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IN RE MAGAZINE ANTITRUST LITIGATION

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 separate order.

I. BACKGROUND

  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 Circulations Page 2

  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 Page 3 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 on Page 4 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 deceptive practices.

  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 Page 5

  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.

  II. DISCUSSION

  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 "persons who Page 6 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 must determine Page 7 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 omitted).

  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. Page 8

  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 Page 9 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 category.

  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.

 III. Conclusion Page 10

  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 DENIED.

  SO ORDERED.


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