News Corp. Hacked Computers|in U.S. Ad Wars, Dial Soap Says

It continues: "Over the last several years the contracts have prevented News' only two significant competitors, Floorgraphics Inc. (now defunct) and Insignia Systems Inc., from building comparable networks. They have been confined to the niche provision of in-store services such as floor advertising (the late Floorgraphics' Floortalk) or shelf signs with brand price messaging (Insignia's POPSign).

"Internally, News has acknowledged that it has sought to build contract barriers to these competitors to make it difficult for them to compete.

"The exclusionary effectiveness and durability of these News contracts designed to defeat competitors' distribution of competitive services have been reinforced by seven additional exclusionary News actions, including:

"Hacking into Floorgraphics' 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; ... and

"Defacing competitors' in-store advertisements and then disparaging the quality of the defaced promotions to the retail chains."

The complaint describes the alleged hacking campaign: "From 2000 to 2003 there was a concerted effort at News to develop its brand price messaging product (Price Pop) to compete with the Insignia product (POPSign), as well as to develop its Floortalk product competing with that of Floor graphics.

"In the early part of 2003, News implemented 'Operation Retailer Freedom' to take away all Floorgraphics contracts by soliciting accounts on its customer lists. This program went on for several years. Valassis Tr. (6/17/09) 176:2-177:14. "Floorgraphics has alleged that News hacked into its password protected accounts at least eleven times in 2003 and 2004 to obtain its customer lists (and other marketing materials), which, if true, would facilitate this attack." [For Valassis, see below.]

Dial claims News Corp. illegally tied or bundled its dominance in the first market to dominate the insert market.

"News also used its in-store monopoly to monopolize the FSI [free-standing insert] coupon market," the complaint states. "It has offered consumer packaged goods companies large discounts in its monopoly in-store prices only if they purchased all their FSI coupons from News.

"This tying or bundling of the sale of products effectively suppresses competition from News' remaining competitor of any size, Valassis Communications Inc. Since Valassis generally did not compete in the in-store relevant market, News' deep, in-store discounting forced Valassis into an anticompetitive Hobson's choice. It could sell to a customer by pricing its FSI coupons at below cost (by matching News' in-store discounts as well as any discounts offered by News on FSI coupons). Or it could lose the account altogether to News. Whatever choice Valassis made, it was suppressed and weakened as a competitor.

"This Court prohibited such practices in an Order affirming the special master findings in the companion case Valassis Communications., Inc. v. News America Inc., No. 2:06-CV-I0240, 2011 W.L. 2420048 (E.D. Mich. 2011) (Tarnow, J.) (Docket No. 413) under the conditions set out therein."

Under the heading, "Injury to Competition," The complaint continues: "News' unlawful conduct has injured competition and enabled it to acquire and maintain market power in the two relevant markets for the sale of in-store promotion services and FSI coupons. News has used this market power to charge plaintiff and other consumer packaged goods companies monopoly prices for these service and coupons throughout the damage period (which commenced in early 2008). These monopoly prices are substantially above the competitive pricing in both relevant markets that would have prevailed in the absence of News' unlawful conduct.

"News' anticompetitive conduct occurring in the years before the commencement of

the damage (or limitation) period governing this action (in early 2008) violates the antitrust laws, as well as conduct occurring thereafter. Plaintiff may recover for acts violating the antitrust laws before the commencement of the damage if such acts contribute to price injury accruing within the damage period.

"Four News competitors in both relevant markets have already obtained hundreds of millions of dollars in lost profit as an antitrust remedy for News' violations of the sort alleged herein. Such recompense has been in the form of a judgment, or the settlement of litigation just before trial against News.

"On information and belief, the instant action is the first by a consumer packaged goods company seeking to obtain recompense for monopoly overcharging as a purchaser and not a competitor. For more than 100 years the United States Supreme Court has repeatedly recognized that direct purchasers, such as plaintiff, have a 'preferred position' under antitrust law over other litigants precisely because their injury - paying higher prices - is the direct, foreseeable, and anticipated product of efforts to monopolize a market."

The "relevant geographic market" is the United States.

Dial seeks treble damages for Sherman antitrust act violations, including monopolization, exclusive dealing, and illegal tying, and Michigan antitrust violations.

It is represented by Stephen Berry, of Berry Law, and by Justin Presant with Kellogg, Huber, Hansen, Todd, Evans & Figel, both of Washington, D.C.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit