The opinion of the court was delivered by: BONSAL
This is a suit by the United States to collect civil penalties in the amount of $585,000 from the defendant Ancorp National Services, Inc. ("Ancorp") for allegedly violating a final Cease and Desist Order of the Federal Trade Commission ("FTC") issued on April 13, 1964 ("the FTC Order"). The United States also seeks a permanent injunction. Jurisdiction is alleged under 15 U.S.C. §§ 45(l) and 56, and 28 U.S.C. §§ 1337, 1345, and 1355.
On February 5, 1959, the Federal Trade Commission filed an administrative complaint, charging respondents American News Company (now Ancorp) and Union News Company (now a subdivision of Ancorp) with unfair competitive practices. The complaint charged the respondents with having violated section 5 of the Federal Trade Commission Act by inducing and coercing suppliers to make payments or to grant allowances as compensation for services or facilities furnished in connection with the sale of such suppliers' products on respondents' newsstands when respondents knew or should have known that such payments were not being offered or made available on proportionally equal terms to all customers of such suppliers who were in competition with the respondents. On January 10, 1961, after an administrative hearing, the FTC issued a Cease and Desist Order. On February 7, 1962, the Court of Appeals for the Second Circuit modified the FTC Order and affirmed it as modified. American News Co. v. FTC, 300 F.2d 104 (2d Cir. 1962). On October 8, 1962, the Supreme Court denied respondent's petition for a writ of certiorari. 371 U.S. 824 (1962). The FTC Order of April 13, 1964 became final on May 13, 1964, 15 U.S.C. § 45(i), and has been in effect at all times relevant to this action.
The FTC Order as modified provided:
" It Is Ordered that the respondents, The American News Company and The Union News Company, corporations, their officers, employees, agents or representatives, directly or through any corporate or other device, in or in connection with the purchase in commerce, as 'commerce' is defined in the Federal Trade Commission Act, of products for resale on newsstands operated by respondents, do forthwith cease and desist from:
Receiving, or inducing and receiving, or contracting for the receipt of, anything of value from any of their suppliers as compensation or in consideration for display or promotional services or facilities furnished by or through respondents in connection with the processing, handling, sale, or offering for sale of products purchased from any of their suppliers, when respondents know or should know that such compensation or consideration is not affirmatively offered or otherwise made available by such suppliers on proportionally equal terms to all their other customers competing with respondents in the sale and distribution of such suppliers' products."
This action was instituted on December 31, 1970.
The complaint alleges that the defendant received "compensation" in varying amounts from three newspapers in New York City (The New York Times, The Daily News, and The Post) in connection with promoting and displaying these newspapers on its newsstands; that the defendant knew or should have known that such compensation was not offered or otherwise made available by the three newspapers on proportionally equal terms to all of their newsstand customers; and that by receiving such compensation, the defendant violated the FTC Order quoted above. The complaint comprises three counts: count 1 relates to The New York Times; count 2, to The Daily News; and count 3, to The Post.
The complaint alleges that these payments began at "some time prior to December 1965" and continued to shortly before the filing of the complaint. Payments allegedly received prior to December 31, 1965, however, are barred by the five-year statute of limitations which applies to civil penalty actions. 28 U.S.C. § 2462.
On the basis of the testimony of Mr. Ivan Veit, Executive Vice President, and Mr. Thomas McVeigh, Corporate Controller of the Times, and the exhibits received during the trial, the Court finds that each month from January, 1961 to July, 1969 the Union News Company billed the Times for "Rental of Space in Newsstands for New York Times Advertising Signs" and that the Times paid these bills. The payments from January, 1961 to August, 1963 were in the amount of $2,000 per month; they were increased in August, 1963 to $2,587.20 per month ($4.90 per stand for 528 stands).
On the basis of the testimony of Mr. William Carey, Circulation Manager, and Mr. Jack Underwood, Vice President and Director of Sales of The Daily News, and the exhibits received during the trial, the Court finds that each week from June 1, 1964 to March 3, 1969, except for periods -- prior to 1966 -- when the Daily News was not published as a result of a strike, the Union News Company billed the Daily News for "Advertising Service" and that the Daily News paid these bills. The payments were in the amount of $500 per week.
On the basis of the testimony of Mr. Byron Greenberg, Circulation Director of the Post, and the exhibits received during the trial, the Court finds that from July, 1964 to June, 1969 the Union News Company billed the Post for "Advertising Service" and that the Post paid these bills. The payments were in the amount of $50 per month.
On the issue of the defendant's knowledge and intent, the Court received evidence as to payments made by other New York City newspapers to the Union News Company. On the basis of the deposition of Mr. Roy I. Newborn, who was Circulation Director of the now defunct New York Herald Tribune from 1961 to 1964, the Court finds that the Herald Tribune paid fees for advertising services on a monthly basis totalling $12,000 to $15,000 a year. That arrangement lasted until the Herald Tribune ceased publication on April 24, 1966. On the basis of the testimony of Mr. John Potulny, Manager of the field operations group of Dow Jones and Company (which publishes the Wall Street Journal), the Court finds that from the fall of 1965 to January, 1968, the Wall Street Journal made payments to Union News as a "promotional allowance" in the amount of $500 per month.
On the basis of the testimony of Mr. Nathan Goldstein, Mr. Jack Underwood, Mr. William Carey, and Mr. Byron Greenberg, the Court finds that Union News never inquired of the Times, the Daily News, or the Post whether payments were being offered to other newsstand operators in competition with Union News on a proportionally equal basis.
And the testimony at trial shows that the three newspapers did not in fact offer to make such payments to competitors.
Defendant contends on the basis of the testimony of Mr. William McCollough (President of Ancorp) that the payments received were not true advertising allowances, but rather price allowances, and that they were made as part of an effort to increase Ancorp's profits on the sale of newspapers. However, the invoices sent out to the three newspapers by Union News, which were received in evidence, themselves indicated that they were for advertising services. Moreover, Mr. McCollough acknowledged that the Union News Company received posters from the three newspapers to be displayed on its newsstands.
The proof establishes and the Court finds that the following monthly payments were received by the Union News Company on or after January 1, 1966 in violation of the FTC Order:
from the New York Times (from January 42
1, 1966 to July 1, 1969)
from the Daily News (from January 38
1, 1966 to March 3, ...