United States v. First National Pictures, Inc.

Background

In 1926 a group of film producers and distributors caused each of thirty-two local Film Boards of Trade to adopt rules creating local credit committees. Those committees collected detailed questionnaires and credit information about new theatre owners, placed names on a confidential credit list, could require cash security up to $1,000, and barred members from contracting with listed theatres for ten days unless security or contract assumption was assured. Ten producers and distributors controlled about 60% of the business and, together with other distributors, controlled about 98% of the market. The United States sued, and the lower court denied the government’s requested relief.

Reasoning

The central question was whether the distributors’ agreement to create and operate these credit committees and to use the resulting lists and rules to control who could buy or lease theatres was lawful. The Court concluded that the arrangement conflicted with federal antitrust law (the Sherman Act), pointing to recent related rulings and similar precedents. Because the coordinated system was designed to restrict sales and coerce purchasers by excluding them from a free market, the Court held the arrangement unlawful, reversed the lower court’s decision, and sent the case back to the lower court for further proceedings consistent with this ruling.

Real world impact

The decision means that coordinated, industry-wide credit committees and secret blacklists used to block or condition theatre deals are unlawful under federal competition law. Distributors and local film boards that used these rules will face further litigation and possible enforcement. The case was reversed and remanded, so additional steps in the lower courts will determine specific relief.