owner might not build a great national organization; still, that would not cure unfairness of its operation.

Mr. HESS. In the first place, there is no evidence of unfairness and I deny that there has been unfairness. In the second place, it seems that the exhibitors represented here are unduly exercised, to say the least, over the unethical acts of a class of exhibitors. We have no quarrel with the man who makes a contract and performs it; the men who make the contracts and perform them have no quarrel with us. We are quarreling with the men who make contracts for a license under copyright and exceed the license that is granted them. Those are the men we are quarreling with. Much has been said concerning these verbal agreements. I have made a compilation of the investigations that have been made during 1930 and 1931 and I have excluded all cases where there was a claim of verbal agreement and this is what we found. Keep in mind that these investigations are made out of exchange centers in the territory served by the exchanges in the centers, and Dallas, commencing with "D," heads the list, simply because these names are put in alphabetical order. In the Dallas territory there were 160 exhibitors who operated 190 theaters; the number of infringements or unauthorized exhibitions which include bicycling, switching, and holding over, where there was no claim of a verbal agreement, 60 exhibitors or 37 per cent of the number investigated were disclosed as infringing; 96 theaters or 50 per cent were disclosed as using pictures without authority.

Mr. DIES. How many was that?

Mr. HESS. Ninety-six out of 190 or 50 per cent.

Mr. GOODWIN. That was just in the Dallas territory?

Mr. HESS. In the Dallas territory. In the Oklahoma territory there were 89 exhibitors operating 134 theaters investigated, and the percentages disclosed to have infringed were 47 per cent of the exhibitors and 44 per cent of the theaters.

In Atlanta there were 110 exhibitors operating 140 theaters investigated, and infringements disclosed showed that 42 per cent of the exhibitors investigated were operating 51 per cent of the theaters included in the investigation. That was the percentage infringing. In the Memphis territory 62 exhibitors operating 79 theaters were investigated and 48 exhibitors operating 58 theaters were disclosed to have infringed, which is 77 per cent of the number of exhibitors and 73 per cent of the number of theaters investigated.

In the Minneapolis territory 156 exhibitors operating 170 theaters were investigated; 83 exhibitors operating 86 theaters were disclosed to have infringed. That is 53 per cent of the number of exhibits and 50 per cent of the number of theaters.

In Milwaukee part of the investigation was made in 1930 and part in 1931.

Might I make a correction for the record? While I stated that the figures I am giving you were for the years 1930 and 1931, the figures I just read were for the year 1930, so that the percentage is by years. And you will appreciate, Congressman, that we can not cover the whole of the United States at the same time.

We got into different territory; we got into Kansas City-this is 1930. In Kansas City 200 exhibitors operating 250 theaters were investigated. Fifty-five exhibitors operating 60 theaters, or 27 per

cent of the number of exhibitors and 24 per cent of the number of theaters were disclosed to have infringed.

Mr. GOODWIN. Does that investigation include the chain theaters? Mr. DIES. I am going to show some facts about the chain theaters, to which they are all connected, in a few minutes. I have the facts right here.

Mr. HESS. Let me say in that connection that many of these investigations are the result of complaints of competing exhibitors; a number of them are the result of complaints made by exhibitors generally; a number of them, a large number, are the result of complaints made by branch managers, and it is the perfectly natural thing to take up the investigation of direct complaints before general investigations are made.

For example, in the Pittsburgh territory, represented by Mr. Herrington who spoke here this morning, 124 exhibitors operating 150 theaters were investigated, of which 49 exhibitors and 63 theaters or 40 per cent of the exhibitors investigated and 42 per cent of the theaters investigated, were found to have infringed or shown pictures without authority.

In the Detroit territory, 103 exhibitors operating 140 theaters were investigated; 55 exhibitors in 72 theaters or 53 per cent of the number of exhibitors investigated and 51 per cent of the theaters, were shown to have used pictures without the authority or knowledge of the distributors.

In Buffalo 107 exhibitors operating 147 theaters were investigated, of which number 38 exhibitors and 40 theaters or 35 per cent of the number of the exhibitors investigated and 27 per cent of the number of theaters investigated, were disclosed to have infringed or used pictures without authority.

In the Cleveland territory 155 exhibitors operating 195 theaters were investigated; 49 exhibitors, operating 58 theaters, or 31 per cent of the total number of exhibitors investigated and 30 per cent of the number of theaters investigated, were found to have used pictures without the knowledge or authority of the distributors.

In the Indianapolis territory 189 exhibitors, operating 235 theaters, were investigated; 69 exhibitors, operating 84 theaters, or 36 per cent of the number of exhibitors investigated operating 35 per cent of the number of theaters investigated, were disclosed to have infringed or used pictures without the authority or the knowledge of the distributors.

In Omaha I can only have the number of exhibitors. I do not have the number of theaters; 150 exhibitors were investigated; 52 of them, or 34 per cent, were found to have been using pictures without the authority or knowledge of the distributors.

In St. Louis, in 1930, 150 exhibitors operating 182 theaters were investigated, of which number 37 exhibitors operating 46 theaters, or 24 per cent of the number of exhibitors and 25 per cent of the number of theaters investigated, were found to have used pictures without authority or knowledge of the distributors.

In Des Moines 140 exhibitors operating 175 theaters were investigated. The number disclosed to have used pictures without authority or knowledge of the distributors was 62 exhibitors or 44 per cent of the number investigated, and 68 theaters or 38 per cent of the number investigated.

Now, I would like to have the committee bear in mind that the periods of investigation, naturally, with a limited personnel, must be limited periods and we have found that in order to disclose convincing evidence of infringement we must make an investigation covering a period of three months. We do that, primarily for the reason that the casual, unauthorized use of a picture we can appreciate; we know that sometimes the weather, sometimes conditions over which the exhibitor has no control, will intervene and almost make it compelling for an exhibitor to hold over a picture or switch a picture from one house to another, and with that class of exhibitor we have no contact. We take the man who makes a practice of offending, the man who operates his theater five days a week and buys only four days' pictures-pictures for four days; who picks out the day of the week that he is going to use a picture for which he has not got a contract, and we find in a period of three months' investigation that on the Wednesday or the Thursday or the Friday, whichever day he picks out, his practice is repeated, and we can pick that out during that three months' period of investigation.

Mr. DIES. The thing that I have in mind is the tremendous concentration going on in the picture-show industry. I have a book here that is pretty authentic, by Laidler. Laidler made a careful investigation of that situation just recently, and I would like to read certain extracts from it to show you the extent to which the pictureshow industry is getting into the hands of the producers and a few gigantic combinations.

Mr. HESS. May I have the title of the book?

Mr. DIES. Yes; it is Concentration in American Industry by Laidler. If you care to hear some of the extracts from it, I will read

them.

Mr. HESS. Of course, I do not think it is relevant to the subject that we are talking about.

Mr. DIES. Except that it shows that the Fox theaters and Warner Bros. and other groups specified, Paramount, are exercising a virtual monopoly in the United States, and that they are extending their power to every portion of this country to the extent that they discriminate against the independent exhibitor, and if it continues he will be driven out of business. That is an important fact that confronts this country and the figures and facts that he gives here in this analysis are astounding to me. It just places your producers in a position of virtual monopoly in the United States and shows that there is an attempt to drive from the field the independent exhibitors. Now, with your organization operating as it is, in addition to the powers that you have by reason of your combination, what place is there left for the independent exhibitor in the American industry? Mr. HESS. Well, all I can say in reply to that is that I do not know the facts upon which that man bases his conclusions. You mentioned the Fox Co. as one of those that he alleges in that work. I believe it is common knowledge that within the last six months the Fox Co. has gradually disassociated itself from theater operations. From my own observation theater operation by producer or distributor organizations are not increasing but are decreasing, and as I explained to you this morning, the genesis of theater operations by

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the producer-distributor was the result of an economic condition, and I believe there are certain spots in the United States where, because of economic conditions, it is difficult for the small buyer of pictures to acquire the quality of product that he wants because of the competition not alone of the producer-owned theater but of the larger, independent theater in the market for pictures, which to-day in number or in the number per year being produced, are lessened not exactly in number but in their use.

There has developed in the last six or eight months or a year, because of economic conditions, a condition that is spreading throughout the country, where the exhibitors, instead of showing one picture are showing one feature picture or are showing two, with the result that they are all clamoring for production in order to show pictures, to show two pictures. That condition came about as a result of another economic condition. A man on one corner operating a theater finds his business dropping off. Having followed the policy of showing one picture, he concludes that if he shows two feature pictures he will be able to draw a larger patronage, and he adopts the policy of showing two feature pictures, and immediately he must go out on the market and buy more feature pictures. His opponent down the street, seeing the crowds or the patronage that he must draw on going to the theater where they are getting twice as much for the money that he is offering, adopts the same policy and that starts the vicious circle, and the smaller neighborhood houses, starting double features, surviving and meeting conditions, are observed by the next larger houses in competition with them, and they adopt a doublefeature policy, with the result that there are situations in the city of Chicago, for example, I am told, where the contracted supply of pictures is almost exhausted because practically the whole city of Chicago, with few exceptions, has gone on the double-feature basis. It is an economic condition that you can not control.

Mr. MYERS. And triple features.

Mr. HESS. Some of them are triple features. Congressmen, you mentioned this morning about the chain or circuit. There is an independently owned circuit operating in your own territory. Simply because it has the buying power for, say, 40 theaters, it is enabled, by having built itself up to the point where it has developed its business, to buy pictures for all of its theaters, and in localities where its theaters are in opposition to an independently owned theater, the independently owned theater-that is, not independently owned, but a single-owned theater-that man is hardly in a position, economically, to compete.

Mr. DIES. He just can't do it.

Mr. HESS. He just can't do it.

Mr. DIES. But here is the objection now: After they have formed that local chain, here comes the big corporation and says, “Now, we are governing certain localities," and it does not stop with your own particular locality; unless this chain affiliates with the national chain it is driven out of business. That is where there is no end to the process of concentration.

Mr. CHAIRMAN. Now, let me come down to the heart of the situation. Are you in favor of some legislation that will protect these exhibitors on that third-day proposition in a way that you want to be just-I know your group does not want to harm these people

is there any solution you would suggest that would protect this innocent infringer against the wilful one, for whom we have no regard?

Mr. HESS. Mr. Chairman, let me say in response to that question, the records I have disclosed to you are very strong evidence, in my judgment, of the fairness of our operations. I believe, in all sincerity, based on my knowledge of the conditions we have investigated, that unless there is a deterrent-now, you stated this morning as one of the principles that your committee is standing for, one of the broad principles, the right of the copyright owner to license his copyright.

The CHAIRMAN. That is right.

Mr. HESS. Now, if we are given a right of copyright, and we are given the right to license from the time of the Statute of Anne, the first copyright act-there has always been provision made in every act in England and in this country and in all the copyright acts of the world, that there is in addition to the right to license the right of protection.

The CHAIRMAN. That is right.

Mr. HESS. Now, you take the case of the exhibitor who is paying $50 a day rental for his picture and the penalty has been suggested here one makes the suggestion of $5 a day-that exhibitor knows that if he only has to contract for four days when he needs five days, he is saving $50. He also knows that the industry can not afford to have a policeman at his door to watch every one of his pictures. He also knows that the industry has an investigating medium, this copyright bureau. He says to himself: "Well, when they catch me all I will have to pay is what I would ordinarily have to pay if I had contracted for the pictures, and as they can not have somebody here watching me 365 days in the year, I can save at least $50 per week on my film rentals." Now, the exhibitor that is across the street from that man, running in opposition, paying his film rental for every day that he is open, it is unfair to him, it is unfair to the distributor to take out of the playing-time market that extra day, where all the exhibitors are competing for that time, taking out that revenue which he has unjustly enriched himself with.

The CHAIRMAN. Pardon me. If I have the opinion of these exhibitors, they have no objection to penalizing that time. Is that right?

Mr. HESS. Yes; they have.

The CHAIRMAN. Have you, gentlemen?

Mr. HESS. Yes; they want it reduced to $5.

The CHAIRMAN. You do not want any protection whatsoever for that group I am talking about now?

Mr. MYERS. No, sir; but we certainly do not want to concede the principle of constitutional law.

The CHAIRMAN. You are arguing on the principle or contention that this thing should be adjudicated in court on the basis of contract?

Mr. MYERS. Exactly.

The CHAIRMAN. And you believe that Congress has no right or power or jurisdiction to give the right of statutory damages on this basis?