The Next Newspaper Death 

The long war between the San Francisco Bay Guardian and the SF Weekly will likely kill at least one of them.

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That's why the Weekly is arguing on appeal that California law should be more like federal law. In the early 1990s, the US Supreme Court ruled that it wasn't enough to prove that a business sold its products at below cost and that doing so harmed its competitors. The court said that to win an anti-trust case, a plaintiff like the Guardian must also show that the low prices will ultimately harm consumers.

That is, the Guardian would have to show that the Weekly intended to significantly raise prices once it became a "monopoly" after the Guardian had been severely weakened or forced to shutter. The high court called this concept "recoupment." "There must be a real danger to the customer," explained Ray Cardozo, one of the Weekly's appellate attorneys. "And there must be some assessment of that — more than just a speculative possibility."

The Weekly's attorneys also note that courts in other states have interpreted their anti-trust laws in the same way. The courts have recognized that price wars can benefit consumers. And they only turn harmful when one of the companies becomes a monopoly and significantly raises prices, and thus forces its customers to pay more so that it can "recoup" its earlier losses.

Although the Guardian has maintained for years that the SF Weekly intended to drive it out of business and monopolize the San Francisco alt-weekly market, it didn't have to prove that argument at trial. And so the Guardian's lawyers have asked the appellate court judges that if they ultimately side with the Weekly, they should be allowed a retrial so they can prove that the Weekly would be a monopoly and could recoup its losses if the Guardian were to fold. "There was, in fact, ample evidence that defendants could rationally believe that their price war on the Guardian would eventually pay off," the Guardian's attorneys wrote in their appellate brief.

By contrast, the Weekly, whose experience with a jury didn't go so well the last time, is asking for a directed verdict in its favor. Cardozo said the Guardian already had a chance to prove its case and shouldn't get "a second bite of the apple."

But even if the Guardian gets another opportunity, it could be a tough argument to make. That's because the Bay Area media market is extremely diverse, and so if the Weekly were to greatly raise ad prices beyond the cost to print them, its customers might just switch to other publications. "Look at the San Francisco Chronicle," said Van De Voorde. "It has a monopoly in the daily newspaper business in San Francisco, and it was losing $50 million a year" at one point. It should be noted that the Chronicle doesn't quite have a monopoly. The Examiner still exists, although it is a shell of its former self.

Finally, the Weekly's attorneys contend that the jury's verdict will set a dangerous precedent if allowed to stand. They argue that it will stifle competition and will be bad for consumers because businesses will be too afraid to sell their goods at below-cost. They also argue that there's nothing in the law preventing larger companies from using the Unfair Business Practices law against smaller, new competitors who offer cheap prices in order to get a toehold in the marketplace.

At the heart of the Guardian's case is an argument that the state's Unfair Business Practices law was enacted more than sixty years ago and it hasn't curtailed competition or spurred more lawsuits in California. "The statute has been around since the Thirties," explained Joseph Hearst, one of the Guardian's appellate lawyers, "and the floodgates aren't open."

The Guardian's attorneys also contend that the state Legislature intended California law to be different from the already established federal Sherman Anti-Trust Act, whose primary purpose was to protect consumers. By the 1930s, the state Legislature realized that small businesses needed to be protected from predatory corporations as well.

The Guardian's attorneys also note that ever since the US Supreme Court added the so-called "recoupment" requirement that the Weekly wants incorporated in this case, federal anti-trust law has become toothless when it comes to predatory pricing. No business since has successfully brought an anti-trust suit against a larger competitor who engaged in below-cost pricing, Hearst noted.

The Guardian also has reason to hope that its argument will ultimately win the day. In a 1999 state Supreme Court case involving the Unfair Business Practices law, Justice Marvin Baxter, a Republican appointee, said in a concurring and dissenting opinion that the law requires no proof of "recoupment." Although Baxter's statement was not binding, it's a clear indication that the Guardian may have at least one justice in its favor.

For their part, the Weekly's attorneys have noted that Justice Joyce Kennard, another Republican appointee, said in the same 1999 case that federal law requires some proof of recoupment. It's unclear, however, whether Kennard will rule that California law should as well.

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