United States District Court, S.D. New York
February 5, 2004.
In Re: Magazine Antitrust Litigation
The opinion of the court was delivered by: RICHARD CASEY, District Judge
MEMORANDUM OPINION AND ORDER
On June 30, 2000, Plaintiffs Heather Huffman, Kathy Gerlach, and
Michele Grabell filed in this Court a putative class action complaint
asserting claims under the federal antitrust laws against the Hearst
Corporation; Time, Inc.; The Conde Nast Publications, Inc.; The Reader's
Digest Association, Inc.; TV Guide, Inc.; Meredith Corporation; Gruner
Jahr Printing & Publishing Company, Rodale Press, Inc.; Ziff-Davis, Inc.;
Newsweek, Inc.; International Data Group, Inc.; and Magazine Publishers of
America (collectively defendants"). Presently before the Court is a
Proposed Settlement submitted jointly by both parties and a Petition for
the Award of Attorneys' Fees submitted by Plaintiffs, which Defendants
have agreed not to oppose. This memorandum opinion addresses only the
issue of attorneys' fees; the proposed settlement has been approved in a
This suit arises out of industry guidelines adopted by the Magazine
Publishers Association ("TV1PA"), a trade association of consumer
magazine publishers in the United States, and the standards established
by the Audit Bureau of Circulations ("ABC"), an independent audit bureau
consisting of publishers, advertisers, and advertising agencies.
A. The Magazine Publishers Association and the Audit Bureau of
The MPA is the trade association for consumer magazine publishers in
the United States. As of February 1998, it included among its membership
approximately 190 domestic magazine publishing companies that collectively
published approximately 780 magazines. MPA membership includes most of the
larger publishers, whose magazines account for a substantial percentage
of all magazine advertising revenue. The purpose of the MPA is to promote
the magazine industry and to protect its interests.
The Audit Bureau of Circulations ("ABC") is a not-for-profit auditing
organization consisting of publishers, advertisers, and advertising
agencies. All advertisers, advertising agents, newspapers, magazines,
electronic publications and business and farm magazines are eligible for
membership in ABC. The ABC board is made up of thirty-four directors, of
which eighteen are representatives of advertisers and advertising
agencies, eight are representatives of newspapers, four are
representatives of U.S. consumer magazines, and four are representatives
of farm publications, business publications, and Canadian magazine
members. The ABC By-Laws require that the chairman of ABC's board of
directors be a representative of an advertiser or advertising agency.
The stated objectives of ABC are "to issue standardized statements of
circulation data or other data reported by a member, to verify the
figures shown in these statements by auditors' examination of any and all
records considered by the Bureau to be necessary; and to disseminate data
for the benefit of advertisers, advertising agents and others interested
in the advertising and publishing industry." (ABC By-Laws, Article 1,
Jeffries Affidavit ¶ 6). Each Defendant other than the MPA is a
member of ABC, along with most other significant magazine and newspaper
publishers in the United States.
ABC has adopted a detailed set of bylaws and rules that govern, among
other things, the
process of measuring and reporting the circulation of print publications
in the United States. Upon admission to ABC, each member agrees to abide
by ABC's bylaws and rules. Failure to abide by any applicable bylaw or
rule can result in expulsion. Additionally, the bylaws provide that one
publisher can bring charges against another for failure to comply with any
applicable bylaw or rule, resulting in a hearing and adjudication by the
ABC Board of Directors.
B. The Fifty Percent Rule
In 1916, ABC implemented the "50% rule," which provides that a magazine
publisher may not count as part of the magazine's "paid circulation" any
subscription sold to a consumer at a price less than 50% of the "basic"
price of a subscription to that magazine. (ABC Rules § B 1.2.) The "basic"
price is defined as the price "at which the publication may be purchased
by anyone, at any time, for a definite duration." (Id. § B 1.2.) Thus, if
a publisher sells a subscription at less than 50% of the magazine's basic
price, that subscription sale cannot be included in the paid circulation
figures reported to advertisers, on which a publisher's advertising rates
are based. This rule is also used by the U.S. Postal Service in
determining whether a magazine qualifies for preferred postage rates.
Under ABC rules, a magazine publisher whose "unpaid" circulation
exceeds 30% of the magazine's total circulation is classified as a
publication without paid circulation, and must report its circulation
figures to advertisers in a manner that is distinguishable from magazines
with 70% or more paid circulation.
Magazine subscriptions are marketed by the publishers' own employees
and by independent sales agents. Although many publishers promote
subscription sales through their own direct mail marketing and other
methods, there is a large network of independent sales agents that market
magazine subscriptions on behalf of the publishers and earn a commission
their subscription sales. Even when agents are involved, the magazines
are generally only sold directly from the publisher to the consumer; the
agent possesses no discretion to set prices for the magazine.
C. Revisions to MPA Guidelines
In the spring of 1997, the Federal Trade Commission ("FTC) approached
the MPA and various magazine publishers in an effort to reduce consumer
fraud committed by subscription agents and threatened to take action
against the publishers if they failed to correct the problem. Because
authorized agents often used subagents in their solicitation efforts, it
was difficult for publishers to identify the perpetrators of the
In an effort to correct the problem, and in response to FTC pressure,
the MPA amended the 1992 MPA Guidelines, which recommend certain
practices for publishers' relations with their agents. A primary component
of the Guideline amendments was a tracking system that would enable
publishers to identify, in response to charges of deceptive trade
practices, the subagents and other parties who had solicited the
subscriptions in question. In 1998, the amended Guidelines were
recommended for adoption by all magazine publishers.
On July 28, 1998, the MPA, acting though its board of directors, agreed
to abide by a draft of the amended Guidelines, which sets forth certain
industry-wide rules to be followed by all publishers and subscription
agents in the magazine publishing industry. The MPA Guidelines were
unanimously approved by the MPA board of directors, and all publishers,
including non-members, were encouraged to enforce them.*fn1
Plaintiffs claim that Sections 1(c) and 4(a) of the amended MPA
Guidelines constitute illegal anticompetitive agreements that have harmed
magazine consumers. Section 1(c) of the Guidelines is entitled "Written
Agreements," and states: "Publishers will enter into written agreements
with their authorized subscription agents. The agreements will provide
that the Agents will comply with these Guidelines." Section 4 of the MPA
Guidelines is entitled "Agents' Commitments to Publishers." Section 4(a)
provides that "[a]gents shall solicit or process or clear subscription
orders only if they qualify as paid circulation by the rules of the Audit
Bureau of Circulations or BPA International as applicable, unless
otherwise specified by the Publisher."
On June 30, 2000, Plaintiffs filed suit in this Court, alleging that
Defendants' conduct with respect to the MPA Guidelines constituted a
violation of the antitrust laws. On September 23, 2002, the Court granted
preliminary approval of a proposed settlement, in which the MPA agreed to
repromulgate its Guidelines in exchange for the resolution of this
litigation. On May 16, 2003, the parties submitted a motion for final
approval of the settlement, and Plaintiffs lawyers moved for attorneys
fees in the amount of $1.1 million.
Generally, courts may not award attorneys' fees to a prevailing party
absent statutory or contractual authority. See Alyeska Pipeline Serv.
Co. v. Wilderness Soc'y, 421 U.S. 240, 247-49 (1975). No such authority
exists in this case. Thus, the only source for an award of attorneys'
fees to Plaintiffs' counsel is the common fund rule, an exception to the
general rule that attorneys' fees may not be awarded. See Mills v.
Electric Auto-Lite Co., 396 U.S. 375, 392 (1970); Savoie v. Merchants
Bank, 84 F.3d 52, 56 (2d Cir. 1996).
The common fund exception derives from the equitable principle that
obtain the benefit of a lawsuit without contributing to its cost are
unjustly enriched at the successful litigant's expense. Boeing Co. v. Van
Gemert, 444 U.S. 472, 478 (1980). Thus, a party recovering a fund for the
benefit of others may recover his costs, including attorneys' fees, from
the fund itself or directly from the other parties enjoying the benefit.
Application of the common fund rule does not require a judgment on the
merits, but may be applied where a successful result is reached through
settlement. See Kaplan v. Rand, 192 F.3d 60, 69 (2d Cir. 1999).
While the common fund doctrine was originally developed in the context
of the recovery of a monetary benefit, the doctrine is also applicable
where the benefit received is not pecuniary in nature. See Mills v.
Electric Auto-Lite Co.. 396 U.S. 375, 392 (1970). Application of the
doctrine in this context is referred to as the "common benefit"
doctrine. See Savoie, 84 F.3d at 56. The common benefit rule permits a
prevailing party to obtain reimbursement of attorneys' fees "in cases
where the litigation has conferred a substantial benefit on the members
of an ascertainable class." Id. at 393.
The common benefit doctrine originated in the context of shareholder
derivative suits in Mills v. Electric Auto-Lite Co.. 396 U.S. 375, 392
(1970). In Mills, the Court stated:
`Where an action by a stockholder results in a
substantial benefit to a corporation he should recover
his costs and expenses . . . [A] substantial benefit
must be something more than technical in its
consequence and be one that accomplishes a result
which corrects or prevents an abuse which would be
prejudicial to the rights and interests of the
corporation or affect the enjoyment or protection of
an essential right to the stockholder's interest.'
396 U.S. at 396 (quoting Bosch v. Meeker Cooperative Light & Power
Assn., 257 Minn. 362
, 166-7 (1960) (alteration in original).
Thus, where the benefit obtained is non-pecuniary in nature, a Court
whether the benefit to the class is substantial, i.e., whether it is
"something more than technical in its consequence." Id. (internal
quotation marks and citations omitted). The Second Circuit has refused to
approve a district court's award of attorneys' fees where it found the
benefit to be "purely cosmetic and ephemeral." See Kaplan v. Rand
192 F.3d 60, 72 (2d Cir. 1999) (internal citations and quotation marks
Here, the Court finds that the settlement has not provided a
substantial benefit to the members of the class. There is no evidence in
the record that Guideline Rule 4(a) was either used or intended to be
used to manipulate magazine prices, as Plaintiffs claim.
Plaintiffs argue that the MPA Guidelines and the ABC Rules constitute
an illegal pricing agreement that prohibits publishers from selling their
magazines at less than 50% of the "basic price." In order to understand
the meaning and significance of the Guidelines and the ABC Rules, it is
necessary to examine the context and history of their development.
In the magazine industry, publishers sell magazines either directly to
customers, or through a paid agent, who receives a commission on each
magazine sold. These agents may solicit customers directly or through
subagents. Agents generally have no discretion to set their own prices.
In addition to revenue from customers, publishers also receive a
substantial portion of their revenue from advertisers; thus, various
publishers compete for advertising dollars. Advertisers consider many
factors in choosing a magazine in which to place their advertisement,
including the aggregate distribution of a magazine to the public, the
targeted audience, and the subscription price of the magazine.
Advertisers reason that the more consumers are willing to pay for a
magazine, the more likely it is that the consumer will read it, and
thus, see their advertisement.
ABC's 50% rule enables advertisers to evaluate how much consumers are
paying for the magazine in choosing the magazines in which to advertise.
The 50% rule requires magazine publishers whose unpaid circulation
exceeds 30% of the magazine's total circulation to report its circulation
figures to advertisers in a manner that is distinguishable from magazines
with 70% or more paid circulation. In this way, an advertiser is able to
determine the extent to which a magazine's "basic price" is an accurate
reflection of how much its customers are willing to pay for it.
Incorporation of the ABC 50% standard into the MPA Guidelines
originated from concern among the MPA staff that subagents were offering
subscriptions without regard for individual publishers' directives and
were misrepresenting orders as "paid circulation" when, in fact, those
orders did not fall into that category. Thus, Section 4(a) represents an
attempt by the MPA staff to improve accuracy in circulation data that
publishers provide to advertisers.
Plaintiffs contend that the incorporation of this standard into the MPA
Guidelines constitutes an illegal agreement by publishers that restricts
pricing and discounting. A careful reading of the Guideline, however,
makes clear that Section 4(a) does not restrict publishers' pricing
decisions in any way. Rather, the Guideline merely provides pricing
standards with which agents must comply. Because agents have no pricing
discretion themselves, Section 4(a) in no way restrains pricing decisions
by either publishers or their agents.
Furthermore, the plain text of the amended guidelines indicates that
publishers retain discretion in pricing their magazines and contracting
with their agents. Although 4(a) provides that "[a]gents shall solicit or
process or clear subscription orders only if they qualify as paid
circulation," this language is followed by the phrase "unless otherwise
specified by the Publisher," indicating that the preceding provision
constitutes a default guideline from which a
publisher can opt out. Thus, nothing in 4(a) restrains the ability of a
publisher to either set prices for its magazines or provide discounts from
the basic price.*fn2 Rather, it merely prevents publishers and agents
from misrepresenting as paid circulation sales that do not fall into that
Moreover, declarations submitted to the court indicate that the amended
Guidelines were actually intended to further procompetitive objectives.
In drafting Section 4(a), the MPA's outside counsel and staff expected
that it would deter telemarketing abuses and improve the accuracy of
publishers' circulation reports to advertisers. Far from being an
anticompetitive measure, the record indicates that the amended guidelines
would have a positive effect on industry practices.
Moreover, Plaintiffs acknowledge that sworn statements by Defendants
indicate that (1) none of the Defendants regarded the Guidelines as
anything but voluntary recommendations, (2) Defendants interpreted
Guideline 4(a) to confirm that publishers retained complete discretion in
setting subscription prices; and (3) no Defendant changed its conduct as
a result of the implementation of Guideline 4(a). (Plaintiffs' Mem. of
Law in Support of Final Approval of the Proposed Settlement, at 5).
In light of the foregoing, the Court fails to see how the elimination
of Section 4(a) in any way provides a benefit to consumers. Rather, the
benefit gained from the class appears to be "technical in its
consequence," and thus does not support an award of attorneys' fees under
the common benefit rule. Mills. 396 U.S. at 392.
For the reasons set forth above, the Court finds that the settlement
agreement will produce no substantial benefit to the plaintiff class.
Accordingly, Plaintiffs' request for an award of attorneys' fees is