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Buffalo Courier-Express Inc. v. Buffalo Evening News Inc.

decided: April 16, 1979.

BUFFALO COURIER-EXPRESS, INC., APPELLEE,
v.
BUFFALO EVENING NEWS, INC., APPELLANT .



Appeals by defendant from orders of the District Court for the Western District of New York, Charles L. Brieant, Judge,*fn* which (1) granted a temporary injunction to the plaintiff, 441 F. Supp. 628 (1977), (2) found defendant guilty of one instance of civil contempt, and (3) denied defendant's motion for modification of the injunction. The order granting the temporary injunction is reversed, and the order of civil contempt falls with it. The appeal from the order denying modification of the injunction is dismissed as moot.

Before Friendly, Smith and Oakes, Circuit Judges.

Author: Friendly

This appeal is from three orders of Judge Brieant, sitting by designation in the District Court for the Western District of New York, in a civil antitrust suit by Buffalo Courier-Express, Inc. (the Courier) against Buffalo Evening News, Inc. (the News). The Courier had been Buffalo's only weekday morning newspaper and only Sunday paper. The News had been Buffalo's only weekday evening paper; on Saturday evening it published a larger "weekend" paper which contained special features usual in Sunday papers.

This action by the Courier, alleging that the News had violated § 2 of the Sherman Act, was the result of a 1977 decision by the News, under new ownership, to publish a competing Sunday paper. The News appeals from orders (1) granting a temporary injunction against certain tactics incident to this effort, 441 F. Supp. 628 (D.C.1977), (2) finding it guilty of one instance of civil contempt, and (3) denying its motion for modification of the injunction.

I.

The News had been selling its Monday-Friday papers for 15› per copy and its Saturday weekend edition for 30›, a total of $1.05 per week for a reader subscribing to all. The Courier sold its Monday-Saturday papers for 15 › per copy and its Sunday paper for 50 ›, a total of $1.40 for a reader subscribing to all. The News' Monday-Friday evening circulation had been slightly more than double the Courier's Monday-Saturday morning circulation in 1972-76*fn1 for reasons which the judge was unable to determine.*fn2 In contrast the Courier's Sunday circulation was quite comparable to that of the Saturday weekend News.*fn3 The News had a lead of roughly 60-40 in advertising lineage for the same years;*fn4 in advertising revenues its lead was greater.*fn5

The change in the News' policy was a result of its acquisition early in 1977 by Warren E. Buffett. Mr. Buffett, a resident of Omaha, Nebraska, is the controlling stockholder, a director, and Chairman of the Executive Committee of Blue Chip Stamps. Since 1969 he has been Chairman of the Board of Directors and the publisher of eight associated newspapers published in or around Omaha. He also is Chairman of the Finance Committee of the Washington Post Company, which published, in addition to the Post, Newsweek and the Trenton, N. J., Times, and has indirect ownership interests in the Boston Globe and several other media organizations. As a result of advice from a broker early in 1976 that some Courier stock might be for sale, Buffett spent some time studying the Buffalo newspaper market and concluded that "the Buffalo Evening News looked much the better property."

Shortly thereafter an agent representing the estate of the News' principal shareholder offered to sell Buffett the newspaper assets of the News. The purchase was effected by Blue Chip Stamps' contributing some $33 million for the stock of a new corporation which paid the same sum for the News' newspaper assets and agreed to assume underfunded employee retirement plan expenses, estimated at some $4 million.*fn6 The closing occurred on April 15, 1977.

Buffett decided, shortly after the purchase, on the basis of his media knowledge and expertise, that for both journalistic and business reasons the News should move into the Sunday market. The Courier does not assert that this decision was in any way violative of § 2; indeed, such action was manifestly pro-competitive. A disinterested commentator has written that "the consensus seems to be that a newspaper without a Sunday edition cannot hope to compete successfully against one that does have a Sunday edition." Roberts, Antitrust Problems in the Newspaper Industry, 82 Harv.L.Rev. 319, 349 (1968).

The method chosen for the News' entry into the Sunday market was to replace the former Saturday evening "weekend" paper with a "thin" Saturday morning paper, which necessarily would be limited to news occurring after the Friday evening paper had gone to press, and to publish a typical Sunday morning paper with the usual additional features, such as comics, rotogravure, and a weekly TV section. The Sunday edition was to sell for the same 30› as had the discontinued Saturday evening weekend edition;*fn7 the Saturday morning paper was to sell for the same 15› as had been charged for the Monday-Friday evening papers. The total weekly charge for seven papers would thus be $1.20 as against the previous charge of $1.05 for six.

On October 27, 1977, the News announced as part of its new program that for the first five weeks, November 13 through December 11, subscribers would receive seven papers for the same $1.05 they had previously paid for six. The announcement stated, in solid capitals, that this was an "INTRODUCTORY" offer and also that after December 11 home delivery would be at $1.20 per week.*fn8 The News also issued a Notice to Newscarriers, which merely added that, during the promotion, customers who had subscribed only for the Saturday weekend edition should receive both the Saturday morning and the Sunday papers at the same price previously paid for the weekend edition. Advertising rates for the Sunday edition (except for rotogravure) were to be the same as for the previous weekend edition; the notice to advertisers stated:

280,000 Circulation Guaranteed

For A Minimum of Four Weeks

This suit and a motion for a broad preliminary injunction against what were claimed to be the News' predatory tactics were filed on the following day.

II.

The judge heard the Courier's application for a temporary injunction on the basis of a stipulation of facts, affidavits and oral testimony. In an opinion rendered on November 9, 1977, with remarkable speed, 441 F. Supp. 628, he granted a temporary injunction much more limited than the Courier had sought. Although agreeing with the News that "(a)s to the Sunday paper, there is a legitimate business purpose to be served in introducing it to the present six-day Evening News readers so they may compare it with the Sunday Courier and decide which product to choose after the introductory period", 441 F. Supp. at 639-40, he concluded that the Courier had "shown a clear probability of success at trial on the issue of specific intent to monopolize." 441 F. Supp. at 641. The cornerstone of this conclusion was the judge's belief that while "giving free samples of newspapers, as of any consumer product, can be a reasonable and appropriate method of getting the purchaser acquainted with something new," 441 F. Supp. at 643, "it would seem clear that one, or at most two free samplings would suffice. Five, as proposed, at the busiest, most profitable season, is clearly unreasonable. The true purpose is monopolistic, whether taken together with the "guaranty' made to the advertisers, or alone," 441 F. Supp. at 643 (emphasis in original). The guaranty to advertisers, "taken together with the five week give-away, as it must" was likewise "a predatory action the purpose and effect of which is to attempt to monopolize." Id. These conclusions were thought to be buttressed by certain other findings, namely (1) that "Mr. Buffett made no secret of his economic motivations and his acute awareness of the value which would be attached to ownership of the Evening News were it to become a monopoly"; (2) that the News' pretax earnings in a competitive market, $1,659,630 in 1976 and less in the two preceding years, would not justify an investment of $33,000,000 when (at the then prime rate of 73/4%) borrowing this sum would cost $2,557,500 a year; and (3) that Mr. Buffett bought the Evening News "without inspecting the physical plant or conferring with the personnel who would continue the operations for the new owner." 441 F. Supp. at 641-42. Although finding that there was no evidence that the News had disparaged the Courier or that its top management had caused or intended to cause dissemination of rumors of the Courier's expected demise, he decided that the Courier was entitled to protection "against raiding or an attack on its staff morale while this litigation continues." 441 F. Supp. at 644. The court found that the Courier would suffer irreparable harm unless an appropriate temporary injunction issued, and entered an injunction order. The pertinent provisions of paragraph 1 of this were as follows:

A. No more than two free issues out of the five such issues proposed, each of the Saturday and Sunday edition of the Buffalo Evening News may be delivered without additional charge to its daily or weekend subscribers on November 12, 13, 19 and 20, 1977. Effective on and after November 25, 1977, except to the extent authorized below, all Sunday editions must be sold for no less than 30 cents, and all weekday or Saturday editions shall be sold for no less than 15 cents. Delivery of free samples to persons or firms regarded in good faith as present or potential advertisers is not enjoined. Annual ...


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