The opinion of the court was delivered by: GRIESA
This is an antitrust action brought in June 1972 by a company which formerly operated a book club. The suit was brought against The New York Times Company; Time Incorporated; four leading advertising agencies Batten, Barton, Durstine & Osborn, Inc. ("BBDO"); J. Walter Thompson Company; Young & Rubicam, Inc.; and Ted Bates & Co., Inc. and the American Association of Advertising Agencies, Inc. ("4A's").
Plaintiff asserts a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1. The action was originally brought as a class action. Class certification was denied, 60 F.R.D. 476, leaving Ambook as the sole plaintiff. One of the defendants, Ted Bates & Co., Inc., has settled.
The remaining defendants have moved for summary judgment dismissing the action. These motions are granted.
The operative pleading of Ambook is the second amended complaint (hereafter "the complaint").
The complaint alleges that defendants have combined and conspired with one another and with other publishers and advertising agencies, including almost all the periodical and newspaper publishers and advertising agencies in the United States. It is alleged that the purpose and effect of the combination and conspiracy was to coerce advertisers, including Ambook, to purchase the services of advertising agencies; to prevent advertisers, including Ambook, from establishing alternative "in-house" organizations capable of furnishing the services offered by advertising agencies; and to fix a uniform price for the services provided by advertising agencies equal to approximately 17.6% Of the price of advertising charged by publishers. The complaint alleges that, in furtherance of the combination and conspiracy, publishers have established a "dual rate structure," under which advertising space is made available to advertising agencies at a discount of 15%,
which discount is not available to advertisers dealing directly with publishers. The complaint alleges that advertising agencies, acting in concert, sell advertising space to advertisers at the "rate card" rates of the publishers, thus retaining the 15% Discount allowed by the publishers. It is alleged that, as a result of the foregoing, conspirator advertising agencies (including the agency defendants) have been compensated to an unfair and excessive extent for their services. The complaint alleges that Ambook has been forced to pay in excess of $ 9,000 to advertising agencies for their services in connection with advertising in The New York Times and Time magazine, which expenditures are excessive to the extent of at least $ 4,000; and that Ambook has been forced to pay in excess of $ 50,000 to advertising agencies in connection with advertising in "conspirator publications," which expenditures are excessive to the extent of at least $ 20,000.
It is of some interest to note that the allegations in the second amended complaint, while they do not assert class action claims (class certification having been denied), are in many respects a carry-over from the original class action concept, in which Ambook itself was a rather minor factor. The choice of defendants was obviously made with a view to the alleged class claims. Thus the four advertising agency defendants were selected because they are leading agencies, not because Ambook dealt with any of them. Ambook placed advertising through three agencies connected with one Victor Schiff. The names of these agencies were Newmark, Posner & Mitchell, Inc.; Victor Schiff & Co.; and Schiff/Brown & Co. Neither Schiff nor any of his agencies is a defendant in this action. It is also clear that Ambook selected the publisher defendants mainly with a view to the class claim. Time Incorporated is, of course, a leading magazine publisher, and The New York Times Company is a leading newspaper publisher. It is true that Ambook placed some advertising in The New York Times and Time. However, Ambook placed advertising in at least 43 other publications, none of which is named as a defendant. It appears that Ambook spent about $ 39,000 on advertisements in The New York Times and about $ 40,000 on advertisements in Time. The total amount paid by Ambook for media advertising, according to Ambook, was about $ 388,000.
In June 1976 defendants filed motions for summary judgment. These motions were denied July 6, 1977. Although the parties had submitted considerable evidence on the question of whether the defendant advertising agencies and the defendant publishers had or had not engaged in conspiratorial conduct, little evidence or argument was presented about the relationship between Ambook and the advertising agencies with which Ambook actually dealt. There was little evidence with regard to the question of whether Ambook was "coerced" into dealing with the Schiff agencies, or whether the compensation received by the Schiff agencies was fixed by a combination or conspiracy.
After further discussion of the issues, Ambook designated the witnesses it would call upon the trial of the action: (a) Victor Schiff and Stephen Brown, the principals of the three advertising agencies used by Ambook; (b) Elia K. Georgiades, a former employee of Ambook; and (c) Milton Pierce, a person in the advertising business, who introduced Ambook to Schiff.
The depositions of these four persons were taken Schiff on December 9, 1977, Pierce on February 9, 1978, Georgiades on February 13, 1978, and Brown on March 15, 1978. The testimony in these depositions is accepted as true by plaintiff, except as specifically noted in a letter of plaintiff's attorney dated March 24, 1978.
In addition to designating its witnesses, Ambook has made a definitive designation of all documents it would offer into evidence at a trial.
Following the completion of the depositions of Ambook's witnesses, defendants (except for Ted Bates, which has settled) filed new motions for summary judgment.
It should be noted that the principal of Ambook was Cletus P. Lyman, who is also Ambook's attorney in this action. His deposition was taken by defendants in 1976, and has been referred to extensively in the summary judgment motions. Lyman has submitted an affidavit dated June 5, 1978 in opposition to the second set of summary judgment motions. Lyman stated at a hearing January 25, 1978 that he did not expect to be a witness at the trial. However, it now appears that Lyman would testify at a trial. In a letter dated October 31, 1978 Lyman announced the name of another attorney who would try the case for plaintiff.
In order for Ambook to recover, Ambook must show the existence of a conspiracy within the four-year period (1968-72) preceding the commencement of this action. 15 U.S.C. § 15b. Ambook must also show that it was injured in its business or property by reason of the conspiracy. 15 U.S.C. § 15.
In connection with the first summary judgment motion, Ambook listed 130 specific factual contentions, which Ambook argued demonstrated at least a triable issue of fact as to the existence of a conspiracy during the damage period.
In a memorandum filed January 6, 1978 Ambook filed a number of supplemental factual contentions, numbered 131-154. Ambook's memorandum of June 6, 1978, opposing the second set of summary judgment motions, amended to some extent contentions 131-154 and added contentions 155-166.
Ambook contends that during the "damage period" 1968-72 there was a "system," which was accepted and used on a virtually uniform basis by newspaper and magazine publishers, and by advertising agencies. This system is alleged to have had the following interdependent features, which had the result, according to Ambook, of unlawfully requiring Ambook to incur excessive costs in the placement of advertising. Ambook contends that the basic features of the system are:
(1) Newspaper and magazine publishers grant a 15% Commission to advertising agencies, which is not granted to advertisers dealing directly with the publishers.
(2) The advertising agencies charge their clients the full newspaper or magazine list price for the advertising, thus retaining the 15% Commission as agency compensation.
Ambook contends that this system was the result of a conspiracy in violation of Section 1 of the Sherman Act. Ambook argues that, as a result of the unlawful conspiratorial system, Ambook was unable to purchase advertising directly from publishers at rates equal to the rates charged to advertising agencies, and that therefore Ambook was economically "coerced" into dealing with advertising agencies. Ambook contends that, pursuant to the illegal system, the agencies it dealt with received the 15% Commission from the publishers, and then charged Ambook the full price of the advertising, thus retaining the 15% Commission as agency compensation.
As already described, Ambook is not suing the agencies it dealt with. However, Ambook contends that these agencies were co-conspirators and that Ambook can recover against Other co-conspirators I. e., the defendants. Ambook also contends that, even if the agencies it dealt with were not co-conspirators, Ambook can show damages causally related to the conspiracy participated in by defendants.
Ambook contends that the conspiracy was commenced by the 4A's in 1917. As Ambook stated in its memorandum in opposition to the original summary judgment motions (p. 59):
"It is clear that the 4A's initiated the 15% Commission system in the period 1917 through 1923 . . . and continued to maintain it beyond the injury period (1968-72)."
The principal instances of overt conspiratorial activity relied on by Ambook occurred in the 1920's and 1930's. Ambook cites little in the way of alleged overt conspiratorial activity occurring in the years 1968-72, but argues that the "15% Commission system" was in effect during those years, that it was the result of the conspiratorial activities of early years, and that adherence to the system by publishers and advertising agencies amounted to "consciously parallel practices."
Defendants, on the other hand, argue that Ambook has no evidence even raising an issue of fact as to the existence of a conspiracy during 1968-72. Defendants argue that evidence of alleged conspiratorial activity in the 1920's and 1930's can form no basis for an inference of a conspiracy 40 or 50 years later. Defendants argue that there is another circumstance, other than mere age, that renders Ambook's evidence of no weight in the present case that is, a Government antitrust action brought in 1955 against the alleged leader of the conspiracy the 4A's and other trade associations, resulting in consent decrees in 1956.
Defendants contend that Ambook has no evidence of any conspiratorial agreements during the period after 1956, and that, to the extent that publishers engaged in parallel conduct in granting a 15% Agency commission and agencies engaged in parallel conduct in keeping the commission as their compensation, these parallel practices were non-conspiratorial and entirely legal.
Defendants contend that Ambook employed the Schiff agencies solely because Ambook needed and desired the services of an advertising agency, and not because such employment was "coerced" by any agency-publisher conspiracy. Finally, defendants contend that the compensation arrangements between Ambook and the Schiff agencies were not in any way fixed by any conspiracy.
The facts set forth in this opinion are drawn from Ambook's own evidence, and from uncontradicted evidence submitted by defendants.
The 4A's was founded in 1917. Ambook contends that commencing at this time the 4A's organized the alleged conspiracy.
J. Walter Thompson and a predecessor firm of BBDO were apparently members of the 4A's from the start. Young and Rubicam was founded in 1923 and became a member of the 4A's in 1931. Ambook asserts that The New York Times was a member of the American Newspaper Publishers Association and the Publishers Association of New York City.
For several decades prior to 1917 there was a common practice among newspaper (and probably magazine) publishers to grant advertising agencies a substantial percentage discount or commission deducted from the standard "rate card" rates which would be charged to advertisers dealing directly. The New York Times granted such a commission to advertising agencies well before 1917. Also, there was a common practice among advertising agencies to retain these commissions as compensation for services to their clients. There were exceptions to these common practices. Under certain circumstances advertisers or "house agencies" were able to obtain the agency commissions from publishers. Agencies would sometimes "rebate" at least part of the commissions to their clients. The amounts of the commissions granted by the publishers varied.
As evidence of the conspiracy allegedly starting in 1917, Ambook relies upon a variety of documents, prominent among which are excerpts from minutes of the 3d, 4th, 5th and 6th annual meetings of the 4A's in the years 1919, 1920, 1921, and 1922 respectively.
In 1919 the president of the 4A's was William H. Jones, who was president of George Batten Company, a predecessor of BBDO. Stanley Resor of J. Walter Thompson was chairman of a 4A's committee called the Agency Service Committee in 1922. However, these are the only persons referred to in the evidence about the alleged formative years of the conspiracy, which can be identified with any of the agency defendants. Moreover, the real organizers of what Ambook alleges to be conspiratorial activity are not shown to be connected with any of the agency defendants. These persons are Collin Armstrong, Chairman of the National Newspaper Committee of the 4A's in the 1920's; James O'Shaughnessy, Executive Secretary of the 4A's in the early 1920's; and A. W. Erickson, President of the 4A's in 1922, and chairman of various committees in the 1920's.
The 4A's minutes indicate that Erickson was the spearhead of a movement to persuade newspaper publishers to standardize the amount of their commissions to agencies at 15% regular commission plus an extra 2% cash discount. Erickson reported to the 1920 meeting that he had evolved what he termed the "15/2 idea" in early 1918, had submitted the proposition to the Executive Board of the 4A's, with the result that he was appointed chairman of a committee to take steps to achieve the standardization. Erickson pointed out that at the time his campaign began, there were varying terms offered by various publishers, averaging about 13% Regular commission plus 3% Cash discount. By 1922 Erickson's committee had obtained a "referendum" from the agencies which were members of the 4A's, with a 100% Vote for the 15/2 system. Also, Erickson's committee worked in various ways to obtain the agreement of newspaper publishers to the standard 15/2 commission. He reported in 1922 that he was 99% Successful in the daily newspaper field, and that his committee was working steadily with the few large newspapers, such as The New York Times, which had not agreed to the 15/2. The Times was granting a 10% Commission plus 5% Cash discount, and was refusing to change.
According to the documents proffered by Ambook, Armstrong and his committee were active in attempting to persuade publishers, both directly and through trade associations, to discontinue the granting of agency commissions to either advertisers dealing directly or "house agencies" controlled by advertisers. Armstrong and his committee were also seeking to persuade publishers to refuse to deal with any agencies known as "rate cutters" those who "rebated" all or part of their commissions to their clients. Complaints were made to publishers about individual instances where commissions were given to advertisers or house agencies, or where commissions were given to agencies known to make rebates to their clients. A letter from Armstrong's committee dated February 11, 1920 indicates that certain newspapers, including The New York Times, had agreed to discontinue allowing net rates to advertisers dealing directly. Certain correspondence in December 1920 indicates that The New York Times had agreed with Armstrong to discontinue dealing with an agency which was rebating part of its commission.
The minutes of the four meetings of the 4A's held in 1919, 1920, 1921 and 1922 contain occasional references which indicate coercive conduct on the part of the 4A's I. e., discussions about policing rate cutters; cleaning up unsatisfactory conditions; disciplining publishers who are "not honest;" bringing publications "into line."
According to the documents, trade associations of publishers including the American Newspaper Publishers Association ("ANPA") developed lists of advertising agencies which they recognized. The objective of Armstrong and his committee was to have the publishers' associations adopt standards for recognition, which were basically the same as the standards which the 4A's ruled to be proper practice on the part of agencies.
The minutes of the 4A's annual meeting in 1922 reflect that Armstrong had endeavored to impress a number of publishers' associations throughout the country with the detrimental effects of "cut-rate agencies," and several of the associations, including the ANPA and the New England Publishers' Association, passed resolutions condemning rebating.
According to the various minutes, there were efforts starting in the 1920's to persuade advertising agencies and newspaper publishers to use a standard form of contract, in which the agency would agree not to rebate any of the agency commission to its client. The early efforts in this regard were not successful. However, a standard form, containing a no-rebate clause, was adopted by the 4A's in 1933.
In 1937, a brochure was prepared by the Committee on Fiscal Control of the 4A's. The members of this committee included persons from J. Walter Thompson, BBDO, and Young & Rubicam. This brochure contained suggested provisions for contracts between agencies and clients, and contained a note stating that agency compensation "is founded on the principle that the agency retain all commissions" received from the media. The brochure also stated that the system of having the agency retain the media commission as its compensation "should in no case be replaced by any other agency compensation system, but may be supplemented."
Another 4A's document from the year 1937 is entitled "Agency Recognition." This document states that the recognition of agencies is the function of media owners and their associations. The document states that it is generally held "by recognizing authorities" that the following are the basic requirements for recognition as an advertising agency that it must be a bona fide agency free from control by an advertiser, and that it must retain all commissions received from media owners. The document lists among the "recognizing authorities" the ANPA and the Publishers Association of New York City.
A document said by Ambook to stem from "the 1950's" lists the qualifications established by the Publishers Association of New York City for recognition as an advertising agency I. e., that the agency must be a bona fide agency functioning as an independent contractor, and that it must refrain from "destructive practices" such as splitting commissions.
As described earlier, The New York Times, as of the early 1920's, gave an agency commission of 10% With an additional 5% Discount for cash payment, and resisted efforts of the 4A's to adopt the desired standard 15/2. At some point the Times did decide to grant the 15/2 commission and discount. The only purported evidence about this decision is the text of a speech made in 1950 by Frederic R. Gamble, then president of the 4A's, who stated that through the educational work of the 4A's and through competitive conditions The New York Times and certain other papers went to the 15% Commission in the early 1930's.
Time magazine was first published in 1923. Ambook has suggested no evidence whatever as to when Time first granted the 15% commission or the circumstances surrounding Time's decision to do so.
Ambook has provided what it says is a summary of certain documents in the files of the Federal Trade Commission. According to this summary, in the early 1920's the staff of the FTC undertook an investigation of the "15% commission system." The investigation was concluded in 1924. The Commission then instituted a proceeding for an order enjoining anticompetitive practices. A hearing was held in 1926, at which evidence was taken. The proceeding was dismissed in 1930 without opinion. According to Ambook's summary, certain FTC minutes reveal that the basis for the dismissal was the lack of effect upon interstate commerce. Ambook asserts that this ruling was evidently made upon the basis of Blumenstock Bros. v. Curtis Publishing Co., 252 U.S. 436, 40 S. Ct. 385, 64 L. Ed. 649 (1920), which was later overruled by Lorain Journal Co. v. United States, 342 U.S. 143, 72 S. Ct. 181, 96 L. Ed. 162 (1951), in which it was held that national advertising involved interstate commerce for purposes of the antitrust laws.
In 1955 the Department of Justice instituted a civil antitrust action against the 4A's, the ANPA, the Publishers Association of New York City, and other trade associations. The complaint alleged that, beginning in or about 1917, these trade associations carried on a conspiracy in violation of Section 1 of the Sherman Act. It was alleged, among other things, that these trade associations adopted standards, and used other devices, resulting in a system whereby only the advertising agencies recognized by these associations would be extended commissions by publishers, and advertisers and house agencies would not be extended such commissions. It was further alleged that the agency commissions were fixed and maintained at 15% Of the publishers' gross rate for advertising, and that the agencies were required to agree to retain and not rebate any part of the agency commissions to their clients. The complaint alleged that the advertising agencies and the publishers who were members of these trade associations were members of the conspiracy, although the members of the associations were not joined as defendants in the action.
In 1956 consent judgments were entered enjoining the defendants, including the 4A's, from the practices complained of. Thus the trade associations were enjoined from engaging in any practice which prevented media from granting commissions to advertisers dealing directly or to house agencies. The associations were enjoined from taking any steps to fix the amount of commissions allowed by media to agencies, or to fix the amount of compensation received by advertising agencies from their clients. This meant that the associations could take no steps to prevent advertising agencies from rebating all or part of the media commissions to their clients.
Ambook has designated various items of evidence relating to the period after 1956. These include speeches by Frederic Gamble and John Crichton, presidents of the 4A's. The Gamble speech was in 1959 and the three Crichton speeches were in 1967, 1968 and 1972. There is also a letter of Crichton written in 1968. The materials include speeches in 1968, 1972 and 1973 by Harry Paster, a person associated with the 4A's, who studied the trends in agency compensation, and a study of Time ...