Wednesday, March 11, 2009

Floorgraphics v. News America -- Case Ends in Settlement

News America agreed to a settlement with Floorgraphics, Inc., ending the trial before Floorgraphics had finished presenting its case.

Although I do not know the terms of the settlement, the timing – in the midst of trial after compelling testimony from Floorgraphics' first few witnesses -- suggests that it is for a substantial sum.

The fact that News America was forced to settle may bode well for the Insignia suit against News America, and to a lesser extent the Valassis case (whose allegations are less similar to Floorgraphics' allegations than those of Insignia).

Here's a short recap of the trial, with thanks to a reader for providing some of the details:

After short opening statements, Gary Henderson was the first witness. Mr. Henderson attended a meeting at which News America allegedly threatened to "destroy" Floorgraphics for competing in the in-store shelf and coupon advertising industry. Henderson was asked about News America illegally accessing Floorgraphics' computer system, and the fact that server logs showed that access to Floorgraphics' computers was initiated from News America's offices. Mr. Henderson testified that News America engaged in widespread disparagement of Floorgraphics, contradicting News America's arguments that the disparagement was isolated. Specifically, my source indicates that he testified that a letter from Dominic Porco of News America (which Floorgraphics alleged was false) was sent to all of News' customer contacts. The so-called "Porco letter" (available here, thanks to a blog reader), asserted that Floorgraphics compliance rate was less than 50%. In other words, News claimed that for every two ads that Floorgraphics contracted to install, it only installed one. (News America made similar assertions about Insignia, claiming in, e.g, this flyer, that Insignia's compliance rate was only 16%). By contrast, Floorgraphics maintained that its actual installation rate was typically over 90%.

The next witness was Bob Emmel, who testified that News America had engaged in a campaign to take retailers away from Floorgraphics using aggressive tactics. Emmel is a former employee of News America who did not like News America's tactics, and happened to have kept a copy of his electronic files from his company computer. His testimony and these files proved very useful to Floorgraphics. According to a source, his testimony provided "many new damaging evidence points," though the source also stated that his testimony was "very difficult to understand if you are not experienced in this business," as it included a lot of industry jargon.

The third witness was Floorgraphics executive George Rebh, who provided an overview of the rise and fall of Floorgraphics' business.

The settlement was announced and the case was dismissed on the morning of March 10. With resolution of Floorgraphics' claims, two major cases remain pending against News America Marketing: Insignia v. News, andValassis v. News (along with two related state court cases).

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