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Thursday, February 28, 2008

And Whether Pigs Have Wings

Posted By on Thu, Feb 28, 2008 at 7:00 PM

Guardian’s closing ranges from the assassination of JFK to Alice in Wonderland.

By Andy Van De Voorde

In long-awaited closing arguments Thursday, the Bay Guardian told jurors in its predatory pricing case against the Weekly that it will go out of business if it doesn’t receive a favorable verdict.

“If this continues, it’s inevitable,” said Guardian attorney Ralph C. Alldredge, who referred to his client as “a shadow of the company it formerly was.”

The mild-mannered Alldredge began his argument by telling jurors not to expect “Obama-level eloquence.”

But if his argument lacked fire, it didn’t lack for melodrama.

Alldredge repeatedly sought to cast the Guardian as the victim in a morality play pitting it against a voracious out-of-town competitor — despite the fact that the paper made more money last year than the Weekly and continues to have a higher circulation.

Moments earlier, Alldredge had invoked Lewis Carroll in an effort to drive home his claim that the Guardian, despite being the larger and more profitable of the two papers, was more accurately viewed as a helpless mollusk about to be devoured by an angry marine mammal.

“I can’t remember the specifics,” said Alldredge as he struggled to recall where he had once heard an anecdote about a walrus eating an oyster.

Then it came to him: It was from Carroll’s “Jabberwocky” (actually, a Google search shows it was Through the Looking-Glass).

“The walrus and the oysters were having a party on the beach,” began Alldredge in a rare storytelling moment that broke up a closing consisting mostly of dry recitations of the Guardian’s circumstantial case (the paper has provided no direct evidence of a predatory scheme).

“The walrus ends up eating an oyster. And the walrus feels really bad. He says he really didn’t want to hurt the oyster, he just wanted to eat him.”

Alldredge paused and smiled at the jury.

The suggestion was that Alldredge’s client, Bruce Brugmann, who watched the day’s proceedings from the gallery, was the shell-shocked oyster in the tale, and New Times executive editor Michael Lacey, who was also in attendance in the next row, was the flippered beast about to gulp him down.

It was a somewhat inconvenient analogy, given the 6-foot-5 Brugmann’s sheer heft.

But it wasn’t the only time Alldredge seemed to veer slightly off course in an attempt to make a point.

Earlier in the day, the Guardian attorney invoked both the shooting of John F. Kennedy and the events of September 11, 2001 in an effort to woo jurors.

It was the first time in the five-week trial that the Guardian had mentioned 9/11 outside the context of attempting to deny the events of that day had any affect on its economic health.

Since the trial began, the Guardian has argued that the Weekly is the only substantial factor in its financial decline.

But on Thursday, Alldredge hedged his bets, telling the jury the Weekly should have to pay for all of the Guardian’s alleged losses even if it wasn’t the largest factor in the paper’s woes.

“It just has to be substantial,” said Alldredge, a clear reference to one of the jury instructions Superior Court Judge Marla J. Miller had read earlier in the day.

Those instructions proved contentious; attorneys for both sides fought over them until 10 p.m. Wednesday night, and the argument spilled into Thursday morning. Jurors who reported at 8:30 a.m. were kept waiting in the hallway as Judge Miller sorted out the issues.

But once the closing arguments started, Alldredge, who in his role as the plaintiff’s attorney went first, quickly reverted to his habit of painting the Weekly as a longtime villain.

Referring to a 1995 staff meeting where Lacey met with Weekly employees for the first time, Alldredge sought to dispel the notion that the memories of three former staffers who testified for the Guardian and claimed that Lacey made threats against Brugmann’s publication might be foggy after thirteen years.

“It’s not surprising they would remember something like that from thirteen years ago,” said Alldredge. “That was a very big moment in their lives.”

“People in my generation remember where they were when they heard about John F. Kennedy being shot,” said the lawyer, smiling even though his voice seemed to catch slightly. “People today remember where they were when they heard about 9/11.”

The comparison of the terrorist attacks to a business meeting may not have sat well with jurors who remembered Lacey’s testimony that one of his business partners died in the first plane to hit the World Trade Center in New York City.

But the 1995 meeting is crucial to the Guardian’s argument that New Times came to town already having decided to drive the Guardian batty with a below-cost pricing scheme.

Weekly attorney H. Sinclair Kerr Jr. was also eager to talk about the Lacey meeting. And he reminded the jury that the earlier testimony about the newsman’s alleged remarks was hardly as concrete as Alldredge had implied.

It was true that two of the witnesses, Carrie Fisher and Andrew O’Hehir, said they remembered Lacey saying words to the effect that New Times would “put the Guardian out of business,” said Kerr.

But it was also true that both Fisher and O’Hehir were fired by New Times shortly after the purchase, he noted: “And what I would suggest to you is their testimony should be viewed with caution.”

The third witness, Jennifer Lopez, left the Weekly of her own volition, noted Kerr—and her testimony was much less contentious.

Lopez testified that Lacey said he wanted the Weekly to be “the only game in town,” a far less ominous phrase. She also said Lacey’s focus was the editorial content of the paper, not its business operations.

Kerr also cast doubt on the Guardian’s other “intent” evidence: The fact that Weekly publishers produced regular “Guardian reports” for their superiors which tracked ad counts in both papers by category.

The relative handful of e-mails in which New Times employees talked about their aggressive competition with the Guardian paled in comparison to internal documents turned over by the Guardian during the discovery process, said Kerr.

“I’m just going to put up just a few so you can see that e-mails exist on both sides,” the attorney noted.

The first was a February 5, 1997 memo from Guardian executive editor Tim Redmond in which the ponytailed journalist made a bold statement: “Underlying all of our plans is one overriding goal: To be so dominant in this marketplace that the SF Weekly will be nothing but a minor footnote.”

And Redmond was just getting warmed up.

Later in the document, he talked about “sending the guys from Phoenix packing,” and “making them shut the SF Weekly down.”

Kerr also produced an April 3, 2000 e-mail in which Guardian employee Charlotte Harper talked about “establishing a policy of refusing to allow any competitor (specifically the SF Weekly) from gaining a lead in any category.”

Other chest-thumping Guardian memoranda: a friendly note from former managing editor Melissa Houston that made reference to “killing” the Weekly.

And the most notable of Kerr’s exhibits may have been a note from Brugmann himself.

“Make sure we go after each and every SF Weekly/East Bay Express ad and campaign,” wrote the publisher to his troops on July 6, 2004. “Further, that we prepare for counterattack on all of our ads and particularly the new ones. We are really driving them nuts and making real gains.”

Brugmann’s reference to targeting the Weekly -- as well as the claim that the Guardian was “driving them nuts and making real gains” was telling -- the document was written just three months before the Guardian sued the Weekly claiming the smaller paper was targeting it with illegal below-cost pricing.

Kerr also addressed one of Alldredge’s themes through the trial: The notion that the Weekly was the Guardian’s only real competitor.

At one point Thursday, Alldredge even told the jury that alternative weeklies had suffered “no impact at all” from competing Internet sites and pooh-poohed the idea that community newspapers could exert any pricing pressure on an alt-weekly.

It is crucial that the Guardian convince the jury the Weekly is to blame for its financial woes in order to maximize its possible payout.

However, Kerr directed the jury’s attention to another document written by Brugmann.

In that “mission statement,” the Guardian boss wrote, “Our competition is extensive, widespread and diverse, and constantly changing. In essence, our competitors are anyone who wants to talk to our community.”

Brugmann went on to cite the Internet and radio, along with the city’s daily and community newspapers as examples of such competition.

In fact, the publisher’s language was reminiscent of the press release the Guardian issued when it sued the Weekly (presumably before it had considered the possible legal implications of its puffery).

In that release, the paper told the public, “The Bay Guardian was founded in 1966 specifically to be competitive with (and alternative to) the daily newspapers, and we have had competition every day of our existence from dailies, weeklies, community papers and other publications in one of the most media-rich markets in the country.”

That particular snippet could have been lifted straight from Kerr’s notebook.

But while the Weekly attorney spent several minutes attacking the Guardian’s hypocrisy on the competition issue, his main emphasis was the reams of data that have presented by both sides during the five-week trial.

Look at the evidence, Kerr told the jurors: It simply doesn’t support the Guardian’s insistence that New Times purposefully lost money just to hurt Brugmann.

If Lacey’s purported 1995 salvo marked the beginning of a war of attrition, asked the attorney, why would the Weekly have consistently raised its rates in the five years following the staff meeting on the grassy knoll — from around $12 per inch in 1996 to around $17 per inch in 2001?

Why would the paper have raised spending on the editorial department from a paltry $257,000 when it bought the Weekly to well over $1 million if its only goal was to hurt Brugmann? Did it really need to produce award-winning journalism and pay health benefits just to irritate the Guardian with low, low prices?

Why would the Weekly have raised its circulation — thus incurring higher costs — if the only intent was sell as many ads as possible as cheaply as possible?

Why would the Weekly’s ad volume and its overall revenues have risen each year from 1995 to 2001 if the goal from the beginning was simply selling “below cost” as much as possible?

Why would the Weekly have achieved operating profits of $289,000 in 2000 and $211,000 in 2001 if the whole idea was to hemorrhage cash?

Kerr then suggested there was a much more reasonable way of interpreting those statistics: The San Francisco economy was booming from 1995 to 2000.

Just look at the Guardian’s results during the same period, he noted.

Brugmann’s paper enjoyed similar gains during that era, said Kerr, who produced charts that showed both papers trending upward until 2001, then falling from that point forward.

Total revenues at the Guardian climbed from $8.2 million in 1995 to $11.1 million in 2000, noted Kerr, who then asked the jury to consider how such growth could be consistent with the Guardian’s claim that New Times was stealing ads and reaping “stolen profits.”

But the good times didn’t last, said Kerr. The dot-com bust occurred, 9/11 happened, tourist visits to San Francisco plummeted, and thousands of young people — the target audience of both the Guardian and the Weekly — left the city because they could no longer afford to stay.

At nearly the same time, noted the attorney, the free online site Craigslist began siphoning off huge amounts of classified ads and other Internet competitors began a slow march to profitability.

In 1997, according to one chart Kerr presented, national Internet advertising revenue amounted to less than $2 million. By 2007, that figure had soared to $18 billion.

“This trial is a microcosm of what’s going on around the United States,” argued Kerr, who went on to observe that the future of print media is very much in doubt.

Despite Kerr’s evidence, Alldredge took the opposite position, quoting Guardian witness Bill Johnson, a local newspaper publisher, as saying that alternative weeklies are essentially immune from the problems afflicting daily papers.

Those problems include the San Francisco Chronicle losing $330 million since 2000.

Johnson came late to the case, only being called after the Guardian’s damages expert forgot to include local papers in his estimates.

Perhaps that explains why the Palo Alto Weekly publisher’s claim of a special, insulated world for weeklies didn’t quite jibe with an internal Guardian report from September 27, 2002.

In that document, a manager noted that “advertising income is down in all media across the country and we are no exception.”

In keeping with the circumstantial nature of his client’s case, Alldredge also asked the jury to consider why “a business that is supposed to be run for profit could take these profitable papers [the Weekly and the Express] and then lose money, for twelve years with one and six years with the other.”

Kerr’s response: The Weekly made money five years after New Times acquired it, then was hit by the same economic perfect storm that’s buffeted the Guardian. As for the Express, said Kerr, New Times bought it in 2001 (before September 11, he added) and sold it last year after determining it was a losing proposition.

The experience, he noted, was similar in result if not scale to what befell the Guardian in the early 1990s, when it launched its own failed East Bay edition.

Alldredge also raised the Weekly’s much-discussed 2005 sponsorship arrangement with the Bill Graham Presents concert promotion firm, then owned by Clear Channel Communications.

That deal, which testimony established was BGP’s idea, rankled the Guardian because it required the concert company to spend 85 percent of its local weekly newspaper ad budget with the Weekly.

Clear Channel saleswoman Jennifer Vernon testified that the sponsorship deal was her idea; her company wanted to consolidate its print media buys because it was shifting more dollars to radio and the Internet, she said, and it liked the Weekly’s younger demographic.

The 85 percent figure was also her idea, Vernon said — but it didn’t seem like a big deal because at the time BGP was already spending 80 percent of its weekly newspaper ad budget with the New Times paper.

Alldredge, however, attempted to cast doubt on Vernon’s truthfulness.

“She suggested the [85 percent provision] was on there for the benefit of Bill Graham Presents,” said the attorney, “and I submit to you that doesn’t make sense.”

The Guardian’s effort to impeach Vernon was ironic given that she literally was the only advertiser to testify during a trial about advertising sales.

Equally strange, Kerr suggested, was the Guardian’s response when it learned of the BGP deal, which among other things gave the Weekly signage rights at the legendary Warfield Theater.

Brugmann, noted the Weekly attorney, ran an offensive cartoon depicting “Clear Channel and New Times in bed together” and branding the concert firm a “greedy Texas chain.” The cartoon didn’t bother to note that the Guardian itself had taken hundreds of thousands of dollars from Clear Channel over the years—and in fact, was still getting business even after the deal.

But throughout trial it has become apparent that the Guardian’s view of normal market behavior is far different than the Weekly’s — or, for that matter, from that of most businesspersons accustomed to eking out profits in the real world.

For instance, Alldredge also asked the jury to consider why, if the Weekly thought it was a better newspaper, it didn’t simply raise its prices to the level of the Guardian’s or above.

In a market economy, argued Kerr, it’s naïve to suggest a business can simply raise its prices and expect customers to fall into line.

Another circumstantial question from Alldredge: Where was New Times chief executive officer Jim Larkin?

“Why wasn’t he here?” demanded Alldredge, who in a mocking tone proceeded to note that New Times chief financial officer Jed Brunst had testified that Larkin was too busy “traveling around the country selling ads” to come to the trial.

Actually, it was Lacey, not Brunst, who made those comments.

Besides, noted Kerr, Larkin did testify — in a deposition, under oath, in which he was cross-examined by Guardian attorneys. That deposition was later read into the record.

Alldredge also attempted to shift the burden of proof to the Weekly, noting that if the paper wants to argue — as did Weekly publisher Josh Fromson — that in some instances it lowered ad prices in order to meet offers from a competitor, it should be required to provide lists of transactions.

The demand was notable given that the Guardian has argued it is impossible to tie damages in the case to specific advertisers, instead offering up a dizzying array of damage models created by its high-flying expert witness Clifford Kupperberg.

But it wants names, dates, and serial numbers from the Weekly.

Kupperberg told the jury the Guardian deserved profit margins of up to 75 percent as a result of models he created that assumed the paper would have outperformed its own best years if not for the Weekly’s pernicious influence.

Alldredge’s earlier suggestion that the Weekly should be made to offer up evidence that the Guardian hadn’t, may have seemed unusual. But it wasn’t necessarily unreasonable given the low burden of proof that exists for plaintiffs in similar cases under California law.

The Weekly case is being tried under the Unfair Practices Act, a state statute passed during the Depression in an effort to stop Safeway from driving out independent grocery stores. Perhaps as a result of the populist sentiments of the times, it is written in favor of plaintiffs.

For instance, the state law does not require plaintiffs — as does the federal statute — to prove that a defendant had a reasonable chance of recouping the losses it would suffer as part of a predatory scheme.

Federal courts have viewed below-cost pricing cases with increasing skepticism because of the inherently anticompetitive nature of such claims.

But the California statute lacks the common-sense smell test of the federal courts, and allows plaintiffs to recover damages even if numerous other factors contributed to a plaintiff’s harm.

Judge Miller’s jury instructions tell jurors that if a defendant sold advertising space below cost — and even one such sale “injured the Bay Guardian as a competitor” — they must presume that New Times’ purpose “was to injure competitors or destroy competition.”

That presumption “may be overcome by other evidence,” the instructions note.

And Kerr asked the jurors to keep an open mind.

Please put aside any bias you may have against big companies or out-of-towners when rendering a verdict, he asked, and “always use your common sense when evaluating the evidence.”

However, Alldredge seemed to sum up the spirit of the Guardian’s case when he responded to Kerr’s comments in his rebuttal, which, owing to court procedure, gave the plaintiff, not the defense, the last word with the jury.

It was true jurors shouldn’t be biased against out-of-towners, he noted: “By the same token, no one should be biased against large damages.”

The jury met briefly after the proceedings came to an end, but chose not to work on the case until Friday morning. The panel will begin deliberating at 8:30 a.m. at the courthouse on McAllister.

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Tom Walsh


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