to try to get a bid from Goldman, the chain exhibitor in the Philadelphia area.

If he went to Goldman and said, “Let’s negotiate on it,” Goldman had an agreement which said, “Well, okay, I’ll negotiate with you.”

Potter Stewart:

Now, he couldn’t go to Goldman and say, “Let’s negotiate on it,” even on the Schwalberg agreement until he had rejected all bids, isn’t that correct?

Edward Bennett Williams:

Well, he — he did go through the — he did go through the procedure of inviting bids.

And —

Potter Stewart:

And this wasn’t — you’re suggesting there’s some phony about this?

Edward Bennett Williams:

I — I think we’ll see as we see the split in operation that it was in many instances simply of a façade and nothing — maybe that’s to dignify the term for it because in many instances, it was a sham.

The picture was already awarded at the time that Viking was invited to bid and I could show you that in the record as we go along.

Now, let’s see the split in operation.

I’ll show you one right now, Mr. Justice Stewart.

Let’s see this split in operation.

Arthur J. Goldberg:

(Inaudible)

Edward Bennett Williams:

The record is very clear on this, Mr. Justice Goldberg.

We’ve heard a lot of talk about — well, we asked you in.

Why didn’t you come in?

Well, first of all, the record at pages 974 and 975 show very — shows very clearly that Viking was not invited into this split until after its lawyers wrote letters to these distributors and these other exhibitors in 1956, then they were asked after they’d been victimized by an illegal split over a period of two years, then they were invited to join the gang.

But the fact of the matter is, of course, there were certainly no obligation on them to join something that was per se illegal with respect to the small independent exhibitors and it’s been our position from the beginning that this is a per se illegal violative agreement.

Now, Your Honor, if the Court please, I said that I would show you this — this split in operation and some of the sham bidding that went on under it.

First of all, Goldman, at page 1661 of the record, conceded that he had an arrangement similar to that, that he had with Paramount in effect with Warner Brothers.

But let’s look at Warner Brothers and see the Schwalberg agreement and operation insofar as that distributor was concerned.

A typical illustration, there was a picture called a McConnell Story.

On July 15, Viking was invited to bid for that picture.

It did.

Edward Bennett Williams:

In July 19, 1955, it received a letter from Warner Brothers saying, “We’ve given the picture to Goldman.”

Now, four — that was four days later.

Now, at the trial, Mr. Mansell of Warner Brothers said, “Well, we gave that picture to Goldman because we wanted the picture shown in Philadelphia over Labor Day and we want it on August 25 opening day.”

And Viking was committed until September 9th.

But where did the picture go?

The picture went to the Goldman Randolph Theatre which at that time, was committed to show a picture until the 29th day of September.

Now, what did Mr. Mansell say at the trial?

Mr. Mansell said, “Well, I didn’t make the decision to give to Goldman until mid-August.”

But the record shows that he wrote a letter to Viking on the 19th day of July saying, “Too bad, it’s not yours, it’s Goldman’s.”

Mr. Justice Stewart, an illustration of the sham bidding that went on.

If — if you’ll look at plaintiff’s Exhibit Number 53, which is in volume 6 at page 2465, you’ll see a very dramatic illustration of it.

Plaintiff’s Exhibit 53 is a contract between Universal and the Mastbaum Theatre.

It gives the Mastbaum Theatre a picture called the Helen Beck and it provides that Helen Beck will start after Mr. Roberts finishes at the Mastbaum Theatre.

When was that contract entered into?

On May 19th of 1955.

What happened then?

The exhibit immediately before it, plaintiff’s Exhibit 52, Warner Brothers invited Viking to bid on Mr. Roberts on May 23rd, the picture has already been awarded on May 19th to the Mastbaum Theatre as evidenced by the contract plaintiff’s Exhibit 53 and that’s an illustration of the sham bidding that went on in the Philadelphia market during this 123-week period.

Now, with respect to the picture Serenade in Pete Kelly’s Blues, Viking bid, bid is rejected.

Never a chance was given to Viking to negotiate after the bids, the pictures went to the Goldman Theatre in precise accord with the Schwalberg agreement.

Again —

Potter Stewart:

It’s your contention that the so-called Schwalberg agreement was an agreement among to what people?

Edward Bennett Williams:

Well, I say, Mr. Justice Stewart, that all the parties in this case were parties to the Schwalberg agreement.

Goldman made in the whole life of this conspiracy only 11 bids per film and he got 134 pictures all across the board from the distributors in this case and I say without the operation on the Schwalberg agreement on across the board basis, he couldn’t have got those pictures without bidding.

Now, look again at the United Artist to see the Schwalberg agreement in — in operation with respect to them.

Plaintiff’s Exhibit 145 A, B and C show that there were three pictures, Barefoot Contessa, Summertime and Gentlemen Marry Brunettes.

Letters went out inviting bids on those pictures.

They didn’t go out to Stanley-Warner or Goldman or Fox because they didn’t have to bid.They went out to Viking, they went out to Trans-Lux, Arcadia and the Little Studio and the World.

They didn’t even bother inviting bids from the big three.

Potter Stewart:

Whose product was it?

Edward Bennett Williams:

This was United Artist.

Potter Stewart:

United Artist.

Edward Bennett Williams:

What happened?

All bids, of course, were rejected.

And how were the pictures allocated?

Precisely according to the split.

Barefoot Contessa went to the Midtown, Summertime to the Randolph, both, Goldman picture — Theatres and Gentleman Marry Brunettes to the Stanley.

Again, if the Court please, with respect to Columbia, two pictures, Picnic and Caine Mutiny, Viking bid, bid’s rejected, pictures allocated precisely according to the split.

Now, with respect to Universal, when Viking came into the market, he wanted a chance to get Universal Pictures.

He wrote a letter to Universal in April of 1954.

And then it was told, “We don’t have any available.”

Then it wrote a letter in October asking again for chance to have pictures.

On October 26, a letter went out from Universal to Viking, no pictures available.

Within 10 days, five pictures were licensed, class 183 to 186, five pictures were licensed to the Goldman Theatre precisely in accordance with the split.

Again, if the Court please —

(Inaudible)

Edward Bennett Williams:

Your Honor, the — the fact of the matter is that plaintiff’s Exhibit 1 was an exhibit which was extracted under the discovery procedures in Stanley-Warner.

We have no knowledge whether these were all the pictures that were split but they’re over 530 as among that split.

And of course that Viking was to get any pictures that it come off to splits because it’s our contention that virtually, every picture that went into the City of Philadelphia was split.

And some of the pictures, as Mr. Fabian said he didn’t even want.

But even though he didn’t want any bid on them and Viking would make premium bids and get some pictures, and that’s why I say it was a carefully designed diet of malnutrition.

It was not absolute cutoff starvation.

That — it was a more sophisticated form of economic homicide than we usually see in these cases.

Now —

Potter Stewart:

This isn’t a murder case (Voice Overlap) —

Edward Bennett Williams:

It’s an economic murder case, Your Honor.

Potter Stewart:

At least you’re trying to make it, I appreciate.

But am I right in thinking that under the agreement, under the terms of the agreement, at least that the — that Viking was free to bid on every picture and that the highest bidder will get the picture.

Edward Bennett Williams:

Viking was free to bid, there’s no question about that.

We can contend otherwise.

But unfortunately, Mr. Justice Stewart, some of the exhibitors didn’t bid you see if the picture was on the Goldman.

Potter Stewart:

Like how — how could this be a conspiracy against Viking, the fact that a couple of exhibitors among themselves would agree not to bid against each other?

Edward Bennett Williams:

Because — well, let’s take for example the — a picture on the Goldman split.

Stanley-Warner won’t bid.

Fox won’t bid.

And Goldman won’t bid because he’s against bidding.

So, the distributors then confronted with the (Inaudible) that he must offer a picture in the Philadelphia market and he has only the small independents who have a total of only 17% of all the seats available first run exhibition in the City of Philadelphia.

He wants a bid from Goldman, of course, because Goldman is a big exhibitor.

So he rejects all bids and says, “I’ll negotiate.”

But if he then negotiates with Goldman, this is the end, it’s a one way street and he finds himself in a cul-de-sac because he — he can’t go on and then offer Goldman’s terms back to Viking and give them a chance to bid because he’s got the Schwalberg agreement which says, “Once I make a deal or make an offer that’s equivalent to your national policy on this picture, you can’t take it across the street and give Viking a chance for the play.

Potter Stewart:

I follow your argument all except the vital key in it and that is why does he reject all bids.

Edward Bennett Williams:

Because —

Potter Stewart:

He gets — he gets a bid higher than the national, whatever it is, national average —

Edward Bennett Williams:

Because —

Potter Stewart:

— and — and favorable in terms of — of date and everything else, why does he reject it?

Edward Bennett Williams:

Because it may very well be that first of all, a picture on the Goldman’s side of the split which can attract no bids from Stanley-Warner, Fox and will not attract them from Goldman, maybe that the only theatre in the City of Philadelphia which is then available for pictures to Viking, so we get a bid from the Viking.

Well, he wants to see if he can better it from Goldman so he goes to Goldman and Goldman tops the bid.

But then our complainants —

Potter Stewart:

Not on bidding though, that what be negotiations.

Edward Bennett Williams:

The negotiation.

He negotiates.

But then, Viking can’t get a chance under this agreement to top Goldman.

Why?

Because he’s bound once he negotiates with Goldman to give the picture to Goldman and Viking is, therefore, out of the market for that picture and can’t get it even though it manifested its interest by a bid.

Potter Stewart:

But I still don’t understand why if the bid had been satisfactory to the producer of the bid, Viking’s bid would not have been accepted.

Edward Bennett Williams:

Because he hopes to get a better — a better offer from Goldman and once he gets it, the whole game is over because it’s future —

Potter Stewart:

And Goldman won’t bid, you told us that.

Edward Bennett Williams:

Goldman won’t bid but Goldman will negotiate.

Now, once Goldman negotiates and tops the Viking first bid, it’s all over.

You can’t go — Viking can’t get a chance to that picture notwithstanding that it has manifested its interest by making an open competitive bid form.

Potter Stewart:

And I suppose if Goldman had bid then it offered the same terms that under your case he later bid by negotiation and Viking also would have been refused.

Edward Bennett Williams:

Yes.

Potter Stewart:

Because the distributor’s interest is in getting the highest price and the best conditions with the exhibition of his product, isn’t that right?

Edward Bennett Williams:

It should be.

Yes, sir.

It certainly should —

Potter Stewart:

What?

Are you suggesting it wasn’t in this case?

Edward Bennett Williams:

Well, it certainly — the bargaining we view here appeared to be with the chain exhibitors because otherwise, the distributors wouldn’t have acquiescence in this kind of — of an understanding.

But I don’t presume to explain why the distributors took this position.

There will be — I’m sure there’ll be explanations forthcoming.

But let me show the Court first of all, what was an egregious area, I believe, by the Court of Appeals in discussing the Schwalberg agreement.

I think that there’s evidence in the record to show that each distributor was a part of the Schwalberg agreement.

There was either evidence in the record or a valid proffer.

Now, what the Court of Appeals say with respect to the Schwalberg agreement, it says the plaintiff takes the position that the agreement made by Stanley-Warner and Goldman with Paramount so modified the split as to render it unlawful and that the agreement constitutes direct evidence of an illegal conspiracy.

The illegality is said to arise from the requirement that Paramount negotiate exclusively with either Stanley-Warner or Goldman upon the rejection of all bids for inadequacy.

The agreement may not be held illegal within the framework of this case unless the other distributors gave their adherence to the plan who participated in it.

This, of course, violates a hornbook principle of law of conspiracy from its beginning in Anglo-Saxon jurisprudence.

It takes only two to conspire.

Here, you had admittedly by the Court of Appeals both the horizontal conspiracy among the two party exhibitors and a vertical conspiracy with Paramount.

And yet, they said this was not sufficient evidence to make a prima facie case.

Now, let’s look if — if we may at — at how the split operated in and what happened to Viking under the split.

The record shows —

Byron R. White:

Mr. Williams, does it make any difference to your case whether — whether this one is a series of three party agreement or an overall one?

Edward Bennett Williams:

No.

I think that — I said — I think, Mr. Justice White, that I think this is just an artfully designed device to circumvent the pooling agreement that have been struck down by this Court on four occasions where exhibitors designate a single agent to buy their pictures from the distributors.

This has the effect of stifling competition allocating product and affecting price.

And this is simply a device which accomplishes precisely the same thing and attempt to circumvent, to pronounce them to this Court on that subject.

Byron R. White:

But it doesn’t make any difference to you whether each of the distributors agreed with each other to — on each — each person’s split arrangement.

I don’t suppose — I thought that each distributor had his own acquiescence or agreed to the — to his own split arrangement with — with Stanley and Goldman, you had the same result.

Edward Bennett Williams:

We have exactly the same results.

Edward Bennett Williams:

Now, what happened?

In 123 week period, Viking got 31 pictures on 87 bids.

Goldman got 134 pictures or 45 per theatre on 11 bids.

Only one of which was made before the expiration of the Schwalberg agreement.

Stanley-Warner got 291 pictures or 97 pictures at theatre.

Now, it’s a measure of a film’s economic worth is its gross national film rental.

That’s the amount of rent that the film attracts from various theaters across the country on its run all over the nation.

In the jargon of the industry, a picture that gets as much as $4 million of national film rental is called a blockbuster.

Now, in a 123-week period, Viking got films which aggregated $45 million in national film rental.

Goldman got an average of $71.9 million per theatre and by, I suppose, a start fortuity.

Stanley-Warner got exactly $72 million.

That’s how well the parody was kept here.

Fox got $80 million.

How many of these so-called blockbusters did Viking get pictures that grossed over $4 million?

It got one in a 123-week period.

Stanley-Warner got 13 and by another strange fortuity, Goldman got exactly 13 or 4.3 — 3 per theatre.

Fox got 4.

How many pictures did Viking get that had a national film rental of over $3 million?

Viking got two.

How many did Goldman get?

Goldman got 18 or 6 per theatre.

Stanley Warner got 20 or 6 and 2/3 per theatre.

Fox got 9.

Then there was a matter of film adjustments.

A common trade practice whereby the distributor makes an adjustment downward for the benefit of the exhibitor plan — the exhibitor has a bad experience with a picture on which he has a bid and then which — which he has exhibited.

The dependent exhibitors got 143 adjustments downward from the defendant distributors aggregating $167,000 or about $25,000 per theatre.

How many did Viking get it?

He got two, aggregating $1930.

Now, let’s look at the — the vital statistics here, the one that made Viking nonvital.

The record shows that Viking paid 52% of its gross box office for film rental.

Edward Bennett Williams:

Why?

Because every time that went into the market, it had to compete, whereas the other parties to this suit didn’t have to compete when they went into the market.

They had periods of tranquility with respect to competition, whereas Viking paid 52% of its box office for film rental.

The average of all the other to theatres involved in this suit was 40%.

Again, —

Potter Stewart:

How about — how about in dollars?

Edward Bennett Williams:

In dollars, the record shows that Viking’s net after film rental was $391,000 lower than the average of all the other theatres involved in this case.

Potter Stewart:

Or — how about in dollars for — what they paid for film rental?

Because so far, your figures may simply in — indicate that the plaintiff was an inexperienced in an efficient business.

Edward Bennett Williams:

Well, the record shows that this, the Viking and the Midtown were really exactly comparable theatres.

Their seating capacities were about the same, they were in about the — they’re in the same neighborhood and they — whereas the Midtown had 1230 — had 1100 seats, Viking had 1017, I believe.

Now, what happened?

Goldman made the argument that you’re suggesting, Mr. Justice Stewart.

Potter Stewart:

Well, I guess so far, I’ve asked you a question.

Edward Bennett Williams:

He said —

Potter Stewart:

How about in dollar?

How about —

Edward Bennett Williams:

Well, I said he made the argument your question suggests.

He said, “We are more experienced.

We had better selection of pictures, and therefore, we — we could do better but the record belies it because their gross in these two almost identical houses was almost identical, a million two.

But what made the difference was the fact that the film rental that Viking paid was 52% whereas the film rental that they paid on the Midtown was only 42%, the film rental paid on the Goldman was 33% and on the Stanley was 33% and these are the figures which brought the Viking to the brink of economic ruin because it had to pay —

Potter Stewart:

You have the figure in dollars as to what they paid?

Edward Bennett Williams:

Yes, I have it exactly.

You’ll find all those figures on record — in the record volume 5 at page 2067.

Potter Stewart:

Alright.

Edward Bennett Williams:

And precisely to answer your question —

Potter Stewart:

It’s okay if you don’t.

Edward Bennett Williams:

The Viking paid $630,000 for film rental whereas the Stanley paid only $381,000, the Goldman, $514,000, the Midtown, $521,000.

But they’re all there, all — all the figures are there.

So, if the Court please, in addition to this fact, the record shows that Viking had to play 22 pictures that grossed to $1,500,000 or less for 50 weeks.

Edward Bennett Williams:

The economics of the industry of such that if you can get a bad picture in and out in a week and you don’t have to make a long playing commitment, you have a chance to make some money on it.

But Viking had to pay — play 22 pictures for 50 weeks.

It had to play nine pictures which exceeded $1,500,000 in film rental for 78 weeks during this period.

Well, these reasons, if the Court please, we respectfully say that there was evidence in this record of an illegal conspiracy in the form of the split arrangement, that the Schwalberg arrangement was an invidious refinement of the split arrangement, which the defendants don’t even define — defend insofar as its legality is concerned.

They simply say it was not operative, notwithstanding the exhibits which I read to the Court.

We have shown the record with respect to the economic impact on Viking.

The economic impact, I’ve just detailed for you.

For these reasons, we say to the Court that there was evidence in this record from which a jury of reasonable men might have concluded a conspiracy violative of the antirust laws and might have concluded injury to the plaintiff and we ask for the opportunity to have a jury pass on this question.

(Inaudible)

Edward Bennett Williams:

Yes, I’m sure they did.

(Inaudible)

Edward Bennett Williams:

Well, I can —

(Inaudible)

Edward Bennett Williams:

Yes.

(Inaudible)

Edward Bennett Williams:

They — they did show Fox Pictures.

That’s true.

And the record shows, if the Court please, with respect to Fox, first of all, what the practice was, Mr. Mocklare testified that when Fox was filled up and — and had adequate pictures, that Twentieth Century-Fox could offer these pictures to the other theatres and in fact, they did offer these pictures to the other theatres.

Now, also Mr. Goldman said that there were occasions on which he was able to get film from Fox because the Fox Theatre was committed and had pictures.

And Viking also made bids and did get Fox Pictures from time-to-time.

I don’t recall the precise number that we’ve got but I can’t again say that it was many as they.

Potter Stewart:

You don’t specifically question the Court of Appeals’ statement.

Edward Bennett Williams:

I — I do not, but we’ve got a —

Potter Stewart:

That they get 15 pictures, the Fox Pictures over the period and —

Edward Bennett Williams:

I do not (Voice Overlap) —

Potter Stewart:

— and got 8 which would be considerably higher than the — than the law (Voice Overlap) —

Edward Bennett Williams:

See, the only competition that had for Fox Pictures on the bid would be the Fox Theatre that had only one theatre competing against them.

And if the Fox Theatre was committed to play a picture as result of a surplus of product in Twentieth Century-Fox, it had a chance to get such pictures.

Earl Warren:

Mr. Nizer.

Louis Nizer:

May it please the Court, Mr. Chief Justice.

Louis Nizer:

I represent all of the distributors in this case, seven of them with the exception of Warners and Fox Companies.

When this suit was instituted, the complaint charged that there was a conspiracy to deprive the plaintiff of certain first run quality motion pictures.

This is not a deprivation of product the case.

In the ordinary sense, it is conceded that at all times the plaintiff played first run quality motion pictures of all the motion picture companies though he entered the field against 11 of the first run theatres in Philadelphia.

Byron R. White:

Mr. Nizer, you — is there no claim in this case that the long runs plaintiff made the pictures of (Inaudible)

Louis Nizer:

No, sir.

Indeed the —

Byron R. White:

— the deliberate policy to play pictures for long — for long periods?

Louis Nizer:

He didn’t play them for particularly long periods.

Indeed, he complained — he urged as an argument in his favor that being a small theatre of only 1000 seats roughly competing with theatres two and three, and four times this size, he could make up the gross because he would play long times.

Byron R. White:

(Voice Overlap) that but — but didn’t — didn’t the Goldman Theatres play more pictures in a year than the Viking?

Louis Nizer:

The quality of the picture determines the length of its run —

Byron R. White:

How about —

Louis Nizer:

— and I can only —

Byron R. White:

— how about just a pure fact of — of it?

Louis Nizer:

I — I can only answer it this way.

I’m not evading the question, sir.

I say that the — according to the evidence in the record, the quality of the pictures proven by box office receipts determines the length that will be kept and there was some evidence that in certain of the Goldman Theatres, they didn’t have good enough quality, for example, the Midtown that was mentioned had 20% less quality on this basis and therefore played more pictures.

On the other hand, the Randolph played less, so that I can only say that the figures vary in each theatre depending upon the guests as to the quality of the picture based not on artistic quality but production of the box office.

And so there are variable figures on those — on — in answer to that question.

Earl Warren:

We’ll recess now, Mr. Nizer.