Cass Student Adv., Inc. v. NATIONAL ED. ADV. SERVICE, INC., 73 C 2779.

• Decision Date: 12 January 1976
• Docket Number: No. 73 C 2779.,73 C 2779.
• Citation: 407 F. Supp. 520
• Parties: CASS STUDENT ADVERTISING, INCORPORATED, Plaintiff, v. NATIONAL EDUCATIONAL ADVERTISING SERVICE, INCORPORATED, Defendant.
• Court: U.S. District Court — Northern District of Illinois

407 F. Supp. 520

CASS STUDENT ADVERTISING, INCORPORATED, Plaintiff, v. NATIONAL EDUCATIONAL ADVERTISING SERVICE, INCORPORATED, Defendant.

No. 73 C 2779.

United States District Court, N. D. Illinois, E. D.

January 12, 1976.

Jerald P. Esrick, David L. Schiavone, and H. Roderic Heard, Wildman, Harrold, Allen & Dixon, Chicago, Ill., for plaintiff.

John T. Cusack, and Joe A. Sutherland, Gardner, Carton, Douglas, Chilgren & Waud, Chicago, Ill., for defendant.

MEMORANDUM OPINION

DECKER, District Judge.

This antitrust action brought by plaintiff CASS Student Advertising, Incorporated ("CASS") against National Educational Advertising Services, Inc. ("NEAS") alleges violations of the Sherman Act. 15 U.S.C. § 1 et seq.

Count I alleges that "NEAS unlawfully possesses monopoly power in the relevant market and has unlawfully and wilfully acquired and maintained that power with the intent to monopolize the relevant market and with the intent to exclude CASS or any other competitor from the market" in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

In Count II, NEAS is charged with attempting to monopolize the relevant market in contravention of Section 2.

Count III alleges that the contractual arrangements between NEAS and hundreds of college newspapers, by which NEAS has undertaken to act as exclusive national advertising representative for the papers, constitute agreements in restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.

The plaintiff seeks various forms of declaratory and injunctive relief and treble damages.

Following extensive discovery and a three-day hearing in December, 1973, this court issued a memorandum opinion on April 15, 1975, reported at 374 F.Supp. 796. On May 23, 1975, the Seventh Circuit rendered an opinion, reported at 516 F.2d 1092, which upheld this court's findings of fact, but reversed on the grounds that this court failed to properly define the relevant market. On November 17, 1975, the United States Supreme Court denied the defendant's petition for a writ of certiorari.

As is described in greater detail in this court's previous opinion, the plaintiff and the defendant are both engaged in the business of representing college newspapers for the placement of national advertising. This service is the performance of the function of a middleman who, for a percentage commission of the advertising revenue generated, undertakes the otherwise expensive and burdensome task of bringing together corporations with nationwide advertising campaigns and the hundreds of college newspapers.

In accordance with the holding of the Seventh Circuit, the relevant market in this business is "the service of representing college newspapers in the placement of national advertising".

The defendant is a New York corporation with its principal place of business in that state. This court found that for approximately forty years, NEAS and its predecessor served as the only business representative of college newspapers for the placement of national advertising. At the time of the hearing, its total annual billings for this service approximated $3,000,000. against $50,000. for the plaintiff. The defendant thus handled substantially all of the national advertising in college newspapers placed through such middleman agencies, and indeed claims to place 95% of all the national advertising placed in college newspapers.

NEAS' dominant position in this market was based upon its written or oral contractual agreements with most of the college newspapers which accept advertising. At the time of the hearing in this case, NEAS had written or oral agreements with 1103 college newspapers including virtually all of the 100 schools with the largest enrollments. As a result NEAS was able to offer advertisers access to approximately 87% of the student population.

Most of these contracts, including those with the largest schools,¹ designated NEAS as the college newspaper's exclusive representative for the securing of national advertising. NEAS had either 893 or 894 identical written contracts providing for exclusive representation. Seven or eight contracts had no provision for exclusive representation, and NEAS also had 202 or 203 non-exclusive oral understandings.

These exclusive representation contracts were of infinite duration, and required 12 months' notice of termination. Under these contracts the colleges remained free to accept advertising directly from a national advertiser or an advertising agency for a national company, but were prohibited from accepting advertising procured by any competing advertising representative such as CASS. These contracts require the newspaper, at the request of Neas, to signify on its rate cards and mastheads that NEAS is its national advertising representative.

The extent to which NEAS dominates the relevant market is more than sufficient for a finding that it has monopoly power. United States v. Grinnell Corp., 384 U.S. 563, 571, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); American Tobacco Co. v. U. S., 328 U.S. 781, 797, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); L. G. Balfour Company v. F. T. C., 442 F.2d 1, 12 (7th Cir. 1971); U. S. v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945). Certainly the placing of 98% of all national advertising accounts in college newspapers, the sales of 95% of all national advertising in college newspapers, and contractual relationships providing access to 87% of the college student population surpasses the most stringent of requirements for such a finding.

Furthermore, this court finds that NEAS has wilfully maintained its monopoly power with the intent to monopolize the market in question. It has sought exclusive representation contracts from college newspapers, and has indicated in letters sent to the newspapers on April 2 and September 27, 1973, that it intends to enforce the exclusivity provisions. Additionally, Joseph Hanson, the president of NEAS, successfully urged the members of the Pacific Coast Publication Managers' Conference at their annual meeting on March 19, 1972, to adopt a resolution pledging collective support for NEAS.

NEAS strongly contends that the accumulation and maintenance of exclusive representative contracts does not constitute a trade practice which is monopolistic, a restraint of trade and violative of the objectives of the antitrust laws. It notes that the Supreme Court has held that exclusive dealing contracts are not per se illegal. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961). Moreover, it correctly notes that exclusive representation contracts are a universally followed practice in the advertising representation business, citing as examples the fields of commercial television and radio, daily newspapers, and certain specialized journals. Indeed, plaintiff CASS utilizes the same exclusivity provisions in at least 21 of its local advertising contracts in Chicago.

Regardless of the propriety of exclusive representation contracts in other advertising markets, this court follows the logic of the Seventh Circuit which found that "in the context of proof of monopoly power, these contracts long term, indefinite duration exclusive representation arrangements are anticompetitive and constitute an unfair method of competition . . . as monopolization", L. G. Balfour Company v. F. T. C., supra, at 14. Tampa Electric, supr...