Does today's hush-hush meeting of newspaper executives violate antitrust law?

The conventional wisdom debunked.
May 28 2009 7:15 PM

Collusion Course

Does today's hush-hush meeting of newspaper executives violate antitrust law?

A newspaper conspiracy? Click image to expand.
Are newspapers planning an online conspiracy?

The newspaper world has temporarily diverted its gaze from its collective navel to Rosemont, Ill. That's where, reports James Warren in the Atlantic, top executives from major papers have gathered to plot the future of their business. Machers from, among others, the New York Times, Gannett, E.W. Scripps, Advance Publications, McClatchy, Hearst Newspapers, MediaNews Group, the Associated Press, Philadelphia Media Holdings, Lee Enterprises, and Freedom Communication Inc. were scheduled to gather for a "discreet" "discussion about content models," including the possibility of charging for Web content. This comes barely a month after a similar meeting in San Diego, where CEOs at the "Newspaper Association of America convention [held] a clandestine meeting to discuss, among other topics, whether and how to start charging readers to view articles and other content online."

Warren likens the Rosemont confab to the Yalta conference or, perhaps, the infamous 1957 mob summit in Apalachin, N.Y. But if the news honchos aren't very, very careful, the more apt analogy may be a 1994 meeting in a Hawaii hotel room at which representatives of agricultural-products giants gathered under the guise of a trade-association meeting to fix prices for a chemical called lysine—a story that ended up with federal criminal convictions and Archer Daniels Midland and others paying hundreds of millions of dollars in fines (not to mention a movie starring Matt Damon).

Antitrust law is complicated, but one principle is very simple: Competitors cannot get together and agree on price or the terms on which they will offer their services to their customers. It doesn't matter if the industry is ailing or if collusion would be "good" for society or necessary to preserve democracy. An agreement regarding pricing is "per se"—automatically—illegal under Section 1 of the Sherman Act, the main federal antitrust law.

All but a few newspapers currently give away their Web content for free. Many would like to start charging but are afraid that if they're the first to make the leap, their readers will abandon them for the remaining free alternatives. One obvious solution would be for them to agree to make a collective leap behind a pay wall.

But such an agreement would be blatantly illegal, says Kenneth Ewing, a partner at Steptoe & Johnson who, as head of his firm's antitrust practice, advises corporations on how to stay out of trouble. "It's Antitrust 101. If you're a competitor of another company, you violate federal and state law if you agree on the price or the general terms on which you are willing to compete."

Benign meetings of the American Widget Manufacturers Association can, in the absence of very careful lawyering, become the venue for unlawful antitrust conspiracies in which general discussions about industry conditions and trends can segue into verboten conspiracy. "To put a group of competitors together in a room and have them discuss anything even close to considering prices … is a very risky undertaking," says Maxwell Blecher, a prominent antitrust attorney who represents plaintiffs in price-fixing suits. In a 2007 presentation, Ewing advised that when competitors meet, they should "avoid topics" including "prices, payment terms, costs, wages or salaries, profit levels … [and] business strategy."

It's routine for execs to consult with lawyers before any such meeting. "I would expect that senior executive[s] for any company would have at least consulted with their internal lawyers and maybe with the [trade] association lawyer as well, to prevent things going off the rails," says Ewing. Indeed, "Newsosaur" blogger Alan Mutter reported that the San Diego meeting was "held … under the guidance of a lawyer to ensure the talks d[id]n't stray into inappropriate territory," and Rosemont was lawyered up as well.

And Ewing and Blecher—who both stressed that they don't know the specifics of what newspaper execs have discussed and who aren't accusing them of wrongdoing—certainly aren't the first to recognize the risks of chumminess among competitors. In The Wealth of Nations, Adam Smith himself warned, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

In fact it's the "merriment and diversion" component of meetings that can be the most perilous, says Blecher. The biggest danger isn't what goes on in the official meetings, where lawyers "make sure everything is lily white and virgin pure," he said. But "we don't know what happens when they go out to dinner."

Of course, newspaper execs will never admit that they have collectively decided to start charging. But what if, one by one, over the next few months, each of them "independently" announces a new online subscription plan? Is that enough to send plaintiffs racing to the courthouse seeking treble damages?

Until recently, the answer would have been yes. An antitrust plaintiff could have slapped together a skeletal complaint saying basically: "Meeting of competitors + discussion of business models + subsequent price increases = evidence of conspiracy," and probably would have survived a motion to dismiss. That would have led to—at the very least—years of expensive and intrusive discovery, depositions of everyone involved, and exchange of millions of pages of sensitive business documents as well as the possibility of a crippling damages award.

But Ewing and Blecher both agree that the Supreme Court's 2007 decision in Bell Atlantic Corp. v. Twombly changed the game by requiring plaintiffs to include more concrete evidence of wrongdoing in their initial pleadings. Bare-bones allegations, with speculation piled on top of inferential leap, no longer cut it, at least in federal court. "Two years ago a meeting among competitors followed by parallel price increases would have led to a class action," says Blecher. "Today, there's at least a 50/50 chance [such allegations] would not meet the Twombly requirements."

But what about the federal government, which can bring both civil and criminal antitrust cases on its own? New Department of Justice antitrust chief Christine Varney has signaled a newly aggressive enforcement role, and the Obama administration has made clear it isn't issuing get-out-of-jail-free cards to the newspaper industry.

Ewing, for one, wouldn't be shocked if DoJ takes an interest in possible newspaper collusion. "There are a lot of people in the Antitrust Division who don't have a whole lot on their plates because their merger work has dried up. The staffing is there, and they have the opportunity to go do something."

But based on what he has heard so far, Ewing doesn't believe DoJ or private plaintiffs have the goods. "The mere fact that companies get together, and then something happens afterwards" isn't illegal, he said. "You need an actual agreement."

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