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PENTHOUSE INTL., LTD. v. PLAYBOY ENTERPRISES

September 11, 1974

PENTHOUSE INTERNATIONAL, LTD., Plaintiff,
v.
PLAYBOY ENTERPRISES, INC. and PLAYBOY PUBLICATIONS, INC., Defendants, ROBERT C. GUCCIONE, Add'l Defendant on Counterclaim


Kevin Thomas Duffy, D.J.


The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

KEVIN THOMAS DUFFY, D.J.

 Plaintiff Penthouse International, Ltd., the publisher of Penthouse magazine, has instituted suit against Playboy Enterprises, Inc. and Playboy Publications, Inc., the publisher of Playboy magazine. The gravamen of the plaintiff's complaint is the charge that the defendants have engaged in, and continue to engage in, the spreading of false and misleading information regarding Penthouse's circulation. The present application is a motion by the plaintiff for a preliminary order enjoining the defendants from continuing their allegedly libelous conduct.

 As the two leaders in the magazine field euphemistically referred to as "sophisticated men's entertainment", Playboy and Penthouse have apparently watched the declines and falls of each other's circulation figures with great interest. Using circulation figures, particularly newsstand sales, Penthouse has recently run an advertising campaign which shows what it believes to be Penthouse's great rise and Playboy's decline. While Playboy's initial corporate policy had been to ignore the nascent Penthouse, the growth of the newer magazine has apparently prompted Playboy's management to change its policy and to compete vigorously for circulation. The defendants' launching of a new and allegedly more sexually and erotically oriented magazine, Oui, was an attempt to reach those magazine purchasers who had been attracted to Penthouse.

 Media publicity in general, and television and magazine interviews with the publisher of Penthouse in particular, have apparently brought the circulation clash between Playboy and Penthouse to the attention of the public and seems to have developed a somewhat charged atmosphere in which allegations of animosity between Hefner and Guccione, respectively the publishers of Playboy and Penthouse, have flourished. Mr. Guccione's statement during an October 1973 telecast of "Kup's Show", a Chicago based television program, that: "In newsstand sales in America Penthouse will have overtaken Playboy in December . . ." focused attention on the December 1973 circulation figures.

 When Penthouse certified to the Audit Bureau of Circulations (hereinafter "the ABC") its estimated circulation for the November and December 1973 issues, Playboy believed that the figures were inflated and eventually requested the ABC to perform an audit. When that audit was completed it revealed that Penthouse had overestimated the circulation of its November 1973 issues by 259,000 copies and had overestimated the circulation of the December 1973 issue by 613,000 copies.

 After the revised circulation figures were published, the report was called to the attention of John G. Kabler, whose official title is the Midwest Advertising Manager of Oui magazine. In May 1974, the time when the revised figures were called to his attention, John G. Kabler had been with Oui for only a little over one year, and his prior experience in the magazine field consisted solely of one six month period of employment as a sales representative for Sports Illustrated. Further, while Mr. Kabler has the title of "manager", he is the only advertising space salesman employed by Oui to cover the Midwest.

 When Mr. Kabler read the ABC revision of Penthouse's November and December estimated circulation figures, he confused two figures which are of great importance to magazine publishers: the minimum circulation guarantee and the estimated circulation. The former is the minimum circulation guaranteed by the publisher to its advertisers; it is the figure upon which rates for the sale of advertising space are based and, naturally, it is one object of advertisers to secure the greatest circulation at the lowest cost. The latter figure, the estimated circulation, is an estimate of net paid circulation that is certified by a publisher to the ABC, an organization composed primarily of publishers, advertisers and advertising agencies. Since magazines are sold on a fully returnable basis, and since returns are often late, it appears to be an industry practice to accept a minimal (generally 2%) difference between the estimated circulation and the circulation later verified by an ABC audit. In the case of Penthouse's December issue, this difference was 15%.

 At the time Mr. Kabler received the revised circulation figures he was aware that within the last six months Penthouse had substantially raised its minimum circulation guarantee and he mistakenly concluded that the ABC revision meant that Penthouse had failed to meet its increased guarantee. In fact, the revised figures were still well above the new minimum circulation guarantee even though they were substantially lower than the net circulation figures which had originally been certified to the ABC.

 Acting under his misunderstanding Mr. Kabler on May 14, 1974, the same day the revised figures were called to his attention, wrote a form letter directing attention to what he believed to be the "fact" that Penthouse had failed to meet its minimum circulation guarantee. *fn1" On May 16, 1974, twelve copies of this form letter were sent to advertisers and advertising agencies; carbon copies of the twelve letters were also sent. Additionally, Mr. Kabler, on May 14, 1974, had also dictated a memorandum to seven Oui advertising salesmen in other offices and made one phone call to relay his interpretation of the revised figures.

 Though the information contained in Mr. Kabler's letter was false, he had directed his secretary to attach to each letter and each memorandum that was sent out a copy of Penthouse's corrected ABC statement. Mr. Kabler mistakenly believed that the statement he enclosed supported his letter. In fact, by referring to the enclosed statement, the advertisers to whom the Kabler letter was sent could discover the error in the letter.

 On May 21, 1974, Mr. Kabler called Mr. Dick Matullo of the Post-Keyes-Gardner advertising agency in Chicago, one of the people to whom the May 16, 1974 letter had been sent. Though Mr. Kabler was calling on an unrelated matter, Mr. Matullo advised him of the error in his letter. As soon as he understood the error Mr. Kabler apologized to Mr. Matullo and that afternoon sent a form letter of retraction *fn2" to all of the people to whom the original erroneous letter had been sent. *fn3" Kabler also made a retraction by telephone to the one person to whom he had phoned his misinformation.

 Penthouse became aware of the Kabler letter and on May 24, 1974, three days after the letters of retraction were mailed, filed suit and immediately brought an order to show cause in this court seeking to enjoin Playboy from publishing or disseminating to past, present or potential advertisers or advertising agencies any untrue statement of fact in connection with the national circulation figures of Penthouse and, additionally, seeking to compel defendants to retract any such false statements that may have been made. The case was assigned to Judge Wyatt but due to his schedule and the plaintiff's demand for expediency the parties first appeared before Judge Cannella and later before Judge Ward. Expedited discovery was allowed and I heard the parties on oral argument on July 17, 1974. The parties agreed to submit depositions in lieu of a hearing on the preliminary injunction and I accepted the depositions in open court on July 25, 1974.

 It is Penthouse's claim that the Kabler letter is merely part of a high level Playboy conspiracy to spread misinformation about Penthouse and to eliminate Penthouse as a competitor. Penthouse claims it is the only real rival Playboy has ever faced and that it alone prevents monopolistic ...


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