WASHINGTON (CN) - Federal News Service, which specializes in providing transcripts of news events involving the federal government, claims that Congressional Quarterly is trying to destroy it.
Other defendants in the federal antitrust complaint include Times Publishing Company of St. Petersburg, Fla., which publishes the St. Petersburg Times, and the Poynter Institute for Media Studies.
Federal News Service was founded in 1985 in Washington. Its clients include news media and aggregators, federal government agencies, foreign embassies, lobbying firms and law firms. FNS produces and sells its own transcripts of such government-related events as congressional hearings, administration speeches, statements and press conferences, briefings by the White House and Departments of State, Defense, Justice and Homeland Security, and political interviews on morning and weekend TV news shows.
According to the complaint, in 1995 the Federal Trade Commission investigated the fast-turnaround transcript business and negotiated consent agreements with FNS and Reuters America regarding their alleged anticompetitive agreement to allocate news transcript customers and fix prices.
As a result of that agreement, the FTC stated, "FNS became the sole supplier of news transcripts."
That year, the Federal Document Clearing House e-Media (FDCH) - founded in 1992 by defendants Stephen Carr Davis and Anthony O'Brien and two other partners - acquired Reuters America.
In November 2004 CQ acquired FDCH and created a subsidiary, CQ Transcriptions, to manage FDCH assets. Although a separate and distinct legal entity, CQ Transcriptions board members include Davis and O'Brien, along with defendant Robert Merry, CQ president and CEO. FDCH's transcriptions services became defendant Morningside Partners LLC, which exclusively produces transcripts for CQ Transcriptions, which through CQ markets the transcripts to customers.
The FNS alleges that sometime in 2004 the defendants conspired to create and enact a plan to destroy or weaken FNS, their sole surviving competitor. In November of that year FNS owner Cheryl Reagan, who had acquired an interest in FNS in January 2001 and 100 percent ownership in February 2002, filed for personal bankruptcy.
In a 2003 report on alternet.org, reporters Russell Mokhiber and Robert Weissman describe Reagan as a "fundamentalist Christian millionaire ... who last year wrested control of Federal News Service, a transcription news service, from its former owner, Cortes Randell. Randell says he met Reagan at a prayer meeting, brought her in as an investor in Federal News Service, and then she forced him out of his own company."
In 2003 the Bush administration awarded Reagan's Grace Digital Media, "dedicated to transmitting the evidence of God's presence in the world today," the contract to produce Arabic-language news broadcasts to be aired primarily in Iraq.
According to the complaint, in a Nov. 11, 2005 letter to Reagan's personal bankruptcy counsel, defendant Merry formally proposed acquiring FNS assets, including its client contracts for the purchase of government proceedings transcripts, its client contracts for Russia and Israel, and its client contracts for its domestic monitoring business. CQ allegedly monitored and actively participated in Reagan's bankruptcy proceedings through 2008.
FNS claims the defendants' tactics included corporate espionage, in the person of Elizabeth Pennell, an FDCH employee hired as a consultant by FNS in 2003, who became a full-time employee in 2004. It claims the defendants paid her to steal FNS confidential business information, including its client list. FNS claims the defendants also engaged in cybertheft of online transcript and wire service databases via improper acquisition of user names and passwords belonging to such news organizations as Newsday, the Chicago Tribune and the Wall Street Journal; misappropriation and resale of FNS trademarked, time-sensitive transcripts; misrepresenting CQ as the only provider of fast-turnaround verbatim transcripts, resulting in at least 25 sole-source awards from government agencies; bundling sales of transcripts with other CQ proprietary products; and predatory hiring of FNS employees.
After FTC antitrust lawyers contacted CQ in the spring of 2006 to assess CQ's interest in acquiring FNS, CQ withdrew its offer to purchase FNS, but made a formal bid to acquire it from Reagan's bankruptcy estate through a letter of intent dated March 10, 2008 for $2.6 million. Through the due diligence process, the letter sought to obtain competitively sensitive data that could have been used to harm FNS even further, according to the complaint.
At a March 26, 2008 lunch at the Cosmos Club in Washington, defendant Merry allegedly tried to bribe FNS' then-CEO with $10,000, then $50,000, to allow Merry to proceed with due diligence that day. On May 16, 2008, the bankruptcy court approved the sale of FNS to CQ subject to competing bids. A superior bid was forthcoming, and FNS was sold to FNS Acquisition Corp.
FNS seeks injunctive relief, actual and treble damages, unspecified and punitive damages, restitution and disgorgement. It is represented by Robert W. Doyle Jr. with Doyle, Barlow & Mazard.
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