MANHATTAN (CN) - Rupert Murdoch cost News Corp. shareholders $655 million in antitrust lawsuits by allowing shady tactics, including hacking into competitors' computers, to monopolize the U.S. market for in-store promotion services, a pension fund claims in a derivative lawsuit.
Iron Workers Mid-South Pension Fund sued News Corp. CEO Keith Rupert Murdoch, CEO Paul Carlucci, James Murdoch, Lachlan Murdoch, former Spanish Prime Minister Jose Maria Aznar, and other News Corp. officers and directors, in Federal Court.
News Corp., a publicly held company with more than 2.3 billion shares and thousands of shareholders, is a nominal defendant.
News Corp. subsidiary News America manages its in-store promotion services and coupons to manufacturers. The promotions include coupon dispensers, shelf advertising, floor advertising and shopping-cart advertising in grocery stores and drug stores. The company distributes coupon booklets to 74 million households a year, according to the complaint.
"This action arises out of the individual defendants' (as defined herein) responsibility for News America engaging in illegal monopolistic practices regarding in-store promotion services and FSIs (free-standing insert coupons)," the complaint states. "As described in more detail below, News America acquired dominance in this market through various wrongful acts designed to inhibit competition, including: (i) entering into long-term exclusive contracts with retailers; (ii) paying large economically unjustifiable cash payments to retailers to derail competitor contracts; (iii) bundling and predatorily pricing its in-store advertising and promotion products and services with its FSIs; (iv) hacking into competitors' computer files to steal customer lists and marketing materials; (v) dishonestly disparaging competitors' compliance rates and financial viability; and (vi) even defacing competitors' advertisements.
"Knowledge of News America's monopolistic practices reached the highest level of the company. News Corp. has acknowledged that it has sought to build contract barriers to make it difficult for its competitors to compete. Defendant Paul V. Carlucci ('Carlucci'), News America's Chief Executive Officer ('CEO'), created a cutthroat competitive culture, and once rallied his sales force by showing a film clip from 'The Untouchables' in which mobster Al Capone crushes a rival's head with a baseball bat. Moreover, as explained by Robert Emmel ('Emmel'), a former News America account director turned whistleblower, defendant Carlucci and other supervisors regularly instructed him and other employees to engage in the illegal misconduct discussed herein. Defendant Carlucci called employees uncomfortable with the company's philosophy 'bed-wetting liberals,' and threatened that they would be 'outplaced from the company.' Defendant K. Rupert Murdoch ('R. Murdoch'), News Corp.'s CEO and Chairman of the Board of Directors (the 'board'), encouraged defendant Carlucci's aggressive management style and the monopolistic practices he caused News America to carry out.
"As a result of the individual defendants' misconduct, News Corp has incurred and continues to incur substantial damages arising from the numerous legal proceedings and investigations commenced, and to be commenced, against the company. In addition to being the subject of a probe by the Federal Bureau of Investigation ('FBI') and the U.S. Department of Justice ('DOJ') for its antitrust violations, News America was sued by competitor companies, including Insignia Systems, Inc. ('Insignia'), Valassis Communications, Inc. ('Valassis'), and FLOORgraphics, Inc. ('Floorgraphics'). Despite already paying out nearly $655 million to settle these lawsuits, the individual defendants still have not completely remedied News America's illegal business practices. As a result, News Corp continues to face growing liability."
The pension fund claims that News Corp.'s major clients, such as The Dial Corporation, Heinz, Procter & Gamble, Coca-Cola and others have sued or will sue the company for antitrust violations, exposing it to billions of dollars in settlement obligations and devastating its reputation.
News America restricted competition in more than 16,200 chain and high-volume supermarkets and more than 17,100 drug stores, taking over more than 80 percent of the market for in-store promotions and coupons in the United States, according to the complaint.
In addition to entering long-term exclusive contracts with stores to shut out competitors, News America paid stores large sums of money to keep its exclusivity, forced manufacturers to buy coupon booklets as a condition of purchasing in-store promotions, and charged them inflated monopolistic rates, according to the complaint.
It hacked into its competitors' password-protected accounts to steal customer lists, sent letters to retail stores denigrating its competitors' compliance rates and financial viability, and defaced competitors' ads before taking photos for the retailers, the complaint adds.
The pension fund claims Carlucci and Rupert Murdoch encouraged the illegal practices.
"Defendant Carlucci made no secret that defendant R. Murdoch was personally instructing him to go after News America's competitors," the complaint states. "In fact, according to the founders of Floorgraphics, George and Richard Rebh, defendant Carlucci once told them, 'I will destroy you. I work for a man who wants it all, and doesn't understand anybody telling him he can't have it all.' The 'man' defendant Carlucci was referring to, of course, was defendant R. Murdoch."
The pension fund claims that the board "serves at the whim of defendant R. Murdoch," the controlling shareholder of News Corp., and, as The New York Times noted, "might as well be named 'Friends of Rupert.'"
The pension fund seeks an injunction, restitution, and damages for breach of fiduciary duties, waste of corporate assets, and unjust enrichment.
It is represented by Thomas Amon.
Founded by Rupert Murdoch, News Corp. is the world's second-largest media conglomerate in terms of revenue. In July 2011, Murdoch closed down the News of the World newspaper in the United Kingdom due to allegations of phone hacking. The allegations included trying to access the voice mail and records of former Prime Ministers Gordon Brown and Tony Blair, the royal family, and the cell phone of a little girl who was murdered.