Fifteen months after Bay Guardian publisher Bruce Brugmann received a staggering $16 million judgment in his predatory pricing lawsuit against SF Weekly and its parent company, it's time he and his paper were brought back to earth, Weekly attorneys argue in an appeal filed this week with the California Court of Appeal.
The appeal follows a six-week trial at which the trial court ignored federal legal precedents as well as precedents established in other states.
The jury responded with a judgment that handed the Guardian millions in "lost profits" despite the fact that Brugmann's paper couldn't find a single advertiser to testify on its behalf -- and in one case attempted to cite a dead man as a "lost customer."
"With this appeal, judicial error, attorney contrivance, expert witness puffery, juror confusion, and statutory imprecision are now cast in the edifying light of reason and clarity," says Michael Lacey, executive editor of SF Weekly's owner, Village Voice Media, formerly known as New Times.
In particular, the Weekly appeal notes that the Guardian's case rests on a precarious claim: the assertion that California stands opposed to both the U.S. Supreme Court and other state courts on a critical element of antitrust law.
That element is "recoupment" -- in layman's terms, a competitor's ability to get back the money it inevitably would lose in a below-cost pricing scheme.
The Supreme Court and the state appellate courts that have examined their own predatory pricing laws have required plaintiffs to prove that a defendant had an economically rational plan that would allow it to eventually raise prices high enough to get its money back.
By contrast, the Guardian argues that California is a legal island with far lower standards. In fact, Guardian attorney Ralph C. Alldredge bragged about his client's minimal burden of proof before the trial even started, telling a newspaper reporter that, under California's Unfair Practices Act, all he had to prove was that the Weekly sold a single below-cost ad that had "injured" his client.
But such a minimal burden of proof undermines both the letter and the intent of the UPA, the Weekly argues. The law, it notes, was written to protect consumers, not individual merchants. And consumers -- in this case, newspaper advertisers -- benefit from low prices.
"Brugmann sued to squeeze even higher rates from customers who preferred the low cost of doing business with SF Weekly," Lacey says. "His remedy to competition, as he argued in court, is price fixing."
In fact, at least twice during the trial, Brugmann's attorneys suggested that the Weekly should simply charge the same rates as the Guardian and "let the customer decide."
It wasn't the Guardian's only dubious argument. Brugmann also claimed the Weekly was the Guardian's only real competitor. Under that theory, factors such as the dot-com bust, the events of 9/11, or the impact of Web competition were deemed irrelevant to his paper's condition. But overwhelming evidence was presented at trial showing that both papers faced intense competition from Internet sites and other publications.
It was also shown that both the Weekly and the Guardian experienced a decline in revenues during the damages period -- the same decline experienced by hundreds of American newspapers.
Harvard economist and professor Joseph P. Kalt, who testified on behalf of the Weekly, noted that if the Weekly truly had been siphoning revenue from the Guardian, its revenues would have been going up during this period.
In the appeal brief, the Weekly argues that the court should find in its favor based on the recoupment argument alone. But it also lists other errors committed by the trial court:
• The judge allowed Guardian attorneys to argue that New Times had "unlimited" resources and could afford to pour millions into a below-cost pricing scheme. The original judge in the case had barred that argument as prejudicial.
• The judge's instructions and verdict form erroneously permitted the jury to base liability on harm to a single competitor, rather than the "marketwide injury" that would truly harm consumers.
• The judge shifted the burden of proof from the Guardian to the Weekly when she told the jury it should presume the Weekly sought to "destroy competition" if it sold even one below-cost ad that hurt the Guardian.
• The trial court affirmed the judgment despite the fact that the Guardian never linked any alleged injury to specific Weekly sales.
• The judge allowed Guardian damages expert Clifford Kupperberg to "serve up a buffet" of damage models that awarded the Guardian far more money than it had earned in its 42-year history, and which, rather than linking damages to specific customers, simply assumed the Weekly was guilty in each and every transaction.
• The judge allowed Kupperberg to make the incredible assumption that between 2001 and 2007 -- during a severe downturn in the newspaper industry -- the Guardian would have retained the market share and ad rates it enjoyed in 2000 were it not for SF Weekly.
The Guardian's skewed view of markets -- and how they should be manipulated to benefit its owner -- is at the core of the case, and of the appeal. One of Brugmann's more exotic damage arguments, for example, was that the Weekly's acceptance of the lower rates that advertising customers were willing to pay was unlawful because those rates spoiled the customers and made it difficult for the Guardian to charge higher rates.
The fact that such an argument appeared in an antitrust suit is remarkable; but no less remarkable, perhaps, than the notion that recoupment could ever be proven in this case. For that to happen, after all, the newspaper you're holding in your hands or reading online would have to establish a monopoly on advertising aimed at young people in San Francisco during the Internet age.
Lacey says he's optimistic the Court of Appeal will unwind the Guardian's twisted logic. "In fact, the appeal is so crystal clear that, for once, Brugmann's bluster must now yield to common sense," he says. "We anticipate, and look forward to, his call for settlement."
Click here to download and read the appeal in its entirety.