As he raced to assemble a major movie theater circuit, Fox had to contend with the quirky, curmudgeonly Thomas Edison, the so-called Wizard of Menlo Park.* Having perfected the Kinetograph motion picture camera in the summer of 1889, and having used that technology to develop a successful motion picture projector, Edison believed he had invented the modern motion picture. That, to his mind, entitled him to dictate all aspects of the movies’ commercial development—who would make them, what they should look like, and how and where they would be exhibited.
Edison’s claim was extravagant. Although he owned crucial camera and projector patents, a long list of other inventors had provided essential foundational work. Edison himself hadn’t even done the hands-on work on the Kinetograph: that task had fallen to his loyal assistant, William K. L. Dickson. Furthermore, at the time of its invention, Edison hadn’t particularly valued the Kinetograph.* After perfecting it in the summer of 1889, he waited two years to apply for a U.S. patent, and in his own words he “carelessly neglected” to patent it abroad. Nonetheless, Edison believed that his inventions were his inventions and that no one else had the right to run away with them. That, in general, was the Edison personality. Observed his good friend, Henry Ford, “He is always in control.”
At least, he tried to be in control. As Edison unhappily discovered, that wasn’t always possible. When profit-hungry entrepreneurs began to rush into the field after the first public exhibition of motion pictures on April 23, 1896, at Koster & Bial’s Music Hall at Thirty-Fourth Street and Broadway in New York City (now the site of Macy’s), his elegant scientific mind went slightly haywire. Not only did these philistines seem likely to ruin the reputation of his fine inventions, they were also benefiting richly from his hard work. While “the money end of the movies never hit me the hardest,” Edison always had to be sensitive to the financial demands of his career. As he later wrote, “The experiments of a laboratory consist mostly in finding that something won’t work.” Most inventions took him from five to seven years to complete. Some he never finished because he never solved their problems. And then there were the immense difficulties of marketing an innovation. “Society is never prepared to receive any invention. Every new thing is resisted,” he found. It had taken him more than seven years to persuade people to adopt the incandescent lightbulb, he said, and about thirteen years to properly introduce the phonograph.
Now, serendipitously, the public had embraced motion pictures. Why should others carry off the immense profits he needed to continue his important work for the benefit of all mankind?
Further to Edison’s annoyance was the fact that so many of the new motion picture businessmen were Jewish. Although he never became as venomously anti-Semitic as his friend Henry Ford, Edison didn’t like Jews. They were “strange to me in their isolation from all the rest of mankind,” he wrote, and they had made “terrible examples” of themselves by using “almost supernatural business instincts” to take “too great an advantage” of other people. In the motion picture industry, Edison later complained, after he personally had solved many early difficult technical problems, “Well . . . a lot of our enterprising Hebrew citizens jumped on board.”
He wouldn’t have it. Between 1897 and 1905, Edison filed some thirty-three federal patent infringement and copyright lawsuits against competitors, as much to frighten off potential rivals as to rebuke alleged offenders. His motives weren’t purely selfish. He genuinely wanted “his” motion picture inventions to contribute to the social good, and he believed in the pristine efficiency of monopoly. As he saw it, if he could limit the number of film manufacturers, renters (distributors), and exhibitors to a number that the marketplace could comfortably support, and if he could regulate all of them to ensure high-quality standards, then the whole industry would run like one of his marvelous mechanical inventions. Everyone would profit. All would work together harmoniously to improve products and services.
But Edison’s legal maneuvers didn’t necessarily deter the sort of adventurers who were drawn to the motion picture business. Back and forth the arguments went. Then, on March 6, 1907, the U.S. Court of Appeals ruled that all U.S. motion picture producers (with the lone exception of the American Mutoscope and Biograph Company, known as Biograph) were using equipment that infringed on the Edison Company’s patents. Thus, from now on, anyone who wanted to make, distribute, or exhibit motion pictures in the United States would have to get permission from either Edison or Biograph.
Sixty-year-old Edison then made a strategic mistake. After assigning all his motion picture patent rights to the Edison Manufacturing Company, he turned away from active management. He didn’t really like the movies. He considered them a waste of his valuable time and believed they were best suited for women and children, who, in his view, had limited intellectual capability. In order to return to work on his most beloved invention, the phonograph, Edison appointed William E. Gilmore, who had successfully managed Edison’s phonograph business, to handle motion picture licensing. An abrasive, imperious personality, Gilmore licensed seven other “manufacturers” (as movie producers were then called) in addition to Edison’s own filmmaking division—but refused to grant easier terms to Biograph. For the sake of convenience, Biograph had wanted to join the Edison group and believed that because of the March 1907 Court of Appeals decision, it shouldn’t have to pay royalties to Edison. Although evidence indicates that Edison might have agreed to that condition, Gilmore refused. Given no incentive to join the Edison group, Biograph licensed its own rival group of manufacturers. And so the war for control resumed. During the first half of 1908, Biograph and Edison hurled patent infringement lawsuits back and forth at each other and at each other’s renters and exhibitors.
Fox signed contracts with the Edison group, and by late May 1908 he had been sued twice by Biograph. Nonetheless, the situation was tolerable. Competition between Biograph and Edison kept prices down and caused both companies to enforce contract terms leniently. Fox’s theaters thrived and his Greater New York Film Rental Company earned healthy annual profits.
Unfortunately, the Edison-Biograph duopoly, relatively benign for film renters and exhibitors such as Fox, didn’t last. In July 1908, Edison fired Gilmore, not for incompetence but because of dishonesty. Gilmore owned a Newark printing business that had been grossly overcharging on its contract with the Edison companies. To replace Gilmore, Edison appointed Frank L. Dyer, the Edison Company’s general counsel. A gray company man, a patent lawyer from a family of patent lawyers, Dyer had less interest in achieving Edison’s stated goal for motion pictures (“a system of business in which everybody is satisfied, everybody making money . . . A square deal for everybody”) than in extracting every possible dollar from every possible source.
Disdainful of movie business entrepreneurs, regarding them as “not yet . . . thoroughly civilized,” Dyer immediately moved to establish a production monopoly. By the end of 1908, he had forged a peace treaty with Biograph, which agreed to pool its patents with those of the Edison group in the newly created Motion Picture Patents Company. With Dyer as president, the MPPC then licensed ten film manufacturers, including the Edison Company and Biograph, to make movies under those patents. Instead of each company marketing its movies competitively, all ten MPPC licensees would sell their movies exclusively to the MPPC, which would rent them out to distributors and exhibitors at a uniform price. For Fox and his peers, this arrangement was very bad news. They would no longer have any bargaining power to get the movies they needed. The ten licensed producers were standing together as a bloc, and because of the MPPC’s control of the patents, no one else in the country could legally make a movie. Film renters and theater owners would have to accept whatever terms the MPPC established.
Fox’s hopes for fairness evaporated in mid-January 1909, when he attended a meeting at New York City’s Hotel Imperial where an MPPC executive read the new contract aloud. It had all the charm of a slap in the face. Among the more stinging points: All rental exchanges and exhibitors would have to get re-licensed. Some in each group would get put out of business—an unfortunate move, but necessary to “conserve the interests of the better class.” Each exchange, and each of its branch offices, would have to order at least $2,500 worth of films per month. Films would have to be returned to the manufacturer within six months. The previous Edison group agreement had had a similar requirement, but it had never been enforced, so renters had been able to build up extensive libraries with which to supply theaters in newly opened territories.
Furthermore, because the MPPC controlled motion picture projector patents, every U.S. exhibitor would have to pay a two-dollar royalty fee per projector every week. The fee applied even for projectors purchased before the MPPC’s inception.
Film renters had to sign the new contract by January 20—only a few days away—or get cut off from film shipments. Exhibitors had until February 1.
Take it or leave it, MPPC officials shrugged. But remember, they counseled, leaving the MPPC would mean leaving the industry.
Fox and others stood up to protest the harshness of the terms. The MPPC refused to budge. Take it or leave it. They meant that.
Fox struggled mightily about what to do with his Greater New York rental exchange company. Because he was his own best customer, the decision to commit the company to an MPPC license would mean that he was also committing all his theaters. On January 20, 1909, the last possible day, he signed the new MPPC contract. He had no choice. The average illegally produced independent movie was so bad, he said, that “a man would simply ruin his business to try and exhibit it.”
Many other exhibitors and film renters, small-time entrepreneurs who wanted to sustain their dreams rather than fight a giant, also fell in line. License applications from both groups flooded the MPPC offices. By mid-March 1909, the MPPC had received applications from 4,800 of the country’s 10,000 theater owners, and would soon approve 120 film renters.
Beneath the appearance of compliance, resentment festered. The rank and file loathed the MPPC from the start and immediately began referring to it as “the Trust,” an epithet that rankled company leaders because of growing public outrage over huge business combinations. Particularly odious was the $2-a-week royalty fee that the MPPC demanded per film projector. Exhibitors fumed about the fact that after buying the projector at an average cost of $150, they now had to pay another $104 every year for the right to use it.
What did they get back for the $2? The MPPC had promised marketplace protection: licensed exhibitors were supposed to get movies that non-licensees couldn’t. As it turned out, many licensees soon found that their unlicensed competitors were offering the exact same movies, obtained from unlicensed rental agencies. Exhibitors knew that the MPPC knew about the violations because many of them wrote to the company, providing names, addresses, and dates. The MPPC took no action.
The MPPC had also pledged not to license any more theaters than a particular territory could support. To all appearances, though, it seemed to hand out a license to virtually anyone with $2 a week to spare. An exhibitor in Albia, Iowa, reported to Moving Picture World in January 1910 that in his town of only 4,500, the MPPC had licensed at least seven other theaters during the previous two years, and all of them had failed.
Better films, then? The MPPC had claimed that by eliminating “destructive” competition, it would free up resources to improve the quality of American motion pictures. In fact, the ten licensed manufacturers made very little creative progress. Senseless plots, bad acting, and sloppy camera work proliferated. With their market contractually sewn up, the MPPC’s member companies had no incentive to innovate. To the contrary, experimentation would have created a financial risk for very little potential reward. Further blocking advancement, the ten licensed manufacturers colluded to suppress costs: all agreed to pay no more than twenty-five dollars for a film script, causing many successful writers to decide that they couldn’t afford to work for the movies, and weekly salaries no greater than fifty dollars for directors and sixty dollars for performers.
Even the technical aspects of MPPC movies remained amateurish. “I wish to know why it is that the Lubin and Edison films are so shaky?” a Dothan, Alabama, exhibitor complained in a letter to Moving Picture World. “I dread to exhibit the films on this account. Some of them are so shaky that you can scarcely read anything on the screen.” Another licensed exhibitor received film with no sprocket holes, so that it wouldn’t go through the projector. A Hartford, Wisconsin, theater owner found his incoming film shipments “in an actual state of putrefaction. ‘Gee, what the h–kind of a game is this!’ I said to my partner.’ ”
No protection, mediocre if not execrable merchandise—still, the MPPC kept its hand out to exhibitors for the $2 per week. By July 1909, some six to seven thousand movie theaters nationwide* (out of an estimated eight to ten thousand) had been licensed. That generated $624,000 to $728,000 annually in projector royalty revenues alone for the MPPC. As far as many observers could see, the MPPC’s only expenditures were for office space, an office manager, a couple of stenographers, and the self-congratulatory circulars that the company mailed out regularly. One exhibitor seethed to a reporter, “As a collection agency I think the Motion Picture Patents Company is a grand success. It has the electric power companies beaten to a frazzle. Its one great aim is to get in the $2 per week, and it scores every time.”
In short order, many exhibitors became so enraged that they refused to fork over the $2. In early May 1909, the MPPC dumped the royalty collection responsibility on film rental agencies, including Fox’s Greater New York company, assuring them this was a favor that would allow them more flexibility in conducting their business. The renters weren’t fooled, only further annoyed because now they were the ones who had to confront the exhibitors’ fury. Like many other renters, Fox decided to bear the cost himself rather than antagonize his customers.
With the MPPC having largely abandoned its obligations, independent companies rushed in to exploit customer dissatisfaction. Chicago became the hub of this activity, with Carl Laemmle, future head of Universal Pictures, the most visible and vocal leader. A German immigrant whose previous career included farming in the Dakotas, clerking at a Chicago wholesale jewelry house, and managing a clothing store in Oshkosh, Wisconsin, Laemmle owned one of Chicago’s largest rental exchanges. In early 1909 he’d signed on as an MPPC licensee, but in April he quit to form an independent production company tauntingly named IMP (Independent Moving Pictures Company). Thanks to his and others’ efforts, by the end of 1909, the output of good, non-MPPC U.S.-made films had increased so much that many exhibitors began to believe they had a viable alternative.
The MPPC reacted with denial and escalating force. Preposterously, MPPC president Dyer insisted in an October 1909 issue of The Kinetogram, the Edison Company’s house organ, “There is a complete understanding between the manufacturers, exchanges and the exhibitors. The best of good-will and harmony prevails.” In case that didn’t fool anyone, and it didn’t, the MPPC also hired detectives, gave them guns and star-shaped badges, and sent them out to destroy unlicensed producers’ equipment, expose their film, and burn down sets. Many independent producers decamped to California, not only for the abundant sunshine, but also to elude MPPC enforcers.
Unable to stem independent film production, the MPPC declared war on film rental agency owners. As the middlemen between producers and exhibitors, they provided a conduit to market for unlicensed films. By early 1910, only a year after the licenses were granted, the MPPC had whittled its slate of film renters down from one hundred twenty to sixty-nine, largely by license cancellation. (Some agencies went broke.) To finish off the remaining sixty-nine, in February 1910 the MPPC created its own film rental subsidiary, the General Film Company (GFC), to distribute movies made by the ten MPPC production companies. Doing business from Manhattan, the GFC began to knock off its competition by buying out businesses or having the MPPC cancel more licenses.
By late summer 1911, out of the one hundred twenty rental agencies licensed in January 1909, only one other than the MPPC’s GFC remained anywhere in the United States: Fox’s Greater New York Film Rental Company, which had about five hundred exhibitor customers.
At first, Fox thought the GFC would tolerate him on the sidelines. Relatively small as it was, his company couldn’t cause much disturbance to the giant organization. The MPPC took a different view. Fox’s company might be small, but it was small in the way of a fly buzzing around in a machine, persistently throwing off the perfect working order. For instance, whenever a GFC branch manager tried to raise prices, customers commented that they could transfer their business to Fox’s company, which hadn’t raised its prices. The GFC manager always had to back down.
MPPC executives got out their flyswatters. In September 1911, they had Fox’s friend Percy L. Waters, the former owner of another successful New York City rental agency who had been one of the first to sell and who, in return, had been named the GFC’s general manager, invite Fox to his office at 200 Fifth Avenue for a cordial chat. The MPPC had kindly left Fox for last, Waters explained, but now it was time.
“Waters, look here, I no more want to sell this business than fly off the roof,” Fox snapped. Greater New York was relatively easy to run and was earning annual profits of $60,000 to $75,000.
Then, when Waters warned him that he might not get another chance, Fox understood. He didn’t really have a choice. And maybe it wouldn’t be so bad. He would still have his theaters. Waters called in his boss, GFC president Jeremiah J. Kennedy, to negotiate the price. Figuring Greater New York to be worth $600,000 to $750,000 based on annual earnings, but aware that the GFC had paid other agency owners “ridiculously low figures,” Fox asked for only $150,000.
Out of the question, barked Kennedy, a former efficiency engineer who had developed a reputation as a “two-fisted, hairy-chested boss.” The GFC would pay no more than $89,000 for Fox’s company—little more than a year’s earnings. “Mr. Kennedy, if that is the best that you can do, of course I don’t want to sell,” Fox said. Kennedy retorted, “If your license is cancelled, Fox, don’t blame me.”
That was foolish, Waters chided Fox when they went downstairs afterward for a drink in the building’s café. The GFC was a “great, big, gigantic wheel” and Fox merely a “small chip of wood” in its way. Waters warned, “Every time we meet you, we have got to run over you and crush you.”
They soon began trying, first by spreading rumors among New York City theater owners that Fox was about to lose his rental license. Fearing an interruption in service, many of his customers transferred their business to the GFC, which temporarily lowered its prices as an added incentive. When Fox managed to hold on, Kennedy fulfilled his threat and, on November 14, 1911, sent Fox a notice canceling his license, effective at 8:00 a.m. on Monday, December 4, 1911. Fox had allegedly violated his contract by allowing MPPC films to be shown in a Hoboken, New Jersey, brothel. Fox knew nothing about that. Upon investigation, it turned out that an employee of one of his customers who was supposed to be returning the reels to the agency had been bribed to divert them. Fox sent an employee to the GFC to explain. No one wanted to listen. The only subject available for discussion was the sale of his rental agency.
For the next two weeks, Fox attempted to negotiate a better price. Kennedy stonewalled, refusing to accept or return his phone calls. Finally, on Friday afternoon, December 1, only three days before his scheduled contract cancellation, the GFC’s “big chief” agreed to let Fox come to his office. Kennedy had previously offered $89,000. Now, he said, to help the deal along, he’d give Fox $90,000.
Fox tried to push the price up to $100,000. Kennedy refused. It was just plain meanness. The extra $10,000 would have meant nothing to either the GFC or its parent company, the MPPC. Fox gave up. He agreed to sell his rental agency to the GFC for $90,000, effective December 11, 1911.
Actually, Fox only appeared to give up. His conversation with Kennedy was a carefully planned trap.
As he was about to leave Kennedy’s office, Fox turned to mention one more point. If his license were to expire as scheduled on Monday, December 4, then all his customers would receive no films for that week because the GFC wouldn’t own the company until the following Monday. The customers would take their business elsewhere, quite possibly to the independents, and the GFC would end up having purchased “a pile of junk.”
“That is so, son.” Kennedy nodded. The next morning, Fox received a letter from the MPPC withdrawing his license cancellation. Soon, the rental agency sale contracts arrived.
Instead of signing, on December 7, Fox had his lawyer, Gustavus Rogers, phone Kennedy to tell him the deal was off. On December 8, Fox received another cancellation notice, this one effective at 8:00 a.m. on Christmas Day, 1911. No sale, no license.
Fox was quite happy to get that message. It was just the proof he needed.
On December 16, 1911, Fox’s Greater New York Rental Company sued the MPPC. The two-hundred-plus page complaint alleged that the MPPC had been formed to stifle and suppress competition among film producers and to drive all independent film rental agencies out of business, with the ultimate goal of monopolizing the motion picture industry. The lawsuit had an important ulterior motive: it provided a platform for Fox to urge the federal government to take action against the MPPC.
Again, Fox’s political connections served him well. To represent him, he hired two fierce legal lions, both Tammany Hall loyalists: Samuel Untermyer, a longtime antimonopoly crusader who would soon serve as counsel to a landmark U.S. House of Representatives subcommittee investigating the “money trust,”* and Alton B. Parker, a former judge and the Democratic Party’s unsuccessful 1904 presidential candidate. A highly theatrical presence inclined toward grandstanding, Untermyer wrangled an appearance in March 1912 before a U.S. congressional committee to testify against the MPPC. There, he described Fox as the “David” of small exhibitors—not exactly so, but useful for dramatic purposes—who was single-handedly fighting a brazen and ruthless giant. Untermyer also accompanied Fox and Gustavus Rogers to a meeting with U.S. Attorney General George W. Wickersham to lobby for antitrust prosecution. Expertly guided, Fox lodged his complaint against the MPPC.
Once again, Fox’s timing was most fortunate. The Justice Department, spurred by President Taft, had recently undertaken a flurry of high-profile antitrust prosecutions. Trust-busting had started in earnest under Taft’s predecessor, Theodore Roosevelt, and had accounted for a large measure of Roosevelt’s tremendous popularity. Although he’d been Roosevelt’s handpicked successor, Taft initially seemed like a pale imitation. “Takes Advice From Theodore,” some joked. Even Roosevelt was disappointed, writing to a friend in June 1910 that Taft seemed “a rather pitiful failure.”
Aware that he was in trouble with his public image and worried about the consequences for his 1912 reelection campaign, Taft fell back on antitrust as a crowd-pleasing issue. Here, sincerity meshed with expedience. Taft believed that the 1890 Sherman Antitrust Law was “one of the most important statutes ever passed in this country.” He once told his brother Henry, a partner in a leading Wall Street law firm, “Wall Street, as an aggregation, is the biggest ass that I have run across.”
Taft’s attorney general, George W. Wickersham, felt even more strongly about the subject. Regarding trade monopolies as “evil,” Wickersham insisted that the federal government had to intervene because “Only free men—not industrial slaves—can maintain free institutions.” Wickersham would ultimately file some eighty antitrust lawsuits, nearly doubling in Taft’s one presidential term the record of the two-term Roosevelt regime. Although privately Taft fretted that Wickersham had gotten carried away, publicly he supported him.
Still, the MPPC case couldn’t have been an easy sell for Fox. It didn’t fit the profile of the government’s other antitrust cases, which so far had focused on industries either essential to commercial development (railroads, steel, oil, aluminum, shipping, cash registers, lumber) or central to average daily life (meat, sugar, tobacco, bathtubs, shoes, coffee, watch cases, plumbing supplies, window glass). No one had to go to the movies, and the national economy wouldn’t fall apart without them.
Furthermore, the Justice Department in 1912 was in no shape to take on complicated new prosecutions. Even three years later, the department would have an annual budget of only about $10 million, and that money had to cover the salaries of all U.S. judges, attorneys, and marshals. The attorney general’s office had only about sixty staff lawyers, many of whom were young and inexperienced. Clerical functions suffered so badly that files were often left to rot in dark, dirty, overcrowded rooms where, according to a Justice Department investigator, “an electric searchlight is a necessary part of the equipment of one looking for documents.” Straining such meager resources were other imminent priorities. For example, on April 30, 1912, after years of investigation, the Justice Department would file one of its largest and most complex antitrust lawsuits, charging the International Harvester Company and its twenty-four subsidiaries, altogether a $140 million concern, with illegal restraint of trade.
Fox, however, knew how to get what he wanted against great odds. Essentially, he offered to do much of the government’s job for it, providing all the necessary information and outside resources. It was an irresistible proposition. In the spring of 1912, shortly after Fox’s meeting with Wickersham, the Justice Department began investigatory hearings that uncovered hundreds of cases of wrongdoing, and on August 16, it filed an antitrust suit against the MPPC, its member film producers, the General Film Company, and eleven company officers. According to the government’s petition, the MPPC had bullied its way into controlling 70 to 80 percent of the U.S. motion picture business and operated “to harass and oppress all persons engaged in the motion picture business who have not obeyed its mandate.” In short, the MPPC and the GFC constituted illegal monopolies and ought to be dissolved.
The filing of the antitrust lawsuit dealt a staggering blow to the MPPC. Massive legal fees, bad publicity, and potentially death loomed for the organization. Edison must have been furious. He detested the Sherman Antitrust Law, which he said had been written by men who “didn’t know pig iron from coffins,” and planned to write a one-page proposed replacement law.
Fox could hardly celebrate this important step forward. Elsewhere, disaster had struck.