Greenville Publishing Co., Inc. v. Daily Reflector, Inc.

• Decision Date: 01 May 1974
• Docket Number: No. 73-2323.,73-2323.
• Citation: 496 F.2d 391
• Parties: GREENVILLE PUBLISHING COMPANY, INC., Appellant, v. The DAILY REFLECTOR, INCORPORATED, et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

496 F.2d 391 (1974)

GREENVILLE PUBLISHING COMPANY, INC., Appellant, v. The DAILY REFLECTOR, INCORPORATED, et al., Appellees.

No. 73-2323.

United States Court of Appeals, Fourth Circuit.

Argued March 6, 1974.

Decided May 1, 1974.

R. Kennedy Bridwell, Raleigh, N. C. (Richard E. Thigpen, Jr., C. Wells Hall, Thigpen & Hines, P. A., Charlotte, N. C., on brief), for appellant.

William C. Lassiter, Raleigh, N. C. (Lassiter & Walker, Raleigh, N. C., Louis W. Gaylord, Jr., Gaylord & Singleton, Greenville, N. C., on brief), for appellees.

Jonathan T. Howe, Robert A. Garrett, Jenner & Block, Chicago, Ill., on brief for amici curiae, National Assn. of Advertising Publishers and Publishers Distribution Institute.

Before CRAVEN and WIDENER, Circuit Judges, and WARD, District Judge.^*

CRAVEN, Circuit Judge:

The parties in this antitrust suit are competitors in the business of local advertising in Greenville, North Carolina. Both plaintiff and defendants publish shoppers guides, free weekly tabloids composed almost entirely of advertising. Defendants also publish the only daily newspaper in Greenville. Plaintiff charged defendants with setting their shopper's advertising rates below cost in order to regain the monopoly they enjoyed before plaintiff entered the market. The district court entered summary judgment for defendants. On appeal the major issues are the sufficiency of the parties' connection with interstate commerce and the legality of defendants' pricing policies under the Sherman Act. We reverse and remand for trial.

Plaintiff, the Greenville Publishing Company, was organized in 1970 to publish a shoppers guide in Greenville. The organizers were apparently unaware that the publishers of the Greenville Daily Reflector had just finished modernizing and expanding their facilities with an eye toward publication of their own shoppers guide. Upon learning of the newcomer's plans, the Reflector's management decided to accelerate their schedule. Thus the first issue of the Reflector Shoppers Guide and the first issue of plaintiff's Advocate appeared on the same day.

Plaintiff distributes The Advocate to substantially all the households in Pitt County. The Reflector Shoppers Guide has had a smaller circulation. Because management regards it as an adjunct to the Daily Reflector, they have distributed it only to households that do not subscribe to the newspaper. They have also offered a combination advertising rate: advertisements that appear in the Daily Reflector can be rerun in the Shoppers Guide at half price. The Shoppers Guide advertising rates are otherwise equal to rates charged by the Daily Reflector.¹

After operating the Reflector Shoppers Guide at a loss for the first year, defendants decided to reduce it from standard newspaper size to tabloid size. A reduction in costs and an increase in revenue followed, and as of February 1973 defendants claimed that their Shoppers Guide was turning a slight profit. The Advocate, whose larger revenue has been consistently absorbed by larger publishing costs, had sustained a $70,000 operating loss by the end of 1972. This lawsuit was the consequence.

The complaint alleges that defendants have deliberately set their advertising rates below cost and have made deceptive statements about their circulation figures² in an attempt to eliminate The Advocate from competition. It charges that defendants have entered into a combination and a conspiracy, and have solicited contracts, in restraint of trade under section 1 of the Sherman Act, 15 U.S.C. § 1, and that they are guilty of monopolization and an attempt to monopolize in violation of section 2 of the Sherman Act, 15 U.S.C. § 2.³ The complaint alleges that these practices have caused plaintiff's inability to publish the Advocate at a profit, asking for treble damages and injunctive relief.

After the parties had spent about a year in discovery, defendants asked for summary judgment, both on the merits and on the ground that the connection with interstate commerce was too tenuous to sustain a cause of action under the Sherman Act. The district court granted the motion and filed a memorandum opinion. Although the district judge was satisfied that the interstate commerce requirement was lacking, he proceeded to the merits, "construing interstate commerce principles liberally." He concluded that there was no material factual issue on any of plaintiff's allegations and that defendants had established they were entitled to judgment as a matter of law.

Interstate Commerce

The evidence on the interstate commerce issue is meager, perhaps because defendants did not raise the argument until just before the deadline for discovery.⁴ Nonetheless, there is enough uncontroverted evidence to prohibit entry of summary judgment on this ground.

The complaint alleges that the Daily Reflector and both shoppers guides carry advertising for local affiliates of national sales organizations such as Ford Motor Company, A & P Food Stores, International Harvester, RCA, and others. Defendants' answer effectively admits these allegations. The deposition of Lauren Spence Riddick, the Daily Reflector's "National Advertising Manager," includes testimony that the newspaper carries an unspecified volume of national advertising furnished by an agency in Atlanta. Mrs. Riddick also testified that the Daily Reflector had notified the Atlanta agency that advertising space was available in the Shoppers Guide, though none had yet been sold. The deposition of Donald Eugene Evans, an advertising salesman for the Daily Reflector, describes the practice of "cooperative advertising." Mr. Evans testified that national manufacturers sometimes reimburse their local affiliates for advertising campaigns. The record contains no information about the volume or frequency of cooperative advertising carried by the Daily Reflector and no indication whether the Shoppers Guide has sold advertising on a similar basis.

An antitrust plaintiff may establish the necessary connection with interstate commerce in either of two ways: by demonstrating that the alleged anticompetitive conduct occurred in interstate commerce, or by showing that the conduct, though wholly intrastate, had a substantial effect on interstate commerce. Burke v. Ford, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967); Sun Valley Disposal Co. v. Silver State Disposal Co., 420 F.2d 341 (9th Cir. 1969). In Lorain Journal Co. v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L. Ed. 162 (1951), the Supreme Court applied the "in commerce" test to a smalltown Ohio newspaper. After cataloging the many interstate contacts of both the newspaper and the competing radio station, the Supreme Court settled on a narrow ground of decision. It held:

The distribution within Lorain of the news and advertisements transmitted to Lorain in interstate commerce for the sole purpose of immediate and profitable reproduction and distribution to the reading public is an inseparable part of the flow of the interstate commerce involved.

Id. at 152. The uncontroverted facts on this record demonstrate that the advertising market in Greenville may likewise be a part of interstate commerce for the purpose of the Sherman Act. The only factor that remains to be established is the relative volume of interstate advertising in the Daily Reflector's business or in the Greenville market. While a "substantial quantity" of national advertising is apparently enough to satisfy the "in commerce" test, Lorain Journal, supra at 146-147, isolated and infrequent sales of interstate advertising might not suffice to transform a smalltown newspaper into an interstate business. See Rasmussen v. American Dairy Ass'n, 472 F.2d 517, 524 (9th Cir. 1972), cert. denied, 412 U.S. 950, 93 S.Ct. 3014, 37 L.Ed.2d 1003 (1973); United States v. Pennsylvania Refuse Removal Ass'n, 357 F.2d 806 (3d Cir.), cert. denied, 384 U.S. 961, 86 S.Ct. 1588, 16 L.Ed.2d 674 (1966); Page v. Work, 290 F.2d 323, 328, 332 (9th Cir.), cert. denied, 368 U. S. 875, 82 S.Ct. 121, 7 L.Ed.2d 76 (1961).⁵ Without speculating on the amount of national advertising that would serve this purpose, we note that the issue must be resolved in the context of the Supreme Court's declaration that the Sherman Act exercises all of Congress's constitutional power over commerce. E. g., United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 553-559, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944).⁶

Defendants argue, however, that Lorain Journal does not apply to this case because there is no evidence that The Advocate has published any interstate advertising. Fastening on the Supreme Court's description in Lorain Journal of the radio station's interstate business and its statement that the newspaper intended to destroy WEOL altogether, defendants urge us to hold that the only relevant inquiry is the victim's involvement in interstate commerce. We think it clear that the Supreme Court has not endorsed this theory. The district court opinion in Lorain Journal is consistent with defendants' narrow view of the Sherman Act.⁷ The district court focused exclusively on the radio station, holding that radio broadcasting in general was interstate commerce and therefore entitled to the protection of the Sherman Act. The Supreme Court affirmed on a different theory, adding extensive factual discussion of the newspaper's interstate activities, holding that local dissemination of interstate advertising was part of interstate commerce, and characterizing the newspaper's scheme as "an attempt to monopolize interstate commerce," 342 U.S. at 149, as well as an attempt to destroy the radio station. The Supreme Court's approach strongly implies that the Sherman Act protects the market as well as the victim. See also Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L. Ed.2d 982 (1968); Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed. 2d 98 (1964). Defendants' theory would undermine...