Antitrust Law Daily Wrap Up, ANTITRUST—S.D. N.Y.: Magazine wholesaler failed to show conspiracy in publishers’ rejection of its proposed price increase, (Aug 21, 2015)

By Linda O’Brien, J.D., LL.M.

A former magazine wholesaler was unable to show a concerted refusal to deal among several publishers and distributors in relation to their rejection of the wholesaler’s price increase and cost-shifting proposal, the federal district court in New York City has ruled (Anderson News, L.L.C. v. American Media, Inc., August 20, 2015, Crotty, P.).

Anderson News was a magazine wholesaler that provided delivery, shelving, and pickup services at retail locations to publishers and distributors. Beginning in 2005, retailers required wholesalers to implement scan-based trading (SBT), which allowed retailers to track magazines using bar codes that were electronically scanned during checkout. A major detriment of SBT to wholesalers was they bore the costs of buying the magazines from the publishers and were not compensated until the retailer recorded the sale.

After losing money and numerous unsuccessful attempts to increase its prices or shift certain costs onto publishers and distributors, Anderson announced in January 2009 a seven-cent surcharge and inventory cost-shift proposal. Under the proposal, Anderson would no longer accept single-copy magazines for distribution and would exit the business if the publishers and distributors did not acquiesce to the price increase and inventory expense transfer. Anderson also made an agreement with two major retailers that they would not shift their business to other wholesalers while the proposal was pending. However, most of the publishers and distributors rejected the proposal and chose to do business with other wholesalers that offered lowered prices.

Subsequently, Anderson chose to cease operations and filed suit against several publishers and distributors of single-copy magazines, alleging a concerted refusal to deal which forced the company out of business, in violation of Section 1 of the Sherman Act. The defendants moved for summary judgment.

The court found that Anderson failed to allege when the conspiracy began, and it was clear that some publishers rejected the proposal immediately upon hearing it from Anderson. Anderson’s proposal was designed for its own benefit and had no advantage for the publishers and distributors. The publishers knew that Anderson’s proposal was uneconomic and would increase their costs, the court found. Their rejection of the proposal before the alleged conspiracy commenced was strong evidence of independent action. Moreover, it was in the best interest of the publishers and distributors to keep Anderson in business, since Anderson owed them large sums of money when it ceased operations.

Anderson’s contention that a series of meetings and communications between various publishers and distributors inferred the existence of a conspiracy and caused Anderson’s demise was rejected. The court noted that Anderson conceded that many of the meetings and communications were legal, appropriate, and consistent with the defendants’ determination not to acquiesce to Anderson’s proposal. Each of the defendants acted in their own economic interest to reject the proposal, and their differing initial reactions did not support an inference of parallel business conduct.

Furthermore, Anderson presented no evidence to support the inference that the defendants had a common motive to force Anderson out of the news business. Anderson’s contention that the defendants sought to reduce the number of wholesalers so the remaining wholesalers could extract price concessions from retailers was rejected as speculative. The court noted that evidence suggested that the defendants wanted more, rather than fewer, wholesalers in the market to encourage competition for the publishers’ business.

Plus factors. Anderson’s contention that its expert would establish three “super-plus” factors in the case, which by themselves allowed a strong inference of collusion, was also rejected. In granting the defendants’ motion to exclude expert testimony, the court determined that Anderson offered no evidence that the term “super-plus” factors has been generally accepted by the scientific or academic communities or that its expert’s methodology was reliable.

The case is No. 1:09-cv-02227-PAC.

Attorneys: Constantine Z. Pamphilis (Kasowitz, Benson, Torres & Friedman, LLP) and Thomas Patrick Lynch (Lynch Rowin, LLP) for Anderson News, LLC. and Anderson Services, LLC. David George Keyko (Pillsbury Winthrop Shaw Pittman, LLP) for American Media, Inc. and Distribution Services, Inc. Barry J. Brett (Troutman Sanders LLP) for Bauer Publishing Company, LP. Joseph Francis Donley (Dechert, LLP) for Curtis Circulation Co. Eva Marie Saketkoo for Hachette Filipacchi Media, U.S., Inc.

Companies: Anderson News, LLC; Anderson Services, LLC; American Media, Inc.; Distribution Services, Inc.; Bauer Publishing Company, LP; Curtis Circulation Co.; Hachette Filipacchi Media, U.S., Inc.

Cases: Antitrust NewYorkNews