CASS STUDENT ADV. INC. v. NATIONAL ED. ADV. SERV., INC., 73 C 2779.
| Decision Date | 15 April 1974 |
| Docket Number | No. 73 C 2779.,73 C 2779. |
| Parties | CASS STUDENT ADVERTISING INCORPORATED, Plaintiff, v. NATIONAL EDUCATIONAL ADVERTISING SERVICES, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Wildman, Harrold, Allen & Dixon, Chicago, Ill., for plaintiff.
Gardner, Carton, Douglas, Chilgren & Waud, Chicago, Ill., and Forsythe, McGovern & Pearson, New York City, for defendant.
Plaintiff, CASS Student Advertising Incorporated ("CASS"), has brought a three-count complaint against National Educational Advertising Services, Inc. ("NEAS"), for 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, also 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. Plaintiff seeks various forms of declaratory and injunctive relief, and treble damages. The complant defines the relevant market as "the market for representing college newspapers throughout the United States in the placement of national advertising."
This action was filed on October 31, 1973, together with a motion for a preliminary injunction. Thereafter, the parties undertook extensive and intense discovery, culminating in a three-day hearing in December on the motion for preliminary injunction. At the conclusion of the hearing, and on the court's suggestion, both parties agreed that the evidence then before the court would be considered as evidence in the final hearing, and submitted the case on that evidence for a decision on the merits. See Rule 65(a)(2), F.R.Civ.P. After a careful review of the evidence and the law, the court is of the opinion that judgment should be rendered for the defendant. Plaintiff has failed to demonstrate by a preponderance of the evidence that the market alleged in the complaint constitutes a relevant market for purposes of the Sherman Act. This memorandum opinion will constitute the court's findings of fact and conclusions of law for this case pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
The plaintiff and the defendant are both engaged in the business of representing college newspapers for the placement of national advertising. So far as the evidence indicates, the parties are, in effect, the only serious contenders in this field. The operation of this business can best be viewed as comprised of two aspects.
At the first stage, the company seeking to establish itself in the business solicits college newspapers to receive authorization to represent them to national advertisers. Because of a lack of staff, financial and other resources with which to solicit national advertisers on their own, most college newspapers which run national advertisements accept the services of a representative.
Upon acceptance by a newspaper, the second aspect of the representative's operation comes into play—the representative becomes an advertising space salesman for the college papers. The representative periodically publishes a "ratebook" listing information concerning the college papers it represents and distributes this to national advertisers or their advertising agencies. This booklet contains figures on line rates and circulation of the papers, enrollment of the schools, order instructions, and other pertinent data. Through this booklet, the representative solicits national advertisers, either directly or through their agencies, in an attempt to sell them on the college newspaper medium, or, at least the papers it represents, as a viable mode of publicizing their products or services.
The representative handles all details of the placement of the advertisements in each paper, including submission of advertising copy, confirmation, and billing. Although his advertisement may appear in a number of college papers, the advertiser receives only one bill from the representative setting forth the total amount due to all the schools designated by the advertiser as recipients of his ads.1
Dealing with college newspaper representatives has a significant convenience value to national advertisers. The companies and their advertising agencies find it difficult or inefficient, in attempting to place ads in college newspapers throughout the country, to make separate arrangements with each school. Nor are the advertisers interested in being approached by each college publication. Businesses such as NEAS and CASS allow the advertisers to deal with a single, specialized company in placing their advertisements.
It is clear that, as the representative adds more and larger schools to his list, the wider the audience it may guarantee and the more attractive the representative will appear to the national advertiser.
CASS is a Florida corporation licensed to do business in Illinois, and maintains its principal place of business in Chicago. It also has offices in Los Angeles and New York City. In January, 1969, Messrs. Alan Weisman and Steven Zeinfeld founded a partnership called College Advertising Sales and Service in which they were equal partners. At that time, the business was primarily involved with representing Chicago-area college and high school newspapers for the placement of local advertising. In April, 1970, the business was incorporated in Florida as CASS Advertising Inc. Messrs. Weisman and Zienfeld own 50% of the stock in the corporation. In October, 1973, the name of the company was changed to its present designation.
During 1970, CASS decided to broaden its business to include representation of college newspapers throughout the country for the placement of national advertising. The complaint alleges that these efforts have been largely unsuccessful due to the position and practices of NEAS in the market, and specifically charges that the exclusive agreements which defendant has entered into with hundreds of college newspapers have caused the vast majority of those publications to refuse to deal with CASS. Plaintiff claims that total annual billings for national advertising in college newspapers are approximately $3 million, of which CASS receives only $50,000.
The defendant is a New York corporation with its principal place of business in that state. It is licensed to do business in Illinois and maintains offices in Chicago, Los Angeles and San Francisco.
For approximately forty years, the predecessor to NEAS was the only business which represented college newspapers for the placement of national advertising. In March, 1966, Readers Digest Sales and Service, Inc., purchased the company and operated it as a division under the name National Educational Advertising Services. On December 1, 1970, the division was purchased from Readers Digest by the present owners,2 who were all employees of Readers Digest responsible for the operation of the division. At the time of the purchase, the liabilities of NEAS exceeded its assets. Evidently, the purchase took the form of a transfer of the business assets from Readers Digest and assumption of a portion of the liabilities by the new owners; no cash changed hands.
Among the assets transferred were the rights to exclusive agreements which the company had with approximately 900 college newspapers throughout the country, designating NEAS as the exclusive representative of the papers for the placement of national advertising. In addition, the company had a number of oral agreements with papers under which NEAS acted as a non-exclusive representative. At the time of the hearing in this case, NEAS had written or oral agreements with 1103 college newspapers. Of these, 893 or 894 were identical written contracts designating NEAS as exclusive representative;3 7 or 8 non-exclusive written agreements; and 202 or 203 non-exclusive oral understandings. The 1973-74 NEAS "Directory" claims that the company represents 1070 college newspapers.
The Director also claims that the enrollment at colleges which have newspapers represented by NEAS is 7,163,734 which "represents 84.3% of the current 8,500,000 college market," although other evidence indicates that the registration at the institutions is 8,177,761, thus giving advertisers access to 87% of the student population through NEAS.4
The parties agree that the 100 schools with the largest student enrollment represent about one-third of all college students. Virtually all of the college newspapers at those institutions have exclusive arrangements with NEAS.5
The business of NEAS consists almost entirely of representing college newspapers in the placement of national advertising. Although the defendant also represents high school newspapers for the placement of national advertising and has recently established a college radio division, the revenues generated by these ventures are insignificant.
Section 1 of the Sherman Act prohibits "every contract, combination . . . or conspiracy, in restraint of trade or commerce," 15 U.S.C. § 1, while section 2 declares it illegal for any person to "monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States . . . ." 15 U.S.C. § 2. Before it can be determined whether there has been a contract, combination, or conspiracy in restraint of trade, or...
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