The Man Who Made the Movies

by Vanda Krefft

  At times, tears streamed down his face.

  Was he shouting? He realized he was. “I am sorry that I raised my voice. I am sorry if I spoke too loud. But you gentlemen must understand that I have been all the way through this thing, and must know how I feel about the results.”

  Or did they even want to hear all this? “I am not here to press the story, unless you really want to hear it,” he emphasized. “If you want the truth, I will give it to you.” Encouraged to continue without restrictions, he said, “You have been very nice and very sweet about it, all of you.” As difficult as it was, he really did want to tell the story again: “If I were to die tomorrow, I would feel that my job on earth is completed provided I have finished my testimony before you.”

  If Fox thought he was no longer quite so angry as before, he found out differently on the first day of his testimony. Harley Clarke was in the room. He, too, had been called to appear. Several times, Fox glared at Clarke, who sat only a few feet away. When the noon recess was called and Fox started to leave the witness chair, Clarke approached him and, in a low voice, said he wanted to correct Fox on certain points. Fox shouted back, “You gave me the greatest runaround any man ever got and I’m going to read every damned word into the record.”

  Fox’s testimony made front-page headlines nationwide. The senators thanked him for his appearance. But nothing changed. The story was old and the story was over. And Fox had already started to move on.

  CHAPTER 49

  Nobody

  If the dream is not to prove possible of fulfillment, we might as well become stark realists, become once more class-conscious, and struggle as individuals or classes against one another.

  —JAMES TRUSLOW ADAMS, THE EPIC OF AMERICA, 1932

  Following the public’s indifferent response to Upton Sinclair Presents William Fox and his 1933 Senate testimony, Fox’s desire intensified to regain a leadership position in the motion picture industry. No, he would not run a studio again. That would be too painful. Instead, he intended to control the movies through his Tri-Ergon sound-on-film patents.

  It was an oddly amnesiac ambition. The same William Fox who in the early 1910s had led the fight against the Motion Picture Patents Company as an attempted industry monopoly now wanted to create his own patents-based monopoly. With grandiose visions of hundreds of millions of dollars, Fox intended to issue licenses and charge royalties to everyone who made or showed sound movies in the United States. Because no one made silents anymore, he would effectively determine who made movies and, by extension, what kind of movies they made. The former rebel who had helped knock down the gates of privilege now wanted to build them back up with himself on the inside.

  His hopes rested on two of his twenty-three Tri-Ergon patents. The first, for a flywheel mechanism used in almost all film projectors, had been issued by the U.S. Patent Office on May 21, 1929. The flywheel solved one of the major problems of motion picture sound reproduction, distortion, by ensuring that the thin, almost weightless filmstrip moved at a highly precise rate of speed over the projector’s sound head, where photographic fine lines were translated into sound. The second important Tri-Ergon patent, approved on September 29, 1931, was for the double-print process, which involved printing separate sound and picture negatives side-by-side on the same positive film. Each patent had a life span of seventeen years and afforded Fox the exclusive right to make, use, and sell the invention.

  Angry at the rest of the motion picture industry, which he believed had done nothing to help him retain control of Fox Film and Fox Theaters, Fox had turned on his former colleagues. In late November and early December 1931, he took out full-page trade publication ads announcing that all sound motion picture producers, exhibitors, and equipment manufacturers were infringing on his Tri-Ergon patents and thus liable to him for a share of their profits. If they didn’t pay, he would sue. (The only exceptions were the Fox companies, to which he had given free Tri-Ergon licenses.) Some in the industry believed Fox wouldn’t get anywhere. Others nervously remembered his fighting spirit. Nobody paid.

  He did sue, filing two lawsuits in different jurisdictions. First, in the federal court’s Eastern District of New York, he sued Paramount Publix for infringement of the Tri-Ergon double-print process. Paramount, however, was only the nominal defendant, representing all U.S. movie producers—because as Paramount’s fate went, so would theirs—and was neither conducting nor paying for the defense. No doubt much to Fox’s vengeful relish, those tasks fell to AT&T because its ERPI subdivision had indemnified all its licensed producers from such lawsuits.

  Fox’s second Tri-Ergon lawsuit, filed in federal court in the Middle District of Pennsylvania, went after all U.S. movie theater owners for infringement of his flywheel patent. This time the nominal defendants were Paramount’s Altoona Publix theater and the Paramount-owned Wilmer & Vincent theater chain, while the real defendant was RCA, which manufactured the two types of projectors used in those theaters. (By this point, former combatants AT&T and RCA had cross-licensed each other under their patents.)

  To date, film history has interpreted the court decisions in both Tri-Ergon cases as honest legal opinions. Newly accessible information indicates that they were anything but. In all likelihood, Fox bought the outcomes he wanted.

  More is known about the Pennsylvania case. Its location in Altoona was curious. “That’s where our investigators found machines that were infringing the patent we had,” Fox said. It was a weak explanation. Arguably, if he had to go all the way to Altoona, Pennsylvania, to find a problem, then he didn’t really have a problem. A much better reason to go to Altoona was that it was located in one of the most corrupt federal judicial districts in the country.

  The kingpin of the justice-selling racket there was Judge J. Warren Davis, the ruling force on the Third Circuit Court of Appeals, which covered the entire state of Pennsylvania. The federal court system is divided into three tiers: the district courts, where trials take place; the appeals courts, where unhappy litigants go to protest unfavorable trial court decisions; and finally, the U.S. Supreme Court. Because the Supreme Court approves very few petitions for review and because the process tends to be lengthy and expensive, an appeals court decision often functions as the last word on a case. With decisions made by a panel of three judges, never a jury, and with a two-thirds majority sufficient to carry the day, appeals courts depend heavily on the integrity of each member. Although one of the best-educated judges on the federal bench—a graduate of Bucknell University, Crozer Theological Seminary, and the University of Pennsylvania Law School, with additional studies in history and philosophy at the University of Chicago and the University of Leipzig—Davis was a compulsive gambler with a predilection for making bad bets in the stock market.

  Davis formed a court majority by exploiting the weaknesses of his colleague Judge Joseph Buffington. In his late seventies, appointed to the federal bench in 1892, Buffington had such poor eyesight and hearing that he rarely knew what was going on in court. He relied on Davis to tell him, and by his own admission, he usually voted the way Davis told him to vote.

  Fox was probably introduced into this corrupt circle by his friend Albert M. Greenfield, who had done business and socialized with Davis and Kaufman for years. In a September 15, 1927, letter to Greenfield, Davis wrote, “I cherish and reciprocate your good friendship.”

  By the time Fox decided to try to enforce the Tri-Ergon patents, Davis needed money desperately. He had lost heavily in the stock market crash and owed at least $100,000 to several banks. On a $12,000 annual salary, he couldn’t pay. In March 1932, when one bank tried to extract a $300-a-month commitment from him, he wrote back, “I wish that I could do this, but frankly, at this time I cannot do it. At this time it takes every cent that I can raise to pay interest and taxes, life insurance and to live.”

  Fox, of course, had money. Consequently, in October 1932, he filed his flywheel patent-infringement lawsuit in the Middle District of Pennsylvania. He didn’t p
ay Davis directly. Instead, he hired Scranton, Pennsylvania, lawyer Morgan S. Kaufman (whom Judge Davis used to solicit payments from litigants and covertly transfer the money to him) for $10,000, even though Kaufman was not a patent lawyer and was considered unqualified even to assist in patent litigation. Kaufman would do no work on the Tri-Ergon case, which was handled entirely by the New York City patent law firm Ward, Crosby & Neal.

  Davis and Kaufman’s first task for Fox was to arrange matters in district court, the entry level for all federal cases. In the Middle District of Pennsylvania, Davis had a long-standing collusive relationship with district court judge Albert W. Johnson, who ran his Lewisburg, Pennsylvania, courtroom as a moneymaking enterprise.* Fox’s Tri-Ergon case was assigned to Johnson.

  When the trial began in late September 1933, neither the facts nor the law mattered, only the money. Although defense lawyers for Altoona Publix and Wilmer & Vincent protested—with considerable evidence—that the Tri-Ergon flywheel was old news, anticipated by many prior patents and inventions, Fox won a sweeping victory. In his November 24, 1933, opinion, Johnson rejected every one of the defendants’ thirteen proposed conclusions of law, affirmed all thirty-eight of Tri-Ergon’s proposed conclusions of law, and ordered the defendants to account for and pay American Tri-Ergon all profits received from the infringement. When Altoona Publix and Wilmer & Vincent appealed to the Davis-controlled Third Circuit Court of Appeals, the outcome was likewise a foregone conclusion. That opinion, signed on June 13, 1934, by the nearly blind and deaf Judge Buffington to cover for Davis, affirmed the lower court decision and patted Judge Johnson on the back for his “able and comprehensive” understanding of the case.

  Several years later, Fox would be questioned about corruption in the Pennsylvania Tri-Ergon case. Federal investigators asked, “Was there any loan or anything made there?” Fox replied, “I really don’t know. I think you had best let me come back after a little lunch.” The investigators did not follow up on the question.

  Fox’s conduct in the Pennsylvania case casts clouds of suspicion over the New York case, which began slightly earlier but which was never thoroughly investigated. In the Pennsylvania case, Fox had gone after exhibitors via his Tri-Ergon flywheel patent used in almost all sound projectors. In the New York case, he targeted movie producers by asserting his Tri-Ergon double-print patent rights.

  New York proved more difficult. At the district court level, in the Eastern District of New York, with AT&T conducting the defense on behalf of nominal defendant Paramount Publix, Fox lost. On August 14, 1933, district court judge Marcus B. Campbell invalidated Fox’s double-print patent on the grounds that it made no new contribution to motion pictures. Fortunately for Fox, at the next level up, the Second Circuit Court of Appeals was dominated by Judge Martin T. Manton, who, according to the FBI, shared several crooked connections with Judge J. Warren Davis. One of them was Davis’s bribe collector, Morgan S. Kaufman, who evidently fixed dishonest deals for Manton as well.

  Although there is no proof that Fox bribed Manton on the Tri-Ergon double-print patent appeal, it’s highly unlikely that money didn’t change hands. Fox and Manton had known each other since the mid-1910s, when both moved in Tammany Hall circles; Manton was then a lawyer in service to the political machine. The outcome was consistent with a bribe. On June 4, 1934, nine days before the Davis court issued its favorable ruling in Pennsylvania, Manton’s court overturned the trial court decision and found that Fox’s double-print patent was valid, with Paramount Publix liable for damages.

  The two appeals court decisions were not necessarily bad legal decisions. The Tri-Ergon patents did have strong claims to originality and indispensability. After all, Fox had triumphed in the very difficult process of patent approval, and a patent grant carried with it the presumption of validity. However, with both appeals court decisions almost certainly bought and paid for, Fox didn’t give them the opportunity to come out right. His conscience didn’t bother him. If he was buying justice, he believed, he was doing so because that was the only way to get justice.

  The rest of the motion picture industry was determined to stop Fox. Most producers and exhibitors were already on their knees financially as a result of the Depression and would not be able to absorb the pass-along costs from AT&T and RCA, which, because of their contract indemnification clauses, would have to pay the patent-infringement damages. With funding from AT&T and RCA, Paramount Publix, which had declared bankruptcy in 1933, petitioned the U.S. Supreme Court to review both Tri-Ergon appeals court decisions. On October 8, 1934, the Court denied the petition.

  “Film Boys in Jitters,” reported a New York Telegraph headline. The accompanying article described Fox as now “virtually the sole dictator of the picture industry,” who “can crack the whip over the producers at any time he cares to do so, and in any manner he chooses.”

  Fox was ecstatic. Some said he danced around his office when he heard the news. Nine days later, he sued six movie companies and soon had filed a total of thirty patent infringement lawsuits against all the major studios except Fox Film and against distributors, independent producers, and sound film laboratories. Reportedly, he planned to open a nationwide collection agency to gather Tri-Ergon royalties.

  That was a big mistake. Fox had not yet won conclusively. The law provided for a brief waiting period during which the aggrieved party could ask the Supreme Court to reconsider if there were some new good cause. Fox’s lawsuits gave Paramount Publix a new good cause. To write the petition for a rehearing, AT&T and RCA shrewdly hired former U.S. attorney general William D. Mitchell, whose office had filed the November 1929 antitrust lawsuit to stop the Fox-Loew’s merger. Mitchell contended that Fox was trying to “coerce substantially” the entire movie industry and that unless the Tri-Ergon patents were set aside, one person would completely dominate the field. In other words, the Tri-Ergon patents should be invalidated simply because they were so commercially valuable.

  On November 5, 1934, three days after Mitchell filed his petition, the Supreme Court reversed itself and, without explanation, agreed to review the Tri-Ergon cases. The action was highly unusual. The last time the Supreme Court had changed its mind like that had been in 1928, and the usual rule for patent cases was to grant a review only when there was a conflict in the lower court decisions. Fox was now prevented from pressing his lawsuits because the appeals courts’ decisions could no longer be considered final. An M-G-M executive sent Fox a telegram reading, “Hope you didn’t spend the money you didn’t get.”

  To prepare the Supreme Court brief and take part in the oral argument, Fox hired George Wharton Pepper, a former U.S. senator and University of Pennsylvania law professor. Pepper believed that the appeals courts’ decisions were correct and that the Tri-Ergon patents were technically valid and “highly meritorious.” However, when two days of arguments began in the Supreme Court on February 4, 1935, he knew instantly that he had lost. In his 1944 memoir Philadelphia Lawyer, Pepper wrote, “I have argued in some chilly atmospheres but this one was subzero. I felt as if I were addressing myself to nine penguins sitting on ice blocks. We never had a chance.”

  Did Chief Justice Charles Evans Hughes chat with his colleagues about his experiences with Fox as a client in late 1929? Could Hughes have overlooked Fox’s bitter, public criticisms of his former law firm, Hughes, Schurman & Dwight? Wouldn’t the high court justices have known about the notorious reputations of federal judges Davis and Manton, whose decisions they were reviewing? Was the Supreme Court perhaps assessing not what had happened but to whom it had happened and the way it had happened? There are no recorded answers to those questions.

  On March 4, 1935, the Supreme Court invalidated the Tri-Ergon patents. With Justice Louis Brandeis abstaining, the vote was unanimous. Hughes had voted against Fox. The opinions on the two cases, written by Justice Harlan F. Stone, found that the Tri-Ergon patents were based on “ancient mechanical devices” and lacked “novelty and invention.” Because the patents were
not valid, they had not been infringed, and Fox could not collect royalties.

  Fox’s youngest sister, Malvina, was with him when he learned of the ruling. In tears, he told her, “They’ve stolen my dream.” That was the way he would always interpret the event, as another great injustice done to him. In a last-ditch attempt, while not challenging the double-print patent decision, Fox asked the Supreme Court for a rehearing on the flywheel patent case. His application was denied. Now the war truly was over. The Tri-Ergon patents were worthless.

  Actually, Fox’s loss was not necessarily as great as he believed. Even if the Supreme Court had validated the Tri-Ergon patents, he might never have regained substantial power in the motion picture industry for three good reasons. First, Fox’s ownership of the Tri-Ergon patents had been challenged. In its 1932 lawsuit against him, Fox Film claimed that when he bought the Tri-Ergon patent rights in 1928, he could have done so only as an officer of the company acting on behalf of the company—and therefore, the Tri-Ergon rights belonged to the company. Second, neither the flywheel mechanism nor the double-print process was absolutely essential to sound-on-film technology. By early November 1934, RCA had started to substitute another device for the flywheel in its projectors. To replace the double-print process, AT&T’s Bell Laboratories had developed an alternate “vertical cut” method that Paramount and Columbia had already started using. Third, Supreme Court decision or not, many in the motion picture industry had no intention of paying Fox. Following his apparent victory in October 1934, one unnamed movie executive told the Los Angeles Times, “you can look for a struggle from now until doomsday.”