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From Antitrust Law Daily, February 22, 2019

Antitrust claims against in-store advertiser News Corporation go forward

By Nicole D. Prysby, J.D.

Antitrust claims based on exclusionary conduct go forward, while claims based on predatory pricing fail.

Antitrust claims against an in-store advertising and promotions company based on exclusionary conduct go forward, held a federal district court in New York City. The plaintiff produced sufficient evidence that the defendant’s long-term, staggered, exclusive contracts and preemptive renewals severely limited the number of retailer contracts that became available and caused large retailers to never become available, driving the plaintiff out of the market. The plaintiff’s claims based on predatory pricing fail. The standalone predatory pricing claim fails because the plaintiff did not show that the defendant’s retailer payments led to below-cost pricing. The court also rejected an argument that it should consider the retailer payments as one ingredient in a "monopoly broth" of misconduct and apply the rule of reason to the entire broth. Pricing or bidding practices that are above-cost cannot properly be considered an ingredient of a plaintiff’s monopoly broth claim. State law antitrust claims fail or go forward on the same basis as the federal claims and state law unfair competition and tortious interference claims go forward as well (Valassis Communications, Inc. v. News Corp., February 21, 2019, Castel, P.).

Background. Valassis Communications, Inc., filed suit against News Corporation (News) for allegedly maintaining a monopoly over the market for in-store advertising and promotions (ISPs) and leveraging that monopoly to acquire a dominant position in the market. News has been the dominant player in the market since 1997 and engaged in a variety of conduct that Valassis alleges was anticompetitive. This conduct includes entering into long-term contracts with retailers; staggering the expiration dates of those contracts; employing exclusivity provisions; employing "wind-down" provisions that allowed News’ presence at retailer stores to continue past the contract end date; employing autorenewal provisions; preemptively renewing contracts with retailers before the contracts expired; employing provisions that prohibited retailers from discussing potential contracts with News’ competitors; obtaining long-term, exclusive commitments from manufacturers and distributors of consumer packaged goods (CPGs); and increasing its guaranteed commissions to retailers to win contracts while Valassis was a market participant. Valassis entered the ISP market in 2010, but was unable to maintain a critical mass of retails and exited the market almost entirely in 2015.

Federal antitrust claims. Valassis asserted that News’ alleged anticompetitive conduct prevented Valassis from maintaining a critical mass of retailers. News argued that the Sherman Act and Clayton Act claims should fail because News did not engage in predatory pricing. The court agreed that Valassis failed to present sufficient evidence of predatory pricing, but determined that Valassis had demonstrated antitrust injury from other alleged anticompetitive conduct. Valassis’ standalone predatory pricing claim alleged that News engaged in predatory pricing by offering cash guarantees to retailers for access to the retailers’ aisle space, in order to prevent the retailers from awarding contracts to Valassis. This claim fails because a reasonable jury could not conclude that the payments were predatory, because Valassis did not show that the retailer payments led to below-cost pricing. Its expert did not identify the competitive price, and therefore it is unclear which retailer payments were actually predatory under his theory. Essentially, his test was too speculative, as it injects speculation and complexity into the price-cost test, requiring a competitor to predict what "competitive prices" would look like if a rival were to successfully enter the market before determining the lawfulness of a retailer payment. Using actual prices, the expert testified that with one exception (Kmart) he did not identify any retail contracts to be predatory before adjusting the prices downward. And even if the pricing for Kmart was below-cost, below-cost pricing for a single bid for a single contract is not sufficient to support a predatory bidding claim.

The court also rejected Valassis’ argument that it should consider the retailer payments as one ingredient in a "monopoly broth" of misconduct and apply the rule of reason to the entire broth regardless of whether the retailer payments comport with the price-cost test. While there may be synergistic effects for multiple forms of alleged anticompetitive conduct, the price-cost test applies even when pricing is not the predominant method of exclusion. When a pricing or bidding practice is lawful under the price-cost test, the evidence that the practice is anticompetitive is so "utterly lacking" that there can be no synergistic effect between the practice and other alleged anticompetitive conduct. Pricing or bidding practices that are above-cost, therefore, cannot properly be considered an ingredient of a plaintiff’s monopoly broth claim.

The court did conclude that Valassis presented sufficient evidence of antitrust injury with respect to exclusion from the ISP market. A jury could reasonably conclude that News’s contracting practices were a "substantial or materially contributing factor" in causing Valassis’ exit from the market because they prevented Valassis from obtaining a critical mass of retailers. Specifically, a reasonable fact-finder could conclude that the long-term, staggered, exclusive contracts, and preemptive renewals severely limited the number of retailer contracts that became available during Valassis’ tenure and caused large retailers to never become available. Based on the expert testimony, the jury could conclude that Valassis’ inability to attract CPG revenue materially contributed to its exit from the ISP market to the detriment of CPG customers, who were left with only one ISP provider. News argued that Valassis’ expert attributed all damages solely to News’ retailer payments, but the court rejected that argument. In the expert’s damages model, he used assumptions for length of contract and contract availability that took into account the effect of News’s exclusive, long-term, staggered retailer contracts, its autorenewal provisions, and its preemptive renewals. Therefore, the antitrust claims based on exclusion from the market go forward.

State law claims. State law antitrust claims under Michigan and California law succeed or fail for the same reasons as the federal antitrust claims. Michigan law unfair competition and tortious interference claims go forward over News’ objection that Valassis failed to calculate damages attributable to the state law claims, as Valassis was not obligated to produce that evidence at this stage.

This case is No. 1:17-cv-07378-PKC.

Attorneys: Vincent Gregory Levy (Holwell Shuster & Goldberg LLP) and David S. Mendelson (David S. Mendelson Association) for Valassis Communications, Inc. Jane Baek O'Brien (Paul, Weiss, Rifkind, Wharton & Garrison, LLP) for News Corp.

Companies: Valassis Communications, Inc.; News Corp.

MainStory: TopStory Antitrust NewYorkNews

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