A Higher Court

The legal tussle between SF Weekly and the Bay Guardian rises to a new level.

After months of foot-dragging and a "failure to file" notice from the court, the Bay Guardian last week offered a response to SF Weekly's appeal of a jury award in a predatory-pricing lawsuit.

That Barry Bonds–sized judgment, compounding at a rate of more than $5,000 per day, has now grown to more than $20 million — more money than the Guardian has earned in its entire 44-year history, and more than was awarded in all other reported cases under the state Unfair Practices Act. It's even more than a shipping company was made to pay after spilling thousands of gallons of oil into San Francisco Bay in 2007.

The Guardian's lawsuit accused SF Weekly of selling display advertisements below cost in an effort to put the Guardian out of business. It was filed in 2004, at which point the Guardian was reeling from lower revenues in the post–9/11 economy and about two years after owner Bruce Brugmann had borrowed millions of dollars to buy a new building. After a three-week trial in 2008, Brugmann received a judgment for $6.4 million, which a Superior Court judge then trebled.

It was the second time Brugmann had sued a competitor for money. In the 1970s, he joined in a suit against the city's daily papers and took $500,000 in the form of a settlement — a canny move, since he and the other plaintiffs ultimately were found to be wrong on the law.

In part because of the sheer size of Brugmann's most recent judgment, and because of its possible impact in legal and business circles, the verdict is creating ripple effects far beyond San Francisco and attracting an increasing amount of attention from the media and other observers.

Newspaper baron Dean Singleton, whose company owns a string of dailies in the Bay Area, has already used the same state law to drive out a competitor in Eureka. And Brugmann has openly encouraged other publishers around the country to file similar lawsuits against competitors.

The possible national reach of the case is noted in SF Weekly's appeal, which was filed in June 2009. In that document, SF Weekly attorneys comment that the Guardian judgment turns antitrust law on its head by encouraging higher prices, rather than lower ones, and protecting the interests of an individual business, rather than those of consumers. They say that because the suit hinges on the notion of "below cost" prices — another way of saying a company is losing money — the judgment could effectively put any unprofitable company, especially a start-up, in the legal crosshairs of an entrenched competitor.

In its appeal, SF Weekly cites other California cases where the courts have ruled that the Unfair Practices Act's purpose is to protect the public interest, not the interests of individual companies. The Guardian's brief, on the other hand, insists that the act was indeed intended to protect the financial interests of individual businesses, and repeats a rhetorical theme familiar to anyone who sat through the trial: Guardian lawyer Ralph Alldredge's folksy admonition that "It's that simple."

Since SF Weekly filed its appeal, the Guardian has asked for and received numerous extensions of its deadline to respond — all while producing a flurry of legal actions and public-relations maneuvers designed to collect the money before the appeal has been heard. The Guardian also offered to settle the case for $14 million; SF Weekly and its parent company, New Times Media, also named as a defendant, declined.

The Guardian's increasingly shrill PR tactics have included public threats to seize and sell assets of SF Weekly sister papers such as the Village Voice in New York City — even though the Voice was not a defendant in the lawsuit and does no business in California.

The Guardian is also asking a San Francisco court commissioner to force SF Weekly to hand over 50 percent of its display ad revenues — a gambit which, if granted, would effectively give it half-ownership of its rival and kill off SF Weekly as a competitive threat before the underlying legal issues have been resolved.

There are other indications that Brugmann desperately wants cash in his pocket. As SF Weekly reported last week ["Celling Out," Peter Jamison, Sucka Free City, 1/20], he plans to rent out rooftop space on his building for a cellphone tower over the safety concerns of neighbors.

Between them, the SF Weekly and Guardian appeal briefs total more than 150 pages of legal arguments. Much of that is devoted to dissecting one question: Must California antitrust law naturally fall in line with rulings from the U.S. Supreme Court, or will California stand alone in upholding a statute that, at least on its face, sets an extremely low burden of proof in predatory-pricing lawsuits?

Both sides agree on one thing: Under federal law, such suits set a rigorous standard because the U.S. Supreme Court has demanded that plaintiffs provide proof that a defendant could ultimately create a monopoly and thus "recoup" its money.

SF Weekly argues that, properly interpreted, state law is consistent with the federal standard, which is that low prices are always good unless they can lead to a monopoly. It is ludicrous, the SF Weekly brief says, to assume that a small weekly newspaper (SF Weekly has always had a lower circulation than the Guardian) could achieve monopoly pricing power over San Francisco display advertising in the Internet age.

The Guardian, however, argues vociferously in favor of California law as it was interpreted by trial judge Marla J. Miller: If the jury found SF Weekly sold even a single ad below cost that "injured" the Guardian, any and all below-cost ads were presumed to have an anticompetitive intent. According to the Guardian, the standard set by the U.S. Supreme Court just doesn't apply in California. It's that simple.

Both briefs also provide a recap of the facts at trial. The Guardian's argument is largely circumstantial; claiming that SF Weekly lost money every year since New Times bought it in 1995 (actually, SFWeekly posted operating profits in 2000 and 2001), it suggests that only a predatory plot could explain a willingness to absorb such deficits.

The Guardian says it's SF Weekly's fault that Guardian display advertising revenues fell from $7.6 million at the end of 2000 to $4.5 million by the end of 2007.

But SF Weekly's brief argues that it's absurd to think the two papers compete only against each other, and quotes internal documents in which both Brugmann and executive editor Tim Redmond talk at length about the wide array of media competitors in the Bay Area.

SF Weekly also cites Harvard economics professor Joseph Kalt, who testified for the defense and noted that, based on the numbers, the Guardian stance of solely blaming SF Weekly makes no sense.

Both papers, Kalt testified, saw revenues grow during the boom years of the mid-to-late 1990s. Both saw revenues fall beginning with the dot-com bust in 2000 (combined, the two papers' revenues dropped from $19 million in 2000 to $12.5 million in 2006). Both suffered from the exodus of thousands of readers to the Internet.

Not so, Brugmann said during the trial: He made the remarkable claim that his newspaper's revenues had been unaffected by Web competition, a position that seemed to pose the Guardian as the only American newspaper to earn that distinction.

If a predatory strategy were in place, Kalt argued, SF Weekly's revenues would have been rising during the damages period of 2001 to 2007. Instead, he said, the data showed that advertisers were moving away from print media, which explained why revenues at both papers were going "down, down, down."

Now that the Guardian has responded, SF Weekly will file one additional reply with the court, probably by the end of February. Once that reply is received, the Court of Appeal will set a date for oral arguments, or could issue a ruling based on the pleadings.

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