Antitrust Law Daily Magazine wholesaler unable to pursue boycott claim against publishers
Tuesday, August 7, 2018

Magazine wholesaler unable to pursue boycott claim against publishers

By Robert B. Barnett Jr., J.D.

In an antitrust suit in which a magazine wholesaler, Anderson News, alleged that various magazine publishers conspired to boycott Anderson and drive it out of business, the U.S. Court of Appeals in New York City affirmed a lower court’s grant of summary judgment in favor of the publishers due to a lack of evidence that they engaged in any unlawful conspiracy. The Second Circuit concluded both that Anderson failed to offer sufficient evidence of an unlawful agreement and that the publishers lacked standing to pursue their counterclaims against Anderson for attempting to fix prices and boycott the publishers (Anderson News, LLC v. American Media, Inc., July 19, 2018, Carney, S.).

Industry background. Magazine wholesalers serve as middlemen between publishers and retailers in the single-copy magazine market, getting the magazines from publishers, delivering the magazines to retailers, and setting up in-store displays. Once a magazine is no longer current, the wholesalers retrieve and dispose of the unsold magazines. As for the economics, traditionally, publishers sell to wholesalers at a discount, who sell to retailers at less of a discount, who sell to consumers at the cover price. Publishers refund wholesalers for unsold magazines. In the early 2000s, however, the process changed to something called scan-based trading, with wholesalers selling to retailers on consignment, which alleviated wholesalers having to track unsold copies but which also meant that wholesalers were not paid until the copy was actually sold. In January 2009, Anderson News, a wholesaler with a 30% market share, decided to impose a surcharge on publishers of $0.07 per copy-delivered-to-retailers to shift some of the cost to publishers. Anderson’s announcement, not surprisingly, generated much conversation among publishers, distributors, and retailers. When publishers balked, Anderson implemented what was called a "going dark" strategy in which Anderson issued an ultimatum. A subsidiary of another wholesaler, The News Group, filed suit in Delaware federal court and obtained a temporary restraining order halting Anderson’s plan, at which point Anderson ceased doing business and declared bankruptcy.

Case background. Anderson then filed suit in New York federal district court against publishers including American Media Inc., Bauer, Rodale, Hachette, and Time and distributors including Time/Warner Retail Sales & Marketing, Curtis Circulation Company, and Kable Distribution Services, Inc. Anderson alleged a group boycott in violation of Section 1 of the Sherman Act, tortious interference with business relationships, and civil conspiracy. The district court, however, granted the publishers’ and distributors’ motion to dismiss, ruling that the complaint pursued an "implausible" theory that publishers would conspire to deny retailers access to their own products. The court also dismissed the state law claims in the absence of a valid antitrust violation. The Second Circuit vacated and remanded the trial court’s refusal to allow Anderson to file an amended complaint. Anderson then filed an amended complaint. Two years later, after significant discovery, the publishers and distributors filed a motion for summary judgment. At the same time, Anderson filed a motion for summary judgment on counterclaims filed by some of the publishers and distributors alleging that Anderson had engaged in a price fixing conspiracy in its last-ditch efforts to save itself by getting retailers to boycott certain publishers. The trial court granted summary judgment for the publishers and distributors, ruling that Anderson’s downfall was due to its own ill-conceived plans and not because of any conspiracy. Despite two years of discovery, the court noted, Anderson had not produced any direct evidence of a conspiracy. The court also granted summary judgment to Anderson on the counterclaim, ruling that the parties bringing the counterclaim lacked antitrust standing because they had suffered no antitrust injuries. Anderson appealed, and the other parties cross-appealed.

Sherman Act claim. To establish a valid conspiracy claim, Anderson would need to produce sufficient evidence that the various parties shared a "conscious commitment" to enter into an unlawful agreement, the court explained. Anderson’s evidence was that they all ceased doing business with Anderson at the same time. Their response was that they ceased doing with business with Anderson because they did not want to pay the surcharge. At this point, Anderson would be required to make a "threshold showing" that a reasonable jury could find that the publishers and distributors agreed together to enter an agreement rather than to make independent decisions.

The Second Circuit noted that courts cannot infer a conspiracy on ambiguous evidence, which would penalize perfectly legitimate conduct. Anderson must product evidence that tends to exclude the possibility of independent actions (Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 1986-1 Trade Cases ¶67,004). While Anderson’s theory that the unlawful agreement could financially benefit the co-conspirators was plausible, no evidence was ever produced demonstrating how that might happen. The evidence was just as likely to show that the co-conspirators would be harmed by reduced wholesaler competition. The court thus concluded that the alleged agreement was implausible.

Furthermore, the court found no credible evidence that an agreement actually existed. Parallel action by publishers is not evidence of a conspiracy. The court then concluded that sufficient evidence was never offered to allow a jury to infer that the conspiracy was a more-likely-than-not explanation for what happened. Looking at the communication among parties after Anderson announced its plan, the court concluded that the parties’ actions were at least equally consistent with legitimate, independent, and pro-competitive actions. Without more, the record was insufficient to withstand the scrutiny that the Supreme Court established in Matsushita, especially where the conspiracy makes little economic sense. The lower court’s decision was thus affirmed.

Counterclaim. The counterclaimers contended that they lost tens of millions of dollars when Anderson adopted its "going dark" strategy. Those alleged lost profits, however, did not flow from actions that made Anderson’s acts unlawful. Those injuries were in fact unrelated to the anticompetitive aspects of the two conspiracies alleged (price-fixing and group boycott). In other words, if the counterclaimers were damaged, they were damaged by Anderson’s individual conduct, not by the conspiracies that Anderson was alleged to have made in a last-ditch effort to save itself. The court also rejected their argument that the "going dark" strategy was in integral part of the later conspiracies.

The Second Circuit, therefore, affirmed the lower court’s judgment on both the Sherman Act claim and the counterclaim.

The case is No. 15-2714-cv(L), 15-2889-cv(XAP), 15-2894-cv(XAP), and 15-2903-cv(XAP).

Attorneys: Michael K. Kellogg (Kellogg Hansen Todd Figel & Frederick PLLC) and Seth Davis (Kasowitz Benson Torres LLP) for Anderson News, LLC. Thomas Patrick Lynch (Lynch Rowin LLP) for Lloyd T. Whitaker. David G. Keyko (Pillsbury Winthrop Shaw Pittman LLP) for Distribution Services, Inc. Daniel N. Anziska (Troutman Sanders LLP) for Bauer Publishing Co., LP. George G. Gordon (Dechert LLP) for Curtis Circulation Co. Jay A. Katz (McElroy, Deutsch, Mulvaney & Carpenter, LLP) for Kable Distribution Services, Inc.

Companies: Anderson News, LLC; Distribution Services, Inc.; Bauer Publishing Co., LP; Curtis Circulation Co.; Kable Distribution Services, Inc.

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