Last week, Dial Corporation filed suit against News America
Marketing for monopolizing the market for in-store advertising and
free-standing inserts (“FSIs”) and engaging in unlawful tying in violation of
the antitrust laws.
In its Complaint, Dial alleges that News America violated
Sherman Act § 2 by engaging in “multifaceted and pervasive exclusionary
strategies . . . over twenty years . . . [that] suppressed competitive
promotion of a massive number of consumer goods in forty thousand retail
stores, and scores of newspapers nationwide, to acquire and maintain two
unlawful monopolies and earn large monopoly profits at the expense of its
purchasers.”
Dial alleges that News America “sought to build contract
barriers . . . to make it difficult for [competitors] to compete,” and engaged
in other exclusionary actions, including:
- Hacking into Floographics' computers to obtain customer lists and other marketing materials to solicit its accounts and lock them into News long-term and exclusive contracts;
- Staggering the terms of the exclusive contracts so that in any given year a News competitor would not have any substantial opportunity to expand its competitive retail distribution network;
- Enforcing aggressively contractual shelf exclusivity by removing competitors' services and telling customers that their promotions with competitors would not appear;
- Using large cash guarantees unjustified by potential in-store promotional revenues to derail competitor contracts with retailers, a practice expressly designed to exclude competitors from these chains;
- Disparaging and misrepresenting competitors' in-store advertising compliance rates, which are important to consumer packaged goods companies when they select a vendor;
- Disparaging competitors' financial capacity and ability to pay the retail chains for necessary access; and
- Defacing competitors' in-store advertisements and then disparaging the quality ofthe defaced promotions to the retail chains.
As detailed in earlier blog posts, between 2009 and 2011
News America Marketing paid over $650 million in settlements to three
competitors – $500 million to FSI competitor Valassis, $29.5 million to
in-store floor and shelf advertising competitor Floorgraphics, and $125 million
to in-store shelf advertising competitor Insignia Systems. Valassis had won a $300 million jury verdict
against News America, and also had a separate federal lawsuit pending at the
time of its $500 million settlement.
The evidence against News America was strong. Consistent with Dial’s allegations, the
evidence (described in earlier posts on this blog) included documents and
testimony showing, for example, that:
- News
America hacked into Floorgraphics password-protected computer accounts at
least eleven times and viewed competitively sensitive customer
information.
- 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." Several
CPG representatives testified to being upset
with the bundled pricing.
- 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." Mr.
Garofalo also stated that News America intentionally erected barriers to
entry by potential competitors, stating in the same video clip that “we
also staggered the deals to prevent a large percentage of our network from
being vulnerable at any specific point in time. . . . [T]his method . . .
means a competitor who wants to develop a critical mass for their network
would have to dedicate a lot of money over a considerable period of time
in order to break into the in-store game in any significant way.”
- 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.
Dial’s 32-page complaint details much of this alleged
misconduct, and provides other examples.
It is surprising that the Dial lawsuit was brought only on
behalf of Dial, and not as class action on behalf of all affected CPGs. Given the high litigation costs of a
monopolization lawsuit, the hundreds of potential class members, and the hundreds
of millions of dollars that could be at stake for CPGs, a class action seems to
be a more efficient vehicle for resolving the claims. As it currently stands, CPGs other than Dial
will not recover any of the alleged overcharges unless they file their own
separate lawsuit. On the other hand, if
a class action is filed, all CPGs could be represented in a class action that
would enable all affected CPGs to benefit from any recovery.
