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NEWBERRY v. WASHINGTON POST CO.

September 28, 1977

Alfred T. Newberry, Jr., et al., Plaintiffs
v.
The Washington Post Co., Defendant



The opinion of the court was delivered by: GESELL

 GESELL, D.J.:

 Fourteen newspaper distributors bring this civil action alleging violations of sections 1, 2, and 3 of the Sherman Act, 15 U.S.C. §§ 1-3 (1970), the Robinson-Patman Act, id., § 13, and section 3 of the Clayton Act, id., § 14. Each distributor sues individually, *fn1" claiming treble damages arising from territorial and customer restrictions on resale, vertical price fixing, and price discrimination in their respective dealings with the Washington Post Company ("the Post"). Injunctive relief in various forms is also requested.

 For most of the period under review the Post distributed its newspapers through a dual system of independent dealers; one group of dealers served home subscribers, and the other, single sales outlets. In 1975 the Post announced that it was shifting from a dealer system to an agency system. This decision was acceptable to practically all of the Post's some 180 dealers, except plaintiffs. *fn2" In addition to their treble damage claims, plaintiffs seek a determination that the agency plan of distribution is unlawful under the circumstances shown and ask that the Post be prohibited from making further sales through agents and be required to return to the former dealer system with all alleged territorial, customer, and price restraints removed.

 Prior to trial the parties briefed and argued the legality of the agency arrangement on documented cross-motions for summary judgment, but the Court held action on the motions in abeyance pending development at trial of pertinent facts relating to the Post's prior conduct that plaintiffs' claim was in violation of section 1 of the Sherman Act and other antitrust laws. *fn3"

 All aspects of the case except those comprehended within the cross-motions have now been tried to the Court without a jury after extensive pretrial proceedings. Numerous facts were agreed upon by the parties, many documents and portions of depositions were received, and 20 witnesses were heard. Having now considered the evidence and extensive briefs and submissions of the parties, the Court has this day filed detailed findings of fact on aspects of the issues thus tried. This Memorandum is intended to summarize and supplement these findings and to present the Court's conclusions of law derived from all facts as found. It will also contain the Court's ruling on the pending cross-motions relating to the agency system.

 Plaintiffs' major contention is that prior to institution of the agency system the Post in various ways illegally enforced a rigid scheme of distribution that required each of its dealers to confine his sales to a defined area and class of customer specified in his contract and that illegally fixed the price its dealers were obliged to charge home subscribers. These alleged sales and price restraints are interrelated but must receive separate consideration.

 I. Sales Restrictions

 A. Territory.

 Plaintiffs, while dealers, contracted to purchase newspapers from the Post for resale principally to home subscribers in designated areas. Although the dealer contracts contained no explicit prohibition against selling outside the area, they were designed to limit each dealer's sales to a designated area. This territorial arrangement was developed by a course of conduct mutually advantageous to the Post and the dealers. Usual indicia of a coerced territorial agreement between a seller and its dealers were absent. The Post never terminated a dealer's contract because he sold outside his dealership area, and there is no evidence that any plaintiff was officially advised that he could not sell outside his territory. The Post, however, expected that its home subscribers would almost invariably be served by the dealer assigned to the subscriber's area. Its customer service and field force encouraged this, and its expectations were borne out in fact.

 Both the Post and its dealers shared an interest in the widest possible circulation of the newspaper and thus in prompt, reliable, consistent delivery at the lowest possible cost. Both would have confronted many troublesome operating problems if dealers sought to invade each other's territories. Competition would interrupt smooth delivery to subscribers. Difficulties would also be encountered in handling subscriber complaints, new subscriptions, stop orders, billing, and the like because of uncertainty as to which dealer was serving or planning to serve which subscriber.

 In addition, competition simply would not have been profitable for the dealers. In areas in which subscribers are widely scattered, the costs of service are very high in relation to the profits to be gained; in high-density areas an established dealer with many years of effective service in the area would face lower costs than any dealer attempting to enter. Thus each dealer territory had aspects of a natural monopoly arising from the fact that the territories specified in the dealer contracts were tailored with efficient delivery in mind and had long been worked by competent dealers. The dealers realized that competition among them would be very expensive, requiring cut rates or extra service, and that the prospect of retaliation by the neighboring dealer was always present. They therefore collaborated and shared work in many instances, and with little direction from the Post they did not compete. Boundary disputes were often settled without Post intervention. Dealers who sold newspapers outside of the territory specified in their contracts usually did so as an accommodation to a neighboring dealer.

 Given the long period of time in which territorial allocations among dealers were more or less scrupulously observed, a territorial agreement between the Post and each plaintiff dealer must be implied. *fn4" Cf. United States v. A. Schrader's Son, Inc., 252 U.S. 85, 97, 99, 64 L. Ed. 471, 40 S. Ct. 251 (1920). Under the recent Supreme Court decision in Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977), the legality of this vertical restriction *fn5" is governed by the "rule of reason," which requires a case-by-case inquiry into the purpose and effect of the restriction in question to determine whether it should be prohibited as imposing an unreasonable restraint on competition. White Motor Co. v. United States, 372 U.S. 253, 263, 9 L. Ed. 2d 738, 83 S. Ct. 696 (1963). The classic formulation of the rule of reason standard was enunciated by Justice Brandeis in Chicago Board of Trade v. United States, 246 U.S. 231, 238, 62 L. Ed. 683, 38 S. Ct. 242 (1918): *fn6"

 
Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.

 The Post's territorial system of distribution was reasonable. By definition, some potential intrabrand competition was theoretically restricted; but the proof failed to show that any plaintiff was either capable of seriously competing or desired to compete with any other dealer. It is also true that the effects of vertical territorial restrictions are likely to be more pernicious when instituted by a monopolist or near-monopolist like the Post, Washington's only general morning newspaper. See Adolph Coors Co., 3 TRADE REGULATION REPORTS (CCH) para. 20,403, at 20,293 (1973), aff'd, 497 F.2d 1178 (10th Cir. 1974), cert. denied, 419 U.S. 1105, 95 S. Ct. 775, 42 L. Ed. 2d 801 (1975). This is because absent the restraint provided by interbrand competition, both the manufacturer and the distributor/dealer will be more likely to reap excessive profits from the consumer. Id. Yet the record in this case discloses consistently low home delivery prices suggested by the Post after consideration of legitimate business factors. *fn7"

 The purpose of the restriction was simply the furtherance of a legitimate marketing objective: to accomplish maximum market penetration and prompt, efficient, undisrupted delivery to home subscribers. Given the "facts peculiar to the business," the system adopted was reasonably necessary to achieve this objective. Cf. Albrecht v. Herald Co., 390 U.S. at 145, 166 (1968) (Harlan, J., dissenting). It was not the only system possible, as subsequent events demonstrated, nor was it necessarily the least restrictive alternative imaginable, but such a showing need not be made. American Motor Inns v. Holiday Inns, Inc., 521 F.2d 1230, 1249 (3d Cir. 1975); see M. Handler, Twenty-Five Years of Antitrust 707 (1973). The efficiency generated by the system facilitated low retail prices and wide circulation in complete harmony with both the purposes of the antitrust laws and the public interest in an informed citizenry. See Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958); Brief for the United States at 23, United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967). *fn8"

 B. Customers.

 Plaintiffs also complain of customer restrictions on resale. It is urged that home delivery dealers could fairly compete with street sales dealers, who serve single-copy sales outlets like hotels, newsstands, drug and convenience stores, and street vending machines ("racks"), but that plaintiffs, ...


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