Paddock Publications, Inc. v. Chicago Tribune Co.

• Decision Date: 21 January 1997
• Docket Number: No. 96-2058,96-2058
• Citation: 103 F.3d 42
• Parties: , 1996-2 Trade Cases P 71,647, 25 Media L. Rep. 1187 PADDOCK PUBLICATIONS, INC., doing business as The Daily Herald, Plaintiff-Appellant, v. CHICAGO TRIBUNE COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 42

103 F.3d 42

65 USLW 2418, 1996-2 Trade Cases P 71,647,

25 Media L. Rep. 1187

PADDOCK PUBLICATIONS, INC., doing business as The Daily

Herald, Plaintiff-Appellant, v. CHICAGO TRIBUNE COMPANY, et al., Defendants-Appellees.

No. 96-2058.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 8, 1996.

Decided Dec. 16, 1996.

Rehearing and Suggestion for Rehearing

En Banc Denied Jan. 21, 1997. ^*

James T. Malysiak, argued, Lee A. Freeman, Jr., Albert F. Ettinger, Freeman, Freeman & Salzman, Chicago, IL, for Paddock Publications, Inc.

Constantine L. Trela, William F. Conlon, Debra J. Stanek, William O. Fifield, Howard J. Trienens, argued, Sidley & Austin, Chicago, IL, Joseph P. Thorton, Chicago Tribune Co., Employees Relations, Chicago, IL, for Chicago Tribune Co.

Steven J. Harper, Anne J. McClain, Kirkland & Ellis, Chicago, IL, for Chicago Sun-Times, Inc.

Daniel K. Mayers, Alice Mott Stoeppelwerth, Wilmer, Cutler & Pickering, Washington, DC, for New York Times Syndication Sales Corp.

Albert J. Salvi, Daniel J. Sugrue, argued, Albert J. Salvi & Associaties, Waukegan, Il, for Creators Syndicate.

Gerald A. Connell, Lee H. Simowitz, Baker & Hostetler, Washington, DC, John D. Parker, Baker & Hostetler, Cleveland, OH, Eugene E. Gozdecki, Richard A. DelGiudice, Joseph R. Ziccardi, Gozdecki & DelGiudice, Chicago, IL, J. Michael Frascati, The Hearst Corp., New York City, for King Features Syndicate, Inc.

Before EASTERBROOK, MANION, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge.

Newspapers' content has many sources. To the work of their own staff, papers add dispatches from syndicated news services such as the Associated Press and Reuters that station reporters or stringers across the globe. Leading newspapers such as the New York Times, the Los Angeles Times, the Washington Post, the Chicago Tribune, and the Wall Street Journal have set up supplemental news services. The New York Times News Service carries that paper's stories; the Los Angeles Times/Washington Post News Service combines stories from those papers; the Knight-Ridder/Tribune Information Service pools stories from the Tribune and the Knight-Ridder chain's papers. Subscribers can reprint the originating paper's stories (and those of other papers that contribute to the supplemental service) in the subscribers' home markets. Cartoons, op-ed pieces, book reviews, chess columns, puzzles, and other features are available from syndicators such as United Press Syndicate, United Features Syndicate, King Features Syndicate, Creators Syndicate, and Tribune Media Services.

Supplemental news services and features syndicators offer exclusive contracts to subscribers in each metropolitan area. Because the Chicago Tribune subscribes to the New York Times News Service, stories from the Times are unavailable to the Chicago Sun-Times and smaller newspapers in the Chicago area; the Sun-Times subscribes to the Los Angeles Times/Washington Post News Service, which therefore is unavailable to the Tribune and smaller papers. News services and features syndicates charge by the circulation of the subscribing paper, and they therefore strive to sign up the largest paper in each market. Exclusivity is one valuable feature the service offers, for a paper with exclusive rights to a service or feature is both more attractive to readers and more distinctive from its rivals. When selling to smaller papers, however, the supplemental news services and features syndicates generally do not offer exclusivity--for they still hope to interest the larger, and therefore more lucrative, papers in the market (which can sign up later with exclusive rights against all but the original customer).

As a rule, the larger papers subscribe to the more popular services and features; or perhaps it is the very fact that a feature runs in a market's larger papers that makes it "more popular." Causation need not concern us. No matter which way it runs, smaller papers perceive that they get the crumbs. This suit, by the Daily Herald, the number three general-interest paper in the Chicago area (with 6.7 percent of average weekly readership), contends that the pattern of exclusive distribution rights violates § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, by making it harder for small papers to grow. Like the district court, we assume without deciding that "general-interest-newspaper readership in the Chicago SMSA" is a market. According to the complaint, the Chicago Tribune and the Chicago Sun-Times have locked up the "most popular" or "best" supplemental services and features, injuring consumers by frustrating competition. (We assume that "the best" services and features can constitute a market, although it sounds more like an aesthetic judgment; no one would say that "the best film of 1996" has a monopoly of any market just because there can be only one "best" film.) The Daily Herald views the Knight-Ridder/Tribune Information Service as a distant third to the supplemental news services the Tribune and Sun-Times use, and even it is unavailable because the Tribune will not license its stories to a competitor in its home market. The Herald concedes that the Associated Press, Reuters, and many quality comics and features are available to it (for example, it publishes Dilbert, one of today's most-followed comic strips) but insists that the best ones are committed to its larger rivals. After assuming that all of the Herald's allegations are true, the district court dismissed the complaint for failure to state a claim on which relief may be granted. 1995-2 Trade Cas. p 71,255.

The Herald does not contend that the Tribune has conspired with the Sun-Times to bring about this state of affairs. Compare Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) (holding that the Associated Press, a consortium of newspapers, must eliminate an exclusivity feature that could be traced to agreement among horizontal rivals). Nor does it contend that the supplemental news services and features syndicators (or their contributing papers and authors) have agreed among themselves. It concedes that each has adopted its method of doing business independently; they take the same approach to distribution because each has discovered that it is the most profitable way to do business. All of the contracts between services and newspapers are terminable at will or on short notice (usually 30 days, although some features require a year's notice). Instead of seeing whether money could persuade a supplemental news service to cut off one of the larger papers--the Herald has never tried to outbid the Tribune or Sun-Times, either on a total compensation basis or a per-subscriber basis--it asked the district court to declare that the antitrust laws entitle it to receive the leading supplemental news services and features without regard to the contractual exclusivity that the Tribune and Sun-Times currently enjoy. At times the Herald suggests that it would be happy with rights to articles from the New York Times, Los Angeles Times, and Washington Post that the Tribune and Sun-Times do not reprint; "there's plenty for all" is a theme of its brief. But this won't work well for news (must the Tribune give the Herald advance notice of its contents?) or at all for features, which are sold one at a time. For example, King Features Syndicate does not sell its entire portfolio to one paper per market; the Tribune, Sun-Times, and Herald each publish some of its comics and columns. So the Herald necessarily argues that it is entitled to run Peanuts and Dick Tracy even though these comic strips also appear in the Tribune.

This is fundamentally an "essential facilities" claim-but without any essential facility. There are three supplemental news services that the Herald is willing to acknowledge as major competitors (and others besides, though the Herald denigrates them). There are hundreds, if not thousands, of opinion and entertainment features; a newspaper deprived of access to the New York Times crosswords puzzles can find others, even if the Times has the best known one. Unlike United States v. Terminal Railroad Ass'n, 224 U.S. 383, 32 S.Ct. 507, 56 L.Ed. 810 (1912), the granddaddy of these cases, in which the Court held that a bottleneck facility that could not feasibly be duplicated must be shared among rivals, this case does not involve a single facility that monopolizes one level of production and creates a potential to extend the monopoly to others. We have, instead, competition at each level of production; no one can "take over" another level of production by withholding access from disfavored rivals. Flip Side Productions, Inc. v. Jam Productions, Ltd., 843 F.2d 1024, 1032-34 (7th Cir.1988), holds that the existence of three competing facilities not only means that none is an "essential facility" but also means that each of the three is entitled to sign an exclusive contract with a favored user. Other firms that want to enter the market can do so by competing at intervals for these contracts.

Competition-for-the-contract is a form of competition that antitrust laws protect rather than proscribe, and it is common. Every year or two, General Motors, Ford, and Chrysler invite tire manufacturers to bid for exclusive rights to have their tires used in the manufacturers' cars. Exclusive contracts make the market hard to enter in mid-year but cannot stifle competition over the longer run, and competition of this kind drives down the price of tires, to the ultimate benefit of consumers. Just so in the news business--if smaller newspapers are willing to bid with cash rather than legal talent. In the meantime, exclusive stories and features help the newspapers differentiate themselves, the better to compete with one another. A market in which every newspaper carried the same stories, columns, and cartoons would be a less vigorous market than the existing one. And a market in which the creators of...