News Corporation’s attempt to derail a class action alleging an illegal monopoly over in-store consumer goods promotions has been denied by a federal judge.
Paving the way for a trial or settlement, Southern District Judge William Pauley rejected the company’s motions for summary judgment in a suit filed by H.J. Heinz Co., Smithfield Foods, and other non-retailer consumer packaged goods firms.
The firms sued in 2013, charging that News Corp., News America Marketing In-Store Services and other subsidiaries maintain a stranglehold on in-store promotions such as shelf signage, coupon distribution, end-of-aisle advertising and sampling products at some 52,000 retail stores across America.
Pauley certified the class action of Dial Corporation v. News Corp., 13-cv-6802, in June 2015, finding issue of common proof prevailed among retailers which purchased in-store promotions known as ISPs directly from News Corp. starting April 8, 2008 (NYLJ, June 22, 2015).
The plaintiff consumer packaged goods firms (CPGs) alleged violations of sections one and two of the Sherman Act, section three of the Clayton Act, New York’s Donnelly Act and Michigan’s Antitrust Reform Act. They charged that the anticompetitive conduct included exclusive agreements maintained for in-store promotions, the “staggered” expiration date of those agreements and the guarantees that News Corp. pays for access to retail stores.
During the damages period recognized by Pauley, News Corp. locked up exclusive deals with 73 percent of participating retail stores and more than 80 percent of retail grocer volume under exclusive contract.
In News Corp.’s summary judgment motion, and in the plaintiffs’ response, the two sides differed over how long the exclusive contracts were in place and at what pace the contracts expired.
The judge noted that by 2014, “News Corp.’s only remaining competitor, Valassis, lost its key contracts and exited the third-party ISP business.”
On the “staggering” of contract expiration, the plaintiffs quoted former News America Marketing CEO Martin Garofalo, who said, “News America intentionally staggers the time of major retail deals to minimize the risk of losing a major number of stores in any short time period. … [T]his strategy serves as a deterrent to other major companies from joining the in-store fray.”
Reviewing the guarantees to retailers, the judge noted plaintiffs’ evidence that “News Corp. pays retailers fixed commissions that ‘guarantee revenue even if the activity does not support it’,” and “those commissions increased dramatically when Valassis entered the third-party ISP market.”
In fact, he noted, after Valassis gave up and left the market, “Within months, News Corp. was able to re-sign the retailers it lost to Valassis.”
The judge rejected the main argument made by News Corp. and denied summary judgment under section one of the Sherman Act.
“News Corp. contends that its exclusive contracts are pro-competitive because CPGs benefit from retail exclusivity,” Pauley said. “However, on the current record, this court cannot conclude as a matter of law that the pro-competitive benefits of the exclusive contracts are outweighed by the harm to competition.”
The judge went on analyze the allegations of monopolization under section two of the Sherman Act, agreeing on the plaintiffs’ contention that the third-party ISP market is distinct one, and that News Corp. had a 90.5 percent of that market by 2009.
“While News Corp.’s share of the third-party ISP market dropped to its lowest level—79.4 percent—in 2013, its market share today has rebounded,” he said. “This court can infer the existence of monopoly power from a predominant share of the market.”
The judge said the exclusive contracts with retailers raised a fact: “whether News Corp.’s conduct excluded competition in an effort to acquire and maintain monopoly power.”
The judge also cited other conduct alleged by the plaintiffs—that News Corp. hacked into the computer systems of competitor Floorgraphics, defaced Floorgraphics products and then used the photos in sales pitches to retailers—and it hired a former Valassis employee as a “black knight” to peel away retailer Win Dixie from Valassis.
News Corp. also had argued that the plaintiffs could not prove injury or damages, but the judge said that was a question for the jury.
“Indeed, whether some, all or none of News Corp.’s conduct is anticompetitive is precisely the question of fact that a jury will decide,” Pauley said. “And it will be plaintiffs’ burden to demonstrate to the jury that the requested damages flow from the conduct the jury finds anticompetitive.”
Lead plaintiffs’ counsel are James Southwick, partner at Susman Godfrey in Houston,Texas and Steven Benz, partner at Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, D.C.
News Corp. is represented by Kenneth Gallo, Jane O’Brien and William Michael, partners at Paul, Weiss, Rifkind, Wharton & Garrison.