By this proceeding the United States seek to prevent further violation of section 1, Act of Congress approved July 2, 1890 (Sherman Anti-Trust Act) c. 647, 26 Stat. 209 (15 USCA § 1), through an alleged combination and conspiracy to restrain interstate commerce in motion picture films.
Appellants are the Paramount Famous Lasky Corporation and nine other corporations (distributors) producers and distributors throughout the Union of 60 per cent. of the films used for displaying motion pictures by some 25,000 theater owners (exhibitors), the Motion Picture Producers and Distributors of America, a corporation with class B membership composed of the above-mentioned distributors, and thirty-two film boards of trade, which severally function within certain defined regions.
Each distributor produces and then distributes films through its own exchanges, maintained in thirty-two centrally located cities-Albany, Atlanta, Chicago, Los Angeles, etc. Each of these exchanges has a manager, and under his supervision contracts are made for the use of his distributor's films within the designated territory or region and thereafter placed in the hands of the exhibitors. Other distributors, who with appellants control 98 per cent. of the entire business, also have managers with like duties in the same cities. In each region all of these managers are associated through and constitute the entire membership of the local film board of trade.
Under the common practice, in the spring, when most of the pictures are still only in contemplation, each distributor announces its intended program of distribution for twelve months. After this announcement, exhibitors are solicited to enter into written contracts for permission to display such of the pictures as they desire; and, as no distributor can offer enough pictures to supply the average exhibitor's full requirement, he must deal with several.
Under an agreement amongst themselves, appellant distributors will only contract with exhibitors according to the terms of the standard exhibition contract, dated May 1, 1928. Ordinarily, neither party gives security for compliance with such agreements, by cash deposit or otherwise.
This standard contract is an elaborate document, covering eight pages of the record. Under it the distributor licenses the exhibitor to display specified photoplays at a designated theater on definite dates. Provision is made for cash payment three days in advance of any shipment, time and place of delivery, return of the prints, etc. Section 18 (copied in the margin) provides, in substance, that each party shall submit any controversy that may arise to a board of arbitration, in the city where the distributor's exchange is located, established under and controlled by written rules adopted May 1, 1928, accept as conclusive the findings of this board, and forego the right to trial by jury. And further:
'In the event that the Exhibitor shall fail or refuse to consent to submit to arbitration any claim or controversy arising under this or any other Standard Exhibition Contract which the Exhibitor may have with the Distributor or any other distributor or to abide by and forthwith comply with any decision or award of such Board of Arbitration upon any such claim or controversy so submitted, the Distributor may, at its option, demand, for its protection and as security for the performance by the Exhibitor of this and all other existing contracts between the parties hereto, payment by the Exhibitor of an additional sum not exceeding $500 under each existing contract, such sum to be retained by the Distributor until the complete performance of all such contracts and then applied, at the option of the Distributor, against any sums finally due or against any damages determined by said Board of Arbitration to be due to the Distributor, the balance, if any to be returned to the Exhibitor; and in the event of the Exhibitor's failure to pay such additional sum within seven (7) days after demand, the Distributor may by written notice to the Exhibitor suspend service hereunder until said sum shall be paid and/or terminate this contract.'