The opinion of the court was delivered by: BAUMAN
This is an action by thirty independent home delivery dealers
of The Daily News and the Sunday News against New York News, Inc. ("The News"), the publisher of those newspapers, and various of its employees and franchise dealers for treble damages and injunctive relief under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26. The request for relief is based upon alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; Section 3 of the Clayton Act, 15 U.S.C. § 14; and Sections 2(a), 2(c), 2(d), 2(e) and 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (c), (d), (e) and (f). At issue is the effort of The News to change its home delivery system from one employing independent route dealers to one utilizing carrier boys operating in conjunction with "franchised dealers."
In order to understand the exact nature of the alleged antitrust violations set forth in the complaint, it is necessary to describe in some detail the parties to this action and their relationships with each other.
The News is a New York corporation engaged in the business of publishing and distributing the "Daily News" and "Sunday News", newspapers published in New York City and generally distributed in the New York metropolitan area and, to a lesser extent, in the United States and foreign countries. At the time of this lawsuit, its circulation was approximately 2,000,000 papers daily and 3,000,000 on Sunday, the largest of any newspaper in the United States.
The News concedes, as well it might, that it is engaged in interstate commerce within the meaning of the Sherman and Clayton Acts. It is undisputed that it carries local, state, national and international news, including sports, nationally known columnists, comics and other syndicated features. Its enormous advertising content includes the messages of industrial giants from every corner of the United States.
The remaining defendants are either present or former News employees or present or former franchise dealers.
The plaintiffs are, or were, independent route dealers dealing in a number of newspapers, periodicals and special interest publications. In general, they purchase these items from wholesalers and resell them to home delivery subscribers in defined territories.
Because each confines his activities to his own territory, the routes have become more or less valuable and salable.
Prior to 1965, The News was home delivered exclusively by such route dealers. However, owing to circumstances to be related, The News became dissatisfied with its growth of home delivery circulation and decided to test a new distribution system in certain areas of the suburban metropolitan area, principally in Nassau and Suffolk Counties, using carrier boys who would buy their papers from franchised dealers. At the same time, it continued to deal with many of the route dealers in the time honored way. For this reason, the plaintiffs in this action fall into four separate categories.
(1) Route dealers to whom The News terminated sales on or after January 10, 1966;
(2) Route dealers who continue to receive copies of The News and who operate in areas in which the franchise system has not been instituted;
(3) Route dealers who continue to receive copies of The News and who operate in areas in which the franchise system has been instituted;
(4) One route dealer who acquired his route from a terminated route dealer and who never sought to purchase from The News.
The application of the legal theories advanced by the plaintiffs vary with respect to each of these categories and this difference will be noted as each of the theories is discussed.
In the early 1960's, The News' circulation in New York City began to decline largely because of the fall off in sales of its evening edition which eventuated from the increasing popularity of television and the decreasing number of retail outlets remaining open in the evening. At the same time, the suburban explosion was creating a burgeoning market for newspaper sales which coincided with a similar shift of commercial enterprises from the city to the suburbs and their evolution as prime advertising markets. Since the bulk of The News' revenues comes from advertising, its appetite for its share was, quite naturally, whetted.
To this end, it attempted to compete with regional and local newspapers for circulation and advertising by publishing a number of suburban or zone sections, each of which was and is distributed as part of The News in a specific geographic area. These suburban sections, which carry area news, also carry local advertising at lower rates than are charged for the full run of the paper.
However, under the route dealer system, The News' campaign was something less than successful. While the population of Nassau and Suffolk Counties rose by approximately 350,000 between 1960 and 1966 (Defendants' Exhibit 7), The News' home delivered circulation in that area increased by only 2,383 copies (Defendants Exhibit F). At the same time, Newsday's home delivered circulation increased dramatically as did that of the Long Island Press.
The News decided that its failure resulted from the disinterest of route dealers and hired Jack Underwood to develop a new distribution system.
In 1965 he instituted a pilot franchise dealer program in an area of Nassau County not then being serviced by a route dealer. This was so successful that it became the model for The News' new distribution system which was then expanded into certain parts of New York City and almost throughout Long Island. The franchise dealers who participated in the program were signed to contracts, the relevant provisions of which are:
(1) that The News agrees to assign an exclusive territory to the dealer;
(2) that the dealer agrees to purchase all newspapers required by home delivery customers at prices fixed by the The News and supervise the delivery of them "at no more than the regularly assigned home delivery price";
(3) that the dealer agrees not to sell or distribute copies of any other newspaper, or any advertising material not authorized by The News;
(4) that the dealer agrees not to charge any carrier boy engaged in making deliveries and collections more than the price established therefor by The News;
(5) that the dealer does not have the right to return unsold copies of The News;
(6) that The News may terminate the agreement without advance notice if the dealer breaches any of its provisions, but that the dealer must give sixty days' notice in writing; and
(7) that the dealer "is and shall remain an independent contractor and not an employee or agent of The News."
In late 1965 and early 1966, a number of the plaintiffs were contacted by letter or telephone and offered the opportunity to become franchise dealers.
Those who responded were told that if they did not agree to adhere to all of the provisions of the franchise agreement their supplies of The News would be cut off. None of them was willing to bow to its restrictive terms and, within time, each was notified by letter or otherwise that The News would no longer deal with him.
In all, sixteen plaintiffs were cut off.
In the meantime, The News continued to recruit franchise dealers who were subsidized to help them through the early organizational phase of their operation and were charged less for The News than the route dealers who had not been terminated.
The eliminated route dealers attempted to buy copies of the paper from local newsdealers, but, with rare exception, found no one in Nassau or Suffolk willing to cooperate with them. As a result, they were forced to travel great distances and pay close to cover price to obtain its early editions. However, when franchise dealers complained that they were still facing competition from the "cut off" route dealers, defendants O'Sullivan and Cantanzaro directed them to ascertain the sources of the route dealers' supplies and promised that they would be eliminated. This precipitated a relentless campaign by the franchise dealers to learn the route dealers' sources of supply in which News employees enlisted and, as a result of which, the route dealers were under constant surveillance by franchise dealers, employees of The News and off-duty policemen recruited for this purpose. In some instances, the policing activities of the defendants turned into sheer harassment. Thus, when plaintiff Markowitz was observed removing papers from a drug store, The News had him arrested despite the fact that he claimed he had a written contract with the owner, one Max Seltzer, which authorized him to do so. When Seltzer was asked by defendant Auerbach to prosecute Markowitz, he confirmed Markowitz' story. He was told that if he did not agree to press charges The News would no longer supply him with papers. Seltzer refused and was cut off the next day.
Plaintiffs contend that (1) The News' franchise agreement is an illegal price fixing agreement and that sales to them were discontinued in furtherance thereof; (2) the defendants have combined, in violation of Section 1 of the Sherman Act, to exclude them from access to copies of The News; (3) the franchise agreement contains illegal territorial and customer restrictions; (4) The News has attempted to monopolize the newspaper home delivery market; (5) the defendants have conspired to monopolize a part of the newspaper home delivery market; (6) the exclusive dealing provision of the franchise agreement violates Section 3 of the Clayton Act; and (7) The News violated the Robinson-Patman Act by discriminating in prices between different purchasers of The News.
The News' Retail Price Maintenance Agreements Are Not Exempted from the Antitrust Laws by the Fair Trade Acts.
The News relies heavily in its defense on para. 2 of the McGuire Act, 15 U.S.C. § 45(a) (2)
and the New York Feld-Crawford Act, N.Y. Gen. Bus L. § 369-a et seq.
It contends that these provisions permit it to fix the maximum resale price of its papers without violating the antitrust laws. Plaintiffs, on the other hand, vigorously oppose this reading of these two statutes and have advanced four reasons for the proposition that they do not exempt the defendants' conduct from § 1 of the Sherman Act.
In order properly to evaluate these competing positions, some preliminary, perhaps elementary, observations are necessary. The Sherman Act, as originally drawn, forbade resale price maintenance contracts whether horizontal or vertical, see e.g., United States v. Bausch & Lomb Co., 321 U.S. 707, 88 L. Ed. 1024, 64 S. Ct. 805 (1943); United States v. Trenton Potteries Co., 273 U.S. 392, 71 L. Ed. 700, 47 S. Ct. 377 (1927); United States v. Socony-Vacuum Co., 310 U.S. 150, 84 L. Ed. 1129, 60 S. Ct. 811 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911).
The Miller-Tydings Act,
passed in 1937, amended the Sherman Act to permit such contracts where they were legal under state law, provided that they were not contracts ". . . between manufacturers, or between wholesalers, or . . . between persons, firms or corporations in competition with each other." In 1951 the Supreme Court held that it did not apply to pricefixing agreements made binding by state law on "non-signers" of such agreements. Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 95 L. Ed. 1035, 71 S. Ct. 745 (1951).
Responding to that decision, Congress passed the McGuire Act Amendment to Section 5(a) of the Federal Trade Commission Act.
The McGuire Act not only reaffirmed the policy of the Miller-Tydings Amendment,
but also eliminated the restrictive effect of the Supreme Court's decision in Schwegmann by permitting states to enact laws for the enforcement of fair trade contracts against non-signers.
However, like the Miller-Tydings Amendment, it legalizes only vertical price maintenance contracts which are lawful in the state where the resale is made. Consequently, any analysis of The News' resale price maintenance system must begin with an examination of the New York Fair Trade Law.
The Feld-Crawford Act, as the New York Fair Trade Law
is commonly referred to, was modeled after the California Fair Trade Act of 1933.
Section 369-a permits vertical price fixing by authorizing the producer or owner of any brand-name commodity "which is in fair and open competition with commodities of the same general class" to fix by contract, a stipulated resale price and to require any dealer who may resell it to agree not to do so at other than the stipulated price. Section 369-b characterizes deviation from the agreement as unfair competition actionable by any person damaged, whether or not the violator is a party to the contract. Section 369-c completes the statutory scheme by excluding horizontal resale price maintenance agreements from the operation of the statute.
The News' franchise agreement provides, among other things, that the franchise dealer shall purchase from The News on each day of publication a sufficient number of copies of the newspaper to supply "all single copy home delivery subscribers within his territory" and shall supervise the delivery and resale of the newspapers to such regular subscribers at "no more than" the regular home delivery price established by The News.
Plaintiffs claim this provision is not within the protection of the Feld-Crawford and McGuire Acts and violates Section 1 of the Sherman Act. They allege that:
(1) The News is not in fair and open competition with commodities of the same general class;
(2) The News is controlling not merely the resale prices, but also the home delivery service charge;
(3) The Feld-Crawford and McGuire Acts only permit minimum resale prices to be fixed, not maximum resale prices; and
(4) The franchise agreement is an illegal horizontal agreement between wholesalers.
Plaintiffs' contention that The News is not in "free and open competition with commodities of the same general ...