334 US 131 (1948), United States Supreme Court

Background
The legal issues originated in the silent era, when the Federal Trade Commission began investigating film companies for potential violations under the Sherman Antitrust Act of 1890.

The major film studios owned the theaters where their motion pictures were shown, either in partnerships or outright and complete. Thus specific theater chains showed only the films produced by the studio that owned them. The studios created the films, had the writers, directors, producers and actors on staff ("under contract" as it was called), owned the film processing and laboratories, created the prints and distributed them through the theaters that they owned: In other words, the studios were vertically integrated, creating a de facto oligopoly. By 1945, the studios owned either partially or outright 17% of the theaters in the country, accounting for 45% of the film-rental revenue.

Ultimately, this issue of the studios' unfair trade practices would be the reason behind all the major movie studios being sued in 1938 by the U.S. Department of Justice. Coincidentally, the Society of Independent Motion Picture Producers a group led by Mary Pickford, Samuel Goldwyn, Walter Wanger, and others filed a lawsuit against Paramount Detroit Theaters in 1942, the first major lawsuit of producers against exhibitors.

The federal government's case, filed in 1938, was settled with a consent decree in 1940, which allowed the government to reinstate the lawsuit if, in three years' time, it had not seen a satisfactory level of compliance, which included: (1) The Big Five studios could no longer block book short film subjects, known as one shot, or full force, block booking; 2) the Big Five studios could only block book up to five features in their theaters; 3) blind buying-buying of films by theater districts without seeing films firsthand- was now outlawed and replaced with trade showing, which made it so all 31 theater districts in US would see films every two weeks before showing movies in theaters; and 4) an administration board would enforce these requirements as well. It did not, and refiled in 1943, and the case went into effect-with now all of the Big Eight as defendants- as well after the war ended as well. The case reached the U.S. Supreme Court in 1948. The verdict went against the movie studios, forcing all of them to divest themselves of their movie theater chains. In addition to Paramount, RKO Pictures, Loew's, Twentieth Century Fox, Columbia Pictures, Universal Pictures, Warner Bros., the American Theatres Association and W.C. Allred were named as This, coupled with the advent of television and the attendant drop in movie ticket sales, brought about a severe slump in the movie business, a slump that would not be reversed until 1972, with the release of The Godfather, the first modern blockbuster.

The Paramount Case is a bedrock of corporate anti-trust law, and as such is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.

Decision
The Court ruled 8-0 in the government's favor, affirming much of the consent decree (Justice Robert H. Jackson took no part in the proceedings). William O. Douglas delivered the Court's opinion, with Felix Frankfurter dissenting in part, arguing the Court should have let more of the decree stand.

Douglas
Douglas's opinion reiterated the facts and history of the case and reviewed the District Court's opinion, agreeing that its conclusion was "incontestable". He considered five different trade practices addressed by the consent decree:

1.Clearances and runs, under which movies were scheduled so they would only be showing at particular theatres at any given time, to avoid competing with another theater's showing;
2.Pooling agreements, the joint ownership of theaters by two nominally competitive studios;
3.Formula deals, master agreements, and franchises: arrangements by which an exhibitor or distributor allocated profits among theaters that had shown a particular film, and awarded exclusive rights to independent theatres, sometimes without competitive bidding;
4.Block booking, the studios' practice of requiring theaters to take an entire slate of its films, sometimes without even seeing them, sometimes before the films had even been produced ("blind bidding"), and
5.Discrimination against smaller, independent theaters in favor of larger chains.
Douglas let stand the District Court's sevenfold test for when a clearance agreement was a restraint of trade, as he agreed they had a legitimate purpose. Pooling agreements and joint ownership, he agreed, were "bald efforts to substitute monopoly for competition ... Clearer restraints of trade we cannot imagine." He allowed, however, that courts could consider how an interest in an exhibitor was acquired and sent some other issues back to the District Court for further inquiry and resolution.. He set aside the lower court findings on franchises so that they might be reconsidered from the perspective of allowing competitive bidding. On the block booking question, he rejected the studios' argument that it was necessary to profit from their copyrights: "The copyright law, like the patent statutes, makes reward to the owner a secondary consideration". The prohibitions on discrimination he let stand entirely.

Frankfurter
Frankfurter took exception to the extent to which his brethren had agreed with the studios that the District Court had not adequately explored the underlying facts in affirming the consent decree. He pointed to another recent Court decision, International Salt Co. v. United States (332 U.S. 392 (1947)) that lower courts are the proper place for such findings of fact, to be deferred to by higher courts. Also, he reminded the Court that the District Court had spent fifteen months considering the case and reviewed almost 4,000 pages of documentary evidence."I cannot bring myself to conclude that the product of such a painstaking process of adjudication as to a decree appropriate for such a complicated situation as this record discloses was an abuse of discretion", he said. He would have modified the District Court decision only to permit the use of arbitration to resolve disputes.

Consequences
Exhibitors were now free to play movies produced by any studio, or a movie produced by an independent producer. Therefore, the box-office rentals (the amount of money from the tickets that goes to the producer of the picture) fell significantly, since now studios were competing with each other and with independent producers and, later on, independent distributors for the screens now owned by independent film exhibitors.

For the studios, the profits they had enjoyed from blockbusters like Gone with the Wind would be a thing of the past. Only with Jaws in 1975 would they see grosses that matched the scale they had achieved prior to this decision.

The court orders forcing the separation of motion picture production and exhibition companies are commonly referred to as the Paramount Decrees. Paramount Pictures Inc. was forced to split into two companies: the film company now called Paramount Pictures Corp. and the theater chain (United Paramount Theaters) which merged in 1953 with the American Broadcasting Company (led by former United Paramount Theaters boss Leonard Goldenson for decades). Today, the former Paramount theaters are controlled by another theater chain, National Amusements, through its control of Viacom. Consequences of the decision include:

More independent producers and studios to produce their film product free of major studio interference.
The beginning of the end of the old Hollywood studio system and its golden age.
The weakening of the (Hays) Production Code, since it saw the rise of independent "art house" theaters which showed foreign or independent films made outside of its jurisdiction.