Court Agrees to Terminate the Paramount Decrees

In an August 7 order, Southern District of New York Judge Analisa Torres granted the Department of Justice’s motion to terminate the Paramount Decrees, consent decrees entered into by eight film production and distribution companies designed to eliminate the “horizontal distributor cartel of the 1930s and 40s [that] have regulated aspects of the movie industry for the last seventy years.” Amici curiae, the Independent Cinema Alliance (ICA) and the National Association of Theatre Owners (NATO), opposed the motion.

In 1938, the Department of Justice brought an antitrust action against Paramount Pictures, Inc.; Twentieth Century Fox Film Corp.; Warner Brothers Pictures, Inc.; Loew’s, Incorporated; Radio Keith Orpheum; Universal Corp.; Columbia Pictures Corp.; and United Artists Corp. Companies which then controlled the vast majority of the production, distribution, and exhibition of motion pictures nationwide. The defendants established a cartel to limit the first run of their movies to theaters they owned and to prevent independent movie distributors from accessing first-run theaters.

The defendants were found guilty of both gaining “monopoly power in the distribution market for first-run motion pictures,” and participating in a “conspiracy to fix licensing practices, including admission prices, run categories, and ‘clearances’” for almost all theaters in America. As a remedy, the district court required all defendants to consent to individual Paramount Decrees.

These required certain defendants to sell off movie theaters, and prevented them from acquiring new theaters unless the transaction received judicial approval. The defendants were also barred from several anti competitive practices including resale price maintenance, exclusive film licenses for over-broad geographic areas, block bundling, and circuit dealing.

In 2018, the DOJ began to consider whether it should unwind the decrees. It ultimately did so through a motion dated November 22, 2019, asking the court to end the sanctions for the remaining defendants and accepting a sunset provision addressing concerns about block bundling and circuit dealing. Because the government initiated the motion, the only question left for the court was whether it was in the public interest to do so.

The court held that the decrees were no longer necessary because “[b]oth the market structure and distribution system that facilitated that collusion are no longer the same.” The changes, the court noted, included separations in the supply chain like distinct movie distributors and theater operators. It also acknowledged that the proliferation of internet movie streaming services and the entry of new competitors like The Walt Disney Company caused the remaining defendants to face legal constraints that their new rivals did not encounter.

The Department of Justice solicited public comments, to which amici ICA and NATO responded, contending that the court should not lift restrictions on block booking and circuit dealing. The court explained that block booking is a tying practice where distributors agree to license “‘one feature or a group of features on condition that the exhibitor will also license another feature or group of features.” The court said circuit dealing occurs when a distributor licenses films “to all movie theaters under common ownership, as opposed to licensing each film on a theater-by-theater basis.”

The court found that the Justice Department’s voluntary sunset provision, preserving the block booking and circuit dealing provisions for two years, combined with changes to the industry and movie theaters themselves adequately addressed these concerns. The court wrote that the sunset period would “provide movie theaters a transitional time period to adjust their business models and strategies to any proposals to change the film-by-film, theater-by-theater licensing regime.”

The United States is represented by the Department of Justice’s Mark Merva and Yvette Tarlov, and the defendants by Shearman & Sterling; Williams & Connolly; Arnold & Porter; Munger, Tolles & Olson; Gibson, Dunn & Crutcher; and Davis Polk & Wardwell. The Amici Curiae are represented by Becker & Poliakoff, the Seifert Law Firm, and Nato.