Factual Background Edit
In 1986, AD/SAT began transmitting advertisements to newspapers over a satellite network owned by the Associated Press ("AP"). It was an expensive operation: the advertiser delivered hard copy to an AD/SAT transmitter in New York or Los Angeles; there it was scanned into the system, sent by AP's satellite network to an AP receiver, and then forwarded to AD/SAT's "recorder" installed at the designated papers. AD/SAT owned the recorder, "essentially a high speed facsimile machine," which cost over $60,000 and needed an additional $30,000 of equipment to become operational. AD/SAT paid AP $730,000 annually to use its network.
AD/SAT got its revenues from annual "affiliation fees" paid by the newspapers; these ranged from $4,500 to $12,500 and most papers paid reception fees ranging from $20 to $28 per ad received. The advertisers were also charged a fee, usually ranging from $11.70 to $90. In 1994, 48 of the 50 biggest newspapers were AD/SAT customers, and 60 of the next 100. But, there was significant competition from other delivery organizations. Even though it delivered more ads electronically than any other delivery service of its type, it still delivered only a small percentage of all newspaper ads. In 1996 over 80% of all newspaper ads were delivered by overnight couriers such as Federal Express.
In 1990 AD/SAT recognized that its system was not economically viable to permit growth, and began conversion to a digital network that would allow newspapers to receive ads by computer. But the transition was slow — AD/SAT developed the system in 1991, by 1994 it had only fifteen customers.
Also in 1991, AP began to develop its own computerized delivery system, AdSend. Its approach was very different. AP recognized the need to price its service "at levels competitive with the prices charged by the overnight delivery services that dominated the delivery market." With the AP system, advertisers sent an ad from their own computer to the AP hub in New Jersey. There the central computer checked to ensure there had been no transmission errors, then forwarded the ad to computers at the designated newspapers. And AP installed its equipment at the newspapers without charge, making the advertisers pay the entire charge, just as they do with traditional physical delivery services.
As it developed its system, AP received assistance from the Newspaper Association of America ("NAA"), the National Newspaper Network ("NNN") — a limited partnership that promotes newspaper advertising, and from Donald Newhouse, president of a newspaper company, member of the AP board of directors, and volunteer chairman of NAA.
Trial Court Proceedings Edit
Unhappy, AD/SAT sued under the Sherman Antitrust Act, naming AP, NAA, NN, several newspapers and Newhouse. After extensive discovery including over 70 depositions and the exchange of about 40,000 pages of documents, Judge Peter K. Leisure granted summary judgment for the defendants.
On AD/SAT's claim that AP attempted to monopolize the market for delivering advertisements to newspapers, the court agreed that the market was not limited to electronic delivery of ads, but included all ways in which ads are delivered within the United States.
AD/SAT's next claim was that AP had a monopoly in wire news services and electronic transmission of news photographs, which, for the motion to dismiss, AP admitted. AD/SAT then claimed, among other allegations, that AP used this power to subsidize its satellite network and charge AD/SAT monopoly prices for its use in violation of Section 2 of the Sherman Act. The court noted that while AD/SAT paid AP substantially more than AP charged AdSend, there were other firms offering satellite service, and other methods, such as land line telephone, are available.
AD/SAT's third claim was a conspiracy by AP, Newhouse, NAA, NNN, and the defendant newspapers to boycott AD/SAT, in violation of Section 1 of the Sherman Act, and to monopolize the market for delivering newspaper ads in violation of Section 2. Plaintiff relied on the fact that in 1945 the Supreme Court ruled that two AP by-laws violated the Act. But since these were not involved in this case, the court concluded there was no collateral estoppel.
AD/SAT also argued that since earlier cases had ruled that the conduct of AP and other trade associations had been held to be joint actions, the court could apply stare decisis and “dispense with the need to inquire into the existence of a conspiratorial agreement among the members of such associations.” However, said the court, “plaintiff must present evidence tending to show that association members, in their individual capacities, consciously committed themselves to a common scheme designed to achieve an unlawful objective.” It then reviewed in detail the activities of the defendant newspaper, Donald Newhouse, NAA and NNN, and found no real evidence of conspiracy.
Appellate Court Proceedings Edit
The Court of Appeals affirmed. The court noted:
|“||Even if we were to recognize a relevant product sub-market limited to the electronic transmission of advertisements, that sub-market would be characterized by rapid technological development and low barriers to entry.||”|