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VOLUME 11
PAGES 2295 - 2473
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
CLINTON REILLY, )
)
PLAINTIFF, )
)
VS. ) NO. C 00-0119 VRW
)
THE HEARST CORPORATION, )
ET AL., )
)
DEFENDANTS. )
____________________________)
SAN FRANCISCO, CALIFORNIA
WEDNESDAY, MAY 31, 2000
TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
ANGELINA ALIOTO-GRACE
ATTORNEY AT LAW
SHULMAN, WALCOTT & SHULMAN, P.A.
121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
BY: DANIEL R. SHULMAN
JAMES HILBERT
ATTORNEYS AT LAW
(APPEARANCES CONTINUED ON FOLLOWING PAGE)
REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
OFFICIAL REPORTERS, USDC
COMPUTERIZED TRANSCRIPTION BY ECLIPSE
2296
1 APPEARANCES: (CONTINUED)
2 FOR DEFENDANT SHEPPARD, MULLIN, RICHTER & HAMPTON
HEARST CORPORATION: FOUR EMBARCADERO CENTER, 17TH FLOOR
3 SAN FRANCISCO, CALIFORNIA 94111
BY: GARY L. HALLING
4 THOMAS D. NEVINS
ATTORNEYS AT LAW
5
BAKER & HOSTETLER LLP
6 1050 CONNECTICUT AVE., N.W.
SUITE 1100
7 WASHINGTON, D.C. 20036
BY: GERALD A. CONNELL
8 ATTORNEY AT LAW
9 FOR DEFENDANT LATHAM & WATKINS
CHRONICLE PUBLISHING 505 MONTGOMERY STREET
10 COMPANY: SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
11 BY: PETER K. HUSTON
J. THOMAS ROSCH
12 GREGORY P. LINDSTROM
ATTORNEYS AT LAW
13
FOR INTERVENOR- MC CUTCHEN, DOYLE, BROWN & ENERSEN
14 DEFENDANT EXIN, LLC: THREE EMBARCADERO CENTER, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94111
15 BY: DAVID M. BALABANIAN
CHRISTOPHER B. HOCKETT
16 THOMAS S. HIXSON
ATTORNEYS AT LAW
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OPENING ARGUMENT BY MR. ALIOTO 2300 11
6 CLOSING ARGUMENT BY MR. ROSCH 2381 11
CLOSING ARGUMENT BY MR. HALLING 2416 11
7 CLOSING ARGUMENT BY MR. CONNELL 2436 11
CLOSING ARGUMENT BY MR. BALABANIAN 2447 11
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2298
1 WEDNESDAY - MAY 31, 2000 9:35 A.M.
2
3 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
4 VERSUS THE HEARST CORPORATION, THE CHRONICLE PUBLISHING COMPANY
5 AND EXIN.
6 COUNSEL, YOUR APPEARANCES FOR THE RECORD, PLEASE.
7 MR. ALIOTO: JOSEPH M. ALIOTO, YOUR HONOR, DANIEL
8 SHULMAN AND ANGELINA ALIOTO-GRACE FOR THE PLAINTIFF.
9 MR. HALLING: GARY HALLING AND JERRY CONNELL, TOM
10 NEVIN FOR DEFENDANT THE HEARST CORPORATION.
11 MR. ROSCH: GOOD MORNING, YOUR HONOR. TOM ROSCH
12 TOGETHER WITH GREGORY LINDSTROM AND PETER HUSTON FOR CHRONICLE
13 PUBLISHING COMPANY.
14 MR. BALABANIAN: GOOD MORNING, YOUR HONOR. DAVID
15 BALABANIAN, CHRISTOPHER HOCKETT, FOR INTERVENOR EXIN LLC.
16 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
17 COUNSEL, I DON'T KNOW IF YOU HAD ANY DISCUSSIONS
18 AMONGST YOURSELVES WITH RESPECT TO HOW YOU WISH TO PROCEED.
19 HAVE YOU?
20 MR. ALIOTO: NO, YOUR HONOR.
21 THE COURT: ALL RIGHT. WELL, THEN, WHY DON'T WE
22 JUST PROCEED IN THE USUAL FASHION. WE'LL LET THE PLAINTIFF
23 LEAD OFF FIRST. I'VE GOT SOME QUESTIONS THAT I'D LIKE TO HAVE
24 ANSWERS TO, BUT I THINK PROBABLY THOSE ARE BEST ADDRESSED IN
25 THE COURSE OF ARGUMENT. I KNOW THAT YOU EACH HAVE
2299
OPENING ARGUMENT \ ALIOTO
1 PRESENTATIONS THAT YOU'D LIKE TO MAKE AND I DON'T WANT TO
2 INTERFERE WITH THAT.
3 AND I SEE WE HAVE SOME DEMONSTRATIVES IN THE
4 COURTROOM. I ASSUME WE'RE GOING TO HAVE SOME OF THESE SHOWN
5 DURING THE COURSE OF THE ARGUMENTS. WHOSE ARE THESE?
6 MR. ALIOTO: THEY ARE THE PLAINTIFF'S, YOUR HONOR.
7 THE COURT: AH HA, ALL RIGHT. WELL, THAT'S FINE. I
8 WOULDN'T WANT TO INTERFERE WITH THIS PRESENTATION, SO LET ME
9 ASK YOU TO LEAD OFF.
10 MR. ALIOTO: THANK YOU, YOUR HONOR.
11 OPENING ARGUMENT
12 MR. ALIOTO: MAY IT PLEASE THE COURT.
13 FIRST OF ALL, I WOULD LIKE TO SAY ON BEHALF OF MY
14 COLLEAGUES AND MYSELF, MR. SHULMAN, MR. HILBERT,
15 MS. ALIOTO-GRACE AND MYSELF, THAT WE CONSIDER IT TO HAVE BEEN
16 AN HONOR AND A PLEASURE, A SPECIAL PRIVILEGE EVEN, TO PRESENT
17 THIS IMPORTANT CASE OF FIRST IMPRESSION TO YOUR HONOR, AND WE
18 FEEL THAT WE HAVE BEEN TREATED VERY FAIRLY AND HAVE HAD EVERY
19 OPPORTUNITY TO PRESENT THE EVIDENCE THAT WE THOUGHT WAS GERMANE
20 TO THE ISSUES.
21 WE BELIEVE THAT THIS PARTICULAR CASE HAS SOME VERY
22 STRONG SIGNIFICANCE OBVIOUSLY IN A VERY IMPORTANT AREA OF OUR
23 COUNTRY, VERY IMPORTANT INDUSTRY OF OUR COUNTRY, AND THAT THIS
24 COURT, I THINK, IS THE FIRST TO BE ABLE TO EVER LOOK AT IT IN
25 TERMS OF A TERMINATION OF A JOINT OPERATING AGREEMENT.
2300
OPENING ARGUMENT \ ALIOTO
1 IT WAS MY PROPOSAL OR BELIEF, YOUR HONOR, THAT WHAT
2 I WOULD LIKE TO DO IS I WOULD LIKE TO PROCEED, IF IT IS
3 CONVENIENT TO THE COURT, I WOULD LIKE TO PROCEED ON THE FACTUAL
4 GROUNDS IN A CHRONOLOGICAL ORDER AND ATTEMPT TO DEVELOP OUR
5 ARGUMENTS ON THAT BASIS OR TO SKIP AROUND AS THE COURT --
6 HOWEVER THE COURT PLEASES.
7 AS THE COURT IS AWARE, THERE ARE TWO THINGS I WANT
8 TO MENTION AND IT'S KIND OF UNUSUAL IN ADDRESSING JUST THE
9 COURT RATHER THAN THE JURY, BUT OF COURSE THE STANDARD OF PROOF
10 IS THE PREPONDERANCE OF THE EVIDENCE. WE BELIEVE THAT IN
11 WEIGHING THE EVIDENCE, EACH OF THE ELEMENTS ARE NOT ONLY
12 SATISFIED BUT SATISFIED ALMOST TO AN ABSOLUTE.
13 WE ALSO WANT TO EMPHASIZE THAT THE COURT BEING THE
14 TRIER OF FACT, THAT A VERY IMPORTANT PART OF THE CASE WILL ALSO
15 BE THE CREDIBILITY OF THE WITNESSES; THAT THE CREDIBILITY OF
16 THE WITNESSES AND THE DECISION BY THE TRIER OF FACT WITH REGARD
17 TO THE CREDIBILITY OF THE WITNESSES IS, OF COURSE, NOT
18 REVIEWABLE. IT IS THE FUNCTION OF THE TRIER OF FACT TO
19 DETERMINE THE CREDIBILITY OF THE WITNESS AND ONLY THE TRIER OF
20 FACT.
21 WE'D LIKE TO GET INTO THE CASE THE VERY BEGINNING,
22 EVEN BEFORE THE LAW BEGAN TO CHANGE, YOUR HONOR. THAT WAS THE
23 JOA IN THIS VERY CASE, AND THAT IS THE -- THAT WAS MARKED AS
24 EXHIBIT 1 IN OUR CASE, AND IT IS THE JOA WHICH WAS DATED
25 OCTOBER 23RD, 1964, AND IT HAD THE EFFECTIVE DATE OF JANUARY
2301
OPENING ARGUMENT \ ALIOTO
1 THE 1ST, 1965.
2 NOW, I THINK IT IS EXTREMELY IMPORTANT TO RECOGNIZE
3 IMMEDIATELY THAT THIS WAS A TOTAL VOLUNTARY AGREEMENT BETWEEN
4 TWO VIABLE COMPETITORS AT THE TIME, BOTH WHO HAD NEWSPAPERS IN
5 THE MORNING. BUT THERE WAS AN OBVIOUS TREND IN THE INDUSTRY,
6 IN THE NEWSPAPER INDUSTRY ALONE, THAT BEGAN TO -- WHERE THESE
7 DIFFERENT AGREEMENTS BEGAN TO CROP UP, AND THE NEWSPAPERS TOOK
8 IT UPON THEMSELVES TO BEGIN TO ENTER INTO THESE OULD GO OUT OF BUSINESS.
9 BUT IT APPARENTLY WAS NOT THAT DRASTIC. BUT
10 WHATEVER THE CIRCUMSTANCE, BOTH PARTIES AGREED FROM THE VERY
11 BEGINNING.
12 AND WHAT WE'RE GOING TO SHOW, I BELIEVE THAT THE
13 EVIDENCE HAS SHOWN IN THIS CASE, IS THAT IF THERE WERE EVER A
14 SITUATION IN WHICH AN INDUSTRY TOOK ADVANTAGE OF A PARTICULAR
15 PRIVILEGE, IT IS THIS INDUSTRY AND THAT THESE PAPERS,
16 ESPECIALLY AS STATED BY THE EVIDENCE HERE, ARE USING THE JOA AS
17 A STEPPINGSTONE TO MONOPOLY, PARTICULARLY THIS DEFENDANT, THE
18 HEARST CORPORATION, WHICH SEEMS TO HAVE A PENCHANT FOR DOING
19 THIS VERY KIND OF CONDUCT, A KIND OF REVERSE MIDAS TOUCH THAT
20 THEY HAVE WHERE ANY PAPER THAT THEY TOUCH TURNS INTO ASHES AND
21 THEY IMMEDIATELY INSTEAD OF ALLOWING THE PAPER ITSELF, OR
22 BECAUSE OF THEIR OWN INEPTITUDE, OR FOR WHATEVER REASON, TURN
23 AROUND AND USE MONEY INSTEAD OF INVESTING IN THEIR OWN PAPER,
24 INVESTING IN THE REMAINING PAPER, THE MAJOR PAPER.
25 THE COURT: LET ME ASK YOU IN THAT CONNECTION, HOW
2303
OPENING ARGUMENT \ ALIOTO
1 DOES THE MARCH 16 CONTRACT FIT INTO THIS SCENARIO?
2 MR. ALIOTO: WHICH MARCH 16 CONTRACT?
3 THE COURT: THAT'S THE TRANSFER OF CERTAIN EXAMINER
4 ASSETS AND PAYMENTS TO EXIN CORPORATION.
5 MR. ALIOTO: OH. WELL, THERE'S TWO ITEMS ABOUT
6 THAT. THE FIRST ONE IS, OF COURSE, THAT AS THE COURT I THINK
7 IS AWARE, UNDER THEIR AGREEMENT, THE CHRONICLE AND THE HEARST
8 CORPORATION, THAT THE SALE OF THE EXAMINER IS -- TO THE FANGS
9 IS CONTINGENT UPON THE FIRST CONTRACT.
10 BUT THE FACT OF THE MATTER IS THAT THE SALE OF THE
11 EXAMINER WAS AN EFFORT, THEY SAY, POLITICAL EFFORT, AND WE
12 THINK THE EVIDENCE IS VERY CLEAR THAT THE EVIDENCE IS THAT THEY
13 WERE BASICALLY TOLD THAT THEY WOULD NOT HAVE OPPOSITION IF THEY
14 SOLD THE PAPER TO THE FANG COMPANY. BUT WE BELIEVE THAT UNDER
15 THE ARRANGEMENT THAT THE FANG GROUP HAVE WITH THE HEARST
16 CORPORATION, THAT THAT IS SO CLEAR THAT IT WILL NOT BE A
17 COMPETITIVE NEWSPAPER, AND SO IT WAS A SHAM AND A FARCE.
18 AND I WOULD SAY, YOUR HONOR, WITH REGARD TO THAT,
19 THAT THERE HAVE BEEN AT LEAST FOUR DIFFERENT FACES OF THE
20 SO-CALLED HEARST CORPORATION WITH REGARD TO THAT VERY ISSUE,
21 AND ONE OF THEM WAS RIGHT HERE IN THIS CASE, RIGHT HERE DURING
22 THE TRIAL.
23 ACTUALLY, YOU KNOW, I HAVE A -- I DIDN'T INTEND TO
24 PULL IT OUT NOW, BUT I CAN PULL IT OUT NOW, YOUR HONOR. THIS
25 IS --
2304
OPENING ARGUMENT \ ALIOTO
1 THE COURT: ONE OF THE THREE FACES, IS IT?
2 MR. ALIOTO: THIS IS -- WE'VE GOT NUMBER FOUR. WE
3 HAVEN'T ADDED IT YET, YOUR HONOR. IT'S CLOSE TO THE THREE
4 FACES OF EVE BUT IT'S NOT QUITE.
5 (LAUGHTER)
6 MR. ALIOTO: THE COURT WILL REMEMBER THAT UP TO
7 AUGUST 6, 1999, WHEN THE HEARST CORPORATION AND CHRONICLE
8 ENTERED INTO THEIR AGREEMENT, PRIOR TO THAT TIME -- AGAIN AND
9 AGAIN WE'LL POINT OUT, AND THIS IS A VERY HUGE, IN OUR
10 JUDGMENT, CREDIBILITY ISSUE, AGAIN AND AGAIN THEY SAID THAT
11 THEY WERE GOING TO STAY IN SAN FRANCISCO AFTER 2005. THEY SAID
12 WHAT KIND OF PAPER THEY WERE GOING TO HAVE. THEY SAID THAT
13 THEY WERE GOING TO COMPETE ON THE PRICES. THEY SAID THAT
14 BEFORE AUGUST 6, 1999.
15 AFTER AUGUST 6, WHEN THEY MADE THEIR AGREEMENT WITH
16 THE CHRONICLE, THEY IMMEDIATELY SHIFT AND THEY SAY, "NO ONE CAN
17 REMAIN IN THE MARKET AND THAT THERE'S NO WAY THAT THIS CAN
18 HAPPEN."
19 THEY REPRESENT TO THE DEPARTMENT OF JUSTICE THAT
20 PERSON WOULD BE IRRATIONAL TO EVEN THINK THAT THEY COULD DO IT.
21 AND THEN, OF COURSE, THEY MAKE THE AGREEMENT WITH THE FANG
22 GROUP IN MARCH 16, 2000. AND NOW WHAT DO THEY SAY? THEY SAY,
23 "WELL, THE FANGS NOT ONLY -- THEY WILL BE COMPETITIVE." AND
24 THEY MAKE THIS STATEMENT, AND AGAIN A CREDIBILITY ISSUE, THEY
25 MAKE THE STATEMENT TO THE DEPARTMENT OF JUSTICE.
2305
OPENING ARGUMENT \ ALIOTO
1 THE DEPARTMENT OF JUSTICE COMES IN 14 DAYS LATER,
2 HANDS IN THAT PRESS RELEASE THAT THE COURT REMEMBERS IN WHICH
3 THEY SAY FOR THE FIRST TIME IN 35 YEARS THERE'S GOING TO BE
4 COMPETITION FOR THE SUBSCRIBERS AND THE ADVERTISERS AND THE
5 PEOPLE OF SAN FRANCISCO WITH TWO COMPETING NEWSPAPERS.
6 THE COURT: WELL, LET'S ASSUME I BELIEVE ALL OF THAT
7 AND FIND THAT YOUR RECITATION OF THE FACTS IS CORRECT AND
8 CONSISTENT WITH WHAT OCCURRED HERE. HOW DOES THE SPIN-OFF OF
9 THE EXAMINER ASSETS CONSTITUTE A VIOLATION OF SECTION 1 OR
10 SECTION 2?
11 MR. ALIOTO: BECAUSE, YOUR HONOR, WE HAVE STATED, AS
12 WE STATED IN OUR BRIEFS, THAT WE BELIEVE THAT THE HEARST
13 CORPORATION HAS DONE A NUMBER OF THINGS, BUT ONE OF THEM UNDER
14 SECTION 2 OF THE SHERMAN ACT, UNDER THE ATTEMPT-TO-MONOPOLIZE
15 PHASE, THIS IDEA WAS IN ORDER TO GET THE MONOPOLY, THEY FIRST
16 ARE SHUTTING DOWN THE JOA; AND THEN IN ORDER TO TRY TO DO THAT
17 WHICH THEY SAY FOR POLITICAL REASONS, THEY THEN MAKE THE
18 AGREEMENT WITH THE FANGS.
19 THE COURT: ALL RIGHT. LET'S ASSUME I BELIEVE THAT
20 THERE'S NO BUSINESS JUSTIFICATION WHATEVER FOR THAT SPIN-OFF OF
21 EXAMINER ASSETS TO THE FANGS, THAT IT WAS A PURE POLITICAL PLOY
22 ON HEARST'S PART TO CURRY FAVOR WITH CITY HALL AND WITH THE
23 DEPARTMENT OF JUSTICE. ASSUME I BELIEVE ALL OF THAT. HOW DOES
24 THAT AMOUNT TO A VIOLATION OF EITHER SECTION 1 OR SECTION 2?
25 MR. ALIOTO: BECAUSE IT IS A COMBINATION OF THE TWO
2306
OPENING ARGUMENT \ ALIOTO
1 INDEPENDENT GROUPS FOR THE PURPOSE OF GRANTING TO THE HEARST
2 CORPORATION A MONOPOLY. BOTH SIDES HAVE ADMITTED, YOUR HONOR,
3 INCLUDING MR. ASHER, THE COURT WILL RECALL, THAT AT THE TIME
4 THEY MADE THE AGREEMENT, BECAUSE THIS WOULD BE THE FOURTH FACE
5 OF HEARST, AT THE TIME THEY MADE THE AGREEMENT, NEITHER THE
6 HEARST CORPORATION NOR THE FANGS HAD ANY INTENTION TO HAVE A
7 COMPETING PAPER WITH THE MORNING CHRONICLE.
8 AND I THINK ALSO THE COURT HAS TO UNDERSTAND THAT IN
9 SOME RESPECT HERE THE WHOLE SHUTTING DOWN OF THE JOA IN ORDER
10 TO ACHIEVE A MONOPOLY, ANY ACT THAT'S TAKEN TO FURTHER THE
11 ESTABLISHMENT OF A MONOPOLY, EVEN IF THE ACT IN ITSELF WERE
12 WHOLLY INNOCENT IN ITSELF, IF IT IS ONE OF THE ACTS THAT ARE
13 PUT TOGETHER TO ACHIEVE THE UNLAWFUL OBJECTIVE, THEY ALSO
14 BECOME UNLAWFUL.
15 WE BELIEVE ALSO THAT THE HEARST CORPORATION -- LOOK
16 AT THE CONTRACT OF MARCH 16. THE MARCH 16TH CONTRACT, TO BE
17 KIND, WOULD PROBABLY HAVE TO BE DESCRIBED AS A VERY SUBTLE
18 PERHAPS BUT NONETHELESS DOWN-AND-DIRTY BRIBE. THE WHOLE POINT
19 IS THAT HERE YOU DO NOT MAKE THIS PAPERWORK, AND WE'RE GOING TO
20 REWARD YOU WITH SO MUCH MONEY EVERY YEAR, MORE THAN THEY HAD
21 EVER MADE BEFORE.
22 THAT MEANS THAT THEY JOIN --
23 THE COURT: GO AHEAD.
24 MR. ALIOTO: I DIDN'T MEAN TO INTERRUPT, YOUR HONOR.
25 THAT MEANS THAT THEY JOINED IN ON THE MONOPOLY
2307
OPENING ARGUMENT \ ALIOTO
1 UNDERSTANDING THAT A MONOPOLY WOULD BE CREATED.
2 IF THE FANGS HAD NO INTENTION OF COMPETING AGAINST
3 THE CHRONICLE IN THE SENSE THAT THE OLD EXAMINER WAS AND IF THE
4 EXAMINER HAD THE SAME INTENTION WHEN IT MADE THAT DEAL WITH THE
5 FANGS, THEN WHAT ARE THEY DOING?
6 AND AT THE SAME TIME THEY KNOW THAT THEY'RE
7 REPRESENTING TO THE GOVERNMENT AND TO YOUR HONOR IN THE BRIEFS
8 FILED IN THIS COURT THAT THAT WHOLE DEAL IS REALLY TO BE A
9 COMPETING NEWSPAPER.
10 THE COURT: FULLY COMPETITIVE.
11 MR. ALIOTO: YES, TO THE CHRONICLE.
12 THE COURT: WELL, ALL RIGHT. LET'S ASSUME I BELIEVE
13 THAT THIS WAS A BRIBE OR IMPLICIT BRIBE. IS THAT A VIOLATION
14 OF SECTION 2?
15 BECAUSE WHAT HAS BEEN CREATED OUT OF THAT IS A
16 DIFFERENT NEWSPAPER, AN INDEPENDENTLY AND SEPARATELY-PUBLISHED
17 NEWSPAPER WHICH IS GOING TO PRESUMABLY GO OUT AND COMPETE FOR
18 ADVERTISING AND READERS WITH THE CHRONICLE. HOW DOES THAT
19 TRANSACTION CREATE A MONOPOLY OR HOW DOES IT REPRESENT AN
20 ATTEMPT TO CREATE A MONOPOLY?
21 MR. ALIOTO: BECAUSE IT IS CHANGING A COMPETITIVE
22 PAPER. THE EXAMINER AND THE CHRONICLE UNDER THE JOA ARE
23 COMPETING NEWSPAPERS, BOTH OF THEM MAKING MONEY.
24 THE COURT: ALL RIGHT.
25 MR. ALIOTO: BOTH OF THEM --
2308
OPENING ARGUMENT \ ALIOTO
1 THE COURT: DO I HAVE TO FIND THAT THERE IS
2 COMPETITION NOW BETWEEN THE EXAMINER AND THE CHRONICLE TO
3 SUSTAIN YOUR THEORY?
4 MR. ALIOTO: YOU MEAN IN THE JOA?
5 THE COURT: CORRECT.
6 MR. ALIOTO: NO, I DON'T THINK SO, BUT THERE IS
7 ANYWAY. THERE IS COMPETITION. I DO NOT BELIEVE SO.
8 I BELIEVE UNDER SECTION 7, THE POTENTIAL
9 COMPETITION, WHICH IS ON THIS RECORD, FLATLY BY BOTH THE
10 CHRONICLE AND THE EXAMINER, YOUR HONOR, AND THEY BOTH FLATLY
11 ANTICIPATE OR SAY THAT THEY ANTICIPATE, UNLESS YOU DISBELIEVE
12 THEM, THEY SAY THAT THEY INTEND TO COMPETE IN 2005, THEY SAY,
13 EVEN THE EXAMINER -- REMEMBERING, YOUR HONOR, THE EXAMINER -- I
14 WANT TO SHOW YOU ANOTHER ONE TOO -- BUT THE EXAMINER, REMEMBER,
15 CHARGED THAT IT WAS AN ANTITRUST VIOLATION THEY BELIEVED, THEIR
16 LAWYERS BELIEVED, THEY BELIEVED IT, THAT IT WAS AN ANTITRUST
17 VIOLATION TO IN ANY WAY HARM THE EXAMINER IN ITS PREPARATION AS
18 IT BEGAN TO POSITION TO BE ABLE TO COMPETE IN 2005.
19 I THINK THAT IT IS IMPORTANT TO UNDERSTAND -- MAY I
20 USE THE EASEL, YOUR HONOR?
21 THE COURT: OF COURSE.
22 MR. ALIOTO: YES. LET ME SHOW THE BASIC THRUST OF
23 THAT, OF THE JOA, AND HOW IT CAME ABOUT.
24 UP TO -- THIS IS 1964. THE TWO NEWSPAPERS, THE
25 CHRONICLE AND THE EXAMINER WERE COMPETING AND THEY ARE FULLY
2309
OPENING ARGUMENT \ ALIOTO
1 SUBJECT TO THE ANTITRUST LAWS OF THE UNITED STATES AT THIS
2 TIME.
3 NOW, THE SUPREME COURT HAD NOT RULED IN THE CITIZENS
4 CASE NOR, FOR THAT MATTER, HAD THE UNITED STATES GOVERNMENT
5 RULED IN THE NEWSPAPER PRESERVATION ACT. THEY JOINED --
6 THE COURT: IN FACT, THE DEPARTMENT OF JUSTICE GAVE
7 A GO-AHEAD TO THE PARTIES TO ENTER THE JOA; DID IT NOT?
8 MR. ALIOTO: I DON'T KNOW WHETHER THEY DID OR THEY
9 DIDN'T, YOUR HONOR. BUT I WILL SAY THAT SUBSEQUENTLY, IN LIGHT
10 OF THE NEWSPAPER PRESERVATION ACT, CERTAIN PORTIONS WERE
11 ALLOWED, NOT ALL PORTIONS.
12 BUT I WILL SHOW THAT IN 19 -- SO THEY FORMED -- AND
13 WE'LL MAKE THIS AS THEIR JOINT OPERATING AGREEMENT, A BOX, AND
14 THEY SPLIT THAT 50-50. SO NOW THEY HAVE A 50-50 ARRANGEMENT.
15 AND LET'S SAY THAT THE NEWSPAPER PRESERVATION ACT
16 HAS NOW BEEN PASSED. WHAT HAPPENS WHEN THIS IS OVER? WHEN
17 IT'S OVER, THEY GO BACK TO WHERE THEY WERE BEFORE, COMPETING ON
18 THE MERITS. IT NO LONGER APPLIES ANYMORE. BUT DURING THIS
19 TIME PERIOD, THEY HAVE CERTAIN EXEMPTIONS BECAUSE OF THE
20 NEWSPAPER PRESERVATION ACT.
21 IF IN THE FINAL PART WHEN THEY'RE JOCKEYING FOR
22 POSITION PREPARING THEMSELVES FOR COMPETITION -- AND I HAVE
23 THIS (INDICATING), AND I USE THE HORSES, YOUR HONOR, FOR TWO
24 REASONS. ONE, IT GOES ALONG WITH -- IT'S ONOMATOPOETIC AND THE
25 OTHER REASON IS THAT AT THE TIME WE MADE THEM, IT WAS DURING
2310
OPENING ARGUMENT \ ALIOTO
1 DERBY WEEK.
2 (LAUGHTER)
3 MR. ALIOTO: BUT THE POINT IS, IS THAT DURING THE
4 JOA, DURING THE JOA PART WHERE THEY HAVE IMMUNITIES, THEY ARE
5 GETTING READY, BOTH OF THEM SAY, BOTH OF THEM THREATEN THE
6 OTHER, AS THEY SAY, WITH COMPETITION GETTING READY, GETTING
7 READY TO BEGIN COMPETING IN 2005.
8 NOW, IF ONE OF THESE COMPANIES TAKES ACTION AGAINST
9 THE OTHER, WHICH THE EXAMINER CLAIMED THE CHRONICLE WAS DOING,
10 IF ONE OF THEM TAKES ACTION AGAINST THE OTHER TO TRY TO PREVENT
11 THEM OR SOMEHOW HURT THEM BEFORE THEY GET LINED UP FOR THE
12 RACE, THEN AS THE EXAMINER SAID, THAT'S AN ANTITRUST VIOLATION,
13 AND I BELIEVE IT IS SO. AND SO THERE IS THIS DEGREE OF
14 COMPETITION EVEN POSITIONING AND GETTING READY.
15 SO, FOR EXAMPLE, I THINK YOUR HONOR WILL REMEMBER AT
16 LEAST TWO ITEMS ON THAT. ONE IS THAT THE EXAMINER WANTED TO
17 MOVE ALSO TO THE MORNING, BECAUSE YOUR HONOR MAY RECALL THAT
18 MR. BENNACK SAID FROM THE VERY BEGINNING OF THE JOA THAT RIGHT
19 FROM THE VERY START, NOW THIS IS VOLUNTARY, JUDGE, RIGHT FROM
20 THE VERY START GOING IN THE AFTERNOON WAS NOT GOOD FOR THE
21 EXAMINER, WAS NOT GOOD FOR -- LET ME SEE... I WANT TO --
22 THE COURT: LET ME JUMP AHEAD IF I MIGHT AND SEE IF
23 I UNDERSTAND THE ARGUMENT.
24 MR. ALIOTO: YES.
25 THE COURT: IS YOUR POINT THAT ALTHOUGH THERE MAY
2311
OPENING ARGUMENT \ ALIOTO
1 NOT BE COMPETITION BETWEEN THE EXAMINER AND THE CHRONICLE UNDER
2 THE JOA AS IT PRESENTLY EXISTS, THE JOA HAS A TERMINATION TIME,
3 A TERMINATION DATE?
4 MR. ALIOTO: YES. YES.
5 THE COURT: AND THERE IS COMPETITION AT THE END OF
6 THAT AGREEMENT.
7 MR. ALIOTO: YES. IT HAS TO GO BACK TO WHAT WE USED
8 TO CALL STATUS QUO ANTE.
9 THE COURT: AND WHAT THE HEARST ACQUISITION OF THE
10 CHRONICLE WILL DO WILL SNUFF OUT THE POSSIBILITY OF THAT
11 COMPETITION IN 2005 --
12 MR. ALIOTO: NO QUESTION.
13 THE COURT: -- OR 2015?
14 MR. ALIOTO: NO QUESTION. IT'S GONE.
15 THE COURT: AND THAT IS THE SECTION 2 VIOLATION,
16 THAT IS THE --
17 MR. ALIOTO: AND 7 AND 1 BECAUSE REMEMBER, YOUR
18 HONOR, SECTIONS --
19 THE COURT: HOW IS IT A VIOLATION OF SECTION 1?
20 MR. ALIOTO: SECTION 1 IS THE COMBINATION TO
21 RESTRAIN TRADE. AND YOUR HONOR MAY RECALL, AS WE POINTED OUT
22 IN THE LEXINGTON BANK CASE, THAT WHEN YOU HAVE A SECTION 7 CASE
23 OF A THREATENED INJURY IN THE FUTURE, POTENTIAL, POTENTIAL
24 DESTRUCTION OF COMPETITION, THAT WHEN YOU HAVE THAT, THAT THAT
25 ALSO INVOLVES A SECTION 1 OR IT IS, IN FACT, A SECTION 1 CASE
2312
OPENING ARGUMENT \ ALIOTO
1 TOO.
2 THE COURT MAY RECALL, I THINK WE PUT IT IN OUR
3 BRIEF, AMERICAN TOBACCO WAS VERY CLEAR ABOUT IT, THEY'VE SAID
4 THAT THE PREVENTION OF COMPETITION IS CHEAPER THAN THE CURE.
5 THAT IS THE REASON WHY YOU HAVE TO HAVE SECTION 7 AND SECTION 1
6 RIGHT IN THE BEGINNING WHEN THEY'RE STARTING TO JOCKEY AND TAKE
7 THESE POSITIONS.
8 SUPPOSE, FOR EXAMPLE, THE EXAMINER, YOU KNOW, HITS
9 ONE OF THE -- YOU KNOW, TRIES TO INJURE THE OTHER HORSE, OR
10 SOMETHING LIKE THAT, MAKE IT MORE DIFFICULT, OR THE CHRONICLE
11 DOES, MAKE IT MORE DIFFICULT TO BE ABLE TO COMPETE IN 2005.
12 THAT THEN IS -- THEY'RE TRYING TO JOCKEY AS IT IS.
13 I THINK YOUR HONOR REMEMBERS THAT THE DLJ PEOPLE
14 TOLD THE CHRONICLE THAT WHAT THEY'RE GOING TO HAVE TO DO, IF I
15 COULD SHOW IT AGAIN, BUT BEFORE THEY GOT TO 2005, 2002 AND 2003
16 THEY'RE GOING TO HAVE TO BUY A PLANT AND THEY'RE GOING TO HAVE
17 TO START TO GET READY. AND THE EXAMINER SAYS TO THE CHRONICLE,
18 "WE'VE GOT TO GO IN THE MORNING BECAUSE WE'RE GOING TO GET
19 READY. WE'RE HERE FOR KEEPS. WE WANT YOU TO KNOW THAT."
20 THAT'S WHAT THEY WERE SAYING.
21 OF COURSE, THEY COME INTO THIS COURT CONFRONTED WITH
22 THAT, YOUR HONOR, AND OF COURSE THEY DENY THAT. THEY SAID IT
23 WAS A BIG BLUFF, A BLOWFISH OR SOMETHING LIKE THAT. BUT THEY
24 WERE EVEN TELLING EACH OTHER THAT.
25 AND IF YOU CAN BELIEVE MR. BENNACK WHEN HE HAS TO
2313
OPENING ARGUMENT \ ALIOTO
1 GET ON THE STAND AND SAY -- I SHOWED HIM AN INTERNAL DOCUMENT
2 WHERE THEY MADE THAT STATEMENT THAT THEY HAVE TO GET READY TO
3 COMPETE IN 2005 AND AFTERWARDS, AND I SAID, "YOU WROTE THAT TO
4 YOUR OWN" -- YOU KNOW, HE WROTE IT TO HIS OWN PEOPLE. AND HE
5 SAID, "SOMETIMES YOU HAVE TO PROTECT YOUR OWN PEOPLE." HE SAID
6 THAT WHEN COUNSEL WAS QUESTIONING HIM. PROTECT THEM BY LYING
7 TO THEM.
8 THE COURT: BUT IF THEY CAN ESTABLISH, IF THE
9 PARTIES CAN ESTABLISH THAT ONE OF THESE TWO NEWSPAPERS IS A
10 FAILING NEWSPAPER AND CANNOT EXIST INDEPENDENT OF THE JOINT
11 OPERATING AGREEMENT, THEN PRESUMABLY THEY CAN RENEW THE JOINT
12 OPERATING AGREEMENT FOR SOME ADDITIONAL PERIOD OF TIME; CAN
13 THEY NOT?
14 MR. ALIOTO: THERE'S TWO THINGS. FIRST OF ALL --
15 THE COURT: LET ME JUST FINISH THE POINT.
16 MR. ALIOTO: ALL RIGHT.
17 THE COURT: DON'T YOU HAVE TO SHOW THAT AT THE END
18 OF THE ROAD, AT THE END OF THE JOA, 2005 OR 2015, THAT BOTH OF
19 THESE NEWSPAPERS ARE VIABLE ENTERPRISES?
20 MR. ALIOTO: I DON'T THINK SO, YOUR HONOR, BECAUSE
21 THERE'S --
22 THE COURT: IT SEEMS TO ME YOU'VE PROVEN JUST THE
23 OPPOSITE.
24 MR. ALIOTO: YEAH, I DON'T THINK SO, YOUR HONOR. I
25 THINK THAT -- I THINK TO UNDERSTAND THE REASON FOR THE
2314
OPENING ARGUMENT \ ALIOTO
1 NEWSPAPER PRESERVATION ACT AND THE CASE THAT STARTED IT, THE
2 CITIZENS CASE AND WHAT THEY DID HERE, THEY HAVE GONE IN -- THEY
3 ARE SAYING FROM THE VERY BEGINNING THAT WE CANNOT SURVIVE.
4 THEY SAY HEARST INCURRED DEFICITS WITH RESPECT TO ITS
5 PUBLICATION AND THEY SAY THAT HEARST AND THE CHRONICLE ARE
6 CONVINCED THAT ONLY WITH THE JOA WILL THEY BE ABLE, BOTH OF
7 THEM, LATER TO SURVIVE AS PUBLISHERS.
8 SO THE POINT OF THE NEWSPAPER --
9 THE COURT: I'M SORRY. SAY THAT AGAIN.
10 MR. ALIOTO: ONLY WITH THE JOA, ONLY WITH THE JOA IT
11 WOULD ENABLE, QUOTE, "WILL ENABLE BOTH CHRONICLE AND HEARST TO
12 SURVIVE AS PUBLISHERS OF SEPARATE AND INDEPENDENT NEWSPAPERS."
13 THAT'S THE ONLY WAY IT'S GOING TO HAPPEN.
14 SO WHAT DID THEY DO VOLUNTARILY WHEN THEY JOINED?
15 NOW, REMEMBER ALL OF THIS IS VOLUNTARY. NOBODY IS FORCING
16 ANYBODY TO DO ANYTHING.
17 THE EXAMINER TAKES A SEAT IN THE AFTERNOON ON ITS
18 OWN. THEY'RE COVERING THEIR BASES. NOW, IT MAY HAVE A DEFICIT
19 NOW AND IT MAY GET WORSE, BUT THEY HAVE DECIDED VOLUNTARILY
20 BETWEEN THEM THAT WHAT THEY WANT TO DO IS COVER THE WHOLE AREA.
21 MR. BENNACK AT PAGE 800 EVEN SAYS THAT. HE SAYS --
22 I CAN'T READ WHAT HE SAYS UNLESS I HAVE MY GLASSES, JUDGE. HE
23 SAYS:
24 "WE STARTED THIS JOINT OPERATING AGREEMENT
25 WITH NEWSPAPERS THAT WERE ROUGHLY IN
2315
OPENING ARGUMENT \ ALIOTO
1 EQUIVALENCY."
2 WELL, THAT'S NOT QUITE WHAT WAS SAID IN THE
3 AGREEMENT, BUT THAT'S WHAT HE SAYS.
4 "THE DISPARITY LARGELY HAD COME ABOUT
5 RESULTING FROM THE MORNINGNESS OF THE
6 CHRONICLE."
7 SO HE IS SAYING THAT THEY WERE ABOUT EQUIVALENT.
8 THEY JOINED THE AGREEMENT, THEY REPRESENT TO EVERYBODY THAT
9 THERE'S A DEFICIT, AND THEY VOLUNTARILY SAY TO THE EXAMINER,
10 "GO IN THE AFTERNOON."
11 NOW, THEY COULD AT ANY TIME, IF THE COURT WOULD
12 ACCEPT THEIR ARGUMENT, ANY NEWSPAPER AT ANY TIME WOULD USE THE
13 JOA FOR MONOPOLY BECAUSE THEY COULD ALWAYS HAVE THE OTHER PAPER
14 DO SOMETHING LIKE BE IN THE AFTERNOON OR COVER THIS OR COVER
15 THAT, OR WHATEVER THEY WANTED TO DO, AND THEY COULD AT ANY TIME
16 THEN SAY, "OKAY, WE'RE GOING TO STOP IT RIGHT NOW. YOU'RE A
17 FAILING COMPANY. WE'VE GOT A MONOPOLY."
18 AND THAT IS NOT WHAT THE NEWSPAPER PRESERVATION ACT
19 IS ABOUT, AND THERE'S AN ANSWER TO IT TOO, YOUR HONOR. THIS IS
20 INTERESTING.
21 WHEN THE CITIZENS CASE CAME ABOUT --
22 THE COURT: YOU'RE NOT GOING TO GET ANY ARGUMENT
23 FROM ME ON THAT.
24 MR. ALIOTO: ON WHAT, YOUR HONOR?
25 THE COURT: THAT THIS IS INTERESTING.
2316
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: YES.
2 (LAUGHTER)
3 MR. ALIOTO: THIS IS ESPECIALLY INTERESTING.
4 (LAUGHTER)
5 MR. ALIOTO: WHEN THE SUPREME COURT DECIDED THE
6 CITIZENS PUBLISHING COMPANY CASE, AND AGAIN THIS IS WHERE THEY
7 SAID THAT ALL THE CONDUCT WAS DETERMINED TO BE UNLAWFUL AT THAT
8 TIME, SO HERE'S THE QUESTION THAT THE COURT POSES AT THE TIME:
9 THE CITIZEN PAPER CONTINUED TO BE A SIGNIFICANT THREAT TO THE
10 STAR. THIS IS THE PAPER SO-CALLED THAT'S SUPPOSED TO BE, YOU
11 KNOW --
12 THE COURT: THE CITIZEN WAS THE FAILING PAPER.
13 MR. ALIOTO: YES. I DON'T KNOW. I DON'T LIKE TO
14 USE THAT WORD BUT I'M GOING TO USE IT ANYWAY.
15 -- THE FAILING PAPER BECAUSE THERE'S REALLY STRICT
16 RULES ABOUT WHAT A FAILING PAPER IS.
17 OKAY. BUT LET'S SAY THAT THE CITIZEN IS THE FAILING
18 PAPER. THE CITIZEN -- THIS IS WHAT THE COURT SAID -- NOW, THE
19 CITIZEN BEING THE FAILING PAPER, HOW IS IT THAT THE CITIZEN --
20 HOW IS IT THAT THE OTHER PAPER, THE STAR, EVEN ALLOWED THEM TO
21 GET INTO THE RACE WITH THEM?
22 SO THE SUPREME COURT SAYS:
23 "INDEED, THE CITIZEN CONTINUED TO BE A
24 SIGNIFICANT THREAT TO THE STAR."
25 THIS IS AT 394 U.S. 136 AT 137 RIGHT IN THE
2317
OPENING ARGUMENT \ ALIOTO
1 BEGINNING.
2 "HOW OTHERWISE IS ONE TO EXPLAIN THE STAR'S
3 WILLINGNESS TO ENTER INTO AN AGREEMENT TO SHARE
4 ITS PROFITS WITH CITIZEN? WOULD THAT BE TRUE
5 IF, AS NOW CLAIMED, THE CITIZEN WAS ON THE BRINK
6 OF COLLAPSE?"
7 THAT'S WHAT WE HAVE HERE. FOR WHAT PURPOSE OR
8 REASON WOULD THE CHRONICLE ENTER INTO THIS AGREEMENT WITH
9 HEARST IF HEARST IS IN A DEFICIT? AND FOR WHAT REASON WOULD
10 THE CHRONICLE WANT TO ENTER INTO THAT AGREEMENT IN ORDER TO
11 ENABLE HEARST TO SURVIVE AS A PUBLISHER? WHY DO THEY WANT TO
12 DO THAT? AND THE SUPREME COURT SAID, BECAUSE THERE WAS THIS
13 SO-CALLED THREAT.
14 SO, IF YOU TOOK --
15 THE COURT: AREN'T YOU ARGUING WITH CONGRESS?
16 MR. ALIOTO: PARDON ME?
17 THE COURT: AREN'T YOU ARGUING WITH CONGRESS?
18 MR. ALIOTO: NO. NO. NO.
19 THE COURT: CONGRESS ATTEMPTED TO ABROGATE THIS
20 DECISION.
21 MR. ALIOTO: NO. EXCUSE ME, YOUR HONOR, IF I MIGHT,
22 IF I MIGHT PROCEED ON THAT.
23 THE COURT: ABSOLUTELY.
24 MR. ALIOTO: THE IDEA WAS AFTER CITIZENS, AFTER THE
25 CITIZEN CASE -- AND REMEMBER, IF IT PLEASE YOUR HONOR, THE
2318
OPENING ARGUMENT \ ALIOTO
1 CHARGE THERE WAS PROFIT POOLING AND PRICE FIXING AND WHAT THEY
2 CALLED MARKET CONTROL OR A KIND OF FIRST RIGHT OF REFUSAL. THE
3 SUPREME COURT KNOCKED THEM ALL DOWN AS UNLAWFUL, ALL OF THEM.
4 AND THAT CASE WAS A SECTION 7, SECTION 1 AND SECTION 2.
5 KNOCKED THEM ALL DOWN.
6 OKAY. THE CONGRESS OF THE UNITED STATES THEN PASSES
7 THE SECTION UNDER THE NEWSPAPER PRESERVATION ACT.
8 THE COURT: RIGHT.
9 MR. ALIOTO: NOW, WHAT IS IMPORTANT ABOUT THAT IS
10 THAT --
11 MR. SHULMAN: DO YOU WANT THIS ONE UP?
12 MR. ALIOTO: NO, NOT YET.
13 WHAT IS IMPORTANT ABOUT THAT IS THAT WHAT IS IT THAT
14 THEY ARE GOING TO ALLOW NEWSPAPERS TO DO AND WHEN ARE THEY
15 GOING TO ALLOW THEM TO DO IT?
16 SECTION 1802 IS THE DEFINITIONAL SECTION. SECTION
17 1802(2), ARABIC TWO, STATES WHAT IS GOING TO BE ALLOWED WITH
18 RESPECT TO ANY ONE OR MORE OF THE FOLLOWING. YOU CAN DO IT
19 JOINTLY: PRINTING, TIME, METHOD, FIELD OF PUBLICATION,
20 ALLOCATION OF PRODUCTION FACILITIES, DISTRIBUTION, ADVERTISING
21 SOLICITATION, CIRCULATION SOLICITATION, BUSINESS DEPARTMENT,
22 ESTABLISHMENT OF ADVERTISING RATES -- YOU CAN FIX THE PRICE ON
23 THE RATES -- ESTABLISHMENT OF CIRCULATION RATES -- YOU CAN DO
24 THAT -- AND REVENUE DISTRIBUTION -- YOU CAN SPLIT THE PROFITS.
25 YOU CAN HAVE PROFIT POOLING. ALL CARTEL-TYPE ACTION.
2319
OPENING ARGUMENT \ ALIOTO
1 NOTHING IN THE NEWSPAPER PRESERVATION ACT EXEMPTS
2 ANYTHING LIKE A 60-MILE ANTICOMPETITIVE CLAUSE OR FIRST RIGHT
3 OF REFUSAL.
4 THE COURT: OKAY. HOW IS --
5 MR. ALIOTO: OKAY. NOW -- ALL RIGHT. IF THAT'S
6 SO -- I'M SORRY, YOUR HONOR.
7 THE COURT: GO AHEAD AND FINISH YOUR POINT.
8 MR. ALIOTO: OKAY. IF THAT'S SO, WHAT DID THE
9 SUPREME COURT SAY IN CITIZENS WHAT IT WAS TALKING ABOUT? IT
10 SAID IF IT'S FINISHED, IF THEY FINISH THE JOINT AGREEMENT, THEY
11 HAVE TO START COMPETING AGAIN OR YOU'RE SUPPOSED TO COMPETE
12 AGAIN OBVIOUSLY BECAUSE THE EXEMPTION IS ONLY TO THE TIME THAT
13 YOU AGREE. IT'S VOLUNTARY AGAIN. THEY CHOSE 30 YEARS. THEY
14 ALSO CHOSE WAYS IN WHICH THEY COULD EXTEND IT.
15 NOBODY FORCED THEM ON THAT. NOBODY SAID 30 YEARS.
16 THEY COULD HAVE DONE FIVE YEARS, COULD HAVE DONE 10. THEY
17 COULD HAVE DONE WHATEVER THEY WANTED.
18 IF IN THE MEANTIME THEY WANT TO -- IF SOMEBODY WANTS
19 TO SELL -- SUPPOSE THE CHRONICLE WANTED TO SELL. WELL, IT
20 WOULD SELL ITS INTEREST OBVIOUSLY IN THE JOA IN WHICH THEY'RE
21 MAKING MONEY.
22 IF THE EXAMINER FOR ONE REASON OR ANOTHER WANTED TO
23 SELL, IT WOULD SELL ITS INTEREST, WHATEVER IS REMAINING. WE
24 HAD SOME ESTIMATES IN THE COURSE OF THE TRIAL THAT FROM THIS
25 POINT FORWARD THE STREAM OF REVENUE WOULD BE WORTH ALMOST
2320
OPENING ARGUMENT \ ALIOTO
1 $90 MILLION.
2 THEN WE START GETTING INTO REALLY RATIONAL STUFF,
3 NOT LIKE THE NEGATIVE PRICE SITUATION, BUT THEY COULD DO THAT
4 IF THEY WANTED TO.
5 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
2321
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: IF AT THE END, IF AT THE VERY END, THE
2 EXAMINER WANTS TO LEAVE, THEN LET IT GO. IT CAN GO.
3 BUT IF IT WANTS AT THE VERY END THEN -- BECAUSE IF
4 IT THINKS THAT IT'S FAILING, IF IT WANTS TO GO, IF IT'S NOT
5 MAKING ANY MONEY, IF IT HASN'T TAKEN ADVANTAGE OF JOCKEYING FOR
6 POSITION -- IF IT HASN'T DONE ALL THE THINGS THAT THEY SAID IN
7 THE RECORD THAT THEY ARE GOING TO DO, WHICH I WILL HOPE TO GO
8 THROUGH WITH YOUR HONOR -- I MEAN, THESE ARE VERY POSITIVE
9 STATEMENTS AND PRECISE STATEMENTS AS TO WHAT THEY INTEND TO DO.
10 IF THEY DIDN'T DO THAT, THEN THEY COULD -- IF THEY WANT TO
11 LEAVE, THEY CAN LEAVE.
12 BUT THEY COULDN'T BUY THE OTHER ONE BECAUSE THAT
13 WOULD BE A MONOPOLY. THAT WOULD CREATE -- THAT WOULD BE AN
14 ORDINARY -- BECAUSE THE ANTITRUST LAWS APPLY AGAIN, AND THAT
15 WOULD BE JUST A STRAIGHT MONOPOLY.
16 SO WHAT ARE THEY DOING? WHAT ARE A LOT OF THESE
17 PAPERS DOING? THEY ARE USING THIS JOA AS A STEPPING STONE TO
18 MONOPOLY. THEY ARE CUTTING IT SHORT BEFORE THE TIME, AND THEY
19 ARE SAYING ONE OF THE GUYS IS A FAILING COMPANY AND THEY ARE
20 NOT FAILING. THEY'RE MAKING MONEY. THEY'RE MAKING MONEY UNDER
21 THE JOA. BUT THEY'VE USED THIS LEDGER DEMAND, THIS SHELL GAME,
22 IN WHICH IT'S BASICALLY A CON JOB, TO SAY, "OKAY, WELL, ONE OF
23 THEM IS IN BAD SHAPE RIGHT NOW."
24 NOW, WHEN THEY ENTERED INTO THIS, ONE OF THEM HAD TO
25 BE IN BAD SHAPE. THAT'S THE LAW. THE LAW SAID THAT IF YOU
2322
OPENING ARGUMENT \ ALIOTO
1 ESTABLISH THIS IN ANY CITY -- IF YOU ESTABLISH THIS -- NOT MORE
2 THAN ONE OF THE NEWSPAPERS INVOLVED IN THE PERFORMANCE OF SUCH
3 ARRANGEMENT WAS LIKELY TO REMAIN OR BECOME FINANCIALLY SOUND.
4 THAT MEANS THAT ONLY ONE OF THEM COULD BE -- REMAIN.
5 ONLY ONE OF THEM LOOKS LIKE IT WAS GOING TO REMAIN. ONLY ONE
6 OF THEM LOOKS LIKE IT WOULD BECOME FINANCIALLY SOUND. THAT
7 MEANS THAT THE OTHER ONE LOOKED LIKE IT WAS GOING TO TAKE A
8 DIVE.
9 WE'LL LET YOU GO AND DO THIS. NOW, IF AT THAT TIME
10 WHAT WOULD HAPPEN WHEN THEY ENTERED? THE ANTITRUST LAWS ARE
11 APPLYING BEFORE THEY ENTER. OKAY. WHAT WOULD HAPPEN IF ONE OF
12 THEM TRIED TO BUY THE OTHER ONE THAT IS NOT LIKELY TO REMAIN?
13 SECTION 7 WOULD BLOW THEM OUT AND THEY WOULD HAVE NO
14 EXEMPTION, AND THERE WOULD BE NO WAY THEY COULD DO IT. AND
15 THEY WOULD HAVE TO SHOW THAT ANOTHER PAPER OR SOMEONE ELSE
16 WOULD HAVE TO BUY IT, WOULD BE ABLE TO BUY IT.
17 SO WHAT DO THEY DO? EVEN THOUGH ONE IS NOT LIKELY
18 TO REMAIN, THEY JOIN INTO THE JOA. THEY GET TO COVER A LOT OF
19 AREA SO THEY ARE NOW PART OF THE JOA.
20 CERTAINLY, AT ANY TIME THEY COULD TRY TO STOP IT AND
21 SAY, "HOLD IT. HE'S A FAILING COMPANY." AND THAT'S END OF
22 THAT.
23 NOW, THERE IS SOMETHING ELSE THAT'S VERY -- ALSO AT
24 THE CORE OF THIS, TO SHOW THE SCHEME THAT IS IN THE WORKS
25 HERE. AND THAT IS, AS THE SUPREME COURT SAID IN CITIZENS --
2323
OPENING ARGUMENT \ ALIOTO
1 THIS IS VERY CLEAR, TOO, IN MY JUDGMENT -- AT 394 U.S. 138. IN
2 THE FIRST FULL PARAGRAPH, IT STATES:
3 "THE FAILING COMPANY DOCTRINE PLAINLY CANNOT
4 BE APPLIED IN A MERGER OR ANY OTHER" -- "IN ANY
5 OTHER CASE UNLESS IT IS ESTABLISHED THAT THE
6 COMPANY THAT ACQUIRES THE FAILING COMPANY OR
7 BRINGS IT UNDER DOMINION IS THE ONLY AVAILABLE
8 PURCHASER."
9 IT ASSUMES THAT IF THERE IS A FAILING COMPANY, IT'S
10 THE NONFAILING COMPANY THAT'S GOING TO BE DOING THE BUYING.
11 BECAUSE HOW IN THE WORLD COULD THE FAILING COMPANY DO THE
12 BUYING? THEY ARE NOT FAILING. THEY'VE GOT ENOUGH CASH TO BUY
13 THE OTHER GUY. THAT'S WHAT THE SUPREME COURT SAYS.
14 AND SO WHAT DO WE HAVE HERE? THIS IS JUST A -- THIS
15 IS A MAJOR FRAUD. THE EXAMINER, WHAT ARE THEY DOING? THEY'RE
16 GETTING $660 MILLION. WHERE ARE THEY PUTTING IT? IN A
17 NEWSPAPER. WHERE? IN SAN FRANCISCO. WHAT IS THAT ALL ABOUT?
18 ARE THESE THE SAME PEOPLE THAT CLAIM WE'RE FAILING; THEREFORE,
19 WE CAN BUY THE OTHER ONE? IT IS THE REVERSE OF WHAT THE
20 FAILING COMPANY DOCTRINE HAS EVER BEEN.
21 THE COURT: LET'S TALK ABOUT SOME OTHER ANTITRUST
22 PRINCIPLES FOR A MINUTE. SECTION 16, CLAYTON ACT.
23 MR. ALIOTO: YES, YOUR HONOR.
24 THE COURT: WHAT DOES THE PLAINTIFF NEED TO SHOW
25 WITH RESPECT TO INJURY IN FACT OR ANTITRUST INJURY? IS THE
2324
OPENING ARGUMENT \ ALIOTO
1 MOST RECENT PRONOUNCEMENT OF THE SUPREME COURT ON THAT SUBJECT
2 THE CARGO CASE?
3 MR. ALIOTO: WHICH CASE?
4 THE COURT: CARGO.
5 MR. ALIOTO: YES, YOUR HONOR.
6 THE COURT: OR IS THERE SOMETHING IN THE --
7 MR. ALIOTO: THE CARGO CASE WAS --
8 THE COURT: OR CLEAR?
9 MR. ALIOTO: THE CARGO CASE WAS A COMPETITOR CASE.
10 THE COURT: CORRECT.
11 MR. ALIOTO: SO IT WAS THE SECOND COMPETITOR --
12 THE COURT: RIGHT.
13 MR. ALIOTO: -- WHO WAS BRINGING THE CASE. AND
14 THERE THE CLAIM WAS THAT -- AND IN THAT -- AND IN THAT CASE --
15 WELL, I DON'T HAVE TO SAY THAT, BUT IN THAT CASE THE DEPARTMENT
16 OF JUSTICE WAS TRYING TO TAKE THE POSITION THAT ONLY THE
17 DEPARTMENT SHOULD BRING THESE CASES AND THE SUPREME COURT
18 KNOCKED THEM DOWN.
19 BUT THAT CASE IS -- YEAH. THEY DON'T LIKE GUYS
20 FOOLING AROUND, SEE? THIS DEAL WOULD BE A DONE DEAL IF THEY
21 WON THAT CASE, JUDGE. WE WOULDN'T EVEN BE HERE.
22 THE COURT: IT INTERFERES WITH THE FAMILY BUSINESS,
23 DOES IT?
24 MR. ALIOTO: IT DOES.
25 SECTION 16 -- SECTION 16 BEGINS BY SAYING ANY
2325
OPENING ARGUMENT \ ALIOTO
1 PERSON. AND THEY CAN BRING THE ACTION FOR INJUNCTIVE RELIEF,
2 AND IT'S A THREATENED CONDUCT THAT WILL CAUSE LOSS OF DAMAGE.
3 THE COURT: OKAY. I THINK IT'S CLEAR --
4 MR. ALIOTO: OKAY.
5 THE COURT: -- A THREATENED INJURY IS SUFFICIENT TO
6 CREATE STANDING UNDER SECTION 16.
7 MR. ALIOTO: OKAY. NOW, CARGO --
8 THE COURT: LET ME JUST FINISH --
9 MR. ALIOTO: YES.
10 THE COURT: -- WHERE I THINK THE LAW IS AND YOU TELL
11 ME IF I AM INCORRECT AND THEN FILL IN THE REST FOR ME.
12 AND CARGO TELLS US THAT THE PLAINTIFF HAS TO SHOW
13 ANTITRUST INJURY --
14 MR. ALIOTO: YES.
15 THE COURT: -- UNDER SECTION 16. DOES THE PLAINTIFF
16 HAVE TO SHOW INJURY IN FACT? AND, IF SO, WHAT IS THE
17 DIFFERENCE BETWEEN INJURY IN FACT AND INJURY TO TRADE OR
18 BUSINESS, OR PROPERTY OR BUSINESS?
19 MR. ALIOTO: OKAY. IT -- WELL, FIRST OF ALL --
20 THE COURT: WHICH MUST BE SHOWN UNDER SECTION 4?
21 MR. ALIOTO: OKAY. FIRST OF ALL, SECTION 16, THE
22 PLAINTIFF DOES NOT HAVE TO SHOW INJURY IN FACT BECAUSE THE
23 PLAINTIFF IS COMPLAINING AGAINST SOMETHING THAT IS GOING TO
24 OCCUR.
25 THE COURT: WELL, THREATENED INJURY IN FACT.
2326
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: YES.
2 THE COURT: THREATENED INJURY IN FACT.
3 MR. ALIOTO: SO IT'S THREATENED INJURY. OKAY.
4 NOW --
5 THE COURT: BUT DOES HE HAVE TO SHOW THREATENED
6 INJURY IN FACT?
7 MR. ALIOTO: THAT THAT'S GOING TO HAPPEN AS A MATTER
8 OF FACT?
9 THE COURT: THAT HE IS GOING TO BE INJURED.
10 MR. ALIOTO: YES, AS A MATTER OF THE PREPONDERANCE
11 OF THE EVIDENCE. WHAT IS THE EVIDENCE ABOUT IT?
12 IN CARGO YOU MAY RECALL THAT THERE WAS AN INCREASE
13 IN COMPETITION; THEREFORE, THEY COULDN'T SHOW THAT. BECAUSE
14 THE ALLEGATION WAS THAT THE COMBINERS WERE GOING TO LOWER THE
15 PRICE AND SO THE COMPETITOR WAS SAYING, "WE'RE GOING TO LOSE
16 MONEY," AND THE SUPREME COURT SAID, "YEAH, YOU'RE GOING TO LOSE
17 MONEY BECAUSE THEY'RE GOING TO COMPETE BECAUSE THEIR PRICES ARE
18 GOING TO GO LOWER AND YOU ARE GOING TO HAVE TO COMPETE. YOU
19 ARE NOT IN HERE ON AN ANTITRUST INJURY. THAT'S WHAT ANTITRUST
20 LAWS ARE SUPPOSED TO DO."
21 OKAY. HERE WHAT HAPPENS? HERE BOTH OF THEM HAVE
22 ALREADY PROGNOSTICATED, BOTH OF THEM, THAT THEY ARE GOING TO
23 BEGIN TO COMPETE AFTER 2005 AND THEY ARE GOING TO LOWER THE
24 PRICES.
25 THE COURT: LET'S FOCUS ON THE FANG TRANSACTION. DO
2327
OPENING ARGUMENT \ ALIOTO
1 YOU CONCEDE THAT THE PLAINTIFF MUST SHOW THREATENED INJURY IN
2 FACT?
3 MR. ALIOTO: YES.
4 THE COURT: YOU DO CONCEDE THAT?
5 MR. ALIOTO: YES.
6 THE COURT: OKAY. WHAT IS REILLY'S INJURY FROM
7 COMPLETION OF THE HEARST/FANG TRANSACTION?
8 MR. ALIOTO: A MONOPOLY WOULD BE CREATED.
9 THE COURT: WELL, HOW IS HE INJURED?
10 MR. ALIOTO: A MONOPOLY WOULD BE CREATED BECAUSE --
11 THE COURT: HE HAS -- AS I UNDERSTAND HIS -- THERE
12 CAN BE TWO POSSIBLE WAYS THAT A PLAINTIFF COULD OBTAIN STANDING
13 HERE, EITHER AS A CONSUMER OF NEWSPAPERS OR AS AN ADVERTISER OF
14 NEWSPAPERS OR PRESUMABLY A COMPETITOR COULD BRING AN ACTION,
15 ALTHOUGH THAT MIGHT RUN UP AGAINST THE CARGO REASONING THAT YOU
16 WERE JUST DESCRIBING. BUT HOW IS REILLY INJURED IN FACT OR
17 THREATENED TO BE INJURED IN FACT BY THE FANG TRANSACTION?
18 MR. ALIOTO: OKAY.
19 THE COURT: AS A CONSUMER OF NEWSPAPERS HE GETS TWO
20 NEWSPAPERS, DOESN'T HE? HE GETS THE CHRONICLE AND HE GETS THE
21 EXAMINER. SO HE IS CERTAINLY NOT INJURED AS A CONSUMER OF
22 NEWSPAPERS. HE IS NOT AN ADVERTISER, IS HE?
23 MR. ALIOTO: THE VERY FIRST THING, YOUR HONOR, IS
24 THAT WE KNOW FROM THIS RECORD AS DOCUMENTS IN THEIR OWN FILES
25 TWO THINGS AT LEAST.
2328
OPENING ARGUMENT \ ALIOTO
1 FIRST YOU WILL RECALL THAT BOTH THE CHRONICLE AND
2 THE EXAMINER, HEARST CORPORATION, HAD MADE BUSINESS JUDGMENTS
3 AND STATEMENTS THAT BEGINNING IN 2005, AT LEAST, THEY WILL
4 BEGIN TO COMPETE, AND ONE OF THE FIRST THINGS BOTH OF THEM WILL
5 DO IS LOWER THE PRICES FOR NEWSPAPERS.
6 THE COURT: THIS IS MS. GREENTHAL'S WAR SCENARIO?
7 MR. ALIOTO: IT'S HER WAR SCENARIO. IT'S ALSO THE
8 MISSION STATEMENT BY THE EXAMINER. IT'S THE CONTRA CONSISTENT
9 STATEMENTS BY MR. BENNACK THAT THEY WERE GOING TO DO THAT.
10 OKAY. WHAT HAPPENS IF THEY DON'T COMPETE? IF THEY
11 DON'T COMPETE WHAT DID THEY -- WHAT DID THEY SHOW US? THEY
12 DIDN'T EXPECT IT BUT WHAT DID THEY SHOW US?
13 MR. FALK GOT UP THERE ON THEIR DOCUMENTS THAT THEY
14 DID, AND WHAT THEY INTENDED TO DO WAS TO KEEP THE PRICES AND
15 THE REVENUES THE SAME, EVEN THOUGH THEY ELIMINATE ANOTHER
16 NEWSPAPER.
17 THAT MEANS THAT THEY WILL NOT, IF THE PAPER IS SOLD
18 TO THE FANGS OR ANYONE ELSE, AND NOT REQUIRED -- NOT REQUIRED
19 TO CONTINUE -- AND NOT ONLY REQUIRED TO CONTINUE IN THE SENSE
20 OF REQUIRING THE JOA TO CONTINUE, I MEAN REQUIRED IN THE SENSE
21 THAT THE COURT WOULD ENJOIN HEARST FROM BUYING THE CHRONICLE.
22 BECAUSE THEN ALL KINDS OF COMPETITIVE ISSUES WOULD BEGIN TO
23 RISE THAT WOULD HELP EVERYBODY.
24 BUT IF THEY SOLD THE EXAMINER, THE PRICES WOULD STAY
25 THE SAME OR GO UP -- OR GO UP. INDEED, THE CHRONICLE DID THEIR
2329
OPENING ARGUMENT \ ALIOTO
1 STATEMENT WHERE THEY WOULD KEEP THE REVENUES AT THE SAME AMOUNT
2 AND CUT THE COSTS OFF OF THE EXAMINER. THIS IS LIKE A
3 MONOPOLY. YOU HAVE TWO FOLKS BOTH MAKING MONEY. THEY
4 ELIMINATE ONE AND THEY DON'T INTEND TO TOUCH THE PRICES.
5 ALSO MS. -- MS. GREENTHAL IN HER STATEMENT, THE
6 CHRONICLE STATEMENT, THAT THEY HAD IN FRONT OF THEM WHEN THEY
7 MADE THE DECISION ON AUGUST THE 6TH AND WHEN THEY HAD TO GO
8 OVER IT, THIS WAS THE BIG DECISION -- THEY HAD IN FRONT OF THEM
9 ALSO WHAT WOULD HAPPEN IS THAT -- IS THAT THE CHRONICLE WOULD
10 THEN BEGIN TO COMPETE AND UPGRADE, AND THEY WOULD HAVE NEW
11 PLANTS, AS THE COURT IS AWARE.
12 THE COURT IS ALSO AWARE THAT MR. WHITE OVER AND OVER
13 AGAIN, WE'RE GOING TO GET READY. WE'RE GOING TO GET -- WE'RE
14 GOING TO GET MORE REPORTERS. WE ARE GOING TO GET MORE
15 SECTIONS. WE ARE GOING TO DO ALL OF THAT. SO THAT NOT ONLY IS
16 THERE A PRICE DIFFERENCE, BUT THERE IS THE KIND OF COMPETITION
17 AND CHOICE THAT WOULD OTHERWISE -- THAT WILL EXIST.
18 IF IT GOES TO THE FANGS, WE ARE NOT GOING TO HAVE
19 CHOICE.
20 NOW --
21 THE COURT: WHY NOT?
22 MR. ALIOTO: WELL, BECAUSE OF A NUMBER OF THINGS,
23 YOUR HONOR. FIRST OF ALL, IT'S NOT A COMPETING PAPER, WE NOW
24 FIND OUT. THEY NEVER INTENDED IT TO BE A FULLY COMPETING
25 PAPER. WE FOUND OUT EVEN WHEN MR. FANG WAS ON THE STAND -- WE
2330
OPENING ARGUMENT \ ALIOTO
1 FOUND OUT THAT -- THAT ACCORDING -- ACCORDING TO HIM THERE IS
2 NO CHANCE OF THE PAPER EVER MAKING IT IF THE CONTRACTS -- THE
3 ADVERTISING CONTRACTS WENT WITH THE SALE.
4 WELL, WE POINTED OUT THAT IN THE AGREEMENT OF THE
5 SALE, THE PURCHASE BY HEARST, THEY GET ALL OF THE CONTRACT FROM
6 THE SAN FRANCISCO NEWSPAPER AGENCY. THEY GET EVERYTHING.
7 THERE IS NO WAY. WE WENT THROUGH ALL THE DIFFERENT
8 THINGS THAT MR. FANG SAID. ALL OF THE DIFFERENT THINGS THAT HE
9 SAID WOULD HAPPEN HE COULDN'T MAKE IT IF THOSE THINGS HAPPENED,
10 EVERY ONE OF THEM HAPPENED. IT'S A SHAM, JUDGE. WHAT WILL
11 HAPPEN, AS HE SAYS AND HE POINTS OUT, IT'S AN ENTIRELY
12 DIFFERENT NONCOMPETITIVE NEWSPAPER.
13 THE COURT: ALL RIGHT. ASSUME I AGREE IT'S A SHAM.
14 HOW IS MR. REILLY HURT?
15 MR. ALIOTO: FIRST ON THE PRICES. IF THE COURT
16 RULES THAT THE EXAMINER CANNOT -- THE HEARST CORPORATION CANNOT
17 PURCHASE THE CHRONICLE, THEN WHAT HAS TO HAPPEN IS THEY HAVE TO
18 CONTINUE FOR FIVE YEARS UNDER THE JOA, UNLESS THEY WANT TO SELL
19 IT TO SOMEBODY ELSE. THEY HAVE TO CONTINUE FOR FIVE YEARS
20 MAKING MONEY --
21 THE COURT: COULDN'T HEARST OR CHRONICLE, FOR THAT
22 MATTER, SIMPLY DECIDE THEY ARE NO LONGER GOING TO PUBLISH THE
23 NEWSPAPER?
24 MR. ALIOTO: THERE IS AN OBLIGATION IN THE JOA TO
25 PUBLISH.
2331
OPENING ARGUMENT \ ALIOTO
1 THE COURT: IS THERE AN OBLIGATION THAT THEY MUST
2 SUPPLY --
3 MR. ALIOTO: THERE IS. AND ONE OF THE DOCUMENTS,
4 YOUR HONOR, WHEN -- WHEN MR. BENNACK WAS TRYING TO DO HIS
5 CARTEL AGREEMENT, WHICH NO ONE HAS SEEN THOSE KIND OF SPLIT
6 AGREEMENTS WHERE A FELLOW SAYS, "I AM GOING TO SHUT MY PAPER
7 DOWN BUT I STILL GET A CUT FOR A COUPLE OF YEARS." THE LAST
8 TIME THEY DID THAT WAS WHEN ROCKEFELLER DID THE SOUTHERN
9 IMPROVEMENT COMPANY, GOT ALL THE GUYS IN, SHUT DOWN ALL THE
10 REFINERIES AND ALL OF THAT. THAT'S WHERE ANTITRUST COMES FROM,
11 A MISUSE OF THE TRUST AGREEMENT. THAT'S WHERE IT COMES FROM.
12 BUT, ANYWAY, MR. BENNACK -- I DON'T KNOW WHERE I GOT
13 OFF ON THAT ONE. BUT MR. BENNACK, MR. BENNACK HIMSELF SAYS
14 JUST THAT, YOUR HONOR, THAT WHEN HE IS GOING TO MAKE THAT DEAL
15 WHERE HE IS GOING TO GET A PERCENTAGE -- THIS IS IN 1997 -- HE
16 SAID, "OF COURSE, WE'LL HAVE TO HAVE THEM AGREE THAT WE DON'T
17 HAVE TO PUBLISH." BECAUSE RIGHT NOW UNDER THEIR AGREEMENT THEY
18 ARE SUPPOSED TO --
19 THE COURT: WHERE IS THAT? LET ME SEE THAT.
20 MR. ALIOTO: YES. THE DOCUMENT TO WHICH I AM
21 REFERRING, YOUR HONOR, IS A 19 -- IT SHOULD BE THE 1997
22 DOCUMENT. IT IS FROM --
23 THE COURT: I THOUGHT YOU WERE REFERRING TO A PAST
24 PROVISION IN THE JOINT OPERATING AGREEMENT.
25 MR. ALIOTO: HE -- THERE IS A PROVISION IN THE JOINT
2332
OPENING ARGUMENT \ ALIOTO
1 OPERATING AGREEMENT. THE PRINTING COMPANY, THE SAN FRANCISCO
2 NEWSPAPER, THEY HAVE THE OBLIGATION TO ACTUALLY PRINT THE
3 PAPER.
4 THE COURT: WELL, I UNDERSTAND THAT. BUT WHERE IS
5 THERE AN OBLIGATION IN THE JOA THAT THE TWO JOINT VENTURERS
6 MUST CONTINUE TO PUBLISH NEWSPAPERS? IS THERE SUCH A
7 PROVISION?
8 MR. ALIOTO: WELL, THERE IS -- YOUR HONOR, THERE IS
9 AN AGREEMENT THAT -- OKAY. WHAT THEY ARE TALKING ABOUT -- THEY
10 HAVE TO PUT IN THEIR PAPER, THEY HAVE TO PUBLISH IN THE
11 AFTERNOON AND THEN THE PRINTING IS ACTUALLY DONE BY THE
12 PRINTING COMPANY.
13 THE COURT: NO. I UNDERSTAND.
14 MR. ALIOTO: OKAY.
15 THE COURT: BUT YOU SAID THERE IS A PROVISION IN THE
16 JOA THAT REQUIRES THE PARTIES TO PUBLISH A NEWSPAPER, THAT
17 CHRONICLE AND HEARST HAS TO SUPPLY THE NEWSPAPER AGENCY WITH A
18 NEWSPAPER.
19 MR. ALIOTO: WELL, THE NEWSPAPER AGENCY HAS TO PRINT
20 THE NEWSPAPER FOR --
21 THE COURT: THE JOINT VENTURERS HAVE TO FURNISH AN
22 EDITORIAL PRODUCT FOR THE AGENCY TO PRINT.
23 MR. ALIOTO: OKAY. NOW, IT SAYS IN THE -- IT SAYS
24 THAT -- RIGHT IN THE BEGINNING IN THE "WHEREAS" -- IN THE
25 "WHEREAS" SECTIONS, YOUR HONOR, IT SAYS THAT -- THIS IS WHERE
2333
OPENING ARGUMENT \ ALIOTO
1 THEY ARE GOING TO HAND OVER THE PRODUCTION OF BOTH OF THE
2 NEWSPAPERS.
3 THE COURT: RIGHT.
4 MR. ALIOTO: I THINK THAT -- AND, AGAIN, THE IDEA
5 WAS TO ENABLE BOTH TO SURVIVE AS -- TO SURVIVE AS INDEPENDENTS.
6 THE ACTUAL -- THE -- BOTH OF THE PARTIES AGREE WITH
7 THE PRINTING COMPANY, THAT THE PRINTING COMPANY WILL PUBLISH
8 BOTH NEWSPAPERS. THAT'S ON 3.1 OF THE AGREEMENT AT PAGE 20.
9 THE COURT: THAT'S CLEAR.
10 MR. ALIOTO: PARDON ME?
11 THE COURT: THAT'S CLEAR.
12 MR. ALIOTO: YES.
13 SO THAT IT SAYS:
14 "COMMENCING ON THE EFFECTIVE DATE AND
15 CONTINUING THROUGHOUT THE TERM HEREOF THE
16 PRINTING COMPANY WILL" -- AND THEN "PRINT BOTH
17 THE NEWSPAPERS."
18 SO THAT IS THE OBLIGATION OF THE PRINTING, AND BOTH
19 THE OTHER PARTIES ARE AGREEING THAT THAT'S WHAT THIS NEW PARTY
20 IS SUPPOSED TO DO AND THAT'S WHAT THEY HAVE TO DO.
21 WHEN MR. BENNACK TALKS ABOUT -- HE SAYS THAT HE
22 BELIEVES -- HE BELIEVES THAT THE CHRONICLE WILL LET THEM OUT OF
23 THEIR OBLIGATION TO PRINT -- OR TO PUBLISH A NEWSPAPER WHEN HE
24 IS MAKING HIS AGREEMENT WITH THEM. AND THAT DOCUMENT IS 19 --
25 IT SHOULD BE 1997 AND '98, YOUR HONOR, AND I CAN -- I CAN GET
2334
OPENING ARGUMENT \ ALIOTO
1 THAT ONE. I THINK THAT -- THAT THE OBLIGATION IS APPARENTLY --
2 HERE IT IS, YOUR HONOR. THIS IS ON EXHIBIT NUMBER 67. THIS IS
3 THE DOCUMENT DATED OCTOBER 27, 1997.
4 THE COURT: IT'S A MEMO FROM BENNACK TO ASHER?
5 MR. ALIOTO: YES, SIR.
6 THE COURT: IT'S A MEMO TO FILE.
7 MR. ALIOTO: YES, SIR. NOW, THIS IS ON THE
8 PERPETUAL ARRANGEMENT DEAL WITH THE CHRONICLE THAT THEY ARE
9 TRYING TO DO.
10 IF THE COURT WILL GO TO PAGE 3 AND THE FIRST FULL
11 PARAGRAPH, THIRD SENTENCE, WHICH BEGINS IN A PARENTHESES,
12 QUOTE:
13 "I ACKNOWLEDGED CHRONICLE WOULD HAVE TO
14 RELIEVE US OF OUR PUBLISHING OBLIGATIONS, WHICH
15 WE BELIEVED THEY WOULD DO."
16 THE COURT: WHERE ARE THOSE PUBLISHING OBLIGATIONS?
17 MR. ALIOTO: I THINK THAT THE WAY THAT THEY HAVE
18 WRITTEN THE JOA, YOUR HONOR, IS THAT BOTH OF THEM AGREE WHAT
19 THE PRINTING COMPANY IS TO DO, AND THE PRINTING COMPANY HAS AN
20 OBLIGATION TO PRINT BOTH.
21 THE COURT: WELL, LET'S ASSUME -- LET'S ASSUME THAT
22 THERE IS NOTHING IN THE JOA WHICH PREVENTS THE PARTIES FROM
23 SHUTTING DOWN ONE OF THE TWO NEWSPAPERS.
24 MR. ALIOTO: OKAY.
25 THE COURT: WHY COULDN'T THEY DO THAT?
2335
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: IF A NEWSPAPER WANTED TO -- SUPPOSE THE
2 EXAMINER WAS TIRED AND THEY SAID, "OKAY, WE'RE IN THE JOA.
3 WE'VE HAD IT. WE'RE SHUTTING DOWN OUR PAPER."
4 FINE. SEE YOU LATER. THAT IS -- THERE WOULD BE A
5 MONOPOLY CREATED, BUT IT WOULD BE THRUST UPON THE REMAINING
6 PAPER, THE CHRONICLE. IT'S NOTHING THAT HE DID, NOTHING THAT
7 THE CHRONICLE DID -- OR SHE DID. IT'S NOTHING THAT THE
8 CHRONICLE ITSELF DID.
9 SO IF THE EXAMINER SAYS, "I DON'T WANT TO DO IT
10 ANYMORE. I DON'T WANT THIS 25 MILLION EVERY YEAR. IT'S
11 BUGGING ME," AWAY THEY GO.
12 THE COURT: WELL, I GATHER THAT HEARST WOULD STILL
13 BE ENTITLED TO HALF THE NET EXCESS?
14 MR. ALIOTO: ABSOLUTELY NOT. THAT IS CARTEL. THE
15 OBLIGATION UNDER THE -- UNDER THE NEWSPAPER PRESERVATION ACT IS
16 THAT -- IS TO PRESERVE THE PAPERS. THAT WOULD VIOLATE THE --
17 THAT IF THEY -- THAT IS THE TRUST AGREEMENT. THAT IS -- THE
18 IDEA THAT THEY COULD SHUT THEIR PAPER DOWN, THAT WAS OUT --
19 THAT WAS THROWN OUT IN THE HAWAII CASE. NO ONE HAS SEEN THIS
20 KIND OF CONDUCT, YOUR HONOR, SINCE THE TURN OF THE CENTURY
21 EXCEPT IN THESE JOA'S WITH THESE NEWSPAPERS. THEY'RE DOING IT,
22 APPARENTLY, MR. BENNACK TESTIFIED, TO TWO OR THREE OF THEM.
23 THEY DID IT IN DETROIT. THEY SHUT THE PAPER DOWN AND THEY
24 STILL GET INTEREST ON IT. THEY GET PAID FOR SHUTTING THE PAPER
25 DOWN. THEY GET PAID, AS THE HAWAII COURT SAYS, FOR SHUTTING A
2336
OPENING ARGUMENT \ ALIOTO
1 COMPETITOR DOWN.
2 I MEAN, THAT IS REALLY OLD-TIME CARTEL STUFF. AND I
3 DON'T THINK -- YOU KNOW, I MENTIONED BEFORE, YOU KNOW, THE
4 SOUTHERN IMPROVEMENT COMPANY, AND THAT'S WHAT THEY USED TO DO.
5 AND THAT WAS TOSSED OUT. THAT WAS RIDICULOUS. BECAUSE IT
6 IS -- IT IS NONCOMPETITIVE IN ITSELF. IT IS AN AGREEMENT TO
7 PAY SOMEONE NOT TO COMPETE. IT'S ALMOST COMMON LAW.
8 SO WHEN MR. BENNACK SUGGESTED THAT OR --
9 THE COURT: IS THAT WHAT IS GOING ON HERE?
10 MR. ALIOTO: YEAH. WELL, THEY TRIED IT.
11 THE COURT: AND YOUR THEORY IS THAT THAT'S THE
12 REASON CHRONICLE IS GETTING $660 MILLION FOR THIS PAPER AS
13 OPPOSED TO THE FOUR TO FIVE HUNDRED MILLION DOLLARS WHICH
14 KNIGHT RIDDER AND GANNETT AND TIMES MIRROR WERE OFFERED?
15 MR. ALIOTO: WELL, YOUR HONOR, THOSE OTHER PAPERS
16 NEVER EVEN GOT INTO THE ACT. THE PERSON FROM DLJ WHO WAS HERE,
17 SHE SAYS, WHAT IS THE -- WHAT IS THE THING IN THE JOA? THIS IS
18 ONE OF THE THINGS WE ARE ASKING THE COURT TO GET RID OF.
19 THEY NOT ONLY HAVE A FIRST RIGHT OF REFUSAL, THEY
20 HAVE A FIRST NEGOTIATION. AND THERE IS NO TIME LIMIT ON IT.
21 AND SO WHAT THEY GET IS NOT ONLY -- YOU HAVE TO NEGOTIATE WITH
22 US, AND THEN IF THE NEGOTIATIONS BREAK DOWN, THEN IF SOMEONE
23 ELSE OFFERS, THEN THEY GET A FIRST RIGHT OF REFUSAL.
24 WELL, WHO WOULD BE COMPETING AGAINST THAT? THAT
25 FIRST RIGHT OF REFUSAL WAS KNOCKED DOWN IN CITIZEN PUBLISHING,
2337
OPENING ARGUMENT \ ALIOTO
1 AND IT WAS NOT RESURRECTED IN THE NPA.
2 THE COURT: WELL --
3 MR. ALIOTO: BECAUSE THEY HAD IT THERE IN THAT ONE.
4 THE COURT: LET'S TALK ABOUT THAT.
5 MR. ALIOTO: OKAY.
6 THE COURT: FIRST RIGHT OF REFUSAL AND THE 60-MILE
7 CLAUSE.
8 MR. ALIOTO: OKAY.
9 THE COURT: HOW IS REILLY HARMED BY THE ENFORCEMENT
10 OF THOSE PROVISIONS? ISN'T CHRONICLE THE PARTY THAT'S --
11 THAT'S HARMED? LET'S ASSUME THAT THOSE PROVISIONS ARE NOT
12 EXEMPTED BY THE NEWSPAPER PRESERVATION ACT. DOESN'T THAT GIVE
13 CHRONICLE ESSENTIALLY AN OPTION TO REQUIRE THAT THE PAPER BE
14 EXPOSED TO OTHER BUYERS, EVEN WITHIN THE 60-MILE RADIUS OF SAN
15 FRANCISCO, OTHER PUBLISHERS WITHIN THAT RADIUS, WHICH WOULD
16 INCLUDE KNIGHT RIDDER AND I SUPPOSE THE NEW YORK TIMES AND
17 GANNETT BECAUSE OF THEIR OWNERSHIP OF PAPERS IN THE 60-MILE
18 AREA?
19 MR. ALIOTO: YES.
20 THE COURT: BUT ISN'T THE PARTY HARMED BY THOSE
21 PROVISIONS CHRONICLE RATHER THAN MR. REILLY?
22 MR. ALIOTO: THERE IS NO QUESTION THAT THE CHRONICLE
23 IS SUBSTANTIALLY HARMED BY THOSE PROVISIONS. BUT IT IS ALSO
24 CORRECT THAT THOSE PROVISIONS, THOSE RESTRAINTS, TEND TO AND
25 WILL LIKELY -- AND LIKELY THREATEN HARM TO MR. REILLY OR ANY
2338
OPENING ARGUMENT \ ALIOTO
1 OTHER SUBSCRIBER.
2 THE COURT: HOW SO?
3 MR. ALIOTO: BECAUSE THOSE TEND TO -- THAT
4 GUARANTEES TO THE EXAMINER THAT THEY DON'T HAVE TO WORRY ABOUT
5 ANOTHER COMPETITOR COMING INTO THE MARKET. THEY DON'T HAVE TO
6 BE CONCERNED ABOUT THAT. THEY DON'T HAVE TO BE CONCERNED ABOUT
7 HAVING TO COMPETE. WHEN THEY COMPETE, THEY DO A LOT OF THINGS
8 EVEN IN THE JOA, WHICH THEY SAID THAT THEY WOULD DO, YOUR
9 HONOR. THEY SAID THAT.
10 SO IF YOU HAVE THOSE KINDS OF RESTRAINTS THAT
11 PREVENT THE POSSIBILITY, THE FREE AND OPEN POSSIBILITY, OF THE
12 SALE OF EITHER ONE OF THE PAPERS, BUT IT WOULD HAVE TO BE --
13 YOU KNOW, THEY COULD ONLY TAKE THE POSITION THAT THE PAPER HAS
14 WITH THE JOA, UNTIL IT'S OVER.
15 BUT NOW, REMEMBER, THE COURT MAY RECALL, THAT IN THE
16 DOCUMENT WE HAD -- IT WAS NOT DLJ BUT IT WAS THE DOCUMENT BY
17 THE EXPERTS FOR HEARST IN WHICH -- IN WHICH THEY SAID THAT
18 WE'VE GOT TO GET MOVING HERE BECAUSE, AS THE TIME GETS CLOSER
19 TO THE 2005, OUR LEVERAGE IS LESSENED AND LESSENED. AND
20 SOMEONE COULD COME IN AND BE A BRAND NEW COMPETITOR.
21 SO IT HAS AN IMPACT -- IT HAS AN IMPACT. IT HAS THE
22 TENDENCY TO RESTRAIN TRADE IN THIS MARKET. AND, AS THE COURT
23 KNOWS AS WELL, THE COURT -- ITS A LONG-TIME PRINCIPLE, JUDGE.
24 YOUR HONOR HAS EXTRAORDINARY POWERS GRANTED TO YOUR HONOR. AND
25 THE COURT CAN, AS THE PARAMOUNT CASE SAID, NOT ONLY RESTRAIN
2339
OPENING ARGUMENT \ ALIOTO
1 THOSE ACTS WHICH ARE ILLEGAL IN THEMSELVES, BUT EVEN THOSE ACTS
2 THAT TEND TOWARD IT, EVEN THOUGH THEY MIGHT OR ARE PART OF
3 IT -- EVEN THOUGH THEY MIGHT INDIVIDUALLY VIEWED BE -- BE OKAY,
4 INNOCENT, WHOLLY INNOCENT ACTS, IT'S LIKE FRUIT FROM THE
5 POISONOUS TREE OR FRUIT FROM A TREE AND THE GUY -- THE COURT
6 HAS THE POWER TO CUT THE WHOLE TREE. IF THE COURT BELIEVES
7 THAT THAT'S GOING TO SAVE THE ORCHARD EVEN THOUGH -- THEY USE
8 THE TREE ANALOGY IN THE PARAMOUNT CASE SO I AM NOT GETTING
9 FARTHER THAN THAT ONE, YOUR HONOR.
10 BUT THE POINT IS THAT THE COURT HAS POWER TO ENJOIN
11 THAT. SO WHETHER IT ACTUALLY HAS --
12 THE COURT: HAVING BEEN SAID TO CLIMB OUT ON LIMBS
13 MYSELF.
14 (LAUGHTER)
15 MR. ALIOTO: ALL RIGHT. WELL, THAT'S ONE I WILL
16 KIND OF SEMI BACK ON.
17 BUT THE POINT IS THAT THE 60-MILE LIMIT, THE FIRST
18 RIGHT OF REFUSAL, IF THAT IS TAKEN OUT, THEY ARE NOT A PART OF
19 THE NEWSPAPER PRESERVATION ACT. AND WE HAVE TO REMEMBER, THE
20 NEWSPAPER PRESERVATION ACT AND, I BELIEVE, THE ANTITRUST LAWS,
21 IN THIS INDUSTRY FAVOR THE NUMBER OF COMPETITORS, NOT THE
22 ELIMINATION OF THEM.
23 THE PURPOSE OF THE NEWSPAPER PRESERVATION ACT IS TO
24 HAVE TWO OR MORE.
25 THE COURT: IS THERE ANY EVIDENCE IN THIS RECORD TO
2340
OPENING ARGUMENT \ ALIOTO
1 SUPPORT THE IDEA THAT IF SOME OTHER PURCHASER WERE TO ACQUIRE
2 THE CHRONICLE, A PURCHASER OTHER THAN HEARST, THAT THAT WOULD
3 LEAD TO GREATER PRICE COMPETITION?
4 MR. ALIOTO: YES.
5 THE COURT: WHAT IS THAT?
6 MR. ALIOTO: THE EVIDENCE IS THAT THE CHRONICLE
7 ITSELF -- ONE WOULD ASSUME THAT IF IT WERE A PERSON OF SOME --
8 IT DEPENDS ON WHO IT IS, OBVIOUSLY. BUT, OBVIOUSLY, THEY WOULD
9 LOOK AT AND MAKE A JUDGMENT ON A BUSINESS ARRANGEMENT. THAT'S
10 WHAT THEY WERE AFRAID OF.
11 THE COURT: LET'S ASSUME IT'S ONE OF THOSE
12 PUBLISHERS WITHIN A 60-MILE RADIUS OF SAN FRANCISCO, KNIGHT
13 RIDDER, NEW YORK TIMES, GANNETT.
14 MR. ALIOTO: YES.
15 THE COURT: OBVIOUSLY, COMPANIES WITH THE FINANCIAL
16 RESOURCES TO DO THIS 3AND OBVIOUSLY EXPERIENCED IN THE
17 NEWSPAPER BUSINESS. THEY KNOW HOW TO RUN A NEWSPAPER.
18 MR. ALIOTO: YES.
19 THE COURT: WHAT LEADS YOU TO BELIEVE OR WHAT
20 EVIDENCE IS THERE IN THIS RECORD TO SUGGEST THAT IF THE
21 CHRONICLE WERE TO BE PURCHASED BY ONE OF THOSE FIRMS THAT THERE
22 WOULD BE A GREATER DEGREE OF PRICE COMPETITION?
23 MR. ALIOTO: BOTH OF THEM DID STUDIES ABOUT IT, AND
24 THAT'S WHAT THEY CONCLUDED. THAT'S WHY THEY WANTED TO EXCLUDE
25 COMPETITORS, BECAUSE SOME OF THESE COMPETITORS WOULD COME IN
2341
OPENING ARGUMENT \ ALIOTO
1 AND ALREADY HAVE THEIR PRINTING FACILITIES. AND SO, FOR
2 EXAMPLE, THE EXAMINER WAS PARTICULARLY CONCERNED ABOUT IT. AND
3 THEIR EXPERTS -- I FORGOT THE GUY'S NAME.
4 THE COURT: WHERE IS THAT? WHERE IS THAT EVIDENCE?
5 MR. ALIOTO: OKAY. LET ME GET IT, JUDGE. THIS IS
6 THE EXHIBIT -- EXHIBIT 89, YOUR HONOR. THIS IS PROJECT SUN.
7 THIS IS THE PROJECT BY WASSERSTEIN, PERELLA, THE COURT MAY
8 RECALL, AND IF YOU LOOK DOWN AT THE BOTTOM ON ARABIC NUMBER 2,
9 HEARST POSSIBLE LOSS OF COMPETITIVE ADVANTAGE OVER TIME, IN THE
10 FIRST BULLET:
11 "THIS WILL BE PARTICULARLY TRUE IF THE
12 CHRONICLE SALE WERE ONLY TO OCCUR SHORTLY BEFORE
13 JOA UNWIND IN 2005 SINCE THIRD-PARTY BUYERS
14 WOULD NO LONGER BE SUBJECT TO UNFAVORABLE
15 ECONOMIC SPLITS OF JOA GOING FORWARD.
16 'COMPETITORS' (WITH THEIR OWN PLANT/FACILITIES)
17 WOULD BE ABLE TO BID FOR THE CHRONICLE, THEREBY
18 ELIMINATING NEED TO PAY 'MAXIMUM' VALUE TO
19 ACQUIRE HEARST'S SHARE OF THE AGENCY IN 2005,
20 LEAVING HEARST WITH MORE LIMITED ALTERNATIVES TO
21 MONETIZE ITS INTERESTS IN THE JOA."
22 THIS IS A MAJOR THREAT. AND SO IF SOMEBODY CAME IN,
23 FOR INSTANCE, THE NEW YORK TIMES, THEY COULD BUY THE CHRONICLE.
24 THEY WOULD HAVE A 50/50 SITUATION UNTIL THE 2005 IS OVER. BUT
25 THEY WOULD BE GEARING UP. THAT'S THE JOCKEYS AGAIN. AND THEY
2342
OPENING ARGUMENT \ ALIOTO
1 WOULD BE GEARING UP.
2 AND BOTH OF THESE STUDIES SAY WHAT IS GOING TO
3 HAPPEN IN 2005 IS THAT THE EXAMINER IS GOING TO MOVE TO THE
4 MORNING. AS SOON AS THEY DON'T HAVE THIS THING ANYMORE, THE
5 EXAMINER IS GOING TO MOVE TO THE MORNING. THE EXAMINER IS
6 GOING TO COMPETE ON PRICES. CHRONICLE IS GOING TO COMPETE ON
7 PRICES. IF CHRONICLE REMAINS CHRONICLE, IT'S GOING TO HAVE TO
8 BUILD A NEW PLANT. THEY ARE EXPECTING -- IN THEIR DOCUMENTS
9 THEY WERE EXPECTING TO BUILD A NEW PLANT IN 2002 OR 2003.
10 THE COURT: WELL, IT'S EASY TO SEE HOW CHRONICLE MAY
11 BE HARMED BY THIS PROVISION OR THESE POSSIBLE OTHER ACQUIRERS
12 OF THE CHRONICLE -- NEW YORK TIMES, GANNETT, KNIGHT RIDDER.
13 BUT HOW IS A CONSUMER OF NEWSPAPERS OR SUBSCRIBER AND READER OF
14 NEWSPAPERS HARMED?
15 MR. ALIOTO: BY THE RESTRICTIVE AGREEMENTS.
16 THE COURT: WELL, BUT IS THAT INJURY IN FACT?
17 MR. ALIOTO: IT -- NO, YOUR HONOR. THIS IS UNDER
18 INJUNCTION, AND WHEN THE COURT IS SAYING "INJURY IN FACT," THAT
19 IMPLIES TO ME THAT THAT IS THE FACT OF DAMAGE WHICH IN AN
20 INJUNCTION YOU DON'T HAVE.
21 WHAT YOU ARE DOING IS YOU ARE LOOKING TO THE FUTURE,
22 AND THE LAWS -- YOU KNOW, THE LAW UNDERSTANDS OUR DIFFICULTY
23 BECAUSE THE LAW SAYS THAT CONGRESS WROTE "MAY SUBSTANTIALLY
24 LESSEN COMPETITION OR TEND TO CREATE A MONOPOLY."
25 WHAT HAS THE COURT SAID ABOUT THAT THIS? THEY SAID
2343
OPENING ARGUMENT \ ALIOTO
1 WE HAVE GOT TO NIP THESE THINGS IN THE BUD. WE CAN'T EVEN LET
2 THEM COME ABOUT. SO IF IT LOOKS LIKE IT'S GOING IN THAT
3 DIRECTION, IF IT LOOKS LIKE IT'S THE KIND OF THING THAT WILL
4 CAUSE HARM OR INJURY -- OBVIOUSLY, IF THESE ARE THE TWO -- IF
5 THIS IS THE AREA OF COMPETITION THAT SUBSCRIBERS ARE LOOKING
6 TO, THE IDEA THAT THERE WOULD BE AGREEMENTS THAT WOULD LIMIT
7 THE POTENTIAL EXPANSION OF THAT OR THE CHANGE OF THAT OR THE
8 BETTERMENT OF THAT OR THE LIKELY COMPETITION OF THAT, THAT
9 WOULD HAVE AN IMPACT ON THEM, AS WELL, NOT ONLY ON THE
10 CHRONICLE BUT ON THEM, AS WELL.
11 AND IT ALL WORKS. IT WORKS, JUDGE, BECAUSE BEFORE
12 YOU HAVE THESE AGREEMENTS YOU'VE GOT TO COMPETE, JUST LIKE
13 EVERY OTHER INDUSTRY AND EVERYBODY ELSE. BECAUSE OF THESE
14 AGREEMENTS, WHICH ARE VERY LIMITED -- THERE IS ONE PART HERE
15 THAT I NEED TO POINT OUT, YOUR HONOR, IF I MAY USE THIS. THIS
16 IS 18 -- THIS IS VERY IMPORTANT BECAUSE THE -- WHAT IS EXEMPT
17 FROM THE ANTITRUST LAWS IS REALLY VERY LIMITED BY 1802 OR 1801
18 AND 180 -- 1802.
19 IN ADDITION TO THOSE LIMITS, WHAT THE CONGRESS SAYS
20 IN THIS VERY LAST LINE IS:
21 "EXCEPT AS PROVIDED IN THIS CHAPTER, NO
22 JOINT NEWSPAPER OPERATING ARRANGEMENT OR ANY
23 PARTY THERETO SHALL BE EXEMPT FROM ANY ANTITRUST
24 LAW."
25 PERIOD. SO IF IT'S NOT IN 1802, YOU CAN'T DO IT.
2344
OPENING ARGUMENT \ ALIOTO
1 AND THERE IS NOTHING IN THERE ABOUT A 60 MILE; THERE IS NOTHING
2 IN THERE ABOUT FIRST RIGHT OF REFUSAL, WHICH THE SUPREME COURT
3 ALREADY THREW OUT AND WHICH THE CHRONICLE, BY THE WAY,
4 INTERESTINGLY ENOUGH, AGREES THAT IT WOULD NOT BE COVERED --
5 WOULD NOT BE COVERED BY THAT.
6 NOW, I THINK IT'S IMPORTANT BECAUSE THE COURT IS
7 RAISING THESE ISSUES -- IT'S IMPORTANT TO SEE, YOU KNOW,
8 EXACTLY WHAT -- WHAT SOME OF THE THINGS THEY WERE TALKING
9 ABOUT.
10 THIS IS EXHIBIT 84, YOUR HONOR. EXHIBIT 84 IS A
11 GROUP OF DOCUMENTS WHICH INCLUDES EXHIBIT 83, WHICH IS THE SAN
12 FRANCISCO EXAMINER BUSINESS PLAN, WHICH ALSO INCLUDES THE
13 ATTACHMENT BY THEIR FOLKS THAT -- TWO PEOPLE THAT WERE
14 IDENTIFIED AS JIM SEVRENS AND LEE.
15 NOW, IN THAT --
16 THE COURT: 84?
17 MR. ALIOTO: 84 IS THE KIND OF COVER FOR IT, YOUR
18 HONOR, BUT THE REAL DOCUMENT IS 83. 84 REFERENCES 83. THAT'S
19 WHY I HAVE THEM TOGETHER.
20 THE COURT: 84 MENTIONS THE MCCLATCHY ANCHORAGE
21 WINDOW?
22 MR. ALIOTO: THERE IS THAT, BUT ALSO YOU WILL SEE IN
23 THE THIRD PARAGRAPH, "ATTACHED IS A SOLO A.M. PLAN WE HAD JIM
24 SEVRENS AND LEE DEVELOP LAST JULY."
25 THE COURT: RIGHT.
2345
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: THAT'S WHAT THIS IS. AND THAT'S
2 EXHIBIT 83.
3 AND THAT ONE BEGINS, YOUR HONOR -- AND THAT ONE
4 BEGINS BY IN THEIR MISSION STATEMENT, QUOTE:
5 "THE SAN FRANCISCO JOA TERMINATES IN 2005.
6 IT IS THE INTENTION OF THE HEARST CORPORATION TO
7 MAINTAIN A NEWSPAPER PRESENCE AND COMPETE FOR
8 THE MARKETPLACE FOLLOWING THE DEMISE OF THE
9 JOA."
10 AND DOWN BELOW YOU WILL SEE WHAT THEY ARE TALKING
11 ABOUT. I MEAN, THEY ARE VERY SPECIFIC. THE VERY LAST
12 PARAGRAPH:
13 "THE FOLLOWING PLAN ASSUMES THAT OUR
14 STRATEGIC MOVES WILL HAVE PUT US IN A POSITION
15 TO ESSENTIALLY LAUNCH A NEW MORNING EXAMINER IN
16 2005 AND INCLUDES ASSUMPTIONS IN EACH OF THE
17 FOLLOWING CATEGORIES:"
18 NOW, AGAIN, THAT'S THIS. WHAT THEY ARE TALKING
19 ABOUT IS THEY ARE GETTING READY -- THEY ARE GETTING READY FOR
20 2005. AND THEY ARE VERY SPECIFIC ABOUT IT. AND THAT'S WHY IF
21 EITHER COMPANY MAKES ANY MOVES AGAINST THE OTHER TO PREVENT
22 THEM TO GET READY FOR THE RACE IN 2005, THAT'S WHY THE EXAMINER
23 CALLS THAT AN ANTITRUST VIOLATION.
24 AND IF YOU GO TO THE NEXT PAGE, WHAT THEY ARE
25 TALKING ABOUT IS, QUOTE:
2346
OPENING ARGUMENT \ ALIOTO
1 "THE SAN FRANCISCO EXAMINER WILL BE A
2 300,000 CIRCULATION NEWSPAPER."
3 THEY ALSO SAY, IF THE COURT WOULD GO TO UNDER
4 THEIR -- UNDER THEIR SCENARIO, THEY HAVE A NUMBER OF SCENARIOS,
5 BUT UNDER SCENARIO 1 -- AND THIS IS THE SECOND PAGE. IT HAS
6 THE BATES NUMBER, YOUR HONOR, HN0013765.
7 AND WHAT THEY SAY IS -- ON THE VERY TOP THEY ARE
8 TALKING ABOUT REDUCING THE ADVERTISING RATES. BUT IF THE COURT
9 WILL GO DOWN TO THE THIRD FULL PARAGRAPH THAT BEGINS, QUOTE,
10 "THE SINGLE COPY PRICING." IT'S THE THIRD PARAGRAPH. AND IT
11 STATES, QUOTE:
12 "THE SINGLE COPY PRICING WILL BE TEN CENTS
13 DAILY AND 50 CENTS ON SUNDAY, A REDUCTION FROM
14 OUR CURRENT PRICING OF 25 CENTS DAILY AND 1.50
15 ON SUNDAY. THESE DISCOUNTED RATES SHOULD RESULT
16 IN SEVEN-DAY VENDING MACHINE SALES OF 75,000, ET
17 CETERA."
18 IN OTHER WORDS, THEY ARE TALKING ABOUT S, "OH, WELL, YOU KNOW, IF WE CAN'T BUY THE CHRONICLE, WELL,
21 AFTER 2005, YOU KNOW, WE ARE JUST GOING TO GIVE UP, YOU KNOW,
22 AND WALK AWAY." THAT'S WHAT HE TRIED TO SAY.
23 BUT THE COURT WILL REMEMBER THAT I ALSO HAD HIM ON A
24 DOCUMENT WHERE HE WAS TALKING TO HIS OWN PEOPLE AND -- AND WHEN
25 HE WAS TALKING TO HIS OWN PEOPLE, THIS IS WHERE HE GAVE THAT
2348
OPENING ARGUMENT \ ALIOTO
1 EXTRAORDINARY STATEMENT THAT, "WELL, YOU KNOW, YOU'VE GOT TO
2 FAKE IT WITH YOUR OWN PEOPLE." HE SAID THAT -- THEY'RE ALL
3 TALKING ABOUT COMPETING BEYOND 2005, YOUR HONOR. BUT HE SAID
4 IN HIS PAPER -- IF THE COURT WILL JUST GIVE ME JUST ONE SECOND.
5 HERE IT IS. THIS IS TO HIS OWN PEOPLE. THIS IS EXHIBIT 71.
6 THIS IS DATED SEPTEMBER '98. AND HE SAYS -- AND THIS IS TO
7 MR. ASHER AND TO MR. IRISH FROM MR. BENNACK HIMSELF. AND HE IS
8 TALKING ABOUT WHAT HE WAS TELLING MR. SIAS FROM THE CHRONICLE:
9 "I TOLD HIM WE WOULD CERTAINLY APPROACH
10 MATTERS IN THE SAME GOOD FAITH SPIRIT. I TOLD
11 HIM, HOWEVER, THAT WE WERE CERTAINLY GOING TO
12 TAKE THE STEPS WE BELIEVED NECESSARY TO PREPARE
13 OURSELVES FOR THE RESUMPTION OF A FULLY --
14 "RESUMPTION OF A FULLY COMPETITIVE SITUATION IN
15 THE POST-2005 PERIOD."
16 AND HE GOES ON TO SAY THAT:
17 "I TOLD HIM THAT WE HAD DISCUSSIONS" -- THIS
18 IS GETTING INFORMATION ON SPLITTING THE
19 ASSETS -- "BUT, AMONG OTHER THINGS, PREPARING
20 OURSELVES FOR THE DAYS WHEN WE WOULD BE
21 CONVENTIONAL COMPETITORS AGAIN."
22 WELL, WHY DO YOU SAY -- IF YOU DIDN'T BELIEVE THIS,
23 IF THIS WAS THE BLOWFISH IDEA AND EVERYTHING, WHY ARE YOU
24 TELLING THIS TO YOUR PEOPLE HERE? WHY DON'T YOU PUT IN HERE,
25 "WELL, THIS IS A BIG FAKE AND DON'T WORRY ABOUT IT?" WHY DO
2349
OPENING ARGUMENT \ ALIOTO
1 YOU PUT IN HERE, INSTEAD, "NONE OF THIS IS VERY PLEASANT TO
2 CONTEMPLATE." COMPETITION SOMETIMES ISN'T BUT IT'S COMPETITION.
3 SO WHY ARE YOU TELLING YOUR OWN PEOPLE THAT?
4 AND HE MAKES THIS EXTRAORDINARY STATEMENT AND
5 SOMETIMES YOU'VE GOT TO -- YOU KNOW, YOU CAN'T TELL YOUR OWN
6 PEOPLE YOU'RE GOING TO DIE, YOU KNOW, OR I THINK HE USED THE
7 EXPRESSION "ROAD KILL." YOU CAN'T TELL THEM THAT.
8 WELL, WHAT IS HE SAYING, THAT HE'S GOING TO -- THAT
9 HE IS LYING TO THEM? NO. WHAT HE IS DOING IS HE IS TRYING TO
10 COVER UP HIS TESTIMONY BEFORE YOUR HONOR TO TRY TO SUGGEST HE
11 DIDN'T MEAN THIS. AND HE DOESN'T MEAN IT NOW BECAUSE IF HE DID
12 MEAN IT, HE HAS THE INTENT TO COMPETE, AND HE CANNOT BE ALLOWED
13 TO NOT COMPETE. AND HE HAS THE WHEREWITHAL. HE HAS THE
14 $660 MILLION. AND HE HAS -- AND HE HAS THE VERY PRODUCT THAT
15 WE ARE TALKING ABOUT, A NEWSPAPER, AND WHEN THE COURT COMES TO
16 JUDGE THE CREDIBILITY OF THE WITNESS, THIS IS -- THIS IS
17 CLASSIC OMAR KHAYYAM.
18 THE COURT: YOU LOST ME.
19 MR. ALIOTO: WELL, LET ME GIVE IT. OMAR KHAYYAM IS
20 GREAT, JUDGE, BECAUSE IT REALLY APPLIES TO THESE WITNESSES. IT
21 SIMPLY SAYS:
22 "WHEN THE MOVING FINGER WRITES AND HAVING
23 WRIT MOVES ON: NOR ALL YOUR WIT NOR PIETY CAN
24 LURE IT BACK TO CANCEL HALF A LINE, NOR ALL YOUR
25 TEARS WASH OUT A WORD OF IT."
2350
OPENING ARGUMENT \ ALIOTO
1 SO YOU WRITE IT; IT'S THERE; YOU CAN'T GET IT BACK.
2 WIT, PIETY OR TEARS.
3 HERE IT IS (INDICATING). THAT'S IT. HE'S STUCK
4 WITH IT. HE'S STUCK WITH IT AND HE DIDN'T LIKE IT. AND IT
5 WASN'T ONCE, JUDGE. IT WAS SO MANY TIMES. AND SO WHAT -- AND
6 SO HE HAD NO PROBLEM TELLING YOU, WELL, HE DIDN'T MEAN IT.
7 AND EVEN WHEN YOU HAVE MR. WHITE, MR. WHITE WAS
8 SAYING THE REASON I WAS SENT OUT HERE WAS TO DO THIS. REMEMBER
9 ALL THE THINGS THAT HE IS GETTING READY TO DO.
10 THE COURT: WHERE IS THE EVIDENCE HERE THAT HEARST
11 ATTEMPTED TO ENFORCE THAT 60-MILE CLAUSE?
12 MR. ALIOTO: TO ENFORCE THE 60-MILE CLAUSE?
13 THE COURT: YES, TO EXCLUDE --
14 MR. ALIOTO: YOUR HONOR?
15 THE COURT: TO EXCLUDE ANY POTENTIAL --
16 MR. ALIOTO: HOW ABOUT THIS? THEY DIDN'T EVEN HAVE
17 TO GET TO THAT. IT'S LIKE THEIR ARMOR. IT'S LIKE THEIR
18 PROTECTION. THEY HAVE THIS RIGHT, WHICH WE ARE ASKING THE
19 COURT TO VOID, OF NOT ONLY FIRST RIGHT OF REFUSAL, BUT THEY
20 HAVE TO NEGOTIATE WITH THEM FIRST. THEY HAD SET A DATE, AS
21 YOUR HONOR RECALLS, FOR -- I FORGOT. IT WAS AUGUST 12TH OR
22 16TH OR WHATEVER IT WAS, WHICH WAS THE LAST DAY THAT ANYONE
23 COULD SUBMIT A BID FOR THE CHRONICLE. THEY MADE THEIR DEAL
24 AUGUST 6TH, BEFORE THE DATE THAT ANYONE HAD THE RIGHT TO DO IT.
25 THEY DIDN'T EVEN HAVE TO USE THE 60 DAYS. ALL THEY HAVE TO DO
2351
OPENING ARGUMENT \ ALIOTO
1 IS TALK ABOUT IT. DID YOU HEAR THE LADY FROM DLJ -- I FORGOT
2 HER NAME RIGHT NOW, GREENTHAL.
3 THE COURT: GREENTHAL.
4 MR. ALIOTO: YES. DID YOU HEAR -- THE WAY THEY
5 WOULD TALK ABOUT IT, THEY DON'T -- ALL THEY HAVE TO DO IS
6 MENTION IT. SO --
7 THE COURT: ISN'T THE PARTY HARMED BY THAT
8 CHRONICLE?
9 MR. ALIOTO: YES, DEFINITELY. DEFINITELY THEY ARE.
10 THE COURT: I DON'T HEAR MR. ROSCH COMPLAINING ABOUT
11 THIS, HOWEVER.
12 MR. ALIOTO: I THINK HIS CLIENTS MIGHT BECAUSE IT'S
13 INTERESTING, JUDGE, WHEN YOU ASK THAT QUESTION, THE CHRONICLE
14 TOOK THE POSITION IT'S NOT PROTECTED. THAT WAS A VERY
15 INTERESTING ADMISSION. SOMEBODY IS GETTING THE PICTURE.
16 REMEMBER, THAT MR. SIAS WAS NO FRIEND OF THE CHRONICLE
17 STOCKHOLDERS. THIS GUY WAS LIKE AN INSIDER. HE WAS GIVING
18 MORE INFORMATION TO HEARST THAN HEARST COULD GET ON ITS OWN.
19 MR. ROSCH: YOUR HONOR, I DON'T OBJECT NORMALLY TO
20 ORAL ARGUMENT, BUT THAT'S SCANDALOUS AND I MOVE THAT IT BE
21 STRICKEN.
22 THE COURT: WELL, I DON'T THINK HE WAS REFERRING TO
23 MR. SIAS. I THINK HE MISSPOKE.
24 ARE YOU REFERRING TO THAT INDIVIDUAL WHO IS
25 MENTIONED?
2352
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: YEAH. WELL, WE WEREN'T CLEAR WHO IT
2 WAS. FIRST HE WAS IDENTIFIED AS ONE PERSON.
3 THE COURT: RIGHT.
4 MR. ALIOTO: MR. ROSENBERG. THEN HE WAS IDENTIFIED
5 AS MR. NICHOLS. THEN HE WAS IDENTIFIED AS SOMEBODY ELSE.
6 THE COURT: I THINK MR. ROSCH THOUGHT YOU WERE
7 REFERRING TO MR. SIAS.
8 MR. ALIOTO: HOWEVER, THE CHRONICLE ITSELF FELT --
9 IT WAS OF THE VIEW THAT MR. SIAS WAS GIVING INFORMATION TO
10 HEARST. THAT'S A WRITTEN DOCUMENT THAT IS IN AUGUST --
11 THE COURT: WELL . . .
12 MR. ALIOTO: OKAY.
13 THE COURT: BUT THAT'S NOT OUR LAWSUIT.
14 MR. ALIOTO: NO, NO.
15 THE COURT: THAT MAY BE ANOTHER LAWSUIT.
16 (LAUGHTER)
17 MR. ALIOTO: ALL RIGHT. BUT FOR THE RECORD, IF IT
18 PLEASE YOUR HONOR, IT'S EXHIBIT 134. AND THIS IS THE LETTER
19 FROM MS. GREENTHAL TO THE CHRONICLE FOLKS. AND SHE STATED IN
20 HER DOCUMENT -- SHE STATED THAT IN THE LAST -- IT LOOKS LIKE
21 IT'S AN E-MAIL SO IT'S THE LAST -- SECOND-TO-LAST SENTENCE, SHE
22 SAYS THAT, QUOTE:
23 "IT'S VERY CLEAR TO ME THAT THE SUBSTANCE OF
24 OUR LAST DISCUSSION WITH JOHN ON THIS TOPIC
25 SOMEHOW GOT TO FRANK."
2353
OPENING ARGUMENT \ ALIOTO
1 AND THEN SHE GOES ON. AND WHEN SHE TESTIFIED SHE
2 FELT LIKE HE HAD GIVEN THEM INFORMATION --
3 MR. ROSCH: I OBJECT TO THAT AS WELL, YOUR HONOR.
4 IT MISCHARACTERIZES THE EVIDENCE. AGAIN, THIS IS SCANDALOUS
5 MATERIAL WHICH IS ENTIRELY IRRELEVANT.
6 MR. ALIOTO: WELL, I DIDN'T WRITE IT, YOUR HONOR.
7 MR. ROSCH: AND I MOVE THAT IT BE STRICKEN.
8 THE COURT: WELL, I AM GOING TO OVERRULE THE
9 OBJECTION. MR. ALIOTO HAS POINTED TO EXHIBIT 134 AND HE HAS
10 MADE AN INTERPRETATION AND A FAIR INTERPRETATION GIVEN THE --
11 GIVEN THE DOCUMENT. THE OBJECTION IS OVERRULED.
12 MR. ALIOTO: OKAY. BUT REGARDLESS, YOUR HONOR, THAT
13 EVEN THOUGH THE CHRONICLE ITSELF OR THE STOCKHOLDERS MAY BE
14 HARMED BY THAT, TOO, AND TOOK THAT POSITION THAT IT'S NOT
15 COVERED -- AND WE WOULD SAY THIS, YOUR HONOR. IF IT'S NOT
16 COVERED IT HAS TO GO BECAUSE IT WAS ALREADY REPUDIATED BY THE
17 SUPREME COURT.
18 THE COURT: WELL, MY PROBLEM IS HOW IS YOUR CLIENT
19 HURT?
20 MR. ALIOTO: OKAY. THERE ARE TWO -- YOUR HONOR,
21 THERE ARE TWO ASPECTS. FIRST OF ALL, IF THAT --
22 THE COURT: OR THREATENED TO BE HARMED?
23 MR. ALIOTO: MY CLIENT -- FIRST OF ALL, I WISH TO
24 EMPHASIZE AGAIN, I BELIEVE THAT MY CLIENT MAY -- IS THREATENED
25 BY THAT, THAT THAT PREVENTS ON ITS FACE POTENTIAL NEW
2354
OPENING ARGUMENT \ ALIOTO
1 COMPETITION, POTENTIAL COMPETITION FOR HIS BUSINESS, POTENTIAL
2 COMPETITORS COMING IN, AS BOTH OF THESE FOLKS HAVE RECOGNIZED.
3 IF THESE OTHER COMPETITORS COME IN, THERE IS THAT POTENTIAL OF
4 PRICE COMPETITION, OBVIOUSLY.
5 BUT I THINK IT'S MORE THAN THAT. I THINK THAT WHEN
6 THE COURT IS DOING EQUITY, THE COURT HAS TO ENSURE THAT ALL OF
7 THESE RESTRAINTS ARE PROHIBITED AND THAT THE COURT HAS THE
8 POWER TO DO THAT.
9 SOMETIMES, FOR EXAMPLE, IN PROVING AN ANTITRUST CASE
10 NOT ALL OF THE ANTITRUST VIOLATIONS WILL NECESSARILY CALL
11 MONETARY DAMAGE TO A PLAINTIFF. NONETHELESS, IN ORDER, AS THE
12 SUPREME COURT SAID IN CONTINENTAL OR TO GET THE FULL PICTURE OF
13 HOW THESE PEOPLE ARE OPERATING, EVERYTHING THEY DO IS WITH
14 RESTRAINTS, YOUR HONOR, THAT IF YOU GET THE FULL PICTURE, THE
15 COURT WHEN IT COMES TO SOMETHING IN EQUITY HAS THE RIGHT TO
16 STAMP OUT NOT ONLY THE DIRECT VIOLATIONS BUT ANY OF THOSE --
17 EVEN THOSE THAT MIGHT OTHERWISE BE LEGAL, AND WHETHER OR NOT
18 THEY IMPACT ANYBODY.
19 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
20
21
22
23
24
25
2355
OPENING ARGUMENT \ ALIOTO
1 BECAUSE THEY ARE PART AND PARCEL OF THE OVERALL
2 SCHEME.
3 NOW, HERE I WOULD SUBMIT TO YOUR HONOR THAT THE IDEA
4 THAT THEY WOULD HAVE THESE RESTRICTIONS ON POTENTIAL SELLERS,
5 BECAUSE, LOOK, IF WE GO BACK -- IF I CAN GO BACK, IF WE GO BACK
6 TO WHERE WE WERE WITH THE JOA RECOGNIZING THAT THE JOA WAS
7 MEANT TO INCREASE THE COMPETITORS, RECOGNIZING ALSO, YOUR
8 HONOR, THAT SECTION 7 AT LEAST WAS ALSO MANY TIMES, AS WE PUT
9 IN OUR BRIEFS, MEANT TO INCREASE COMPETITORS BECAUSE OF THE
10 THREATENED HARM, THEY FIGURE THE BEST WAY TO PRESERVE
11 COMPETITION WAS MORE COMPETITORS, THOSE WERE THOSE ORIGINAL
12 CASES, AND THOSE WERE WHICH WE CITED TO YOUR HONOR.
13 BUT SUPPOSE DURING THE COURSE OF ANY OF THIS, ONE OF
14 THE PARTIES WANTED TO SELL. OKAY. IF HE WANTED TO SELL,
15 SOMEONE WHO WANTED TO BUY OBVIOUSLY WOULD COME INTO THE MARKET
16 AND ONE WOULD THINK IF THEY WERE WILLING TO BUY, YOU KNOW,
17 THEY'D WANT TO DO A GOOD JOB.
18 SOMEONE MIGHT GET TIRED, AND IF THAT PERSON COULDN'T
19 COME IN BECAUSE OF THE 60 MILES OR IF THE PERSON COULDN'T COME
20 IN BECAUSE OF FIRST RIGHT OF REFUSAL, THAT POTENTIAL IS NEVER
21 THERE. IT'S IMMEDIATELY WIPED OUT.
22 SUPPOSE THE EXAMINER -- SUPPOSE MR. BENNACK WANTED
23 TO CARRY THROUGH WITH HIS THREAT. SUPPOSE HE DECIDED, "OKAY,
24 WE'RE LAYING DOWN. YOU KNOW, WE'RE NOT DOING -- WE'RE NOT
25 TRYING TO HELP ANYBODY. WE DON'T CARE WHAT THE SAN FRANCISCO
2356
OPENING ARGUMENT \ ALIOTO
1 NEWSPAPER AGENCY DOES. YOU KNOW, FORGET IT." AND SUPPOSE THAT
2 THERE'S NOTHING -- AND HE WANTED TO LEAVE. HE COULD LEAVE. HE
3 COULD JUST LEAVE. NOTHING IS HURT HERE BECAUSE THE CHRONICLE,
4 YOU KNOW, THEY DIDN'T DO ANYTHING FOR THAT.
5 BUT SUPPOSE THE EXAMINER REALLY WANTED TO LEAVE
6 LEGITIMATELY AND THEY WANTED TO SELL TO SOMEBODY. SUPPOSE IT
7 WAS TONY RIDDER WHO'S DOWN IN SAN JOSE. ALL RIGHT, 'I'M
8 GETTING OUT OF HERE. I DON'T LIKE SAN FRANCISCO. I'VE HAD IT.
9 I'M GOING TO HOUSTON CHRONICLE, WORLD CLASS NEWSPAPER."
10 (LAUGHTER)
11 MR. ALIOTO: AND HE SAYS, "I'M LEAVING." HE SAYS
12 THAT. TONY RIDDER CAN'T BUY IT.
13 NOW, BECAUSE OF THE 60-MILE LIMIT, YOUR HONOR, IF NO
14 ONE CLOSER WANTS TO BUY IT, THEN THE CHRONICLE GETS A MONOPOLY
15 BUT NOT BECAUSE OF NOTHING THEY DID BUT BECAUSE OF THE 60-MILE
16 LIMIT, AND SOMEONE LIKE REILLY IS HURT. NOW, THIS WAS A FACT
17 IN THIS CASE.
18 THE COURT: HOW?
19 MR. ALIOTO: THIS WAS A FACT IN THIS CASE. THE FACT
20 IN THIS CASE --
21 THE COURT: HOW WAS REILLY HURT?
22 MR. ALIOTO: BECAUSE TONY RIDDER WAS SUPPOSED TO
23 HAVE OFFERED -- WE HAVE IT IN THE DOCUMENTS -- SUPPOSED TO HAVE
24 SAID THAT THEY WOULD BUY THE EXAMINER, BUT ONLY WITH THE JOA,
25 WHICH SHOULD HAVE BEEN DONE OBVIOUSLY, BUT ONLY WITH THE JOA
2357
OPENING ARGUMENT \ ALIOTO
1 THEY WOULD HAVE PAID HEARST SOME MONEY.
2 TONY RIDDER WAS KNOCKED OUT FOR TWO REASONS. ONE,
3 THE JOA AND THE 60 MILES. HE'S GONE.
4 SO WHAT HAPPENS? INSTEAD OF THE EXAMINER BEING RUN,
5 CONTINUING TO BE RUN AND RUN BY A MAJOR NEWSPAPER, THAT
6 POTENTIAL WAS LOST.
7 NOW, THAT WAS AN ACTUAL OFFER. THAT WAS -- YOU
8 KNOW, THAT WAS AN ACTUAL OFFER.
9 NOW, THE FEWER THE PAPERS, THE HIGHER THE PRICES.
10 THAT'S WHAT WE'RE LOOKING AT.
11 THIS IS VERY -- I WOULD RESPECTFULLY SUBMIT WHAT THE
12 CONGRESS INTENDED TO DO HERE AND THE WAY IT ACTUALLY FUNCTIONS
13 IS THAT IF YOU CHOOSE VOLUNTARILY TO GO INTO A JOA, IF IT'S
14 GOING TO BE A SPRINGBOARD, IF THE COURT SAYS -- IF THE COURT
15 ALLOWS -- IF THE COURT DOES NOT PROHIBIT HEARST FROM BUYING THE
16 CHRONICLE, THEN IT'S A ROAD MAP FOR MONOPOLY IN ANY CITY, YOUR
17 HONOR, BECAUSE IT WOULD BE REAL SIMPLE.
18 ONE OF THE -- THE DOMINANT PAPER WILL SIMPLY SAY TO
19 THE OTHER PAPER, "WE'LL BUY YOU OUT OR WE'LL TAKE YOU OVER," OR
20 ANYTHING LIKE THAT, "AND WE'LL HAVE A MONOPOLY BECAUSE YOU'RE A
21 FAILING PAPER."
22 THE COURT: WELL, LET'S JUST SPIN THIS OUT FOR A
23 MOMENT.
24 MR. ALIOTO: OKAY.
25 THE COURT: HOW IS COMPETITION IMPROVED IF
2358
OPENING ARGUMENT \ ALIOTO
1 KNIGHT-RIDDER WERE THE PURCHASER RATHER THAN HEARST?
2 KNIGHT-RIDDER HAS AN 80 PERCENT SHARE IN SANTA CLARA COUNTY
3 WITH THE SAN JOSE MERCURY NEWS. THEY HAVE A 38 PERCENT SHARE
4 IN CONTRA COSTA COUNTY WITH THE CONTRA COSTA TIMES. IF THEY
5 WERE THEN TO ACQUIRE THE CHRONICLE, THEY WOULD HAVE A
6 65 PERCENT SHARE IN SAN FRANCISCO, 44 PERCENT SHARE IN MARIN,
7 53 PERCENT SHARE IN SAN MATEO COUNTY. HOW IS THAT LIKELY TO
8 IMPROVE COMPETITION IF KNIGHT-RIDDER WERE THE PURCHASER?
9 MR. ALIOTO: OKAY, I WAS DISCUSSING ABOUT THE
10 EVIDENCE FROM KNIGHT-RIDDER WITH REGARD TO THE EXAMINER.
11 YOU'RE SAYING WITH REGARD TO THE -- YOU'RE POSITING THE
12 QUESTION WITH REGARD TO THE CHRONICLE?
13 THE COURT: YES.
14 MR. ALIOTO: OKAY. IF --
15 THE COURT: WELL, EVEN IF YOU TAKE THE EXAMINER AND
16 KNIGHT-RIDDER WERE THE PURCHASER OF THE EXAMINER WITHIN THE
17 JOA, THE EXAMINER HAS A 32 PERCENT SHARE IN SAN FRANCISCO.
18 MR. ALIOTO: YES.
19 THE COURT: HOW WOULD KNIGHT-RIDDER AS THE PURCHASER
20 OF EITHER OF THESE PAPERS WITH OR WITHOUT THE JOA IMPROVE THE
21 COMPETITIVE ENVIRONMENT?
22 MR. ALIOTO: WELL, WHAT THE SUPREME COURT SAID IS
23 THAT ANYBODY IS BETTER THAN THE COMPETITOR IN THE MARKET DOING
24 IT. THE SUPREME COURT SAID THAT THE FAILING -- IF IT'S A
25 FAILING COMPANY OR OTHERWISE, OR YOU JUST WANT TO LEAVE, IT'S
2359
OPENING ARGUMENT \ ALIOTO
1 NOT FAILING BECAUSE THESE GUYS ARE MAKING MONEY, BUT IF YOU
2 WANT TO LEAVE, THE COURT SAYS THAT IT CANNOT BE APPLIED IN A
3 MERGER OR ANY OTHER CASE UNLESS IT IS ESTABLISHED THAT THE
4 COMPANY THAT ACQUIRES THE FAILING COMPANY OR BRINGS IT UNDER
5 DOMINION IS THE ONLY AVAILABLE PURCHASER. FOR IF ANOTHER
6 PERSON OR GROUP COULD BE INTERESTED, A UNIT IN THE COMPETITIVE
7 SYSTEM WOULD BE PRESERVED AND NOT LOST TO MONOPOLY POWER. IN
8 OTHER WORDS, AN OUTSIDER IS ALWAYS BETTER RATHER THAN -- IF
9 THAT'S THE ONLY THING AVAILABLE.
10 NOW, I WOULD SAY IN ORDINARY CIRCUMSTANCES, YOUR
11 HONOR, THAT I THINK THAT IF THE CHRONICLE OR THE EXAMINER WERE
12 PUT UP FOR SALE IN THE JOA, I THINK THAT THEY WOULD PROBABLY
13 ATTRACT MANY MORE PEOPLE AND I THINK THAT -- WHICH WOULD HELP
14 COMPETITION, AS THE SUPREME COURT SAYS, WHICH MEANS IT HELPS
15 THE SUBSCRIBERS AS WELL AS THE ADVERTISERS AND PRESERVES THE
16 ACT, PRESERVES THE ANTITRUST ACT, PRESERVES THE PRESERVATION
17 ACT. BUT I WOULD SUBMIT THAT OTHERS WOULD HAVE A MORE LIKELY
18 CHANCE OF BEING ABLE TO DO IT.
19 THE COURT: ONE MORE QUESTION.
20 MR. ALIOTO: AS MANY QUESTIONS AS YOU WANT, YOUR
21 HONOR.
22 THE COURT: IS THERE ANY CASE THAT YOU'RE AWARE OF
23 THAT DISCUSSES NEGATIVE PRICE TRANSACTIONS UNDER SECTIONS 1,
24 2 OR 7? IS THERE ANY --
25 MR. ALIOTO: WELL, I WOULD SAY THIS: SINCE THE
2360
OPENING ARGUMENT \ ALIOTO
1 ILLUSTRIOUS EXPERTS FOR THE DEFENDANTS COULD ONLY COME UP WITH
2 THE GARBAGE EXAMPLE --
3 THE COURT: WELL, THAT'S --
4 MR. ALIOTO: -- THERE ARE A LOT OF GARBAGE CASES,
5 BECAUSE I'VE BEEN INVOLVED IN SOME OF THOSE. BUT THE NEGATIVE
6 PRICE, YOUR HONOR, IS, IN WHICH YOU PAY A PRICE FOR SOMEONE
7 TO --
8 THE COURT: TAKE THIS THING OFF YOUR HANDS.
9 MR. ALIOTO: YES. OKAY. I THINK YOU WOULD ONLY
10 FIND THAT KIND OF CONDUCT IN A CARTEL CASE. I DON'T THINK THAT
11 IT COULD OTHERWISE -- I DON'T THINK THAT IT WOULD OTHERWISE
12 EXIST.
13 THE COURT: HOW SO?
14 MR. ALIOTO: WELL, BECAUSE --
15 THE COURT: HOW IS THAT CARTEL BEHAVIOR?
16 MR. ALIOTO: WELL, IN A CARTEL, IN ORDER TO --
17 SOMETIMES IN ORDER TO PARTICIPATE IN -- WELL, LIKE EVEN IN OUR
18 CASE RIGHT HERE, IN ORDER TO PARTICIPATE IN GAINING A MONOPOLY,
19 YOU MAKE PEOPLE -- YOU MAY PAY PEOPLE TO BASICALLY RUN
20 SOMETHING OUT; IN OTHER WORDS, TO TAKE IT OFF.
21 THE COURT: IT'S EVIDENCE OF A CONSPIRACY BETWEEN
22 HEARST AND FANG.
23 MR. ALIOTO: YES. OH, YES. CERTAINLY.
24 THE COURT: AND A CONSPIRACY TO DO WHAT?
25 MR. ALIOTO: BUT HERE'S THE DEAL --
2361
OPENING ARGUMENT \ ALIOTO
1 THE COURT: PREDATORY PRICING? WHAT? PREDATORY
2 PRICING? WHAT IS IT?
3 MR. ALIOTO: NO. CONSPIRACY TO ESTABLISH A MONOPOLY
4 BECAUSE THEY KNOW THEY'RE NOT GOING TO COMPETE AGAINST IT.
5 WHEN MR. REILLY, FOR EXAMPLE, MADE A BID ALSO
6 AFTERWARDS, WHEN HE WAS INVITED BY HEARST TO DO THAT, AND I
7 GUESS, YOU KNOW, THE EVIDENCE NOW SHOWS THAT THAT WAS KIND OF A
8 FAKE, BUT WHEN HE WAS INVITED TO DO THAT, HE WAS TALKING
9 ABOUT -- AND SO WAS FANG, MR. FANG -- THEY WERE TALKING ABOUT
10 AN AMOUNT THAT WOULD REALLY MAKE THEM COMPETITIVE. REMEMBER,
11 THE FIRST OFFER BY MR. FANG WAS $210 MILLION. THEY SAY, "WELL,
12 WAIT A MINUTE. THE EXAMINER -- HEARST HAS TO -- WHY DOES
13 HEARST HAVE TO DO THIS IN THE FIRST PLACE?" HEARST SAYS THEY
14 HAD TO DO IT FOR POLITICAL REASONS. THAT'S WHAT THEY'RE
15 SAYING.
16 THE COURT: DO YOU DISBELIEVE THAT?
17 MR. ALIOTO: NO, BECAUSE IT WORKED. THE DEPARTMENT
18 OF JUSTICE SENT IN, AND THEY SAID, "HEY, YEAH, YOU GUYS GOT TWO
19 COMPETING NEWSPAPERS." AND IT'S NOT TRUE, BUT THEY DIDN'T KNOW
20 THAT, THE DEPARTMENT DIDN'T KNOW THAT.
21 THE COURT: ARE YOU SURE?
22 MR. ALIOTO: WELL, IT WOULD BE PRETTY ROUGH TO SEND
23 SOMETHING TO THE FEDERAL -- WELL, PRETTY ROUGH TO MAKE A
24 STATEMENT LIKE THAT.
25 THE COURT: THEY HAD MR. FANG'S DEPOSITION. DID
2362
OPENING ARGUMENT \ ALIOTO
1 FANG --
2 MR. ALIOTO: YOUR HONOR, I'LL TELL YOU THIS --
3 THE COURT: DID FANG IN THAT DEPOSITION DESCRIBE
4 WHAT HE TESTIFIED TO WITH RESPECT TO HIS PLANS FOR THIS
5 NEWSPAPER?
6 MR. ALIOTO: FIRST OF ALL, HE DIDN'T HAVE ANY PLANS,
7 YOUR HONOR. YOU KNOW, REMEMBER WE HAD THAT. HE DIDN'T HAVE
8 ANY BUSINESS PLANS.
9 BUT THERE'S -- YOU MAY HAVE ANOTHER POINT. THEY MET
10 WITH HIM FIVE TIMES. YOU WONDER WHO'S WORKING FOR WHO. THEY
11 NEVER MET WITH ANYONE ELSE. IT WAS LIKE THEY WERE REPORTING TO
12 HIM ALMOST. IT WAS VERY UNUSUAL.
13 BUT, IN ANY EVENT, WHEN THE GOVERNMENT ISSUED THEIR
14 PRESS RELEASE AND SAID TO EVERYONE THAT FOR THE FIRST TIME IN
15 35 YEARS THERE WILL BE COMPETITIVE NEWSPAPERS, THAT WAS THE
16 LINE -- THAT WAS, IN FACT, THE LINE THAT HEARST WAS GIVING
17 EVERYWHERE, INCLUDING TO YOUR HONOR.
18 THE COURT: CORRECT.
19 MR. ALIOTO: OKAY. THEN MR. ASHER GETS ON THE STAND
20 AND SAYS, "WE NEVER HAD AN INTENTION THERE WOULD BE A
21 FULLY-COMPETITIVE NEWSPAPER. AND NOT ONLY THAT, NEITHER DID
22 THE FANGS." THAT WAS WILD I THOUGHT BECAUSE IT WAS PLAIN THAT
23 IT WAS A SHAM. I MEAN, IT WAS AN ADMISSION. THESE ARE NOT
24 BAREFOOT BOYS. THESE ARE PEOPLE THAT ARE VERY, VERY POWERFUL
25 AND THEY KNOW WHAT THEY'RE DOING.
2363
OPENING ARGUMENT \ ALIOTO
1 AND IT WAS TO GAIN A MONOPOLY THAT THEY WERE MAKING
2 THESE REPRESENTATIONS. YOU CAN NEVER BE SURE WHETHER OR NOT
3 WHAT THEY'RE SAYING IS TRUE BECAUSE THEY CHANGE ON THEIR OWN SO
4 OFTEN AND IT DOESN'T BOTHER THEM. THEY WILL -- THEY'RE LIKE A
5 CHAMELEON. THEY CAN FASHION THEIR STATEMENTS TO THE OCCASION
6 AND THEY DO, AS WE SAW AGAIN AND AGAIN.
7 THE COURT: IS COMPETITION HARMED? LET'S ASSUME
8 THAT THE CHRONICLE PURCHASED BY HEARST GOES FORWARD. IS
9 COMPETITION HARMED BY SPINNING OFF THE EXAMINER ASSETS TO THE
10 FANGS? AND IF SO, HOW?
11 MR. ALIOTO: YES, IT'S HARMED BOTH WAYS. I MEAN,
12 IT'S HARMED IF THE COURT ALLOWS THE HEARST CORPORATION TO BUY
13 THE CHRONICLE.
14 THE COURT: BUT THAT'S --
15 MR. ALIOTO: IT ELIMINATES A NEWSPAPER.
16 THE COURT: PUT THAT ASIDE FOR A MOMENT.
17 MR. ALIOTO: OKAY. THEN THE OTHER ONE IS IF THEY
18 SELL THEIR ASSETS.
19 THE COURT: CORRECT. THE EXAMINER-FANG TRANSACTION
20 OR THE HEARST-FANG TRANSACTION ON ITS OWN, DOES THAT CREATE
21 COMPETITIVE INJURY? AND IF SO, WHAT IS THAT COMPETITIVE INJURY
22 AND WHO SUFFERS IT?
23 MR. ALIOTO: IN OTHER WORDS, IF HEARST WERE REQUIRED
24 TO GIVE OVER ITS ASSETS TO THE FANGS TO --
25 THE COURT: IF THEY --
2364
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: -- PUBLISH IT?
2 THE COURT: IF THEY COMPLETE A --
3 MR. ALIOTO: THEY DIDN'T WANT THOSE ASSETS, JUDGE.
4 THEY DIDN'T WANT IT. THEY DIDN'T WANT THE PRESSES OR ANYTHING.
5 THIS IS WHERE THEY CAME UP MAGICALLY TWO DAYS BEFORE THE
6 AGREEMENT WITH A BUDGET OF $15 MILLION WHICH JUST HAPPENED TO
7 FIT INTO THE 5-MILLION-DOLLAR DEAL.
8 THEY USED TO HAVE -- WE DIDN'T GET A DIFFERENT
9 BUDGET. YOUR HONOR MAY REMEMBER, WE TOOK MR. FANG'S DEPOSITION
10 THE DAY BEFORE THIS TRIAL STARTED.
11 THE COURT: COME BACK TO THE POINT.
12 MR. ALIOTO: YES.
13 THE COURT: HOW IS COMPETITION HARMED?
14 MR. ALIOTO: IF THEY DON'T HAVE ASSETS?
15 THE COURT: NO. HOW IS COMPETITION HARMED BY
16 COMPLETION OF THE TRANSACTION CONTEMPLATED IN THE MARCH 16
17 CONTRACT?
18 MR. ALIOTO: HIGHER PRICES.
19 THE COURT: HOW SO? HOW ARE HIGHER PRICES LIKELY TO
20 RESULT?
21 MR. ALIOTO: BECAUSE THERE'S NO COMPETITION. THEY
22 ALREADY PUT IN DOCUMENTS THEMSELVES THAT THEY CAUGHT -- THEY
23 GOT CAUGHT WITH IN WHICH THEY SHOWED THAT THERE WOULD BE NO --
24 FIRST OF ALL, THAT THEIR OWN DOCUMENTS SAY THAT THEIR PRICES
25 WOULD EITHER REMAIN THE SAME IN A MONOPOLY POSITION OR NEVER
2365
OPENING ARGUMENT \ ALIOTO
1 LOWER BECAUSE THEY DON'T HAVE TO COMPETE EVEN THOUGH THEY TAKE
2 OFF THE COSTS FOR THE AFTERNOON NEWSPAPER COMPLETELY. THAT'S
3 THE SAME AS -- I MEAN, THAT'S THE ABSOLUTE WHAT LEARNED HAND
4 SAID WAS A CINEMAGRAPHIC VIEW OF THE INTENT, MONOPOLY INTENT.
5 WHEN YOU HAVE TWO COMPETITORS AND YOU MAINTAIN THE
6 SAME REVENUE BUT SIMPLY DEDUCT, IN OTHER WORDS, IT'S MONOPOLY.
7 IT'S A PRICE THAT THEY COULD NEVER ACHIEVE ON THEIR OWN. THEY
8 HAVE A DOUBLE, YOU KNOW, BOTH OF THEM, AND THEN THEY JUST
9 ELIMINATE THE COSTS OF ONE. THEY KEEP THE PRICE UP THERE.
10 IF THEY HAD TO COMPETE, THEY WOULD HAVE TO COMPETE.
11 THEY CAN'T COMPETE, YOUR HONOR. I THINK THE EVIDENCE IS CLEAR
12 THE FANGS CANNOT COMPETE AGAINST THE CHRONICLE. AND BECAUSE OF
13 THAT, THERE'S NOT GOING TO BE THIS PRICE COMPETITION THAT BOTH
14 HEARST AND THE CHRONICLE ARE BASICALLY SAYING IS GOING TO
15 HAPPEN. THEY'RE SAYING IT'S GOING TO HAPPEN, AND THEY ARE
16 EXPRESSING THEIR INTENT THAT IT DOES HAPPEN.
17 THE COURT: ALL RIGHT. LET'S ASSUME THAT IS CORRECT
18 AND WHAT HAPPENS AT THE END OF THE THREE-YEAR PERIOD IS THAT
19 FANG GOES OUT OF BUSINESS, THEY QUIT PUBLISHING THE EXAMINER,
20 THEY BURY HIM. WHAT IS THE HARM IN THE THREE-YEAR PERIOD OF
21 TIME THAT THEY'VE GONE AHEAD WITH THAT ENTERPRISE, CONTINUED TO
22 PUBLISH A NEWSPAPER CALLED THE EXAMINER, TO BE SURE NOW A
23 METROPOLITAN DAILY BUT SOMETHING THAT'S CALLED AN EXAMINER, AND
24 THEY SELL IT IN SAN FRANCISCO PRIMARILY, WHAT'S THE HARM IN
25 THAT?
2366
OPENING ARGUMENT \ ALIOTO
1 MR. ALIOTO: FEWER -- HIGHER PRICES AGAIN, HIGHER
2 PRICES THAT WOULD OTHERWISE NOT EXIST.
3 THE COURT: IS ENTRY FORECLOSED? IS THERE A
4 POSSIBILITY OF ENTRY BY SOME OTHER PUBLISHER THAT IS FORECLOSED
5 BY THIS TRANSACTION?
6 MR. ALIOTO: WELL, I WOULD SAY THIS, YOUR HONOR:
7 ACCORDING TO MR. ROSSE, AND I THINK IT WAS IN ANSWER TO YOUR
8 HONOR'S QUESTION, YOUR HONOR ASKED HIM ABOUT THAT AND MR. ROSSE
9 SAID --
10 THE COURT: I REMEMBER DISTINCTLY. IT WAS QUITE
11 EXTRAORDINARY.
12 MR. ALIOTO: YES. HE SAID THAT THE BARRIERS WERE
13 SUBSTANTIALLY HIGH AND THAT THEY COULDN'T GET IN.
14 THE COURT: WELL, DEAD-WEIGHT LOSS WAS HIS
15 DESCRIPTION.
16 MR. ALIOTO: I BELIEVE THAT THE COURT -- I'LL GET IT
17 FOR YOUR HONOR, BUT IT WAS MR. ROSSE AND HE DID -- AND YOUR
18 HONOR ASKED HIM, "ARE YOU SAYING THAT THE VARIOUS ENTRIES ARE
19 HIGHER OR NOT?" AND HE SAID, "YES, THEY ARE. THEY'RE STILL
20 HIGH, THAT'S CORRECT." THAT'S WHAT HE SAID. THAT WAS THEIR
21 GUY. I DON'T HAVE THAT RIGHT NOW.
22 BUT THEN IN ADDITION, AS WE POINTED OUT BEFORE, AND
23 AS WE HAVE HERE, THAT THE COURT MAY REMEMBER THIS, THIS WAS
24 ABOUT A NEW ENTRANT, AND THIS WAS HEARST'S POSITION AND THESE
25 WERE IN THE RESPONSES TO THE GOVERNMENT --
2367
OPENING ARGUMENT \ ALIOTO
1 THE COURT: YES.
2 MR. ALIOTO: -- AND THEY USE THESE EXTRAORDINARY
3 WORDS. IT SAYS HEARST DOES NOT BELIEVE THAT ENTRY INTO THE
4 METROPOLITAN DAILY NEWSPAPER BUSINESS IN THE RELEVANT AREA IN
5 DIRECT COMPETITION WITH THE COMBINED SAN FRANCISCO CHRONICLE
6 AND EXAMINER NEWSPAPERS OR THE CHRONICLE ALONE.
7 THE COURT: ISN'T THAT YOUR EVIDENCE THAT THE
8 DEPARTMENT'S PRESS RELEASE WAS MISLEADING?
9 MR. ALIOTO: AMONG OTHER THINGS.
10 THE COURT: THIS WAS A STATEMENT BY HEARST ITSELF TO
11 THE DEPARTMENT OF JUSTICE WHICH --
12 MR. ALIOTO: YES.
13 THE COURT: -- COMPLETELY CONTRADICTED THE
14 DEPARTMENT'S PRESS RELEASE.
15 MR. ALIOTO: YES. YES, IT DOES. YOUR HONOR IS
16 RIGHT. IT DOES.
17 THE COURT: THUS, YOU SAY, THERE'S SOMETHING ELSE
18 GOING ON HERE.
19 MR. ALIOTO: OH, WE'VE SAID THAT. YES, SIR. YEAH,
20 BECAUSE --
21 THE COURT: AND WHAT IS IT?
22 MR. ALIOTO: WELL, WE THINK THAT THE EVIDENCE AND WE
23 THINK THAT THE COURT CAN CLEARLY UNDERSTAND THAT THE EVIDENCE
24 OR PART OF THE EVIDENCE IS THAT THE DEAL WAS THAT THERE WOULD
25 BE NO OPPOSITION SO LONG AS HEARST CORPORATION SOLD THE
2368
OPENING ARGUMENT \ ALIOTO
1 EXAMINER TO THE FANGS PERIOD. WE THINK THAT THAT WAS MADE
2 CLEAR BY A NUMBER OF PEOPLE TO THE HIGHEST EXECUTIVES OF HEARST
3 AND THAT HEARST ACKNOWLEDGED THAT AND UNDERSTOOD THAT. I THINK
4 THAT IT WAS MORE THAN MR. WHITE.
5 I BELIEVE YOUR HONOR IS GOING TO HAVE THIS ISSUE.
6 THE COURT IS WELL AWARE OF THE E-MAIL THAT WENT TO MR. IRISH
7 AND MR. BENNACK. NOW, HERE THEY ARE AND BOTH OF THEM GOT UP.
8 DID THEY DENY THE E-MAIL? NO. WHAT DID THEY SAY? "WE FIRED
9 MR. WHITE." "BUT YOU GOT THIS E-MAIL." "YEAH, BUT I DON'T
10 REMEMBER IT. I DON'T REMEMBER IT."
11 CAN YOU IMAGINE MR. IRISH SAYING, "I DON'T REMEMBER
12 IT"? HE ALSO SAID, "I DON'T REMEMBER IT," AND HE ALSO WROTE
13 HIS NOTES. CAN YOU SEE HIM WHEN HE WAS WRITING THAT "AMAZING"?
14 THAT'S AN AMAZING WORD FOR SOMEBODY IN THIS BUSINESS TO BE
15 WRITING AND FORGET, BUT HE FORGOT.
16 AND MR. BENNACK FORGOT. DO YOU THINK THAT THIS
17 EXECUTIVE, WHO IS TRYING TO MACHINATE THIS 660 MILLION-DOLLAR
18 DEAL ON THE CHRONICLE, GETS A MEMO ABOUT A MEETING OF HIS
19 PUBLISHER WITH THE MAYOR AND HE DOESN'T REMEMBER IT? I DON'T
20 THINK SO.
21 I SUBMIT TO YOUR HONOR WHEN YOU JUDGE THE
22 CREDIBILITY, IS THAT LIKELY? IS IT MORE LIKELY -- I KNOW IT'S
23 PREPONDERANCE OF THE EVIDENCE. IS IT MORE LIKELY SO THAN NOT
24 THAT HE KNEW VERY WELL? AND WHETHER HE KNOWS THE EXACT DETAILS
25 OR NOT, I THINK HE DID, "I DON'T REMEMBER"? THAT'S ABSURD, "I
2369
OPENING ARGUMENT \ ALIOTO
1 DON'T REMEMBER," SOMETHING LIKE THAT.
2 BUT HE COULD PULL A HENRY THE SECOND DEAL, YOU KNOW,
3 "SOMEBODY RID ME OF THIS MEDDLESOME PRIEST," AND THEN SOMEBODY
4 GOES AND KILLS BECKETT. IT'S A SIGNAL.
5 HE HIMSELF SAID THAT. HE SAID THAT HIMSELF BECAUSE
6 HE SAID THAT WHITE WAS SENT THERE IN JANUARY OF 1999 TO GET
7 THIS DEAL DONE AND MR. WHITE WAS GIVING HIM E-MAILS AND
8 MR. IRISH E-MAILS AND MR. IRISH WAS NOTING THEM AND SENDING
9 THEM TO MR. BENNACK. AND WE HAVE MR. BENNACK TIME AND AGAIN
10 RESPONDING TO E-MAILS WITH LESS IMPORTANCE, LIKE THE INSIDE
11 INFORMATION THAT HE WAS GETTING, AND THINGS LIKE THAT.
12 SO WHEN HE GOT THIS, THE IDEA -- HE ADMITTED GETTING
13 IT, BUT HE SAID, "I DON'T REMEMBER IT." I DON'T THINK THAT
14 THAT'S A CREDIBLE STATEMENT, AND I THINK THAT HE UNDERSTOOD
15 EXACTLY WHAT WAS GOING ON AND HE WAS OKAY WITH IT BECAUSE THE
16 MARCH TO MONOPOLY IS SO OVERBEARING, SO OVERCOMING IT'S BEYOND
17 THE DREAMS OF AVARICE. IT GOES BEYOND THAT, BECAUSE IT'S POWER
18 AND INFLUENCE AS WELL AND THEY'RE NOT GOING TO ALLOW SOMETHING
19 LIKE THIS TO GET IN THE WAY.
20 I THINK THEY ENCOURAGED IT, IN ANY EVENT --
21 THE COURT: THEY ENCOURAGED -- THEY --
22 MR. ALIOTO: I THINK THAT THEY ENCOURAGED --
23 THE COURT: WHAT? WHO'S "THEY"?
24 MR. ALIOTO: I BELIEVE THE EXECUTIVES PLAINLY
25 ENCOURAGED MR. WHITE TO DO WHATEVER WAS NECESSARY TO GET THE
2370
OPENING ARGUMENT \ ALIOTO
1 DEAL DONE. MR. WHITE CONVEYED TO THEM, HE SAID IT WAS A
2 PIVOTAL OBSERVATION. AS A MATTER OF FACT, INTERESTINGLY
3 ENOUGH, EVEN MR. IRISH WROTE DOWN "PIVOTAL OBSERVATION" IN HIS
4 NOTES, BUT IT WAS DONE BY BOTH OF THEM, "PIVOTAL OBSERVATION."
5 AND THE PIVOTAL OBSERVATION WAS, IT'S VERY SIMPLE,
6 IF YOU SELL IT TO THE -- IF YOU SELL THE PAPER TO THE FANGS,
7 THAT'S IT. THAT'S ALL YOU HAVE TO DO. THAT'S ALL YOU HAVE TO
8 DO. AND SO THEY DID AND THAT'S IT, AND EVERYTHING VANISHED.
9 EVERYTHING VANISHED EXCEPT MR. REILLY OVERNIGHT. PFSST GONE.
10 AND IT WAS INTERESTING, BECAUSE IT WAS ALL IN THE
11 SAME DAY TOO. IT WAS ON THE DAY WHEN WE APPEARED IN FRONT OF
12 YOUR HONOR. THAT'S WHEN THE RELEASE CAME. THAT'S WHEN THE
13 OTHER OFFICIALS MADE THE SAME ANNOUNCEMENT. THAT DAY. THAT
14 DAY. AND, YOU KNOW, I THINK THAT IT OBVIOUSLY FLOWS FROM THAT.
15 AND YOUR HONOR WILL SEE IN JUDGING THE CREDIBILITY,
16 I THINK THAT -- I KNOW THAT YOU REMEMBER MR. IRISH AND
17 REGARDLESS OF WHAT HE SAID, I KNOW THAT YOUR HONOR CUSTOMARILY
18 KEEPS THE COURTROOM VERY COOL, I LIKE IT THAT WAY MYSELF, SO
19 THERE'S NO QUESTION THAT MR. IRISH WHEN HE WAS PERSPIRING, IT
20 HAD NOTHING TO DO WITH THE TEMPERATURE.
21 (LAUGHTER)
22 MR. ALIOTO: SERIOUSLY, BECAUSE HE WAS DEFINITELY
23 AGITATED, AND I BELIEVE THAT IT WAS VERY DIFFICULT FOR HIM TO
24 DISCLAIM KNOWING THAT.
25 NOW, WHEN MR. WHITE WOULD WRITE TO HIM ABOUT OTHER
2371
OPENING ARGUMENT \ ALIOTO
1 THINGS, IT WAS ALL, YOU KNOW, PREPARING FOR THIS SO-CALLED
2 COMPETITION. THIS WOULD BE LIKE, YOU KNOW, WHEN HE WAS TALKING
3 ABOUT -- THIS WOULD BE -- FIRST OF ALL, MR. GUITTAR, AND HE
4 TOOK OVER FROM MR. GUITTAR, BUT MR. GUITTAR WOULD BE WRITING
5 MR. BENNACK AND OTHERS. AND THIS WAS ABOUT -- AND ALSO KEEPING
6 EVERYTHING QUIET, YOUR HONOR. EVEN THOUGH THESE ARE
7 NEWSPAPERS, THEY TOOK ACTIVE STEPS TO CONCEAL A LOT OF
8 INFORMATION. THAT I WOULD THINK IN OTHER INDUSTRIES THEY WOULD
9 PLAINLY --
10 THE COURT: WELL, I DON'T THINK THERE'S ANY
11 REQUIREMENT THAT NEWSPAPERS CONDUCT THEIR BUSINESS IN PUBLIC
12 ANY MORE THAN ANYBODY ELSE IS REQUIRED TO DO SO.
13 MR. ALIOTO: I DON'T THINK SO; BUT THEN, YOU KNOW,
14 THEY SHOULDN'T COMPLAIN IF OTHER PEOPLE WANT TO DO IT THAT WAY
15 TOO. HOW'S THAT?
16 (LAUGHTER)
17 MR. ALIOTO: BUT IT WAS INTERESTING BUT HERE'S
18 THIS -- HERE'S THE MISREPRESENTATION. THIS IS HOW FAR IT GOES.
19 YOUR HONOR, THIS IS EXHIBIT 68. YOUR HONOR MAY REMEMBER THAT
20 THERE WAS THE NEW YORK TIMES REPORTER WAS TRYING TO INVESTIGATE
21 WHAT ABOUT THESE JOA'S. BECAUSE THESE JOA'S HAVE BEEN I THINK,
22 YOU KNOW, A SCANDAL THROUGHOUT THE COUNTRY REALLY, BUT HERE
23 THEY WANT TO KNOW ABOUT WHAT'S GOING ON WITH THE JOA AND HERE
24 IT'S REPORTED TO MR. BENNACK, THIS IS THE TOP GUY AGAIN, THEY
25 SAID, QUOTE:
2372
OPENING ARGUMENT \ ALIOTO
1 "HIS QUESTIONS," MEANING FROM THE NEW YORK
2 TIMES, "MOSTLY WENT TO THE FUTURE OF THE SAN
3 FRANCISCO JOA. I TOLD HIM THAT AS FAR AS WE'RE
4 CONCERNED, OUR JOB IS TO PRODUCE THE BEST
5 NEWSPAPER WE CAN AND THAT WE FULLY INTEND TO
6 CONTINUE DOING THAT BEYOND THE YEAR 2005."
7 SO HEARST WITH KNOWLEDGE OF THE CHAIRMAN -- OR NOT
8 THE CHAIRMAN, THE CEO, CONTINUALLY IS SHOWING THIS INTENT, THAT
9 THEY INTEND TO COMPETE, YOUR HONOR. AND THAT'S WHY WHEN THEY
10 HAD THE OPPORTUNITY WHEN THEY SAW A MONOPOLY DEVELOPING, THEY
11 DIDN'T AT THAT MOMENT CARE IN MY JUDGMENT. I THINK THE
12 EVIDENCE IS VERY CLEAR THAT THEY DIDN'T, THAT THEY CHANGED
13 THEIR ATTITUDE COMPLETELY AND TELLING YOUR HONOR, THIS IS ON
14 THE CREDIBILITY, TELLING YOUR HONOR ANYTHING THAT THEY THOUGHT
15 WOULD BE HELPFUL AT THE TIME.
16 I THINK ALSO THAT THERE'S NO QUESTION. YOUR HONOR
17 ASKED: CAN THERE BE COMPETITION WHEN THEY'RE JOCKEYING FOR
18 POSITION? YES, THERE CAN BE.
19 AND IT'S SOMETHING VERY INTERESTING IN THIS
20 DOCUMENT. THIS IS VERY INTERESTING --
21 THE COURT: IN WHICH?
22 MR. ALIOTO: THIS IS THE JOA. IN THE JOA, WHICH
23 IS -- IN THE JOA, THEY NOTE, AND THIS IS AT -- THIS IS AT PAGE
24 32 THROUGH 37, AND THIS WAS THE 3.15. THEY NEVER CHANGED THIS,
25 JUDGE, AND THIS IS AT PAGE 32. IT STARTS 3.15, PUBLICATION AND
2373
OPENING ARGUMENT \ ALIOTO
1 CIRCULATION OF THE SAN FRANCISCO CHRONICLE/EXAMINER, CHRONICLE
2 AND HEARST AGREE THAT DURING THE TERM HEREOF, THE CHRONICLE AND
3 HEARST WILL HAVE AUTHORITY OVER, AND RESPONSIBILITY FOR,
4 DETERMINING THE ADVERTISING RATES AND CIRCULATION PRICES OF
5 THEIR RESPECTIVE DAILY NEWSPAPERS AND SUCH DETERMINATIONS SHALL
6 NOT BE SUBJECT TO ARBITRATION.
7 SO, UNLIKE PROBABLY BECAUSE THE PRICE FIXING
8 ALLEGATION, THIS WAS BEFORE THE CITIZENS CASE --
9 THE COURT: DIFFERENT FROM THE CITIZENS CASE.
10 MR. ALIOTO: YEAH. AND WHAT'S INTERESTING IS THEY
11 NEVER CHANGED THAT. SO YOUR HONOR ASKS QUESTIONS: WELL, CAN
12 SOMEONE ELSE COME IN? WILL THERE BE COMPETITION? IF SOMEONE
13 ELSE CAME IN AND THEY WANTED TO -- AND REMEMBER MR. SIAS
14 BROUGHT IT OUT. HE DIDN'T LIKE THIS IDEA. HE HAD THE RIGHT,
15 HE SAID, THE EXCLUSIVE RIGHT OVER HIS PRICES. IF SOMEONE ELSE
16 CAME IN, THEY COULD SET ANY PRICE THEY WANTED TO. THERE IS NO
17 PRICE FIXING AGREEMENT HERE EVEN THOUGH THEY HAVE PRACTICED IT
18 THAT WAY. THEY HAVE NEVER AMENDED IT.
19 SO ANY NOTION OF ANYONE ELSE COMING IN, HOW COULD
20 THAT HELP ANYBODY ELSE, THE 60-MILE? HOW WOULD IT HELP, FOR
21 INSTANCE, MR. REILLY? RIGHT HERE, BECAUSE THE CHRONICLE --
22 THEY COULD HAVE -- THEY HAVE THE AUTHORITY AND THE
23 RESPONSIBILITY AND THEY'RE TALKING ABOUT NOT JUST THE
24 ADVERTISING RATES BUT THE CIRCULATION PRICES BOTH. ANYBODY
25 COULD COME IN.
2374
OPENING ARGUMENT \ ALIOTO
1 THE COURT: WELL, UNDER THAT THEORY, THEN, IF THE
2 PARTIES HAVE COORDINATED THEIR PRICING, AS YOU ALLEGE, EVEN
3 THOUGH IT IS NOT PROVIDED FOR IN THE JOINT OPERATING AGREEMENT
4 AND THE EXEMPTION WHICH THEY HAVE FROM THE ANTITRUST LAWS
5 EXTENDS ONLY TO THAT WHICH IS PROVIDED FOR IN THE JOINT
6 OPERATING AGREEMENT, IS IT YOUR CONTENTION THAT WHAT THEY'VE
7 ENGAGED IN OVER THESE YEARS IS OUT AND OUT PRICE FIXING?
8 MR. ALIOTO: WELL, THE NEWSPAPER PRESERVATION ACT
9 PROVIDES SPECIFICALLY THAT THEY CAN DO THAT IF THEY WANT TO.
10 THE COURT: BUT THEY DIDN'T DO THAT IN THEIR
11 AGREEMENT. THEY DIDN'T CLAIM THAT EXEMPTION.
12 MR. ALIOTO: THEY DID NOT. AND WHAT THE STATUTE
13 SAYS --
14 THE COURT: IF I UNDERSTAND WHAT THE ACT DOES, IT
15 ONLY EXEMPTS THAT CONDUCT WHICH IS PROVIDED FOR IN AN AGREEMENT
16 OF THE PARTIES.
17 MR. ALIOTO: THAT IS CORRECT. AND IF THERE'S -- AND
18 IF IT'S A PRE-JULY 24, 1970, JOINT OPERATING AGREEMENT, THEN IT
19 PROVIDES THAT, QUOTE:
20 "TERMS OF A RENEWAL OR AMENDMENT TO A JOINT
21 OPERATING AGREEMENT MUST BE FILED WITH THE
22 DEPARTMENT OF JUSTICE AND THAT THE AMENDMENT
23 DOES NOT ADD A NEWSPAPER OR NEWSPAPER
24 PUBLICATION."
25 SO IF THEY WERE GOING TO AMEND IT OR CHANGE IT, THEY
2375
OPENING ARGUMENT \ ALIOTO
1 WOULD HAVE HAD TO FILE IT WITH THE DEPARTMENT OF JUSTICE. AND
2 UP TO THIS TIME --
3 THE COURT: SO ANY COORDINATION OF PRICING THAT HAS
4 OCCURRED FOR THE LAST 35 YEARS HAS BEEN A VIOLATION OF SECTION
5 1; RIGHT? IS THAT YOUR THEORY?
6 MR. ALIOTO: WELL, IT WASN'T UNTIL NOW, JUDGE.
7 (LAUGHTER)
8 MR. ALIOTO: THAT'S CASE NUMBER TWO.
9 (LAUGHTER)
10 THE COURT: I MAY GO BACK INTO BUSINESS, MR. ALIOTO.
11 (LAUGHTER)
12 MR. ALIOTO: I THINK THAT THE COURT IS CORRECT ABOUT
13 THAT; BUT THE FACT THAT THEY DIDN'T REMAIN -- I MEAN THEY
14 DIDN'T CHANGE IT, MEANS THAT IF SOMEONE ELSE COMES IN, IF THE
15 CHRONICLE WANTS TO SELL AND THEY SELL IT TO SOMEONE ELSE WHO'S
16 NOT RESTRICTED, THAT PERSON CAN -- THERE IS THE POTENTIAL OF
17 THAT PERSON COMING IN AND BEING ABLE TO DO THAT.
18 THE COURT: CAN I ASK YOU TO WRAP UP?
19 MR. ALIOTO: YES, YOUR HONOR.
20 I THINK THAT IT'S SO IMPORTANT THESE
21 EXTRAORDINARY -- BOTH OF THESE LAWS ARE QUITE EXTRAORDINARY, AT
22 LEAST IN MY VIEW, AND THEY'RE SO IMPORTANT TO THE COUNTRY. AND
23 WHEN THE ANTITRUST LAWS, WHICH ARE SIMPLY -- THEY'RE NOT LAWS
24 OR REGULATIONS THEMSELVES. THEY ARE AGAINST PRIVATE
25 REGULATION. IF THE GOVERNMENT WANTS TO REGULATE, THEY CAN DO
2376
OPENING ARGUMENT \ ALIOTO
1 IT; BUT A PRIVATE PERSON, NOBODY CAN DO ANYTHING ABOUT IT.
2 THAT'S WHAT THE ANTITRUST LAWS ARE ABOUT, TO PREVENT THESE
3 PRIVATE REGULATIONS. AND SO THE IDEA IS, YOU'VE GOT TO
4 COMPETE. PEOPLE ARE ENTITLED TO IT.
5 WHEN YOU PUT THAT IN ABEYANCE, IT'S REALLY
6 EXTRAORDINARY AND THE LAW IS VERY CLEAR IT HAS TO ALWAYS BE
7 READ VERY, VERY NARROWLY.
8 HERE WHEN THEY HAD THESE PRIVILEGES, THEY DID THEM
9 VOLUNTARILY. THEY ENTERED INTO THESE SITUATIONS BECAUSE THEY
10 THOUGHT OR AT LEAST THEY REPRESENTED IN THIS DOCUMENT, WHETHER
11 IT'S TRUE OR NOT, NO ONE KNOWS, BUT THEY REPRESENTED THAT
12 HEARST WAS AT A DEFICIT THEN. MR. BENNACK SAID THAT WHEN IT
13 WENT TO THE AFTERNOON, IT GOT WORSE RIGHT FROM THE VERY START.
14 ONE COULD NOT ALLOW, IF THEY'RE IN THERE ON THEIR
15 OWN, THEN CAN THEY USE THE VERY REASON THEY GOT INTO IT AS A
16 REASON TO SHUT IT DOWN AND GET A MONOPOLY? IF THAT'S TRUE,
17 EVERY JOA THESE PEOPLE WOULD BE DOING IT. UNFORTUNATELY, IN
18 MANY CASES THEY ARE BECAUSE NO ONE HAS DEALT WITH THE
19 TERMINATION.
20 THE STATUTE DOES NOT DEAL WITH THE TERMINATION. IT
21 DOESN'T DEAL WITH IT. THE ONLY TIME THERE'S BEEN ANY TRIAL
22 WHERE THAT'S BEEN AN ISSUE IS THIS TRIAL. OBVIOUSLY, WHATEVER
23 DECISION YOUR HONOR MAKES, IS GOING TO BE EXTREMELY IMPORTANT,
24 NOT ONLY FOR THE PEOPLE OF SAN FRANCISCO AND OTHER AREAS BUT
25 FOR THE COUNTRY. IT'S GOING TO AFFECT THESE JOA'S, THERE'S NO
2377
OPENING ARGUMENT \ ALIOTO
1 QUESTION ABOUT IT.
2 AND I THINK, YOUR HONOR, IN WRAPPING UP, I THINK
3 THAT IT'S VERY OR SHOULD BE VERY CLEAR THAT IF THEY'RE GOING TO
4 HAVE THIS MINIMUM EXCEPTION ON THE BASIS OF THE RULES THAT ARE
5 ACTUALLY, YOU KNOW, EXCEPTIONS FOR THE SPECIFIC ITEMS THAT ARE
6 MENTIONED IN 1802, OKAY, IF THEY'RE GOING TO DO THAT, THEN IF
7 THEY -- AND THEN AT THE END IT'S OVER AND THEN THEY START
8 COMPETING AGAIN, IT DOESN'T EXIST ANYMORE, IF THEY'RE GOING TO
9 CUT IT SHORT BY MUTUAL AGREEMENT, THEN THEY ALSO HAVE TO BEGIN
10 TO COMPETE BECAUSE IT NO LONGER EXISTS ANYMORE.
11 IF ONE OF THEM IN THE MEANTIME WANTS TO SELL, THEY
12 OUGHT TO BE FREE TO SELL. IF NO ONE WANTS TO BUY IT, THEN THEY
13 JUST LEAVE. BUT SOMEONE WILL WANT TO BUY IT OR ONE WOULD THINK
14 ONE WOULD, AND THEY'D HAVE A RIGHT TO SELL SO LONG AS IT'S NOT
15 TO THE PARTNER, BECAUSE THEN IT FRUSTRATES BOTH THE ANTITRUST
16 LAWS, WHICH IT WOULD NEVER ALLOW, OR IT FRUSTRATES THE
17 PRESERVATION ACT BECAUSE IT ELIMINATES ANOTHER PAPER.
18 SO THEIR FREEDOM IS ALWAYS PRESERVED EXCEPT AGAINST
19 MONOPOLY. AND WHAT IS INTERESTING IS THAT'S ALSO IN THE
20 STATUTE THAT CERTAIN THINGS -- EVEN THE STATUTE WILL NOT ALLOW
21 CERTAIN THINGS, INCLUDING PREDATORY PRICING, THINGS LIKE THAT,
22 BUT ACTING LIKE A SINGLE ENTITY TOO IS SPECIFICALLY EXCLUDED.
23 THE LANGUAGE IS ON THE BOTTOM RIGHT BEFORE IT SAYS EXCEPT AS
24 PROVIDED, NO JOINT OPERATING OR ANY PARTY WILL BE EXEMPT FROM
25 ANY ANTITRUST LAW, IT ALSO SAYS THE ONE RIGHT BEFORE THAT:
2378
OPENING ARGUMENT \ ALIOTO
1 "... OR ANY OTHER CONDUCT IN THE OTHERWISE
2 LAWFUL OPERATIONS OF A JOINT NEWSPAPER OPERATING
3 ARRANGEMENT WHICH WOULD BE UNLAWFUL UNDER ANY
4 ANTITRUST LAW IF ENGAGED IN BY A SINGLE ENTITY."
5 SO A SINGLE ENTITY COULD NEVER DO THAT. A SINGLE
6 ENTITY COULD NOT, A SINGLE ENTITY COULD NOT BUY ONE OF THE
7 OTHERS. THAT WOULD JUST VIOLATE THE ANTITRUST LAW. THAT WOULD
8 BE A MONOPOLY. SO IF THEY WANT TO SELL, THEY CAN SELL TO
9 ANYBODY THEY WANT OTHER THAN THE PARTNER TO CREATE A MONOPOLY.
10 IF THEY DON'T, THEY'RE GEARING UP RIGHT NOW.
11 THEY'VE PROMISED US RIGHT NOW. IT'S PLAIN IF HEARST IS
12 PROHIBITED FROM BUYING THE CHRONICLE, WE'RE GOING TO SEE
13 COMPETITION. THAT IS PLAIN AS DAY. AND, AND IT'S THAT WHICH
14 WILL PRESERVE BOTH THE PRESERVATION ACT AND THE ANTITRUST LAWS.
15 THAT'S HOW IMPORTANT THIS IS.
16 AND THE NOTION THAT THEY COULD CUT THIS OFF AND THAT
17 THEY COULD MAKE THE KINDS OF ARRANGEMENTS THEY TRIED TO MAKE OF
18 SHARING IN THE MONEY EVEN THOUGH THEY SHUT DOWN THEIR OWN
19 OPERATION, OR SHUTTING DOWN THEIR OPERATION IN A PHONY DEAL
20 LIKE THEY'VE DONE IN THIS CASE AND IF THAT IS ALLOWED, THEN
21 WHAT WE'RE GOING TO HAVE IS A MONOPOLY SITUATION.
22 THEY'VE PROMISED HIGHER PRICES, FEWER PAPERS, BUT
23 THEY HAVE ALSO PROMISED THE OPPOSITE. AND IN PROMISING THE
24 OPPOSITE, THAT'S WHAT WE THINK -- THAT'S WHERE THE COURT'S
25 DECISION IS GOING TO HAVE SUCH A MAJOR IMPACT.
2379
OPENING ARGUMENT \ ALIOTO
1 AND TAKE THEM AT THEIR WORD ON THAT ONE, JUDGE.
2 THIS TIME BELIEVE THEM THAT THEY ARE GOING TO COMPETE, THAT THE
3 PRICES ARE GOING TO BE LOWER, AS THEY SAY, THAT THEY'RE GOING
4 TO IMPROVE THEIR PAPERS, THAT THEY'RE GOING TO HIRE PEOPLE
5 INSTEAD OF FIRE PEOPLE.
6 THAT'S WHAT COMPETITION IS ABOUT. THAT'S WHAT THIS
7 SPECIAL EXEMPTION WAS ALL ABOUT. AND I WOULD RESPECTFULLY
8 SUBMIT IF IT WERE ANYTHING OTHER THAN PROHIBITING HEARST FROM
9 BUYING THE CHRONICLE, THAT IT WOULD BE A FRUSTRATION OF BOTH OF
10 THOSE LAWS; AND I THINK THAT THE PEOPLE WILL DEFINITELY BENEFIT
11 AND SO WILL HEARST, ULTIMATELY SO WILL HEARST.
12 LET HEARST MAKE A WORLD CLASS PAPER OUT OF ITS
13 EXAMINER. I AM SURE THAT WILLIAM RANDOLPH HEARST WOULD HAVE
14 REPUDIATED THE TESTIMONY OF MR. BENNACK ABOUT THE EXAMINER NOT
15 BEING A WORLD CLASS PAPER. AND WHEN HE WAS ASKED, "CAN YOU
16 IDENTIFY ONE," HE SAID, "WELL, MAYBE THE HOUSTON CHRONICLE,"
17 GIVE ME A BREAK.
18 THEY WOULD -- I THINK IT WILL BE GREAT FOR
19 EVERYBODY. I THINK THAT THAT WILL HAPPEN. I THINK IT'S
20 PROBABLE BECAUSE THEY SAID SO.
21 THANK YOU VERY MUCH, YOUR HONOR.
22 THE COURT: ALL RIGHT. WE'LL TAKE A BREAK FOR 10
23 MINUTES AND THEN LET'S HEAR FROM MR. ROSCH.
24 (RECESS TAKEN AT 11:30 A.M.)
25 (PROCEEDINGS RESUMED AT 11:45 A.M.)
2380
CLOSING ARGUMENT \ ROSCH
1 THE COURT: I WANT TO HEAR FROM MR. ROSCH.
2 MR. HALLING: VERY WELL, YOUR HONOR. WE HAD
3 DISCUSSED THE ORDER AMONG THE PARTIES.
4 THE COURT: I UNDERSTAND. I UNDERSTAND.
5 MR. ROSCH, YOU DON'T HAVE, PARDON THE EXPRESSION, A
6 DOG IN THIS PART OF THE FIGHT. WHAT'S YOUR ANSWER TO THE
7 QUESTION ABOUT NEGATIVE PRICE CONTRACT THAT I ASKED MR. ALIOTO?
8 CLOSING ARGUMENT
9 MR. ROSCH: THERE'S NO AUTHORITY THAT I KNOW OF,
10 YOUR HONOR, NONE.
11 THE COURT: IT NEVER HAPPENED BEFORE?
12 MR. ROSCH: WELL, AT LEAST THERE'S NO CASE LAW THAT
13 I'M AWARE OF WHICH HAS ADDRESSED THE QUESTION.
14 THE COURT: SO ALL WE HAVE IN TERMS OF THE ECONOMIC
15 IMPACT OF THAT CONTRACT IN THIS RECORD IS DR. ROSSE'S
16 TESTIMONY; IS THAT CORRECT?
17 MR. ROSCH: I BELIEVE THAT IS CORRECT, YOUR HONOR.
18 THE COURT: ALL RIGHT. AND HE TESTIFIED THAT THE
19 EFFECT, THE ECONOMIC EFFECT OF THAT TRANSACTION IS A
20 DEAD-WEIGHT LOSS TO SOCIETY. IT'S ALLOCATIVELY INEFFICIENT.
21 IT IMPAIRS COMPETITION. IS THERE ANY CONTRARY EVIDENCE?
22 MR. ROSCH: NO, I DON'T THINK THERE IS ANY CONTRARY
23 EVIDENCE, YOUR HONOR, BUT I DO BELIEVE THERE'S MERIT; AND AS
24 THE COURT KNOWS, I REALLY DID NOT WANT TO PICK UP THE CUDGELS
25 WITH RESPECT TO THE FANG TRANSACTION BECAUSE I DON'T HAVE A DOG
2381
CLOSING ARGUMENT \ ROSCH
1 IN THAT HUNT.
2 THE COURT: YOU DON'T HAVE A DOG IN THIS FIGHT.
3 THAT'S WHY I'M ASKING YOU THIS QUESTION.
4 MR. ROSCH: BUT I WILL SAY THIS: I THINK THERE'S
5 MERIT IN WHAT THE FANGS HAVE SAID IN THAT RESPECT, WHICH IS
6 THAT ALLOCATIVE EFFICIENCY IS KIND OF THE SAFETY NET. IN OTHER
7 WORDS, IN THE FIRST INSTANCE THERE HAS TO BE A DEMONSTRATION
8 THAT THE TRANSACTION WHICH IS BEING ATTACKED IS GOING TO RESULT
9 IN A REDUCTION IN COMPETITION.
10 THE WAY THAT ALLOCATIVE EFFICIENCY WORKS, I BELIEVE,
11 UNDER THE LAW, IS THAT EVEN IF THERE IS SUCH A REDUCTION, THERE
12 IS NOT A VIOLATION UNLESS THE TRANSACTION ALSO HARMS ALLOCATIVE
13 EFFICIENCY.
14 SO THAT I DO BELIEVE THAT HARM TO THE --
15 THE COURT: EVEN IF THERE'S A REDUCTION IN OUTPUT,
16 IS THAT WHAT YOU'RE SAYING?
17 MR. ROSCH: WELL, EVEN IF THERE'S A REDUCTION IN
18 COMPETITION OR, YES, OR A REDUCTION IN OUTPUT, THAT THAT DOES
19 NOT CONSTITUTE AN ANTITRUST VIOLATION UNLESS IT ALSO HARMS
20 ALLOCATIVE EFFICIENCY.
21 THE COURT: BUT HERE WE HAVE, AS FAR AS WE CAN
22 DETERMINE, AN UNCONTRADICTED RECORD STATING THAT THE FANG
23 TRANSACTION WILL HARM ALLOCATIVE EFFICIENCY.
24 MR. ROSCH: THAT'S CORRECT. I BELIEVE THAT'S RIGHT.
25 THE COURT: HOW CAN ONE DRAW ANY CONCLUSION FROM
2382
CLOSING ARGUMENT \ ROSCH
1 THAT OTHER THAN THAT THE TRANSACTION IMPAIRS COMPETITION?
2 MR. ROSCH: WELL, AS I SAY, I THINK THE FIRST ISSUE
3 IS WHETHER OR NOT IT DOES IMPAIR COMPETITION BY REDUCING THE
4 NUMBER OF COMPETITORS.
5 THE COURT: IF IMPAIRMENT OF COMPETITION INEVITABLY
6 LEADS TO ALLOCATIVE INEFFICIENCY, WHY, THEREFORE, CAN YOU NOT
7 CONCLUDE WHEN THERE IS UNCONTRADICTED EVIDENCE OF ALLOCATIVE
8 INEFFICIENCY THAT COMPETITION HAS BEEN IMPAIRED AND REDUCED?
9 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
2383
CLOSING ARGUMENT \ ROSCH
1 MR. ROSCH: BECAUSE IN THE FIRST INSTANCE I BELIEVE
2 THAT THERE HAS TO BE A SHOWING THAT THERE WILL BE A REDUCTION
3 IN THE NUMBER OF COMPETITORS OR IN OUTPUT.
4 THE COURT: WELL, NOW, WAIT A MINUTE. YOU AT THE
5 VERY OUTSET OF THE TRIAL PUT ON THE BOARD THE OLD THEORY OF
6 ANTITRUST, WHICH WAS REDUCTION IN COMPETITORS, AND WHAT YOU
7 DESCRIBED AS THE NEW THEORY OF ANTITRUST, WHICH FOCUSES ON
8 ALLOCATIVE EFFICIENCY.
9 MR. ROSCH: IT DOES, IT DOES, BUT I DON'T THINK --
10 THE COURT: SO --
11 MR. ROSCH: EXCUSE ME.
12 THE COURT: SO SHOULD WE JUST SIMPLY IGNORE THE
13 ISSUE OF THE NUMBER OF COMPETITORS? WE KNOW INSTANCES IN WHICH
14 THE NUMBER OF COMPETITORS HAVE BEEN REDUCED, AND YET THE COURTS
15 HAVE FOUND THAT THAT IS ALLOCATIVELY EFFICIENT AND HAVE
16 APPROVED THE TRANSACTION.
17 MR. ROSCH: RIGHT.
18 THE COURT: WHY DOESN'T THAT APPLY HERE?
19 MR. ROSCH: THAT'S -- I THINK IT DOES APPLY HERE.
20 THE COURT: IT DOES APPLY.
21 MR. ROSCH: I THINK IT DOES APPLY HERE, AND THE
22 REASON IT DOESN'T --
23 THE COURT: AND, THEREFORE, ISN'T THE EFFICIENT
24 SOLUTION BASED ON THIS RECORD THE ELIMINATION OF THE EXAMINER
25 RATHER THAN PROPPING IT UP AND KEEPING IT ALIVE WITH THIS
2384
CLOSING ARGUMENT \ ROSCH
1 $66 MILLION SUBSIDY OVER A THREE-YEAR PERIOD OF TIME, A SLOW
2 DEATH, SO THE EVIDENCE WOULD SUGGEST -- ISN'T THE
3 CO-COMPETITIVE OUTCOME IN JOINING THE FANG TRANSACTION, UNLESS
4 THE FANGS OR SOMEONE ELSE ARE WILLING TO COME FORWARD AND PAY A
5 FAIR MARKET PRICE FOR THE ASSETS? ISN'T THAT GOING TO IMPROVE
6 COMPETITION WHEREAS WE KNOW THAT THE FANG TRANSACTION IS NOT
7 GOING TO DO SO?
8 MR. ROSCH: WELL, YOUR HONOR, IF I MAY, I WOULD LIKE
9 TO REALLY GO BACK TO REBEL OIL, WHICH I THINK GETS IT RIGHT.
10 AND WHAT IT SAID WAS THAT IN THE FIRST INSTANCE THERE MUST BE A
11 SHOWING THAT THERE WILL BE A REDUCTION IN THE NUMBER OF
12 COMPETITORS. AND REALLY IT WAS TALKING ABOUT OUTPUT THERE.
13 WE DON'T HAVE THAT HERE, I DON'T BELIEVE.
14 THE COURT: WELL . . .
15 MR. ROSCH: INDEED, IN THIS PARTICULAR INSTANCE I
16 JUST DON'T THINK THERE IS ANY RECORD EVIDENCE OF THAT.
17 IF THAT CIRCUMSTANCE EXISTS, THEN REBEL OIL SAYS
18 THAT DOESN'T MAKE ANY DIFFERENCE. AND HERE IS WHERE THE
19 ALLOCATIVE EFFICIENCY OR CHICAGO SCHOOL DOCTRINE OF ECONOMIC
20 ANTITRUST PLAYS INTO THE -- INTO THE -- INTO THE MIX. IT SAYS
21 EVEN IF THERE IS A REDUCTION IN THE NUMBER OF COMPETITORS, THAT
22 CANNOT BE TREATED AS AN ANTITRUST VIOLATION IF IT DOESN'T HARM
23 ALLOCATIVE EFFICIENCY.
24 SO I WOULD CERTAINLY AGREE -- AND I DID AGREE DURING
25 THE TRIAL, ACTUALLY. YOU DIDN'T ASK ME TO AGREE WITH YOU, BUT
2385
CLOSING ARGUMENT \ ROSCH
1 I DID REPRESENT TO YOU DURING THE TRIAL THAT I FELT THAT THE
2 SUBSIDY CREATED ALLOCATIVE INEFFICIENCY. I STAND BY THAT VIEW.
3 THAT IS MY VIEW.
4 BEYOND THAT I STAND BY THE VIEW THAT FROM AN
5 ECONOMIC STANDPOINT IT IS MUCH MORE EFFICIENT FOR THE RESOURCES
6 THAT WOULD BE DEVOTED TO THAT $60 MILLION -- $66 MILLION
7 SUBSIDY TO BE DEVOTED TO STRENGTHENING THE CHRONICLE.
8 THE COURT: ALL RIGHT. AND CAN'T YOU CONCLUDE THAT
9 THE ONLY PURPOSE FOR WHICH THAT SUBSIDY IS BEING PAID IS TO
10 CURRY FAVOR WITH THE DEPARTMENT OF JUSTICE AND LOCAL POLITICAL
11 AUTHORITIES?
12 MR. ROSCH: I --
13 THE COURT: THERE CAN BE NO OTHER RATIONAL
14 EXPLANATION FOR IT, CAN THERE?
15 MR. ROSCH: AGAIN, YOUR HONOR, IT'S NOT SOMETHING
16 THAT I, FRANKLY, REACHED A CONCLUSION ABOUT BECAUSE WE DON'T
17 HAVE TO ON OUR SIDE OF THE FENCE.
18 THE COURT: I UNDERSTAND YOU DON'T HAVE TO.
19 MR. ROSCH: I WILL SAY ONE MORE THING ABOUT THE FANG
20 TRANSACTION, IF THE COURT WILL INDULGE ME, AND THAT IS IT IS
21 VERY DIFFICULT TO SEE HOW MR. REILLY DOES HAVE STANDING TO
22 ATTACK THAT TRANSACTION. BUT, AGAIN, THAT'S MR. BALABANIAN'S
23 ARGUMENT, NOT MINE. BUT THAT IS A SEPARATE ISSUE WHICH, OF
24 COURSE --
25 THE COURT: WELL, LET'S TALK ABOUT THAT.
2386
CLOSING ARGUMENT \ ROSCH
1 IS THE LEARNING ON THIS ISSUE, WHAT THE SUPREME
2 COURT HELD IN THE CARGO CASE? IS THAT WHERE I SHOULD LOOK TO
3 TEST THE PLAINTIFF'S STANDING IN THIS CASE?
4 MR. ROSCH: YES. THAT'S THE SHORT -- THAT'S THE
5 SHORT AND SUFFICIENT ANSWER.
6 THE COURT: OKAY.
7 MR. ROSCH: IT'S THE CARGO CASE. THAT HAS BEEN
8 INCORPORATED, AS WELL, IN LUCAS AUTOMOTIVE IN THE NINTH
9 CIRCUIT.
10 THE COURT: OKAY.
11 MR. ROSCH: AND I SHOULD ADD THAT IT IS ALSO --
12 THE COURT: YOU MEAN, THE NINTH CIRCUIT FOR FOLLOW FROM THE EXISTENCE OF AN ANTITRUST
16 VIOLATION SUCH AS AN OUTPUT RESTRICTION. INJURY
17 IN FACT MUST BE PROVEN AS A SEPARATE ELEMENT OF
18 AN ACTION PURSUANT TO SECTION 4 OF THE CLAYTON
19 ACT."
20 AND UNDER CARGO AND UNDER LUCAS AUTOMOTIVE THE ONLY
21 DIFFERENCE BETWEEN SECTION 4 AND SECTION 16 IS THAT UNDER
22 SECTION 16 THAT THREATENED ECONOMIC -- THAT INJURY MAY BE
23 THREATENED RATHER THAN ACTUAL.
24 THE COURT: BUT THERE STILL MUST BE A SHOWING BOTH
25 OF INJURY IN FACT AND COMPETITIVE INJURY OR AN ANTITRUST
2388
CLOSING ARGUMENT \ ROSCH
1 INJURY.
2 MR. ROSCH: THAT'S CORRECT. THAT'S CORRECT.
3 THE COURT: WELL, I DON'T WANT TO PUT WORDS IN YOUR
4 MOUTH, BUT I GATHER WHAT YOU WOULD BE COMFORTABLE WITH IS THAT
5 THE PLAINTIFF SHOWED ANTITRUST INJURY BUT NOT INJURY IN FACT.
6 MR. ROSCH: CLEARLY NOT INJURY IN FACT, YOUR HONOR,
7 CLEARLY NOT INJURY IN FACT.
8 THE COURT: WELL, I WON'T PRESS YOU ANY FURTHER.
9 MR. ROSCH: YOUR HONOR --
10 THE COURT: WELL, NOW, LET'S TALK ABOUT SOMETHING
11 THAT IS OF INTEREST TO YOU, AND THAT'S THE 60-MILE RESTRICTION
12 AND THE RIGHT OF FIRST REFUSAL.
13 MR. ROSCH: YES, YOUR HONOR.
14 THE COURT: HAS ANY EFFORT BEEN MADE BY HEARST TO
15 ENFORCE EITHER OF THOSE PROVISIONS?
16 MR. ROSCH: NOT THAT I AM AWARE OF, YOUR HONOR.
17 I DO HAVE SOME THINGS I WOULD LIKE TO SAY ABOUT THAT
18 IN LIGHT OF WHAT MR. REILLY SAID ABOUT IT THIS MORNING.
19 THE COURT: MR. REILLY? MR. ALIOTO?
20 MR. ROSCH: I PREFER TO REFER TO THE PLAINTIFF, BUT
21 I WILL BE GLAD TO REFER TO MR. ALIOTO.
22 WE ARE NO CHAMELEONS ON THAT POINT. WE HAVE -- WE
23 TOOK THE POSITION, AS MS. GREENTHAL SAID WHEN WE WENT TO THE
24 MARKET, THAT WE BELIEVED THAT THOSE PROVISIONS -- AND I AM
25 TALKING SPECIFICALLY ABOUT THE 60-MILE PROVISION -- THAT THAT
2389
CLOSING ARGUMENT \ ROSCH
1 PROVISION WAS NOT EXEMPT UNDER THE NEWSPAPER PRESERVATION ACT,
2 THAT IT WOULD BE GOVERNED BY REGULAR, ORDINARY ANTITRUST
3 DOCTRINE AND STATE LAW. THAT'S THE POSITION THAT WE TOOK WHEN
4 WE RESPONDED TO THE COURT'S QUESTION. WE HAVE BEEN COMPLETELY
5 CONSISTENT ON THAT POINT.
6 SECONDLY --
7 THE COURT: WELL, INCONSISTENCY IN LAWYERING IS NOT
8 THE WORST SIN.
9 MR. ROSCH: THAT'S CERTAINLY TRUE. THAT'S CERTAINLY
10 TRUE.
11 SECONDLY, THOUGH, I DON'T THINK THERE IS A PARTICLE
12 OF EVIDENCE IN THIS RECORD THAT THE PRESENCE OF EITHER OF THOSE
13 PROVISIONS HAD ANY IMPACT ON THE SALE PRICE. MR. RITTER, THE
14 GANNETT PEOPLE -- THOSE FOLKS ARE NOT BAREFOOT BOYS, EITHER.
15 AND THEY HAVE THEIR OWN LAWYERS. THEY COULD EVALUATE WHETHER
16 OR NOT THERE WAS AN ANTITRUST PROBLEM. AND, EVEN IF THERE WAS,
17 THEY CAN EVALUATE WHETHER OR NOT THERE WOULD BE ANY DAMAGE THAT
18 HEARST COULD CLAIM BY VIRTUE OF THEIR HAVING IT INSTEAD OF SOME
19 OTHER PURCHASER.
20 SO I DON'T THINK THERE WAS -- MS. GREENTHAL
21 TESTIFIED SHE DIDN'T THINK THAT THERE WAS ANY IMPACT ON THE
22 TRANSACTION AS A RESULT OF THOSE CLAUSES, AND WITH RESPECT TO
23 THAT I DON'T BELIEVE THAT THERE IS ANY EVIDENCE AT ALL TO THE
24 CONTRARY.
25 THE COURT: BUT YOU WOULD AGREE, I GATHER, THAT
2390
CLOSING ARGUMENT \ ROSCH
1 THOSE PROVISIONS ARE NOT PROTECTED BY THE PRESERVATION ACT?
2 MR. ROSCH: WE CERTAINLY DO, YOUR HONOR. THAT IS
3 OUR POSITION.
4 THIRD, I REALLY WONDER WHAT POSSIBLE STANDING
5 MR. REILLY COULD HAVE TO ATTACK THOSE PROVISIONS. I THINK THE
6 COURT'S QUESTIONS WERE QUITE POINTED AND ACCURATE. IF AND TO
7 THE EXTENT AN OX IS BEING GORED BY THOSE PROVISIONS, IT'S OUR
8 OX, NOT MR. REILLY'S OX. AND IN FACT --
9 THE COURT: WELL, BUT MR. ALIOTO'S THEORY IS -- GOES
10 BEYOND THAT. AND THAT IS THE THEORY THAT HE OUTLINED AT THE
11 VERY END OF HIS PRESENTATION; NAMELY, THAT HEARST IS TAKING
12 ADVANTAGE OF THE EXEMPTION WHICH IT HAS ENJOYED FOR 35 YEARS
13 UNDER THE JOINT OPERATING AGREEMENT TO PUT ITSELF INTO A
14 FAVORED POSITION IN ACQUIRING THE CHRONICLE, A POSITION WHICH
15 NO OTHER POTENTIAL PURCHASER ENJOYS.
16 WHY SHOULD THE COURT PERMIT AN EXEMPTION FROM THE
17 ANTITRUST LAWS TO BE USED, ESSENTIALLY, AS A LEVER IN A
18 TRANSACTION BY ONE OF THESE TWO PARTICIPANTS? THAT'S HIS
19 ARGUMENT.
20 MR. ROSCH: THAT'S HIS ARGUMENT, BUT IT FAILS FOR
21 TWO REASONS. THE FIRST IS THE COURT DOES HAVE VERY SUBSTANTIAL
22 POWERS. BUT IT ONLY HAS THE POWERS THAT GO TO THE EXTENT THAT
23 THERE IS STANDING ON MR. REILLY'S PART TO MAKE A COMPLAINT.
24 AND HE WAS NOT ABLE TO IDENTIFY ANY INJURY THAT
25 MR. REILLY WOULD SUFFER AS A RESULT OF THE EXAMINER GETTING
2391
CLOSING ARGUMENT \ ROSCH
1 THIS PAPER, QUOTE, "ON THE CHEAP," END QUOTE. THERE IS NO
2 STANDING FOR HIM TO MAKE THAT ATTACK AT ALL.
3 AND, SECONDLY, IF THERE IS ABSOLUTELY NO EVIDENCE OF
4 IMPACT OF THOSE PROVISIONS, THEN IT CAN'T BE SAID, I WOULD
5 RESPECTFULLY SUGGEST, THAT THERE IS ANY BASIS FOR THE COURT
6 EXERCISING ANY KIND OF POWER WITH RESPECT TO THEM.
7 AND, INDEED, WITH REGARD -- WHEN IT COMES TO
8 COMPETITION, IT'S VERY DIFFICULT TO SEE HOW COMPETITION WOULD
9 HAVE BEEN FURTHERED AS A RESULT OF SOMEBODY PAYING A HIGHER
10 PRICE FOR THE CHRONICLE THAN DID THE HEARSTS AND, AS A RESULT,
11 HAVE FEWER RESOURCES LEFT OVER IN ORDER TO DEVOTE TO THE
12 PUBLICATION OF THE PAPER. IT'S JUST VERY DIFFICULT TO FOLLOW
13 THE LOGIC OF THAT ARGUMENT.
14 THE COURT: WELL, DOESN'T THAT ALSO APPLY TO THE
15 HEARST/FANG TRANSACTION?
16 MR. ROSCH: WELL, I HAVE JUST INDICATED THAT FROM AN
17 ALLOCATIVE EFFICIENCY STANDPOINT, YOUR HONOR, I BELIEVE IT
18 DOES.
19 THE COURT: ALL RIGHT.
20 MR. ROSCH: NOW, YOUR HONOR, REALLY, THE FIRST THING
21 I HAVE TO DO -- AND I SAY THAT -- I DON'T HAVE TO DO IT BUT I
22 CERTAINLY WANT TO DO IT. I WANT TO JOIN MR. ALIOTO IN THANKING
23 THE COURT FOR THE TIME AND EFFORT THAT THE COURT HAS PUT INTO
24 THIS MATTER AND ALSO FOR WHAT I SAID BEFORE, THE EXTRAORDINARY
25 PRIORITY THAT YOU HAVE GIVEN TO IT. IT IS MUCH APPRECIATED BY
2392
CLOSING ARGUMENT \ ROSCH
1 THE PEOPLE ON THE DEFENSE SIDE AS WELL AS ON THE PLAINTIFF'S
2 SIDE.
3 SECONDLY, I SHOULD MAKE IT CLEAR THAT MY CLIENT NOW
4 KNOWS WHAT IT'S LIKE TO LIVE BETWEEN THE HATFIELDS AND THE
5 MCCOYS. I WAS ABOUT AT ONE POINT TO SAY THAT BETWEEN THE
6 CAPULETS AND THE MONTAGUES, BUT I DON'T THINK THAT THERE IS ANY
7 LOVE LOST BETWEEN THE OTHER PARTIES AT ALL. AND SO I THINK I
8 WILL STICK WITH THE HATFIELDS AND THE MCCOYS.
9 MR. REILLY HAS FIRED A LOT OF SHOTS AT THE HEARSTS
10 AND AT THE FANGS, BUT VIRTUALLY NONE OF THEM HAVE BEEN DIRECTED
11 AT US. I APPRECIATE THAT. I APPRECIATE THE FACT THAT WE ARE
12 BARELY MENTIONED IN HIS POST-TRIAL FINDINGS, BUT THE FACT OF
13 THE MATTER IS THAT THE HEARSTS AND THE FANGS HAVE RETURNED
14 MR. REILLY'S FIRE. AND EVEN THOUGH THE SHELLS HAVEN'T BEEN
15 DIRECTED AT US, THERE IS A REAL RISK THAT WE ARE GOING TO GET
16 HIT IN THE CROSSFIRE.
17 SO I AM A LITTLE BIT RELUCTANT TO TAKE MY HEAD AND
18 LIFT IT OUT OF THE TRENCHES, BUT I THINK I HAVE TO DO SO
19 BECAUSE THERE ARE A FEW MATTERS THAT I WOULD LIKE TO COVER WITH
20 THE COURT THAT REALLY DO MATTER TO THE CHRONICLE. AND THEY ARE
21 STANDING. I WOULD LIKE TO REVISIT STANDING FOR A MOMENT. THE
22 SECOND IS FAILING COMPANY. THE THIRD IS THE RELEVANT MARKET
23 AND THE FOURTH IS LESSENING OF COMPETITION.
24 I WOULD LIKE TO SAY A FEW THINGS ABOUT EACH OF THOSE
25 MATTERS BECAUSE MR. REILLY IS ASKING YOU TO MAKE NEW LAW WITH
2393
CLOSING ARGUMENT \ ROSCH
1 RESPECT TO EACH OF THEM, AND I SUGGEST TO YOU THAT IT IS VERY
2 BAD LAW.
3 WITH RESPECT TO STANDING, MR. REILLY IN HIS
4 POST-TRIAL BRIEF ASKED YOU TO TREAT HIM LIKE A STATE. HE
5 SAID -- AND I AM QUOTING HIM NOW:
6 "PLAINTIFF IS ACTING AS A PRIVATE ATTORNEY
7 GENERAL BY DEFAULT IN PLACE OF FEDERAL, STATE
8 AND LOCAL AUTHORITIES WHOSE ABSENCE IS BOTH
9 CONSPICUOUS AND SUSPECT."
10 I SUGGEST TO THE COURT THAT THAT'S JUST COLOSSAL
11 ARROGANCE. MR. REILLY IS NOT A STATE, HE IS NOT A STATE
12 ATTORNEY GENERAL, AND HE IS NOT ENTITLED TO BE TREATED FOR
13 STANDING PURPOSES AS ANYTHING OTHER THAN AN INDIVIDUAL. AND
14 THEY ARE QUITE DIFFERENT.
15 STATES HAVE THE AUTHORITY TO SEEK INJUNCTIVE RELIEF
16 AGAINST ANTITRUST VIOLATIONS WITHOUT SHOWING INJURY TO
17 ANYONE'S -- THREATENED INJURY TO ANYONE'S BUSINESS OR PROPERTY.
18 THAT HAS BEEN CLEAR SINCE GEORGIA VS. PENNSYLVANIA RAILROAD, A
19 1945 CASE THAT I KNOW THE COURT IS FAMILIAR WITH. AS THE
20 SUPREME COURT SAID IN THAT CASE, QUOTE:
21 "THESE ARE MATTERS OF GRAVE PUBLIC CONCERN
22 IN WHICH GEORGIA HAS AN INTEREST APART FROM THAT
23 OF PARTICULAR INDIVIDUALS WHO MAY BE AFFECTED."
24 AND I AM QUOTING THE COURT AT 324 AT 450 AND 451.
25 NOW, INDIVIDUALS LIKE MR. REILLY, ON THE OTHER HAND,
2394
CLOSING ARGUMENT \ ROSCH
1 HAVE TO SHOW THAT THEY ARE THREATENED WITH INJURY TO THEIR
2 BUSINESS OR PROPERTY OR, IN OTHER WORDS, THAT THEY ARE
3 THREATENED -- THEY HAVE TO SHOW A THREAT, THAT THEY ARE
4 THREATENED WITH ECONOMIC INJURY. THAT'S CARGO, THAT'S LUCAS
5 AUTOMOTIVE AND THAT'S MAHAFFIE.
6 AND I SUGGEST TO YOUR COURT -- TO THE COURT THAT IF
7 THAT STANDING REQUIREMENT, THE INJURY IN FACT STANDING
8 REQUIREMENT, ISN'T RIGOROUSLY ENFORCED, A PRIVATE PLAINTIFF
9 COULD USE AN ANTITRUST CASE AS A VEHICLE TO SETTLE OLD SCORES
10 AND VILIFY ENEMIES, AND THAT WOULD BE VERY BAD LAW.
11 ON THE FAILING FIRM DOCTRINE, MR. REILLY HAS SAID IN
12 HIS POST-TRIAL FILINGS THAT THE EXAMINER CAN'T BE CONSIDERED A
13 FAILING FIRM FIRST BECAUSE THE JOA IS MAKING MONEY AND, SECOND,
14 BECAUSE THE EXAMINER ISN'T BEING ACQUIRED BY HEARST.
15 THAT, I RESPECTFULLY SUGGEST, IS CONTRARY TO THE
16 CASE LAW.
17 THE COURT: DID YOU SAY THAT CORRECTLY?
18 MR. ROSCH: THAT THE EXAMINER IS NOT BEING ACQUIRED
19 BY HEARST, YES.
20 THE COURT: THAT'S --
21 MR. ROSCH: THAT'S WHAT THEY -- THAT'S THE POSITION
22 THEY TAKE, THAT IN ORDER FOR THE FAILING FIRM -- OR FAILING
23 ENTERPRISE DOCTRINE TO APPLY, THE EXAMINER HAD TO BE THE --
24 THE COURT: WELL, ISN'T THE ARGUMENT -- LET ME SEE
25 HOW I INTERPRET THAT ARGUMENT.
2395
CLOSING ARGUMENT \ ROSCH
1 MR. ROSCH: YES.
2 THE COURT: THAT -- THAT MR. ALIOTO IS SAYING THAT
3 THE FAILING COMPANY DOCTRINE DOES NOT APPLY BECAUSE IT IS NOT
4 THE CHRONICLE THAT IS THE FAILING NEWSPAPER.
5 MR. ROSCH: THAT'S CORRECT. THAT'S ANOTHER WAY TO
6 PUT IT. THAT IS ANOTHER WAY TO PUT IT.
7 THE COURT: OKAY.
8 MR. ROSCH: BOTH OF THOSE PREMISES I SUGGEST, YOUR
9 HONOR, ARE CONTRARY TO THE CASE LAW.
10 WITH RESPECT TO THE FIRST ONE, THAT YOU LOOK TO THE
11 VIABILITY OF THE JOA AND NOT -- AND NOT THE VIABILITY OF THE
12 EXAMINER WITHIN THE JOA, I THINK THE ANSWER TO THAT IS IT CAN
13 BE FOUND IN JUDGE CHESNEY'S DECISION IN THE SUTTER HEALTH CASE
14 JUST A COUPLE OF MONTHS AGO. IN THAT CASE SUTTER, WHICH IS A
15 PERFECTLY VIABLE ENTERPRISE, CLAIMED THAT ONE OF ITS UNITS, ONE
16 OF ITS HOSPITALS, WAS A FAILING ENTERPRISE; NAMELY, ALTA
17 BATES -- OR NOT ALTA BATES BUT IT WAS THE TWO THAT ARE UP ON
18 PILL HILL OVER IN OAKLAND.
19 AND SHE SAID -- AND I THINK SHE IS ABSOLUTELY
20 CORRECT ABOUT THIS -- THAT JUST BECAUSE SUTTER IS NOT FAILING
21 DOESN'T MEAN THAT THE FAILING ENTERPRISE DOCTRINE DOESN'T
22 APPLY. AND SHE DID APPLY IT IN THAT CASE.
23 I THINK THAT THAT IS A CORRECT STATEMENT OF THE LAW.
24 WITH RESPECT TO WHETHER OR NOT FOR THE DOCTRINE TO
25 EXIST THE FAILING ENTERPRISE NEED BE ACQUIRED INSTEAD OF
2396
CLOSING ARGUMENT \ ROSCH
1 PROPERTY OF THE ACQUIRER, I THINK THE -- AS -- AS PLAINTIFFS
2 HAVE ADMITTED IN THEIR CLOSING BRIEF, THE ONLY CASE THAT IS ON
3 POINT IN THAT REGARD, THE M.P.M. CASE, HAS HELD JUST THE
4 CONTRARY.
5 BUT MORE FUNDAMENTALLY THAN THAT, YOUR HONOR -- AND
6 THIS GETS BACK TO ALLOCATIVE EFFICIENCY -- AS GENERAL BAXTER
7 MADE CLEAR BACK IN 1982 WHEN HE WAS ADDRESSING THAT ST. LOUIS
8 JOA SITUATION, THE FAILING FIRM DOCTRINE IS REALLY NOTHING MORE
9 THAN A PARTICULAR APPLICATION OF THE DOCTRINE OF ALLOCATIVE
10 EFFICIENCY. IT IS ESSENTIALLY HOLDING THAT WHERE THE FIRM IS
11 FAILING -- WHERE THE ENTERPRISE IS FAILING, THAT THE RESOURCES
12 ARE BETTER DEVOTED TO ENTERPRISES THAT CONSUMERS ARE SUPPORTING
13 RATHER THAN THE FAILING ENTERPRISE.
14 AND IN THAT RESPECT I WOULD SUGGEST TO THE COURT
15 THAT GENERAL BAXTER'S ANALYSIS WAS A PRECURSOR OF WHAT WE READ
16 IN THE NINTH CIRCUIT'S DECISION IN REBEL OIL TODAY.
17 NOW, UNDER THAT ANALYSIS IT SHOULD MAKE ABSOLUTELY
18 NO DIFFERENCE, NUMBER ONE, WHETHER THE FAILING ENTERPRISE IS A
19 PART OF A VIABLE ENTITY AND, NUMBER TWO, IT ALSO SHOULD MAKE NO
20 DIFFERENCE WHETHER THE FAILING ENTERPRISE IS SOMETHING THAT IS
21 BEING SOLD OR BOUGHT. IN EITHER EVENT ALLOCATIVE EFFICIENCY IS
22 MUCH BETTER SERVED BY HAVING THAT ENTERPRISE CLOSED THAN IT IS
23 BY HAVING IT PROPPED UP AND CONTINUED TO BE RUN.
24 THE COURT: WELL, ISN'T THE EVIDENCE HERE THAT THE
25 EXAMINER PUTS $20 MILLION OF PROFIT IN HEARST'S POCKET EVERY
2397
CLOSING ARGUMENT \ ROSCH
1 YEAR?
2 MR. ROSCH: I BEG TO DIFFER, YOUR HONOR. I DON'T
3 THINK THE EVIDENCE IS THAT AT ALL.
4 IN FACT, I WOULD SUGGEST THAT THE EVIDENCE FROM ALL
5 EIGHT OF -- OR SEVEN -- I BEG YOUR PARDON -- OF MR. REILLY'S
6 EXPERTS IS THAT THE EXAMINER TAKES ABOUT $20 MILLION OUT OF THE
7 JOA PROFITS EVERY YEAR.
8 THE COURT: IT TAKES IT OUT OF THE POCKET OF THE
9 JOA. YOUR CLIENT IS HARMED.
10 MR. ROSCH: MY CLIENT IS HARMED BUT SO IS HEARST
11 BECAUSE IT'S A 50/50 SPLIT. THE UNDENIABLE FACT OF THE MATTER
12 IS THAT THE EXAMINER -- AND THERE WAS NO EVIDENCE AT ALL TO THE
13 CONTRARY. EVERY SINGLE WITNESS WHO TESTIFIED AS TO WHETHER OR
14 NOT THE EXAMINER WAS A FAILING ENTERPRISE TESTIFIED THAT IT WAS
15 SUFFERING TENS OF MILLIONS OF DOLLARS OF LOSS EVERY YEAR AND
16 THAT IT WAS -- THAT WAS NOT LIKELY TO CHANGE.
17 SO --
18 THE COURT: IS THERE ANYTHING THAT PREVENTS THE
19 PARTIES FROM SHUTTING DOWN THE EXAMINER?
20 MR. ROSCH: WELL, I MUST ADMIT, YOUR HONOR, I
21 LISTENED TO THAT COLLOQUY WITH GREAT INTEREST. I CERTAINLY
22 DON'T THINK THAT THERE IS ANYTHING IN THE -- IN THE JOA THAT
23 PREVENTS THEM FROM DOING THAT.
24 THE COURT: WHY DOESN'T IT MAKE SENSE FOR THE
25 PARTIES TO SHUT DOWN THE EXAMINER, INCREASE THE PROFITS OF THE
2398
CLOSING ARGUMENT \ ROSCH
1 JOINT OPERATING AGREEMENT, WORK OUT SOME SORT OF A PROFIT
2 DIVISION BETWEEN NOW AND 2005 AND THEN GO FORWARD?
3 MR. ROSCH: WELL, I WILL GIVE YOU MY ANSWER TO THAT,
4 AND IT'S -- IT MAY WELL BE ONE WITH WHICH HEARST'S ATTORNEYS
5 DISAGREE. AND THEY CAN CERTAINLY SPEAK UP SHOULD THEY DO SO.
6 MY OWN VIEW IS THAT IN ORDER TO DO THAT THE PARTIES
7 WOULD HAVE TO DO WHAT THEY WERE TALKING ABOUT DOING WHEN THEY
8 WERE TALKING ABOUT DOING THAT VERY THING. AND THAT IS I DO
9 BELIEVE THEY WOULD HAVE TO PUT THE EXAMINER UP FOR SALE FIRST.
10 THE COURT: WHY?
11 MR. ROSCH: BECAUSE I DO BELIEVE THAT UNDER THOSE
12 CIRCUMSTANCES THE JOA WOULD NOT PREVENT THEM FROM -- PREVENT
13 THE TRANSACTION FROM BEING ANALYZED UNDER SECTION 7.
14 SO I THINK THAT HEARST WOULD BE OBLIGED TO DO WHAT
15 THEY DID HERE, WHICH IS TO PUT THE EXAMINER UP FOR SALE.
16 THE COURT: ALL RIGHT. BUT --
17 MR. ROSCH: AND TO LET THE MARKET --
18 THE COURT: AND NO ONE COMES FORWARD TO BUY IT.
19 MR. ROSCH: IF THAT'S THE CASE, THEY CAN CLOSE IT
20 WITH IMPUNITY.
21 THE COURT: AND NO ONE CAME FORWARD IN THIS CASE.
22 MR. ROSCH: ABSOLUTELY. ABSOLUTELY.
23 THE COURT: OKAY. SO THEY GO THROUGH THAT EXERCISE.
24 THE PARTIES GO THROUGH THAT EXERCISE. WHY ISN'T RATIONAL
25 BEHAVIOR ON THAT PART TO SHUT DOWN THE EXAMINER, SEE IF ANYBODY
2399
CLOSING ARGUMENT \ ROSCH
1 WANTS TO BUY IT, PRESUMABLY NOBODY WILL AND THEN GO FORWARD AND
2 THEN CONTINUE TO SPLIT ON SOME BASIS THE GREATER PROFITS
3 GENERATED BY THE JOINT OPERATING AGREEMENT?
4 MR. ROSCH: YOUR HONOR, I DON'T KNOW THAT THEY --
5 THAT UNDER THOSE CIRCUMSTANCES IT WOULD BE THE JOINT OPERATING
6 AGREEMENT. I MEAN, MY OWN FEELING IS THAT ONCE THAT
7 TRANSACTION WAS THROUGH, THEN THE PARTIES WOULD NOT BE
8 OPERATING UNDER THE NEWSPAPER PRESERVATION ACT ANY LONGER.
9 THEY WOULD THEN BE OPERATING UNDER A JOINT AGREEMENT. BUT I
10 DON'T THINK IT WOULD BE AN MPA PROTECTED JOINT AGREEMENT.
11 THE COURT: WELL, PERHAPS NOT. BUT NEVERTHELESS IT
12 COULD CONTINUE TO OPERATE AT LEAST UNTIL THE YEAR 2005.
13 MR. ROSCH: AND I THINK THE PARTIES COULD HAVE DONE
14 THAT.
15 THE COURT: AND THAT WOULD BE RATIONAL BEHAVIOR ON
16 THEIR PART.
17 MR. ROSCH: IT CERTAINLY WOULD BE.
18 THE COURT: AND THE EVIDENCE HERE SUGGESTS THAT THAT
19 WOULD HAVE BEEN A MORE PROFITABLE ARRANGEMENT.
20 MR. ROSCH: IT WOULD HAVE BEEN.
21 THE COURT: ALL RIGHT. WHEN --
22 MR. ROSCH: I CAN TELL YOU WHY MY CLIENT DIDN'T DO
23 THAT.
24 THE COURT: ALL RIGHT. TELL ME WHY.
25 MR. ROSCH: MY CLIENT DIDN'T DO THAT BECAUSE A
2400
CLOSING ARGUMENT \ ROSCH
1 DECISION WAS MADE THAT REALLY -- AS TO WHICH THE CHRONICLE
2 ITSELF WAS TANGENTIAL. MY CLIENT MADE THE DECISION -- AND I
3 BELIEVE THE EVIDENCE IS -- IS UNCONTRADICTED ON THIS SCORE THAT
4 THE SHAREHOLDERS OF CHRONICLE PUBLISHING COMPANY WANTED TO
5 LIQUIDATE THE CORPORATION BECAUSE THEY WANTED TO SPREAD OUT
6 THEIR RISK WITH RESPECT TO THE DOLLARS THAT THEY HAD INVESTED
7 IN THE CORPORATION.
8 THEY PREFERRED THAT COURSE RATHER THAN STAYING IN
9 THE JOA OR IN A JOA OF ANY KIND WITH THE HEARSTS.
10 BUT THERE IS NO QUESTION THAT THE PARTIES EXPLORED
11 THAT ALTERNATIVE GOING RIGHT UP UNTIL MID-1999. THAT WAS VERY
12 DEFINITELY BEING EXPLORED AS AN ALTERNATIVE.
13 AND MR. ALIOTO ATTEMPTS TO PUT A SINISTER FACE ON
14 IT, BUT THERE IS ABSOLUTELY NOTHING SINISTER ABOUT IT. THAT
15 WAS A PERFECTLY RATIONAL BUSINESS ALTERNATIVE.
16 THE COURT: WELL --
17 MR. ROSCH: IT WAS A SOLUTION TO THE PROBLEM THAT
18 EXISTED WITH RESPECT TO THE EXAMINER BEING A HUGE DRAG.
19 THE COURT: A PROBLEM THAT EXISTED A LONG TIME
20 BEFORE THE CHRONICLE SHAREHOLDERS DECIDED TO LIQUIDATE THE
21 CORPORATION.
22 MR. ROSCH: THAT'S CORRECT.
23 THE COURT: ALL RIGHT. MR. ALIOTO'S THEORY IS WHEN
24 YOU SEE PEOPLE ACTING IN A WAY THAT IS CONTRARY TO THEIR
25 INTERESTS THAT IS ECONOMICALLY IRRATIONAL, YOU HAVE TO ASK
2401
CLOSING ARGUMENT \ ROSCH
1 YOURSELF WHY. ISN'T THERE SOME SINISTER MOTIVE FOR DOING SO?
2 MR. ROSCH: NO, I DON'T BELIEVE SO.
3 THE COURT: OKAY.
4 MR. ROSCH: I THINK THAT THE -- THAT WHAT THE RECORD
5 SHOWS HERE IS THAT THE PARTIES COULDN'T AGREE ON WHAT THE
6 PROPER DIVISION OUGHT TO BE. THE CHRONICLE WAS THE
7 CHRONICLE'S, AND THE CHRONICLE FELT THAT WERE THEY TO CONTINUE
8 ON BEYOND 2005 WITH HEARST IN ANY KIND OF A DEAL THAT WHAT THEY
9 WERE ENTITLED TO DO WAS TO GET MORE THAN 50 PERCENT OF THE
10 DEAL. AND THE PARTIES SIMPLY COULDN'T AGREE ON WHAT THAT
11 PERCENTAGE OUGHT TO BE.
12 I DON'T THINK THERE IS ANYTHING SINISTER AT ALL
13 ABOUT THAT.
14 THE COURT: WELL, THEY WOULDN'T HAVE HAD TO AGREE TO
15 GO BEYOND 2005, WOULD THEY?
16 MR. ROSCH: WELL, THEY HAD TO -- THEY HAD TO AGREE
17 TO DO SOMETHING BECAUSE THE ASSETS WERE OWNED 50/50. AND
18 HEARST COULD PUT A VALUE ON THOSE ASSETS, WHICH WAS EXTREMELY
19 HIGH. SO HEARST HAD SOME BARGAINING POWER, AS WELL.
20 WHAT YOU HAD HERE WAS TWO NONBAREFOOT BOYS WHO WERE
21 NEGOTIATING WITH ONE ANOTHER AND THEY SIMPLY COULDN'T REACH
22 AGREEMENT AS TO WHAT THE EQUITABLE DIVISION WOULD BE.
23 THE COURT: WELL, YOU'RE --
24 MR. ROSCH: BUT THERE IS NOTHING IRRATIONAL, I WOULD
25 SUGGEST.
2402
CLOSING ARGUMENT \ ROSCH
1 THE COURT: YOUR POSITION IS THAT HEARST WAS IN A
2 BETTER POSITION BECAUSE OF ITS FINANCIAL RESOURCES TO PLAY THE
3 WAITING GAME AND THEY DID.
4 MR. ROSCH: I DON'T KNOW THAT IT'S BECAUSE OF ITS
5 SUPERIOR FINANCIAL RESOURCES, YOUR HONOR. I THINK THAT WHAT IT
6 WAS IN A POSITION TO DO WAS THAT IT HAD HALF THE ASSETS, AND
7 WHAT IT COULD DO IS IT COULD INSIST UPON PAYMENT OF TOP DOLLAR
8 FOR THOSE ASSETS. AND THAT WAS THE NEGOTIATING ROOM THAT THEY
9 HAD.
10 AND I DON'T THINK THAT REALLY HAD ANYTHING TO DO
11 WITH THEIR FINANCIAL POWER. AT LEAST THERE IS NOTHING ON THE
12 RECORD TO SUGGEST THAT THAT'S SO.
13 THE COURT: BUT THEY COULD WAIT. THEY DIDN'T HAVE
14 TO -- THEY DIDN'T FACE, APPARENTLY, THE EXIGENCIES WHICH THE
15 CHRONICLE SHAREHOLDERS DID.
16 MR. ROSCH: I THINK THAT IS CORRECT. CERTAINLY
17 THEIR INCENTIVES, IF YOU WILL --
18 THE COURT: COULD BE LONGER RANGE.
19 MR. ROSCH: I THINK THAT'S PROBABLY RIGHT. AND
20 CERTAINLY THEY WERE NOT THE SAME AS THE CHRONICLE SHAREHOLDERS
21 IN TERMS OF TRYING TO SPREAD THEIR RISK, ET CETERA.
22 WITH RESPECT TO THE RELEVANT MARKET, YOUR HONOR, YOU
23 ARE ASKED TO ADOPT A RELEVANT MARKET THAT IS LIMITED TO DAILY
24 NEWSPAPERS IN SAN FRANCISCO.
25 NOW, MR. ALIOTO DIDN'T DISCUSS THE RELEVANT MARKET
2403
CLOSING ARGUMENT \ ROSCH
1 AT ALL.
2 THE COURT: LET ME -- BEFORE YOU BEGIN YOUR
3 ARGUMENT --
4 MR. ROSCH: YES.
5 THE COURT: -- IS THE RELEVANT MARKET THE SAME FOR
6 BOTH OF THESE CONTRACTS? IS IT THE SAME FOR THE AUGUST '99
7 CONTRACT AND FOR THE MARCH 16, 2000 CONTRACT?
8 MR. ROSCH: I BELIEVE IT IS, YOUR HONOR. I BELIEVE
9 IT IS.
10 THE COURT: WELL, DOES THE MARIN INDEPENDENT JOURNAL
11 COMPETE IN THE SAME MARKET WITH THE CHRONICLE?
12 MR. ROSCH: ABSOLUTELY.
13 THE COURT: IT COMPETES IN PART OF THE MARKET. THE
14 INDEPENDENT --
15 MR. ROSCH: A SECOND MARKET.
16 THE COURT: A SECOND.
17 MR. ROSCH: YES.
18 THE COURT: BUT THE MARIN INDEPENDENT JOURNAL DOES
19 NOT ATTEMPT TO COMPETE IN THE GEOGRAPHIC MARKET THAT THE
20 CHRONICLE ATTEMPTS TO COMPETE IN?
21 MR. ROSCH: IT SELLS NEWSPAPERS OFF THE RACK IN SAN
22 FRANCISCO, IF THAT'S WHAT YOU ARE ASKING. IT DOES NOT SEEK
23 SUBSCRIBERS IN SAN FRANCISCO, THAT'S CORRECT.
24 THE COURT: IT CERTAINLY -- IT DOESN'T GO MUCH
25 FURTHER THAN SAN FRANCISCO, MUCH FURTHER SOUTH.
2404
CLOSING ARGUMENT \ ROSCH
1 MR. ROSCH: I THINK THAT'S CORRECT, AS WELL.
2 THE COURT: AND THE SAME WITH THE EAST BAY
3 NEWSPAPERS AND THESE VARIOUS SUBURBAN NEWSPAPERS.
4 MR. ROSCH: YES, WITH THE EXCEPTION, OF COURSE, OF
5 THE SAN JOSE MERCURY NEWS, WHICH THE EVIDENCE SHOWS IS MOVING
6 INTO SAN FRANCISCO IN A BIG WAY.
7 THE COURT: OKAY. WELL, GIVEN THE INITIAL PRODUCT
8 WHICH FANG HAS DESCRIBED THAT HE INTENDS TO PUBLISH, CAN I
9 CONSIDER THE MARKET FOR PURPOSES OF ANALYZING THE MARCH 2000
10 CONTRACT TO BE THE SAME MARKET THAT I SHOULD ANALYZE THE
11 AUGUST 1999 CONTRACT?
12 MR. ROSCH: YES, I BELIEVE SO. I BELIEVE SO.
13 AND --
14 THE COURT: WHY?
15 MR. ROSCH: WELL, I THINK THERE ARE A COUPLE OF
16 REASONS. ONE OF THEM IS THAT THERE ARE NO BARRIERS WHATEVER TO
17 THESE SUBURBAN NEWSPAPERS MOVING INTO SAN FRANCISCO THE SAME
18 WAY THAT THE SAN JOSE MERCURY NEWS IS DOING. THEY CAN DO IT.
19 IN FACT, THE ECONOMICS THAT WERE DESCRIBED DURING
20 THE COURSE OF THE TRIAL WOULD SUGGEST THAT THEY HAVE INCENTIVES
21 TO DO SO IF THERE IS ANY ATTEMPT TO EXPLOIT THE PEOPLE OF SAN
22 FRANCISCO THROUGH HIGHER PRICING OR POOR NEWS CONTENT.
23 THE REASON FOR THAT IS BECAUSE THEY HAVE ALREADY
24 ENGAGED -- THEY ALREADY HAVE SUNK COSTS AND THEY THEREFORE ARE
25 INCENTIVIZED TO MAXIMIZE THE USE OF THEIR CAPACITY.
2405
CLOSING ARGUMENT \ ROSCH
1 THE COURT: I NEVER THOUGHT I WOULD HEAR YOU USE
2 THAT TERM.
3 MR. ROSCH: OKAY.
4 IN ANY EVENT, YOUR HONOR, I WOULD SUGGEST THAT
5 BECAUSE THERE ARE COMPETITORS THAT EXIST IN SEGMENTS OF THE
6 MARKET WHICH CAN MOVE INTO SAN FRANCISCO, THAT THEY IMPOSE A
7 COMPETITIVE CHECK ON THE FANG NEWSPAPER AND CERTAINLY, OF
8 COURSE, ON THE CHRONICLE.
9 I MEAN, THE EVIDENCE WITH RESPECT TO THE CHRONICLE
10 IS OVERWHELMING. THE EVIDENCE WITH RESPECT TO THE CHRONICLE IS
11 THAT 80 PERCENT OF THEIR READERS ARE OUTSIDE SAN FRANCISCO.
12 99 PERCENT OF THEIR ADVERTISERS ADVERTISE TO THAT FULL
13 CIRCULATION AND THAT THE RATES TO THOSE ADVERTISERS AND THE
14 PRICES TO THOSE SUBSCRIBERS INSIDE AND OUTSIDE OF SAN FRANCISCO
15 ARE THE SAME.
16 NOW, UNDER THOSE CIRCUMSTANCES IF THE CHRONICLE
17 TRIES TO EXPLOIT MARKET POWER, TO EXERCISE MARKET POWER BY
18 INCREASING PRICES TO SUPER COMPETITIVE LEVELS OR DECREASING
19 QUALITY, IT RISKS LOSING A HUGE AMOUNT OF BUSINESS. AND THAT'S
20 BOTH INSIDE AND OUTSIDE OF SAN FRANCISCO BECAUSE OF THE UNIFORM
21 PRICING.
22 SO IT -- THIS IS THE CLASSIC ELZINGA-HOGARTY
23 ANALYSIS, WHICH JUDGE CHESNEY AMONG OTHERS USED, AND OTHERS IN
24 THE NINTH CIRCUIT HAVE USED IT. AND THAT'S THE THEORY BEHIND
25 THAT ANALYSIS, IS THAT IF YOU HAVE A SUBSTANTIAL AMOUNT OF
2406
CLOSING ARGUMENT \ ROSCH
1 BUSINESS OUTSIDE THE PROPOSED RELEVANT MARKET, WHICH IS AT
2 RISK. IF THE DEFENDANT TRIES TO ENGAGE IN SOME KIND OF
3 EXPLOITIVE CONDUCT, THEN YOU HAVE TO EXPAND THAT MARKET. YOU
4 CANNOT INCLUDE -- YOU CANNOT CONCLUDE THAT THAT MARKET IS
5 LIMITED TO SAN FRANCISCO.
6 THE SAME KIND OF DYNAMICS ARE AT WORK TO A SOMEWHAT
7 LESSER EXTENT WITH RESPECT TO THE FANGS, I WOULD SUGGEST. BUT
8 IT'S SURELY THERE WITH RESPECT TO THE CHRONICLE.
9 NOW, I WOULD ADD, YOUR HONOR, THAT IN THEIR
10 POST-TRIAL SUBMISSIONS I BELIEVE THAT MR. REILLY ACTUALLY
11 TACITLY ACKNOWLEDGES THAT SAN FRANCISCO ISN'T A VIABLE RELEVANT
12 MARKET. HE SUGGESTS TWO ALTERNATIVE GEOGRAPHIC MARKETS, A
13 FIVE-COUNTY MARKET AND AN 11-COUNTY MARKET AND THEN SAYS,
14 "WELL, THE MARKET SHARES WOULD STILL BE HIGH IN THOSE MARKETS."
15 THE FACT OF THE MATTER IS THAT THE MATH IS WRONG
16 WHEN HE CALCULATES THE MARKET SHARES. HE DOES DOUBLE COUNTING.
17 BECAUSE THE EVIDENCE AGAIN WAS UNCONTRADICTED THAT 60 PERCENT
18 OF THE EXAMINER'S CIRCULATION IS A DUPLICATE, BASICALLY, OF THE
19 CHRONICLE'S CIRCULATION. SO YOU CAN'T ADD BOTH TOGETHER.
20 THE COURT: 60 PERCENT?
21 MR. ROSCH: YES.
22 SO YOU CAN'T ADD BOTH TOGETHER IN ORDER TO COME UP
23 WITH THE CHRONICLE MARKET SHARE. IT DOESN'T WORK.
24 AND WHEN YOU DON'T DO THAT, THE MARKET SHARES IS A
25 FOUR-COUNTY, A FIVE-COUNTY MARKET, AN 11-COUNTY MARKET ARE NOT
2407
CLOSING ARGUMENT \ ROSCH
1 PROBLEMATIC AT ALL, AND ONCE MORE THE EVIDENCE SHOWS THAT THE
2 MARKET SHARE, THE CIRCULATION, IS DECLINING.
3 SO IF YOU REALLY LOOK AT THIS FROM THE STANDPOINT OF
4 THESE ALTERNATIVE MARKETS, THIS TRANSACTION IS COMPLETELY
5 BENIGN FROM THAT STANDPOINT.
6 AND FINALLY, YOUR HONOR, WITH RESPECT TO THE
7 RELEVANT PRODUCT MARKET, I WOULD SUGGEST TO YOU THAT THAT IS
8 REALLY NO MORE VIABLE THAN THE GEOGRAPHIC MARKET.
9 DAILY NEWSPAPERS, TO BE SURE IN A COUPLE OF CASES,
10 HAVE BEEN CHARACTERIZED AS A MARKET UNTO THEMSELVES. IN THE
11 1967 CASE THAT MR. REILLY CITED AND THE MORE RECENT CASE DOWN
12 IN ARKANSAS, THE COURT SAID THAT THEY WERE A RELEVANT PRODUCT
13 MARKET BECAUSE, QUOTE, "DAILY NEWSPAPERS PROVIDE A CLUSTER OF
14 SERVICES IN ONE UNIQUE PACKAGE."
15 WELL, FIRST OF ALL, THAT'S NOT THE LAW IN THIS
16 CIRCUIT. THIS CLUSTER THEORY, THE NOTION THAT ONE-STOP
17 SHOPPING SOMEHOW CREATES A -- A MARKET UNTO ITSELF, WAS
18 EXPRESSLY REJECTED BY THE NINTH CIRCUIT. IN A CASE CALLED
19 THURMAN INDUSTRIES VS. PAY 'N PAK STORES AT 875 F.2D 1369,
20 NINTH CIRCUIT, 1989 CASE.
21 BUT REALLY I THINK MORE FUNDAMENTALLY THAN THAT
22 DR. COMANOR IS THE ONLY ONE WHO SAID THAT IT SHOULD BE
23 CONFINED -- THAT THE PRODUCT MARKET SHOULD BE CONFINED TO DAILY
24 NEWSPAPERS. EVERY SINGLE OTHER WITNESS IN THIS CASE -- EVERY
25 SINGLE WITNESS WHO HAD KNOWLEDGE ABOUT THE NEWSPAPER BUSINESS
2408
CLOSING ARGUMENT \ ROSCH
1 TESTIFIED THAT THE RELEVANT PRODUCT MARKET WAS BROADER THAN
2 THAT.
3 THE COURT: AND WHAT IS IT?
4 MR. ROSCH: IT CERTAINLY INCLUDES OTHER NEWSPAPERS.
5 THE COURT: NONDAILY?
6 MR. ROSCH: NONDAILY NEWSPAPERS, OF WHICH THERE ARE
7 MANY IN THIS AREA. THERE MAY NOT BE DOWN IN ARKANSAS, BUT
8 THERE CERTAINLY ARE IN THE SAN FRANCISCO BAY AREA. AND THE
9 RECORD IS REPLETE WITH THAT EVIDENCE.
10 AND ARGUABLY T.V. AND RADIO ARE TODAY, AS WELL.
11 THEY MAY NOT HAVE BEEN AT ONE TIME, BUT, AS DR. ROSSE
12 TESTIFIED, THAT -- THE ADVENT OF BROADCAST MEDIA IS IN LARGE
13 MEASURE RESPONSIBLE FOR THE DECLINE IN CIRCULATION IN NEWSPAPER
14 MEDIA.
15 SO THERE IS A CLEAR, CLEAR PRICE RELATIONSHIP THERE.
16 BUT --
17 THE COURT: WHAT IS THE CHRONICLE'S MARKET SHARE OF
18 DAILY NEWSPAPER CIRCULATION IN THE FIVE-COUNTY AREA? DO YOU
19 HAVE THAT FIGURE OFF --
20 MR. ROSCH: I DON'T HAVE, YOUR HONOR. I HAVE THE
21 PLAINTIFF'S FIGURE, AND, AS I SAY, IT'S SKEWED BECAUSE THEY
22 HAVE ADDED TOGETHER CHRONICLE AND EXAMINER, AND YOU CAN'T DO
23 THAT. IF YOU TAKE 60 PERCENT OF THAT COMBINED TOTAL OFF, THEN
24 I THINK YOU ARE ABLE TO CALCULATE THAT SHARE.
25 AND I DON'T KNOW HOW THAT COMES OUT.
2409
CLOSING ARGUMENT \ ROSCH
1 THE COURT: WELL, I AM LOOKING AT PLAINTIFF'S
2 EXHIBIT 3, WHICH SUGGESTS THAT FIVE-COUNTY SHARE WOULD BE
3 36.7 PERCENT FOR THE CHRONICLE, 10 AND A HALF PERCENT FOR THE
4 EXAMINER.
5 MR. ROSCH: AND I THINK THAT'S WHAT THEY HAVE SAID
6 IN THEIR BRIEFS, AS WELL.
7 THE COURT: 45 PERCENT TOTAL --
8 MR. ROSCH: YOU REDUCE THAT BY THE 60 PERCENT FACTOR
9 AND I THINK YOU GET DOWN AROUND INTO THE LOW 30'S. AND THAT
10 KIND OF A MARKET SHARE UNDER PHILADELPHIA AND NATIONAL BANK IS
11 PERFECTLY ACCEPTABLE, ESPECIALLY WHERE IT'S DECLINING, AS THE
12 RECORD INDICATED IT -- THAT IT IS HERE. AND THAT'S THE GENERAL
13 DYNAMICS CASE, AS THE COURT KNOWS, FROM THE SUPREME COURT.
14 THE COURT: AND THAT'S GIVEN A VERY NARROW PRODUCT
15 DEFINITION.
16 MR. ROSCH: THAT'S CORRECT, YOUR HONOR.
17 AND, YOU KNOW, I GUESS I HAVE TO ADD A PERSONAL NOTE
18 HERE, AND THAT IS I AM SOMEBODY WHO LISTENS TO KCBS A LOT. AND
19 THE NOTION THAT KCBS DOESN'T COVER LOCAL NEWS IN DEPTH IS
20 RIDICULOUS. YOU GET ENORMOUS AMOUNT OF VERY LOCAL COVERAGE ON
21 A TIMELY BASIS FROM THE RADIO STATIONS IN THIS -- IN THIS
22 COMMUNITY.
23 NOW, FINALLY, WITH RESPECT TO LESSENING OF
24 COMPETITION, MR. REILLY ASKED YOUR HONOR TO FIND THAT THERE
25 WILL BE A SUBSTANTIAL LESSENING OF COMPETITION. AND THAT IS IN
2410
CLOSING ARGUMENT \ ROSCH
1 CIRCUMSTANCES WHICH -- YOU KNOW, I SAW WHAT WAS UP ON THE
2 BOARD. BUT THE FACT OF THE MATTER IS THAT DR. COMANOR ADMITTED
3 SPECIFICALLY THAT THERE IS NO ECONOMIC COMPETITION BETWEEN THE
4 CHRONICLE AND THE EXAMINER NOW. THERE -- IT JUST DOESN'T
5 EXIST.
6 AND YOUR HONOR ASKED MR. ALIOTO A SERIES OF
7 QUESTIONS ABOUT THAT THIS MORNING. AND I WOULD LIKE TO RESPOND
8 TO THEM.
9 FIRST OF ALL, IT'S NOT THAT IT DOESN'T EXIST BECAUSE
10 THERE IS AN ILLEGAL PRICE FIXING AGREEMENT. THERE ARE REALLY
11 TWO THINGS WRONG WITH THAT PREMISE. ONE IS THAT WHETHER OR
12 NOT -- AND THIS IS AS A MATTER OF LAW -- WHETHER OR NOT THE JOA
13 PROVIDES FOR PRICE FIXING, THE NEWSPAPER PRESERVATION ACT VERY
14 CLEARLY ALLOWS IT TO OCCUR, PERIOD.
15 SO I DON'T THINK THAT -- AND IT'S NO WONDER THAT
16 MR. ALIOTO -- THAT MR. ALIOTO DID NOT CLAIM OTHERWISE BECAUSE
17 THAT, I THINK, IS CLEAR FROM THE STATUTE.
18 BUT THERE IS A MORE FUNDAMENTAL POINT HERE, YOUR
19 HONOR, AND THAT IS, AS MR. SIAS TESTIFIED, HE DID TAKE HIS
20 RESPONSIBILITY TO LOOK AT PRICES, MAKE PRICING DETERMINATIONS
21 WITH RESPECT TO THE CHRONICLE SERIOUSLY.
22 BUT, AS HE TESTIFIED, THE JOA DIVISION OF PROFITS ON
23 A 50/50 BASIS, UNDER THOSE CIRCUMSTANCES THAT MAKES PRICE
24 COMPETITION SELF-DEFEATING. THAT 50/50 SPLIT IS AN INCENTIVE
25 NOT TO ENGAGE IN PRICE COMPETITION.
2411
CLOSING ARGUMENT \ ROSCH
1 AND SO IF AND TO THE EXTENT THAT THERE HAS BEEN
2 COORDINATION OF PRICING -- AND I DO BELIEVE THAT THERE HAS -- I
3 WOULD RESPECTFULLY SUGGEST TO THE COURT THAT THAT IS THE RESULT
4 OF THE ECONOMICS OF THE JOA. AND THERE IS ABSOLUTELY NOTHING
5 WRONG WITH THAT.
6 NOW, MR. REILLY HAS TRIED TO PROPOSE TO THE COURT A
7 THEORY OF LIABILITY THAT'S BASED ON POTENTIAL COMPETITION. AND
8 THAT'S THIS POST-JOA THEORY.
9 I WANT TO BE BRIEF ABOUT THIS BUT EMPHATIC. THE
10 STANDARDS OF PROOF OF A POTENTIAL COMPETITION THEORY ARE VERY
11 HIGH. THEY ARE MUCH HIGHER THAN USUAL.
12 THE FEDERAL TRADE COMMISSION AND THE FOURTH CIRCUIT
13 HAVE BOTH HELD THAT IN ORDER TO PROVE A POTENTIAL COMPETITION
14 THEORY, THAT MR. REILLY WOULD HAVE TO DEMONSTRATE WITH CLEAR
15 PROOF THAT HEARST WOULD COMPETE POST-JOA.
16 AND THE SECOND CIRCUIT AND THE FIFTH CIRCUIT ARE
17 SLIGHTLY LESS EMPHATIC. THEY SAY THAT MR. REILLY WOULD HAVE TO
18 DEMONSTRATE THAT THERE IS A LIKELIHOOD THAT HEARST WOULD HAVE
19 DONE SO.
20 AND I SUGGEST TO THE COURT THAT ON THIS RECORD THOSE
21 STANDARDS DON'T COME CLOSE TO BEING MET. WHAT HAPPENED HERE IS
22 THAT YOU NOT ONLY HAD AN UNBROKEN STRING OF EXPERTS WHO
23 TESTIFIED TO THE STATE OF THE EXAMINER TODAY AND HOW MUCH OF A
24 SUBSIDY IT WOULD TAKE IN THE FUTURE TO EVEN GIVE IT A SHOT AT
25 COMPETING, BUT YOU ALSO HAD TWO EXPERTS WHO TESTIFIED THAT IT
2412
CLOSING ARGUMENT \ ROSCH
1 WOULD BE IRRATIONAL -- AND I AM QUOTING THEM NOW -- FOR HEARST
2 TO COMPETE POST-JOA, AS WELL AS THE TESTIMONY OF THE HEARST
3 EXECUTIVES THEMSELVES AS TO WHETHER THEY WERE WILLING TO DO
4 THAT.
5 THE COURT: HOW DO YOU EXPLAIN THESE PRESS RELEASES,
6 BOTH FROM THE DEPARTMENT OF JUSTICE AND HEARST ITSELF AND THE
7 HEARST REPRESENTATIONS TO THE COURT? THERE IS GOING TO BE A
8 FULLY COMPETITIVE NEWSPAPER SITUATION IN SAN FRANCISCO AFTER
9 THE COMPLETION OF THESE TWO TRANSACTIONS? HOW DO YOU RECONCILE
10 WHAT YOU ARE NOW SAYING WITH WHAT THE COURT HAS BEEN TOLD BY
11 THESE PARTIES?
12 MR. ROSCH: WELL, YOUR HONOR, IF I MAY, I BELIEVE IT
13 IS -- I BELIEVE IT IS DEFINITELY RECONCILABLE. THE FANG --
14 THE COURT: HOW?
15 MR. ROSCH: THE FANG -- YES. THANK YOU. I REALLY
16 APPRECIATE THE CHANCE TO ANSWER THIS BECAUSE I THINK THIS HAS
17 BEEN SOMETHING THAT HAS BEEN HOVERING SINCE THE BEGINNING OF
18 THE TRIAL. AND I DON'T THINK THERE IS ANY KIND OF TENSION IN
19 THE TWO POSITIONS AT ALL.
20 THE FANG NEWSPAPER WILL BE A DIFFERENT NEWSPAPER.
21 THE COURT: THEN IT WON'T BE COMPETITIVE.
22 MR. ROSCH: WELL, IT WILL BE COMPETITIVE -- IT WILL
23 BE COMPETITIVE. IT SIMPLY WILL BE SAN FRANCISCO --
24 THE COURT: REPRESENTATIONS WERE MADE THAT THIS WAS
25 GOING TO BE A FULLY COMPETITIVE METROPOLITAN DAILY NEWSPAPER.
2413
CLOSING ARGUMENT \ ROSCH
1 MR. ROSCH: WELL, THAT I CAN'T RECONCILE. THAT I --
2 I DON'T THINK HEARST HAS TAKEN THAT POSITION. I THINK THEY
3 HAVE TAKEN THE POSITION THAT IT WILL BE A COMPETITIVE
4 NEWSPAPER, AND THAT I DO BELIEVE IS CORRECT.
5 AND THAT -- AND THIS IS THE KEY --
6 THE COURT: IT'S NOT COMPETITIVE IN THE SENSE THAT
7 IT HAS BEEN REPRESENTED.
8 MR. ROSCH: WELL, IT CERTAINLY WILL NOT BE A
9 COMPETITIVE METROPOLITAN NEWSPAPER. THERE IS NO QUESTION ABOUT
10 THAT. BUT IT -- I DO BELIEVE THAT THE RECORD SHOWS THAT IT
11 WILL BE A COMPETITIVE NEWSPAPER.
12 NOW, HOW DOES ONE RECONCILE THAT WITH THE NOTION
13 THAT HEARST WOULD NOT PUBLISH POST-JOA?
14 THE REASON, YOUR HONOR, IS THAT THE FANGS CAN DO
15 SOME THINGS THAT THE HEARSTS CAN'T DO. THE HEARSTS -- AND,
16 INDEED, THE JOA HAS LABOR CONTRACTS WHICH THE FANGS DON'T HAVE.
17 SO THEIR COSTS CAN BE VERY, VERY DIFFERENT.
18 AND, SECONDLY, THE AGENCY, AS I BELIEVE THE EVIDENCE
19 IS UNCONTRADICTED, HAS A LACK OF PRESS CAPACITY TO PRINT TO
20 A.M. NEWSPAPERS. THE FANGS DON'T HAVE THAT PROBLEM, EITHER.
21 SO I BELIEVE IT IS -- IT DEFINITELY CAN BE
22 RECONCILED, THE TWO POSITIONS, NAMELY, THAT THE FANGS CAN DO
23 SOMETHING THAT THE HEARSTS COULD NOT DO. AND, IN ANY --
24 THE COURT: BUT NOT WHAT THE DEPARTMENT OF JUSTICE
25 REPRESENTED TO THE PUBLIC WOULD BE DONE, NOT WHAT HEARST HAS
2414
CLOSING ARGUMENT \ ROSCH
1 REPRESENTED THROUGHOUT THESE PROCEEDINGS TO THE COURT WOULD BE
2 DONE AND NOT WHAT THE FANGS HAVE REPRESENTED EARLY IN THE
3 LITIGATION.
4 MR. ROSCH: WELL, I MUST SAY, YOUR HONOR, I DON'T
5 RECALL THE HEARSTS TAKING THE POSITION THAT THE FANGS COULD
6 PUBLISH A METROPOLITAN DAILY NEWSPAPER SUCCESSFULLY.
7 THE COURT: FULLY COMPETITIVE.
8 MR. ROSCH: WELL, AGAIN, I WILL LEAVE THAT TO MY --
9 MY COLLEAGUE FROM THE HEARSTS.
10 BUT -- AND I CERTAINLY DID NOT WRITE THE DEPARTMENT
11 OF JUSTICE PRESS RELEASE.
12 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
13
14
15
16
17
18
19
20
21
22
23
24
25
2415
CLOSING ARGUMENT \ HALLING
1 MR. ROSCH: I WILL UNDERSCORE THAT.
2 THE COURT: BUT ALL OF THAT SUPPORTS MR. ALIOTO'S
3 THEORY THAT SOMETHING IS GOING ON HERE, SOMETHING IS GOING ON
4 UNDER THE SURFACE, AND WHAT IS IT?
5 MR. ROSCH: WELL, YOUR HONOR, I DON'T KNOW. I
6 REALLY DON'T. BUT I CAN TELL YOU THIS: IT'S NOT A PROBLEM
7 WITH THE TRANSACTION THAT I'M INTERESTED IN.
8 THE COURT: IT'S NOT AN ANTITRUST PROBLEM AS FAR AS
9 THE CHRONICLE IS CONCERNED?
10 MR. ROSCH: THAT IS CORRECT, YOUR HONOR, AND THAT IS
11 ALL I CARE ABOUT. AND IF THE COURT HAS NO FURTHER QUESTIONS, I
12 THINK I'LL PUT MY HEAD BACK DOWN IN THE TRENCHES.
13 (LAUGHTER)
14 THE COURT: ALL RIGHT. MR. HALLING? YOU CAN SEE
15 WHERE THIS IS GOING.
16 CLOSING ARGUMENT
17 MR. HALLING: I CAN, YOUR HONOR.
18 THE COURT: NOW, WHAT ARE YOUR ANSWERS? YOU'VE HAD
19 PLENTY OF TIME TO PREPARE AND THINK ABOUT YOUR ANSWERS.
20 MR. HALLING: WELL, YOU'VE ASKED A LOT OF QUESTIONS.
21 ONE QUESTION YOU ASKED WITH RESPECT TO SECTION 3.15
22 OF THE JOA WHERE THERE IS A PROVISION THAT PROVIDES FOR EACH
23 PARTY TO HAVE APPROVAL OVER PRICING, AND THERE WAS A QUESTION
24 ABOUT THE NEWSPAPER PRESERVATION ACT. THE NEWSPAPER
25 PRESERVATION ACT DOES NOT REQUIRE THAT THE JOINT OPERATING
2416
CLOSING ARGUMENT \ HALLING
1 AGREEMENT BE SOME SPECIFIC CONTRACT THAT WAS APPROVED AT LEAST
2 WITH RESPECT TO THE OLDER JOA'S.
3 UNDER THE STATUTE, IT SIMPLY SAYS THAT A JOINT
4 NEWSPAPER OPERATING ARRANGEMENT IS ANY CONTRACT, AGREEMENT,
5 JOINT VENTURE WHETHER OR NOT INCORPORATED OR OTHER ARRANGEMENT.
6 THE PARTIES ARE FREE, IF THEY QUALIFY UNDER THE ACT,
7 BY HAVING TWO SEPARATE EDITORIAL VOICES AND THE OTHER
8 REQUIREMENTS TO FIX PRICES. IT DOESN'T MATTER WHETHER THE
9 CONTRACT EXPRESSLY SAYS THAT.
10 AS MR. ROSCH POINTED OUT, THERE ARE INCENTIVES FOR
11 THE PARTIES TO ACT JOINTLY; AND, IN FACT, THE ENTIRE
12 ARRANGEMENT OF THE CONTRACT IS SET UP WITH THE SFNA HAVING
13 GREAT POWERS AND RESPONSIBILITIES VIS-A-VIS THE BUSINESS
14 OPERATIONS, AND THE PARTIES ARE PERFECTLY FREE TO DELEGATE
15 THEIR POWERS THAT THEY HAD UNDER THE LANGUAGE OVER PRICE. AND,
16 IN FACT, THAT'S WHAT'S OCCURRED, AND THAT IS FULLY IMMUNIZED BY
17 THE NEWSPAPER PRESERVATION ACT.
18 THE COURT: WELL, I DON'T THINK THIS IS YOUR
19 ACHILLES HEEL, SO PERHAPS YOU SHOULD MOVE ON TO SOME OF THE
20 OTHER ISSUES.
21 MR. HALLING: WELL, YOUR HONOR, ANOTHER QUESTION YOU
22 ASKED HAD TO DO WITH THE JOA AND THE EXEMPTION BEING USED AS
23 SOME SORT OF A LEVER TO TRY AND GET THE CHRONICLE CHEAPER.
24 THE COURT: MR. ALIOTO'S ARGUMENT.
25 MR. HALLING: FIRST, HEARST'S POSITION UNDER THE JOA
2417
CLOSING ARGUMENT \ HALLING
1 IS A MATTER OF PRIVATE CONTRACT. HEARST NEGOTIATED A RIGHT OF
2 FIRST REFUSAL AND THE OTHER TERMS. THAT'S A MATTER OF
3 CONTRACT. IT DOESN'T FLOW FROM THE EXEMPTION.
4 THE REASON THAT HEARST WAS ABLE --
5 THE COURT: IS IT IMMUNIZED FROM ANTITRUST SCRUTINY
6 BY THE NEWSPAPER PRESERVATION ACT?
7 MR. HALLING: I BELIEVE IT IS BECAUSE THOSE TERMS
8 WERE IN THE TUCSON JOA THAT WAS EXPRESSLY APPROVED.
9 THE REASON, YOUR HONOR, WHY HEARST PAID MORE OR WHY
10 THE OTHER BIDDERS WERE OFFERING LESS IS QUITE SIMPLE. HEARST
11 OWNS HALF THE ASSETS AND WHEN KNIGHT-RIDDER AND THE OTHERS WERE
12 TALKING TO MS. GREENTHAL AND SUGGESTING THE PRICE RANGES THEY
13 WOULD PAY THAT WERE LESS, THEY WERE ONLY GOING TO BE BUYING
14 THE -- HALF THE ASSETS THAT CHRONICLE OWNED.
15 THESE ASSETS ARE HELD OUTSIDE OF SFNA. THEY'RE
16 JOINTLY HELD BY THE TWO PARTIES; AND SO AS MR. SIAS TESTIFIED,
17 IN ORDER TO PRINT THE CHRONICLE AT THE END OF THE JOA, UNLESS
18 HE GOT THE OTHER HALF OF THE ASSETS, IT WOULD HAVE TO BE A NEW
19 PRINTING PLANT WAS CONTEMPLATED AT A COST OF $250 MILLION AND
20 THAT'S THE REASON WHY THERE WAS LESS OF A MONETARY PROPOSAL
21 COMING FROM THESE OTHER BIDDERS.
22 FURTHERMORE, THE RECORD IS THAT THE RIGHT OF FIRST
23 REFUSAL AND THE 60-MILE PROVISION HAD NO EFFECT. THAT'S WHAT
24 MS. GREENTHAL SAID AND THAT'S NOT CONTRADICTED.
25 THE COURT: WELL, YOU'RE SAYING, PERHAPS YOU CAN
2418
CLOSING ARGUMENT \ HALLING
1 DEVELOP THIS MORE FULLY, BUT THE ACTUAL PRODUCTION ASSETS ARE
2 NOT OWNED BY THE NEWSPAPER AGENCY BUT ARE OWNED BY THE PARTIES
3 THEMSELVES.
4 MR. HALLING: CORRECT.
5 THE COURT: THEY HOLD TITLE TO THIS FACILITY AND
6 THAT FACILITY, AND SO FORTH.
7 MR. HALLING: YES.
8 THE COURT: OKAY. DOES THE NEWSPAPER AGENCY OWN ANY
9 OF THE PRODUCTION FACILITIES IN ITS OWN NAME?
10 MR. HALLING: VIRTUALLY NONE. THERE MAY BE A FEW
11 COMPUTERS AND OTHER ASSETS THAT THEY MAY HOLD, BUT I BELIEVE
12 VIRTUALLY ALL THE ASSETS ARE HELD JOINTLY.
13 THE COURT: AND IT'S YOUR THEORY THAT WHAT'S BEEN
14 GOING ON HERE OVER THIS LONG EXCHANGE OF CORRESPONDENCE,
15 PRIMARILY BETWEEN MR. SIAS AND MR. BENNACK, IS WORKING OUT OR
16 AN ATTEMPT TO WORK OUT SOME SORT OF AN ARRANGEMENT BY WHICH THE
17 PARTIES ARE GOING TO EXCHANGE THOSE ASSETS IN SOME FASHION.
18 MR. HALLING: THERE HAS TO BE AN END TO THIS
19 ARRANGEMENT, YOUR HONOR. AS THE EVIDENCE SHOWED, THE JOA FROM
20 1965 TO 1993 HAD A NEGATIVE CASH FLOW. IT WAS AN INEFFICIENT
21 ORGANIZATION WHEREBY ONE PARTY DID THE EDITORIAL PRODUCT ON
22 SUNDAY, PEOPLE DIDN'T GET THE PRODUCT THEY WERE EXPECTING,
23 CIRCULATION WAS DECLINING. THERE WAS THE SUBSIDY THAT WAS
24 BEING PAID ESSENTIALLY FROM THE CHRONICLE TO THE EXAMINER
25 WHEREBY THE EXAMINER WAS NOT EVEN COVERING ITS INCREMENTAL
2419
CLOSING ARGUMENT \ HALLING
1 COSTS.
2 THIS WAS NOT A SITUATION THAT WAS EFFICIENT. IT
3 WASN'T AN ARRANGEMENT THAT WAS GOOD FOR COMPETITION, AND THE
4 PARTIES --
5 THE COURT: IT WASN'T A NEGATIVE CASH FLOW FROM
6 HEARST'S POINT OF VIEW, THOUGH; WAS IT?
7 MR. HALLING: CORRECT, BUT THIS IS SOMETHING THAT
8 THE PARTIES VIEWED AS A PROBLEM. AND WHAT HAPPENED IS OVER A
9 PERIOD OF YEARS VARIOUS NEGOTIATIONS OCCURRED UNTIL FINALLY --
10 THE COURT: A POSITIVE CASH FLOW FROM ASSETS THAT ON
11 AN INCREMENTAL BASIS ARE NOT ABLE TO GENERATE A POSITIVE CASH
12 FLOW IS A PROBLEM?
13 MR. HALLING: WELL, YOUR HONOR, IT'S NOT A PROBLEM
14 FOR HEARST WITHIN THE JOA. IT'S A PROBLEM FOR CHRONICLE AND
15 IT'S A PROBLEM FOR COMPETITION.
16 AND THE POINT IS THAT THERE NEEDED TO BE SOME
17 NEGOTIATION, SOME RESOLUTION, AND THAT'S WHY WE'RE HERE. THE
18 PARTIES HAVE AGREED ON A RESOLUTION OF THE JOA THAT WILL ALLOW
19 HEARST TO OWN THE CHRONICLE AND COMPETE MORE EFFECTIVELY IN THE
20 BAY AREA, AND THERE IS NOTHING WRONG WITH THAT IN TERMS OF
21 COMPETITION. IN FACT, IT'S PRO-COMPETITIVE.
22 AND GOING BACK TO YOUR QUESTION, THERE WAS NO MISUSE
23 OF THE JOA IN ANY SENSE. HEARST HAD THE RIGHTS IT HAD AND HAD
24 THE POSITION IT HAD SIMPLY AS A MATTER OF PRIVATE CONTRACT.
25 I'M TRYING TO RECALL ALL OF YOUR QUESTIONS.
2420
CLOSING ARGUMENT \ HALLING
1 ONE POINT I WOULD MAKE ON STANDING, I DON'T WANT TO
2 GO OVER THE GROUND AGAIN BECAUSE THE POINT ABOUT LACK OF
3 THREATENED INJURY AND ANTITRUST INJURY I BELIEVE HAVE ALREADY
4 BEEN MADE BY MR. ROSCH; BUT I WOULD NOTE THAT IN MR. REILLY'S
5 POSTTRIAL BRIEF, HE MADE AN ARGUMENT THAT SOMEHOW HE COULD
6 ACHIEVE STANDING BECAUSE HE SAID THERE MIGHT BE A CLASS ACTION
7 THAT COULD BE BROUGHT AND HE COULD SOMEHOW AGGREGATE INJURY.
8 I'M NOT SURE, THERE WAS NO CITATION FOR IT, BUT I
9 JUST WANTED TO CITE TO THE COURT THE U.S. SUPREME COURT CASE
10 SIMON V. EASTERN KENTUCKY WELFARE RIGHTS, 426 U.S. 26 AT PAGE
11 40, WHERE THE COURT SAID, QUOTE:
12 "THAT A SUIT MAY BE A CLASS ACTION, HOWEVER,
13 ADDS NOTHING TO THE QUESTIONS OF STANDING. FOR
14 EVEN NAMED PLAINTIFFS WHO REPRESENT A CLASS MUST
15 ALLEGE AND SHOW THAT THEY PERSONALLY HAVE BEEN
16 INJURED."
17 SO, AGAIN, THERE IS SIMPLY NO BASIS FOR MR. REILLY
18 TO BE BRINGING THIS SUIT BASED ON SECTION 16 AND ALSO THE
19 BRUNSWICK CONCEPT OF ANTITRUST INJURY.
20 THE COURT: WELL, HE'S A CONSUMER OF NEWSPAPERS.
21 MR. HALLING: I UNDERSTAND, BUT HE NEEDS TO HAVE
22 ECONOMIC INJURY. HE NEEDS TO HAVE SOME THREATENED INJURY AND
23 HE HAS NOT DEMONSTRATED THAT.
24 THE ONLY THING IN THE RECORD IS THAT HE SOMETIMES
25 BUYS THE EXAMINER AS A SINGLE-COPY PAPER AND THAT HE SUBSCRIBES
2421
CLOSING ARGUMENT \ HALLING
1 TO THE CHRONICLE. HE DOESN'T EVEN SUBSCRIBE TO THE EXAMINER,
2 THE PAPER HE PURPORTS THAT HE WANTS TO SAVE, AND THERE'S NO
3 PROOF ON THIS RECORD THAT HE'S GOING TO SUFFER ANY INJURY AT
4 ALL.
5 THE COURT: ALL RIGHT.
6 MR. HALLING: WITH RESPECT TO SOME BASIC PRINCIPLES
7 HERE, YOUR HONOR, OTHER THAN STANDING, THERE'S TWO FACTS ON
8 THIS RECORD THAT MUST BE TAKEN INTO ACCOUNT IN ANY RULING THAT
9 YOU MAKE.
10 FIRST, THE EXAMINER OUTSIDE THE JOA IS NOT A VIABLE
11 BUSINESS. THERE'S NO EVIDENCE IN THE RECORD THAT WOULD SUGGEST
12 OTHERWISE. IT IS A FAILING ENTERPRISE OUTSIDE THE JOA BY ANY
13 DEFINITION.
14 THE COURT: WELL, DOESN'T THIS BRING US TO THE FANG
15 TRANSACTION? ISN'T THAT THE EVIDENCE THAT THE EXAMINER IS A
16 VIABLE NEWSPAPER?
17 MR. HALLING: NOT AT ALL, YOUR HONOR. TWO FACTS.
18 MR. FANG TESTIFIED THAT WITHOUT THE 66 MILLION-DOLLAR SUBSIDY,
19 THE EXAMINER WOULD NOT BE A VIABLE BUSINESS, NUMBER ONE.
20 NUMBER TWO, DR. ROSSE TESTIFIED THAT THAT $66 MILLION WOULD
21 NEVER BE EARNED BACK. THAT IS NOT A VIABLE BUSINESS.
22 AND IF HE CAN TAKE THAT $66 MILLION AND MAKE A GO OF
23 THE NEW EXAMINER, THAT IS NOT INCONSISTENT WITH IT BEING A
24 FAILING ENTERPRISE. ANY BUSINESS THAT NEEDS $66 MILLION, THAT
25 IS NOT GOING TO BE RECOVERABLE, TO OPERATE IS FAILING.
2422
CLOSING ARGUMENT \ HALLING
1 THE COURT: WELL, ASSUME I BUY THAT ARGUMENT.
2 ASSUME THAT I AGREE THAT THIS IS $66 MILLION DOWN THE DRAIN AS
3 YOUR OWN WITNESS TESTIFIED. IT'S A BURDEN ON COMPETITION.
4 WHAT IS IT THEN?
5 MR. HALLING: YOUR HONOR, WHAT IT IS, IS THE BEST OF
6 THE ALTERNATIVES. IF THE EXAMINER IS A FAILING ENTERPRISE, IT
7 CAN BE SHUT DOWN.
8 THE COURT: AND WHY WASN'T IT SHUT DOWN? WHY, IN
9 ESSENCE, DIDN'T HEARST STICK BY ITS GUNS? WHY DIDN'T HEARST
10 SAY TO EVERYBODY WHO WAS TRYING TO INFLUENCE HEARST TO SELL THE
11 EXAMINER, "IT'S A DEAD NEWSPAPER. IT'S BETTER BURIED"? WHY
12 DIDN'T HEARST JUST STICK TO ITS PRINCIPLES IN THIS MATTER AND
13 TAKE THE POLITICAL RISK THAT ATTENDED THAT?
14 MR. HALLING: MR. ASHER ANSWERED THAT QUESTION. THE
15 ANSWER IS HEARST COULD NOT AFFORD DELAY. THIS MATTER WAS BEING
16 ACTIVELY LOOKED AT BY GOVERNMENT AGENCIES, LOCAL, STATE AND
17 FEDERAL. THE INVESTIGATION HAD BEEN GOING ON FOR A LONG TIME.
18 THIS TRANSACTION IS TIME SENSITIVE; AND IF IT'S NOT
19 COMPLETED --
20 THE COURT: WHY IS IT TIME SENSITIVE? IT'S BEEN
21 GOING ON FOR 35 YEARS. MR. SIAS AND MR. BENNACK HAVE BEEN IN
22 CORRESPONDENCE FOR FIVE YEARS OVER HOW TO DIVIDE THESE ASSETS.
23 THIS HAS BEEN GOING ON FOR A LONG TIME. WHY SUDDENLY THE RUSH?
24 MR. HALLING: WELL, YOUR HONOR, THE RUSH IS THAT THE
25 CONTRACT THAT WE SIGNED WITH THE CHRONICLE HAD DEADLINES AND
2423
CLOSING ARGUMENT \ HALLING
1 OUR RIGHT TO ACQUIRE THE CHRONICLE WOULD SIMPLY EXPIRE UNDER
2 THOSE AGREEMENTS IF THERE WAS A PROCEEDING AS OCCURRED IN
3 HAWAII WHERE A PRELIMINARY INJUNCTION WAS ISSUED. THE HEARSTS
4 COULD LOSE --
5 THE COURT: IF IT'S TRUE, AS MR. ROSCH HAS ARGUED,
6 AND HE CERTAINLY POINTED TO EVIDENCE IN THAT DIRECTION, THAT
7 HEARST WAS PAYING THE HIGHEST PRICE, THEN SURELY CHRONICLE
8 WOULD HAVE EXTENDED THE TIME ON THAT CONTRACT OR YOU WOULD HAVE
9 BEEN IN A POSITION OR HEARST WOULD HAVE BEEN IN A POSITION TO
10 BUY THE NEWSPAPER EVEN LATER IN SOME OTHER TRANSACTION.
11 MR. HALLING: YOUR HONOR, WE SIMPLY DID NOT KNOW
12 THAT AS A FACT. WE KNEW WE HAD A CONTRACT. WE KNEW THERE HAD
13 BEEN INVESTIGATIONS GOING ON. WE KNEW THAT EVEN THOUGH WE WERE
14 CONFIDENT WE WERE CORRECT AND WE WOULD ULTIMATELY PREVAIL, IF
15 ONE OF THOSE GOVERNMENT AGENCIES WERE TO GO TO COURT AND GET A
16 PRELIMINARY INJUNCTION THAT WOULD SIMPLY DELAY THIS MATTER FOR
17 MONTHS, OUR RIGHTS UNDER THAT CONTRACT WOULD, IN FACT, EXPIRE
18 UNLESS THERE WAS SOME NEW ARRANGEMENT MADE.
19 THE COURT: BUT YOU'RE IN A POSITION, HEARST WAS IN
20 A POSITION TO MAKE THAT NEW ARRANGEMENT; WAS IT NOT?
21 MR. HALLING: ONLY IF THE CHRONICLE WERE TO AGREE.
22 THE COURT: WELL, BUT YOU WERE PAYING $666 MILLION
23 FOR THIS NEWSPAPER AND WILLING TO PAY AN ADDITIONAL 60 SOME ODD
24 MILLION DOLLARS OBVIOUSLY BECAUSE THAT'S THE AMOUNT OF THE
25 SUBSIDY TO THE FANGS. NOBODY IN SIGHT WAS WILLING TO PAY
2424
CLOSING ARGUMENT \ HALLING
1 ANYTHING CLOSE TO THAT AMOUNT. KNIGHT-RIDDER WAS NOT WILLING
2 TO PAY THAT AMOUNT. EITHER GANNETT OR THE OTHERS WHO
3 MS. GREENTHAL TALKED TO CAME ANYWHERE CLOSE TO THAT.
4 MR. HALLING: YOUR HONOR, I DON'T BELIEVE AT THIS
5 TIME WE WERE PRIVY TO ALL OF THE DISCUSSIONS THE CHRONICLE HAD
6 HAD. ALL WE KNEW IS WE HAD A CONTRACT THAT WAS GOING TO
7 EXPIRE. WE HAD BEEN AT THIS FOR MANY MONTHS. THE DEAL WAS
8 ANNOUNCED IN AUGUST. THE FANG TRANSACTION WAS IN MARCH AND THE
9 CONTRACT EXPIRED SHORTLY THEREAFTER IF SOMETHING DIDN'T HAPPEN.
10 WE FELT THAT BY PRESERVING THE EXAMINER AS AN
11 EDITORIAL VOICE, IF THAT HASTENED THE APPROVAL OF THE
12 TRANSACTION, THAT IT WAS A PRICE WE WERE WILLING TO PAY, BUT
13 THAT'S WHY WE DID IT.
14 AND, IN FACT, IT TURNS OUT THAT NONE OF THE
15 GOVERNMENT AGENCIES, THE AGENCIES WHO ARE EMPOWERED TO
16 REPRESENT THE PUBLIC, NONE OF THEM HAVE COME FORWARD TO
17 CHALLENGE THE TRANSACTION. WE ONLY HAVE MR. REILLY, A SOMETIME
18 PURCHASER OF NEWSPAPERS, SUING HERE. AND WE FELT THAT IT WAS
19 PRUDENT TO MAKE THE TRANSACTION FOR THAT REASON.
20 AND I WILL SAY WITH RESPECT TO ANOTHER QUESTION, I'M
21 QUITE CONCERNED BY YOUR COMMENTS ABOUT REPRESENTATIONS THAT
22 HAVE BEEN MADE. I DON'T BELIEVE WE HAVE EVER SAID THAT THE NEW
23 EXAMINER WAS GOING TO BE A FULLY-COMPETITIVE METROPOLITAN DAILY
24 NEWSPAPER. IT HAS ALWAYS BEEN OUR POSITION THAT THAT SORT
25 OF --
2425
CLOSING ARGUMENT \ HALLING
1 THE COURT: DIDN'T HEARST REPRESENT THAT IT WAS
2 GOING TO BE FULLY COMPETITIVE?
3 MR. HALLING: YOUR HONOR, I DON'T BELIEVE WE SAID --
4 WE'VE NEVER SAID IT WOULD BE FULLY COMPETITIVE IN THE SENSE
5 THAT IT WOULD BE A METROPOLITAN DAILY NEWSPAPER. WE HAD -- YOU
6 SAW THE INTERROGATORY THAT WAS ON THE BOARD WHICH WE HAD SENT
7 TO THE DEPARTMENT OF JUSTICE. THE INTERROGATORY STATED THAT WE
8 THOUGHT IT WAS IMPOSSIBLE TO BE FULLY COMPETITIVE IN THE
9 RELEVANT AREA, WHICH IS WHAT THAT SAID, THE RELEVANT AREA
10 MEANING THE 11-COUNTY BAY AREA. THAT'S THE DEFINITION OF "THE
11 RELEVANT AREA" FOR THAT INTERROGATORY RESPONSE.
12 THE COURT: WELL, GIVEN THAT THAT WAS BEFORE THE
13 DEPARTMENT OF JUSTICE, WHAT AM I TO MAKE OF ITS PRESS RELEASE?
14 MR. HALLING: WELL, I DON'T KNOW THAT ITS PRESS
15 RELEASE SAID THAT THERE WAS GOING TO BE A FULLY-COMPETITIVE
16 METROPOLITAN DAILY NEWSPAPER. I BELIEVE WHAT IT SAID IS THERE
17 WOULD BE COMPETITION IN SAN FRANCISCO BETWEEN DAILIES FOR THE
18 FIRST TIME. AND I THINK WHEN YOU LOOK BACK OVER 35 YEARS --
19 THE COURT: WHAT EXHIBIT NUMBER IS THAT?
20 MR. BALABANIAN: 940, YOUR HONOR.
21 MR. HALLING: I'M TOLD IT'S 940. THE HEADING ON THE
22 DOCUMENT IS "FIRST TIME IN 35 YEARS SAN FRANCISCO WILL HAVE TWO
23 INDEPENDENT DAILY NEWSPAPERS."
24 AND I THINK THE CONTEXT IS IMPORTANT, YOUR HONOR,
25 WHICH IS THAT FOR 35 YEARS, CHRONICLE AND HEARST HAD NOT BEEN
2426
CLOSING ARGUMENT \ HALLING
1 COMPETING AND NOW THERE WAS GOING TO BE A DAILY HEADQUARTERED
2 IN SAN FRANCISCO. SO THIS IS A CHANGE OF SOME SIGNIFICANCE IN
3 THE COMPETITIVE LANDSCAPE.
4 AND I DON'T BELIEVE THAT, IF THE COURT NOW HAS THIS
5 IN FRONT OF YOU, THAT THIS PRESS RELEASE SAYS ANYTHING ABOUT
6 METROPOLITAN DAILY.
7 THE COURT: "FOR THE FIRST TIME IN 35 YEARS SAN
8 FRANCISCO WILL HAVE TWO INDEPENDENT DAILY
9 NEWSPAPERS," REFERRING TO THE SITUATION THAT
10 EXISTED 35 YEARS AGO. CONSUMERS SUCH AS
11 ADVERTISERS AND READERS WILL OBTAIN THE BENEFITS
12 OF FULL COMPETITION BETWEEN TWO DAILY MORNING
13 NEWSPAPERS."
14 THAT'S CERTAINLY NOT WHAT THE EVIDENCE SUGGESTS IS
15 GOING TO HAPPEN HERE.
16 MR. HALLING: YOUR HONOR, AS MR. ROSCH SAID, WE DID
17 NOT WRITE THIS PRESS RELEASE. WE GOT IT THE SAME DAY YOU GOT
18 IT AND WE HAD NEVER SEEN IT BEFORE THEN. SO I CAN'T COMMENT ON
19 WHAT THE DEPARTMENT OF JUSTICE MEANT ON THE ISSUE OF THIS
20 STATEMENT; BUT I BELIEVE OUR POSITION HAS BEEN CONSISTENT THAT
21 THERE WILL BE SOME COMPETITION BETWEEN THE NEW EXAMINER AND THE
22 CHRONICLE, BUT IT'S NOT GOING TO BE METROPOLITAN DAILY
23 COMPETITION ACROSS THE BAY AREA BECAUSE WE DON'T THINK THAT'S
24 POSSIBLE DIRECTLY COMPETING WITH THE CHRONICLE FOR THE REASONS
25 DR. ROSSE GAVE.
2427
CLOSING ARGUMENT \ HALLING
1 I WOULD LIKE TO NOTE A COUPLE OF OTHER POINTS. THE
2 SUTTER HOSPITAL CASE WAS RECENTLY AFFIRMED BY THE NINTH
3 CIRCUIT. THAT'S JUDGE CHESNEY'S OPINION APPLYING THE FAILING
4 COMPANY DEFENSE AND WHERE THE COURT ALSO APPLIED A FAILING
5 DIVISION STANDARD, WHICH WE THINK IS THE APPROPRIATE WAY TO
6 LOOK AT THE FAILING COMPANY DEFENSE. IT'S CONSISTENT WITH THE
7 GUIDELINES.
8 YOU SHOULD SELL THE -- YOU OFFER TO SELL THE
9 NEWSPAPER OUTSIDE THE JOINT OPERATING AGREEMENT AS ASSISTANT
10 ATTORNEY GENERAL BAXTER SAID IN ST. LOUIS AND WAS ALSO REPEATED
11 IN FRANKLIN, PENNSYLVANIA, AND YOU SEE IF ANYONE IS WILLING TO
12 BUY IT AS A NEWSPAPER INDEPENDENT OF THE JOA. THAT IS
13 CONSISTENT WITH THE FAILING DIVISION STANDARD.
14 WHEN YOU HAVE A FAILING DIVISION, WHICH IS IN THE
15 GUIDELINES, PARAGRAPH 5.2, ALSO IN SUTTER HOSPITAL, THE SALE OF
16 THE FAILING DIVISION IS NOT MADE WITH A SUBSIDY. THAT COMES
17 FROM THE PARENT THAT WAS COVERING THE LOSSES. YOU LOOK OUTSIDE
18 AND TEST WHETHER THE DIVISION WOULD ITSELF BE FAILING AND WOULD
19 SOMEBODY BUY IT TO OPERATE IT.
20 AS I SAID EARLIER, I DON'T BELIEVE ON THIS RECORD A
21 CONTRARY FINDING COULD BE MADE THAT THE EXAMINER IS ANYTHING
22 OTHER THAN FAILING WHEN VIEWED AS AN INDEPENDENT FIRM OUTSIDE
23 THE JOA, AND THAT INCLUDES THE PAPER THAT MR. FANG
24 CONTEMPLATES. THAT WOULD NOT BE A VIABLE BUSINESS WITHOUT THE
25 $66 MILLION.
2428
CLOSING ARGUMENT \ HALLING
1 PLAINTIFF'S OWN FINDINGS SUPPORT THAT. IF YOU LOOK
2 AT HIS FINDINGS 15 AND 16, HE BASICALLY SAYS THAT SUCH ENTRY
3 WOULD NOT BE ECONOMICALLY FEASIBLE NOR RATIONAL BUSINESS
4 BEHAVIOR.
5 I THINK IN MANY WAYS THE RECORD IS NOT CONTROVERTED
6 ON KEY POINTS HERE THAT ARE RELEVANT TO THE DECISION THAT
7 YOU'RE BEING CALLED UPON TO MAKE.
8 ONE THING THAT MR. REILLY HAS RAISED IS THAT THERE'S
9 SOME PROBLEM WITH THE FAILING COMPANY DEFENSE IF THE ACQUIRER
10 IS FAILING. THERE IS NO PROBLEM AT ALL WITH THAT. THE
11 ECONOMICS AND THE RATIONALE FOR THE DEFENSE APPLY EQUALLY.
12 THE POINT IS THAT WE HAVE A BUSINESS THAT'S NOT
13 VIABLE AS A COMPETITIVE BUSINESS AND ITS LOSS IS OF NO MOMENT
14 UNDER THE ANTITRUST LAWS. IT DOESN'T MATTER WHO'S THE
15 ACQUIRER.
16 HE TRIES TO DISTINGUISH THE MPN CASE IN HIS
17 POSTTRIAL BRIEF BY CLAIMING IT'S DICTA WHERE THE COURT
18 ADDRESSED THIS POINT. IT'S NOT IF YOU LOOK AT THAT CASE. THAT
19 CASE IS RIGHT ON POINT.
20 ALSO THE MERGER GUIDELINES SAY THAT ONE OF THE
21 MERGING FIRMS, THE REQUIREMENT IS ONLY ONE OF THEM BE FAILING.
22 IT DOESN'T MATTER WHICH ONE.
23 I THINK THE COURT IS GOING TO QUOTE BACK --
24 THE COURT: NO, NO.
25 MR. HALLING: -- SOME LANGUAGE FROM --
2429
CLOSING ARGUMENT \ HALLING
1 THE COURT: GO AHEAD.
2 MR. HALLING: OKAY. I'D LIKE TO ADDRESS BRIEFLY THE
3 PLAINTIFF'S PRIMA FACIE CASE BECAUSE YOU DON'T GET TO THE
4 FAILING COMPANY DEFENSE UNTIL AFTER THE PLAINTIFF HAS SHOWN
5 THERE WILL BE A SUBSTANTIAL LESSENING OF COMPETITION, THAT THAT
6 MAY BE THE EFFECT UNDER SECTION 7.
7 AND IN THEIR POSTTRIAL BRIEF THEY CITE A NUMBER OF
8 THE OLDER DISCREDITED SECTION 7 CASES AND THEY BASE THEIR
9 ARGUMENT ON THOSE CASES. I'D LIKE TO REFER THE COURT, IF I
10 MAY, TO THE U.S. V BAKER HUGHES OPINION FROM THE D. C. CIRCUIT
11 WHICH WE CITED IN OUR PRELIMINARY INJUNCTION BRIEF.
12 SPECIFICALLY THIS DECISION UPHELD AN ACQUISITION. IT'S THE
13 D. C. CIRCUIT. TWO OF THE JUDGES WHO WERE ON THIS PANEL ARE
14 NOW ON THE SUPREME COURT, JUSTICE CLARENCE THOMAS WHO AUTHORED
15 THE OPINION, AND RUTH BADER GINSBURG.
16 AND IN THIS OPINION THE D. C. CIRCUIT EXPLAINED THAT
17 THE OLDER SECTION 7 CASES HAVE BEEN SUPERSEDED BY POST-GENERAL
18 DYNAMICS LAW. THIS IS A QUOTE FROM THE OPINION:
19 "GENERAL DYNAMICS BEGAN A LINE OF DECISIONS
20 DIFFERING MARKEDLY IN EMPHASIS FROM THE COURT'S
21 ANTITRUST CASES IN 1960."
22 THOSE CASES THAT THEY'RE REFERRING TO, WHICH THEY
23 NOTE ARE EXACTLY THE ONES MR. REILLY IS CITING TO YOU, AND THEN
24 THE COURT OBSERVES THAT THE SUPREME COURT HAD CUT BACK SHARPLY
25 ON THOSE CASES.
2430
CLOSING ARGUMENT \ HALLING
1 AND IN CONNECTION WITH TALKING ABOUT THE CURRENT
2 STATE OF THE LAW, THE D. C. CIRCUIT IN BAKER HUGHES ALSO CITED
3 A CASE WHICH I THINK IS INSTRUCTIVE ON THIS POINT I WAS
4 DISCUSSING A MOMENT AGO CONCERNING WHETHER IT MADE ANY
5 DIFFERENCE WHO WAS THE ACQUIRER FOR THE FAILING COMPANY
6 DEFENSE. AND THAT CASE IS FTC V. NATIONAL TEA COMPANY, AND THE
7 BAKER HUGHES COURT CITES THAT FOR THE FOLLOWING PROPOSITION:
8 "THE WEAK MARKET POSITION OF THE ACQUIRING
9 COMPANY MADE SUBSTANTIAL LESSENING OF
10 COMPETITION UNLIKELY."
11 SO, AGAIN, NOW WE'RE IN THE CONTEXT OF LOOKING AT
12 THE PRIMA FACIE CASE. THE FACT THAT THE ACQUIRING COMPANY IS
13 THE WEAKER COMPANY IS NOT RELEVANT TO THE ANALYSIS. WE LOOKED
14 AT COMPETITION, THE PRINCIPLES OF ALLOCATIVE EFFICIENCY.
15 IN NATIONAL TEA IT WAS A SITUATION WHERE THE
16 ACQUIRER WAS A NATIONAL GROCERY CHAIN BUT ITS MINNEAPOLIS
17 DIVISION WAS DOING POORLY AND IT ACQUIRED THE MORE SUCCESSFUL
18 BUSINESS OF ITS MINNEAPOLIS COMPETITOR, AND THAT WAS APPROVED
19 UNDER SECTION 7.
20 NOW, MR. ROSCH MADE A NUMBER OF POINTS ON THE
21 RELEVANT MARKET. I WON'T GO OVER THE THINGS HE'S ALREADY
22 TALKED ABOUT, BUT I DO THINK IT'S IMPORTANT TO KEEP IN MIND
23 THAT COMPETITION IN THIS ARENA IS NOT SIMPLISTIC.
24 WE KNOW FROM THE EVIDENCE IN THIS CASE THAT THERE
25 ARE NUMEROUS PARTIAL OVERLAPS, DIRECT COMPETITIVE SITUATIONS,
2431
CLOSING ARGUMENT \ HALLING
1 ALL OF WHICH MUST BE UNDERSTOOD AND EVALUATED IN THE CONTEXT OF
2 THIS CASE.
3 FOR EXAMPLE, IF YOU LOOK AT THE SFNA 2000 MARKETING
4 PLAN WHICH MR. FALK TESTIFIED ABOUT, THAT DOCUMENT IS REPLETE
5 WITH REFERENCES TO THE COMPETITION THAT'S FACED FOR DIFFERENT
6 KINDS OF ADVERTISING FROM DIFFERENT COMPETITORS.
7 FOR EXAMPLE, IF WE'RE TALKING ABOUT NATIONAL
8 ADVERTISING, THEN WE HAVE COMPETITION FROM BROADCAST
9 TELEVISION, WE HAVE COMPETITION FROM OTHER DAILIES, FOR EXAMPLE
10 THE KNIGHT-RIDDER. IF YOU LOOK AT THEIR TOTAL CIRCULATION IN
11 THE BAY AREA, IT ACTUALLY EXCEEDS THE CHRONICLE. SO TO THE
12 EXTENT THERE'S COMPETITION FOR NATIONAL ADVERTISING, THERE IS
13 DIRECT NEWSPAPER COMPETITORS, THERE'S OTHER MEDIA.
14 YOU MUST LOOK AT THE TYPE OF ADVERTISER IN ANALYZING
15 COMPETITION.
16 FOR ANOTHER EXAMPLE IS IF WE'RE TALKING ABOUT
17 CLASSIFIED AUTOMOTIVE ADVERTISING, THAT COULD BE ON THE RADIO
18 WHERE A CAR DEALER IS ADVERTISING ITS LATEST SALE. IT COULD BE
19 CLASSIFIED ADVERTISING IN A NEWSPAPER. IT COULD BE IN A
20 REGIONAL NEWSPAPER. IT COULD BE IN A LOCAL SUBURBAN DAILY.
21 YOU CAN'T SIMPLY UNDERSTAND COMPETITION HERE WITHOUT
22 APPRECIATING THESE DISTINCTIONS, ALL OF WHICH ARE PART OF THE
23 MIX.
24 WITH RESPECT TO THE RELEVANT GEOGRAPHIC MARKET,
25 THERE'S TWO FACTS THAT I WOULD CALL TO THE COURT'S ATTENTION.
2432
CLOSING ARGUMENT \ HALLING
1 ONE, 80 PERCENT OF THE CHRONICLE CIRCULATION IS OUTSIDE OF SAN
2 FRANCISCO AND OVER HALF OF THE EXAMINER'S, SUGGESTING THAT
3 THESE ARE REGIONAL PAPERS, THEY'RE METROPOLITAN DAILIES, AND
4 THAT ONLY A SMALL PERCENTAGE OF SFNA'S ADVERTISING COMES FROM
5 ITS ZONED EDITION, EITHER SAN FRANCISCO OR ELSEWHERE AROUND THE
6 BAY AREA.
7 FINALLY, YOUR HONOR, I WOULD SIMPLY NOTE AGAIN IN
8 THE CONTEXT OF SECTION 7 AND THE PRIMA FACIE CASE, THAT THERE
9 HAS BEEN INCREMENTAL STUDIES DONE DEMONSTRATING THAT THE
10 EXAMINER INSIDE THE JOA IS NOT COVERING THOSE INCREMENTAL COSTS
11 AND THAT IT IS A NET LOSS TO THE ENTERPRISE AND A RATIONAL
12 ECONOMIC BEHAVIOR WOULD BE TO SIMPLY SHUT IT DOWN.
13 DR. ROSSE TESTIFIED ABOUT HIS STUDY. PLAINTIFF'S
14 EXPERTS DID STUDIES. MR. FALK DID HIS A.M. ONLY ANALYSIS, ALL
15 OF WHICH SHOWED THAT THE EXAMINER WAS NOT CONTRIBUTING
16 POSITIVELY EVEN WITHIN THE JOA.
17 THE DEPARTMENT OF JUSTICE, AS THE COURT IS AWARE IN
18 THE GANNETT PACIFIC CASE IN ITS NINTH CIRCUIT AMICUS BRIEF,
19 ADDRESSED THIS POINT BY SAYING EXPRESSLY:
20 "A DECISION TO TERMINATE A NEWSPAPER WHOSE
21 INCREMENTAL COSTS EXCEED THE INCREMENTAL
22 REVENUES ATTRIBUTABLE TO ITS OPERATION IS
23 UNLIKELY TO VIOLATE THE ANTITRUST LAWS."
24 AND THAT WAS IN THE CONTEXT OF LOOKING AT CLOSURE OF
25 A JOA NEWSPAPER. SO I THINK HOWEVER YOU LOOK AT THIS,
2433
CLOSING ARGUMENT \ HALLING
1 ALLOCATIVE EFFICIENCY WOULD BE SERVED BY HEARST'S ACQUISITION
2 OF THE CHRONICLE. THE JOA IS AN INEFFICIENT COMPETITOR. THE
3 RESOURCES SHOULD BE SPENT ON THE CHRONICLE.
4 I'M ANTICIPATING YOUR QUESTION.
5 THE COURT: WHY SPEND $66 MILLION ON THE EXAMINER?
6 MR. HALLING: WELL, YOUR HONOR, I'VE ALREADY
7 EXPLAINED THE SITUATION HEARST WAS FACED WITH. IT IS A BETTER
8 RESULT THAN THE 250 MILLION-DOLLAR SUBSIDY THAT MR. REILLY
9 ADVOCATED. IT'S A BETTER RESULT THAN A CONTINUATION OF THE
10 JOA, AND I THINK I WILL LEAVE IT AT THAT.
11 THE COURT: WELL, JUST TO CLEAR THE AIR, HERE IS
12 WHAT YOU YOURSELF WROTE IN OPPOSITION TO THE PRELIMINARY
13 INJUNCTION APPLICATION:
14 "PAN ASIA INTENDS TO MOVE THE EXAMINER TO
15 MORNING PUBLICATION AND OPERATE IT AS A
16 FREE-STANDING DAILY NEWSPAPER IN DIRECT
17 COMPETITION WITH THE CHRONICLE. FOR THE FIRST
18 TIME IN DECADES THERE WILL BE DIRECT ECONOMIC
19 COMPETITION BETWEEN TWO DAILY NEWSPAPERS
20 PUBLISHED IN THE CITY OF SAN FRANCISCO."
21 THEN TWO PAGES LATER:
22 "THE EXAMINER HAS BEEN ACQUIRED BY A LOCAL
23 PUBLISHER WHO INTENDS TO COMPETE HEAD TO HEAD
24 WITH THE CHRONICLE."
25 THEN LATER:
2434
CLOSING ARGUMENT \ HALLING
1 "PAN ASIA HAS INDICATED IT INTENDS TO
2 POSITION THE NEW EXAMINER AS A STRONG LOCAL
3 COMPETITOR IN SAN FRANCISCO. PAN ASIA HAS A
4 SPIRITED REPUTATION ARISING FROM ITS OPERATION
5 OF THE SAN FRANCISCO INDEPENDENT WHICH PAN ASIA
6 HAS ANNOUNCED IT INTENDS TO CONTINUE PUBLISHING
7 AS A THREE-DAY-A-WEEK FREE DISTRIBUTION
8 NEWSPAPER. PAN ASIA CLAIMS THE NEW EXAMINER
9 WILL BE THE FIRST MAJOR ASIAN AMERICAN OWNED
10 METROPOLITAN DAILY," METROPOLITAN DAILY, "IN THE
11 UNITED STATES."
12 NOW, IT'S TRUE --
13 MR. HALLING: PAN ASIA CLAIMS.
14 THE COURT: WHAT'S THAT?
15 MR. HALLING: PAN ASIA CLAIM.
16 THE COURT: PAN ASIA CLAIMS, YOU'RE CORRECT.
17 MR. HALLING: WHICH IS WHAT THEY DID CLAIM.
18 THE COURT: BUT THERE'S REFERENCE TO A METROPOLITAN
19 DAILY. IT INTENDS TO FOCUS THE NEW EXAMINER COVERAGE OF SAN
20 FRANCISCO'S VARIOUS COMMUNITIES, SO ON AND SO FORTH.
21 MR. HALLING: YOUR HONOR, I THINK THE POINT --
22 THE COURT: IT'S TRUE, YOU PUT A LITTLE DISTANCE
23 BETWEEN YOURSELF AND THE USE OF THE TERM "METROPOLITAN DAILY"
24 BUT NOT VERY MUCH.
25 MR. HALLING: WELL, YOUR HONOR, I THINK THE PASSAGES
2435
CLOSING ARGUMENT \ CONNELL
1 THAT YOU WERE READING, I DON'T KNOW IF YOU READ THIS SENTENCE
2 OR NOT BUT, "PAN ASIA INTENDS TO FOCUS THE NEW EXAMINER ON
3 COVERAGE OF SAN FRANCISCO'S VARIOUS COMMUNITIES," AND I BELIEVE
4 THAT THESE ARE ACCURATE STATEMENTS IN THE CONTEXT OF PAN ASIA
5 PROVIDING COMPETITION. THEY WILL PROVIDE SOME COMPETITION.
6 WE'RE CERTAINLY NOT SAYING THAT THEY WOULD BE LIKE
7 THE CHRONICLE UNABLE TO COMPETE HEAD TO HEAD IN THE BAY AREA AS
8 A REGIONAL DAILY AKIN TO THE MERCURY NEWS OR THE CHRONICLE.
9 YOUR HONOR, IF IT PLEASES THE COURT, I WOULD LIKE TO
10 ALLOW MR. CONNELL TO MAKE SOME REMARKS THIS MORNING ON SOME OF
11 THESE TOPICS. MR. CONNELL IS AN EXPERT ON THE NEWSPAPER
12 PRESERVATION ACT.
13 THE COURT: ALL RIGHT. DON'T OVERSELL HIM. THERE'S
14 NOTHING WORSE THAN BUILDING A GUY UP JUST BEFORE HE HAS TO
15 SPEAK.
16 SO COME ON, MR. CONNELL. I CAME TO YOUR RESCUE I
17 HOPE.
18 CLOSING ARGUMENT
19 MR. CONNELL: I KNOW VERY LITTLE, YOUR HONOR. THANK
20 YOU, YOUR HONOR. THANK YOU FOR PERMITTING ME TO PARTICIPATE IN
21 THIS CASE.
22 THE COURT: ORDINARILY WE ONLY HAVE ONE LAWYER PER
23 PARTY, AS YOU KNOW.
24 MR. CONNELL: I'LL TRY NOT TO ABUSE IT, YOUR HONOR.
25 THE COURT: WE HAD A JUDGE ACROSS THE STREET MANY
2436
CLOSING ARGUMENT \ CONNELL
1 YEARS AGO WHO WHEN THE SECOND LAWYER ON A SIDE ROSE SAID,
2 "COUNSEL, THIS IS NOT MOOT COURT." SO....
3 (LAUGHTER)
4 MR. CONNELL: I HEAR YOU, SIR. YOU CAN PULL THE
5 PLUG ON ME WHENEVER YOU WANT, YOUR HONOR. I'LL TRY NOT TO
6 REPEAT WHAT MR. HALLING SAID. I DO WANT TO MAKE A COUPLE OF
7 OBSERVATIONS PERHAPS ABOUT NEWSPAPERS AND WHAT'S HAPPENED TO
8 THEM ACROSS THE COUNTRY AND WHY AND WHAT THAT TELLS US ABOUT
9 SAN FRANCISCO.
10 AS DR. ROSSE TESTIFIED AT SOME LENGTH AND AS THE
11 EVIDENCE PLAINLY SHOWS, THE ECONOMICS THAT THE NEWSPAPERS FACE
12 HAVE DRIVEN THEM OUT OF BUSINESS ONE AFTER THE OTHER ALL ACROSS
13 THE COUNTRY. HOUSTON, DALLAS, DETROIT, PHILADELPHIA, LOS
14 ANGELES, THE LIST IS IN THE RECORD AND IT'S A LARGE LIST. IN
15 FACT --
16 THE COURT: HOW MANY EVENING NEWSPAPERS ARE THERE
17 REMAINING IN THE 50 LARGEST METROPOLITAN AREAS?
18 MR. CONNELL: WELL, THERE'S ONE IN PHILADELPHIA.
19 THERE'S ONE IN ATLANTA. THERE'S ONE IN INDIANAPOLIS. THOSE
20 ARE COMMONLY -- THAT'S ONE PUBLISHER.
21 THE COURT: THERE'S AN EXHIBIT THAT HAS --
22 MR. CONNELL: THERE IS.
23 THE COURT: -- THIS INFORMATION. MAYBE ONE OF YOUR
24 COLLEAGUES CAN FIND THAT EXHIBIT FOR YOU.
25 MR. CONNELL: AND THE OTHER ONES, YOUR HONOR,
2437
CLOSING ARGUMENT \ CONNELL
1 THERE'S AN EXHIBIT H-1196, WHICH EXTRACTS DATA FROM ANOTHER
2 EXHIBIT BUT IT GIVES YOU THAT DATA. THE LIST OF DAILY
3 NEWSPAPER -- EVENING NEWSPAPERS INCLUDES PHILADELPHIA, DETROIT
4 WHICH IS A JOA, HONOLULU WHICH IS A JOA, INDIANAPOLIS WHICH I
5 MENTIONED IS A SINGLE OWNERSHIP, SAN FRANCISCO OF COURSE,
6 SEATTLE WHICH NO LONGER HAS AN EVENING NEWSPAPER, THEY'RE BOTH
7 MORNING, ATLANTA WHICH IS COMMONLY OWNED, CINCINNATI WHICH IS A
8 JOA, ALBUQUERQUE, TUCSON AND BIRMINGHAM, ALL OF WHICH ARE
9 JOA'S. SO YOU DON'T HAVE ANY COMPETING EVENING NEWSPAPERS
10 ANYWHERE IN THE TOP 50 CITIES IN THE UNITED STATES ANYMORE.
11 THE COURT: HOW IS IT THAT HEARST AND THE SEATTLE
12 TIMES COMPANY ARE ABLE TO PUT OUT TWO MORNING NEWSPAPERS IN
13 THEIR JOA IN SEATTLE?
14 MR. CONNELL: CORRECT.
15 THE COURT: HOW ARE THEY ABLE TO DO IT?
16 MR. CONNELL: THEY'VE GOT ENOUGH PRODUCTION
17 FACILITIES TO DO IT. THEY DON'T HAVE IT HERE. THEY'VE GOT IT
18 UP THERE.
19 THE FORCES THAT HAVE CAUSED THIS DEMISE, AS
20 DR. ROSSE DESCRIBED THEM, WENT ON TO SAY WHICH SHOULDN'T BE A
21 MATTER FOR MOURNING, THEY OUGHT TO BE A MATTER FOR REJOICING
22 ONCE WE REALIZE THAT THE REASON YOU'RE LOSING COMPETING
23 NEWSPAPERS IS THE GROWTH OF THE OTHER MEDIA. THAT'S CERTAINLY
24 ABUNDANTLY TRUE IN SAN FRANCISCO.
25 THIS JOA SERVED A FINE PURPOSE FROM 1965 UNTIL THE
2438
CLOSING ARGUMENT \ CONNELL
1 PRESENT DAY. IT PRESERVED AN EDITORIAL VOICE IN THE CITY OF
2 SAN FRANCISCO THAT OTHERWISE WOULD HAVE DIED LONG, LONG AGO.
3 THE COURT: DIDN'T DR. ROSSE TESTIFY THAT
4 COMPETITION AND EFFICIENCY WOULD BE SERVED IF IT DIED TODAY?
5 MR. CONNELL: ABSOLUTELY CORRECT, YOUR HONOR.
6 ABSOLUTELY CORRECT. NO DOUBT ABOUT IT. IT'S TRUE OF THE OTHER
7 JOA'S THAT HAVE DIED IN ST. LOUIS AND MIAMI, FRANKLIN,
8 KNOXVILLE, NASHVILLE, TULSA, PITTSBURGH, EL PASO, SHREVEPORT
9 AND CHATTANOOGA, TO GIVE YOU A CHRONOLOGICAL LIST THAT TAKES
10 YOU UP TO 1999.
11 AND THAT'S ABSOLUTELY CORRECT AND THAT'S BEEN THE
12 POSITION WE'VE TAKEN IN THIS CASE IS THAT EVERYBODY IN THIS
13 CASE ON BOTH SIDES, AND I INCLUDE VERY SPECIFICALLY
14 MR. ALIOTO'S SIDE OF IT, UNDERSTANDS, RECOGNIZES AND SUBSCRIBES
15 TO THE NOTION THAT THE EXAMINER IS A FAILED NEWSPAPER.
16 HIS FINDINGS, WHICH HE SIGNED, READ 14, 15, 16, 32
17 AND 57 AND THEY QUITE GRAPHICALLY STAKE OUT THE POSITION. FOR
18 EXAMPLE:
19 "ANY NEW ENTRANT," I'M READING FROM 16, "ANY
20 NEW ENTRANT ATTEMPTING TO COMPETE WITH THE
21 CHRONICLE ON A METROPOLITAN-WIDE BASIS WOULD
22 HAVE LITTLE CHANCE OF SUCCESS IN THE ABSENCE OF
23 AN INVESTMENT IN THE HUNDREDS OF MILLIONS OF
24 DOLLARS AND EVEN THEN SURVIVAL WOULD BE
25 QUESTIONABLE AT BEST."
2439
CLOSING ARGUMENT \ CONNELL
1 HE GOES ON TO SAY IN FINDING NUMBER 32 TOWARDS THE
2 BOTTOM OF THAT:
3 "THUS, TOP MANAGEMENT OF NEITHER COMPANY
4 INTENDED TO AVAIL ITSELF OF THE JOA'S PROVISIONS
5 ENABLING BOTH HEARST AND CPC TO PUBLISH
6 COMPETING NEWSPAPERS AFTER THE JOA'S
7 EXPIRATION."
8 IN OTHER WORDS, MR. ALIOTO RECOGNIZED IN THE
9 FINDINGS HE FILED WITH THIS COURT THAT THE 2005 SCENARIO WAS A
10 PHANTOM. MR. ALIOTO'S HORSE CHART OVER THERE, THAT'S A DEAD
11 HORSE, JUDGE. IT'S BEATEN AND YOU SHOULDN'T BEAT A DEAD HORSE
12 TO DEATH, BUT HE DID.
13 (LAUGHTER)
14 MR. CONNELL: EVERYBODY AGREES THAT THE EXAMINER HAS
15 FAILED. IT FAILED IN '65. IT FAILED UNDER THE JOA. IT WOULD
16 EMPHATICALLY FAIL OUTSIDE THE JOA.
17 IN THE NORMAL COURSE OF EVENTS, WHAT YOU WOULD HAVE
18 HAD HERE WOULD BE THE EFFORT TO SELL IT, TO FIND A BUYER WHO
19 WOULD PAY MORE THAN LIQUIDATION VALUE, THE INABILITY TO FIND
20 THAT BUYER, THEN THE PAPER WOULD BE CLOSED. IN FACT, YOUR
21 HONOR, THAT'S WHAT HAPPENED IN THE OTHER JOA CITIES. WHAT
22 HAPPENED HERE IS A LITTLE BIT DIFFERENT.
23 MR. ALIOTO SEEMS TO BE SUGGESTING A RATHER
24 SPECTACULAR CONSPIRACY INVOLVING THE ATTORNEY GENERAL OF THE
25 UNITED STATES, THE MAYOR OF THE CITY, THE FANGS, THE HEARSTS
2440
CLOSING ARGUMENT \ CONNELL
1 AND MAYBE A FEW OTHERS. I DON'T SEE THE EVIDENCE OF IT.
2 IT SEEMS TO ME RATHER OUTLANDISH FOR SOMEONE TO COME
3 IN THIS COURT AND CONTEND THAT THE UNITED STATES DEPARTMENT OF
4 JUSTICE WAS DOING ANYTHING OTHER THAN CARRYING OUT ITS
5 RESPONSIBILITIES TO ENFORCE THE ANTITRUST LAWS IN DOING WHAT IT
6 DID.
7 THE COURT: IF THE EVIDENCE WAS AS CLEAR AS YOU
8 STATE, WHY DID IT TAKE THE DEPARTMENT SO LONG TO COME TO ITS
9 CONCLUSION, A CONCLUSION IT DID NOT COME TO UNTIL IT WAS
10 PRESENTED WITH THE FANG TRANSACTION?
11 MR. CONNELL: YOUR HONOR, THE QUESTION IS WHY DID
12 THE --
13 THE COURT: IF THE EVIDENCE IS SO CLEAR AND WHAT THE
14 DEPARTMENT WAS DOING IS IN PERFECTLY GOOD FAITH DISCHARGING ITS
15 PUBLIC RESPONSIBILITIES, WHY DID IT TAKE SO LONG?
16 MR. CONNELL: IT TOOK SO LONG, YOUR HONOR --
17 THE COURT: AND, INDEED, THE DEPARTMENT NEVER DID
18 ACT UNTIL AFTER IT WAS PRESENTED WITH THE FANG TRANSACTION.
19 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
20
21
22
23
24
25
2441
CLOSING ARGUMENT \ CONNELL
1 MR. CONNELL: WELL, FIRST OF ALL, IT WAS A VERY
2 INTENSE INVESTIGATION, AND I THINK IT WAS IN PART AN INTENSE
3 INVESTIGATION BECAUSE IT WAS BEING CONDUCTED BY PEOPLE WHO
4 NEVER DEALT WITH NEWSPAPERS BEFORE. THIS WAS BRAND NEW FOR
5 THEM AND IT WAS A WONDERFUL LEARNING EXPERIENCE, BUT THAT'S AN
6 IMPEDIMENT. THEY HAD A LITTLE BIT OF A LEARNING CURVE AND IT
7 TOOK THEM A LITTLE BIT OF TIME TO DO IT.
8 BY THE WAY, YOUR HONOR, IN THE COURSE OF THE
9 INVESTIGATION, I HEARD MR. ALIOTO SAY IN HIS REMARKS THAT THE
10 DEPARTMENT DIDN'T TALK TO ANYBODY BUT MR. FANG.
11 THE COURT: WE KNOW THAT'S NOT TRUE.
12 MR. CONNELL: THAT'S NOT TRUE. ALL RIGHT. YOU KNOW
13 THAT'S NOT TRUE.
14 THE COURT: BUT HEARST TOLD THE DEPARTMENT IN NO WAY
15 SUGGESTED THAT THERE WAS ANY LIFE LEFT IN THE EXAMINER.
16 MR. CONNELL: WE TOLD THE DEPARTMENT THAT THERE
17 WOULD --
18 THE COURT: I READ THE SUBMISSIONS.
19 MR. CONNELL: WE ABSOLUTELY TOLD THEM THERE WAS NO
20 LIFE LEFT IN THE EXAMINER. WE MEANT IT AND IT WAS TRUE.
21 THE COURT: IT'S OBVIOUSLY UNFAIR TO ASK YOU THE
22 QUESTIONS. BUT ONE WONDERS WHAT HAPPENS IF THERE WAS ANY LIFE
23 LEFT IN THE EXAMINER.
24 MR. CONNELL: YOUR HONOR, I COULD TELL YOU ABOUT
25 SOME OF THE CONVERSATIONS I HAD WITH THOSE FOLKS OVER A LONG
2442
CLOSING ARGUMENT \ CONNELL
1 PERIOD OF TIME. AND IT SEEMS TO ME IF YOU WANT ME TO RESPOND
2 IN THAT WAY I CAN DO THAT.
3 THE COURT: I DON'T WANT TO FORCE YOU TO DO SO.
4 MR. CONNELL: IS THAT THEY -- THEY WERE -- THEY
5 DIDN'T UNDERSTAND THE BUSINESS. FOR EXAMPLE, YOU HEARD
6 DR. ROSSE TESTIFY ABOUT THE FORCES THAT MEAN YOU ARE ONLY GOING
7 TO HAVE ONE -- ONE METROPOLITAN DAILY PER AREA.
8 AND, OF COURSE, HE -- HE DID THAT PRESENTATION AT
9 THE DEPARTMENT OF JUSTICE. AND, YOU KNOW, IT BASICALLY TELLS
10 YOU YOU CAN HAVE A PAPER IN SAN MATEO OR YOU CAN HAVE A PAPER
11 IN MARIN AND THEY -- THEY HAVE -- THERE ARE DIFFERENCES IN THE
12 MARKETS. THEY ARE SERVING THE READERS; THEY ARE SERVING -- SO
13 THEY CAN SURVIVE AND PROFIT AND PROSPER. BUT YOU CAN'T DO THAT
14 WITH TWO COMPETING NEWSPAPERS IN SAN FRANCISCO ITSELF.
15 AND SO AFTER THE PRESENTATION WAS MADE, THE QUESTION
16 CAME FROM ONE OF THEM IS, WELL, YOU KNOW, I DON'T UNDERSTAND.
17 IF YOU SAY THAT THE SAN FRANCISCO EXAMINER IS GOING TO FAIL,
18 HOW DO YOU EXPLAIN THE SAN MATEO PAPER?
19 WELL, THE EXPLANATION, OF COURSE, AND PRECISELY THE
20 POINT OF DR. ROSSE'S PRESENTATION TO THEM, BUT FOR SOME REASON
21 THEY DIDN'T SEEM TO GET IT.
22 WE PRESENTED THEM, YOUR HONOR, WITH AN INCREMENTAL
23 STUDY THAT SHOWED WITHIN THE JOA --
24 THE COURT: IN OCTOBER YOU PRESENTED IT.
25 MR. CONNELL: YES, SIR. NO, THE INCREMENTAL STUDY I
2443
CLOSING ARGUMENT \ CONNELL
1 THINK WAS IN JANUARY OR FEBRUARY.
2 THE COURT: IS THAT RIGHT?
3 MR. CONNELL: IT WAS TRIGGERED BY THEIR BRIEF IN THE
4 NINTH CIRCUIT IN THE HONOLULU CASE. THERE IS A FOOTNOTE THAT
5 TRIGGERED THAT.
6 THE COURT: WHAT WAS THE EARLIER STUDY?
7 MR. CONNELL: SIR?
8 THE COURT: THE EARLIER STUDY.
9 MR. CONNELL: THE EARLIER STUDY WAS IN OCTOBER.
10 THE COURT: OCTOBER.
11 MR. CONNELL: THAT WAS THE ONE THAT SAID OUTSIDE THE
12 JOA THE EXAMINER WILL FAIL.
13 THE COURT: OKAY. THAT WAS DR. --
14 MR. CONNELL: DR. MCANNENY.
15 THE COURT: CORRECT.
16 MR. CONNELL: DR. MCANNENY FROM ECONOMISTS,
17 INCORPORATED.
18 AND, YOUR HONOR, THE RESPONSE WE GOT FROM THAT IS WE
19 WOULD ATTEMPT TO GET THEM TO RESPOND TO US BY SAYING, IF YOU
20 HAVE A PROBLEM WITH IT, LET US KNOW WHAT IT IS.
21 AND THE ONLY ANSWERS WE EVER GOT WERE, WELL, WE HAVE
22 SOME PROBLEMS BUT WE DON'T -- YOU KNOW, WE ARE NOT GOING TO
23 TELL YOU WHAT THEY ARE RIGHT NOW.
24 THAT'S WHAT WAS GOING ON. WE WERE FACED WITH A
25 SITUATION THAT WE DIDN'T SEEM TO BE ABLE TO SOLVE. PERHAPS WE
2444
CLOSING ARGUMENT \ CONNELL
1 SHOULD HAVE BEEN ABLE TO BUT WE COULDN'T.
2 THE COURT: UNTIL YOU AGREED TO PAY SOMEBODY
3 $66 MILLION.
4 MR. CONNELL: THAT'S WHAT -- WELL, WHAT WE WERE
5 HEARING, YOUR HONOR, WAS IF YOU ARE GOING TO CLOSE DOWN THE
6 EXAMINER, WE ARE GOING TO SUE YOU.
7 THE COURT: HEARST HAS NOT BEEN SUED BEFORE?
8 MR. CONNELL: YOUR HONOR, THIS IS A BUSINESS
9 DECISION. THIS IS A BUSINESS DECISION BEING MADE BY A COMPANY
10 THAT WANTS TO MAKE A $660 MILLION ACQUISITION, THAT IS
11 CONCERNED ABOUT THE LENGTH OF TIME THAT IT WOULD TAKE TO
12 RESOLVE THAT SORT OF A LAWSUIT, AND A CONCERN THAT IT WOULD
13 TAKE SO LONG THAT IT WOULD THREATEN THE TRANSACTION. AND SO
14 THE BUSINESS DECISION THAT WAS MADE WAS TO INVEST THE
15 ADDITIONAL $66 MILLION AND PERMIT THE TRANSACTION TO GO
16 FORWARD.
17 THAT -- THAT ACTION, THAT FOR THE PROPOSED TRANSFER
18 OF THE EXAMINER TO MR. FANG, IN FACT RESOLVED THE ISSUES,
19 WHATEVER THEY WERE, THAT WE HAD WITH THE U.S. DEPARTMENT OF
20 JUSTICE. SO IT WAS SUCCESSFUL.
21 THERE WAS NOTHING CORRUPT ABOUT IT. IT WAS JUST A
22 STRAIGHTFORWARD BUSINESS TRANSACTION AS DESCRIBED BY
23 MR. BENNACK. AND THAT'S ALL IT WAS. WE DID WHAT WE THOUGHT
24 WAS PRUDENT TO DO IN ORDER TO COMPLETE THE TRANSACTION.
25 AND, YOUR HONOR, IN RESPECT OF THAT TRANSACTION,
2445
CLOSING ARGUMENT \ CONNELL
1 MR. FANG WILL PUBLISH A DAILY NEWSPAPER FOR A PERIOD OF TIME
2 AND MAYBE FOR A LONG TIME IN SAN FRANCISCO. I AM NOT GOING TO
3 TRY TO GAUGE HIS SUCCESS. AND, YOU KNOW, WHAT'S WRONG WITH
4 THAT? WHY SHOULDN'T HE BE ALLOWED TO DO THAT? IF WE CAN'T --
5 THE COURT: WELL, IT'S FINE IF HE DOES IT ON HIS OWN
6 MONEY.
7 MR. CONNELL: WELL, WHAT'S WRONG WITH HIM DOING IT
8 ON OUR MONEY? IF WE CAN CLOSE IT, WHY CAN'T WE GIVE IT AWAY,
9 AND IF WE CAN GIVE IT AWAY, WHY CAN'T WE GIVE IT AWAY WITH SOME
10 MONEY? WHERE IS THE PROBLEM?
11 THE COURT: WELL, YOUR OWN WITNESS UNDERCUT ON THAT,
12 DIDN'T HE?
13 MR. CONNELL: DR. ROSSE.
14 THE COURT: YES, YOU BET.
15 MR. CONNELL: DR. ROSSE SAID IT WAS ALLOCATIVELY
16 INEFFICIENT. I AGREE WITH YOU. HE DIDN'T SAY IT'S ILLEGAL.
17 OF COURSE, HE IS NOT AN EXPERT ON THE LAW. YOUR HONOR IS. BUT
18 I DON'T THINK IT'S ILLEGAL, EITHER. IT'S JUST AN ODD THING. I
19 CERTAINLY DON'T DISPUTE THAT. BUT WE HAVE EXPLAINED IT. WE
20 ARE GIVING YOU THE CORRECT EXPLANATION FOR WHAT'S HAPPENING
21 HERE AND WHY IT'S HAPPENING. AND, YOUR HONOR, WE THINK THAT
22 THE WHOLE -- BOTH TRANSACTIONS OUGHT TO GO FORWARD.
23 YOU HAVE HEARD ALL THE REASONS WHY IT MAKES A LOT OF
24 SENSE TO SHUT DOWN THE JOA, TO TAKE THE MONEY AND INVEST IT IN
25 THE TWO PAPERS AND PUT IT IN THE -- AND PUT IT IN THE ONE AND
2446
CLOSING ARGUMENT \ BALABANIAN
1 MAKE IT A MUCH BETTER NEWSPAPER. AND I DON'T THINK THERE IS
2 REALLY ANY DEBATE ON THAT SCORE, EITHER, THAT THAT'S THE
3 OBVIOUSLY RIGHT THING TO DO. AND IT'S GOING TO HAPPEN. IT'S
4 INEVITABLE. LET'S DO IT NOW.
5 YOUR HONOR, I DON'T WANT TO ABUSE MY -- YOUR
6 HOSPITALITY. I JUST WANT TO LOOK AT MY NOTES, IF YOU DON'T
7 MIND, TO SEE IF ANY OF THE THINGS I JOTTED DOWN.
8 I THINK EVERYBODY HAS COVERED PRETTY MUCH
9 EVERYTHING. IF YOU HAVE ANY QUESTIONS, YOUR HONOR, I WOULD BE
10 DELIGHTED TO TRY AND ANSWER THEM. BUT I THINK THAT'S WHAT I
11 WANTED TO SAY.
12 THE COURT: FINE. IT'S TIME TO HEAR FROM
13 MR. BALABANIAN.
14 MR. CONNELL: ALL RIGHT.
15 THE COURT: THANK YOU.
16 CLOSING ARGUMENT
17 MR. BALABANIAN: MAY IT PLEASE THE COURT.
18 I WOULD LIKE TO BEGIN BY ADDRESSING THE ISSUE THE
19 COURT POSED, REGARDING THE REPRESENTATIONS MADE TO THE PROOF
20 THAT WAS IN FACT DEDUCED.
21 YOUR HONOR, I DID IN FACT USE THE TERM "FULLY
22 COMPETITIVE" TO DESCRIBE THE SITUATION THAT WILL OBTAIN BETWEEN
23 THE NEW EXAMINER AND THE CHRONICLE. AND I STAND FOUR SQUARE
24 BEHIND THAT CHARACTERIZATION.
25 IT'S CLEAR FROM THE CONTEXT OF MY REMARKS THAT BY
2447
CLOSING ARGUMENT \ BALABANIAN
1 "FULL COMPETITION" I WAS REFERRING TO BOTH COMPETITION WHICH
2 EXISTS TODAY AND ECONOMIC COMPETITION WHICH DOES NOT EXIST
3 TODAY. I DID NOT SUGGEST IN ANY WAY THAT THE NEW EXAMINER
4 WOULD BE A METROPOLITAN PAPER, A TERM WE HAD NEVER USED.
5 THE COURT: HEARST MISQUOTED YOU, MISQUOTED YOUR
6 CLIENT?
7 MR. BALABANIAN: THAT WAS FILED IN A BRIEF SUBMITTED
8 BEFORE WE WERE EVEN IN THE CASE.
9 MOREOVER, YOUR HONOR, I -- IF I MAY WITH RESPECT,
10 YOUR HONOR, CALL THE COURT'S ATTENTION TO A COLLOQUY THAT
11 OCCURRED IN MY OPENING STATEMENT, WHICH I BELIEVE I MADE IT
12 VERY CLEAR THAT THE NEW EXAMINER WOULD NOT IN FACT BE COMPETING
13 THROUGHOUT THE BAY AREA. ON THE CONTRARY, ONE OF THE
14 SUBSTANTIAL ECONOMIES THAT WOULD BE ACHIEVED THAT GAVE REASON
15 TO ANTICIPATE SUCCESS OF THE NEW EXAMINER WOULD BE REDUCTION IN
16 GEOGRAPHIC SCOPE.
17 I STATED ON PAGE 42 OF THE TRIAL TRANSCRIPT AT LINE
18 15 -- I SAID TO THE COURT:
19 "THE ECONOMIES THAT ARE CONTEMPLATED RELATE
20 TO DROPPING CERTAIN CIRCULATION IN OUTLYING
21 COMMUNITIES, WHICH IS UNECONOMICAL, AND FOCUSING
22 THE OPERATIONS ON SAN FRANCISCO, SAN MATEO
23 COUNTY AND POSSIBLY MARIN. I WILL NOTE" -- I
24 WENT ON TO SAY -- "THAT THESE ARE PRECISELY THE
25 MEASURES WHICH PLAINTIFF'S EXPERTS HAVE
2448
CLOSING ARGUMENT \ BALABANIAN
1 ADJUDICATED AS NECESSARY TO MAKE THE PAPER."
2 AT THAT POINT THE COURT MADE THE COMMENT, WHICH YOUR
3 HONOR, I RESPECTFULLY SUBMIT, INDICATES THAT THE COURT FULLY
4 UNDERSTOOD MY STATEMENT THAT THERE WOULD BE A REDUCTION IN THE
5 GEOGRAPHIC EXTENT OF THE PAPER. THE COURT SAID:
6 "BUT IF YOU ARE KNOCKING OUT COMPETITION IN
7 SOME AREAS, YOU HAVE GOT TO ENHANCE COMPETITION
8 IN OTHERS."
9 WITH ALL RESPECT, YOUR HONOR, I DON'T BELIEVE THERE
10 IS ANY WAY ONE CAN READ ANY DOCUMENT WE HAVE FILED WITH THIS
11 COURT OR ANY REPRESENTATION I HAVE MADE TO IT AT ANY TIME AS
12 SUGGESTING THAT IT WAS THE INTENTION OF INTERVENOR TO COMPETE
13 IN ALL THE GEOGRAPHIC AREAS OF THE BAY AREA -- THE BAY.
14 INDEED, THAT WAS NEVER THE INTENTION, AND INDEED THAT MODEL IS
15 ONE THAT CANNOT SUCCEED, AS ALL OF THE TESTIMONY BEFORE THE
16 COURT HAS MADE CLEAR.
17 EVERY BRIEF WE FILED WITH THE COURT REITERATED THE
18 POINT THAT IT WOULD BE -- THAT THE COMPETITION TO BE AFFORDED
19 BY THE NEW EXAMINER WOULD BE NEW, DIRECT COMPETITION ON THE
20 EDITORIAL SIDE AND, MORE IMPORTANTLY, ON THE ECONOMIC SIDE
21 WHERE NONE NOW EXISTS.
22 IN OUR TRIAL BRIEF ON PAGE 5 AT LINE 23 WE WROTE:
23 "THE NEW EXAMINER WOULD COMPETE DIRECTLY
24 WITH THE CHRONICLE FOR BOTH READERS AND
25 ADVERTISERS IN SAN FRANCISCO."
2449
CLOSING ARGUMENT \ BALABANIAN
1 AGAIN ON THE NEXT PAGE, PAGE 6 OF OUR TRIAL BRIEF WE
2 STATED THAT:
3 "INTERVENOR'S ACQUISITION OF THE EXAMINER
4 OFFERS THE VERY REAL PROSPECT OF TURNING THE
5 EXAMINER AROUND AND, AS THE DOJ DETERMINED,
6 BRINGING SAN FRANCISCO -- BRINGING SAN
7 FRANCISCO -- DAILY NEWSPAPER COMPETITION IT HAS
8 NOT SEEN FOR 35 YEARS."
9 I OBVIOUSLY TAKE VERY SERIOUSLY, YOUR HONOR, ANY
10 SUGGESTION THAT WE MADE A CONTRARY REPRESENTATION. I DON'T
11 BELIEVE WE DO -- DID, AND I THINK THAT THE PORTION OF THE
12 OPENING STATEMENT THAT I HAVE READ TO THE COURT INDICATES BOTH
13 THE NATURE OF MY REPRESENTATION TO THE COURT AND THE COURT'S
14 UNDERSTANDING AND ACCEPTANCE OF IT.
15 I WANTED TO GIVE THAT PRIORITY, YOUR HONOR, BECAUSE
16 OF THE SERIOUSNESS WITH WHICH I TAKE THE QUESTION THAT THE
17 COURT POSED REGARDING THE NATURE OF THE COMPETITION AND THE
18 REPRESENTATIONS THAT WERE MADE.
19 THE COURT: WELL, IT IS SERIOUS, MR. BALABANIAN, AND
20 THERE HAS BEEN AN AWFUL LOT SAID THAT DOES NOT APPEAR TO HAVE
21 BEEN COMPLETELY FORTHRIGHT.
22 MR. BALABANIAN: YOUR HONOR, I DON'T KNOW TO WHAT
23 THE COURT IS REFERRING. CERTAINLY AS REGARDS THE GEOGRAPHIC
24 SCOPE OF THE PAPER, I COULDN'T HAVE BEEN CLEARER. I DON'T
25 BELIEVE WE HAVE EVER USED THE WORD "METROPOLITAN" TO DESCRIBE
2450
CLOSING ARGUMENT \ BALABANIAN
1 IT, APPARENTLY IN A BRIEF FILED BEFORE WE GOT INTO THE CASE.
2 THE COURT: DID HEARST MISQUOTE YOU?
3 MR. BALABANIAN: WE HAVE NOT USED THE WORD -- IT IS
4 NOT OUR INTENTION TO PRINT SUCH A PAPER AND, YOUR HONOR, I
5 DON'T KNOW HOW I COULD HAVE BEEN ANY CLEARER THAN I WAS IN THE
6 EXCHANGE THAT I HAVE JUST QUOTED, THAT IT IS -- THE ECONOMIES
7 WILL BE ACHIEVED IN PART FROM DROPPING CIRCULATION IN OUTLYING
8 COMMUNITIES WHICH IS UNECONOMICAL AND FOCUSING THE OPERATIONS
9 ON SAN FRANCISCO, SAN MATEO AND POSSIBLY MARIN."
10 THE COURT: ALL RIGHT. LET'S TALK ABOUT DR. ROSSE'S
11 TESTIMONY.
12 MR. BALABANIAN: SURELY, YOUR HONOR.
13 THE COURT: I AM SURE YOU REMEMBER YOUR
14 CROSS-EXAMINATION OF HIM.
15 MR. BALABANIAN: I DO INDEED.
16 THE COURT: IS THERE ANY EVIDENCE TO CONTRADICT HIS
17 TESTIMONY THAT THE FANG TRANSACTION IS ALLOCATIVELY
18 INEFFICIENT?
19 MR. BALABANIAN: YES, YOUR HONOR, THERE IS.
20 DR. ROSSE'S OWN TESTIMONY ACKNOWLEDGED THAT TO THE EXTENT THAT
21 THE FANGS ARE BRINGING ECONOMIC COMPETITION TO THE NEWSPAPER
22 MARKET, THERE -- THE MONEY SPENT ON THE COST REIMBURSEMENTS
23 WILL YIELD A NET -- WILL YIELD A SOCIETAL BENEFIT. SO EVEN
24 DR. ROSSE HIMSELF ACKNOWLEDGED THE POTENTIAL, AT LEAST, THAT
25 THOSE DOLLARS WILL NOT BE SPENT IN A WAY THAT IS ALLOCATIVELY
2451
CLOSING ARGUMENT \ BALABANIAN
1 DEFICIENT.
2 I WOULD LIKE, IF I MAY, YOUR HONOR, TO MAKE THE
3 FOLLOWING POINTS ON THIS ISSUE: I HAVE NOW READ EVERY CASE ON
4 ALLOCATIVE EFFICIENCY CITED BY A PARTY TO THIS ACTION. I HAVE
5 NOT FOUND ONE IN WHICH ALLOCATIVE INEFFICIENCY HAS SUPPLIED A
6 CAUSE OF ACTION. FOR EVERY TRANSACTION WHICH COULD BE
7 SECOND-GUESSED BY AN ECONOMIST AS BEING UNWISE OR WASTEFUL,
8 IMPROVIDENT, WERE AN ANTITRUST VIOLATION, THE SCOPE OF THE
9 ANTITRUST LAWS WOULD BE VASTLY EXPANDED.
10 EVEN A SHAREHOLDER OF THE HEARST CORPORATION, WHICH
11 MR. REILLY CERTAINLY IS NOT, WOULD NOT BE ABLE TO CHALLENGE THE
12 PRUDENCE OR WISDOM OF THE DECISION WHICH THE HEARST MANAGEMENT
13 MADE TO RESOLVE DIFFERENCES WITH THE JUSTICE DEPARTMENT IN THE
14 WAY THEY CHOSE TO DO SO. THE BUSINESS JUDGMENT RULE WOULD BE A
15 BARRIER TO THAT -- TO ANY SUCH CLAIM.
16 NO COURT, YOUR HONOR, HAS EVER FOUND THE PRINCIPLE
17 OF ALLOCATIVE INEFFICIENCY TO SUPPLY A CAUSE OF ACTION. NO
18 COURT HAS EVER SAID BECAUSE A TRANSACTION SEEMS WASTEFUL OR
19 IMPROVIDENT, IT THEREFORE VIOLATES THE ANTITRUST LAWS.
20 ON THE CONTRARY, IN EVERY CASE I READ ALLOCATIVE
21 EFFICIENCY WAS A LIMITATION ON THE BREACH OF THE ANTITRUST
22 TRUST LAWS. FAR FROM TURNING OTHERWISE INNOCENT CONDUCT INTO
23 AN ANTITRUST VIOLATION, ALLOCATIVE EFFICIENCY WAS A PRINCIPLE
24 TO WHICH THE COURT LOOKED AS A WAY OF LIMITING ANTITRUST LAW
25 AND APPROVING CONDUCT WHICH MIGHT OTHERWISE VIOLATE THE
2452
CLOSING ARGUMENT \ BALABANIAN
1 ANTITRUST LAWS.
2 THAT IS VERY CLEAR IN THE REBEL OIL CASE. THAT
3 CASE, AS I AM SURE THE COURT IS AWARE, INVOLVED BELOW-COST
4 PRICING.
5 THE NINTH CIRCUIT'S ANALYSIS FOLLOWED THE FOLLOWING
6 COURSE: IT STARTED OFF CONCERNED THAT PREDATORY PRICING OF
7 THAT SORT MIGHT YIELD AN ANTITRUST VIOLATION.
8 IT CONCLUDED IN THE END THAT IT DID NOT, AT LEAST
9 UNDER THE SHERMAN ACT, ALTHOUGH IT ALLOWED THE CASE TO GO
10 FORWARD UNDER THE ROBINSON-PATMAN ACT BECAUSE OF A SLIGHTLY
11 DIFFERENT PROOF STANDARD.
12 THE COURT: WHAT DOES THIS SUBSIDY DO,
13 MR. BALABANIAN, TO POTENTIAL FOR ENTRY INTO THE SAN FRANCISCO
14 MARKET?
15 MR. BALABANIAN: WELL, PROFESSOR ROSSE SAID IT DID
16 NOT AFFECT THAT POTENTIAL, AND THAT'S THE ONLY EVIDENCE IN THE
17 RECORD ON THAT SUBJECT.
18 IF I MAY JUST COMPLETE THE POINT, ALLOCATIVE
19 EFFICIENCY I --
20 THE COURT: WAIT.
21 MR. BALABANIAN: I'M SORRY, YOUR HONOR. I DON'T
22 MEAN TO . . .
23 THE COURT: WELL, GO AHEAD. FINISH YOUR COMMENT.
24 I'M SORRY.
25 MR. BALABANIAN: IN REBEL OIL WHAT THE NINTH CIRCUIT
2453
CLOSING ARGUMENT \ BALABANIAN
1 SAID IS THIS CONDUCT MIGHT OTHERWISE BE AN ANTITRUST VIOLATION.
2 BUT BECAUSE THE DEFENDANTS LACKED MARKET POWER TO REAP
3 ANTIMONOPOLISTIC RENTS AFTER THE CONCLUSION OF A PERIOD, THERE
4 WOULD NOT BE THE KIND OF ALLOCATIVE EFFICIENCY WHICH THE
5 ANTITRUST LAWS ARE CONCERNED.
6 SO FAR AS THERE BEING A BASIS -- IT'S NOT A
7 FREE-FLOATING GROUND FOR CHALLENGING TRANSACTIONS THAT
8 OTHERWISE DO NOT VIOLATE THE ANTITRUST LAWS. IT IS A
9 LIMITATION ON THE REACH OF THE ANTITRUST LAWS.
10 WHAT -- WE WOULD CONFRONT THE VAST EXPANSION OF
11 ANTITRUST JURISDICTION WERE THE COURT TO BE EMPOWERED TO STRIKE
12 DOWN ANY TRANSACTION WHICH SOMEBODY COULD SHOW IS UNWISE OR IN
13 RETROSPECT WAS IMPRUDENT. AND I DO WISH TO ADDRESS IN MY
14 REMARKS THE QUESTION OF WHETHER THIS TRANSACTION IS UNWISE OR
15 IMPRUDENT BECAUSE I DON'T BELIEVE IT IS.
16 BUT, EVEN IF IT WERE, THAT DOES NOT MAKE IT AN
17 ANTITRUST VIOLATION. IT IS AT WORST A BUSINESS DECISION WHICH
18 IN RETROSPECT COULD HAVE BEEN MADE ANOTHER WAY. EVEN NOW
19 HEARST HAS NOT ASKED TO BE RELIEVED OF IT. HEARST IS NOT
20 SAYING IT WAS DONE UNDER DURESS OR UNDER MISTAKE OF LAW. IT
21 WAS IN JUDGMENT THAT THE MANAGEMENT OF HEARST CORPORATION --
22 THE COURT: IT SOUNDS TO ME LIKE THEY ARE CLAIMING
23 DURESS.
24 MR. BALABANIAN: YOUR HONOR, I JUST HEARD
25 MR. CONNELL SAY THAT THE JUSTICE DEPARTMENT ANNOUNCED ITS
2454
CLOSING ARGUMENT \ BALABANIAN
1 INTENTION TO SUE TO BLOCK HEARST'S ACQUISITION OF THE CHRONICLE
2 IF THERE WAS NOT A DISPOSITION MADE OF THE EXAMINER ON THE
3 TERMS THAT CARRIED WITH IT THE PROMISE OF SUCCESS. THAT IS THE
4 DIVESTITURE OF THE SORT THAT HAPPENS I WON'T SAY EVERY DAY OF
5 THE WEEK BUT CERTAINLY EVERY MONTH OF THE YEAR. IT IS A
6 FIX-IT-FIRST VESTITURE DONE IN RESPONSE TO A THOROUGH GOING,
7 INTENSIVE INVESTIGATION BY THE DEPARTMENT OF JUSTICE.
8 THE COURT: THE PROBLEM HERE IS THE SUBSIDY, ISN'T
9 IT?
10 MR. BALABANIAN: LET ME ADDRESS --
11 THE COURT: A DIVESTITURE IS ONE THING. A
12 LIQUIDATION OF THE ASSETS, A SALE OF THE ASSETS AT FAIR MARKET
13 VALUE, IS SOMETHING ELSE. THAT'S NOT WHAT THIS TRANSACTION IS.
14 MR. BALABANIAN: LET ME --
15 THE COURT: HAVE YOU FOUND AN INSTANCE IN WHICH THE
16 DEPARTMENT HAS REQUIRED A DIVESTITURE TO BE ACCOMPANIED BY A
17 SUBSIDY OF THE NATURE THAT WE ARE DEALING WITH HERE?
18 MR. BALABANIAN: I HAVE NOT, YOUR HONOR.
19 THE COURT: IS THERE ANY?
20 MR. BALABANIAN: NOT -- THERE IS NOT REPORTED ANY
21 CASE THAT DOES THAT.
22 THERE ARE, HOWEVER, YOUR HONOR, MANY CASES, INDEED
23 THE GREAT MAJORITY OF CASES, INVOLVING DIVESTITURES INCLUDED AS
24 ONE OF THEIR PROVISIONS A REQUIREMENT THAT ASSETS BE OFFERED
25 WITHOUT A MINIMUM PRICE; IN OTHER WORDS, AT LESS THAN MARKET
2455
CLOSING ARGUMENT \ BALABANIAN
1 VALUE. THAT IS BY DEFINITION, YOUR HONOR, A SUBSIDY.
2 WHEN SOMEBODY IS GETTING SOMETHING AND NOT PAYING
3 FULL VALUE FOR IT, IT INVOLVES PRO TANTO A MEASURE OF SUBSIDY.
4 AND THAT IS ALMOST --
5 THE COURT: SPECIFICALLY WHAT DO YOU HAVE IN MIND?
6 MR. BALABANIAN: YOUR HONOR, WE SET FORTH IN OUR
7 BRIEF A VERY LARGE NUMBER, PERHAPS TOO LARGE NUMBER, OF CASES,
8 REPORTED CASES, INVOLVING TERMS OF DIVESTITURES REQUIRED BY THE
9 JUSTICE DEPARTMENT AND THE FEDERAL TRADE COMMISSION. IN
10 VIRTUALLY EVERY CASE THAT WE -- WE FOUND, ONE OF THE
11 REQUIREMENTS WAS THAT CERTAIN VALUABLE ASSETS, SOMETIMES
12 REFERRED TO EVEN AS CROWN JEWELS, BE OFFERED WITHOUT MINIMUM
13 PRICE. AND --
14 THE COURT: BUT IS THERE ANY REQUIREMENT IN ANY OF
15 THOSE CASES THAT THEY BE SO BELOW FAIR MARKET VALUE?
16 MR. BALABANIAN: LET ME ADDRESS THAT, YOUR HONOR.
17 WE BELIEVE THAT ONE OF THE ASSETS OF THE EXAMINER,
18 INDEED ITS MOST VALUABLE ASSET, CONSISTS OF ITS RIGHTS UNDER
19 THE JOA. THAT'S REALLY UNMISTAKABLE FROM THE EVIDENCE THAT THE
20 COURT HAS RECEIVED ON BOTH SIDES OF THE AISLE.
21 MR. FANG AND INDEED I BELIEVE ALSO MR. REILLY WANTED
22 RIGHTS UNDER THE JOA. IT WAS NOT THEIR PREFERENCE TO BUY THE
23 EXAMINER SHORN OF ITS MOST VALUABLE ASSET.
24 HAD HEARST BEEN WILLING TO PART WITH A -- ANY RIGHTS
25 UNDER THE JOA, THIS WOULD BE AN ABSOLUTELY GARDEN VARIETY
2456
CLOSING ARGUMENT \ BALABANIAN
1 DIVESTITURE. THERE WOULD BE NO CURIOUS FEATURES TO EXCITE --
2 THE COURT: UNFORTUNATELY, THAT'S NOT OUR CASE.
3 MR. BALABANIAN: YOUR HONOR, IT WAS HEARST'S
4 DECISION TO COMMUTE THE JOA RIGHTS INTO DOLLARS. THEY HAD
5 AVAILABLE TO THEM THE OPTION OF SELLING THE EXAMINER WITH
6 ITS --
7 THE COURT: THE DEPARTMENT -- THE DEPARTMENT DIDN'T
8 REQUIRE THAT.
9 MR. BALABANIAN: I WASN'T PRIVY TO THOSE
10 DISCUSSIONS. WE HEARD HERE TODAY THAT THE DEPARTMENT SAID
11 YOU'VE GOT TO DO SOMETHING TO KEEP THESE EMBER ALIVE OR WE WILL
12 SUE TO BLOCK THE CHRONICLE TRANSACTION.
13 THE TRANSACTION WHICH WAS ARRIVED AT WITH RESPECT TO
14 THE EXAMINER ACCOMPLISHED THAT PURPOSE.
15 ONE THING THE PRESS RELEASE MAKES ABUNDANTLY CLEAR
16 IS THAT IT IS ONLY THE EXAMINER TRANSACTION WHICH RESOLVED THE
17 ANTITRUST CONCERNS OF THE DEPARTMENT. THE PRESS RELEASE SAYS
18 THAT TWICE. IT DOESN'T JUST SAY, "WE'RE GLAD THAT THEY'RE
19 SELLING THE EXAMINER." IT DOESN'T JUST SAY, "WE ARE CHOOSING
20 NOT TO TRY TO ENJOIN THE CHRONICLE TRANSACTION." IT SAYS,
21 "BECAUSE OF THE EXAMINER TRANSACTION, OUR ANTITRUST
22 CONCERNS" -- WHICH WE NOW UNDERSTAND WOULD OTHERWISE HAVE LED
23 THE DEPARTMENT TO BRING AN ACTION TO ENJOIN THE CHRONICLE
24 TRANSACTION -- "HAVE BEEN RESOLVED BY THE EXAMINER
25 TRANSACTION."
2457
CLOSING ARGUMENT \ BALABANIAN
1 IT WAS HEARST'S DECISION NOT TO SELL THE EXAMINER
2 WITH ITS JOA RIGHTS.
3 I WILL SAY NOW, FOLLOWING UP ON THE ALLOCATIVE
4 EFFICIENCY ANALYSIS THAT THE COURT HAS RAISED, THAT HAD IT DONE
5 SO, THE EFFECT WOULD HAVE BEEN TO PERPETUATE THE INEFFICIENCIES
6 INHERENT IN THE JOA. SO THAT THE GOAL OF ALLOCATIVE EFFICIENCY
7 WAS THAT ANYTHING ENHANCED -- I SAY THAT IN ALL SERIOUSNESS,
8 YOUR HONOR -- WAS ENHANCED BY SUBSTITUTING -- BY
9 SUBSTITUTING --
10 THE COURT: A LESSER EFFICIENT ALTERNATIVE.
11 MR. BALABANIAN: AND MORE --
12 THE COURT: THAT WAS YOUR CROSS-EXAMINATION OF
13 DR. ROSSE.
14 MR. BALABANIAN: MORE EFFICIENT.
15 THE COURT: THAT WAS YOUR CROSS-EXAMINATION OF
16 DR. ROSSE. YOU SAID, LOOK, MR. REILLY WOULDN'T TAKE THIS FOR
17 LESS THAN A $250 MILLION SUBSIDY. MY GUY TOOK IT FOR
18 66 MILLION.
19 MR. BALABANIAN: AND ALSO THAT THE --
20 THE COURT: THAT'S NOT A VERY GOOD ARGUMENT, IS IT,
21 MR. BALABANIAN?
22 MR. BALABANIAN: YOUR HONOR, I -- DR. ROSSE ALSO
23 MADE TWO OTHER POINTS IN CONNECTION WITH THE CROSS-EXAMINATION.
24 FIRST, THAT THERE IS LESS ECONOMIC DISTORTION RESULTING FROM
25 THE EXAMINER TRANSACTION WHICH HAS BEEN ENTERED INTO WHICH
2458
CLOSING ARGUMENT \ BALABANIAN
1 HEARST STILL WANTS TO HONOR AND WHICH THE DEPARTMENT OF JUSTICE
2 APPROVED, THEN IS INHERENT IN CONTINUING THE JOA.
3 DR. ROSSE ALSO AGREED -- HE EXPRESSLY STATED THAT.
4 HE SAID THERE IS LESS -- LESS DISLOCATION. AND WHEN YOU LOOK
5 AT THE NUMBERS, THAT'S OBVIOUSLY TRUE, IN THE AMOUNTS OF MONEY
6 THAT ARE BEING UNECONOMICALLY EXPENDED WITHIN THE JOA.
7 DR. ROSSE ALSO STATED THAT TO THE EXTENT THAT THE
8 NEW EXAMINER DOES PROVIDE ECONOMIC COMPETITION -- I WOULD LIKE
9 TO TURN TO THAT NEXT, IF I MAY, YOUR HONOR -- THAT WILL BE A
10 SOCIALLY BENEFICIAL OFFSETTING VALUE FROM THE COST
11 REIMBURSEMENT FUND.
12 IN OTHER WORDS, IT WILL BE PUT TO A GOOD USE, AND,
13 AS I WILL EXPLAIN IN A FEW MINUTES, THERE IS EVERY REASON TO
14 BELIEVE THAT TOTAL VALUE IS PRO-COMPETITIVE, COST SAVING WOULD
15 EQUAL AND IN FACT IN A VERY SHORT ORDER EXCEED THE ENTIRE
16 AMOUNT OF THE COST SAVING. AND I DO INTEND TO ADDRESS THAT.
17 BUT BEFORE I COMPLETE THE ISSUE OF THE END ANALYSIS
18 OF THIS QUESTION OF ALLOCATIVE EFFICIENCY, THE COURT HAS ASKED
19 SEVERAL TIMES WHETHER THERE IS ANY CONTRARY EVIDENCE.
20 THE COURT: WELL, YOU HAVE JUST MADE YOUR ARGUMENT.
21 MR. BALABANIAN: RIGHT, YOUR HONOR.
22 THE COURT: THAT KEEPING THE JOA GOING IS GOING TO
23 BE WORSE.
24 MR. BALABANIAN: THAT IS WHAT PROFESSOR ROSSE
25 SPECIFICALLY STATED AND IN OUR BRIEF WE HAVE REFERENCED THE
2459
CLOSING ARGUMENT \ BALABANIAN
1 PLACE WHERE HE DID SO.
2 BUT, YOUR HONOR, I WOULD SAY --
3 THE COURT: OF COURSE, THE JOA WAS -- AS OTHER
4 COUNSEL HAVE POINTED OUT, IT WAS A VOLUNTARY AGREEMENT. IT WAS
5 AT ARM'S LENGTH. IF IT TURNED OUT TO BE A BAD DEAL IN THE LONG
6 RUN, IF IT IN FACT HURT THE PARTIES -- WELL, NOBODY MADE THAT
7 DECISION BUT FANG.
8 THAT ISN'T TRUE WITH RESPECT TO THE MARCH 16TH
9 TRANSACTION.
10 MR. BALABANIAN: THERE WAS ANOTHER PLAYER,
11 UNDOUBTEDLY.
12 THE COURT: THERE WAS ANOTHER PLAYER.
13 MR. BALABANIAN: THE DULY CONSTITUTED --
14 THE COURT: OR PLAYERS.
15 MR. BALABANIAN: THE DULY CONSTITUTED AGENCY
16 RESPONSIBLE FOR ENFORCING BOTH THE ANTITRUST LAWS AND THE
17 NEWSPAPER PRESERVATION ACT.
18 BUT BEFORE LEAVING ALLOCATIVE EFFICIENCY, YOUR
19 HONOR, I DO WANT TO MAKE THIS POINT VERY CLEARLY. EVEN NOW THE
20 PLAINTIFF IS NOT ALLEGING THAT THE EXAMINER TRANSACTION IS
21 INDEPENDENTLY VIOLATIVE OF THE ANTITRUST LAWS BECAUSE OF THE
22 PRESENCE OF THE SUBSIDY. THAT CLAIM WAS NOT PRESENTED IN THE
23 ORIGINAL COMPLAINT.
24 THE COURT: WELL --
25 MR. BALABANIAN: WE HAD NO NOTICE OF IT.
2460
CLOSING ARGUMENT \ BALABANIAN
1 THE COURT: THAT WAS BEFORE -- THE ORIGINAL
2 COMPLAINT WAS FILED BEFORE THE TRANSACTION WAS COMPLETED.
3 MR. BALABANIAN: CORRECT, YOUR HONOR. BUT EVEN --
4 EVEN IN THE AMENDED COMPLAINT, IF I UNDERSTAND --
5 THE COURT: I UNDERSTAND.
6 MR. BALABANIAN: -- THAT CLAIM --
7 THE COURT: LET ME ASK YOU, THEN, DO I HAVE ENOUGH
8 BEFORE ME TO DECIDE THIS PART OF THE CASE?
9 MR. BALABANIAN: YOUR HONOR, I BELIEVE THE CASE HAS
10 BEEN TRIED ON THE BASIS OF THE ALLEGATIONS MADE, AND I WOULD
11 REFER THE COURT RESPECTFULLY TO THE TENDERED AMENDMENT.
12 PARAGRAPH 14 IS THE HEART OF IT. THERE PLAINTIFF ALLEGES THAT
13 THE TRANSACTION, THE EXAMINER TRANSACTION, DOES NOT PROVIDE
14 SUFFICIENT ASSETS, RESOURCES OR SUBSIDY FROM HEARST -- DOES NOT
15 PROVIDE SUFFICIENT RESOURCES TO PERMIT THE CONTINUATION OF THE
16 EXAMINER AS A DAILY NEWSPAPER.
17 IT IS, YOUR HONOR, I RESPECTFULLY SUBMIT, QUITE
18 IMPOSSIBLE TO READ A COMPLAINT WHICH SAYS THE SUBSIDY IS NOT
19 LARGE ENOUGH AS ALLEGING A CLAIM THAT THE SUBSIDY IS
20 ALLOCATIVELY INEFFICIENT.
21 THE COURT: ALL RIGHT.
22 MR. BALABANIAN: WE HAD NO NOTICE THAT THAT ISSUE
23 WAS IN THE CASE. IT IS STILL NOT IN THE CASE ACCORDING TO THE
24 PLAINTIFF, AND WE HAD NO OPPORTUNITY TO PRESENT CONTRA
25 EVIDENCE. INDEED, THE ONLY OPPORTUNITY I HAD, AS THE COURT
2461
CLOSING ARGUMENT \ BALABANIAN
1 REMARKS, WAS TO CROSS-EXAMINE PROFESSOR ROSSE.
2 THE COURT: WELL, THAT'S WHY I WONDERED WHETHER --
3 MR. BALABANIAN: I THINK IT'S UP TO THE PLAINTIFF TO
4 PUT IN THE EVIDENCE, YOUR HONOR, AND HE HAS THE BURDEN OF
5 PROOF. HE HAS TO MEET THE ALLEGATIONS.
6 AND THE POINT I WANT TO MAKE IS -- I AM NOT PLAYING
7 WORD GAMES, YOUR HONOR. THE COURT ASKED THE PLAINTIFF AT THE
8 END OF THE TRIAL TO CONSIDER -- ASKED ALL THE PARTIES TO
9 CONSIDER WHETHER THE TRANSACTIONS MIGHT BE ANALYZED IN
10 ISOLATION AND WHETHER THERE WAS ANY BASIS FOR CHALLENGING THE
11 EXAMINER TRANSACTION AS INDEPENDENTLY VIOLATIVE OF THE
12 ANTITRUST LAWS.
13 MR. ALIOTO HAD AMPLE TIME TO REFLECT ON THAT. AND
14 IF HE HAD A THEORY, WHETHER IT'S BARRIERS TO THE MARKET ENTRY
15 OR ALLOCATIVE EFFICIENCY, HE COULD AND SHOULD HAVE ADDUCED IT.
16 WHAT HE HAS COME FORTH WITH IS PRECISELY THE
17 OPPOSITE. IT'S AN ALLEGATION THAT THE SUBSIDY IS NOT ENOUGH.
18 THERE IS NOT ENOUGH ALLOCATIVE INEFFICIENCY TO ASSURE THE
19 CONTINUED SURVIVAL OF THE EXAMINER. I DON'T THINK THESE ISSUES
20 ARE BEFORE THE COURT AND I DON'T THINK THAT WE CAN OR SHOULD BE
21 REQUIRED TO RESPOND.
22 THE COURT: I UNDERSTAND.
23 MR. BALABANIAN: MAY I TURN, THEN, YOUR HONOR,
24 BRIEFLY -- I APPRECIATE THE HOUR IS LATE, BUT THESE ARE ISSUES
25 OF VERY IMPORTANCE, AS I AM SURE THE COURT UNDERSTANDS, TO THE
2462
CLOSING ARGUMENT \ BALABANIAN
1 FANGS.
2 THE COURT: ALL RIGHT.
3 MR. BALABANIAN: AND THERE HAS BEEN A GREAT DEAL OF
4 TIME AND CREDIBILITY IN PRESENTING THIS MATTER.
5 THE COURT: LET'S GO BACK TO AN EARLIER POINT FIRST.
6 MR. BALABANIAN: SURE.
7 THE COURT: ASSUMING THE FIGURES THAT HAVE BEEN
8 GIVEN PRIMARILY, I THINK, BY MR. ROSCH, AN ESTIMATE THAT THE
9 CHRONICLE WILL PICK UP ABOUT 40 PERCENT OF THE EXAMINER'S
10 CIRCULATION, THAT WOULD MEAN USING -- I AM USING THE 1996
11 FIGURES, AND THEY ARE PROBABLY A BIT LOWER NOW, AND I THINK THE
12 LATEST WE HAVE ARE '98. BUT, IN ANY EVENT.
13 THAT WOULD GIVE IN SAN FRANCISCO THE CHRONICLE JUST
14 UNDER 78 PERCENT SHARE. THAT'S PRETTY HIGH, ISN'T IT? THAT
15 BEGINS TO RAISE CONCERNS ABOUT PREDATORY PRICING, DOESN'T IT?
16 WHEN YOU HAVE MARKET SHARE -- A MARKET SHARE THAT IS THAT HIGH?
17 MR. BALABANIAN: YOU ARE TALKING ABOUT THE POSITION
18 OF THE CHRONICLE?
19 THE COURT: CORRECT.
20 MR. BALABANIAN: AFTER BOTH OF THESE TRANSACTIONS
21 HAVE TAKEN PLACE?
22 THE COURT: CORRECT.
23 MR. BALABANIAN: WELL, YOUR HONOR, I THINK THAT IS
24 AN ISSUE ON WHICH WE HAVE RELATIVELY LITTLE TO SAY. OUR POINT
25 IS THAT OUR TRANSACTION BRINGS COMPETITION WHICH TODAY DOES NOT
2463
CLOSING ARGUMENT \ BALABANIAN
1 EXIST AND BRINGS COMPETITION IN THE ONLY WAY IN WHICH ANYONE --
2 ANYONE WHO SAT IN THAT STAND SAID MIGHT WORK.
3 THERE HAS BEEN NO SUGGESTION BY ANYONE THAT A
4 METROPOLITAN NEWSPAPER, WHATEVER THAT IS, COULD -- CAN MAKE A
5 GO OF IT WITHOUT MASSIVE INFUSIONS OF MONEY AND EVEN GREATER
6 ECONOMIC DISLOCATION THAN IS PRESENT IN THE CURRENT
7 TRANSACTION.
8 EVERYONE WHO ADDRESSED THE COURT STATED -- AND I
9 WANT PARTICULARLY TO SINGLE OUT PLAINTIFF'S OWN EXPERT -- AS
10 SAYING THAT THE ONLY PRODUCT THAT HAS A CHANCE OF SUCCESS IN
11 THE MARKETPLACE IS A GEOGRAPHICALLY LIMITED ONE OF THE SORT
12 THAT I DESCRIBED IN MY OPENING STATEMENT TO THE COURT, ONE THAT
13 IS PUBLISHED IN THE MORNING. PLAINTIFF'S OWN EXPERTS COUNSELED
14 HIM TO THAT EFFECT IN THE DOCUMENTS, THE BUSINESS PLANS WHICH
15 ARE BEFORE THE COURT. JUST ONE EXAMPLE IS EXHIBIT 20 WHERE
16 PLAINTIFF'S OWN EXPERT SAID THAT THE REILLY EXAMINER WILL BE A
17 SAN FRANCISCO NEWSPAPER WITHOUT REGIONAL CIRCULATION, VIRTUALLY
18 THE STATEMENT THAT I MADE TO THE COURT IN MY STATEMENT.
19 PLAINTIFF IS REALLY IN THE GROTESQUE POSITION OF
20 ARGUING THAT HIS OWN PLANS FOR THE EXAMINER WOULD HAVE YIELDED
21 AN ANTITRUST VIOLATION.
22 INDEED, MR. ASHER NOTED THAT EVERY ONE OF THE
23 PARTIES THAT ACTUALLY EXPRESSED AN INTEREST IN TAKING THE
24 EXAMINER AND TRYING TO MAKE IT SUCCEED INDEPENDENTLY CAME UP
25 WITH THE SAME PLAN.
2464
CLOSING ARGUMENT \ BALABANIAN
1 AND EVEN PROFESSOR ROSSE, AS NEGATIVE AS HE WAS
2 ABOUT THE PROSPECTS OF THE NEW EXAMINER, DID TESTIFY THAT THE
3 PLAN PUT FORWARD BY THE FANGS HAS THE BEST CHANCE OF SUCCESS.
4 INDEED, HIS FINAL WORDS WERE, "I WOULDN'T BET AGAINST THEM."
5 SO THAT THERE IS NOT AN OPTION OF A REGION-WIDE
6 METROPOLITAN NEWSPAPER. THE MARKET HAS SPOKEN ON THAT. THERE
7 IS, HOWEVER, A VERY REAL OPTION OF A PAPER OF THE SORT THAT THE
8 FANGS PROPOSE TO PRINT, AND THAT OPTION AND ITS FEASIBILITY HAS
9 BEEN CORROBORATED BY EVERY SINGLE PERSON WHO TESTIFIED IN THIS
10 CASE.
11 NOT ONLY DOES THE NEW EXAMINER CARRY WITH IT THE
12 PROSPECT OF SUCCESS, THE COMPETITION IT WILL BRING ON THE
13 ECONOMIC SIDE WILL BE ENTIRELY NEW.
14 THERE IS NO ECONOMIC COMPETITION TODAY. EVEN
15 PLAINTIFF DOES NOT DISPUTE THAT THE EXAMINER TRANSACTION WILL
16 BRING SOME COMPETITION. PLAINTIFF'S ONLY ARGUMENT IS THAT IT
17 WON'T BE ENOUGH AND IT WON'T LAST LONG ENOUGH BECAUSE THE
18 SUBSIDY ISN'T LARGE ENOUGH.
19 BUT CLEARLY THERE WILL BE SOME COMPETITION. THERE
20 WILL BE PARTICULARLY COMPETITION FOR ADVERTISERS. IN HIS
21 REMARKS THIS MORNING MR. ALIOTO SAID THAT THE ADVERTISERS WERE
22 ALL LOCKED UP. THAT IS NOT CORRECT. MR. FALK OF THE SFNA
23 TESTIFIED AT PAGE 1438 THAT ALL EXISTING ADVERTISING CONTRACTS
24 WILL TERMINATE WITH THE JOA AND THE BUSINESS WILL BE UP FOR
25 GRABS.
2465
CLOSING ARGUMENT \ BALABANIAN
1 THE COURT WILL RECALL MR. FANG NEGOTIATED SPECIFIC
2 TERMS OF HIS AGREEMENT WITH HEARST WHICH PROVIDED THERE WOULD
3 BE NO EXCLUSIVITY WITH SYNDICATED COLUMNS, THAT THERE WOULD BE
4 JOINT SALES CALLS ON ADVERTISERS FOR A PERIOD. THESE ARE
5 BARGAINED-FOR TERMS WHICH ARE IN NO WAY SUGGESTIVE OF A SHAM OR
6 A DETERMINATION NOT TO SUCCEED. ON THE CONTRARY, THERE
7 WOULDN'T BE ANY POINT IN SEEKING THOSE PROVISIONS IF THE FANGS
8 DID NOT BOTH CONTEND AND EXPECT THAT THEY WOULD SUCCEED IN
9 COMPETING DIRECTLY --
10 THE COURT: WHAT HAPPENS IF FANG GOES OUT OF
11 BUSINESS AND CEASES TO PUBLISH THE EXAMINER? WHAT HAPPENS TO
12 THE -- TO THOSE RIGHTS UNDER THE CONTRACT?
13 MR. BALABANIAN: I SUPPOSE THEY COULD BE ASSIGNED TO
14 ANOTHER PARTY IF THERE WERE STILL A PERIOD LEFT UNDER THE
15 AGREEMENT.
16 THE COURT: THEY DON'T REVERT TO HEARST? WHAT DOES
17 THE CONTRACT PROVIDE?
18 MR. BALABANIAN: YOUR HONOR, I DON'T KNOW THE ANSWER
19 TO THAT. THE FULL AND FAIR ANSWER IS I DON'T KNOW.
20 THE COURT: THAT'S FAIR.
21 MR. BALABANIAN: CERTAINLY WE DON'T -- WE DON'T
22 GUARANTEE SUCCESS. OBVIOUSLY, THERE IS RISK PRESENT IN THIS
23 TRANSACTION, RISKS THAT THE FANGS HAVE BEEN WILLING TO
24 UNDERTAKE IN THE INTERESTS OF ACHIEVING A SUCCESS.
25 THE COURT: BUT THEY ARE NOT INTENDING TO PUT ANY OF
2466
CLOSING ARGUMENT \ BALABANIAN
1 THEIR OWN MONEY INTO THIS TRANSACTION.
2 MR. BALABANIAN: YOUR HONOR, THEY DON'T THINK THAT
3 WOULD BE NECESSARY. THEY HAVE INDICATED THAT THEY WILL SEEK
4 BANK FINANCING THE WAY ANY OTHER BUSINESS DOES. THEY ARE ALSO
5 PREPARED, IF NECESSARY, TO ADMIT OTHER INVESTORS WHO HAVE
6 EXPRESSED INTEREST.
7 I DON'T BELIEVE THAT THERE IS ANY SUGGESTION THAT
8 THEY DO NOT SINCERELY WISH THE PAPER TO SUCCEED. IN FACT, THE
9 INCENTIVES UNDER THE AGREEMENT ARE EXTREMELY POWERFUL,
10 MOTIVATING IN THE DIRECTION OF SUCCESS, OF WHICH THE MOST
11 IMPORTANT, OF COURSE, IS IF THEY DO SUCCEED THEY END UP WITH A
12 NEWSPAPER WHICH CONTINUES TO GENERATE REVENUE.
13 THEY ALSO -- AND THIS IS VERY IMPORTANT -- GET TO
14 KEEP WHATEVER REVENUE DURING WHATEVER PERIOD THE PAPER IS ABLE
15 TO SURVIVE.
16 WE PRESENTED TO THE COURTS THE MOST RECENT
17 PROJECTIONS FROM THE FANGS WHICH SHOW REVENUES OVER THE THREE
18 YEARS, A SUBSIDY PERIOD OF OVER $35 MILLION, WHICH DWARFS
19 THE -- THE COST REIMBURSEMENT. IT'S A FACTOR OF TEN TO ONE.
20 THE COST SAVING IS SPLIT BETWEEN THE EXAMINER -- I'M SORRY,
21 BETWEEN HEARST AND THE FANGS, WHICH IS THE BURDEN -- THE
22 PRINCIPAL ARGUMENT THAT MR. ALIOTO HAS ADVANCED AS TO WHY THE
23 FANGS ARE NOT SERIOUS AND ARE NOT PROPERLY INCENTED TO MAKE THE
24 TRANSACTION A SUCCESS.
25 BUT AGAIN, YOUR HONOR, THE ONLY POINT OF DIFFERENCE
2467
CLOSING ARGUMENT \ BALABANIAN
1 BETWEEN THE PLAINTIFF AND THE DEFENDANTS IS NOT THAT THE NEW
2 EXAMINER WILL NOT BRING COMPETITION BUT ONLY THE QUESTION OF
3 WHETHER THERE IS ENOUGH OF A SUBSIDY TO PROVIDE ASSURANCE THAT
4 THAT COMPETITION WILL ENDURE.
5 I WOULD LIKE TO SAY ONE OTHER VERY IMPORTANT THING
6 ABOUT THE -- THE COMPETITION FOR ADVERTISING THAT WILL RESULT
7 FROM THE EXAMINER TRANSACTION.
8 IT IS NOT SIMPLY THAT ADVERTISERS WILL FOR THE FIRST
9 TIME HAVE THE OPPORTUNITY TO BUY ADVERTISING IN THEIR NEW
10 PUBLICATION, THE NEW EXAMINER. THEY WILL GET SOMETHING ELSE,
11 SOMETHING THAT LEVERAGES THE COMPETITION PROVIDED BY THE NEW
12 EXAMINER ENORMOUSLY.
13 THE COURT HAS HEARD UNCONTROVERTED TESTIMONY THAT
14 EVERY COMMUNITY IN THE BAY AREA HAS A LOCAL NEWSPAPER EXCEPT
15 SAN FRANCISCO. THIS MEANS THAT AN ADVERTISER WHO WANTS TO PUT
16 TOGETHER A REGIONAL BUY AND COVER THE BAY AREA IS FORCED TO
17 DEAL WITH THE CHRONICLE AND THE EXAMINER.
18 THE EXAMINER -- ADVERTISERS DO NOT HAVE AVAILABLE TO
19 THEM THE OPTION OF PIECING TOGETHER A REGIONAL BUY BECAUSE OF
20 THE HOLE IN THE DONUT. THAT HOLE WILL NOW BE FILLED AND THERE
21 WILL BE REAL HEAD-AND-HEAD COMPETITION, DIRECT COMPETITION,
22 FULL ECONOMIC COMPETITION, BETWEEN NOT JUST THE NEW EXAMINER
23 AND THE CHRONICLE BUT BETWEEN THE REGIONAL NEWSPAPERS WHO CAN
24 NOW OFFER AN ALTERNATIVE TO ADVERTISERS WHO WANT BAY AREA
25 COVERAGE.
2468
CLOSING ARGUMENT \ BALABANIAN
1 LET'S PUT THIS -- LET'S PUT SOME NUMBERS ON THIS.
2 IF -- IF THE NEW EXAMINER, EITHER BY ITSELF OR AS LEVERAGED
3 THROUGH THE OTHER NEWSPAPERS THAT I MENTIONED, IS ABLE TO -- TO
4 LIMIT PRICE INCREASES BY FIVE PERCENT, EITHER THROUGH A
5 REDUCTION OR THROUGH AN AVOIDED INCREASE, FIVE PERCENT -- NOT
6 UNTHINKABLE SINCE THIS WILL BE A WHOLE NEW COMPETITION -- THAT
7 FIGURE APPLIED TO THE TOTAL ADVERTISING REVENUES OF THE SFNA
8 MEANS THAT THE ENTIRE $66 MILLION SUBSIDY, WHICH MIGHT
9 OTHERWISE BE THOUGHT OF AS NOT SERVING ANY SOCIAL UTILITY,
10 WOULD BE FULLY RECOUPED BY SOCIETY IN THE FORM OF LOWER
11 ADVERTISING RATES IN ONLY FIVE YEARS.
12 AND, OF COURSE, THAT COMPETITION WOULD GO ON FOR AS
13 LONG AS THE EXAMINER, THE NEW EXAMINER AND THE OTHER PAPERS ARE
14 ABLE TO MAKE A GO OF IT.
15 THE MONEY IS NOT GOING DOWN A RAT HOLE. IT WILL
16 RESURFACE IN OUR COMMUNITY IN THE FORM OF ECONOMIC COMPETITION
17 WHICH WE HAVE NOT HAD FOR 35 YEARS, VIGOROUS EDITORIAL
18 COMPETITION AND READER SATISFACTION.
19 THERE WAS TESTIMONY, YOUR HONOR, THAT THE SUNDAY
20 NEWSPAPER DOESN'T HAVE A SINGLE LINE OF LOCAL NEWS BECAUSE THE
21 EXAMINER HAS NO LOCAL NEWS PAYROLL. THAT IS AN UNMET NEED.
22 THAT IS A SOCIETAL DEFICIT WHICH THE NEW EXAMINER WILL FILL.
23 IT'S THE ONLY PAPER THAT MAKES ANY SENSE, AND IF IT
24 WERE INCUMBENT UPON US TO ESTABLISH THAT ALL THE MONEY IS WELL
25 SPENT -- AND I DON'T BELIEVE IT IS FOR THE REASON THAT I STATED
2469
CLOSING ARGUMENT \ BALABANIAN
1 EARLIER, THAT SPENDING MONEY UNWISELY IS NOT, NEVER HAS BEEN,
2 AN ANTITRUST VIOLATION, AND IF IT WERE THIS COURT'S DOCKET
3 WOULD BE A LOT FULLER THAN IT IS RIGHT NOW BECAUSE THERE ARE A
4 LOT OF DUMB TRANSACTIONS BEING DONE OUT THERE.
5 IN THE END, YOUR HONOR, WE COME BACK TO THE
6 TOUCHSTONE OF THIS CASE, AND THAT IS WHERE IS THE ANTITRUST
7 VIOLATION? WHERE -- AND ALSO WHERE IS PLAINTIFF'S STANDING TO
8 COMPLAIN OF?
9 THERE WAS A LONG DISCUSSION THAT I DON'T WISH -- I
10 DON'T INTEND TO REOPEN REGARDING WHAT THE APPLICABLE STANDARD
11 IS FOR ASSESSING PLAINTIFF'S STANDING. I SIMPLY WOULD CALL
12 ATTENTION TO PLAINTIFF'S PROPOSED CONCLUSIONS OF LAW IN WHICH
13 EVEN PLAINTIFF DOES NOT CLAIM THAT HE HAS STANDING TO CHALLENGE
14 THE EXAMINER TRANSACTION. AS CONCLUSION OF LAW NUMBER 2 READS:
15 "PLAINTIFF IS A CONSUMER, A SUBSCRIBER TO
16 THE CHRONICLE, AND A PURCHASER OF THE EXAMINER.
17 PLAINTIFF THEREFORE HAS STANDING UNDER THE
18 ANTITRUST LAWS TO CHALLENGE HEARST'S ACQUISITION
19 OF THE CHRONICLE."
20 THAT IS THE ONLY STANDING WHICH PLAINTIFF HIMSELF
21 CLAIMS TO HAVE.
22 FINALLY, YOUR HONOR, IF I MAY -- I'M SORRY. I -- I
23 GOT THE -- THE END OF THE STICK HERE, AND SO IF THE COURT WILL
24 INDULGE ME JUST A MOMENT LONGER.
25 IN -- AT THE OUTSET OF TRIAL YOUR HONOR OBSERVED
2470
CLOSING ARGUMENT \ BALABANIAN
1 THAT A GOOD SETTLEMENT IS BETTER THAN A TRIAL. HEARST --
2 THE COURT: A GOOD SETTLEMENT IS BETTER THAN -- A
3 BAD SETTLEMENT IS BETTER THAN A GOOD TRIAL.
4 MR. BALABANIAN: I'M SORRY, A BAD SETTLEMENT IS
5 BETTER THAN A GOOD TRIAL. I WOULD HAVE THOUGHT I WOULD HAVE
6 GOT THAT RIGHT.
7 THE COURT: WELL, WE HAVE HAD A GOOD TRIAL.
8 MR. BALABANIAN: WE HAVE HAD A GOOD TRIAL, YOUR
9 HONOR. WE HAVE HAD AN EXCELLENT TRIAL, AND I WANTED TO ECHO
10 THE SENTIMENTS OF THOSE WHO HAVE GONE BEFORE ME IN EXPRESSING
11 APPRECIATION IN THE WAY IT HAS BEEN CONDUCTED.
12 BUT I THINK IT IS ONLY RIGHT TO LOOK AT THE
13 ARRANGEMENT THAT HEARST MADE WITH THE DEPARTMENT OF JUSTICE AS
14 A SETTLEMENT. IT WAS A BUSINESS JUDGMENT, MADE BY HEARST,
15 RATHER THAN TAKE THE CHANCES OF A DEPARTMENT OF JUSTICE ACTION
16 COMING AFTER MONTHS OF INVESTIGATION -- AND PERSONALLY, YOUR
17 HONOR, I REGARD THE LENGTH OF THE INVESTIGATION AS PROBATIVE OF
18 THE SERIOUSNESS AND THE THOROUGHNESS WITH WHICH THE MATTER WAS
19 CONDUCTED. MR. FANG -- MR. ALIOTO COMPLAINED THAT THE
20 DEPARTMENT OF JUSTICE TALKED TO MR. FANG FIVE TIMES. HARD TO
21 PUT A SINISTER INTERPRETATION ON THAT. HE WAS GRILLED UP ONE
22 SIDE AND DOWN THE OTHER AS TO THE VERY POINTS THAT WE HEAR
23 ABOUT HERE TODAY, NAMELY, WHAT HE PLANS TO DO AND WHAT REASON
24 THERE IS TO BELIEVE THAT HE CAN SUCCEED.
25 FAR FROM ATTRIBUTING ANY IMPROPER PURPOSE TO THAT, I
2471
CLOSING ARGUMENT \ BALABANIAN
1 BELIEVE THAT IT IS HIGHLY CORROBORATIVE THAT THE PROCESSES OF
2 THE DEPARTMENT OF JUSTICE WERE FOLLOWED PROPERLY HERE, THE
3 LENGTH AND THOROUGHNESS OF THE INVESTIGATION CANNOT BE
4 CHALLENGED, AND IN THE END HEARST'S MANAGEMENT, IN THE EXERCISE
5 OF THEIR BUSINESS JUDGMENT, DECIDED THAT IT WAS BETTER TO ENTER
6 INTO A TRANSACTION WHICH WOULD KEEP THE EXAMINER ALIVE -- THEY
7 WERE NOT WILLING TO DO IT WITHIN THE JOA. THEY OFFERED CASH IN
8 LIEU OF THE LARGEST ASSET, THE MOST VALUABLE ASSET OF THE
9 EXAMINER, NAMELY, THE JOA RIGHTS, AND ON THAT BASIS, AS THE
10 PRESS RELEASE MAKES ABUNDANTLY CLEAR -- ON THAT BASIS AND THAT
11 BASIS ALONE THE DEPARTMENT OF JUSTICE STATED THAT ITS ANTITRUST
12 CONCERNS HAD BEEN RESOLVED.
13 IT IS INDEED UNUSUAL TO HAVE A NEGATIVE PURCHASE
14 PRICE. IT IS NOT AT ALL UNUSUAL TO HAVE THE DIVESTITURE DONE
15 UNDER THREAT OF DEPARTMENT OF JUSTICE INTERVENTION. IT IS NOT
16 AT ALL UNUSUAL FOR THOSE DIVESTITURES TO INCLUDE TERMS WHICH
17 ECONOMICALLY ARE VERY WEIRD. COMPANIES ARE REQUIRED TO DIVEST
18 THEM OF CROWN JEWEL ASSETS, THINGS THAT THEY WOULD NEVER
19 CONSIDER IN THE ORDINARY COURSE OF BUSINESS, AND THEY DO THAT
20 IN ORDER TO SATISFY REGULATORY CONCERNS.
21 HUNDREDS OF CASES HAVE BEEN RESOLVED BY FIX-IT-FIRST
22 DIVESTITURES RATHER THAN CLOGGING THE COURTS WITH INJUNCTIVE
23 PROCEEDINGS. AND THAT IS PRECISELY WHAT HAPPENED HERE. THERE
24 IS NO INDICATION TO THE CONTRARY. AND ALL OF THE EVIDENCE
25 WHICH ALLUSION IS MADE ABOUT THE LENGTH AND THOROUGHNESS OF THE
2472
CLOSING ARGUMENT \ BALABANIAN
1 INVESTIGATION ALL ARE CONSISTENT WITH ITS PROBITY, ITS
2 PROFESSIONALISM AND ULTIMATELY WITH THE WISDOM AND PRUDENCE OF
3 THE HEARST MANAGEMENT WHICH DECIDED IN THE END THAT IT WAS
4 BETTER TO ENTER INTO THIS TRANSACTION, COMMUTING THE RIGHTS OF
5 THE JOA INTO CASH, THAN TO TAKE THE CHANCE WHICH EXISTED THEN
6 AND EXISTS NOW THAT THE DEPARTMENT OF JUSTICE WILL TRY TO BLOCK
7 THE TRANSACTION.
8 THE COURT: WHAT YOU ARE SAYING IS THAT HEARST
9 DECIDED THAT A BAD SETTLEMENT IS BETTER THAN A GOOD TRIAL.
10 MR. BALABANIAN: YES, YOUR HONOR. AND THE COURT WAS
11 ABSOLUTELY CORRECT IN SAYING THAT. AND TODAY -- EVEN TODAY
12 HEARST DOES NOT ASK TO BE RELIEVED OF THAT. INDEED, YOUR
13 HONOR, THERE IS NOT A SINGLE PARTY BEFORE THE COURT WHICH IS
14 ASKING THAT THE EXAMINER TRANSACTION IN ISOLATION BE BLOCKED,
15 CERTAINLY NOT PLAINTIFF WHO HAS BROUGHT THIS.
16 THE COURT: WELL --
17 MR. BALABANIAN: IT'S NOT IN HIS -- EVEN IN HIS
18 AMENDED COMPLAINT, YOUR HONOR. AND THE COURT ASKED MR. ALIOTO
19 ABOUT THAT AND HE EVADED THAT QUESTION SUCCESSFULLY.
20 NO ONE IS ASKING FOR THAT RESULT. IT WOULD SURELY
21 BE ANOMALOUS THAT A LAWSUIT BROUGHT FOR THE OSTENSIBLE PURPOSE
22 OF SAVING THE EXAMINER, WHICH IS WHAT PLAINTIFF HAS SAID IN
23 EVERY PAPER FILED WITH THIS COURT AND WITH EACH ONE OF HIS
24 ENDLESS PRESS CONFERENCES AND SOUND BITES, IF A LAWSUIT BROUGHT
25 FOR THE PURPOSE OF SAVING THE EXAMINER PRODUCES THE OPPOSITE
2473
CLOSING ARGUMENT \ BALABANIAN
1 RESULT.
2 INDEED, YOUR HONOR, IT WOULD BE BIZARRE IF ON THE
3 BASIS OF A CLAIM WHICH HAS NEVER BEEN ASSERTED, WHICH IS EVEN
4 NOW NOT ASSERTED, THE COURT WERE TO DECREE A RESULT THAT NO ONE
5 HAS EVER ASKED.
6 THANK YOU.
7 THE COURT: ALL RIGHT. COUNSEL, THE MATTER WILL BE
8 SUBMITTED. I UNDERSTAND THAT YOU ARE INTERESTED IN A PROMPT
9 DECISION AND I WILL ATTEMPT TO PROVIDE THAT.
10 ONCE AGAIN, I WANT TO COMMEND THE LAWYERS ON BOTH
11 SIDES. THIS CERTAINLY HAS BEEN A VERY WELL TRIED CASE,
12 EXCELLENT LAWYERING ON BOTH SIDES WITHIN A VERY SHORT PERIOD OF
13 TIME.
14 YOU ALL HAVE ACQUITTED YOURSELVES MAGNIFICENTLY.
15 MR. HALLING: THANK YOU, YOUR HONOR.
16 (PROCEEDINGS ADJOURNED FOR THE DAY AT 2:05 P.M.)
17
18
19
20
21
22
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24
25
CERTIFICATE OF REPORTERS
WE, THE UNDERSIGNED OFFICIAL REPORTERS FOR THE
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA,
DO HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS IN C 00-0119
VRW, CLINTON REILLY V. THE HEARST CORPORATION, ET AL., PAGES
NUMBERED 1 THROUGH 2473, INCLUSIVE, WERE REPORTED BY US,
CERTIFIED SHORTHAND REPORTERS, AND WERE THEREAFTER TRANSCRIBED
UNDER OUR DIRECTION INTO TYPEWRITING; THAT THE FOREGOING IS A
FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS AS BOUND BY
ME AT THE TIME OF FILING.
THE VALIDITY OF THE REPORTERS' CERTIFICATIONS OF
SAID TRANSCRIPTS MAY BE VOID UPON DISASSEMBLY AND/OR REMOVAL
FROM THE COURT FILE.
_________________________
JO ANN BRYCE, CSR 3321
_________________________
JUDITH N. THOMSEN, CSR 5591
WEDNESDAY, MAY 31, 2000
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