U.S. Supreme Court Interstate Circuit, Inc. v. United States, 306
U.S. 208 (1939) Interstate Circuit, Inc. v. United States No. 269 Argued January 11, 1939 Decided February 13, 1939* 306
U.S. 208 APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF TEXAS Syllabus 1. Where distributors of motion picture films, owning or
controlling the copyrights and engaged, interstate, in the business
of supplying the films to theaters for exhibition under license
contracts, join in making and carrying out an agreement with the
owners of the theaters in certain cities to whom their licenses for
first-run exhibitions of "feature" pictures in those cities are
confined, whereby the distributors, in granting licenses to other
theaters in the same places for subsequent runs of such films
require of them that they observe a minimum price of admission and
abstain from presenting a picture so licensed with any other
feature picture at the same show -- the purpose and effect of these
restrictions being to maintain the higher prices of the first-run
theaters and protect them from the competition of the others --
such agreement is an unreasonable restraint of interstate commerce,
and contrary to the Federal Anti-Trust Act. Pp. 306 U. S. 221 , 306 U. S.
232 .

															2. The evidence in this case supported the inference that the
distributors of the films acted in concert in making their several
agreements with the first-run exhibitors and in imposing the
restrictions so stipulated on the subsequent-run exhibitors. P. 306 U. S.
221 .

															3. Upon the production of such proof, the burden rested upon
those implicated to explain away or contradict it. P. 306 U. S.
225 .

															4. The production of weak evidence when strong is available
leads to the conclusion that the strong would have been adverse.
Silence then becomes evidence of the most convincing character. P. 306 U. S.
226 .

															5. Acceptance by competitors, knowing that concerted action is
contemplated, of an invitation to participate in a plan the
necessary consequence of which, if carried out, is restraint of
interstate commerce is sufficient to establish an unlawful
conspiracy under the Sherman Act. P. 306 U. S.
227 . Page 306 U. S. 209 6. A contract between the copyright owner of motion picture
films and the owner of motion picture theaters restraining the
competitive distribution of the films in the open market in order
to protect the theater owner from competition of other theaters is
not protected by the opyright Act. P. 306 U. S.
227 .

															7. The owner of those motion picture theaters in several cities
in which the first runs of copyrighted "feature" pictures were
exhibted, taking advantage of its monopoly, secured from each of
several copyright owners who distributed such films in interstate
commerce an agreement binding the distributor when licensing
subsequent runs of his films at other theaters in those cities to
require the licensee to observe a certain minimum admission price
and to abstain from exhibiting the picture in a double bill with
any other "feature" film. The purpose of the arrangement was to
protect the owner of the first-run theaters from competition of
subsequent-run theaters, and its effect was to impose undue
restraints upon competing theater businesses habitually exhibiting
the competitive pictures of different copyright owners, and to
enable the favored theater oner to dominate the business of his
competitors. Held: that the contracts were not protected by the
Copyright Act, and that, aside from any agreement between the
distributors themselves, they were contrary to the Anti-Trust Act.
P. 306 U. S.
230 . 20 F.
Supp. 868 affirmed.

															Appeals from a decree of the District Court awarding an
injunction in a suit brought by the Government under the Sherman
Anti-Trust Act. Page 306 U. S. 213 MR. JUSTICE STONE delivered the opinion of the Court.

															This case is here on appeal under § 2 of the Act of February 11,
1903, 32 Stat. 823, 15 U.S.C. § 29, and § 238 of the Judicial Code,
as amended by the Act of February 13, 1925, 43 Stat. 936, 938, 28
U.S.C. § 345, from a final decree of the District Court for
northern Texas restraining appellants from continuing in a
combination and conspiracy condemned by the court as a violation of
§ 1 of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C. § 1, and
from enforcing or renewing certain contracts found by the court to
have been entered into in pursuance of the conspiracy. 20 F.
Supp. 868 . Upon a previous appeal, this Court set aside the
decree and remanded the cause to the District Court for further
proceedings because of its failure to state findings of fact and
conclusions of law as required by Equity Rule 70 1/2. 304 U. S. 304 U.S.
55. The case is Page 306 U. S. 214 now before us on findings of the District Court specifically
stating that appellants did, in fact, agree with each other to
enter into and carry out the contracts which the court found to
result in unreasonable, and therefore unlawful, restraints of
interstate commerce.

															Appellants comprise the two groups of defendants in the District
Court. The members of one group of eight corporations which are
distributors of motion picture films, and the Texas agents of two
of them, are appellants in No. 270. The other group, corporations
and individuals engaged in exhibiting motion pictures in Texas, and
some of them in New Mexico, appeals in No. 269. The distributor
appellants are engaged in the business of distributing in
interstate commerce motion picture films, copyrights on which they
own or control, for exhibition in theaters throughout the United
States. They distribute about 75 percent of all first-class feature
films exhibited in the United States. They solicit from motion
picture theater owners and managers in Texas and other states
applications for licenses to exhibit films, and forward the
applications, when received from such exhibitors, to their
respective New York offices, where they are accepted or rejected.
If the applications are accepted, the distributors ship the films
from points outside the states of exhibition to their exchanges
within those states, from which, pursuant to the license
agreements, the films are delivered to the local theaters for
exhibition. After exhibition, the films are reshipped to the
distributors at points outside the state.

															The exhibitor group of appellants consists of Interstate
Circuit, Inc., and Texas Consolidated Theaters, Inc., and
Hoblitzelle and O'Donnell, who are, respectively, president and
general manager of both, and in active charge of their business
operations. The two corporations are affiliated with each other and
with Paramount Pictures Distributing Co., Inc., one of the
distributor appellants. Page 306 U. S. 215 Interstate operates forty-three first-run and second-run motion
picture theaters, located in six Texas cities. [ Footnote 1 ] It has a complete monopoly of first-run
theaters in these cities, except for one in Houston operated by one
distributor's Texas agent. In most of these theaters, the admission
price for adults for the better seats at night is 40 cents or more.
Interstate also operates several subsequent-run theaters in each of
these cities, twenty-two in all, but, in all but Galveston, there
are other subsequent-run theaters which compete with both its
first- and subsequent-run theaters in those cities.

															Texas Consolidated operates sixty-six theaters, some first- and
some subsequent-run houses, in various cities and towns in the Rio
Grande Valley and elsewhere in Texas and in New Mexico. In some of
these cities, there are no competing theaters, and in six leading
cities, there are no competing first-run theaters. It has no
theaters in the six Texas cities in which Interstate operates. That
Interstate and Texas Consolidated dominate the motion picture
business in the cities where their theaters are located is
indicated by the fact that, at the time of the contracts in
question, Interstate and Consolidated each contributed more than 74
percent. of all the license fees paid by the motion picture
theaters in their respective territories to the distributor
appellants. [ Footnote 2 ]

															On July 11, 1934, following a previous communication on the
subject to the eight branch managers of the distributor Page 306 U. S. 216 appellants, O'Donnell, the manager of Interstate and
Consolidated, sent to each of them a letter [ Footnote
3 ] on the letterhead of Interstate, each letter naming all of
them as addressees, in which he asked compliance with two demands
as a condition of Interstate's continued exhibition of the
distributors' films in its "A" or first-run theatres Page 306 U. S. 217 at a night admission of 40 cents or more. [ Footnote 4 ] One demand was that the distributors

															"agree that, in selling their product to subsequent runs, that
this 'A' product will never be exhibited at any time or in any
theater at a smaller admission price than 25¢  for adults in
the evening."

															The other was that,

															"on 'A' pictures which are exhibited at a night, admission of
40¢  or more, they shall never be exhibited in conjunction
with another feature picture under the so-called policy of double
features."

															The letter added that with respect to the "Rio Grande Valley
situation," with which Consolidated alone was concerned,

															"We must insist that all pictures exhibited in our 'A' theaters
at a maximum night admission price of 35¢  must also be
restricted to subsequent runs in the Valley at 25¢."

															The admission price customarily charged for preferred seats at
night in independently operated subsequent-run theaters in Texas at
the time of these letters was less than 25 cents. In seventeen of
the eighteen independent theaters of this kind whose operations
were described by witnesses, the admission price was less than 25
cents. In one only was it 25 cents. In most of them, the admission
was 15 cents or less. It was also the general practice Page 306 U. S. 218 in those theaters to provide double bills either on certain days
of the week or with any feature picture which was weak in drawing
power. The distributor appellants had generally provided in their
license contracts for a minimum admission price of 10 or 15 cents,
and three of them had included provisions restricting
double-billing. But none was at any time previously subject to
contractual compulsion to continue the restrictions. The trial
court found that the proposed restrictions constituted an important
departure from prior practice.

															The local representatives of the distributors, having no
authority to enter into the proposed agreements, communicated the
proposal to their home offices. Conferences followed between
Hoblitzelle and O'Donnell, acting for Interstate and Consolidated,
and the representatives of the various distributors. In these
conferences, each distributor was represented by its local branch
manager and by one or more superior officials from outside the
state of Texas. In the course of them, each distributor agreed with
Interstate for the 1934-35 season to impose both the demanded
restrictions upon their subsequent-run licensees in the six Texas
cities served by Interstate, except Austin and Galveston. While
only two of the distributors incorporated the agreement to impose
the restrictions in their license contracts with Interstate, the
evidence establishes, and it is not denied, that all joined in the
agreement, four of them after some delay in negotiating terms other
than the restrictions, and not now material. These agreements for
the restrictions -- with the immaterial exceptions noted [ Footnote 5 ] -- were carried into effect by each of the
distributors' Page 306 U. S. 219 imposing them on their subsequent-run licensees in the four
Texas cities during the 1934-35 season. One agreement, that of
Metro-Goldwyn-Mayer Distributing Corporation, was for three years.
The others were renewed in the two following seasons, and all were
in force when the present suit was begun.

															None of the distributors yielded to the demand that subsequent
runs in towns in the Rio Grande Valley served by Consolidated
should be restricted. One distributor, Paramount, which was
affiliated with Consolidated, agreed to impose the restrictions in
certain other Texas and New Mexico cities.

															The trial court found that the distributor appellants agreed and
conspired among themselves to take uniform action upon the
proposals made by Interstate, and that they agreed and conspired
with each other and with Interstate to impose the demanded
restrictions upon all subsequent-run exhibitors in Dallas, Fort
Worth, Houston, and San Antonio; that they carried out the
agreement by imposing the restrictions upon their subsequent-run
licensees in those cities, causing some of them to increase their
admission price to 25 cents, either generally or when restricted
pictures were shown, and to abandon double-billing of all such
pictures, and causing the other subsequent-run exhibitors, who were
either unable or unwilling to accept the restrictions, to be
deprived of any opportunity to exhibit the restricted pictures,
which were the best and most popular of all new feature pictures;
that the effect of the restrictions upon "low income members of the
community" patronizing the theaters of these exhibitors was to
withhold from them altogether the "best entertainment furnished by
the motion picture industry," and that the restrictions operated to
increase the income of the distributors and of Interstate and to
deflect attendance from later-run exhibitors who yielded to the
restrictions to the first-run theaters of Interstate. Page 306 U. S. 220 The court concluded as matters of law that the agreement of the
distributors with each other and those with Interstate to impose
the restrictions upon subsequent-run exhibitors and the carrying of
the agreements into effect, with the aid and participation of
Hoblitzelle and O'Donnell, constituted a combination and conspiracy
in restraint of interstate commerce in violation of the Sherman
Act. It also concluded that each separate agreement between
Interstate and a distributor that Interstate should subject itself
to the restrictions in its subsequent-run theaters and that the
distributors should impose the restrictions on all subsequent-run
theaters in the Texas cities as a condition of supplying them with
its feature pictures, was likewise a violation of the Act.

															It accordingly enjoined the conspiracy and restrained the
distributors from enforcing the restrictions in their license
agreements with subsequent-run exhibitors [ Footnote
6 ] and from enforcing the contracts or any of them. This
included both the contracts of Interstate with the distributors and
the contract between Consolidated and Paramount, whereby the latter
agreed to impose the restrictions upon subsequent-run theaters in
Texas and New Mexico served by it.

															Appellants assail the decree of the District Court upon three
principal grounds: (a) that the finding of agreement and conspiracy
among the distributor appellants to impose the restrictions upon
later-run exhibitors is not supported by the court's subsidiary
findings or by the evidence; (b) that the several separate
contracts entered into by Interstate with the distributors are
within the protection of the Copyright Act, and consequently Page 306 U. S. 221 are not violations of the Sherman Act, and (c) that the
restrictions do not unreasonably restrain interstate commerce
within the provisions of the Sherman Act.

															The Agreement Among the Distributors.

															Although the films were copyrighted, appellants do not deny that
the conspiracy charge is established if the distributors agreed
among themselves to impose the restrictions upon subsequent-run
exhibitors. Straus v. American Publishers' Assn., 231 U. S. 222 ; Paramount Famous Lasky Corp. v. United States, 282 U. S. 30 . As is
usual in cases of alleged unlawful agreements to restrain commerce,
the government is without the aid of direct testimony that the
distributors entered into any agreement with each other to impose
the restrictions upon subsequent-run exhibitors. In order to
establish agreement, it is compelled to rely on inferences drawn
from the course of conduct of the alleged conspirators.

															The trial court drew the inference of agreement from the nature
of the proposals made on behalf of Interstate and Consolidated;
from the manner in which they were made; from the substantial
unanimity of action taken upon them by the distributors, and from
the fact that appellants did not call as witnesses any of the
superior officials who negotiated the contracts with Interstate or
any official who, in the normal course of business, would have had
knowledge of the existence or nonexistence of such an agreement
among the distributors. This conclusion is challenged by appellants
because not supported by subsidiary findings or by the evidence. We
think this inference of the trial court was rightly drawn from the
evidence. In the view we take of the legal effect of the
cooperative action of the distributor appellants in carrying into
effect the restrictions imposed upon subsequent-run theaters in the
four Texas cities and of the legal effect of the separate
agreements for the imposition Page 306 U. S. 222 of those restrictions entered into between Interstate and each
of the distributors, it is unnecessary to discuss in great detail
the evidence concerning this aspect of the case.

															The O'Donnell letter named on its face as addressees the eight
local representatives of the distributors, and so, from the
beginning, each of the distributors knew that the proposals were
under consideration by the others. Each was aware that all were in
active competition, and that, without substantially unanimous
action with respect to the restrictions for any given territory,
there was risk of a substantial loss of the business and goodwill
of the subsequent-run and independent exhibitors, but that, with
it, there was the prospect of increased profits. There was
therefore strong motive for concerted action, full advantage of
which was taken by Interstate and Consolidated in presenting their
demands to all in a single document.

															There was risk, too, that, without agreement, diversity of
action would follow. Compliance with the proposals involved a
radical departure from the previous business practices of the
industry and a drastic increase in admission prices of most of the
subsequent-run theaters. Acceptance of the proposals was
discouraged by at least three of the distributors' local managers.
Independent exhibitors met and organized a futile protest which
they presented to the representatives of Interstate and
Consolidated. While, as a result of independent negotiations,
either of the two restrictions without the other could have been
put into effect by any one or more of the distributors and in any
one or more of the Texas cities served by Interstate, the
negotiations which ensued, and which, in fact, did result in
modifications of the proposals, resulted in substantially unanimous
action of the distributors, both as to the terms of the
restrictions and in the selection of the four cities where they
were to operate. Page 306 U. S. 223 One distributor, it is true, did not agree to impose the
restrictions in Houston, but this was evidently because it did not
grant licenses to any subsequent-run exhibitor in that city, where
its own affiliate operated a first-run theater. [ Footnote 7 ] The proposal was unanimously rejected as to
Galveston and Austin, as was the request that the restrictions
should be extended to the cities of the Rio Grande Valley served by
Consolidated. We may infer that Galveston was omitted because, in
that city, there were no subsequent-run theaters in competition
with Interstate. But we are unable to find in the record any
persuasive explanation, other than agreed concert of action, of the
singular unanimity of action on the part of the distributors by
which the proposals were carried into effect as written in four
Texas cities, but not in a fifth or in the Rio Grande Valley.
Numerous variations in the form of the provisions in the
distributors' license agreements and the fact that, in later years,
two of them extended the restrictions into all six cities, do not
weaken the significance or force of the nature of the response to
the proposals made by all the distributor appellants. It taxes
credulity to believe that the several distributors would, in the
circumstances, have accepted and put into operation with
substantial unanimity such far-reaching changes in their business
methods without some understanding that all were to join, and we
reject as beyond the range of probability that it was the result of
mere chance.

															Appellants present an elaborate argument, based on the minutiae
of the evidence, that other inferences are to be drawn which
explain, at least in some respects, the unanimity of action both in
accepting the restrictions for some territories and rejecting them
for others. It is said that the rejection of Consolidated's
proposal for the Page 306 U. S. 224 Rio Grande Valley may have been due to the fact that the demand
with respect to that territory differed materially from that
directed to the six Texas cities. It is urged that the proposal for
the Valley was that all pictures once shown in a first-run theater
with a 35 cents admission should not thereafter be exhibited in any
city in the Valley for less than 25 cents admission, while the
demand in behalf of Interstate with respect to the six Texas cities
was that "A" pictures, after a first-run in theaters charging 40
cents admission or more, should not thereafter be exhibited in the
same city for less than 25 admission. But reference to the
O'Donnell letter shows that both demands related to pictures shown
in a first-run or "A" theater, and were not in terms limited to
subsequent-run exhibitions in the same city in which the first run
had occurred. The record discloses no reason for the distinction
taken between first-run theaters in the six cities charging an
admission of 40 cents or more and those in the Valley served by
Consolidated charging 35 cents, other than the fact that the cities
there were smaller.

															The trial court, interpreting the letter in the light of the
whole evidence, which showed unmistakably that one purpose of both
demands was to protect first-run houses from competition of
subsequent-run houses, concluded that the substance of the
proposals in one, case as in the other, was that the restrictions
upon the subsequent-run theaters were to be imposed only in the
same city in which the first run had occurred. We agree with its
conclusion, but, in any event, since the demand made by Interstate
was phrased as broadly as that made by Texas Consolidated, both as
to the kind of pictures affected and the scope of the restriction,
we can find no basis for saying that one was more limited in its
essentials than the other, or that any explanation is thus afforded
of the unanimous acceptance of the demands of Interstate in Page 306 U. S. 225 four of the six cities affected by the proposal, and the
unanimous rejection of the demand of Consolidated. In the face of
this action and similar unanimity with respect to other features of
the proposals, and the strong motive for such unanimity of action,
we decline to speculate whether there may have been other and more
legitimate reasons for such action not disclosed by the record, but
which, if they existed, were known to appellants.

															The failure of the distributors to make any substantial changes
in their business practices in dealing with exhibitors in Austin
for the season 1934-35; their failure to unite in imposing the
restriction as to admission prices in subsequent-run theaters in
that city, and their failure to enter into the proposed restrictive
agreement with Interstate for Austin, are likewise unexplained by
any inferences to be drawn from the record. The facts that three of
the distributors continued their established practice there, as
elsewhere, of placing restrictions against double billing in their
license contracts; that the 25 cents admission restriction appeared
in the Austin license agreements of one distributor for that year,
and that certain of the distributors included the restrictions in
their Austin license agreements in later years, do not militate
against this conclusion. Taken together, the circumstances of the
case which we have mentioned, when uncontradicted and with no more
explanation than the record affords, justify the inference that the
distributors acted in concert and in common agreement in imposing
the restrictions upon their licensees in the four Texas cities.

															This inference was supported and strengthened when the
distributors, with like unanimity, failed to tender the testimony
at their command of any officer or agent of a distributor who knew,
or was in a position to know, whether in fact an agreement had been
reached among them for concerted action. When the proof supported,
as we think it did, the inference of such concert, the Page 306 U. S. 226 burden rested on appellants of going forward with the evidence
to explain away or contradict it. They undertook to carry that
burden by calling upon local managers of the distributors to
testify that they had acted independently of the other
distributors, and that they did not have conferences with or reach
agreements with the other distributors or their representatives.
The failure, under the circumstances, to call as witnesses those
officers who did have authority to act for the distributors and who
were in a position to know whether they had acted in pursuance of
agreement is itself persuasive that their testimony, if given,
would have been unfavorable to appellants. The production of weak
evidence when strong is available can lead only to the conclusion
that the strong would have been adverse. Clifton v.
United States , 4 How. 242, 45 U. S. 247 .
Silence then becomes evidence of the most convincing character. Runkle v. Burnham, 153 U. S. 216 , 153 U. S. 225 ; Kirby v. Tallmadge, 160 U. S. 379 , 160 U. S. 383 ; United States ex rel. Bilokumsky v. Tod, 263 U.
S. 149 , 263 U. S.
153 -154; United States ex rel. Vajtauer v.
Commissioner of Immigration, 273 U. S. 103 , 273 U. S.
111 -112; Mammoth Oil Co. v. United States, 275 U. S. 13 , 275 U. S. 52 ; Local 167 v. United States, 291 U.
S. 293 , 291 U. S.
298 .

															While the District Court's finding of an agreement of the
distributors among themselves is supported by the evidence, we
think that, in the circumstances of this case, such agreement for
the imposition of the restrictions upon subsequent-run exhibitors
was not a prerequisite to an unlawful conspiracy. It was enough
that, knowing that concerted action was contemplated and invited,
the distributors gave their adherence to the scheme and
participated in it. Each distributor was advised that the others
were asked to participate; each knew that cooperation was essential
to successful operation of the plan. They knew that the plan, if
carried out, would result in a restraint of commerce, which, we
will presently point out, was unreasonable within the meaning of
the Sherman Page 306 U. S. 227 Act, and, knowing it, all participated in the plan. The evidence
is persuasive that each distributor early became aware that the
others had joined. With that knowledge, they renewed the
arrangement and carried it into effect for the two successive
years.

															It is elementary that an unlawful conspiracy may be and often is
formed without simultaneous action or agreement on the part of the
conspirators. United States v. Schenck, 253 F. 212, 213, aff'd, 249 U. S. 249 U.S.
47; Levey v. United States, 92 F.2d 688, 691. Acceptance
by competitors, without previous agreement, of an invitation to
participate in a plan the necessary consequence of which, if
carried out, is restraint of interstate commerce is sufficient to
establish an unlawful conspiracy under the Sherman Act. Eastern
States Retail Lumber Dealers' Assn. v. United States, 234 U. S. 600 ; Lawlor v. Loewe, 235 U. S. 522 , 235 U. S. 534 ; American Column & Lumber Co. v. United States, 257 U. S. 377 ; United States v. American Linseed Oil Co., 262 U.
S. 371 .

															The Protection Afforded by the Copyright Act to the Contracts
between Interstate and the Distributors.

															The decree below enjoined enforcement and renewal of the
separate agreements between each distributor and Interstate and of
the contract between Paramount and Consolidated imposing the
restrictions upon later-run theaters in certain cities in Texas and
New Mexico, although the court found no conspiracy among the
distributors to effect this latter restriction. Appellants assail
this part of the decree on the ground that such separate
agreements, if entered into without agreement or concert among the
distributors, are a legitimate exercise of the monopoly secured to
the distributors by their copyrights.

															Under § 1 of the Copyright Act, 35 Stat. 1075, 17 U.S.C. § 1,
the owners of the copyright of a motion picture film acquire the
right to exhibit the picture and to grant an exclusive or
restrictive license to others to exhibit it. Page 306 U. S. 228 See Manners v. Morosco, 252 U.
S. 317 . Appellants argue that the distributors were free
to license the films for exhibition subject to the restrictions,
just as a patentee in a license to manufacture and sell the
patented article may fix the price at which the licensee may sell
it. E. Bement & Sons v. National Harrow Co., 186 U. S. 70 ; United States v. General Electric Co., 272 U.
S. 476 . That the parallel is not complete is obvious.
Because a patentee has power to control the price at which his
licensee may sell the patented article, it does not follow that the
owner of a copyright can dictate that other pictures may not be
shown with the licensed film or the admission price which shall be
paid for an entertainment which includes features other than the
particular picture licensed. Cf. Motion Picture Patents Co. v.
Universal Film Manufacturing Co., 243 U.
S. 502 ; Carbice Corp. v. American Patents
Development Corp., 283 U. S. 27 ; Leitch Manufacturing Co. v. Barber Co., 302 U.
S. 458 .

															We have no occasion now to pass upon these or related questions.
Granted that each distributor, in the protection of his own
copyright monopoly, was free to impose the present restrictions
upon his licensees, we are nevertheless of the opinion that they
were not free to use their copyrights as implements for restraining
commerce in order to protect Interstate's motion picture theater
monopoly by suppressing competition with it. The restrictions
imposed upon Interstate's competitors did not have their origin in
the voluntary act of the distributors or any of them. They gave
effect to the will, and were subject to the control, of Interstate,
not by virtue of any copyright of Interstate, for it had none, but
through its contract with each distributor. Interstate was able to
acquire the control and impose its will by force of its monopoly of
first-run theaters in the principal cities of Texas and the threat
to use its monopoly position against copyright owners who did not
yield to its demands. The purpose Page 306 U. S. 229 and ultimate effect of each of its contracts with the
distributors was to restrain its competitors in the theater
business by forcing an increase in their admission price and
compelling them, through the double feature restriction, to make
their entertainment less attractive, and to preclude the
distributors for the specified time from relaxing the pressure of
the restrictions upon them.

															The case is not one of the mere restriction of competition
between the first showing of a copyrighted film by Interstate and a
subsequent showing of the same film by a licensee of the copyright
owner. The contract, when applied to the situation existing in the
four Texas cities, had a more extensive effect. Both Interstate's
first-run and second-run theaters in each of the cities regularly
compete with the independent second-run theaters in those cities.
Since all are in practically continuous operation during the
season, competition between them extends to the exhibition of films
furnished by different distributors, including those of copyright
owners shown by independents, which compete with those of other
copyright owners shown at the same time by Interstate. Moreover,
the provision in Interstate's contracts for the restriction against
double-billing stipulated for restraint upon competition with
Interstate in the exhibition of films in the double-bill in which
neither Interstate nor the licensor had any interest by way of
copyright or otherwise. The patent effect of the contract was to
impose an undue restraint both as to admission price and the
character of the exhibition upon competing theater businesses
habitually exhibiting the competitive pictures of different
copyright owners. Through acceptance of its terms by the principal
distributors, the contract became the ready instrument by which
Interstate succeeded in dominating the business of its competitors
in the Texas cities. The fact that the restrictions may have been
of a kind which a distributor could voluntarily have imposed,
but Page 306 U. S. 230 did not, does not alter the character of the contract as a
calculated restraint upon the distribution and use of copyrighted
films moving in interstate commerce. Even if it be assumed that the
benefit to the distributor from the restrictions is one which it
might have secured through its monopoly control of the copyright
alone, that would not extend the protection of the copyright to the
contract with Interstate and to the resulting restraint upon the
competition of its business rivals.

															A contract between a copyright owner and one who has no
copyright, restraining the competitive distribution of the
copyrighted articles in the open market in order to protect the
latter from the competition, can no more be valid than a like
agreement between two copyright owners or patentees. Straus v.
American Publishers' Association, supra; Paramount Famous Lasky
Corp. v. United States, supra; see Standard Oil Co. v. United
States, 283 U. S. 163 , 283 U. S. 174 .
In either case, if the contract is effective, as it was here,
competition is suppressed, and the possibility of its resumption
precluded by force of the contract. An agreement illegal because it
suppresses competition is not any less so because the competitive
article is copyrighted. The fact that the restraint is made easier
or more effective by making the copyright subservient to the
contract does not relieve it of illegality. Standard Sanitary
Mfg. Co. v. United States, 226 U. S. 20 .

															Unreasonableness of the Restraint.

															The restrictions imposed on the subsequent-run exhibitors were
harsh and arbitrary. As we have seen, they were forced upon the
distributors and upon their customers as a result of the agreements
entered into by Interstate with the distributors. Compliance with
the restrictions was a uniform condition of exhibition of the films
by subsequent-run theaters. There were wide differences in the
location and character of the subsequent-run Page 306 U. S. 231 houses in the four Texas cities, which afforded basis for the
corresponding differences in admission prices charged before the
restrictions were adopted. Due to the practice of the distributors
of establishing clearance periods between the first and each
successive run, later runs are progressively less attractive. The
poorer class of theaters, exhibiting the later runs, sometimes
offered a double-bill as an offsetting inducement for patronage.
Despite these differences which normally affect the admission price
that could be charged by subsequent-run theaters, the 25 cents
admission price was to be required of all alike, forcing increases
in admission price ranging from 25 percent to 150 percent.

															The trial court found that practically all of the later-run
exhibitors who bowed to the restrictions would not have done so but
for the compulsion of their need of showing the restricted
pictures, and that the result was to increase the income of the
distributors and Interstate, and diminish that of the exhibitors
who accepted the restrictions, by deflecting attendance from
subsequent-run theaters to Interstate's first-run theaters. There
was no testimony that such loss was offset by the higher admission
price of the second-run theaters, and there was evidence that some
of the poorer class of second-run theaters suffered loss of income
by yielding to the restrictions. Some who did not yield were
compelled to forego exhibition of the distributors' feature
pictures. The effect was a drastic suppression of competition and
an oppressive price maintenance, of benefit to Interstate and the
distributors but injurious alike to Interstate's subsequent-run
competitors and to the public.

															The benefit at such a cost does not justify the restraint. Eastern States Retail Lumber Dealers' Assn. v. United States,
supra, 234 U. S. 613 ; Duplex Printing Press Co. v. Deering, 254 U.
S. 443 , 254 U. S. 468 ; Anderson v. Shipowners' Assn., 272 U.
S. 359 , 272 U. S. 363 ; Bedford Cut Stone Co. v. Journeyman Stone Cutters' Assn., 274 U. S. 37 , 274 U.S. 47 . Page 306 U. S. 232 It does not appear that the competition at which they were aimed
was unfair or abnormal. Cf. Appalachian Coals, Inc. v. United
States, 288 U. S. 344 , 288 U. S. 363 , 288 U. S. 372 .
The consequence of the price restriction, though more oppressive,
is comparable with the effect of resale price maintenance
agreements, which have been held to be unreasonable restraints in
violation of the Sherman Act. Dr. Miles Medical Co. v. John D.
Park & Sons Co., 220 U. S. 373 ; United States v. A. Schrader's Son, Inc., 252 U. S.
85 . Cf. United States v. Trenton Potteries Co., 273 U. S. 392 , 273 U. S. 397 et seq. We think the conclusion is unavoidable that the conspiracy and
each contract between Interstate and the distributors by which
those consequences were effected are violations of the Sherman Act,
and that the District Court rightly enjoined enforcement and
renewal of these agreements, as well as of the conspiracy among the
distributors. Affirmed. MR. JUSTICE FRANKFURTER took no part in the consideration or
decision of this case.

															* Together with No. 270, Paramount Pictures Distributing Co.
et al. v. United States, also on appeal from the District
Court of the United States for the Northern District of Texas.

															[ Footnote 1 ]

															A first-run theater is one in which a picture is first exhibited
in any given locality. A subsequent-run theater is one in which
there is a subsequent exhibition of the same picture in the same
locality.

															[ Footnote 2 ]

															Payments of license fees by Interstate to distributor appellants
in the 1934-35 season aggregated $1,077,819.58. Payments by all
other exhibitors operating theaters in the same cities aggregated
$369,594.72. Texas Consolidated payments for the same period
aggregated $594,863.68. All other exhibitors operating in the same
cities paid $47,928.22.

															[ Footnote 3 ]

															The letter follows:

															"INTERSTATE CIRCUIT, INC."

															"MAJESTIC THEATRE BUILDING"

															" Dallas, Texas, July 11, 1934 "

															"Messrs.: J. B. Dugger, Herbert MacIntyre, Sol Sachs, C. E.
Hilgers, Leroy Bickel, J. B. Underwood, E. S. Olsmyth, Doak
Roberts."

															"GENTLEMEN: On April 25th, the writer notified you that, in
purchasing product for the coming season 34-35, it would be
necessary for all distributors to take into consideration in the
sale of subsequent runs that Interstate Circuit, Inc., will not
agree to purchase produce to be exhibited in its 'A' theaters at a
price of 40 or more for night admission, unless distributors agree
that, in selling their product to subsequent runs, that this 'A'
product will never be exhibited at any time or in any theater at a
smaller admission price than 25 for adults in the evening."

															"In addition to this price restriction, we also request that, on
'A' pictures which are exhibited at a night admission price of 40
or more -- they shall never be exhibited in conjunction with
another feature picture under the so-called policy of double
features."

															"At this time, the writer desires to again remind you of these
restrictions due to the fact that there may be some delay in
consummating all our feature film deals for the coming season, and
it is imperative that, in your negotiations, that you afford us
this clearance."

															"In the event that a distributor sees fit to sell his product to
subsequent runs in violation of this request, it definitely means
that we cannot negotiate for his product to be exhibited in our 'A'
theaters at top admission prices."

															"We naturally, in purchasing subsequent runs from the
distributors in certain of our cities, must necessarily eliminate
double featuring and maintain the maximum 25 admission price, which
we are willing to do."

															"Right at this time, the writer wishes to call your attention to
the Rio Grande Valley situation. We must insist that all pictures
exhibited in our 'A' theaters at a maximum night admission price of
35 must also be restricted to subsequent runs in the Valley at 25 .
Regardless of the number of days which may intervene, we feel that,
in exploiting and selling the distributors' product, that
subsequent runs should be restricted to at least a 25 admission
scale."

															"The writer will appreciate your acknowledging your complete
understanding of this letter."

															"Sincerely,"

															"(Signed) R. J. O'DONNELL"

															[ Footnote 4 ]

															A Class "A" picture is a "feature picture" having five reels or
more of film each approximately 1,000 feet in length, shown in
theaters of the specified Texas cities charging 40 cents or more
for adult admission at night. Approximately fifty percent. of the
pictures released by the distributor defendants in the Texas cities
in 1934-1935 were Class "A" pictures.

															[ Footnote 5 ]

															The Metro-Goldwyn-Mayer Distributing Corporation agreement with
Interstate did not include Houston, where it operated through a
subsidiary a first-run theater, and where it did not, until the
1936-1937 season, license any subsequent-run pictures. It agreed
with Interstate to impose the restrictions in Houston for the
1936-1937 season.

															[ Footnote 6 ]

															The injunction against the double feature restriction excepted
from its operation two distributors, and the agent of one of them,
which had previously made a practice of including such a
restriction in their license agreements.

															[ Footnote 7 ] See footnote 5 MR. JUSTICE ROBERTS, dissenting.

															I think the decree should be reversed. The bill charges that the
two exhibitor defendants which were under the same management,
knowing that subsequent-run houses in Dallas, Houston, San Antonio,
Fort Worth, Austin, and Galveston, the largest cities in Texas, and
in Waco, Wichita Falls, Tyler, Amarillo, Texas, and Albuquerque,
New Mexico, could not operate without the showing of feature films,
in order to strengthen these two defendants' monopoly in first-run
exhibition of such feature films, and to monopolize the business of
exhibiting feature films in second or subsequent-run houses
operated by them in those cities, conspired to notify the
distributor defendants that, during the 1934-1935 season, and
subsequent seasons, the latter must advise second and
subsequent-run Page 306 U. S. 233 exhibitors that such feature films could not be operated in
second or subsequent-run houses for less than 25 cents adult lower
floor admission or as part of a double feature program and that,
unless the distributor defendants would do so, the exhibitors would
not maintain a night adult admission price of 40 cents or more for
the first-run exhibitions of feature films licensed by the
distributor defendants to them. The bill charged that, upon receipt
of advices to this effect from the exhibitor defendants, the
distributor defendants joined in the unlawful combination and
conspired with the exhibitor defendants to place such restrictions
in licenses to second or subsequent-run exhibitors.

															The parties entered into a stipulation of facts, in lieu of
evidence, binding upon them for the purposes of suit, and further
agreed that any party might introduce additional relevant and
material evidence bearing upon the issues "but not inconsistent
with any fact contained in" the stipulation. Plaintiff and
defendants introduced additional evidence. The testimony of second
or subsequent exhibitors called as witnesses by plaintiff and
defendants may be said to have been, in some respects, conflicting.
The evidence offered by the plaintiff and the defendants with
respect to the negotiations between the exhibitor defendants and
the distributor defendants, and the conduct of the latter, was
uncontradicted upon all points material to a resolution of the fact
issues in the cause.

															The District Court made ten findings (numbered from 12 to 21,
inclusive) of subsidiary or evidentiary facts, and, based upon
these specific findings, one conclusion of ultimate fact -- that
the distributor defendants conspired amongst themselves to take
uniform action upon the proposals of Interstate and conspired with
each other and with Interstate to impose the restrictions requested
by Interstate upon all subsequent-run exhibitors in Dallas, Fort
Worth, Houston, and San Antonio. Page 306 U. S. 234 The appellants contend, and I think their contention is sound,
that the subsidiary findings are insufficient to support the fact
conclusion, and that these subsidiary findings are, in a number of
vital instances, contrary to, or unsupported by, the agreed
statement of facts, and, in other instances, are in the teeth of
uncontradicted and unimpeached testimony.

															Since this is a direct appeal from the District Court in an
equity suit, and the findings are challenged, this Court is bound
to review them and to determine whether they have a proper basis in
the evidence. I think such a review demonstrates the lack of
support of the critical basic findings. No good purpose would be
served by a detailed analysis of what I consider erroneous and
unsupported findings. But I am of opinion that the findings ought
not to stand, and that the conclusion that there was a conspiracy,
either between the distributor defendants or between them and the
Interstate corporation, is unjustified. The opinion of this Court
accepts and closely follows these findings of fact but, while
approving the conclusion of the District Court, finds it
unnecessary to give detailed consideration to the appellants'
challenge of the accuracy and sufficiency of the subsidiary
findings, for the reason that it holds, as matter of law, on
uncontradicted facts, that there were eight separate conspiracies
unreasonably to restrain trade in interstate commerce in virtue of
the agreement of each of the distributor defendants with Interstate
to impose restrictions on subsequent-run exhibitors in certain
cities.

															Separately considered, I think these agreements are not
conspiracies contemplated by the Sherman Act, and the holding that
they are goes far beyond anything this Court has ever decided. The
distributor defendants are owners of copyrights on moving picture
films. The copyright law gives them the exclusive privilege of
licensing performances of the photoplays recorded. On the other Page 306 U. S. 235 hand, there are competing concerns whose copyrighted feature
films are licensed for the purpose of production. In addition,
there are copyrighted films of lower classes well known to the
trade. These lower class films are usually licensed to houses that
charge lower prices for first-run exhibition than those charged by
theaters showing feature films, and both the feature films, second
and subsequent run, and other films of less attraction and less
expensively produced, are exhibited by so-called second run houses.
The latter pay a much reduced rate to obtain the feature films for
exhibition in the same city after their original showing as feature
films in first-run houses. Many of the subsequent-run houses charge
low admission prices, and sometimes put on double-bills.

															Interstate is the largest licensee of first-run feature films in
Texas. It has many more first-run houses than any other Texas
exhibitor. Its first-run houses are in the largest cities where the
highest admission prices can be obtained. The distributors are, of
course, interested in the conservation and protection of the
necessarily high license fees which they must obtain for first runs
of feature pictures. These are far higher than those received for
the second showings of the same pictures in the same city. They
naturally have to protect themselves and their licensees from the
destruction of the good will and drawing power of these feature
films in their first runs. In an effort to accomplish this, by
requiring minimum admission charges and prohibiting double-billing
in subsequent runs of feature pictures, they may, of course, narrow
the opportunity of second run houses to obtain feature
pictures.

															I agree that, while the Copyright Act gives a distributors a
so-called monopoly, that monopoly cannot be made the cover for a
conspiracy to restrain trade or commerce. [ Footnote
2/1 ] Page 306 U. S. 236 But I think it obscures the issue to use the phrase "monopoly."
What the copyright gives is much the same as what is conferred by
the patent law. [ Footnote 2/2 ] The exhibition
of a photoplay, were it not for the copyright law, would amount to
a public disclosure, and the use of the material would thereafter
be open to the public. All the Copyright Act does is to create a
form of property in the literary or artistic production of the
author or artist. The Act attaches to the product of his brain
certain attributes of property. One of these is the right of
exclusive use similar to that attaching to physical property;
another is the right to sell the production with consequent
exclusive enjoyment in the vendee; another is the right to license
others to use the product as one might lease or bail real or
personal property. The monopoly, so called, amounts to no more than
the attachment to the work of an author or composer or producer of
motion pictures of the same rights as inhere in other property
under the common law. Therefore, the standing of the distributor
defendants toward their customers, as respects the productions
proposed to be licensed, differs in no way from that of the owner
of any other property toward those to whom he leases or licenses
its use or sale.

															The decision of the court necessarily means that the owner of a
product may not agree with an important customer that the former
will not sell the product at a cut rate to the latter's competitors
in the same city in which he conducts his business. The decision
leads to the necessary conclusion that a manufacturer whose skill
results in the production of apparatus of superior quality may not,
in consideration of a price to be paid him for the bailment of that
apparatus to certain users in a city, contract, as an inducement to
the users, that he will not bail the same apparatus at lower and
destructive Page 306 U. S. 237 prices to his bailees' competitors in the same city. I think it
has never been suggested that an agreement of the sort mentioned,
restricted in time and place, amounts to a conspiracy in
unreasonable restraint of trade or commerce. The right to make such
agreements is essential to the realization of the full value of the
property. It is conceded that the distributor defendants might
grant exclusive licenses to Interstate, and that an exclusive
license to Interstate would not constitute a conspiracy under the
Sherman Act, or confer any cause of action on others who desired
licenses in the same city, and this remains true however much such
action by the licensor might injure the business of others seeking
licenses.

															I am of opinion that the restrictions in the licenses of second
run exhibitors were not unreasonable restraints of commerce under
the Sherman Act. There is no contention that the action of the
distributor defendants discouraged competition between them either
for the business of Interstate or for that of subsequent-run
licensees. The restrictions upon the latter were not intended to
increase license fees paid by them or those paid by Interstate;
they were imposed to prevent destruction of the good will which
made possible the continued exhibition of first-run feature
pictures and to avoid decrease of the revenue from those pictures
then and theretofore enjoyed under licenses to Interstate and other
first-run feature exhibitors. The reasonableness of the
restrictions must be judged by the situation of the industry and
the propriety of its protection from practices which would
seriously injure it. [ Footnote 2/3 ] The
question always is whether an agreement unduly restrains
competition and, in applying Page 306 U. S. 238 this test, consideration must be given both to the intent and
effect of the agreement in the light of realities.

															It is settled that the proprietor of a copyright may grant an
exclusive license -- that is, may covenant with his licensee that
he will not license anyone else, as the owner of a patent may grant
a similar exclusive license to make or sell the patented article.
[ Footnote 2/4 ] It is settled that the
distributor defendants could lawfully stipulate with their
licensees, whether first run or subsequent run, as to the admission
price to be paid by patrons, and that so to do would not be a
violation of the Sherman Act. [ Footnote 2/5 ]
But it is said that if, in order to protect its earnings from
first-run licenses by enabling its licensees to pay the demanded
consideration, the distributor agrees to restrict in anywise the
exhibition of the same feature by a subsequent-run exhibitor, he
has violated the Anti-Trust Law. In the nature of things, this
cannot be true. The record discloses that the distributors have
always provided a so-called "clearance" between the first run and
subsequent runs of feature pictures. By this is meant that the
distributors refuse to license a subsequent-run theater to show
such a feature until the expiration of a given number of days or
months after the picture has been shown in a first-run house. This
is a perfectly natural procedure, and one obviously required to
protect the value of the first-run license. Under the decision
here, however, if a distributor should agree with a first-run house
that, if it will contract for a given feature picture at a given
price, the distributor will impose a clearance on second-run
houses, this would be a conspiracy in restraint of trade. Other
restrictions tending to preserve the value of the Page 306 U. S. 239 first exhibition of a feature picture such as those challenged
in this case are just as necessary, and, I suppose, in the absence
of agreement, would be held just as lawful, as the restriction
known as a clearance.

															The opinion of the court recognizes that a distributor may
lawfully agree that its exhibitor licensee shall have the exclusive
right to exhibit a copyrighted play, but condemns the agreements
here in controversy although a much less drastic restraint
respecting licenses to subsequent-run exhibitors results from the
provision for licenses with a restriction as to price and as to
double-billing.

															Once the property rights conferred by the Copyright Law are
recognized, it must follow that the principles governing the right
to use, sell, or turn to account other forms of property are
equally applicable here. We have often held that a contract
containing a covenant in restraint of trade is valid if the
restraint is reasonably necessary for the protection of the right
granted by the owner of the property. Examples of such lawful
contracts are those by which the vendor of a business sold as a
going concern agrees that, for the protection of its value, he
will, for a period of years, refrain from engaging in the same
business in a prescribed territory; [ Footnote
2/6 ] and those by the vendor with the vendee of an article to
be used in business or trade that it shall not be used so as to
interfere with the vendor's business, [ Footnote
2/7 ] which are held not to offend the Sherman Act if the
prohibition has a reasonable relation to the value of the business
of the vendor. Page 306 U. S. 240 The Government stresses the fact that each of the distributors
must have acted with knowledge that some or all of the others would
grant or had granted Interstate's demand. But such knowledge was
merely notice to each of them that, if it was successfully to
compete for the first-run business in important Texas cities, it
must meet the terms of competing distributors or lose the business
of Interstate. It could compete successfully only by granting
exclusive licenses to Interstate and injuring subsequent-run houses
by refusing them licenses -- a course clearly lawful -- or by doing
the less drastic thing of agreeing to protect the goodwill of its
pictures by putting necessary and not severely burdensome
restrictions upon subsequent-run exhibitors, which I think equally
lawful.

															MR. JUSTICE McREYNOLDS and MR. JUSTICE BUTLER join in this
opinion.

															[ Footnote 2/1 ] Straus v. American Publishers' Assn., 231 U.
S. 222 ; Paramount Famous Lasky Corp. v. United
States, 282 U. S. 30 .

															[ Footnote 2/2 ] See United States v. Dubilier Condenser Corp., 289 U. S. 178 , 289 U. S.
186 .

															[ Footnote 2/3 ] Appalachian Coals, Inc. v. United States, 288 U.
S. 344 , 288 U. S.
358 -362. Compare Chicago Board of Trade v. United
States, 246 U. S. 231 , 246 U. S.
238 .

															[ Footnote 2/4 ] Manners v. Morosco, 252 U. S. 317 ; E. Bement & Sons v. National Harrow Co., 186 U. S.
70 .

															[ Footnote 2/5 ] United States v. General Electric Co., 272 U.
S. 476 , 272 U. S.
488 -490; Standard Oil Co. v. United States, 283 U. S. 163 , 283 U. S.
179 .

															[ Footnote 2/6 ] Cincinnati Packet Co. v. Bay, 200 U.
S. 179 ; Oregon Steam Navigation Co. v.
Winsor , 20 Wall. 64, 87 U. S. 67 .

															[ Footnote 2/7 ] Fowle v. Park, 131 U. S. 88 ; Board of Trade v. Christie Grain & Stock Co., 198 U. S. 236 , 198 U. S.
250 -252; Moore v. New York Cotton Exchange, 270 U. S. 593 ; United States v. General Electric Co., 272 U.
S. 476 ; United States v. Addyston Pipe & Steel
Co., 85 F. 271.

Summary: In *Interstate Circuit, Inc. v. United States* (1939), the Supreme Court ruled that an agreement between motion picture film distributors and theater owners to maintain higher prices for first-run film exhibitions and protect them from competition was an unreasonable restraint on interstate commerce and violated the Federal Anti-Trust Act. The Court found that the distributors acted in concert when imposing restrictions on subsequent-run exhibitors, and their silence on the matter was seen as evidence of a conspiracy. The Court also held that a contract restraining the competitive distribution of copyrighted films to protect a theater owner from competition was not protected by the Copyright Act.


U.S. Supreme Court Fashion Originators' Guild of America
v. FTC, 312
U.S. 457 (1941) Fashion Originators' Guild of
America v. Federal Trade
Commission No. 537 Argued February 10,
1941 Decided March 3, 1941 312
U.S. 457 CERTIORARI TO THE CIRCUIT COURT OF
APPEALS FOR THE SECOND
CIRCUIT Syllabus A combination of manufacturers of women's garments and
manufacturers of textiles used in their making, who claimed that
the designs of their products, though not protected by patent or
copyright, were original and distinctive, sought to suppress
competition by others who copied their designs and sold at
generally lower prices. To this end, those in the combination
systematically registered their designs and refused all sales to
manufacturers and retailers of garments who dealt in the copies or
would not agree not to sell them. To aid in effectuating the
boycott, the combination employed "shoppers" to visit retailers'
stores, established tribunals to determine whether garments were
copies of designs registered, audited the books of its members,
fined them for violations of its regulations, etc. In view of these
things, and the power of the combination and its effect upon sales
in interstate commerce, the Federal Trade Commission concluded that
the practices of the combination constituted unfair methods of
competition tending to monopoly and issued a "cease and desist"
order. Held: 1. That the conclusion of the Commission was based on adequate
and unchallenged findings, and was correct. P. 312 U. S.
463 .

															2. Where the purpose and practice of a combination run counter
to the public policy declared in the Sherman and Clayton Acts, the
Federal Trade Commission has the power to suppress it as an unfair
method of competition. P. 312 U. S.
463 .

															3. A practice short of a complete monopoly but which tends to
create a monopoly and to deprive the public of the advantages from
free competition in interstate trade, offends the policy of the
Sherman Act. P. 312 U. S.
466 .

															4. A combination may be contrary to the policy of the Sherman
and Clayton Acts though it does not tend to fix or regulate prices,
parcel out or limit production, or bring about a deterioration in
quality. P. 312 U. S.
466 . Page 312 U. S. 458 It was the object of the Federal Trade Commission Act to reach
in their incipiency combinations which could lead to these and
other trade restraints and practice deemed undesirable.

															5. Since the purpose and object of this combination, its
potential power, its tendency to monopoly, the coercion it could
and did practice upon a rival method of competition, all brought it
within the prohibition declared by the Sherman and Clayton Acts, it
was not erroneous to exclude evidence offered to prove that the
practices were reasonable and necessary for the protection of
manufacturer, laborer, retailer and consumer against the evils
growing from the pirating of original designs. P. 312 U. S.
467 .

															6. Whether or not systematic copying of the dress designs by
trade competitors is in itself tortious is a question of state law;
but even if tortious under the laws of all the States, that
circumstance would not justify a combination to suppress it by
regulating and restraining interstate commerce in violation of
federal law. P. 312 U. S.
468 .

															114 F.2d 80, affirmed.

															Certiorari, 311 U.S. 641, to review the affirmance by the court
below of a "cease and desist" order of the Federal Trade
Commission. Page 312 U. S. 460 MR. JUSTICE BLACK delivered the opinion of the Court.

															The Circuit Court of Appeals, with modifications not here
challenged, affirmed a Federal Trade Commission decree ordering
petitioners to cease and desist from certain practices found to
have been done in combination and to constitute "unfair methods of
competition" tending to monopoly. [ Footnote 1 ] Determination of the correctness of the
decision below requires consideration of the Sherman, Clayton, and
Federal Trade Commission Acts. [ Footnote 2 ] Page 312 U. S. 461 Some of the members of the combination design, manufacture, sell
and distribute women's garments -- chiefly dresses. Others are
manufacturers, converters or dyers of textiles from which these
garments are made. Fashion Originators' Guild of America (FOGA), an
organization controlled by these groups, is the instrument through
which petitioners work to accomplish the purposes condemned by the
Commission. The garment manufacturers claim to be creators of
original and distinctive designs of fashionable clothes for women,
and the textile manufacturers claim to be creators of similar
original fabric designs. After these designs enter the channels of
trade, other manufacturers systematically make and sell copies of
them, the copies usually selling at prices lower than the garments
copied. Petitioners call this practice of copying unethical and
immoral, and give it the name of "style piracy." And although they
admit that their "original creations" are neither copyrighted nor
patented, and indeed assert that existing legislation affords them
no protection against copyists, they nevertheless urge that sale of
copied designs constitutes an unfair trade practice and a tortious
invasion of their rights. Because of these alleged wrongs,
petitioners, while continuing to compete with one another in many
respects, combined among themselves to combat and, if possible,
destroy all competition from the sale of garments which are copies
of their "original creations." They admit that, to destroy such
competition, they have in combination purposely boycotted and
declined to sell their products to retailers who follow a policy of
selling garments copied by other manufacturers from designs put out
by Guild members. As a result of their efforts, approximately
12,000 retailers throughout the country have signed agreements to
"cooperate" with the Guild's boycott program, but more than half of
these signed the Page 312 U. S. 462 agreements only because constrained by threats that Guild
members would not sell to retailers who failed to yield to their
demands -- threats that have been carried out by the Guild practice
of placing on red cards the names of noncooperators (to whom no
sales are to be made), placing on white cards the names of
cooperators (to whom sales are to be made), and then distributing
both sets of cards to the manufacturers.

															The one hundred and seventy-six manufacturers of women's
garments who are members of the Guild occupy a commanding position
in their line of business. In 1936, they sold in the United States
more than 38% of all women's garments wholesaling at $6.75 and up,
and more than 60% of those at $10.75 and above. The power of the
combination is great; competition and the demand of the consuming
public make it necessary for most retail dealers to stock some of
the products of these manufacturers. And the power of the
combination is made even greater by reason of the affiliation of
some members of the National Federation of Textiles, Inc. -- that
being an organization composed of about one hundred textile
manufacturers, converters, dyers, and printers of silk and rayon
used in making women's garments. Those members of the Federation
who are affiliated with the Guild have agreed to sell their
products only to those garment manufacturers who have, in turn,
agreed to sell only to cooperating retailers.

															The Guild maintains a Design Registration Bureau for garments,
and the Textile Federation maintains a similar Bureau for textiles.
The Guild employs "shoppers" to visit the stores of both
cooperating and noncooperating retailers, "for the purpose of
examining their stocks, to determine and report as to whether they
contain . . . copies of registered designs. . . ." An elaborate
system of trial and appellate tribunals exists for the
determination of whether a given garment is in fact a copy of Page 312 U. S. 463 a Guild member's design. In order to assure the success of its
plan of registration and restraint, and to ascertain whether Guild
regulations are being violated, the Guild audits its members books.
And if violations of Guild requirements are discovered, as, for
example, sales to red-carded retailers, the violators are subject
to heavy fines. [ Footnote
3 ]

															In addition to the elements of the agreement set out above, all
of which relate more or less closely to competition by so-called
style copyists, the Guild has undertaken to do many things
apparently independent of and distinct from the fight against
copying. Among them are the following: the combination prohibits
its members from participating in retail advertising; regulates the
discount they may allow; prohibits their selling at retail;
cooperates with local guilds in regulating days upon which special
sales shall be held; prohibits its members from selling women's
garments to persons who conduct businesses in residences,
residential quarters, hotels or apartment houses; and denies the
benefits of membership to retailers who participate with dress
manufacturers in promoting fashion shows unless the merchandise
used is actually purchased and delivered.

															If the purpose and practice of the combination of garment
manufacturers and their affiliates runs counter to the public
policy declared in the Sherman and Clayton Acts, the Federal Trade
Commission has the power to suppress it as an unfair method of
competition. [ Footnote 4 ]
From Page 312 U. S. 464 its findings the Commission concluded that the petitioners,
"pursuant to understandings, arrangements, agreements, combinations
and conspiracies entered into jointly and severally," had prevented
sales in interstate commerce, had "substantially lessened, hindered
and suppressed" competition, and had tended "to create in
themselves a monopoly." And paragraph 3 of the Clayton Act, 15
U.S.C. § 14, declares

															"It shall be unlawful for any person engaged in commerce . . .
to . . . make a sale or contract for sale of goods . . . on the
condition, agreement or understanding that the . . . purchaser
thereof shall not use or deal in the goods . . . of a competitor or
competitors of the . . . seller, where the effect of such . . .
sale, or contract for sale . . . may be to substantially lessen
competition or tend to create a monopoly in any line of
commerce."

															The relevance of this section of the Clayton Act to petitioners'
scheme is shown by the fact that the scheme is bottomed upon a
system of sale under which (1) textiles shall be sold to garment
manufacturers only upon the condition and understanding that the
buyers will not use or deal in textiles which are copied from the
designs of textile manufacturing Guild members; (2) garment
manufacturers shall sell to retailers only upon the condition and
understanding that the retailers shall not use or deal in such
copied designs. And the Federal Trade Commission concluded, in the
language of the Clayton Act, that these understandings
substantially lessened competition and tended to create a monopoly.
We hold that the Commission, upon adequate and unchallenged
findings, correctly concluded that this practice constituted an
unfair method of competition. [ Footnote 5 ] Page 312 U. S. 465 Not only does the plan in the respects above discussed thus
conflict with the principles of the Clayton Act; the findings of
the Commission bring petitioners' combination in its entirety well
within the inhibition of the policies declared by the Sherman Act
itself. Section 1 of that Act makes illegal every contract,
combination or conspiracy in restraint of trade or commerce among
the several states; Section 2 makes illegal every combination or
conspiracy which monopolizes or attempts to monopolize any part of
that trade or commerce. Under the Sherman Act "competition, not
combination, should be the law of trade." National Cotton Oil
Co. v. Texas, 197 U. S. 115 , 197 U. S. 129 .
And among the many respects in which the Guild's plan runs contrary
to the policy of the Sherman Act are these: it narrows the outlets
to which garment and textile manufacturers can sell and the sources
from which retailers can buy ( Montague & Co. v. Lowry, 193 U. S. 38 , 193 U. S. 45 ; Standard Sanitary Manufacturing Co. v. United States, 226 U. S. 20 , 226 U. S.
48 -49); subjects all retailers and manufacturers who
decline to comply with the Guild's program to an organized boycott
( Eastern States Retail Lumber Dealers' Assn. v. United
States, 234 U. S. 600 , 234 U. S.
609 -611); takes away the freedom of action of members by
requiring each to reveal to the Guild the intimate details of their
individual affairs ( United States v. American Linseed Oil
Co., 262 U. S. 371 , 262 U. S.
389 ); and has both as its necessary tendency and as its
purpose and effect the direct suppression of competition from the
sale of unregistered textiles and copied designs ( United States
v. American Linseed Oil Co., supra, at 262 U. S.
389 ). In addition to all this, the combination is in
reality an extra-governmental agency which prescribes rules for the
regulation and restraint of interstate commerce and provides
extrajudicial tribunals for determination and punishment of
violations, and thus "trenches upon the power of the national
legislature and violates the statute." Page 312 U. S. 466 Addyston Pipe & Steel Co. v. United States, 175 U. S. 211 , 175 U. S.
242 .

															Nor is it determinative in considering the policy of the Sherman
Act that petitioners may not yet have achieved a complete monopoly.
For "it is sufficient if it really tends to that end, and to
deprive the public of the advantages which flow from free
competition." United States v. E. C. Knight Co., 156 U. S. 1 , 156 U. S. 16 ; Addyston Pipe & Steel Co. v. United States, 175 U. S. 211 , 175 U. S. 237 .
It was, in fact, one of the hopes of those who sponsored the
Federal Trade Commission Act that its effect might be prophylactic,
and that, through it, attempts to bring about complete
monopolization of an industry might be stopped in their incipiency.
[ Footnote 6 ]

															Petitioners, however, argue that the combination cannot be
contrary to the policy of the Sherman and Clayton Acts, since the
Federal Trade Commission did not find that the combination fixed or
regulated prices, parcelled out or limited production, or brought
about a deterioration in quality. But action falling into these
three categories does not exhaust the types of conduct banned by
the Sherman and Clayton Acts. And, as previously pointed out, it
was the object of the Federal Trade Commission Act to reach not
merely in their fruition, but also in their incipiency,
combinations which could lead to these and other trade restraints
and practices deemed undesirable. In this case, the Commission
found that the combination exercised sufficient control and power
in the women's garments and textile businesses

															"to exclude from the industry those manufacturers and
distributors who do not conform to the rules and regulations of
said respondents, and thus tend to Page 312 U. S. 467 create in themselves a monopoly in the said industries."

															While a conspiracy to fix prices is illegal, an intent to
increase prices is not an ever-present essential of conduct
amounting to a violation of the policy of the Sherman and Clayton
Acts; a monopoly contrary to their policies can exist even though a
combination may temporarily or even permanently reduce the price of
the articles manufactured or sold. For, as this Court has said,

															"Trade or commerce under those circumstances may nevertheless be
badly and unfortunately restrained by driving out of business the
small dealers and worthy men whose lives have been spent therein,
and who might be unable to readjust themselves to their altered
surroundings. Mere reduction in the price of the commodity dealt in
might be dearly paid for by the ruin of such a class and the
absorption of control over one commodity by an all-powerful
combination of capital. [ Footnote
7 ]"

															But petitioners further argue that their boycott and restraint
of interstate trade is not within the ban of the policies of the
Sherman and Clayton Acts, because

															"the practices of FOGA were reasonable and necessary to protect
the manufacturer, laborer, retailer and consumer against the
devastating evils growing from the pirating of original designs and
had in fact benefited all four."

															The Commission declined to hear much of the evidence that
petitioners desired to offer on this subject. As we have pointed
out, however, the aim of petitioners' combination was the
intentional destruction of one type of manufacture and sale which
competed with Guild members. The purpose and object of this
combination, its potential power, its tendency to monopoly, the
coercion it could and did practice upon a rival method of
competition, all brought it within the policy of the
prohibition Page 312 U. S. 468 declared by the Sherman and Clayton Acts. For this reason, the
principles announced in Appalachian Coals, Inc. v. United
States, 288 U. S. 344 , and Sugar Institute v. United States, 297 U.
S. 553 , have no application here. Under these
circumstances, it was not error to refuse to hear the evidence
offered, for the reasonableness of the methods pursued by the
combination to accomplish its unlawful object is no more material
than would be the reasonableness of the prices fixed by unlawful
combination. Cf. Thomsen v. Cayser, 243 U. S.
66 , 243 U. S. 85 ; United States v. Trenton Potteries Co., 273 U.
S. 392 , 273 U. S. 398 ; United States v. Socony-Vacuum Oil Co., 310 U.
S. 150 , 310 U. S.
212 -224. Nor can the unlawful combination be justified
upon the argument that systematic copying of dress designs is
itself tortious, or should now be declared so by us. In the first
place, whether or not given conduct is tortious is a question of
state law, under our decision in Erie Railroad Co. v.
Tompkins, 304 U. S. 64 . In
the second place, even if copying were an acknowledged tort under
the law of every state, that situation would not justify
petitioners in combining together to regulate and restrain
interstate commerce in violation of federal law. And for these same
reasons, the principles declared in International News Service
v. Associated Press, 248 U. S. 215 ,
cannot serve to legalize petitioners' unlawful combination. The
decision below is accordingly Affirmed. [ Footnote 1 ]

															114 F.2d 80. Because of inconsistency between the holding below
and that of the First Circuit Court of Appeals in Wm. Filene's
Sons Co. v. Fashion Originators' Guild of America, 90 F.2d
556, we granted certiorari. 311 U.S. 641.

															[ Footnote 2 ]

															26 Stat. 209, 15 U.S.C. § 1 et seq. ; 38 Stat. 730, 15
U.S.C. § 12 et seq.; 38 Stat. 717, 15 U.S.C. § 41 et
seq. [ Footnote 3 ]

															In one instance, a fine of $1,500 was imposed, and the Guild
notified its membership that a fine of $5,000 would be assessed in
case of future violation.

															[ Footnote 4 ] Federal Trade Commission v. Beech-Nut Packing Co., 257 U. S. 441 , 257 U. S.
453 -455. See 26 Stat. 209, 15 U.S.C. § 1 et
seq.; 38 Stat. 730, 15 U.S.C. § 12 et seq.; 38 Stat.
717, 15 U.S.C. § 41 et seq. By 38 Stat. 734, 15 U.S.C. §
21, the Federal Trade Commission is expressly given authority to
enforce the Clayton Act.

															[ Footnote 5 ] Cf. Federal Trade Commission v. R. F. Keppel &
Bro., 291 U. S. 304 , 291 U. S. 314 ; Standard Fashion Co. v. Magrane-Houston Co., 258 U.
S. 346 , 258 U. S.
357 .

															[ Footnote 6 ] Federal Trade Commission v. Raladam Co., 283 U.
S. 643 , 283 U. S. 647 . And see remarks of Senator Cummins, Chairman of the
Committee which reported the bill, 51 Cong.Rec. 11455, quoted by
Brandeis, J., in Federal Trade Commission v. Gratz, 253 U. S. 421 , 253 U. S.
435 .

															[ Footnote 7 ] United States v. Trans-Missouri Freight Assn., 166 U. S. 290 , 166 U. S.
323 .

Summary: The Supreme Court upheld the Federal Trade Commission's ruling that the Fashion Originators' Guild of America's practices were an unfair method of competition tending towards monopoly, violating the Sherman and Clayton Acts. The Guild, a combination of garment and textile manufacturers, aimed to suppress competition by boycotting retailers selling copied designs at lower prices. The Court affirmed the Commission's order for the Guild to cease and desist its practices, rejecting arguments that the practices were reasonable or necessary for protecting manufacturers, laborers, retailers, and consumers from design piracy. The Court emphasized that the Guild's practices ran counter to public policy and federal law, regardless of potential tortious conduct under state law.