United States v. Loew’s, Inc., et al.

In the 1940s, several movie companies, including Warner Brothers (defendant), were subject to complaints related to antitrust violations. Rather than risk a damaging outcome at trial, the companies entered into consent decrees with the United States government (plaintiff). These consent decrees separated production and distribution of movies from exhibition, for example. Studios such as Warner Brothers were not permitted to purchase theaters without judicial approval, in an effort to protect competition and prevent restraints on trade in the movie industry. However, after over 40 years had passed, some distributors were permitted to purchase theaters without seeking court approval. Warner Brothers sought to purchase a 50 percent interest in Cineamerica Theaters (Cineamerica), which owned theaters across America. However, unlike Warner Brothers’ competitors, Warner Brothers was required to seek court authorization before entering the exhibition side of the movie industry. A district court judge was willing to allow Warner Brothers to purchase a 50 percent stake in Cineamerica, but only on the conditions that Warner Brothers maintained no control over Cineamerica’s management or exhibition assets and that an independent board of directors be retained. Warner Brothers appealed and filed a motion to remove these conditions. Interestingly, the United States supported Warner Brother’s motion. Warner Brothers argued that the court’s conditions were no longer necessary to protect competition. The circumstances in the movie industry had drastically changed from the 1940s, when the consent decrees were entered into. The movie aftermarket had brought television, cable networks, and videocassettes. Further, in addition to the increased number of movie theaters, there were now millions of screens in homes all over America. Rather than restraining competition, it was now in a distributor’s best interests to try to quickly distribute content far and wide. Warner also produced evidence that the movie-distribution and movie-exhibition markets had low concentration. In fact, with only 119 theaters in 43 localities, only 2 percent of movie theaters in America were owned by Cineamerica. Finally, movies were still required to be licensed to exhibitors on a theater-by-theater basis. Warner argued that it simply wanted to compete with competitors who were permitted to purchase theaters without judicial approval pursuant to a consent decree.