CITIZEN PUBLISHING CO. ET AL. v. UNITED STATES.
No. 243.
SUPREME COURT OF THE UNITED STATES
March 10, 1969
394 U.S. 131
Argued January 15, 1969.
Daniel M. Friedman argued the cause for the United States. On the brief were Attorney General Clark, Solicitor General Griswold, Assistant Attorney General Zimmerman, Howard E. Shapiro, Charles D. Mahaffie, Jr., and Gerald A. Connell.
Briefs of amici curiae urging reversal were filed by Arthur B. Hanson for the American Newspaper Publishers Assn., and by Robert L. Stern for a number of newspaper publishers.
Tucson, Arizona, has only two daily newspapers of general circulation, the Star and the Citizen. The Citizen is the oldest, having been founded before 1900, and is an evening paper published six times a week. The Star, slightly younger than the Citizen, has a Sunday as well as a daily issue. Prior to 1940 the two papers vigorously competed with each other. While their circulation was about equal, the Star sold 50% more advertising space than the Citizen and operated at a profit, while the Citizen sustained losses. Indeed the Star‘s annual profits averaged about $25,825, while the Citizen‘s annual losses averaged about $23,550.
In 1936 the stock of the Citizen was purchased by one Small and one Johnson for $100,000 and they invested an additional $25,000 of working capital. They sought to interest others to invest in the Citizen but were not successful. Small increased his investment in the Citizen, moved from Chicago to Tucson, and was prepared to finance the Citizen‘s losses for at least awhile from his own resources. It does not appear that Small and Johnson sought to sell the Citizen; nor was the Citizen about to go out of business. The owners did, however, negotiate a joint operating agreement between the two papers which was to run for 25 years from March 1940, a term that was extended in 1953 until 1990. By its terms the agreement may be canceled only by mutual consent of the parties.
The agreement provided that each paper should retain its own news and editorial dеpartment, as well as its corporate identity. It provided for the formation of Tucson Newspapers, Inc. (TNI), which was to be owned in equal shares by the Star and Citizen and which was to manage all departments of their business except the news and editorial units. The production and distribu-
The purpose of the аgreement was to end any business or commercial competition between the two papers and to that end three types of controls were imposed. First was price fixing. The newspapers were sold and distributed by the circulation department of TNI; commercial advertising placed in the papers was sold only by the advertising department of TNI; the subscription and advertising rates were set jointly. Second was profit pooling. All profits realized were pooled and distributed to the Star and the Citizen by TNI рursuant to an agreed ratio. Third was a market control. It was agreed that neither the Star nor the Citizen nor any of their stockholders, officers, and executives would engage in any other business in Pima County—the metropolitan area of Tucson—in conflict with the agreement. Thus competing publishing operations were foreclosed.
All commercial rivalry between the papers ceased. Combined profits before taxes rose from $27,531 in 1940 to $1,727,217 in 1964.
The Government‘s complaint charged an unreasonable restraint of trade or commerce in violation of § 1 of the Sherman Act,
The case went to trial on the § 2 charge and also on a charge brought under § 7 of the Clayton Act,
At the end of the trial the District Court found that the joint operating agreement in purpose and effect monopolized the only newspaper business in Tucson in violation of § 2 of the Sherman Act.
As respects the Clayton Act charge the District Court found that in Pima County, the appropriate geographic market, the Citizen‘s acquisition of the Star stock had the effect of continuing in a more permanent form a substantial lessening of competition in daily newspaper publishing that is condemned by § 7.
The decree does not prevent all forms of joint operation. It requires, however, appellants to submit a plan for divestiture and re-establishment of the Star as an independent competitor and for modification of the joint operating agreement so as to eliminate the price-fixing, market control, and profit-pooling provisions. 280 F. Supp. 978. The case is here by way of appeal. Expediting Act, § 2,
We affirm the judgment. The § 1 violations are plain beyond peradventure. Price-fixing is illegal per se. United States v. Masonite Corp., 316 U. S. 265, 276. Pooling of profits pursuant to an inflexible ratio at least reduces incentives to compete for circulation and advertising revenues and runs afoul of the Sherman Act. Northern Securities Co. v. United States, 193 U. S. 197, 328. The agreement not to engage in any other publishing business in Pima County was a division of fields also banned by the Act. Timken Co. v. United States, 341 U. S. 593. The joint operating agreement exposed the restraints so clearly and unambiguously as to justify the rather rare use of a summary judgment in the antitrust field. See Northern Pac. R. Co. v. United States, 356 U. S. 1, 5.
The only rеal defense of appellants was the “failing company” defense—a judicially created doctrine.2 The facts tendered were excluded on the § 1 charge but were admitted on the § 2 charge as well as on the § 7 charge under the Clayton Act. So whether or not the District Court was correct in excluding the evidence under the § 1 charge, it is now before us; and a consideration of it makes plain that the requirements of the failing company doctrine were not met. That defеnse was before the Court in International Shoe Co. v. FTC, 280 U. S. 291, where § 7 of the Clayton Act was in issue.3 The
In the present case the District Court found:
“At the time Star Publishing and Citizen Publishing entered into the operating agreement, and at the time the agreement became еffective, Citizen Publishing was not then on the verge of going out of business, nor was there a serious probability at that time that Citizen Publishing would terminate its business and liquidate its assets unless Star Publishing and Citizen Publishing entered into the operating agreement.” 280 F. Supp., at 980.
The evidence sustains that finding. There is no indication that the owners of the Citizen were contemplating a liquidation. They never sought to sell the Citizen and there is no evidence that the joint operating agreement was the last straw at which the Citizen grasped. Indeed the Citizen continued to be a significant threat to the Star. How otherwise is one to explain the Star‘s willingness to enter into an agreement to share its profits
The failing company doctrine plainly cannot be applied in a merger or in any other case unless it is established that the company that acquires the failing company or brings it under dominion is the only available purchaser. For if another person or group could be interested, a unit in the competitive system would be preserved and not lost to monopoly power. So even if we assume, arguendo, that in 1940 the then owners of the Citizen could not long keep the enterprise afloat, no effort was made to sell the Citizen; its properties and franchise were not put in the hands of a broker; and the record is silent on what the market, if any, for the Citizen might have been. Cf. United States v. Diebold, Inc., 369 U. S. 654, 655.
Moreover, we know from the broad experience of the business сommunity since 1930, the year when the International Shoe case was decided, that companies reorganized through receivership, or through Chapter X or Chapter XI of the Bankruptcy Act often emerged as strong competitive companies. The prospects of reorganization of the Citizen in 1940 would have had to be dim or nonexistent to make the failing company doctrine applicable to this case.
The burden of proving that the conditions of the failing company doctrine4 have been satisfied is on those
We confine the failing company doctrine to its present narrow scope.
The restraints imposed by these private arrangements have no support from the First Amendment as Associated Press v. United States, 326 U. S. 1, 20, teaches.
Neither news gathering nor news dissemination is being regulated by the present decree. It deals only with restraints on certain business or commercial practices. The restraints on competition with which the present decree deals comport neither with the antitrust laws nor with the First Amendment. As we stated in the Associated Press case:
“It would be strange indeed . . . if the grave concern for freedom of the press which prompted adoption of the First Amendment should be read as a command that the government was without power to protect that freedom. The First Amendment, far from providing an argument against application of the Sherman Act, here provides powerful reasons to the contrary. That Amendment rests on the assumption that the widest possible dissеmination
of information from diverse and antagonistic sources is essential to the welfare of the public, that a free press is a condition of a free society. Surely a command that the government itself shall not impede the free flow of ideas does not afford nongovernmental combinations a refuge if they impose restraints upon that constitutionally guaranteed freedom. Freedom to publish means freedom for all and not for some. Freedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not. Freedom of the press from governmental interference under the First Amendment does not sanction repression of that freedom by private interests. The First Amendment affords not the slightest support for the contention that a combination to restrain trade in news and views has any constitutional immunity.” 326 U. S., at 20.
The other points mentioned are too trivial for discussion. Divestiture of the Star seems to us quite proper. At least there is no showing of that abuse of discretion which authorizes us to recast the decree. See United States v. Crescent Amusement Co., 323 U. S. 173, 185.
Affirmed.
MR. JUSTICE FORTAS took no part in the consideration or decision of this case.
MR. JUSTICE HARLAN, concurring in the result.
When the owners of the Citizen and the Star embarked upon their joint venture in 1940, they did not believe that they were combining their commercial operations for all time. Rather, their contract provided that the venture would last for 25 years and that the relationship
Nevertheless, both the Department of Justice and my Brethren have decided that the crucial question in this case is whether the original 1940 transaction could be justified on “failing company” grounds. Yet regardless of one‘s view of the 1940 transaction, the fact remains that if the parties had not renewed their agreement, full competition between the two newspapers would have been restored in 1965 and the Justice Department would never have begun the Sherman Act branch of this lawsuit. It would appear, then, that the decisive issue in this case is not the validity of the original 1940 transaction but the propriety of the decision taken in 1953 in which the term of the joint venture was extended by a quarter century beyond its original termination date.
In defense of the Court‘s approach, one may argue that if the 1940 agreement had provided that the newspapers’ joint venture was to continue indefinitely, we would then have been required to decide this case on the basis of the situation prevailing at the time of the original transaction. In other words, if the agreement had been only slightly different it is arguable that we would have had no choice but to treat the transaction in the same way we would treat a total corporate merger. However this may be, I do not undеrstand why the parties’ decision to retain the advantages of flexibility should not be decisive for our purposes. If businessmen believe, after considering all the relevant factors, that future events may deprive their existing arrangements of utility, there is no reason why the antitrust laws should not view the transaction in a similar way.
Nor can the newspapers appropriately invoke the “failing company” defense to justify another quarter century‘s joint operation on the basis of the financial situation which actually existed in 1965. For the trial judge found that the joint venture‘s profits had continued their upward spiral with each year, reaching $1,727,217 in 1964, and that both the newspapers are now “in sound financial condition.” 280 F. Supp. 978, 983. Moreover, in the quarter century since 1940, thе number of households in the Tucson area has almost quadrupled, see Government‘s Exhibit 55, App. 452, and total circulation of the Star and the Citizen has increased proportionately. See Government‘s Exhibit 49, App. 448-450. While the District Court found it “impossible to predict” how well the two papers could compete without their present agreement, 280 F. Supp., at 993, I would hold that the joint venture‘s profitability required the companies to make a conscientious effort to operate independеntly before they could properly contend that their operating agreement was a business necessity.
Consequently, although I join in the Court‘s judgment in this case, I find it unnecessary to define the
MR. JUSTICE STEWART, dissenting.
Prior decisions of this Court have made it clear that a failing company cannot combine with a competitor if its independence could be preserved by sale to an outsider.1 Today‘s decision for the first time lays down the blanket rule that the failing company defense is forfeited by a company which cannot show that it made substantial affirmative efforts to sell to a noncompetitor. That precise quantum and quality of proof may be a reasonable and effective prophylactic standard to ensure that the company could truly not hаve been sold. But proof of unsuccessful efforts to sell the company is not, as a logical, evidentiary matter, the only possible conclusive proof that it was not marketable. In many cases other evidence might make equally clear that any such efforts would surely have been fruitless. The Court‘s new rule, in other words, has validity only as a standard imposed on future conduct and not as an unrebuttable evidentiary presumption with respect to past events. Therefore, the inflexiblе enforcement of that rule should be limited to those who—unlike the appellants—were on notice of their obligation to be able to prove that they made tangible efforts, however futile, to find an outside buyer.
It cannot be said that the appellants in the District Court did not adduce convincing evidence that the Citizen was failing so woefully that no outsider would have considered purchasing it. On the contrary, they intro-
The District Court did find that
“at the time the agreement became effective, Citizen Publishing was not then on the verge of going out of business, nor was there a serious probability at that time that Citizen Publishing would terminate its business and liquidate its assets unless Star Publishing and Citizen Publishing entered into the operating agreement.” 280 F. Supp. 978, 980.
I do not believe this finding supports the conclusion that Citizen was not a failing company, or even that the District Court thought it was not a failing company. Every other material finding of the District Court was to the effect that Citizen was dying.5 The only subsidiary finding consistent with the conclusion that Citizen was not then on the verge of immediate demise was that Small, by his own admission, was “prepared to
As stated above, the District Judge mistakenly thought that the failing company defense was unavailable in a case like this under § 1 of the Sherman Act. But he made clear his view that, if the failing company defense had been available—as in a total merger, for example—that defense would have prevailed:
“Mr. MACLAURY: Well, would Your Honor then think if they had dissolved Star or Citizen or both and simply merged them all into one company, then the failing company doctrine would apply?
“The COURT: I think if Star acquired all of Citizen‘s assets and gave stock to the owners of Citizen, it probably would. I would say that the Government wouldn‘t have much chance in this particular case of attacking that acquisition.” (Emphasis supplied.)
Because the question whether Citizen was a failing company has not yet been properly determined, I would vacate the judgment and remand the case to the District Court, so that this dispositive question mаy be fully canvassed.
Notes
“[N]o corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”
International Shoe Co. v. FTC, 280 U. S. 291; United States v. Diebold, Inc., 369 U. S. 654. Cf. United States v. Third National Bank, 390 U. S. 171, 190–192.The failing company doctrine was held to justify mergers in United States v. Maryland & Virginia Milk Producers Assn., 167 F. Supp. 799, aff‘d, 362 U. S. 458, and in Union Leader Corp. v. Newspapers of New England, 284 F. 2d 582.
For cases where the failing company doctrine was not allowed as a defense see United States v. Diebold, Inc., 369 U. S. 654; United States v. El Paso Gas Co., 376 U. S. 651; United States v. Von‘s Grocery Co., 384 U. S. 270; United States v. Philadelphia National Bank, 374 U. S. 321, 372, n. 46; United States v. Third National Bank, 390 U. S. 171.
Small worked as publisher of the paper without a salary. Yet as of December 31, 1939, Citizen Publishing owed approximately $79,000 to its stockholders for advances of working capital; it had current liabilities of over $47,000, as opposed to current assets of $16,525 in accounts receivable, $420 in bank deposits, and $66 cash on hand. Its liabilities exceeded its assets, exclusive of goodwill, by some $53,400.We have no occasion, however, to determine what changes, if any, that amendment had on the failing company doctrine.
“The period 1937 through 1943 constituted the most dismal era in 20th century newspaper history; more than half of the net decrease of daily newspapers since 1909 occurred during those seven years.” Ray, Economic Forces as Factors in Daily Newspaper Concentration, 29 Journalism Quarterly 31, 34 (1952).“The antitrust laws embody concepts and principles which long have been considered to be the bedrock of our economic institutions. Piecemeal exemptions from the antitrust laws to cope with problems of particular industries have been given reluctantly and only after there has been a clear showing of overriding need.” Hearings, supra, ser. 25, p. 2. See Roberts, Antitrust Problems in the Newspaper Industry, 82 Harv. L. Rev. 319, 344-352 (1968); Flynn, Antitrust and the Newspapers, A Comment on S. 1312, 22 Vаnd. L. Rev. 103 (1968).
As of this date Congress has taken no action on any of those bills.
Newspaper brokers and publishers who testified that they were intimately familiar with the newspaper industry and aware of the situations of the Citizen and the Star, gave their opinions that there was no market for the Citizen unless it could somеhow be joined with the Star. E. g.:“Mr. MANNO: I do not think that the Citizen Publishing Company was salable in 1940, except on what I would describe as a distress basis.
“Mr. MACLAURY: Would it have been salable to an outside publisher who intended to, or who would have had a reasonable expectation of operating Citizen at a profit?
“Mr. MANNO: No, sir, its potential salability would be based on the possibility of a prospective purchaser contemplating that he could possibly buy it and then go into a mutual production plan with the Star, or resell the Citizen to the Star at a potential profit.”
It does not appear that any testimony to the contrary was introduced by the Government.
“12. From 1932 to 1940, Citizen Publishing operated at a substantial loss. Its losses were defrayed by contributions made by its stockholders. Star Publishing from 1932 to 1940 operated at a profit.
“15. For many years prior to 1940, Citizen Publishing had been unable to pay a dividend. Prior to 1940, Mr. Small, Sr., received no salary and by March, 1940, Citizen Publishing owed debts of more than $109,000. Of this indebtedness, about $79,000 was to stockholders of Citizen Publishing.”