United States v. Paramount Pictures, Inc.

In the 1940s, five major movie studios including Paramount Pictures, Inc. (defendant) were vertically integrated or controlled the production, distribution, and the exhibition of movies through their affiliated companies. These five studios owned only 17 percent of America’s movie theaters, yet captured 45 percent of box-office movie sales. This disparity was due to the fact that in cities with more than 100,000 people, 70 percent of the theaters that were permitted to show a movie as part of the first run were connected to these five companies. Due to earlier litigation, these companies had entered into consent decrees with the United States (plaintiff) because of practices that violated the Sherman Act. Still unsatisfied with industry practices after the consent decree, the United States filed suit again. A district court held that these five major companies, as well minor companies who produced and distributed, but did not own theaters, had engaged in practices in restraint of trade. These practices included fixing admission prices, determining when and where movies could be shown on a first-run basis, and other anti-competitive practices that harmed smaller independent theaters. The district court adjusted the consent decrees to prevent many of these practices and determined that the appropriate remedy to inject competition into this system was to institute a mandatory system of competitive bidding. This system required that licenses to exhibit movies be offered to individual theaters that would bid on movies individually, with the license going to the highest bidder. The district court ruled that the five major companies did not constitute a monopoly and that divestiture of theater ownership should not be sought unless a system of competitive bidding had been attempted and failed. The court did not make findings of fact regarding divestiture. The defendants appealed to the Supreme Court.