Theme Promotions v. News America Marketing Fsi

• Decision Date: 20 August 2008
• Docket Number: No. 06-16230.,No. 06-16341.,06-16230.,06-16341.
• Citation: 546 F.3d 991
• Parties: THEME PROMOTIONS, INC., a California corporation, dba Theme Co-op Promotions, Plaintiff-counter-defendant-Appellee, v. NEWS AMERICA MARKETING FSI, a Delaware corporation, Defendant-counter-claimant-Appellant. Theme Promotions, Inc., a California corporation, dba Theme Co-op Promotions, Plaintiff-counter-defendant-Appellant, v. News America Marketing FSI, a Delaware corporation, Defendant-counter-claimant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

546 F.3d 991

THEME PROMOTIONS, INC., a California corporation, dba Theme Co-op Promotions, Plaintiff-counter-defendant-Appellee, v. NEWS AMERICA MARKETING FSI, a Delaware corporation, Defendant-counter-claimant-Appellant.

Theme Promotions, Inc., a California corporation, dba Theme Co-op Promotions, Plaintiff-counter-defendant-Appellant, v. News America Marketing FSI, a Delaware corporation, Defendant-counter-claimant-Appellee.

No. 06-16230.

No. 06-16341.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 14, 2008.

Filed August 20, 2008.

Amended October 10, 2008.

Eugene Crew, Nancy L. Tompkins, Holly Gaudreau, Townsend and Townsend and Crew, LLP, San Francisco, CA, Theodore T. Herhold, Townsend and Townsend and Crew, LLP, Palo Alto, CA, for the plaintiff/appellee/cross-appellant.

Gary J. Malone, Constantine Cannon, New York, NY, for the defendant/appellant.

Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. Nos. CV-97-04617-VRW, CV-97-04617-VRW.

Before: STEPHEN S. TROTT, SIDNEY R. THOMAS, and RICHARD A. PAEZ, Circuit Judges.¹

ORDER

The opinion previously filed in this case is amended as follows.

On pp. 11074-75 of the slip opinion, the following sentence is inserted before the sentence beginning "News argues that the evidence actually shows....":

"Theme further presented evidence that, while the right of first refusal agreements purported to lower prices, prices could have been lower still if the market were rid of such agreements."

The following language is deleted:

"Although both parties are able to point to evidence supporting their positions, the evidence of restricted choice between market alternatives is sufficient to establish that the injury suffered by Theme was the type the antitrust laws were intended to prevent."

In lieu of the deleted passage, the following language is inserted:

"However, a jury could reasonably believe Theme's evidence that the right of first refusal agreements were harmful to competition over News' evidence that they were procompetitive, and thereby conclude that Theme suffered an injury of the type the antitrust laws were intended to prevent."

The panel has voted to deny the petition for rehearing. Judges Thomas and Paez voted to reject the suggestion for rehearing en banc and Judge Trott so recommended.

The full court has been advised of the suggestion for rehearing en banc, and no judge of the court has requested a vote on the suggestion for rehearing en banc. Fed. R.App. P. 35(b).

With the amendments, the petition for rehearing is denied and the suggestion for rehearing en banc is rejected.

No future petitions for rehearing will be entertained.

OPINION

THOMAS, Circuit Judge:

This appeal presents the question of whether right of first refusal agreements between a publisher of advertising tools and packaged goods companies violate California antitrust and tort law. We conclude that the jury verdict in favor of Plaintiff was supported by substantial evidence in the record, and we affirm.

I

News America Marketing FSI, Inc. ("News") is one of two publishers of an advertising tool called a free-standing insert ("insert"). An insert is a multi-colored advertising booklet inserted into a Sunday newspaper that contains coupons promoting products — like cereal and soft drinks — sold by packaged goods companies. Although packaged goods companies advertise and promote their products with a variety of advertising tools, inserts are the primary tool that packaged goods companies use to distribute coupons nationally. The other major company that sells, publishes, and distributes inserts is Valassis Communications ("Valassis").

It is common for a packaged goods company to enter into a right of first refusal agreement with either News or Valassis to meet its insert needs. In an right of first refusal agreement with News, a packaged goods company agrees to first offer all (if the agreement is a "100% right of first refusal agreement") or a set percentage (if the agreement is a "share right of first refusal agreement") of its insert business to News. Under the agreement, News must accept this business unless it cannot accommodate the date requested by the packaged goods company. In return for the greater volume of sales promised by the right of first refusal agreement, News discounts the insert prices.

Theme Promotions, Inc. ("Theme") is an advertising company that offers promotional programs to packaged goods companies. Theme specializes in related-item merchandising, or "tie-ins", that involve the joint promotion of complementary products from two different packaged goods companies (for example, a particular brand of popcorn with a particular brand of cola). Theme often uses inserts in its related-item promotions. Because Theme is contractually bound to two or more packaged goods companies for each related-item promotion, and because Theme is responsible for the execution of the promotions, Theme — and not the packaged goods companies — often purchases the inserts from either News or Valassis.

Theme itself has entered into right of first refusal agreements with News (before 1996) and Valassis (since 1996) to get lower insert prices. In June 1995, Theme entered into a right of first refusal agreement with News for its insert business. When a dispute arose between the parties, the agreement was voided, and Theme entered into a right of first refusal agreement with Valassis. News subsequently sued Theme and Valassis for intentional interference with contractual relations. The lawsuit settled in 1997. Since 1996, Theme's preferred supplier of inserts has been Valassis, in part because Valassis offers Theme "extras" like better page position for its coupons, and rebates for promotional programs brought to Valassis.

During the course of the litigation with Theme and Valassis, News took the position that any right of first refusal agreements applied not only to inserts purchased directly by packaged goods companies for their own single product promotions, but also to inserts purchased indirectly by third-party suppliers of promotional services such as Theme. News communicated this position to packaged goods companies (Benevia and Van de Kamp, in particular) that had been told by Theme that they were free to place their orders with Valassis as long as the orders were placed through Theme. News advised these packaged goods companies that placing an order with Valassis would be a breach of contract and could embroil the packaged goods company in the lawsuit between News and Theme. Theme characterizes this as News' "aggressive [right of first refusal] enforcement strategy."

In 1997, News formalized its position that its right of first refusal agreements with packaged goods companies applied to inserts purchased by third-party suppliers such as Theme. News added language to its right of first refusal contracts providing that the packaged goods company "agrees that it will abide by terms and pay the rates set forth in this agreement for all [inserts] placed with News America irrespective of whether client places such advertisements directly through an advertising agent or another third-party compiler."

Between 1997 and 1999, Theme's preference to purchase inserts from Valassis, and News' right of first refusal agreements with packaged goods companies, clashed in at least 9 instances. In 1997, Theme put together an insert tie-in program between Benevia's sugar substitute Equal and Maxwell House Coffee. Benevia had a 100% right of first refusal agreement with News. Although Theme preferred to purchase the inserts from Valassis, News told Benevia that under the right of first refusal agreement, the inserts had to be purchased from News. The insert program was ultimately placed with News. Benevia did not participate in additional Theme programs. Similar issues arose in tie-in programs with Van de Kamp, Nabisco, Smuckers, Campbells, Hormel, and International Home Foods. In some cases, the insert order was ultimately placed with News; in others, it was placed with Valassis. In most cases, the packaged goods company did no further business with Theme after the contested promotion.

On December 18, 1997, Theme brought an action against News in the district court for the Northern District of California, for violations of, inter alia, federal antitrust laws, the Cartwright Act, Cal. Bus. & Prof. Code § 16720, and the Unfair Competition Act, Cal. Bus. & Prof.Code § 17200, and for tortious interference with prospective economic advantage. The district court dismissed Theme's federal and state antitrust claims with prejudice, and eventually granted summary judgment in favor of News. Theme appealed to this Court, and we reversed the dismissal of the federal and state antitrust and unfair competition claims, and the state law tortious interference claim. See Theme Promotions, Inc. v. News America FSI, 35 Fed.Appx. 463 (9th Cir.2002).

On remand, Theme filed a motion for leave to amend, seeking to substitute a declaratory judgment claim for its antitrust claims. The district court denied the motion. Theme eventually withdrew all of its federal antitrust claims with prejudice. The case went to trial in August, 2005 on claims of restraint of trade and monopolization in violation of the Cartwright Act, unlawful and unfair business practices in violation of the Unfair Competition Act, negligent interference with prospective economic advantage, and intentional interference with prospective economic advantage. During the trial, Theme attempted to assert a boycott claim, but the district court granted News' motion for judgment as a matter of law ("JMOL") with respect to that claim.

After a three-week trial, the jury returned a verdict in favor of Theme, finding that: (1) two provisions of News' right of first refusal agreements unreasonably restrained trade in violation of the Cartwright...