Compass Lexecon’s Publisher and Single-Copy Magazine Distributor Clients Prevail in Suit brought by Wholesaler

Court Grants Summary Judgment for Defendants in Antitrust Case Alleging Predatory Conduct

Single-copy magazine wholesaler Anderson News claimed that a group of magazine publishers and national distributors conspired to put Anderson out of business. Anderson was in financial distress and demanded higher prices from publishers and that the publishers bear Anderson’s inventory costs. If the publishers did not agree to Anderson’s terms, Anderson threatened to stop distributing their magazines to retailers. No major publishers agreed to Anderson’s terms. Anderson shut down its business and filed suit claiming that competition for shelf space at major retail accounts controlled by Anderson should have led the publishers to accept Anderson’s terms. According to Anderson, the publishers’ refusal to accept Anderson’s terms was not in the publishers’ unilateral interests and was the result of a conspiracy.

The Defendant publishers and national distributors hired Professor Janusz Ordover and Compass Lexecon to analyze Anderson’s claims. Professor Ordover found it was in the publishers’ unilateral interests to stop using Anderson and to switch to other wholesalers in response to Anderson’s large price increase. Moreover, Plaintiffs’ claim that competition for retail shelf space did not properly take into account the retailers incentives to fill their shelves and the publishers’ ability to bear a short-term disruption in order to avoid Anderson’s higher prices when other wholesalers had not demanded higher prices from publishers. In fact, publishers had unilaterally defeated earlier attempts to raise prices and publishers not asserted to have conspired against Anderson also rejected Anderson’s last attempt to raise prices and shift inventory costs.

Judge Crotty found that the Defendants all refused to accept Anderson’s demands, but the publishers’ parallel conduct did not evidence conspiracy to eliminate Anderson. Relying on Professor Ordover, the Court found that Defendants “wanted more, rather than fewer, wholesalers in the market, because more wholesalers meant more competition.” Moreover, Anderson’s proposal “offered nothing for the publishers and distributors, other than higher per-magazine charges and higher inventory costs,” and wholesalers in competition with Anderson “offered better terms.” Thus, rather than being motivated by conspiracy, a “far more plausible explanation for Defendants’ conduct is that each Defendant was independently unwilling to accept the Anderson proposal, because acceptance would result in a substantial increase in costs.”

Compass Lexecon’s clients were American Media, Inc., Bauer Publishing Co. L.P., Curtis Circulation Company, Distribution Services Company, Inc., Hearst Communications, Inc., Kable Distribution Services, Inc., Rodale, Inc., Time Inc., and Time/Warner Retail Sales and Marketing, Inc. Compass Lexecon worked with David Keyko of Pillsbury Winthrop Shaw Pittman LLP, Barry Brett of Troutman Sanders LLP, George Gordon of Dechert LLP, Kristen Hauser and Eva Saketkoo of Hearst Corporation, I. Michael Bayda of McElroy, Deutsch, Mulvaney & Carpenter LLP, John Hadlock of Rosenberg & Estis, P.C., and Rowan Wilson of Cravath, Swaine & Moore LLP.

Professor Ordover was supported by a team at Compass Lexecon’s Boston office led by Dr. Steven Peterson and also included Andrew Lemon, David Molin and many others.