181 F.3d 216 (2nd Cir. 1999), 96-7304, AD/SAT v Assoc. Press

Docket Nº:Docket No. 96-7304
Citation:181 F.3d 216
Party Name:AD/SAT, a division of Skylight, Inc., Plaintiff-Appellant, v. ASSOCIATED PRESS, NEWSPAPER ASSOCIATION OF AMERICA, NATIONAL NEWSPAPER NETWORK, THE NEWARK STAR LEDGER, THE BIRMINGHAM NEWS COMPANY, ADVANCE PUBLICATIONS, INC., DONALD E. NEWHOUSE, THE OAK-LAND PRESS CO., THE NEWS & OBSERVER PUBLISHING COMPANY, OKLAHOMA PUBLISHING COMPANY, THE LEXINGTON
Case Date:June 23, 1999
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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181 F.3d 216 (2nd Cir. 1999)

AD/SAT, a division of Skylight, Inc., Plaintiff-Appellant,

v.

ASSOCIATED PRESS, NEWSPAPER ASSOCIATION OF AMERICA, NATIONAL NEWSPAPER NETWORK, THE NEWARK STAR LEDGER, THE BIRMINGHAM NEWS COMPANY, ADVANCE PUBLICATIONS, INC., DONALD E. NEWHOUSE, THE OAK-LAND PRESS CO., THE NEWS & OBSERVER PUBLISHING COMPANY, OKLAHOMA PUBLISHING COMPANY, THE LEXINGTON HERALD-LEADER, DAYTON NEWSPAPERS, INC., and COX ENTERPRISES, INC., Defendants-Appellees.

Docket No. 96-7304

United States Court of Appeals, Second Circuit

June 23, 1999

Argued: December 5, 1996

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Daniel R. Shulman, Minneapolis, Minn., Joseph M. Alioto, San Francisco, Cal. (Terry M. Walcott, Shulman, Walcott & Shulman, Minneapolis, Minn.; David E. Nachman, Solomon, Zauderer, Ellenhorn, Frischer & Sharp, New York, N.Y., on the brief), for plaintiff-appellant.

Dennis J. Drebsky, New York, N.Y. (Richard N. Winfield, Hilary Lane, John A. Nathanson, Gregory G. Marshall, Rogers & Wells, New York, N.Y., on the brief), for defendant-appellee Associated Press.

Yvonne S. Quinn, New York, N.Y. (Timothy J. Helwick, Andrew Rotstein, Sullivan & Cromwell, New York, N.Y., on the brief), for defendants-appellees Newark Morning Ledger Co., The Birmingham News Company, Advance Publications, Inc., and Donald E. Newhouse.

Conrad M. Shumadine, Norfolk, Va. (Frank A. Edgar, Jr., Willcox & Savage, Norfolk, Va., on the brief), for defendant-appellee The News & Observer Publishing Company.

Patricia Farren, Matthew S. Wild, Cahill Gordon & Reindel, New York, N.Y., submitted a brief for defendants-appellees Newspaper Association of America and National Newspaper Network.

James A. Treanor, III, Timothy J. O'Rourke, Scott D. Dailard, Dow, Lohnes & Albertson, Washington, D.C., submitted a brief for defendants-appellees Dayton Newspapers, Inc. and Cox Enterprises, Inc.

A. Douglas Melamed, James W. Lowe, Wilmer, Cutler & Pickering, Washington, D.C., submitted a brief for defendant-appellee The Oakland Press Company.

Robert P. Reznick, James B. Kobak, Jr., Hughes Hubbard & Reed, New York, N.Y., submitted a brief for defendant-appellee Lexington Herald-Leader.

Thomas J. Lilly, Lilly & Bienstock, Garden City, N.Y., submitted a brief for defendant-appellee Oklahoma Publishing Company.

Before: WINTER, Chief Judge, NEWMAN, and WALKER, Circuit Judges.

PER CURIAM:

This case involves allegations of anticompetitive conduct in the market for delivery of advertisements to newspapers. The plaintiff-appellant, AD/SAT, was engaged in the business of electronically transmitting advertisements to newspapers from the mid-1980s until 1996. After the Associated Press ("AP") launched a similar service in 1994, AD/SAT accused the AP of violating section 2 of the Sherman Act, 15 U.S.C. § 2, by (i) attempting to monopolize the alleged market for the electronic transmission of advertisements to newspapers; (ii) engaging in monopoly leveraging; and (iii) monopolizing the wire services news and photo transmission markets. In addition, AD/SAT alleged that all the defendants in this case (i) conspired to boycott AD/SAT, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1; and (ii) conspired to monopolize the alleged

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market of electronic transmission of advertisements to newspapers, in violation of section 2 of the Sherman Act. AD/SAT appeals from the March 6, 1996, judgment of the District Court for the Southern District of New York (Peter K. Leisure, District Judge), to the extent it (i) dismissed AD/SAT's attempted monopolization and monopoly leveraging claims against the AP and its conspiracy claims against the AP and the other defendants, and (ii) declined to reconsider the District Court's April 24, 1995, decision dismissing AD/SAT's claims against the Lexington Herald-Leader. See AD/SAT v. Associated Press, 920 F.Supp. 1287 (S.D.N.Y. 1996) ("AD/SAT II").

We affirm the judgment of the District Court in all respects. AD/SAT's claim that the AP attempted to monopolize the market of advertising delivery cannot survive summary judgment because there is insufficient evidence to create a genuine issue of material fact as to the existence of a dangerous probability that the AP will achieve monopoly power in the relevant product market. Likewise, AD/SAT's monopoly leveraging claim was properly dismissed because AD/SAT has not presented evidence that could support a finding of tangible harm to competition in the advertising delivery market, an essential element of that claim. Finally, we conclude that AD/SAT's allegations of conspiracy are insufficient to withstand the scrutiny prescribed by the Supreme Court in Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984).

Background

Overview. Historically, advertisers and advertising agencies have sent their ads to newspapers by means of physical delivery, such as the postal service, messengers, or overnight delivery services. With these services, advertisers typically bear the cost of delivery. In 1996, when the defendants' motions for summary judgment were decided, over 80 percent of all newspaper ads were delivered by overnight couriers such as Federal Express.

An alternative to physical delivery available to advertisers is electronic delivery. This involves the transmission of copy to newspapers via satellite, land-based lines, or both. From 1986 until 1996, AD/SAT, a division of Skylight, Inc., was engaged exclusively in the electronic delivery of advertisements to newspapers. In providing its transmission services, AD/SAT delivered ads to newspapers over a satellite network owned and operated by the AP. The AP, a cooperative association whose members consist of more than 1,500 United States newspapers, is engaged primarily in the collection and distribution of news and photographs to newspapers. In 1994, the AP launched AdSEND, which delivers ads to newspapers via the AP's satellite network. Unlike physical carriers, such as Federal Express, which offer delivery services for a wide variety of goods, AD/SAT and AdSEND focused their services exclusively on the delivery of ads to newspapers. In this action, AD/SAT argues that the AP's conduct upon its entrance into the ad delivery business, as well as the allegedly unlawful assistance of the remaining defendants, violated sections 1 and 2 of the Sherman Act.

The parties. In addition to the AP, the other defendants named by AD/SAT include the Newspaper Association of America ("NAA"), the Newspaper National Network (sued herein as the National Newspaper Network) ("NNN"), several newspapers or groups of newspapers that are member-owners of the AP and members of the NAA, and one individual, Donald Newhouse. The NAA is a non-profit trade association whose members consist primarily of general circulation daily newspapers in the United States. Its mission is to promote the newspaper industry, in part by encouraging the development of technological and marketing innovations that will enhance the efficiency and profitability

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of newspapers. Formed in the spring of 1994, the NNN is a limited partnership organized by the NAA and forty-eight NAA member-newspapers to promote the use of newspapers as an effective medium for national advertising. The newspaper partners of the NNN consist of forty-eight of the fifty largest newspapers by circulation in the United States. In an attempt to overcome the perception that newspaper advertising is inefficient and cumbersome relative to advertising in other media, such as television and radio, the NNN established a clearinghouse for processing multi-newspaper insertion orders. That service, which is aimed at attracting new advertisers to the newspaper medium and making it as easy as possible for advertisers to place ads in numerous papers, is called the "one order/one bill" service.

Defendant Advance Publications, Inc. ("Advance") is owned by the Newhouse family. Defendant Donald Newhouse, the president of Advance, was, during times relevant to this litigation, a member of the board of directors of the AP and the volunteer chairman of the NAA. Through wholly owned subsidiaries, Advance owns defendants Newark Morning Ledger Co., which publishes the Star-Ledger, and Birmingham News Company, which publishes the Birmingham News.

Cox Newspapers, Inc., a wholly-owned subsidiary of defendant Cox Enterprises, Inc. ("CEI"), publishes fourteen newspapers of general circulation, including the Dayton Daily News, which is owned by defendant Dayton Newspapers, Inc. ("DNI"). David Easterly, the president of CEI, was a member of the AP board of directors and sat on an ad hoc committee of the AP board that assisted the AP's management in investigating and planning its entry into the ad delivery market.

Defendant Oklahoma Publishing Company publishes an independent daily newspaper called the Daily Oklahoman. Defendant News & Observer Publishing Company publishes the News & Observer. Defendant Oakland Press Company publishes The Oakland Press. Finally, defendant Lexington Herald-Leader, a wholly-owned subsidiary of Knight-Ridder, Inc., publishes The Herald-Leader.1

The AD/SAT system. AD/SAT's electronic delivery system allowed the advertiser to deliver a single hard copy of its ad to one of AD/SAT's two transmittal stations, located in New York and Los Angeles. The ad would then be scanned into AD/SAT's system, and transmitted to designated newspapers via the AP-owned-and-operated satellite network. The ad would be received at each newspaper by an AP satellite dish, and then forwarded to a "recorder" installed and owned by AD/SAT. The recorder would then produce a hard copy of the ad. The recorders -- essentially high speed facsimile machines -- cost over $60,000 each, and...

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