Federal Trade Commission v. Motion Picture Advertising Service Co.
Headline: Court enforces FTC order limiting exclusive theater advertising-film contracts to one year, blocking distributors from locking up most screens and freeing space for competing advertisers.
Holding: The Court reversed the Court of Appeals and sustained the FTC’s order prohibiting exclusive advertising-film contracts longer than one year because those contracts unreasonably restrained competition by foreclosing most outlets.
- Prevents distributors from locking theaters into multi-year exclusive ad contracts.
- Makes more theater screen time available to competing advertisers.
- Affirms FTC power to limit exclusive agreements as anticompetitive.
Summary
Background
A company that produced and distributed short advertising films made deals with movie theaters to show only its ads. The company shipped films from Louisiana to theaters in 27 states and the District of Columbia. Many contracts ran one to five years, and together with three other distributors they had exclusive deals covering about 75% of all theaters that take paid screen advertising. The Federal Trade Commission charged that these exclusives unfairly cut off rivals and entered an order limiting exclusive contracts to one year.
Reasoning
The main question was whether these exclusive agreements were unfair methods of competition that harmed the market. The Court said the Commission’s findings — that the contracts foreclosed most outlets and tended toward monopoly — were supported by substantial evidence. The Court concluded that a practice that so tightly seizes a market can fall within the Sherman Act’s prohibitions and therefore be an unfair method under the FTC Act. The Court upheld the FTC’s judgment limiting exclusives to one year and rejected arguments that different legal labels or earlier proceedings defeated the order.
Real world impact
The ruling prevents distributors from requiring theaters to accept only their advertising films for more than a year. That change should open more screen time to competing advertisers and limit a few companies’ control over theater advertising outlets. The order binds the distributor and, as decided by the Court, is the Commission’s chosen remedy; theaters remain free to make new agreements after a contract expires.
Dissents or concurrances
A dissent argued the Commission did not explain its reasoning clearly. Justice Frankfurter said the record did not show how many contracts exceeded one year and questioned aggregating other companies’ contracts without evidence of conspiracy, urging a remand for fuller explanation.
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