Monday, June 22, 2009

News America CEO Admits Making Mafia References -- Valassis v. News America Trial

BNET reported today that News America Marketing CEO Paul Carlucci's video deposition was played in the Valassis v. News America trial in Michigan state court, which included Valassis' efforts to portray Carlucci as a mob-like boss.

Carlucci admitted showing a scene from The Untouchables as a motivational tool at a sales meeting (previously described in a 2005 Forbes article), which Forbes and other sources suggest was the scene in which Al Capone kills a man at a sit-down black-tie dinner with a baseball bat. Carlucci also admitted to using several mafia references, such as "Capo di Tuto Capo," or boss of all bosses, and stating that "the mafia would refer to our General Sales managers as 'good earners.'"

But according to another source, Carlucci denied during the video testimony that the scene he showed was the baseball bat scene:

Question: It is accurate that you showed a clip from the film the Untouchables to a sales meeting?
Answer: That aspect is accurate.
Question: And it is the portion of the film in which Robert Deniro playing Al Capone gives a speech about baseball and then kills a man with a baseball bat?
Answer: I did not show that portion of the video clip.
Question: Which portion did you show?
Answer: I showed the speech that was based on -- and it was done, along with several other movie clips that were discussing attributes that we were presenting to the sales staff. I believe the Capone's speech had a title -- and it was-- it probably was in 1992 or 1993 or 1991 that had a title of loyalty. And it was shown just in jest as something of loyalty. We also showed films from Mary Poppins and we showed Daddy Long Legs with Fred Astaire dancing on the ceiling at the same -- at the same sales function, if my memory serves me correctly.
At the Floorgraphics trial, it was alleged that Carlucci made a threat to "destroy" Floorgraphics at a meeting with Floorgraphics executives in New York. In the video testimony, Carlucci reportedly denied making that threat.

But a knowledgeable (but unconfirmed) source informed me that Valassis is in a very strong position in their case, with the last several days of testimony going well for Valassis. He stated that the testimony from consumer packaged goods manufacturers ("CPGs") has been extensive and convincing.

He also told me that News America made strenuous objections to the introduction of testimony from Robert Emmel, including an accusation that some of the money that was being paid by Floorgraphics and Insignia for his attorneys fees was being paid directly to Mr. Emmel in return for his testimony. The Court rejected the argument, agreeing to admit the deposition testimony.

Related posts.

Revised June 29, 2009.

Thursday, June 18, 2009

Valassis Presents Evidence of Bundling by News America Marketing

Jim Edwards of BNET news has posted several stories about the ongoing Michigan state court trial between Valassis and News America.

According to Edwards' June 16 story, News America's VP of Business Operations Tom Leprine admitted that News America bundled its in-store adverting with FSIs, charging consumer packaged goods manufacturers ("CPGs") higher prices for in-store advertising (where News holds a virtual monopoly over coupon, shelf, and floor ads) if they did not purchase their free-standing inserts ("FSIs") from News America. Some CPGs, such as Nestle, complained about News' America's "punitive pricing." As reported in a June 17 follow-up story, Mr. Leprine admitted that a number of CPGs agreed to pay millions in increased in-store pricing because of the bundling policy, including, for example, Sara Lee, S.C. Johnson, Novartis, and Reckitt Benckiser. Other CPGs agreed to place all their ads with News America to avoid the price increases (to the detriment of Valassis), though at least a few other CPGs refused to agree to News America's rates.

A former Sara Lee employee testified that she requested a proposal on in-store advertising, but was instead presented with a joint FSI / in-store bid that News refused to change, as Edwards reported on June 12. Representatives from Pepsi and Heinz also reportedly complained about News' monopoly on in-store to force them to purchase FSIs from News.

In the June 17 story, Edwards reported that News America's attorneys played a video of a sales speech in which News America Marketing CEO Paul Carlucci said that News Corp CEO Rupert Murdoch encouraged News America Marketing to "really go after [Valassis]." Carlucci also asserted that Valassis' loss of market share was caused by its executives' unwillingness to cut prices to match News because the Valassis' executives stock options gave them an incentive to increase short-term profits. According to News America's attorneys, Valassis' loss in market share was caused in part by their decision to raise prices in 2002, reported Edwards on June 13, not anticompetitive bundling.

Edwards coverage is limited, making it hard to tell what the likely outcome will be. On the other hand, it appears to be the only coverage available because of a ban on cameras at the trial.

Friday, June 12, 2009

Transcripts from Floorgraphics v. News America Marketing Trial

Trial transcripts related to the Floorgraphics v. News America Marketing trial are now available, including testimony from the afternoon of March 4 (.pdf), the morning of March 5 (.pdf), and the afternoon of March 5 (.pdf).

In the lawsuit, Floorgraphics alleged that News America engaged in anticompetitive activities with the stated intention of destroying Floorgraphics' business. The trial ended in a settlement and News America's acquisition of Floorgraphics' retailer contracts. The testimony from the case could have a broader impact, however, as the allegations are similar to those made against News America by Insignia and Valassis.

March 4 Henderson P.M. Testimony - Floorgraphics first witness was Gary Henderson, a former employee of Floorgraphics who went to work for News America. Gary Henderson testified regarding a letter and chart (similar to this one) used by News America in claiming that its services were better than the services provided by competitors Floorgraphics and Insignia. Specifically, News America addressed compliance rates: When in-store advertisers agree to place a certain number of ads, compliance rates measure the number of ads that are actually in the store during the relevant time period, or advertising cycle. For example, if an in-store advertiser contracted to place 100 ads, and an auditor could only find 85 ads during an audit, the compliance rate would be 85%.

In the sales documents that News America shared with manufacturers, News claimed that it "consistently deliver[ed] average compliance rates of 90-95%." By contrast, News claimed that Floorgraphics' compliance rates were 49%, and Insignia's were 16%. Henderson admitted that News America made these claims even though they had not performed an audit of their own floor advertising program, instead assuming that their floor ad placement rates were similar to shelf and cart ads. A document introduced by Floorgraphics showed that the alleged compliance rate for Floorgraphics was based on an audit performed by News America Marketing (which may not have known which stores the ads were supposed to be in, making an audit potentially unreliable), and not a third party. It was further suggested that the audit did not comport with News America's own internal audit guidelines.

Henderson testified that the sales force was instructed to use the documents about compliance rates aggressively with all accounts, that they provided the documents to various manufacturers such as Tropicana and Kellogg's, and that the documents became a topic of interest among many clients. At the same time, Henderson admitted that News America had its own compliance problems and that "Floorgraphics could make a great case to customers" about News America's compliance problems.

Henderson was confronted with several documents suggesting that he shared confidential information with News America that he obtained while working at Floorgraphics. Henderson hired several sales representatives away from Floorgraphics to work with him at News America, and it was suggested that they also may have used confidential information against Floorgraphics.

I'll try to summarize the other transcripts in future posts.

Related posts.

Thursday, June 4, 2009

Whistleblower Emmel Seeks to Lift Bankruptcy Stay to Pursue Appeal of Injunction

Robert Emmel, a whistleblower who has previously testified against News America Marketing, has moved to lift a stay that is currently preventing him from pursuing an appeal of an injunction against him. The injunction bars him from sharing confidential News America information, and may prevent his participation as a live witness in lawsuits brought by Valassis and Insignia Systems against News America Marketing.

According to court filings, when Mr. Emmel was employed at News America Marketing, he learned that News America was engaged in anti-competitive activities, which he has subsequently sought to expose. After he was fired, Mr. Emmel sent documents to officials in Congress, testified about News America's activities in a lawsuit brought by Floorgraphics, and is a potential witness in lawsuits brought by Valassis and Insignia against News America.

Based on a non-disclosure agreement that Mr. Emmel signed after he was terminated by News America, a federal district court issued an injunction against him, finding that he had improperly disclosed confidential information when he sent it to officials in Congress. Mr. Emmel has filed a notice of his intention to appeal that ruling, but his recent bankruptcy filing caused an automatic stay of those proceedings.

Mr. Emmel has asked the bankruptcy court to lift the stay, which News America opposed in a filing yesterday. News America argues that "Emmel's desire to expend the limited assets of his bankrupt estate to challenge an injunction that merely requires him to comply with an agreement that he signed preventing his disclosure of News America's confidential information does not constitute 'cause' for lifting the automatic stay."

Exhibits to News America's filing include e-mails from Mr. Emmel to government officials, including a December 2006 e-mail to a Congressional staffer, expressing concern that "this Non-Disparagement document could . . . be strategically serving the purpose of News America to preclude my testimony to support the aforementioned charges."

Even if the stay were lifted, an appeal of the injunction would take many months to resolve, by which time the Valassis and Insignia trials will have already occurred.

Related posts.


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