FEDERAL TRADE COMMISSION v. MOTION PICTURE ADVERTISING SERVICE CO., INC.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.

No. 75. Argued December 8, 1952.-Decided February 2, 1953.

1. Respondent produces advertising motion pictures and distributes them in interstate commerce. It had exclusive contracts with 40% of the theatres which exhibit such films in the area where it operates. It and three other companies had exclusive contracts with 75% of such theatres in the United States. The Federal Trade Commission found, upon substantial evidence, that respondent's exclusive contracts unreasonably restrain competition and tend to monopoly, and that their use was an "unfair method of competition" in violation of § 5 of the Federal Trade Commission Act. It issued an order prohibiting respondent from entering into any such exclusive contract for more than a year or from continuing in effect any exclusive provision of an existing contract longer than a year after service of the order. Held: The order is sustained. Pp. 393–397.

(a) The Commission did not exceed the limits of its allowable judgment in restricting the exclusive contracts to one-year terms. Pp. 395–396.

2. A plea of res judicata to the present proceeding of the Commission, based on a former proceeding which was directed at a conspiracy between respondent and other distributors involving the use of exclusive agreements, cannot be sustained, since the present proceeding charges no conspiracy and the issues litigated and determined are not the same as those in the earlier one. Pp. 397-398. 194 F.2d 633, reversed.

In a proceeding upon a complaint charging "unfair methods of competition" in violation of § 5 of the Federal Trade Commission Act, the Commission entered a cease and desist order against respondent. 47 F. T. C. 378. The Court of Appeals reversed. 194 F. 2d 633. This Court granted certiorari. 344 U. S. 811. Reversed, p. 398.

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Opinion of the Court.

James L. Morrisson argued the cause for petitioner. With him on the brief were Acting Solicitor General Stern, Acting Assistant Attorney General Clapp, Charles H. Weston and W. T. Kelley.

Louis L. Rosen argued the cause for respondent. With him on the brief were Charles Rosen and William B. Cozad.

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

Respondent is a producer and distributor of advertising motion pictures which depict and describe commodities offered for sale by commercial establishments. Respondent contracts with theatre owners for the display of these advertising films and ships the films from its place of business in Louisiana to theatres in twenty-seven states and the District of Columbia. These contracts run for terms up to five years, the majority being for one or two years. A substantial number of them contain a provision that the theatre owner will display only advertising films furnished by respondent, with the exception of films for charities or for governmental organizations, or announcements of coming attractions. Respondent and three other companies in the same business (against which proceedings were also brought) together had exclusive arrangements for advertising films with approximately three-fourths of the total number of theatres in the United States which display advertising films for compensation. Respondent had exclusive contracts with almost 40 percent of the theatres in the area where it operates.

The Federal Trade Commission, the petitioner, filed a complaint charging respondent with the use of "unfair methods of competition" in violation of § 5 of the Federal Trade Commission Act, 38 Stat. 717, 719, 52 Stat.

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111, 15 U. S. C. § 45. The Commission found that respondent was in substantial competition with other companies engaged in the business of distributing advertising films, that its exclusive contracts have limited the outlets for films of competitors and have forced some competitors out of business because of their inability to obtain outlets for their advertising films. It held by a divided vote that the exclusive contracts are unduly restrictive of competition when they extend for periods in excess of one year. It accordingly entered a cease and desist order which prohibits respondent from entering into any such contract that grants an exclusive privilege for more than a year or from continuing in effect any exclusive provision of an existing contract longer than a year after the date of service in the Commission's order.1 47 F. T. C. 378. The Court of Appeals reversed, holding that the exclusive contracts are not unfair methods of competition and that their prohibition would not be in the public interest. 194 F.2d 633.

The "unfair methods of competition," which are condemned by § 5 (a) of the Act, are not confined to those that were illegal at common law or that were condemned by the Sherman Act. Federal Trade Commission v. Keppel & Bro., 291 U. S. 304. Congress advisedly left the concept flexible to be defined with particularity by the myriad of cases from the field of business. Id., pp. 310– 312. It is also clear that the Federal Trade Commission Act was designed to supplement and bolster the Sherman Act and the Clayton Act (see Federal Trade Commission v. Beech-Nut Co., 257 U. S. 441, 453)—to stop in their incipiency acts and practices which, when full blown,

1

Comparable findings and like orders were entered in each of the three companion cases. In the Matter of Reid H. Ray Film Industries, 47 F. T. C. 326; In the Matter of Alexander Film Co., 47 F. T. C. 345; In the Matter of United Film Ad Service, Inc., 47 F. T. C. 362.

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Opinion of the Court.

would violate those Acts (see Fashion Guild v. Federal Trade Commission, 312 U. S. 457, 463, 466), as well as to condemn as "unfair methods of competition" existing violations of them. See Federal Trade Commission v. Cement Institute, 333 U. S. 683, 691.

The Commission found in the present case that respondent's exclusive contracts unreasonably restrain competition and tend to monopoly. Those findings are supported by substantial evidence. This is not a situation where by the nature of the market there is room for newcomers, irrespective of the existing restrictive practices. The number of outlets for the films is quite limited. And due to the exclusive contracts, respondent and the three other major companies have foreclosed to competitors 75 percent of all available outlets for this business throughout the United States. It is, we think, plain from the Commission's findings that a device which has sewed up a market so tightly for the benefit of a few falls within the prohibitions of the Sherman Act and is therefore an "unfair method of competition" within the meaning of § 5 (a) of the Federal Trade Commission Act.

An attack is made on that part of the order which restricts the exclusive contracts to one-year terms. It is argued that one-year contracts will not be practicable. It is said that the expenses of securing these screening contracts do not warrant one-year agreements, that investment of capital in the business would not be justified without assurance of a market for more than one year, that theatres frequently demand guarantees for more than a year or otherwise refuse to exhibit advertising films. These and other business requirements are the basis of the argument that exclusive contracts of a duration in excess of a year are necessary for the conduct of the business of the distributors. The Commission considered this argument and concluded that, although the exclusive contracts were beneficial to the distributor and preferred

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by the theatre owners, their use should be restricted in the public interest. The Commission found that the term of one year had become a standard practice and that the continuance of exclusive contracts so limited would not be an undue restraint upon competition, in view of the compelling business reasons for some exclusive arrangement. The precise impact of a particular practice on the trade is for the Commission, not the courts, to determine. The point where a method of competition becomes “unfair” within the meaning of the Act will often turn on the exigencies of a particular situation, trade practices, or the practical requirements of the business in question. Certainly we cannot say that exclusive contracts in this field should have been banned in their entirety or not at all, that the Commission exceeded the limits of its allowable judgment (see Siegel Co. v. Federal Trade Commission, 327 U. S. 608, 612; Federal Trade Commission v. Cement Institute, 333 U. S. 683, 726-727) in limiting their term to one year.3

2 The Commission said: "Under the general practice the representative of the respondent first contacts the theater to determine if space is available for screen advertising and makes such arrangements as conditions warrant with respect to such space. In this way respondent's representative is able to show prospective advertisers where space is available. In contacting the theater it is necessary for the respondent to estimate the amount of space it will be able to sell to advertisers. Since film advertising space in theaters is limited to four, five, or six advertisements, it is not unreasonable for respondent to contract for all space available in such theaters, particularly in territories canvassed by its salesmen at regular and frequent intervals.

"It is therefore the conclusion of the Commission in the circumstances here that an exclusive screening agreement for a period of 1 year is not an undue restraint upon competition." 47 F. T. C., at 389.

3A suggestion is made that respondent needs a period longer than one year in view of the fact that the contracts with advertisers are often not coterminous with the exclusive screening agreements, due