Dial Corp. v. News Corp.

• Decision Date: 15 January 2016
• Docket Number: 13cv6802
• Citation: 165 F.Supp.3d 25
• Parties: Dial Corporation, et al., Plaintiffs, v. News Corporation, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

165 F.Supp.3d 25

Dial Corporation, et al., Plaintiffs,

v.News Corporation, et al., Defendants.

13cv6802

United States District Court, S.D. New York.

Signed January 15, 2016

Benjamin Philip Taibleson, Steven F. Benz, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Robert Stephen Berry, Berry Law PLLC, Samer Makram Musallam, Paul Hastings LLP, Washington, DC, Daniel Bruce Goldman, Kramer, Levin, Naftalis & Frankel, LLP, James Hartmann Smith, John Christopher Briody, McKool Smith, New York, NY, James T. Southwick, Richard W. Hess, Ryan Vincent Caughey, Jonathan Jeffrey Ross, Susman Godfrey L.L.P., Houston, TX, Lindsey Godfrey Eccles, Susman Godfrey L.L.P, Seattle, WA, Lewis Titus LeClair, McKool Smith, P.C., Dallas, TX, Scott Robert Jacobs, McKool Smith, P.C., Dallas, TX, for Plaintiffs.

Jane Baek O'Brien, Kenneth Anthony Gallo, William Baly Michael, Brette Morgan Tannenbaum, Geoffrey Rogers Chepiga, Jeffrey John Recher, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Neil Robert Lieberman, Richard J Holwell, Holwell Shuster & Goldberg, Sharon L. Schneier, Davis Wright Tremaine LLP, New York, NY, David F. Dumouchel, Butzel Long, Detroit, MI, Joseph E. Richotte, Butzel Long, P.C., Bloomfield Hills, MI, Justin Anderson, Mitchell Doron Webber, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Washington, DC, for Defendants.

MEMORANDUM & ORDER

WILLIAM H. PAULEY III, District Judge

Defendants News Corporation, News America Inc., News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News Corp.”) move for summary judgment dismissing this antitrust action. News Corp. also moves in limine to exclude the testimony of Dr. Jeffrey MacKie–Mason and Dr. Paul Farris. For the following reasons, News Corp.'s motions are denied.

BACKGROUND

On June 18, 2015, this Court certified a class of non-retailer consumer packaged goods firms (“CPGs”) residing in the United States that have directly purchased in-store promotions from News Corp. at any time on or after April 5, 2008. See Dial Corp., et al. v. News Corp. et al., 13 Civ. 6802, 2015 WL 4104624 (S.D.N.Y. June 18, 2015). The Dial Corporation, Henkel Consumer Goods Inc., H.J. Heinz Company, Foster Poultry Farms, Smithfield Foods, Inc., HP Hood LLC, and BEF Foods, Inc. (collectively, “Plaintiffs”) represent a class of CPGs who manufacture food and other consumer products. Defendant News Corp. sells in-store promotions (“ISP”) like at-shelf signage, coupon distribution, and sampling products. The nuances of the business are described at length in this Court's prior memorandum and order granting class certification and are not repeated here. See Dial Corp., et al., 2015 WL 4104624.

At various times over the last 15 years, News Corp. has competed with Floorgraphics, Insignia, and Valassis in the third-party ISP market. By 2009, News Corp. had a 90.5% share of the revenue generated in that market. In 2014, News Corp.'s sole remaining competitor, Valassis, abandoned its third-party ISP business.

Plaintiffs contend that News Corp. engages in exclusive dealing, and acquired and maintained a monopoly over the third-party ISP market in violation of Sections One and Two of the Sherman Act, Section Three of the Clayton Act, the New York Donnelly Act, and the Michigan Antitrust Reform Act.

I. NEWS CORP.'S MOTION FOR SUMMARY JUDGMENT

Summary judgment is warranted when a moving party shows that “there is no genuine dispute as to any material fact” and that the party “is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a) ; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; De Sole v. Knoedler Gallery LLC, 12 Civ. 2313, 2015 WL 5918458, at *13 (S.D.N.Y. Oct. 9, 2015). “A dispute about a ‘genuine issue’ exists for summary judgment purposes where the evidence is such that a reasonable jury could decide in the non-movant's favor.”

Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir.2008) (citing Guilbert v. Gardner, 480 F.3d 140, 145 (2d Cir.2007) ). “ ‘[W]here the non[–] moving party will bear the burden of proof at trial, Rule 56 permits the moving party to point to an absence of evidence to support an essential element of the party's claim.’ ” Lesavoy v. Lane, 02 Civ. 10162, 2008 WL 2704393, at *7 (S.D.N.Y. July 10, 2008) (quoting Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir.1991) ).

In the context of antitrust cases, summary judgment may be appropriate because protracted litigation chills pro-competitive market forces. PepsiCo, Inc. v. Coca–Cola Co., 315 F.3d 101, 104 (2d Cir.2002). All inferences drawn in favor of the non-movant “must be reasonable in light of competing inferences of acceptable conduct.” See Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 95 (2d Cir.1995).

DISCUSSION

A. New Corp.'s Exclusive Contracts with Retailers

An exclusive dealing arrangement is unlawful under Section One of the Sherman Act if its “probable effect” is to substantially lessen competition in the relevant market. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327–29, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961). Exclusive dealing arrangements are often entered for entirely pro-competitive reasons, generally posing little threat to competition. ZF Meritor, LLC v. Eaton Corp. , 696 F.3d 254, 270 (3d Cir.2012). But “[e]xclusive dealing can have adverse economic consequences by allowing one supplier of goods or services unreasonably to deprive other suppliers of a market for their goods [.]” Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984) (O'Connor, J., concurring), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006).

It is undisputed that the majority of News Corp.'s contracts with retailers provide News Corp. with the exclusive right to be the in-store third-party provider of ISP products. (News Corp. 56.1 ¶¶ 7, 16, 17.) Payments to retailers under these contracts are often guaranteed on a quarterly or yearly basis. (News Corp. 56.1 ¶ 19.) Plaintiffs present evidence that News Corp.'s exclusive deals locked up at least 73% of participating retail stores during the damages period. (Pl. 56.1 Opp. ¶ 134.) And among grocers, Plaintiffs contend News Corp. had more than 80% of the participating retail store volume under exclusive contract. (Pl. 56.1 Opp. ¶ 134.)

Plaintiffs highlight three aspects of News Corp.'s contracts with retailers as anticompetitive: (1) the length of the exclusive agreements; (2) the “staggered” expiration dates of the exclusive agreements; and (3) the guarantees News Corp. paid for access to retailers' stores. Plaintiffs argue that News Corp. deploys these three structural features to deter competition. As former News America Marketing CEO Paul Carlucci noted in 2004, it is “also an incredible deterrent, both the length of the contract, the fact that we can stagger the contracts at our own discretion and the payment they would have to come [up with], [for] a competitor to really get back into the marketplace.” (Caughey Decl. Ex. 169, at 20.) News Corp. counters that the undisputed facts negate a finding that any of these three challenged features of its agreements substantially lessen competition in the market.

i. Length of Retailer Contracts

The parties spar over the average length of retailer contracts during the damages period and both sides rummage through the data. Under News Corp.'s analysis, the average term length of its retailer contracts was 2.7 years during the damages period. (News Corp. Ex. 3, Murphy Rpt. ¶ 14; Ex. 8.) News Corp. argues that where, as here, opportunities exist to bid on exclusive contracts at the end of their terms, exclusivity periods of three years' duration or less “do not foreclose competition and are not anticompetitive as a matter of law.” Spinelli v. Nat'l Football League, LLC, 96 F.Supp.3d 81, 117 (S.D.N.Y.2015).

But Spinelli is not dispositive because that case dealt with licensing agreements having durations no longer than three years. Spinelli, 96 F.Supp.3d at 117. Here, News Corp. entered into exclusivity agreements with retailers that were far longer. For instance, News Corp. had five-year agreements with Albertson's, Winn Dixie, Food Lion, Ahold, and Schnucks. None of those agreements were included in News Corp.'s calculation of its 2.7 year average. (See Pl. 56.1 Opp. ¶ 144.)

Plaintiffs challenge News Corp.'s analysis, and calculate the average contract length at 3.9 years across the entire market, and even higher—at 5.1 years—when medium and large grocery stores are considered. (Pl. 56.1 Opp. ¶ 143.)¹ Plaintiffs point out that News Corp. omits its ten-year contract with Safeway from its 2.7 year average calculation. (News Corp. Ex. 3, Murphy Rpt., Ex. 8 n.1 (Safeway and News Corp. entered into a contract on 7/17/2004 with a ten-year term, which was omitted from this analysis).) News Corp. also excludes its seven-year contract with Kroger. (Plaintiffs' Ex. 106 (noting that the effective date of the Kroger contract was 2/1/2006).)² In 2012, Safeway and Kroger accounted for 10.5% of the total retail volume of all grocery, drug, and mass retailers in the country. (News Corp. 56.1 ¶¶ 43, 53.) And together, their third-party ISP contracts represented nearly 19% of existing contracts during the damages period. (News Corp. 56.1 ¶¶ 43, 53.)

News Corp. also argues that the Safeway and Kroger contracts came up for re-bid during the damages period. But Plaintiffs respond that News Corp.'s only remaining competitor—Valassis—had already exited the third-party ISP business when the Safeway contract came up in 2014. (See Oral Arg. Tr. 46–48.) And that News Corp. negotiated an extension of the Kroger contract before a request for proposal was ever issued. (Caughey Decl. Exs. 126, 136; Oral Arg. Tr. 46–48.)

News Corp. also relies on Ticketmaster Corp. v. Tickets. C om, Inc., 99 Civ. 7654, 2003 WL 21397701 (C.D.Cal. Mar. 7, 2003), aff'd, 127 Fed.Appx. 346...