Tuesday, December 4, 2007

Valassis’ $1.5 Billion Antitrust Suit Against News America Marketing Over FSIs


Valassis v. News America Marketing Upcoming Trial - Valassis Communications' $1.5 billion lawsuit against News America Marketing is scheduled to go to a jury in Michigan in 2008. According to News Corp's most recent quarterly report, an April 2007 scheduling order set the jury trial date for February 5, 2008, but it is expected that a new scheduling order will soon be entered delaying the trial date.

Valassis' complaint was originally filed on January 18, 2006, alleging that "the News Defendants have created and implemented a scheme to obtain and then exploit monopoly power in the in-store advertising and promotions market with the goal of utilizing that monopolistic power to gain an unfair advantage over Valassis in the FSI market." See Complaint, Valassis Communications, Inc. v. News America Inc., et al., No. 2:2006-cv-10240 (E.D. Mich. filed Jan. 18, 2006).

Valassis alleged that News America had enhanced its monopoly position in the in-store marketing industry by using anticompetitive methods to enter into exclusive contracts with key retailers. News America then coerced CPGs into signing long-term exclusive contracts for FSIs by threatening to increase the price of in-store advertisements if the CPGs did not purchase the FSIs.

Valassis asserted causes of action for attempted monopolization of the FSI market under Section 2 of the Sherman Act, predatory pricing of FSIs in violation of Section 2, and unlawful bundling of FSIs with in-store advertising in violation of Sections 1 and 3 of the Sherman Act, along with nine state law claims.

After a motion to dismiss was granted by the magistrate in September 2006, Valassis filed an Amended Complaint in October 2006 asserting the same causes of action. News answered the federal claims, but successfully moved to dismiss the state law claims. (Download Magistrate's Report; District Court Order). Valassis subsequently filed state court cases against News America in Michigan and California, where motions to dismiss have been denied.

Effects of News' Conduct - If Valassis' allegations are true, many players in the consumer goods market may be affected besides Valassis. Retailers have allegedly been receiving supra-competitive payments from News for in-store programs, but those payments may decrease substantially given News' alleged monopoly power over in-store marketing. CPGs have also allegedly benefited in the short term from News predatory pricing of FSIs, though News presumably would expect to increase FSI pricing over the long run after it takes greater market share from Valassis. Fortunately, perhaps, for retailers and CPGs, News entered into long-term contracts with retailers for in-store marketing and with CPGs for FSIs, delaying News' opportunity to implement its alleged monopolistic pricing plans.

Valassis reported that in 2006, for example, "FSI segment profit was $65.9 million in 2006 versus $96.2 million in 2005 due primarily to pricing." For the first 9 months of 2007, Valassis reported that FSI segment profit further declined to $19 million, compared to $50.9 million for the same period in 2006.

Similar Allegations Against News America - Other companies, such as Insignia POPS and FLOORgraphics, have made similar allegations against News America, as Fortune reported in its article News Corp's Trouble in Aisle Three. Valassis, however, has previously been accused of antitrust violations itself.

Related Post: News America Marketing's Bullying, and Insignia Systems' Lawsuit

Update: Valassis v. News America Marketing Lawsuit Over FSIs.

 

The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies


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