DETROIT (CN) - Rupert Murdoch's News Corp. used Al Capone's tactics and computer hacking to monopolize the market for promotions in 40,000 retail stores, and coupon inserts in "scores of newspapers nationwide," the maker of Dial Soap claims in a federal antitrust complaint.
The Dial Corp. sued News Corporation, and its subsidiaries News America, News America Marketing FSI, and News America Marketing In-Store Services.
Murdoch, the head of News Corp., is not a defendant in the complaint.
The lengthy complaint begins: "In two distinct relevant markets the multifaceted and pervasive exclusionary strategies of defendants ('News') over twenty years have violated the antitrust laws of the United States. News has suppressed competitive promotion of a massive number of consumer goods in forty thousand retail stores, and scores of newspapers nationwide, to acquire and maintain two unlawful monopolies and earn large monopoly profits at the expense of its purchasers.
"Its unlawful purposes could not be more transparent. For example, in a sales meeting Paul Carlucci, then News America Inc.'s Chief Operating Officer, Paul Carlucci, illustrated News' desire for the ultimate in competitive suppression with a video from 'The Untouchables,' in which Al Capone serves as a sales role model as he cudgels a competitive enemy to death with a baseball bat. Mr. Carlucci has been equally blunt with the press as to News' exclusionary purposes, vowing to 'destroy' his competitors as a 'man who has to have it all.'
"Mr. Carlucci threatened to fire any News employee ('concerned about doing the right thing') who did not support exclusive control by News of shelves in retail accounts.
His and his employer's goals have been achieved. They have severely injured competition in two relevant markets for the sale of in-store promotion services and free-standing insert ('FSI') coupons in newspapers and have violated well-established antitrust law.
"Mr. Carlucci's unlawful achievements were rewarded by News with a promotion to Chairman and Chief Executive Officer of News America Marketing, Inc."
Murdoch's News Corp.'s use of illegal computer hacking in England led the billionaire to shut down his largest newspaper, the News of the World, and several criminal indictments of his editors. Dial Corp. claims News Corp. used computer hacking to gain an edge in the U.S. ad market.
It claims that News Corp. already has paid "hundreds of millions of dollars" to settle antitrust complaints from its U.S. competitors.
The two "relevant markets" are in-store promotions and free-standing inserts. Inserts - delivering nonaffiliated companies' ads in newspaper inserts - have become an economic lifeline for the struggling U.S. newspaper industry.
In the first market, in-store promotions, Dial claims News Corp. used exclusive contracts to deny competitors access to distribution through retail chains.
"News has unlawfully maintained a monopoly over the relevant market for these third-party services from approximately 2004 through the present," the complaint states.
It adds: "Consumer packaged goods companies buy in-store promotion services for use in retail chains as a national sales tool. Often simultaneously, they seek to put their promotions in front of millions of consumers in more than forty thousand stores nationwide. Therefore News' competitors need to have substantial national retail distribution networks comparable in scope to that of News to be competitive. News has denied them this scope by employing long-term, exclusive contracts to lock them out of the chains," the complaint states.
It continues: "Over the last several years the contracts have prevented News' only two significant competitors, Floorgraphics Inc. (now defunct) and Insignia Systems Inc., from building comparable networks. They have been confined to the niche provision of in-store services such as floor advertising (the late Floorgraphics' Floortalk) or shelf signs with brand price messaging (Insignia's POPSign).
"Internally, News has acknowledged that it has sought to build contract barriers to these competitors to make it difficult for them to compete.
"The exclusionary effectiveness and durability of these News contracts designed to defeat competitors' distribution of competitive services have been reinforced by seven additional exclusionary News actions, including:
"Hacking into Floorgraphics' computers to obtain customer lists and other marketing materials to solicit its accounts and lock them into News long-term and exclusive contracts;
"Staggering the terms of the exclusive contracts so that in any given year a News competitor would not have any substantial opportunity to expand its competitive retail distribution network;
"Enforcing aggressively contractual shelf exclusivity by removing competitors' services and telling customers that their promotions with competitors would not appear;
"Using large cash guarantees unjustified by potential in-store promotional revenues to derail competitor contracts with retailers, a practice expressly designed to exclude competitors from these chains; ... and
"Defacing competitors' in-store advertisements and then disparaging the quality of the defaced promotions to the retail chains."
The complaint describes the alleged hacking campaign: "From 2000 to 2003 there was a concerted effort at News to develop its brand price messaging product (Price Pop) to compete with the Insignia product (POPSign), as well as to develop its Floortalk product competing with that of Floor graphics.
"In the early part of 2003, News implemented 'Operation Retailer Freedom' to take away all Floorgraphics contracts by soliciting accounts on its customer lists. This program went on for several years. Valassis Tr. (6/17/09) 176:2-177:14. "Floorgraphics has alleged that News hacked into its password protected accounts at least eleven times in 2003 and 2004 to obtain its customer lists (and other marketing materials), which, if true, would facilitate this attack." [For Valassis, see below.]
Dial claims News Corp. illegally tied or bundled its dominance in the first market to dominate the insert market.
"News also used its in-store monopoly to monopolize the FSI [free-standing insert] coupon market," the complaint states. "It has offered consumer packaged goods companies large discounts in its monopoly in-store prices only if they purchased all their FSI coupons from News.
"This tying or bundling of the sale of products effectively suppresses competition from News' remaining competitor of any size, Valassis Communications Inc. Since Valassis generally did not compete in the in-store relevant market, News' deep, in-store discounting forced Valassis into an anticompetitive Hobson's choice. It could sell to a customer by pricing its FSI coupons at below cost (by matching News' in-store discounts as well as any discounts offered by News on FSI coupons). Or it could lose the account altogether to News. Whatever choice Valassis made, it was suppressed and weakened as a competitor.
"This Court prohibited such practices in an Order affirming the special master findings in the companion case Valassis Communications., Inc. v. News America Inc
., No. 2:06-CV-I0240, 2011 W.L. 2420048 (E.D. Mich. 2011) (Tarnow, J.) (Docket No. 413) under the conditions set out therein."
Under the heading, "Injury to Competition," The complaint continues: "News' unlawful conduct has injured competition and enabled it to acquire and maintain market power in the two relevant markets for the sale of in-store promotion services and FSI coupons. News has used this market power to charge plaintiff and other consumer packaged goods companies monopoly prices for these service and coupons throughout the damage period (which commenced in early 2008). These monopoly prices are substantially above the competitive pricing in both relevant markets that would have prevailed in the absence of News' unlawful conduct.
"News' anticompetitive conduct occurring in the years before the commencement of
the damage (or limitation) period governing this action (in early 2008) violates the antitrust laws, as well as conduct occurring thereafter. Plaintiff may recover for acts violating the antitrust laws before the commencement of the damage if such acts contribute to price injury accruing within the damage period.
"Four News competitors in both relevant markets have already obtained hundreds of millions of dollars in lost profit as an antitrust remedy for News' violations of the sort alleged herein. Such recompense has been in the form of a judgment, or the settlement of litigation just before trial against News.
"On information and belief, the instant action is the first by a consumer packaged goods company seeking to obtain recompense for monopoly overcharging as a purchaser and not a competitor. For more than 100 years the United States Supreme Court has repeatedly recognized that direct purchasers, such as plaintiff, have a 'preferred position' under antitrust law over other litigants precisely because their injury - paying higher prices - is the direct, foreseeable, and anticipated product of efforts to monopolize a market."
The "relevant geographic market" is the United States.
Dial seeks treble damages for Sherman antitrust act violations, including monopolization, exclusive dealing, and illegal tying, and Michigan antitrust violations.
It is represented by Stephen Berry, of Berry Law, and by Justin Presant with Kellogg, Huber, Hansen, Todd, Evans & Figel, both of Washington, D.C.