Thursday, July 9, 2009

News America Whistleblower Robert Emmel’s Testimony

In the ongoing trial between News America Marketing and Valassis, former News America whistleblower Robert Emmel appeared via video deposition to provide testimony against News America.

Emmel Video Deposition - According to Jim Edwards of BNET, Emmel testified that News America paid excessive amounts to retailers for exclusive in-store advertising rights in order to exclude competitors. News America paid Eckerd drug stores substantial guarantee payments because they wanted to exclude Insignia. News America allegedly lost money on the contract, as News America was unable to sell enough ads to cover the payments.

Similarly, News America allegedly overpaid for placement rights in Ahold stores. Mr. Emmel reportedly testified that he was told by News America President Dominick Porco that excluding Insignia and Floorgraphics was a key objective that justified the huge guarantee payments.

Mr. Emmel also testified that News America falsely claimed that Insignia and Floorgraphics failed to install the majority of the ads that they contracted to place, and that News falsely claimed a dedicated sales force in excess of 10,000.

Prior Emmel Testimony - Mr. Emmel made similar statements in the Floorgraphics trial. (Transcripts of that testimony are available here). During testimony on March 5, 2009, Mr. Emmel testified that News America provided a letter to a number of retailers and manufacturers ("CPGs") falsely claiming that Floorgraphics and Insignia had a poor compliance rate, and that the letter influenced retailers to do business with News America rather than Floorgraphics.

He also testified that News America ripped Floorgraphics ads to hurt Floorgraphics' image with retailers, and that News America sometimes removed Floorgraphics' ads from stores to hurt its compliance rate.

In News America's sales materials, the company claimed to have a field force of 10,000, but Emmel testified that he was told by News America personnel that it was closer to 3,500 or 4,000.

Some of the testimony provided by Emmel in the Floorgraphics trial was not reported by BNET as being repeated at the Valassis trial, probably because the focus in the Valassis trial is on FSIs and sales to manufacturers. For example, at the Floorgraphics trial, Emmel testified that he was assigned to certain accounts that were identified as "target accounts" by News America to take away from Floorgraphics as part of a project that News America dubbed "Operation Retailer Freedom." These included smaller retailers – dubbed tier 3 and tier 4 retailers. According to e-mails introduced at the trial, Emmel was instructed to make it a top priority.

This was a reversal of the policy in place before Floorgraphics began competing with News America. Emmel testified that in 1999, News America eliminated revenue share payments to smaller "tier 4" retailers. Jeff Jensen allegedly sent a letter to a large group of small retailers stating that News America no longer possessed their contracts in the file, and that unless they responded otherwise, their revenue share rates would be reduced to zero.

In late 1999, after News America started a floor ad program to compete with Floorgraphics' program, News America demanded that retailers including BI-LO accept a bundled bid for both floor and shelf advertising programs. When BI-LO refused, News America refused to continue providing shelf programs.

Mr. Emmel also testified about colorful language used by Paul Carlucci:

One vivid comment that I recall that he said to express
his displeasure on the call was that if there were individuals
that were concerned about doing the right thing, bed wetting
liberals in particular was the description that he used, then
he could arrange for those individuals to be out-placed from
the company.

Emmel testified that News America falsely announced that they had obtained contract rights for floor ads in Kroger Atlanta before they had actually obtained such rights, and that the goal of the announcement was to undermine Floorgraphics' efforts to obtain funding for its business.

Finally, Mr. Emmel testified that News America charged CPGs for ads in grocery stores that it did not have the right to place ads in. News America's store list included, for example, Fleming stores after News America lost the right to place ads in those stores, and included an inflated number of Winn Dixie stores when a significant number of Winn Dixie stores closed. CPGs were charged for advertisements that were to be placed in these stores, but the ads were never placed.

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