Friday, August 7, 2009

A Recap of Valassis v. News America Marketing


There was extensive media coverage of the $300 million jury verdict in favor of Valassis against News America Marketing, and BNET's Jim Edwards has provided detailed reporting on the trial testimony. Nonetheless, I thought a more detailed recap might be useful.

Valassis' Files $1.5 m. Complaint in January 2006 - Valassis originally filed its complaint against News America in federal court January 18, 2006. See 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 "created and implemented a scheme to obtain 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." For example, Valassis alleged that News America entered into long-term exclusive contracts with retailers, offering large guaranteed minimum payments to large retailers. Valassis asserted that News America threatened price increases on in-store ads if consumer packaged goods manufacturers ("CPGs") did not purchase their FSIs from News America. Valassis alleged that its damages exceeded $1.5 billion, and that the harm to the competitive marketplace and the consumer "is of equal or greater magnitude."

Valassis' Causes of Action - Valassis alleged violations of the federal antitrust laws for unlawful tying, attempted monopolization, and predatory pricing. Valassis also alleged state law tortious interference, and violations of state unfair competition laws under the laws of California, Connecticut, Nebraska, North Carolina, South Carolina, Utah, and Washington. A motion to dismiss was granted in September 2006, after which Valassis filed an Amended Complaint asserting the same causes of action. News answered the federal claims, but successfully moved to dismiss the state law claims. The Court held that the state claims "would substantially predominate over the federal claims and . . . would pose too great a threat of juror confusion."

State Court Claims - Valassis subsequently filed a state court case against News America in Michigan making similar allegations under Michigan law. Valassis amended the state court complaint on August 7, 2008, narrowing its claims in order to "separate and disengage the federal antitrust claims . . . from the claims pending in this court so that the claims are independent and not overlapping in legal theory or in the elements of the claims or defenses." Valassis sought to litigate the federal antitrust claims, for which it seeks treble damages, in federal court, while addressing the tort claims in state court. In the amended Michigan state court complaint, Valassis only alleged claims for unfair competition and tortious interference, and sought $915 million in damages. Valassis also filed suit in California Superior Court under California state law, alleging violations of the Cartwright Act, the Unfair Competition Law, and the Unfair Practices Act.

Floorgraphics Trial and Settlement - On March 3, 2009, a lawsuit brought by News America's in-store advertising competitor – Floorgraphics, Inc – went to trial. Floorgraphics originated in-store floor advertising, and also competed against News America for in-store coupon, shelf, and cart advertisements. Floorgraphics introduced evidence that News America explicitly threatened to "destroy" Floorgraphics, and tried to carry through on the threat through a variety of anticompetitive tactics, including making false disparaging statements to CPGs and retailers, making uneconomic payments to retailers to gain exclusive contracts, and even infiltrating a password-protected computer system to gain sensitive information. On March 10, 2009, in mid-trial, the case ended in settlement, and News America acquired Floorgraphics' remaining retailer contracts.

Valassis Trial - On May 27, 2009, the Valassis v. News America trial began. Valassis started its opening statement by asking:

"What happens when a powerful corporation crosses the line from fair to unfair competition? What happens when a corporation improperly interferes with the legitimate business interests of a competitor?"

Valassis and News America called numerous witnesses, including many witnesses whose testimony was introduced through deposition transcripts and videos. Among the highlights of the testimony referenced in prior posts and on BNET:

  • News America's CEO Paul Carlucci admitted showing a film clip to sales staff from the movie The Untouchables, and admitted to using several mafia references. A video clip was played at trial of Mr. Carlucci telling employees that News had pushed "Valassis to what we call the brink of utter desperation," and that "Mr. Murdoch was saying now you have to really go after them."
  • A News America executive admitted to bundling in-store advertising with FSIs, inflating prices to CPGs for in-store advertising if they did not also purchase FSIs from News America. A video clip was played of the sales executive describing "the game plan whereby we would use the in-store products to drive FSI volume and the FSI to drive in-store depending on which particular client."
  • News America executive Marty Garofalo, in a video clip of a sales summit that was played at trial, stated that News America intentionally sought out long-term exclusive contracts with retailers: "Our strategy is to secure long-term retail deals . . . . For instance, our current deal at Kroger is for seven years. Ahold agreement currently stands at eight years and we recently signed Safeway last year to a 10-year deal."
  • Several CPG representatives testified to being upset with the bundled pricing.
  • A former News America employee, Robert Emmel, testified that News America engaged in a campaign to target retail accounts to take away from Floorgraphics, and overpaid for exclusive contracts with retailers. He also testified that they made false disparaging statements about in-store competitors Floorgraphics and Insignia.

$300 Million Verdict - After two months of trial testimony, the eight member jury deliberated for one day, and on July 23, reached a unanimous verdict, awarding $300 million to Valassis, and finding that News had committed tortious interference and unfair competition. The verdict was reported as the largest in Michigan history, and the fifth largest nationwide so far in 2009. News America immediately promised to appeal, while Valassis stated that it was pleased with the result and pointed out that the federal antitrust case could result in treble damages if Valassis prevails.

Remaining Cases – News America still faces the federal case brought by Valassis. Summary judgment motions remain pending, and News America recently requested the opportunity to submit supplemental briefs to the court on summary judgment issues in light of the verdict and recent case law. Valassis' California case also remains pending.

In addition, there is a pending federal lawsuit brought against News America by Insignia Systems making similar allegations. Scott Drill, Insignia Systems' CEO, recently remarked that the Valassis verdict "bodes well" for Insignia. Given the evidence that came out against News at the Valassis and Floorgraphics trials, I have to agree.

Related posts.

 

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


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