Antitrust Law Daily Wrap Up, ANTITRUST NEWS: News Corp. alleged to have monopolized in-store advertising and coupon booklet markets, (Nov 11, 2013)

By Tobias J. Gillett, J.D., LL.M.

News Corporation engaged in a variety of anticompetitive conduct to maintain a monopoly over the market for in-store advertising and promotions (ISPs) in the U.S. and leveraged that monopoly to acquire a dominant position in the market for free-standing inserts (FSIs) sent to consumers, a competitor has alleged in a complaint filed in the federal district court in Detroit (Valassis Communications, Inc. v. News Corp., filed November 8, 2013).

Valassis Communications, Inc. and News Corporation (through its subsidiaries News America Marketing Group, News America Marketing FSI, Inc., and News America Marketing In-Store Services, Inc.) compete in the markets for ISPs, products placed in the aisles of retail stores that advertise consumer goods, and FSIs, booklets of coupons for consumer goods delivered to consumers’ homes, in the U. S. and regional sub-markets. ISP providers contract with retailers for access to their aisle space, and consumer packaged goods manufacturers (CPGs) contract with the providers for access to the retailers’ aisles and for the creation and placement of ISP products.

According to the complaint, “News monopolizes the ISP market.” CPGs are reluctant to contract with an ISP provider unless the provider has a national reach and established contracts with retailers, and providers cannot effectively compete with News unless they have a “critical mass” of major national retail grocery chains. News allegedly possesses 83 percent, 84 percent, and 61.2 percent of all the commodity volume of grocery, drug, and dollar stores, respectively.

The complaint alleges that News employs a variety of tactics to prevent its ISP competitors from gaining access to retailers or obtaining a sufficient network of retailers. These include offering “predatory and economically unjustified” payments to retailers to prevent them from awarding contracts to Valassis and other competitors; payments that allegedly cause News’ costs for placement in those stores to exceed its revenues from the sale of the placements to CPGs; forming long-term, exclusive contracts with retailers that have staggered expiration dates; presenting a significant obstacle to competitors in obtaining a network of retailers; and requiring retailers to enter into agreements under which News has the first right to contract with the retailer to sell newly developed ISP products.

News also uses a variety of strategies targeted at CPGs to accomplish the same goals, including requiring CPGs to enter into exclusive long-term contracts to place the CPGs’ ISPs in retailers’ aisles; refusing to lower the ISP price it charges to CPGs when a retailer leaves its network, making it economically unviable for a CPG to also purchase ISPs for placement within a retailer network of News’ competitors; requiring CPGs to give News a right of first refusal obligating them to offer News a new contract when the CPG’s contract expires, often preventing CPGs from putting their business out for bid; requiring CPGs to purchase all or virtually all of their ISPs from News; and increasing the ISP prices it charges to CPGs that buy FSIs from Valassis.

News also employs “a variety of tricks and misrepresentations designed to mislead CPGs and retailers into believing that Valassis’ ISPs are of inferior quality, or that Valassis is unable to effectively implement CPGs’ ISP programs.” These include continuing to place its ISPs at retailers even after it loses a contract to a competitor; removing Valassis’ ISPs from retailers that have contracts with Valassis; and falsely representing that certain stores were part of its network when they were not.

The complaint alleges that News leveraged its monopoly over the ISP market to acquire a dominant position in the FSI market. According to the complaint, Valassis and News are the only FSI providers in the U. S., and had approximately equal percent shares of the FSI market until News began leveraging its ISP monopoly in 2000. News now controls 65 percent of the FSI market.

News allegedly employed a range of tactics to maintain its dominant position in the FSI market. It threatened CPGs that it will raise the prices they pay for News’ ISP products if they purchase FSIs from Valassis; required FSI customers to enter into long-term, exclusive right of first refusal contracts that, in some cases, also require them to purchase virtually all of their FSIs from News; and imposed increased ISP charges if CPGs refuse to enter into such contracts.

News also allegedly improperly threatened to sue Valassis if it responded to proposal requests from companies seeking to purchase FSIs, ISPs, or other products from Valassis. News’ conduct allegedly harmed retailers by reducing their choice and coercing them to contract with News; harmed CPGs by reducing their choice, increasing their ISP costs, and diminishing the value of Valassis’ ISPs to them; and harmed consumers by reducing the output of FSI and ISP coupons, thus causing them to pay higher prices than would prevail in a competitive market.

The complaint notes that a July 23, 2009, Michigan jury decision found that News had engaged in unfair competition and tortiously interfered with Valassis by leveraging its control over the ISP market to coerce CPGs into purchasing FSIs from News rather than Valassis. The jury awarded Valassis $300 million in damages. Before a federal trial challenging News’ conduct under the federal antitrust laws, News agreed to pay Valassis $500 million and sign a 10-year shared mail distribution agreement with Valassis to settle the claims.

The complaint asserts claims for monopolization of the ISP market; predatory pricing in the ISP market; monopolization of the FSI market; exclusive dealing in the ISP market; exclusive dealing in the FSI market; bundling in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act; tying in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act; violation of the Michigan Antitrust Reform Act; violation of California’s Cartwright Act; violation of California’s Unfair Trade Practices Act; unfair competition; tortious interference with contracts; and tortious interference with business relationships or expectancies.

The complaint seeks a declaration that News’ conduct violated the relevant laws, a permanent injunction against News’ conduct, actual and treble damages, costs of suit, attorneys’ fees, interest, and any other just and proper relief.

The case is No. 2:13-cv-14654-RHC-LJM.

Attorneys: A. Michael Palizzi (Miller, Canfield, Paddock & Stone, PLC) and David S. Mendelson (The Mendelson Law Firm, PC) for Valassis Communications, Inc.

Companies: News Corp.; News America Marketing

News: Antitrust MichiganNews