Memorandum Opinion : Community Publishers, Inc. et al. v. Dorney Corp., et al.; U.S. v. Nat, L.C. and D.R. Partners d/b/a Donrey Media Group

COMMUNITY PUBLISHERS, INC.;
and SHEARIN INC. d/b/a SHEARIN & COMPANY REALTORS,

PLAINTIFFS
v.
DONREY CORP. d/b/a DONREY MEDIA GROUP;
NAT, L.C.; THOMSON NEWSPAPERS, INC.; and
THE NORTHWEST ARKANSAS TIMES,

DEFENDANTS;

UNITED STATES OF AMERICA,

PLAINTIFF
v.
NAT, L.C. and D.R. PARTNERS d/b/a DONREY MEDIA GROUP,

DEFENDANTS
COMMUNITY PUBLRS., INC. v. DONREY CORP.
Civil No. 95-5026, Civil No. 95-5048
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
ARKANSAS, FAYETTEVILLE DIVISION
1995 U.S. Dist. LEXIS 9514

June 30, 1995, Decided
June 30, 1995, FILED
COUNSEL: [*1] For Community Publishers, Shearin Inc., Plaintiffs:
Philip S. Anderson, Peter G. Kumpe, J. Leon Holmes, Jeanne L. Seewald,
Williams and Anderson, Little Rock, AR. Mr. Tom Burke, Burke & Eldridge,
Fayetteville, AR. For United States, Plaintiff: Anne K. Bingaman,
Constance K. Robinson, Craig W. Conrath, Allee A. Ramadhan; Phillip R.
Malone; Burney P.C. Huber; Nora W. Terres; Anne M. Purcell; Alexander Y.
Thomas; Brigid L. Kerrigan, U.S. Department of Justice, Washington, D.C.
Mr. Larry McCord, Asst. U.S. Attorney, Fort Smith, AR.

For NAT, L.C., Defendant: Jerry C. Jones, Kenneth Shemin, Amy Lee Stewart
& Grant Fortson, Rose Law Firm, Little Rock, AR. Woody Bassett, Bassett
Law Firm, Fayetteville, AR. For Donrey, Defendant: Mr. James M. Dunn,
Warner, Smith & Harris, Fort Smith, AR. For Thomson Newspapers,
Defendant: William J. Butt, Timothy E. Howell, Davis, Cox & Wright,
Fayetteville, AR. Mr. Jeremy Epstein, Shearman & Sterling, New York, NY.
JUDGES: H. Franklin Waters, United States District Judge
OPINIONBY: H. Franklin Waters
OPINION: MEMORANDUM OPINION
This is a consolidated antitrust case in which the United States and
private plaintiffs are challenging the purchase of a local daily
newspaper, [*2] the Northwest Arkansas Times ("the Times"), by NAT,
L.C. Both the government and private plaintiffs contend that this
purchase may substantially lessen competition, since NAT, L.C. ("NAT"),
has significant shareholders in common with defendant D.R. Partners d/b/a
Donrey Media Group ("Donrey"), which owns a competing local daily
newspaper, the Morning News of Northwest Arkansas ("Morning News").
Private plaintiffs and the government both claim that the acquisition
violates Section 1 of the Sherman Act, 15 U.S.C. @ 1, and Section 7 of
the Clayton Act, 15 U.S.C. @ 18. Private plaintiffs seek injunctive
relief under Section 16 of the Clayton Act, 15 U.S.C. @ 26; while the
government seeks such relief under Section 15 of the Clayton Act, 15
U.S.C. @ 25. Private plaintiffs alone bring claims alleging that: (1)
NAT's acquisition of the Times violates Section 2 of the Sherman Act, 15
U.S.C. @ 2, which prohibits monopolization and attempts to monopolize;
(2) NAT and Donrey have interlocking directorates in violation of Section
8 of the Clayton Act, 15 U.S.C. @ 19; (3) NAT and Donrey violated the
notice provisions of the Hart-Scott-Rodino Act, Section 7a of the Clayton
[*3] Act, 15 U.S.C. @ 18a, which requires government notification of
certain acquisitions, which was not done in this case.
As will be explained below, the court will find that the challenged
acquisition violates Section 7 of the Clayton Act, and it will be
unnecessary to judge the transaction under Sections 1 and 2 of the
Sherman Act. It will also be unnecessary to reach private plaintiffs'
claims arising under Section 7a of the Clayton Act concerning
Hart-Scott-Rodino notification and Section 8 of the Clayton Act
concerning interlocking boards and directorates.
I. THE PARTIES AND OTHER INTERESTED BYSTANDERS
Thomson Newspapers, Inc. ("Thomson") owned the Northwest Arkansas
Times ("the Times"), a local daily newspaper that competes in the
Northwest Arkansas market, until February 6, 1995, when it sold the
property to NAT.
NAT, L.C. ("NAT") is a limited liability company formed to acquire the
Times from Thomson. n1 Various Stephens family trusts own ninety-five
percent (95%) of NAT's stock, and Jack Stephens is NAT's chairman. The
Stephens family business began with the partnership of two brothers, Jack
Stephens and Witt Stephens, who went on to build the [*4] largest
investment banking firm off Wall Street. Stephens family assets are now
dispersed among Jack Stephens, his son (Warren Stephens), his brother
Witt Stephen's widow (Bess Stephens), and her three children (W.R.
Stephens, Jr., Pamela Stephens Rose and Elizabeth Ann Stephens Campbell).

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n1 The court was notified per letter dated March 20, 1995, that NAT,
L.C., has been renamed Northwest Arkansas Times, L.C.

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D.R. Partners d/b/a Donrey Media Group ("Donrey") is a general
partnership which owns the Morning News of Northwest Arkansas ("the
Morning News"), which competes in the same local daily newspaper market
as the Times.
Stephens Group, Inc. ("SGI") owns ninety-nine percent (99%) of
Donrey's stock, and the additional one percent is held by Stephens
Holding, Inc. SGI is owned entirely by Stephens family trusts. Jack
Stephens is chairman of both Donrey and SGI.
Community Publishers, Inc ("CPI") publishes the Benton County Daily
Record ("the Daily Record"), which also competes [*5] in the local daily newspaper market of Northwest
Arkansas. CPI is owned by Jim Walton,
the son of Sam Walton, founder of Wal-Mart Stores, the country's largest
and most successful retailer. n2 CPI also sought to purchase the Times
from Thomson in partnership with WEHCO Media. WEHCO Media is owned by
Walter Hussman, and it publishes the Arkansas Democrat-Gazette, a
statewide newspaper out of Little Rock. It is the only Arkansas daily
newspaper with statewide circulation. The Arkansas Democrat-Gazette is a
merger of two formerly competing statewide newspapers, the Arkansas
Democrat and the Arkansas Gazette, which conducted a newspaper war to the
death in the 1980's. At that time the Gazette was owned by Gannett, a
large nationwide newspaper chain which publishes USA Today along with
numerous other newspapers spread across the United States.

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n2 Steve Trollinger and Mike Brown own a small percentage of the stock
in CPI.

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Shearin, Inc. d/b/a Shearin & Company Realtors ("Shearin") [*6] is
a real estate brokerage firm with its principal office in Rogers and a
branch office in Bentonville. It advertises regularly in both the Morning
News and the Daily Record.
II. NAT'S ACQUISITION OF THE TIMES
The court will begin by outlining the events leading up to NAT's
acquisition of the Times, because it is useful in showing the
noncompetitive manner in which the Stephens family does business together
and the relationship between their companies, NAT and Donrey. The
acquisition history is also useful in explaining the role of Thomson in
closing the deal despite the existence of substantial antitrust
questions, which will be relevant to the way the court shapes its remedy.
Donrey had historically expressed interest in acquiring the Times. n3
In September 1994, Emmett Jones, Donrey's President and Chief Operating
Officer, met with Robert Daleo, Thomson's Chief Financial Officer, at the
Dallas-Fort Worth Airport. Daleo asked Jones whether Donrey would sell
the Morning News; while Jones asked Daleo whether Thomson would sell the
Times. Both parties were ready to buy, but neither party was willing to
sell. Apparently each party wanted the operational [*7] synergies and
obvious competitive advantages that would accompany owning all three
daily local newspapers in Northwest Arkansas.
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n3 Plaintiff CPI has also desired to purchase the Times. Steve
Trollinger, the President of CPI and the publisher of the Daily Record,
has sent a number of letters over the years to Thomson about purchasing
the Times.
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In November 1994, Donrey was again involved in negotiations where it
sought to acquire the Times from Thomson. The deal involved a three-way
exchange, whereby Donrey would convey a certain media property to a third
party, which would then convey other media properties to Thomson, which would then convey the Times to
Donrey. The deal fell through when the
third party backed out.
In January 1995, Donrey made its final attempt to acquire the Times.
On January 19th, Thomson publicly announced its intention to sell the
Times. Thomson also announced its intention to sell twenty-four other
United States
PAGE 5 1995 U.S. Dist. LEXIS 9514, *7
newspapers in a package deal. Thomson did [*8] not include the Times
in the package of twenty-four newspapers as it felt that the Times was
more valuable and because various entities had already expressed interest
in it, including Donrey and CPI. Thomson stated bids for the Times should
be received by February 8, 1995, but Thomson reserved the right to sell
the Times before that date.
On January 19 or 20, 1995, Jones called Daleo to get the bid package
and to set up a Donrey-Thomson meeting. With regard to the purchase
price, Daleo told Jones that Thomson wanted approximately fifteen times
earnings or twenty million dollars for the Times. The twenty million
dollar figure was based on in-house financial analyses performed by
Thomson which assumed that the purchaser would combine the Times with one
or more newspapers and achieve "operational synergies." n4 A much lower
purchase price resulted from Thomson's "stand-alone" analysis, which
projected the value of the paper as though it would be owned and operated
as an independent entity. Jones, who likely presumed operational
synergies for Donrey, testified that he would have valued the Times at
between twenty and thirty million dollars.

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n4 "Operational synergies" is a term used in the newspaper industry to
refer to the economies of scale that can be achieved by combining
functions or departments, including accounting, administration, press
rooms, and composing departments.

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Soon after Thomson put the Times up for sale, Jack Stephens and his
executive assistant, Scott Ford, who is also a vice-president of Donrey,
became directly involved. On January 23 and 24, 1995, there were meetings
with attorneys in which they discussed legal aspects of purchasing the
Times "a good bit," to quote the testimony of Jack Stephens. Over the
course of these meetings, Jack Stephens decided that he would purchase
the Times through NAT rather than through Donrey. However, Donrey
officials were not consulted or apprised of the decision when it was
made.
According to Jack Stephens, he decided on a NAT purchase of the Times
primarily due to his interest in the Fayetteville community and his
desire for a more hands-on opportunity for members of his family and high
level SGI officers. He stated further that a Donrey purchase would not
have accomplished this goal, because Donrey's management and operations
structure was already in place when purchased by the Stephens family in
August 1993. Thus, a Donrey purchase would not have allowed Stephens
family members and personnel to be as involved in the daily operation of
the Times as Jack Stephens wanted them to [*10] be.
On January 24, 1995, there was a luncheon meeting in Fort Smith,
Arkansas, between Donrey's senior management personnel and several SGI
representatives. Present at the meeting were Jack Stephens, his son
(Warren Stephens), Ford, Jones, Darrell Loften (Donrey's Chief Financial
Officer), and other Donrey personnel.
In preparation for that meeting, Jones had told Loften, to perform
additional price analysis on the Times. However, this additional analysis
was never discussed at the January 24 meeting because Ford told Jones,
upon disembarking
PAGE 6 1995 U.S. Dist. LEXIS 9514, *10
from Jack Stephens' plane, that the Stephens family was going to buy the
Times directly and that there was no longer any need for Donrey to be
involved.
Jones was disappointed and Loften surprised, as Donrey had been trying
to acquire the Times as part of its competitive strategy for a long time.
Still, due to the ownership structure of the Stephens-Donrey
organization, Donrey promptly gave up pursuit of the Times and did not
compete with NAT to acquire it.
As a general matter, the Hart-Scott-Rodino notice provisions of the
antitrust law were not an infrequent topic of discussion. At the January
24 lunch in Fort Smith, Loften [*11] asked Ford if he needed any help
with Hart-Scott-Rodino compliance, to which Ford said no. Jones also knew
that any acquisition by Donrey would require a Hart-Scott-Rodino filing,
a matter which he says he discussed with various people including Loften,
Ford, Jack Stephens and others. In fact, when Jones learned that NAT was
going to purchase the Times, he admits that the thought passed through
his mind that perhaps NAT was purchasing the Times to avoid the need to
comply with Hart-Scott-Rodino.
On January 26, 1995, Jack Stephens discussed the Times purchase over
lunch with his sister-in-law (Bess Stephens), his nephew (W.R. Stephens,
Jr.), and his niece (Elizabeth Ann Stephens Campbell). At the meeting,
there was no determination of the percentages that would be owned by each
family member as that would be determined later by the accountants. In
general, the exact breakdown of ownership is not considered to be a
matter of great importance to the Stephens family.
On January 27, 1995, Jack Stephens and Ford met with Richard
Harrington, Thomson's President and Chief Executive Officer, and Robert
Daleo, Thomson's Chief Financial Officer, at Thomson's headquarters in
Stamford, [*12] Connecticut. The meeting had been arranged at Jack
Stephens' request by a friend or associate in the banking business who
also did business with the Thomson chain. n5 Jack Stephens started the
meeting by immediately telling Harrington that he understood that Thomson
wanted 15 times cash flow--that's twenty million dollars and that he was
there to pay it. Harrington asked to be excused and left with Daleo to
discuss the offer. When they returned, Harrington asked for a 10%
preemptive bid premium of two million dollars, to which Jack Stephens
"gulped" and said "okay." The twenty million dollar figure was the one
that Thomson based on operational synergies, without any adjustment for
the supposed stand-alone nature of a NAT purchase. In fact, there was not
any indication in the negotiations that anyone at SGI, Donrey, or
Thomson, ever took account of the recognized fact that the Times was
worth less as a stand-alone venture. The fact that the party purchasing
the property was NAT rather than Donrey did not seem to make a
difference.

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n5 This clearly more effective way of doing business contrasted with
the manner in which other prospective bidders were required to negotiate
and bid. They were relegated to dealing through and with a Thomson employee much further down the
chain-of-command than the CEO. That is
also the manner in which the CPI-WEHCO unsuccessful bid was made.

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PAGE 7 1995 U.S. Dist. LEXIS 9514, *13
To finance the deal, SGI paid a dividend to the various family trusts
that were investing in NAT. These trusts then transferred the dividend to
NAT and received NAT stock in return. Jack Stephens and Bess Stephens
also provided two bridge loans to NAT totalling thirteen million dollars.
The promissory notes reflecting these bridge loans were not only
unsecured, but also apparently unsigned.
The sale was consummated on February 6, 1995. According to defendants,
the closing was originally scheduled for February 3rd, but it was delayed
until February 6th because Daleo and Harrington were out of town and
because there was some trouble calculating the value of the net current
assets of the Times.
Prior to consummating the sale, Thomson insisted that the asset
purchase agreement include an indemnification provision, whereby NAT
agreed to indemnify Thomson for the costs of defending any investigation,
suit or proceeding in connection with any failure to comply with
Hart-Scott-Rodino or any violation of the antitrust laws. The genesis of
this indemnity provision was at the January 27, 1995, meeting between
Harrington and Jack Stephens, when Thomson's in-house attorney, a Mr.
Harris, [*14] was called into the meeting. The indemnity provision
continued to be discussed and negotiated by Thomson attorney Kenneth
Carson and NAT attorney Rick Massey, who exchanged various drafts of the
asset purchase agreement on January 30 and February 1. Thomson's
insistence on an indemnity provision was further cemented by a
threatening phone call on February 2nd from Walter Hussman of WEHCO
Media, in which Walter Hussman discussed the possibility of antitrust
liability with a Donrey purchase. The February 5, 1995, filing of this
lawsuit and the scheduling of a February 6, 1995, preliminary injunction
hearing could only have reinforced Thomson's desire for such an indemnity
provision.
According to Ford, the key people for Stephens had been all through
the antitrust liability issue with three different law firms prior to
consummating the sale, and they were convinced that competitor plaintiffs
such as CPI, Walter Hussman and Jim Walton had no standing to bring such
a lawsuit. Ford did not indicate whether the lawyers discussed the
possibility of a government antitrust suit and the possible need to win
the case on its merits rather than on standing.
III. SECTION 7 OF THE CLAYTON ACT [*15]
Section 7 forbids a stock or asset acquisition if it may substantially
lessen competition in the relevant market. 15 U.S.C. @ 18. Thus, the
first step in Section 7 analysis is the definition of the relevant
market. The burden of defining the market rests with the plaintiff. H.J.,
Inc. v. Internat'l Tel. & Tel. Corp., 867 F.2d 1531, 1537 (8th Cir. 1989)
(Section 2 of the Sherman Act) (citations omitted). n6 Once the relevant
market is established, plaintiff must then show that the acquisition may
substantially lessen competition. Id.
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n6 In setting forth the standards that govern market definition, the
court will utilize case law and the 1992 horizontal merger enforcement guidelines ("Merger Guidelines") issued
jointly by the two agencies with
antitrust enforcement authority, the Justice Department and the Federal
Trade Commission. 4 Trade Reg. Rep. (CCH) P 13,104. It is well-recognized
that the Merger Guidelines do not have the force of law, see e.g. Olin
Corp. v. FTC, 986 F.2d
PAGE 8 1995 U.S. Dist. LEXIS 9514, *15
1295, 1300 (9th Cir. 1993), cert. denied, U.S. , 114 S. Ct. 1051,
127 L. Ed. 2d 373 (1994), but many courts still cite them, and the expert
testimony in this case shows that they represent mainstream economic
thinking.
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The court also notes that in order to have standing to bring this
suit, private plaintiffs must demonstrate what is called antitrust
injury. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.
Ct. 1884, 109 L. Ed. 2d 333 (1990). Antitrust injury is a technical
concept that requires knowledge of economics and the functioning of the
relevant market. Therefore, the court will discuss it after setting forth
the nature of the relevant market, although antitrust injury is a
prerequisite to bringing a private suit.
IV. GENERAL PRINCIPLES OF MARKET DEFINITION
The Supreme Court has stated that products belong in the same market
when they are "reasonably interchangeable" for the same uses and thus
exhibit a high "cross-elasticity of demand." n7 As the Eighth Circuit
more simply put it, "defining a relevant product market is primarily 'a
process of describing those groups of producers which, because of the
similarity of their products, have the ability--actual or potential--to
take significant amounts of business away from each other.'" General
Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir. 1987)
quoting SmithKline Corp. v. Eli Lilly & [*17] Co., 575 F.2d 1056,
1063 (3d Cir.), cert. denied, 439 U.S. 838, 99 S. Ct. 123, 58 L. Ed. 2d
134 (1978).

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n7 Cross-elasticity of demand refers to "whether consumers will shift
from one product to the other in response to changes in their relative
costs." SuperTurf, Inc. v. Monsanto Co., 660 F.2d 1275, 1278 (8th Cir.
1981) (citations omitted). When products have "high cross-elasticity, it
means that small changes in the price or quality of one product has
dramatic effects on the sales of the other. When products have "low"
cross-elasticity, it means that price and quality changes in one product
causes little or no change in the sales of the other.

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To say that two products are in the same market means that they
constrain each other's ability to exercise market power by raising prices
and lowering quality for fear that consumers will switch to the
competitor's product. n8 It is a primary purpose of Section 7 of the
Clayton Act to preserve this constraining effect on the exercise of
market power. Merger [*18] Guidelines @ 0.1. See also, United States
v. Archer-Daniels-Midland Co., 866 F.2d 242, 246 (8th Cir. 1988) ("The
lawfulness of an acquisition turns on the purchaser's potential for
creating, enhancing, or facilitating the exercise of market power--the
ability of one or more firms to raise prices above competitive levels for
a significant period of time.") (citation omitted), cert. denied, 493 U.S. 809, 110 S. Ct. 51, 107 L. Ed. 2d 20
(1989); Merger Guidelines @ 0.1
("the unifying theme . . . is that mergers should not be permitted to
create or enhance market power or to facilitate its exercise").

PAGE 9 1995 U.S. Dist. LEXIS 9514, *18
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n8 There can be no doubt as a matter of case law, the Merger
Guidelines, and economic theory, that market constraints work not only to
limit one's ability to raise prices above a competitive level, but also
to limit one's ability to reduce quality or service below competitive
levels. United States V. Philadelphia Nat'l Bank, 374 U.S. 321, 368-69,
83 S. Ct. 1715, 10 L. Ed. 2d 915 (1963) (recognizing that competition can
exist at many levels other than price); Merger Guidelines @ 0.1, n. 6
("Sellers with market power also may lessen competition on dimensions
other than price, such as product quality, service, or innovation."); Id.
@ 1.11 (agency will consider buyer and seller "response to relative
changes in price or other competitive variables") (emphasis added).
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In evaluating reasonable substitutability and measuring
cross-elasticity of demand, the case law states that it is appropriate to
consider a wide range of evidentiary sources.

[The boundaries of an antitrust market] may be determined by examining
such practical indicia as industry or public recognition of the submarket
as a separate economic entity, the product's peculiar characteristics and
uses, unique production facilities, distinct customers, distinct prices,
sensitivity to price changes, and specialized vendors.

Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S. Ct. 1502, 1524,
8 L. Ed. 2d 510 (1962) (footnote omitted). The Eighth Circuit simply
treats the "practical indicia" identified by Brown Shoe as types of
evidence that establish a relevant market for antitrust purposes.

The "practical indicia" identified in Brown Shoe have been described as
"evidentiary proxies for direct proof of substitutability." Rothery
Storage & Van Co. V. Atlas Van Lines, Inc., 253 U.S. App. D.C. 142, 792
F.2d 210, 218 (D.C. Cir. 1986).

H.J., Inc., 867 F.2d at 1540. n9

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n9 In Brown Shoe, the practical indicia were meant to define a
so-called "submarket," which is to be contrasted with the "broad product
market." But the emerging consensus of antitrust scholars and case law
seems to be that the term "submarket" is unnecessary. Whether you call it
a submarket or a broad product market, it is still the relevant market
for antitrust purposes and must be marked by reasonable
interchangeability and cross-elasticity of demand.
One approach, adopted by the Eighth Circuit, and described above,
would simply do away with the term "submarket" and treat the "practical
indicia" of Brown Shoe as types of evidence that establish the relevant
market, whether it be a submarket or a broad product market. H.J., Inc.
v. Internat'l Tel. & Tel. Corp., 867 F.2d 1531, 1540 (8th Cir. 1989)
("the same proof which establishes the existence of a relevant product market also shows (or . . . fails to show)
the existence of a product
submarket") (citing Areeda & Hovenkamp, Antitrust Law P 518.1 at 311-15
(1987 Supp.)); accord IIa Phillip E. Areeda, Herbert
PAGE 10 1995 U.S. Dist. LEXIS 9514, *19
Hovenkamp & John L. Solow, Antitrust Law P 533a-g (1995).

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In the same vein, the Merger Guidelines state that the following
evidence may be considered in defining the product market and evaluating
cross-elasticity of demand and substitutability.
In considering the, likely reaction of buyers to a price increase, the
Agency will take into account all relevant evidence, including, but not
limited to, the following:
(1) evidence that buyers have shifted or have considered shifting
purchases between products in response to relative changes in price or
other competitive variables;
(2) evidence that sellers base business decisions on the prospect of
buyer substitution between products in response to relative changes in
price or other competitive variables.

Merger Guidelines @ 1.11. (emphasis added). The Merger Guidelines also
note that evidence "may be derived from the documents and statements of
both the merging firms and other sources." Merger Guidelines @ 0.1.
Upon evaluating the evidence, the cases do not specify numerically how
"high" the cross-elasticity of demand between two products must be before
they can be included in the same market for antitrust purposes. In any
case, it is usually impossible [*21] to reliably quantify
cross-elasticity of demand, which is why the Supreme Court allows
reliance on "practical indicia." See e.g. U.S. Anchor Mfg. v. Rule
Indus., 7 F.3d 986, 995 (11th Cir. 1993), cert. denied, U.S. , 114
S. Ct. 2710, 129 L. Ed. 2d 837 (1994).
In a typically vague statement of the cross-elasticity threshold, the
Eighth Circuit states that "the cross-elasticity of demand must be
sufficiently high to statistically reflect consumers' perception that the
two products are reasonably interchangeable." Archer-Daniels, 866 F.2d at
248. Under the Merger Guidelines, two products are in the same market if
the seller of one product is constrained by the presence of the other,
and thus, cannot profitably impose a "small but significant and
nontransitory" increase in price without fear of significant consumer
switching to a competing product. n10 Merger Guidelines @ 1.0. Cf.
Archer-Daniels, 866 F.2d at 248 n. 1 (cross-elasticity to be measured
with regard to "slight" price increases).

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n10 A slight increase is usually referred to as five or ten percent.
All parties to the suit use the five to ten percent figure, but it should
be noted that this figure does not appear in the Merger Guidelines.
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With regard to defining the geographic market, the same basic
principles apply, and the court need not discuss them in detail. Also,
the geographic
PAGE 11 1995 U.S. Dist. LEXIS 9514, *22
market is not a significant issue in this case. Determination of the
product market will for all intents and purposes determine the geographic
market, because the relevant product market consists of local daily
newspapers. Thus, the product market has a built-in geographic component.
If two daily newspapers are considered local by the consumers, then they
belong in the same geographic market. Defendants' own expert, Thomas
Overstreet, testified that if the Times and the Morning News are in the
same product market, then "as a matter of logic," they are in the same
geographic market.
V. THE RELEVANT MARKET: LOCAL DAILY NEWSPAPERS
In this case, the relevant product market for antitrust purposes is
the local daily newspaper. This market is in fact two markets: one for
readers and one for advertisers. As the Supreme Court stated in
Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 610, 73 S.
Ct. 872, 97 L. Ed. 1277 (1953), "every newspaper is a dual trader in
separate though interdependent markets; it sells [*23] the paper's news
and advertising content to its readers; in effect that readership is in
turn sold to the buyers of advertising space." Each market will be
analyzed in turn.

a. The Readership Market
The court will begin by describing, in a qualitative manner, the
peculiar characteristics and uses of the daily newspaper. The court will
then contrast these with the uses and characteristics of the most likely
candidates for inclusion in the product market: television, radio,
national and state newspapers, shoppers, and weekly newspapers.
The local daily newspaper provides a unique package of information to
its readers. Foremost, it provides national, state and local news. Many
of the stories, such as those on high school sports and city council
meetings, are of purely local interest. Readers also value other features
of a local nature, including calendars of local events and meetings,
movie and TV listings, classified advertisements, other local
advertising, legal notices, and obituaries. The format of the newspaper
allows its message to be timely and detailed. Moreover, a newspaper is
portable and allows readers access to information at their own
convenience.
The peculiar [*24] characteristics and uses of other media outlets
are completely different. National and state newspapers have a similar
format to local papers, but they contain no local news or advertising,
which is a critical factor in the acceptance and success of a local
daily. For instance, even though the Democrat-Gazette and the Tulsa World
are quality papers, they have, limited circulation in Northwest Arkansas.
On the other hand, weekly papers offer purely local news, and as
weeklies, they offer virtually no time sensitivity. Radio news and
television news are also poor substitutes for local papers. Television
and radio are primarily dedicated to entertainment, and to the extent
that they offer news and information, they lack breadth and depth of
coverage. Also, they are not portable and convenient like newspapers.
As for the perspective of the industry, it is clear that it sees local
daily newspapers as a separate product from other media. Industry people
gave direct testimony excluding various media outlets from the market
occupied by local dailies. More compelling, however, were the
contemporaneous, prelitigation records of the various newspaper
organizations and personnel involved [*25]
PAGE 12 1995 U.S. Dist. LEXIS 9514, *25
in the case. For instance, George Smith, Publisher of the Times, made
frequent comparisons between the Times and the Morning News; but he did
not make comparisons between the Times and any other media outlet. By
negative inference, Smith, Thomson, and the other industry people
involved in this case did not perceive local daily newspapers to be in
close competition with media outlets other than local daily newspapers.
As for expert opinion, the two experts with the most experience in
newspaper economics testified that a market limited to local daily
newspapers was the proper one. One was the expert for the private
plaintiffs, Robert Picard, a communications Ph.D. who may be one of the
foremost experts on newspaper economics in the country. He has, among
other things, published and edited numerous books and articles on the
subject and has testified before the legislatures of various countries.
The other expert, Kenneth Baseman, testified for the government. Baseman
is an economist who has spent many years doing antitrust work for the
government and private parties, including a stint at the antitrust
division where he worked extensively on the agency's challenge to the
[*26] joint operating agreement between the Detroit Free Press and the
Detroit News. Even defendants' own expert, Thomas Overstreet, limited the
market to local daily newspapers. As such, defendants should not be heard
to complain that the government and private plaintiffs have failed to
carry their burden of proof in excluding other media from the relevant
market. n11

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n11 Defendants argue that there is no proof "that the Court should
exclude local television, radio, weekly newspapers, etc, from the
relevant market for readers." As the government notes, it is curious for
defendants to suggest that television and radio are in "the relevant
market for readers."
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - -
b. The Advertising Market
The local daily newspaper offers advertisers a unique set of
opportunities. They are able to reach a broad cross-section of consumers
in a specific geographic circulation. They also allow a detailed message
to be delivered in a timely manner.
The peculiar characteristics and uses of other advertising media are
very [*27] different. National and state newspapers do not carry any
local advertising. Given the limited circulation of such papers in
Northwest Arkansas, and their high per reader advertising cost, local and
regional advertisers do not see them as substitutes for local daily
newspapers. As for weekly newspapers, the main problems are that
advertising messages are not delivered in a timely manner and that
weeklies do not reach the number of readers that dailies do. With regard
to "shoppers," they do not provide the high quality demographics that
newspapers provide. They also do not meet the needs of advertisers who
wish to convey an elite product message. They are also not timely.
As for radio and television, the main problem with such media is that
the advertising message conveyed is transitory. It is nearly impossible
to provide price detail, and so newspapers are especially critical for
grocery stores, department stores, furniture outlets, hardware stores,
car dealers, etc.
PAGE 13 1995 U.S. Dist. LEXIS 9514, *27
Television and radio do not provide a guaranteed audience and the expense
of producing radio and television spots can be prohibitive. Many
advertisers use radio and television to complement, but not replace,
their use [*28] of print advertising, often for the purpose of "image
advertising." As for circulars and direct mail, these are often
considered nuisances and junk mail and are often thrown away.
While businesses do divide their advertising budget among various
advertising media, the portion of the so-called "media mix" that is
dedicated to any one particular media, such as local daily newspapers,
tends to stay fixed over time. As a result, local daily newspapers
compete against each other, not the other media, which are not reasonably
interchangeable for the same purposes.
This view of advertising competition is accepted by industry
personnel, advertising consultants, newspaper economics experts and the
advertisers themselves. Also, in making decisions, including pricing
decisions, the contemporaneous, prelitigation records of the various
newspaper organizations and personnel involved in the case show a
complete lack of interest in other advertising media, but a great deal of
concern with other local daily newspapers, which by negative inference
shows that other media are not part of the market.

c. Case precedent on newspaper markets
The weight of case authority confirms the court's [*29] almost
intuitively correct definition of the market. Times-Picayune Publishing
Co. v. United States, 345 U.S. 594, 73 S. Ct. 872, 97 L. Ed. 1277 (1953)
(Sections 1 and 2 of the Sherman Act); Paschall v. Kansas City Star Co.,
695 F.2d 322 (8th Cir. 1982), different results reached on reh'g, 727
F.2d 692 (8th Cir. 1984), cert. denied, 469 U.S. 872, 105 S. Ct. 222, 83
L. Ed. 2d 152 (1984) (Section 2 of the Sherman Act); Morning Pioneer,
Inc. v. Bismarck Tribune Co., 493 F.2d 383 (8th Cir. 1974), cert. denied,
419 U.S. 836, 95 S. Ct. 64, 42 L. Ed. 2d 63 (1974) (Section 2 of the
Sherman Act); Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc.
441 F. Supp. 628 (W.D.N.Y. 1977), rev'd on other grounds, 601 F.2d 48
(2nd Cir. 1969) (Section 2 of the Sherman Act); United States v. Citizen
Publishing Co., 280 F. Supp. 978 (D. Ariz. 1968), aff'd, 394 U.S. 131, 89
S. Ct. 927, 22 L. Ed. 2d 148 (1969) (Section 7 of the Clayton Act);
United States v. Times Mirror Co., 274 F. Supp. 606 (C.D. Cal. 1967),
aff'd, 390 U.S. 712, 88 S. Ct. 1411, 20 L. Ed. 2d 252 (1968) (Section 7
of the Clayton Act).
Although this court has made its own findings of fact, [*30] it
believes that the vast weight of authority and the method of analysis
utilized in the cited cases supports the market definition in this case.
In Bowen v. New York News, Inc., 366 F. Supp. 651, 675 n. 56 (S.D.N.Y.
1973), aff'd in part and rev'd in part, 522 F.2d 1242 (2d Cir. 1975)
cert. denied, 425 U.S. 936, 96 S. Ct. 1667, 48 L. Ed. 2d 177 (1976), the
court did not find it necessary to make its own findings of fact, since
"it is now well settled that the daily newspaper is a distinct line of
commerce." But in Knutson v. Daily Review, Inc., 383 F. Supp. 1346 (N.D.
Cal. 1974), aff'd in part and rev'd in part, 548 F.2d 795 (9th Cir.
1976), cert. denied, 433 U.S. 910, 97 S. Ct. 2977, 53 L. Ed. 2d 1094
(1977), the court expressly rejected Bowen's approach on the grounds that determination of the relevant market
is a factual, not a legal,
determination. Although Knutson is probably correct, the court notes
that, in the future, it would probably make little sense for any party to
relitigate this issue, given the amount of resources spent on an issue
that has been resolved the same way by every court
PAGE 14 1995 U.S. Dist. LEXIS 9514, *30
that has addressed it in any depth.
VI. THE NORTHWEST [*31] ARKANSAS NEWSPAPER MARKET
The court has discussed why the local daily newspaper is a separate
product as a general matter. This still leaves the critical question of
which daily newspapers are considered "local" by readers and advertisers
in Northwest Arkansas.
Perhaps, it is appropriate to define what the court means when it
speaks of "Northwest Arkansas." When one familiar with this area speaks
of "Northwest Arkansas" it is not intended to merely describe a
geographic location. Instead, that term has come to denote an
increasingly integrated economic, social and political unit which just
happens to be located in the northwest corner of the state.
It is generally considered that "Northwest Arkansas" encompasses
Washington and Benton Counties, and is an area that is not only blessed
with beautiful Ozark mountain countryside, but also progressive and
aggressive people with an outstanding work ethic. It is this area of the
country where, among other things, the nation's top poultry producer and
one of its top food companies had its genesis and is located, and where
Sam Walton started, barely 30 years ago, what became the nation's top
retailer and second largest private employer. [*32] The area is also
the home of the University of Arkansas which exerts a tremendous economic
and cultural influence on the area.
There are numerous successful businesses in the area which provide
jobs to a great number of employees. In recent years, the area has become
increasingly multi-cultural and multi-lingual because of the influx of
large numbers of Mexican nationals who have come to the area to take
advantage of the extremely low unemployment rate in the area which
regularly runs less than 3%, even in times when other areas of the
country are experiencing high unemployment.
The major cities in the two county area are Fayetteville, Springdale,
Rogers, and Bentonville. Tremendous population increases over the last
several years have resulted in the two-county area having a population,
according to evidence at the trial, of an excess of 233,000 people, a
large of portion of whom live in one of the cities listed above. Until
the last few years, these cities were not only separate political
entities, but separate and highly parochial social units. Now, with the
increase in population, those cities have "grown together" and only
imaginary boundary lines separate them. As one drives [*33] across the
area, it is impossible for even natives in most cases to determine when
they leave one of the towns and enter the next.
Not only has the area "grown together" geographically and in respect
to population, it has also increasingly become one economic and social
unit. The area is presently engaged in the building of a large regional
airport, and there are other examples of the citizens of the entire area
working together for a common goal. Without exception, the "experts" who
testified lauded the outstanding economic climate present in the entire
area, and predicted a bright future.
In short, it was not too many years ago that Fayetteville, Springdale,
Rogers, and Bentonville were distinct and separate towns with distinct
and separate citizens that viewed themselves as such. That has changed
and is
PAGE 15 1995 U.S. Dist. LEXIS 9514, *33
changing. That fact has been evidenced graphically by recent changes in
the newspaper industry in the area. Until recently, each of the towns had
"their own newspaper" but, in November 1994, Donrey Media, the common
owner of the Springdale Morning News and the Northwest Arkansas Morning
News based in Rogers, merged the papers, and named the combined newspaper
The Morning [*34] News of Northwest Arkansas. That newspaper intends
to be and has advertised itself to be the paper for all of Northwest
Arkansas, a recognition that the area has become or is fast becoming a
cohesive economic, social and cultural area.
The court will conclude that the Times and the Morning News strongly
compete against each other for readers and advertisers in Washington
County. The court will also conclude that the Daily Record and the
Morning News compete against each other in Benton County. Finally,
although the Times and the Daily Record do not currently appear to
compete for readers and compete only weakly for advertisers, this court
will conclude that they belong in the same market as well--the Northwest
Arkansas market.
a. Readership competition between the Times and the Morning News
The record is absolutely replete with evidence that the Morning News
and the Times compete in the same product market and that they both serve
the same locale. Specifically, they are competing for readers in the
Washington County area which is comprised mainly of the towns of
Fayetteville and Springdale.
Both papers offer products with very similar [*35] characteristics.
Both papers cover news of regional interest such as the proposed regional
airport now under construction, the University of Arkansas, Washington
County government and courts, meetings of the governing bodies of the
area's major hospitals, the federal courts, Fayetteville and Springdale
city council meetings, and high school sports, and provide classifieds
and local merchant advertising.
The Morning News has offices with customer service and editorial
staffs in both Fayetteville and Springdale, the locations of which are
listed in two separate parts of the paper every day. In its Fayetteville
office, the Morning News has four reporters who cover county government,
county court, federal court, the University of Arkansas, and city
affairs. Tom Stallbaumer, the publisher of the Morning News, does not
feel that his paper yet matches the Times in its coverage of
Fayetteville, but he admits that his paper aspires to do so. As for the
Times, it also provides extensive coverage of newsworthy events in
Fayetteville, and, to a somewhat lesser extent, in Springdale and Benton
County. It is currently engaged in a news-sharing agreement with the
Daily Record, [*36] so that the Times may better cover Benton County
and better compete with the coverage of the Morning News.
Not surprisingly, there is substantial circulation overlap, with the
Times reaching 2,184 readers in Springdale and the Morning News reaching
4,424 daily readers and 4,821 Sunday readers in Fayetteville. In fact,
with a switch of approximately 1,800 readers, the Morning News would
overtake the Times as the circulation leader in Fayetteville. Currently,
the Morning News and Times both sample readers, telemarket, have sales
racks and home delivery routes throughout Washington County.
The numerous business documents in this case also constitute a
detailed contemporaneous record of the competitive actions and reactions
that the papers have undertaken in direct response to each other. For
instance, the Times was,
PAGE 16 1995 U.S. Dist. LEXIS 9514, *36
until the last few years, an afternoon paper until the Springdale Morning
News switched to a morning paper and made significant circulation gains
in Fayetteville, at which point the Times became a morning paper.
At one time, the Morning News did not publish on certain holidays, on
which days the Times would sample (throw [*37] free papers) the
readers of the Morning News along with a flyer that remarked on the
Morning News not being an every day paper. The Morning News now publishes
365 days a year.
Both papers exhibit an ongoing concern over who scoops whom which is
largely motivated by circulation concerns. At one point, the Morning News
reviewed its staff assignments and improved its police coverage because
it was an area where the Times sometimes prevailed. Competition over
local sports coverage was particularly intense, with the Times and the
Morning News engaged in a public back and forth battle over the number of
reporters covering events, the number of photos and stories, and the
extent of coverage, including women's volleyball and soccer.
The Times began using color so that it could compete more effectively,
and the Morning News responded in kind. The two papers also compete for
readers by producing features and special interest sections. In one case,
the Morning News began a travel page soon after the Times started one.
These are the equivalent of competitive responses to what the Merger
Guidelines call "small but significant and nontransitory" increases
[*38] in price or decreases in quality.
In addition to these concrete actions and reactions, the internal
memoranda of the Times and the Morning News show a consistent obsession
with each other as "the competition." These are too numerable to discuss
further.
b. Advertiser Competition between the Times and the Morning News
In this case, there is only a small amount of evidence that the two
local daily newspapers compete "directly" for advertisers. That is, no
advertiser decides he will advertise either in the Times or in the
Morning News, depending on who offers the better deal. Even the
government's own expert, Kenneth Baseman, did not find any evidence of
this sort of competition. n12 The primary reason that such direct
competition is absent is that no regional advertiser who has customers
throughout Northwest Arkansas, such as a car dealer, can reach all of
Washington County without using both newspapers. Also, no purely local
advertiser, such as a grocery store, can reach the majority of reader
households in Fayetteville without using the Times or reach the majority
of households in Springdale without using the Morning News.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n12 However, the government did present solid evidence that the two
papers competed directly for legal advertising on at least one occasion.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*39]
Still, there is a great deal of evidence that these two papers compete
"indirectly" for advertisers by means of what was called by some of the
witnesses a "negative feedback loop," for want of a better term. The
PAGE 17 1995 U.S. Dist. LEXIS 9514, *39
competition, although "indirect," is effective and pervasive. The
"negative feedback loop" begins with the premise that local advertising
is a critical part of what sells a local newspaper, just like the
coverage of local sports or any other local news event. Apparently, many
people buy newspapers to have access to advertisements and advertiser's
promotions which they provide. If a paper is deficient in local
advertising it will eventually lose readers. A loss of advertising
revenue will also lead to a decline in the paper's ability to maintain
its quality, which will also lead to a loss of readership. With the loss
of readers, the paper will lose more advertisers, and then more readers,
and so on until its demise. This is a "negative feedback loop."
Therefore, both the Morning News and the Times have an incentive to
keep the price of advertising low enough so that advertisers do not drop
their ads, decrease their size, or decrease their frequency. Of course,
this [*40] incentive would exist even in the absence of a competitive
market, but the existence of a competitor means that a decline in
advertising content due to high rates is much more likely to lead to a
loss in readership to the competing paper. The loss of readership will
then result in a further loss of advertising, and the negative feedback
loop, which is often irreversible, has begun.
Another way in which competition exists between the Times and the
Morning News is through the process of "benchmarking," whereby local
advertisers compare the relative advertising value provided by each
paper. Thus, the papers try to provide equal value to some extent, since
neither paper wants to lose the good will and business of their
advertisers by looking like a "rip off" in comparison to the other. The
dynamic of benchmarking can exist between products that are not in the
same market, but the high degree of benchmarking that clearly exists in
this market results from the close competitive relationship between the
Times and the Morning News, which is so universally recognized in the
local community.
There is one final avenue of advertising competition with respect to
regional advertisers [*41] that merits discussion. While no regional
advertisers can completely forego advertising in either the Times or the
Morning News, they can place more of their limited advertising budget
into the one newspaper that they feel gives them the better value.
Thus, in 1992, the Times was very concerned about losing regional
advertisers because its prices were not competitive with the
Springdale/Rogers combo buy. n13 The Times also displayed a continuous
concern over losing automobile advertising, and even offered a lower auto
rate in 1994 to try to entice dealers; to use the Times rather than the
Morning News. George Smith, the publisher of the Times, expressed concern
to a fellow publisher that he had to win back his "rightful share" of
advertising from one particular regional dealer, Lewis Auto. The owner of
Lewis Auto, Tom Lewis, testified that he felt his dealership had
benefitted from the advertising competition between the two papers.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n13 Prior to November 1994, the Morning News was actually two
newspapers: the Northwest Arkansas Morning News based in Rogers and the
Springdale Morning News based in Springdale. Both were owned by Donrey, which merged them.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*42]

PAGE 18 1995 U.S. Dist. LEXIS 9514, *42
Although the dynamics just described are somewhat theoretical, they do
not strike the court as being particularly controversial, at least not
from the testimony provided by those familiar with the industry.
Moreover, these theories explain the high degree of time and energy that
the Times and the Morning News put into monitoring and responding to the
advertising efforts of each other. For instance, the Times was concerned
that it got less Springdale ads than the Morning News got Fayetteville
ads. The Times routinely compared its advertising rates and revenue with
those of the Morning News. The Morning News also monitored the number of
national ads that the Times received to make sure it did not get
"scooped" on any national ads.
In 1993, when the Times learned that a Donrey paper in Fort Smith,
Arkansas, was offering a coupon book of volume discounts for advertisers,
it offered its own version in anticipation that the Morning News would
follow suit. Two weeks later, when the Times perceived that advertisers
preferred the coupons offered by the Morning News, it redesigned its own.
In 1992, the Times had its advertising staff contact [*43] local
businesses that had placed ads in the Morning News to offer them a
special "pick-up" rate to run the same ad in the Times. In 1994, the
Times considered using the same strategy with regard to classified ads
run in the Morning News.
If the "negative feedback loop," "benchmarking," and "rightful share"
theories do not explain the above competitive conduct, then the
alternative explanation would be that the Times and the Morning News were
completely deluded about being in competition for advertising and that
the efforts spent monitoring this nonexistent competition were the futile
and inefficient gestures of ignorant businessmen who did not even know
their own market. The court considers this alternative unacceptable.
Thus, the court is convinced that the two newspapers, do compete for
advertising even though it may be difficult to quantify the competition
statistically.

c. Numerical measurement of cross-elasticity of demand
In the face of this evidence, defendants contend that they decisively
proved there is no cross-elasticity of demand between the Times and the
Morning News, and, therefore, the products do not belong in the same
market. [*44] They supposedly prove their point by having their
expert, Thomas Overstreet, measure the amount of switching from one paper
to another when one paper increases its rack prices or subscription
rates. As the amount of the price increase was greater than five to ten
percent, and as the degree of switching caused by the increase did not
render the increase unprofitable, defendants conclude that there is no
cross-elasticity of demand under the Merger Guidelines.
While defendants correctly contend that courts do not usually allow
the government to take positions that are inconsistent with the Merger
Guidelines, the court does not believe the government has done so in this
case. Steven A. Newborn & Virginia L. Snider, The Growing Judicial
Acceptance of the Merger Guidelines, 60 Antitrust L.J. 849, 852 (1992).
As explained above, the court believes that the approaches to market
definition endorsed by the Merger Guidelines and the case law are essentially consistent. n14 This approach
acknowledges that
cross-elasticity of demand is nearly impossible to measure numerically in
all cases and relies on a broad array of evidence and "practical indicia"
to establish cross-elasticity. See e.g. [*45] U.S. Anchor Mfg. v.
Rule Indus., 7 F.3d 986, 995, (11th Cir. 1993), cert. denied, U.S.
, 114
PAGE 19 1995 U.S. Dist. LEXIS 9514, *45
S. Ct. 2710, 129 L. Ed. 2d 837 (1994). The 1984 Merger Guidelines made
the same point when they explained that the 5-10% test "is an analytical
tool with which to analyze traditional types of probative evidence." 4
Trade Reg. Rep. (CCH) P 13,103 at 20,552 (June 14, 1984). That is, the
5-10% test is not a rigid requirement that cross-elasticity be measured
numerically.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n14 It is obviously good public policy that the guidelines be
interpreted as consistently as possible with the case law which is
binding. Steven A. Newborn & Virginia L. Snider, The Growing Judicial
Acceptance of the Merger Guidelines, 60 Antitrust L.J. 849, 851 (1992)
("if the Guidelines and the bench diverge, merger law would be forced
into a morass of nonmerger analysis--a possibility as attractive as
becoming involved in a land war in Asia").
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - -
Analyzing the independent probative value of Dr. Overstreet's
calculation [*46] of the relationship, or the lack thereof, between
price and consumer switching, the court concludes that this calculation
fails to controvert the overwhelming evidence that cross-elasticity of
demand exists. United States v. Continental Can Co., 378 U.S. 441, 455,
84 S. Ct. 1738, 12 L. Ed. 2d 953 (1964) ("that the demand for one
[product] is not particularly or immediately responsive to changes in the
price of the other are relevant matters but not determinative of the
product market issue"). Dr. Overstreet's approach was to attempt to apply
the Merger Guidelines with blinders on which were designed to prevent him
from seeing anything other than the reaction of the market to a slight
price increase--if that didn't show a shift in customers, then there was
simply no competition present. His calculation only applied that part of
the Merger Guidelines, and he failed, refused or neglected to control for
all sorts of other important variables.
He failed to measure or even consider the loss of advertising profits
that will be caused by the loss of readership. He failed to measure the
fact that price increases were offset by quality increases. He failed to
take into account the expert [*47] testimony that price, as long as it
is in the range one expects to pay for newspapers, is an almost
insignificant factor in one's choice of newspaper. See Times Mirror, 274
F. Supp. at 615 (placing newspapers in same market although "differences
between the price raises of the Times and the Sun did not produce a
significant change in circulation") (citing Continental Can, supra).
Also, defendants' expert has no special experience in the newspaper
industry or in Northwest Arkansas. The court could just as easily have
performed Dr. Overstreet's simplistic calculations.
During questioning by the court, Dr. Overstreet seemed to agree that
if his approach had been used in the famous and infamous, in Arkansas at
least, Democrat vs. Gazette newspaper war that destroyed the then Gannett
owned Gazette which advertised that it was the oldest newspaper west of
the Mississippi, it would have shown that these newspapers were not
competitors, at least until some point shortly before the Gazette was
forced out of business. That was true because, until that time each paper had a loyal group of readers and
advertisers who wouldn't switch until
the Democrat succeeded in driving [*48] the Gazette out of business.
He seemed to agree with the court's statement that, like the bumblebee
that can't fly, Walter Hussman didn't know that he wasn't a competitor so
he kept competing until he was competing-- and won.

PAGE 20 1995 U.S. Dist. LEXIS 9514, *48
Finally, defendants' theory leaves unexplained why everyone involved
with these newspapers thought they were competing and made numerous
business decisions and took innumerable competitive actions as if they
were.
d. Competition between the Daily Record and the Morning News
Much of the evidence that indicates active competition between the
Times and the Morning News in Washington County shows the same active
competition, perhaps to a slightly lesser degree, between the Daily
Record and the Morning News in Benton County. The Daily Record's daily
circulation in Benton County is 9,696; while the Morning News has daily
circulation in Benton County of 17,350. In the interest of brevity, the
court will not detail the remaining evidence.
e. The Times and the Daily Record belong in the same market
The evidence clearly shows strong competition for readers and
advertisers in Washington County between the [*49] Times and the
Morning News, and also between the Daily Record and the Morning News in
Benton County. However, this leaves the question of whether the Times and
the Daily Record belong in the same market given the fact that they have
scarce competition for readership and only limited competition for
advertisers, as even Dr. Picard, private plaintiffs' own expert,
recognized. Still, the court concludes that the Times and the Daily
Record belong in the Northwest Arkansas daily newspaper market, along
with the Morning News.
It may seem strange that the Times and the Daily Record are in the
same market even though they do not vigorously compete, but the fact
remains that, as a practical matter, the common ownership of the Times
and the Morning News would greatly affect competitive forces over the
entire two-county area. It must be remembered that the purpose of Section
7 of the Clayton Act is to prevent the undue aggregation of market power.
Market definition is merely a tool in that quest, not the goal.
It is initially important to keep in mind that "market definition is
not a jurisdictional prerequisite, or an issue having its own [*50]
significance under the statute; it is merely an aid for determining
whether market power exists." L. Sullivan, Antitrust 41 (1977).

General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir.
1987); Merger Guidelines @ 0.2.
Equally important, "the determination [of a relevant market] is
essentially one of fact, turning on the unique market situation of each
case." H. J., Inc. v. International Telephone & Telegraph Corp., 867 F.2d
1531, 1537 (8th Cir. 1989). (citations omitted). The notion that market
definition is a pragmatic, factual exercise is a theme that runs
throughout the cases. See e.g. Eastman Kodak Co. v. Image Tech. Servs.,
Inc., 504 U.S. 451, 112 S. Ct. 2072, 2082, 119 L. Ed. 2d 265 (1992) ("In
determining the existence of market power . . . , this Court has examined
closely the economic reality of the market at issue."); Brown Shoe Co. v.
United States, 370 U.S. 294, 336-37, 82 S. Ct. 1502, 8 L. Ed. 2d 510
(1962) (courts should take a "pragmatic, factual approach to the
definition of the relevant market and not a formal, legalistic one" so
that the definition of the relevant market will "'correspond to the commercial realities' [*51] of the industry
and be economically
significant") (citations omitted); General Indus. Corp. v. Hartz Mountain
Corp., 810 F.2d 795, 805 (8th Cir. 1987) ("In
PAGE 21 1995 U.S. Dist. LEXIS 9514, *51
defining the relevant part of commerce for any product, the reality of
the marketplace must serve as the lodestar") (citation omitted).
Similarly, the Merger Guidelines provide that since "it is not possible
to remove the exercise of judgment from the evaluation of mergers . . .
the Agency will apply the standards of the Merger Guidelines reasonably
and flexibly to the particular facts and circumstances of each proposed
merger." Merger Guidelines @ 0.
The fact is that this acquisition would affect market power over the
entire two-county area. As will be explained, it would effect the
viability of the Daily Record. It would alter pricing and strategy
decisions over the two-county area. It would deter one potential
competitor from entering the market. These are practical realities
involving market power and competition, no matter how one characterizes
the current relationship between the Times and the Daily Record. It makes
no sense to say, as a matter of law, that the market does not include
both counties.
The [*52] court begins with the indisputable fact that Northwest
Arkansas is increasingly integrated--socially, politically and
economically. More than any other product market, a local daily newspaper
market reflects the, underlying socioeconomic base of its geographic
market. For this reason, the traditional indices of a newspaper market
include the Metropolitan Statistical Area (MSA), Audit Bureau of
Circulations Retail Trading Zone, County, ABC City Zone, and Newspaper
Designated Market Area. MSA's, which are officially designated by the
U.S. Office of Management and Budget, are economic and social regions in
which a nucleus city or cities and adjacent communities have achieved a
significant degree of economic and social integration. ABC Retail Trading
Zones, which are determined jointly by local newspapers and by the Audit
Bureau of Circulations, are the area over which businesses in the local
commercial center draw customers from outlying areas. County lines are
politically defined and only sometimes useful in defining the newspaper
market. ABC City Zones, which are done by the Audit Bureau of
Circulations, include the central portion of a city and its contiguous
suburbs. Finally, the [*53] Newspaper Market Designated Area is the
geographic market area defined by a newspaper when its market does not
correspond to any of the traditional measures. It is defined as the
primary commercial and residential region in which the newspaper
operates.
These measures may be more or less useful in a particular case,
depending on the circumstances of the market. The court does not
exclusively rely on any one of them. They are listed simply to make the
point that the local daily newspaper market tends to reflect the
underlying social, economic and political development of the locale. As
such, it makes a great deal of sense to refer to a Northwest Arkansas
market. Moreover, the fact is undisputed that the social, economic and
political integration of the Northwest Arkansas region will continue
apace. United States v. General Dynamics Corp., 415 U.S. 486, 498, 94 S.
Ct. 1186, 39 L. Ed. 2d 530 (1974), quoting, Brown Shoe, 370 U.S. at 322
n. 38 ("only a further examination of the particular market--its
structure, history and probable future--can provide the appropriate
setting for judging the probable anticompetitive effect of the merger")
(emphasis supplied).
The court now [*54] turns to the fact that every newspaper company
involved in Northwest Arkansas viewed the local daily newspaper market as
consisting of Washington and Benton Counties. Donrey and the Morning News
clearly viewed the market that way and developed a product that
vigorously competed for readership in every town in the two-county area.
As is clear from the paper's own masthead, it is the Morning News of
Northwest Arkansas.
PAGE 22 1995 U.S. Dist. LEXIS 9514, *54
The same goes for the Northwest Arkansas Times. Thomson viewed the
two-county area as a single market that could be dominated by a single
paper, which was its stated goal. To achieve that goal, Thomson
considered purchasing the Morning News and the Daily Record. It also
conceived a six month program to extend its circulation in Rogers,
Arkansas, in Benton County. The plan was abandoned after a few weeks due
to a lack of success, but a failure to succeed at competing does not mean
that competition does not exist.
CPI also recognizes that the Daily Record operates in a two-county
market, although its main circulation appeal is in Benton County, as
reflected by its masthead, the Benton County Daily Record. CPI realized
it [*55] operated in a two-county market and thus also coveted
acquiring a second paper in that market, i.e., the Times.
Finally, WEHCO and the Arkansas Democrat-Gazette, the statewide paper
published in Little Rock, is strongly considering a zoned edition of the
paper for twelve counties in Northwest Arkansas aimed primarily at the
two-county market encompassed by Washington and Benton Counties. WEHCO
clearly conceives of the market as primarily a two-county market, and has
spent a great deal of time and money laying the groundwork for a possible
zoned edition. The undisputed testimony is that, if NAT'S purchase of the
Times is allowed to stand, WEHCO is much more unlikely to enter the
market.
In addition to the clear views of the market participants, the nature
of the readership market is such that a local daily paper can be targeted
to a single county (the Daily Record) or to both counties (the Morning
News), but the success of all three remaining local newspapers will be
affected by their ability to provide regional coverage that satisfies the
regional interests of a regional audience, no matter what section of that
audience is targeted. In recognition of this [*56] fact, the Times and
the Daily Record have a news and advertising sharing agreement, whereby
the Times provides the Daily Record with Washington County news and
advertising, and the Daily Record does the same for the Times with Benton
County.
This similarity of product is extremely important in defining the
market, and thus the Times and the Daily Record should both be included
in the product market because both papers are poised to become truly
regional papers. Thus, there is a great deal of so-called
"cross-elasticity of supply" among local daily newspapers in Northwest
Arkansas. High cross-elasticity of supply exists when existing companies
have the ability to alter their facilities to produce the defendant's
product in response to monopolistic price increases or quality
reductions. 3 Julian O. von Kalinowski, Antitrust Laws & Trade Regulation
@ 18.02[1](c) (1994). Using cross-elasticity of supply to enlarge the
product market is accepted by the courts, the Department of Justice, the
Federal Trade Commission, and economists generally. Id. at n. 59.
In this case, all three local daily papers are poised to become
increasingly regional should [*57] the competition falter, and so long
as the market does not become too concentrated. See also Jim Walter Corp. v. Federal Trade Comm'n, 625 F.2d
676, 682-83 (5th Cir. 1980) (geographic
market can be expanded to include regions that do not currently have
sales in each other's area, if "regional markets are so interrelated that
what happens in one has a direct effect in the others and none is so
separate that the buyers and sellers are not concerned with prices and
supply and demand in the others") quoting United States v. Bethlehem
Steel Corp., 168 F. Supp. 576, 600 (S.D.N.Y. 1958); RSR
PAGE 23 1995 U.S. Dist. LEXIS 9514, *57
Corp. v. FTC, 602 F.2d 1317, 1322-24 (9th Cir. 1979), cert. denied, 445
U.S. 927, 100 S. Ct. 1313, 63 L. Ed. 2d 760 (1980); United States v.
Bethlehem Steel Corp., 168 F. Supp. 576, 596 (S.D.N.Y. 1958).
Turning to the advertising market, there is already some competition
between the Times and the Daily Record in the market for regional
advertisers, such as automobile dealers, furniture stores, mall stores,
and department stores. Even if the Times and the Daily Record do not
compete for the same readers, the fact remains that they compete for the
same regional advertisers[,] [*58] and that an advertiser will spend
more money in the newspaper that provides it with the better value.
This regional advertising market, which is crucial to all three
papers' successes, would undoubtedly be affected by any combination of
the Times and the Morning News. Such a combination would have a dominant
market share and would become a "must buy" for regional advertisers.
Thus, any monopolistic increase in the combination's advertising rates
would soak up all the available advertising revenue and leave the Daily
Record with less.
The existence of the "must buy" phenomenon was testified to by a range
of experts and industry personnel, including Walter E. Hussman, the owner
of the Democrat-Gazette who testified at length about the Little Rock
newspaper war between the Democrat and the Gazette. He explained that, at
one point, the Gazette, which had a dominant market share, raised its
advertising prices. The Democrat expected to get more advertising as a
result, but just the opposite occurred. Because of the circumstances and
the respective circulations of the two papers at the time, advertisers at
least thought that they had no choice but to advertise [*59] in the
Gazette, and, since that took more of the advertisers' dollars, there
were fewer dollars left to spend on advertising in the Democrat.
Moreover, the evidence established that the parties to this suit
recognize the existence of a "must buy" phenomenon. The advertising
managers at the Morning News, after the November 1, 1994, merger, decided
to keep advertising rates below other similarly sized newspapers in order
"to get the product established as the main advertising buy in Northwest
Arkansas." Then, "when we raise rates, we want our advertisers to cut
their lineage in the Times and the Daily Record, not the News." (Pl. Ex.
44 at DONR-10702). See Times-Picayune Publishing Co. v. United States,
345 U.S. 594, 600, 73 S. Ct. 872, 97 L. Ed. 1277 (1953) (since
plaintiff's competitor was "the 'dominant' newspaper in New Orleans;
insertions in that paper were deemed essential by advertisers desiring to
cover the local market.").
With less regional advertising, the Daily Record loses revenue and
becomes a less attractive newspaper. Thus, common ownership of the Times
and the Morning News would undoubtedly impact this regional advertising
market, which is [*60] clearly a critical part of newspaper revenue.
For all these reasons, the court considers the local daily newspaper
market to be Northwest Arkansas. n15 Having set out the boundaries of the
relevant market, the court will now explain why it believes that both private plaintiffs have demonstrated a threat
of antitrust injury, after
which the court will consider the merits of whether this acquisition may
substantially lessen competition in the relevant market.

PAGE 24 1995 U.S. Dist. LEXIS 9514, *60
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n15 Even if it were to be found that the relevant geographic market
was the Fayetteville Metropolitan Area, as the government defines it,
there would still clearly be a violation of Section 7 because the Times
and the Morning News compete in that area, without question. Thus, the
result would be the same with the possible exception of available
remedies. If such a finding resulted in the remedy of rescission not
being available, the court would employ what it believes to be the second
best remedy under the facts of this case--divestiture. However, as
Shearin is an advertiser in the Morning News, it is a consumer in the
Fayetteville market and rescission would still be available on the basis
of its standing in that market. See a discussion of these issues under
Section X of this opinion.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*61]

VII. ANTITRUST INJURY

To have standing to challenge NAT's acquisition of the Times, private
plaintiffs must demonstrate that the acquisition threatens to injure
them, and that this injury would be an "antitrust injury, which is to say
injury of the type the antitrust laws were intended to prevent and that
flows from that which makes defendants' acts unlawful." Brunswick Corp.
v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S. Ct. 690, 697, 50 L.
Ed. 2d 701 (1977) (emphasis in original). The court concludes that both
private plaintiffs have demonstrated a threat of antitrust injury.

a. CPI's Antitrust Injury

In order to show a threat of antitrust injury, a competitor plaintiff
must show that the challenged acquisition threatens to cause injury or
"loss of profits from practices forbidden by the antitrust laws."
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S. Ct. 484,
485, 93 L. Ed. 2d 427 (1986), 107 S. Ct. at 492; Pacific Express, Inc. v.
United Airlines, Inc., 959 F.2d 814, 818 (9th Cir. 1992) ("In order to
demonstrate that it suffered antitrust injury, [a competitor plaintiff]
must show that its injury was caused [*62] by anticompetitive or
predatory aspects of [defendant's] conduct") cert. denied, U.S. ,
113 S. Ct. 814, 121 L. Ed. 2d 686 (1992); Phototron Corp. v. Eastman
Kodak Co., 842 F.2d 95, 100-102 (5th Cir. 1988) (competitor plaintiff
lacks standing to challenge an acquisition unless it can prove a threat
of anticompetitive or "predatory behavior"), cert. denied, 486 U.S. 1023,
108 S. Ct. 1996, 100 L. Ed. 2d 228 (1988).
As the Fifth Circuit noted in Phototron, supra, the antitrust injury
requirement as phrased in "Cargill has imposed significant barriers to
competitor attempts to enjoin merger transactions." 842 F.2d at 102.
These barriers to competitor plaintiffs were not raised by accident. Many
mergers have valuable pro-competitive effects, and a rival has every
incentive to challenge such pro-competitive mergers simply because they
are pro-competitive. Competitors are threatened by legitimate competition, and thus have an incentive to believe
that rivals are
violating antitrust laws and to use an antitrust suit to delay or
moderate competition. See Atlantic Richfield Co. v. USA Petroleum Co.,
495 U.S. 328, 110 S. Ct. 1884, 1895, 109 L. Ed. [*63] 2d 333 (1990)
(ARCO); William H. Page and Roger D. Blair, Controlling the Competitor
PAGE 25 1995 U.S. Dist. LEXIS 9514, *63
plaintiff in Antitrust Litigation, 91 Mich. L. Rev. 111 (1992); II
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law P 373 (rev. ed.
1995). In fact, the risk posed by competitor suits is so great that in
Cargill, the Department of Justice argued, that the court should adopt a
per se rule against competitor standing to enjoin the merger of rivals.
Cargill, 107 S. Ct. at 495. The court declined to take such a radical
step, but its final ruling did not leave competitor plaintiffs a very
good chance of having standing to enjoin mergers. However, this is one of
those rare cases where the court believes that a competitor plaintiff has
successfully proved a threat of antitrust injury.
In this case, there are various threats to CPI's profits that are
caused by anticompetitive aspects of the transaction. The court has
already described the "must buy" phenomenon, whereby the Times and the
Morning News will have such a dominant market share that any monopolistic
increase in the combination's advertising rates would soak up all the
available advertising revenue. This "must buy" phenomenon, [*64]
under which a price increase can actually injure competitors, is
something which does not exist in most industries. While always harmful
to consumers, monopolistic price increases usually benefit surviving
competitors, who are able to expand their market share. Thus, in the
typical situation, a price increase by the dominant market firm does not
cause an antitrust injury. See Matsushita Electric Industrial Co. v.
Zenith Radio Corp., 475 U.S. 574, 585, n. 8, 106 S. Ct. 1348, 1355, n. 8,
89 L. Ed. 2d 538 (1986) (horizontal price-fixing agreement can never harm
a non-participating rival, who should actually benefit from the increased
prices).
But the unique circumstances of the newspaper industry requires a
different analysis. A monopolistic price increase by the Morning News and
the Times would harm not only readers and advertisers, but also
competitors like the Daily Record. That harm to the Daily Record would
not be caused by increased efficiency due to the acquisition, but rather
due to its monopolistic practices made possible by the acquisition. Cf.
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S. Ct. 484,
495, 93 L. Ed. 2d 427 (1986) [*65] (no antitrust injury to competitor
plaintiff who was threatened by lost profits due to lower product prices
allowed by the challenged merger).
A second source of antitrust injury concerns the possible termination
of a news and advertising sharing agreement that is currently in effect
between the Times and the Daily Record. The agreement was reached in 1993
for the purpose of making the Times and the Daily Record more competitive
against the Donrey papers in Springdale and Rogers, which were already
sharing news and advertising prior to their merger into the Morning News.
But if the Times and the Morning News come under common ownership, the
Times will no longer have any incentive to help, the Daily Record compete
against the Morning News. The Times will thus have an anticompetitive
incentive to terminate its arrangement with the Daily Record, even if the
Times becomes less competitive with the Morning News as a result. The
court realizes that this news and ad sharing agreement is
terminable-at-will, but the fact remains that NAT's acquisition of the
Times creates an anticompetitive reason to terminate the agreement where
none [*66] existed before. This creates the requisite threat of
antitrust injury both to newspaper readers throughout Northwest Arkansas
and to the Daily Record.
Before leaving the subject of CPI's antitrust injury, the court
specifically rejects CPI's argument that it is entitled to a presumption
of antitrust injury simply because the challenged acquisition is
presumptively illegal using market share data. CPI argued that the court
may make this presumption under R. C.
PAGE 26 1995 U.S. Dist. LEXIS 9514, *66
Bigelow, Inc. v. Unilever, 867 F.2d 102, 111 (2d Cir.), cert. denied, 493
U.S. 815, 110 S. Ct. 64, 107 L. Ed. 2d 31 (1989). To the extent that
Bigelow stands for this proposition, it is rejected as contrary to
Supreme Court precedent.
No violation of the antitrust laws, even if per se or presumptive, can
ever create a presumption of antitrust injury. This point was made clear
by the Supreme Court in Atlantic Richfield Co. v. USA Petroleum Co., 495
U.S. 328, 110 S. Ct. 1884, 109 L. Ed. 2d 333 (1990) (ARCO). In ARCO, the
Court held that even a retail price maintenance scheme, which is a per se
violation of the antitrust laws, does not create any kind of presumption
of antitrust injury to competitors. [*67] Of particular relevance to
CPI's contentions in this case, the Court expressly cited Cargill for the
proposition that even when a merger is assumed to be illegal based on
market share data, that merger does not create a presumption of antitrust
injury to competitors. ARCO, 110 S. Ct. at 1892, citing Cargill, Inc. v.
Monfort of Colorado, Inc., 479 U.S. 104, 107 S. Ct. 484, 93 L. Ed. 2d 427
(1986). n16

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n16 Actually, this court believes that even Bigelow required some
proof that there was a threat of predatory or anticompetitive conduct. In
Bigelow, a merger was presumptively illegal based on market share data,
but on summary judgment, the district court held there was no evidence of
a threat of antitrust injury "absent some evidence of past instances of
predatory pricing or present intent to engage in predatory behavior
following the merger...." Bigelow, 867 F.2d at 105. The court of appeals
reversed since Lipton's 84% post-merger market share "threatened to be
decisive," giving Lipton the ability to engage in predatory conduct and
"eliminate competition in that market by, inter alia, reducing
[plaintiff's] access to supermarket shelf space for its products." Id. at
111. Bigelow has been criticized for holding that a threat of predation
may be uncritically presumed from market share data. Facts other than
market share must be known before a market can realistically be judged
susceptible to predation. II Phillip E. Areeda & Herbert Hovenkamp
Antitrust Law P 373d2, 373d4 (Rev. ed. 1995); William H. Page and Roger
D. Blair, Controlling the Competitor Plaintiff in Antitrust Litigation,
91 Mich. L. Rev. 111 (1992). Cargill, 107 S. Ct. at 494 n. 15 required a
realistic threat of predation, and the court finds that facts indicating
such a realistic threat are present in this case.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*68]

b. Shearin's antitrust injury
Because protecting consumers from monopoly prices is the central
concern of antitrust law, consumers have usually been the preferred
plaintiff in private antitrust litigation. See II Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law P 370 (rev. ed. 1995). In this case,
plaintiff Shearin alleges in the complaint that a possible combination of
the Times and the Morning News will raise advertising rates as a result
of their dominant market position. Thus, Shearin alleges that it faces a
threat of monopoly prices for advertising in the Morning News. The reality of this threat is that advertising rates
are much lower in
Northwest Arkansas than in comparably sized local daily newspaper
markets. As the threat of raised prices due to market power is primary
concern of Section 7, the court believes that Shearin has demonstrated
antitrust injury.

PAGE 27 1995 U.S. Dist. LEXIS 9514, *68
II. COMPETITION MAY BE SUBSTANTIALLY LESSENED
A combination is presumed to violate Section 7 if the market is
sufficiently concentrated and the challenged acquisition would
significantly enhance concentration. The seminal case on this matter is
United States v. Philadelphia [*69] Nat'l Bank, 374 U.S. 321, 83 S.
Ct. 1715, 10 L. Ed. 2d 915 (1963), where the Court adopted a presumptive
standard of illegality for horizontal mergers based on concentration
ratios and market shares.

Intense congressional concern with the trend toward concentration
warrants dispensing, in certain cases, with elaborate proof of market
structure, market behavior, or probable anticompetitive effects.
Specifically, we think that a merger which produces a firm controlling an
undue percentage share of the relevant market, and results in a
significant increase in the concentration of firms in that market, is so
inherently likely to lessen competition substantially that it must be
enjoined in the absence of evidence clearly showing that the merger is
not likely to have such anticompetitive effects. . . . Such a test
lightens the burden of proving illegality only with respect to mergers
whose size makes them inherently suspect....

Id., 374 U.S. at 363. In Philadelphia Nat'l Bank, the Supreme Court held
presumptively illegal a merger resulting in a single firm controlling 30%
of a market in which four firms had 78% of the sales. In Times Mirror,
274 F. Supp. at [*70] 622, the court found a prima facie violation of
the Clayton Act where the acquiring newspaper's share of total weekday
circulation climbed from 10.6% to 54.8%. The exact numerical threshold
that creates the presumption is a subject of debate. For a table of
cases, and the market data involved in each case, see IV Phillip E.
Areeda & Donald F. Turner, Antitrust Law P 909 pp. 31-51 (1980), and 3
Julian O. von Kalinowski, Antitrust Laws & Trade Regulation @@ 26.02[2]
n. 62, 26.02[3] n. 111 (1994).
A review of the case law reveals that the market shares, concentration
ratios, and Herfindahl-Hirschman Indexes are so high in this case that
the acquisition is clearly presumptively anticompetitive. Based on
circulation figures, the Morning News has 59% of the market, the Times
has 25.4%, and the Daily Record has 15.7%. Based on advertising revenues,
the Morning News has 57% of the market, the Times has 31%, and the Daily
Record has 13%. Thus, the combination of Stephens-owned newspapers in
Northwest Arkansas will have in excess of 84% of circulation and 88% of
advertising revenue. n17 Even if the Democrat-Gazette came out with a
zoned edition, and achieved [*71] the circulation and advertising
goals considered realistic in internal prelitigation memorandum, the
market would still be extremely concentrated.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n17 While the court was impressed with the sincerity and honesty of
Mr. Jack Stephens and every other witness from his organization who
testified, the court is still left with the gnawing feeling that it is
inevitable that someday, maybe sooner rather than later, the newspapers
will be operated as one and the Northwest Arkansas Times will disappear from the scene just as two other
venerable hometown papers, the
Springdale News and the Rogers Daily News have disappeared under the
Stephens family ownership. It simply makes economic sense, and humans,
being the type of animal they are, almost always act in their own best
interests. There appears to be little dispute but that the Times simply
was not worth, as a stand-alone newspaper, what Jack Stephens paid for
it. It is
PAGE 28 1995 U.S. Dist. LEXIS 9514, *71
worth more if it is operated in conjunction with other Stephens owned
papers in the area, so the court is certain that, sooner or later, that
will happen irrespective of how sincere Mr. Stephens' present
protestations to the contrary are.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*72]
At this point, defendants have an opportunity to show why the
acquisition will not be anticompetitive and why the presumption of
anticompetitive effects should not apply. United States v. Baker Hughes,
Inc., 285 U.S. App. D.C. 222, 908 F.2d 981, 982-83 (D.C. Cir. 1990).
Defendants commonly argue, as they have in this case, that the barriers
to entry in a certain market are so low, that if a market participant
behaves monopolistically by raising prices or reducing output, new
competitors will enter the market, and the market will correct itself.
908 F.2d at 987. While normally a valid argument, this contention is
specious in the context of the local daily newspaper industry. The
barriers to entry are universally recognized as formidable, as is
supported by the fact that in the entire nation every major city
newspaper market is a monopoly except for approximately eight. Only WEHCO
faces reasonably low barriers to entry with a zoned edition of the
Democrat-Gazette, and as the court explained above, the market is so
concentrated that WEHCO's entry would not significantly dilute the
market. Moreover, entry by WEHCO becomes extremely unlikely if this
acquisition is allowed to stand [*73] because one combination of
newspapers will have a dominant market share in the region.
Defendants also argue that it is improper to aggregate the market
shares of the Times and the Morning News, because NAT and Donrey are
separate entities and do not share a common parent. The court does not
consider this argument to be tenable.
In the first place, both NAT and Donrey have virtually complete
overlap of ownership by various members of the Stephens family. Donrey is
ninety-nine percent (99%) owned by Stephens Group, Inc. (SGI), and SGI is
owned entirely by Stephens family trusts. n18 The same Stephens family
trusts also own ninety-five percent (95%) of NAT's stock. n19 At the
current time, Jack Stephens is chairman of the board of SGI, Donrey and
NAT, and his executive assistant, Scott Ford, is NAT's president. NAT has
submitted proposed changes in ownership and management for the express
purpose of persuading the court to let the Stephens family retain
ownership of the Times with a slightly different structure. Under this
proposal, various members of the Stephens family would still own
ninety-five percent (95%) of NAT's stock, but these same family members
would only own 20% of [*74] SGI and Donrey. n20 In addition, Warren A.
Stephens would replace his father, Jack Stephens, as NAT's chairman, and
George Smith, the current publisher of the Times, would replace Scott
Ford as president.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n18 The Class A Common Stock of SGI, which is the voting stock, is
owned by four Stephens family trusts as follows.
49.5% J.T. Stephens Trust One
49.5% Bess Stephens Trust
0.5% Warren A. Stephens Trust
0.5% W.R. Stephens Trust

PAGE 29 1995 U.S. Dist. LEXIS 9514, *74
The Class B. Common Stock of SGI, which is non-voting stock, is also
owned by a number of Stephens Family trusts as follows.
40.0% J.T. stephens Trust One
39.1% Bess Stephens Trust
0.9% Bess Stephens Individually
9.975% Warren A. Stephens Trust
0.025% Warren A. Stephens Trust One
3.33% W.R. Stephens, Jr. Rev. Trust
3.33% Pamela Stephens Rose Trust One
3.33% Elizabeth Ann Stephens Campbell Rev. Trust One
n19 NAT is a limited liability corporation. Thus, there is only one
class of NAT stock, and it is voting stock.
12.075% J.T. Stephens Trust One
12.075% Bess Stephens Trust
36.675% Warren A. Stephens Trust
11.892% W.R. Stephens, Jr. Rev. Trust
11.892% Pamela Stephens Rose Trust One
11.892% Elizabeth Ann Stephens Campbell Rev. Trust
[*75]
n20 The proposed ownership structure of NAT is as follows: 47%
Warren A. Stephens Trust
16% W.R. Stephens, Jr. Rev. Trust
16% Pamela Stephens Rose Trust One
16% Elizabeth Ann Stephens Campbell Rev. Trust

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - -
Even with the proposed changes, the Stephens family members have
little, if any, incentive to compete aggressively against themselves. It
is apparent to the court, and the Stephenses can be proud, that the bonds
of filial loyalty are well developed in this family which regularly makes
joint investments together amounting to millions upon millions of
dollars. As Warren Stephens testified at trial, the Stephens' family
investment philosophy is to take a long term approach and to "think in
terms of generations . . . in terms of building value for--for our
family."
The Stephens family investing is marked by a cooperative and trusting
spirit that one would not expect to find in a competitive business
situation, as one can see from the way in which NAT acquired the Times.
SGI dividends were used by the Stephens family to purchase NAT. The exact
proportions of NAT ownership [*76] was a trifling matter that was to be
determined by accountants. Jack Stephens and his sister, Bess Stephens,
provided NAT with thirteen million dollars in loans, which were reflected
in promissory notes that were both unsigned and unsecured. With regard to
the family trusts themselves, members of the Stephens family serve on
each other's trusts as trustees and vote each other's stock in the event
of an incapacity.
Not only the bonds of filial affection and loyalty, but also clear economic self-interest, will deter Warren A.
Stephens and his cousins,
the 95% owners of NAT, from vigorously competing with the Morning News,
Donrey, and SGI. n21 In addition to the 20% of SGI non-voting stock held
by Warren A. Stephens and his cousins, the Stephens children know they
will one day inherit the rest of the

PAGE 30 1995 U.S. Dist. LEXIS 9514, *76
stock of SGI from their parents, Jack Stephens and Bess Stephens. In
fact, the elder Stephenses, for tax reasons, have a clear intent to pass
assets from themselves to their children while they are still alive.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n21 The remaining 5% of the Times is owned by members of a "special
investments group" comprised of SGI employees hand-picked by Jackson
Stephens to participate in the investment.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*77]
Thus, the Stephens children, as owners of the Times, will have little,
if any, economic incentive to cause the Times to compete in the market
place at the expense of their current and future asset, the Morning News.
Both newspapers are part of the family's "investment body" and human
nature is such, and the motive of self preservation is so strong, that
one doesn't allow one part of that body to harm another part, at least
not for long.
In a competitive situation, the Times might attempt to take readers
away from the Morning News by, for example, hiring more experienced
reporters at higher salaries or spending more money on color printing.
The payoff would be an increase in the Times' circulation and value. In
the current non-competitive situation, these investments would never be
made, as SGI and the Stephens family would bear not only the cost of
improving the Times, but also the decrease in the Morning News' value.
The corresponding increase in the value of the Times would no longer be
such an attractive payoff.
Conversely, in a competitive situation, the Morning News would have
incentive to make gains at the expense of the Times, but [*78] in the
current situation, the elder Stephenses, as owners of the Donrey paper,
would have little incentive to take money from the pockets of their
children, which they will inherit in any case. This situation will
certainly not be helped any by the thirteen million dollars in unsecured
loans to NAT which should reduce the elder Stephenses' desire to see the
Times go out of business, something a competitor would normally desire.
Even to the extent that the Stephens family does not directly
interfere with management decisions or share information, the fact
remains that the employees of Donrey and NAT know who their "bosses" are,
and, again, it is simply human nature to try to please the persons who
have control over the employees' fate. In that respect, after having seen
and heard Jack. Stephens testify, and after hearing and seeing evidence
in respect to how the Stephens family does business, and apparently always has, the court is convinced that
everyone in that exceptionally
well run organization with wide ranging business interests knows who's
"boss." In fact, the court suspects that Jack Stephens is such a strong
personality that his wishes are usually carried out without the [*79]
necessity of direct orders from him. "They" just intuitively know what he
wants and they do it.
If the responsible person in any of the separate and supposedly
independent family businesses get the message, in whatever form, as to
his desire in respect to that business, it's done, as evidenced by
Donrey's dropping the Times acquisition like a hot potato simply because
one of Stephens' employees, as he
PAGE 31 1995 U.S. Dist. LEXIS 9514, *79
exited the airplane in Fort Smith, told a Donrey officer that the family,
not Donrey, would buy the Times. The word was that Stephens wanted it
that way, so that's the way it would be.
Even in the time since the litigation commenced, George Smith, the
publisher of the Times, has testified that, despite public proclamations
to the contrary, he did not really intend to become the dominant
newspaper in Northwest Arkansas. Rather, he had decided that the best
business decision would be to focus exclusively on his "home turf" in
Fayetteville. All it would take is a similar realization by' the
publishers at the Morning News, that they should give up their regional
aspirations and focus on their "home turf" in Springdale and Rogers, and
you effectively have a market division [*80] agreement.
In sum, it is clear to the court that the various members of the
Stephens family do not pursue separate interests or compete against each
other in any way. NAT and Donrey may as a technical matter be separate
legal entities, but in practical effect, NAT's acquisition of the Times
may substantially lessen competition between the Times and the Morning
News and in the Northwest Arkansas local daily newspaper 'market. This,
is all that is required to find violation of Section 7.
In a previous ruling, the court framed the issue slightly differently.
In Community Publishers, Inc. v. Donrey Corp., 882 F. Supp. 138 (W.D.
Ark. 1995), the court held that the question was whether Donrey
indirectly acquired the Times when it was purchased by NAT. While the
court still believes the reasoning and precedent cited in support of that
holding applies to this case, it seems more elegant to simply ask whether
NAT's acquisition of the Times may substantially lessen competition,
which is all that is required under Section 7. As explained above, the
answer is "yes." The court also finds that Donrey indirectly acquired the
Times.
Although NAT and Donrey are technically [*81] separate entities,
the court previously examined cases where, "in varying contexts, the
courts have refused to take a formalistic approach to corporate
structures in order to effectively implement the antitrust laws." Id. at
140-41. In the subsequent-course of litigation, the parties have brought
the court's attention to further cases that support its prior ruling, and
the court will discuss these cases given the novel nature of this
question.
Defendants argue that, as a matter of law, Donrey has not indirectly
acquired the Times, and NAT'S acquisition will not substantially lessen
competition, because NAT and Donrey are not owned by a common parent or
some single person or firm. The court considers Julius Nasso Concrete
Corp. v. DIC Concrete Corp., 467 F. Supp. 1016 (S.D.N.Y. 1979) to be
directly contrary to this argument. In Julius Nasso, a construction
materials firm was acquired by a joint venture of three construction
companies and/or by "individuals said to be in control of the joint
venture." Id. at 1018. In either case, the court found that the case was
cognizable under Section 7 and denied a motion to dismiss. As in this
case, if the ownership was traced [*82] back far enough, a cluster of
non-competing shareholders, none with majority status, would be found.
Defendants also argue that there is no precedent for aggregating the
shares of stock held by the Stephens family, and yet in American Crystal
Sugar Co. v. Cuban-American Sugar Co., 152 F. Supp. 387, 392 (S.D.N.Y.
1957), aff'd, 259 F.2d 524 (2d Cir. 1958), the court clearly thought it
appropriate to do so. In
PAGE 32 1995 U.S. Dist. LEXIS 9514, *82
American Crystal, the court found it necessary in a Section 7 action to
calculate defendant's percentage of stock ownership in a competitor, and
so included shares owned by defendant's chairman of the board and his
"immediate family and other persons likely to accept his advice." Id.
at-392.
There is also a group of cases arising under Section 1 of the Sherman
Act, where the court determined that two or more legally separate and
distinct entities are not distinct for purposes of antitrust law if they
are not "independent sources of economic power . . . pursuing separate
interests." Copperweld v. Independence Tube Corp., 467 U.S. 752, 771, 104
S. Ct. 2731, 81 L. Ed. 2d 628 (1984). While the specific holding of
Copperweld is that a parent cannot conspire with [*83] a subsidiary,
"the thrust of the holding is that economic reality, not corporate form,
should control the decision of whether related entities can conspire."
City of Mt. Pleasant, Iowa v. Associated Elec. Co-op, 838 F.2d 268, 275
(8th Cir. 1988). Moreover, "the logic of Copperweld reaches beyond its
bare result, and it is the reasoning of the Court, not just the
particular facts before it, that must guide our determination." Id. at
274.
In Mount Pleasant, the Eighth Circuit held that the individual
cooperatives making up a rural electric cooperative association could not
have conspired under Section 1, as a matter of law. In words that could
just as easily apply to this case, the court held that "the cooperative
organization is a single enterprise pursuing a common goal" and that
"there is no evidence that any defendant has ever pursued interests
antithetical to those of the cooperative as a whole." Id. at 276. The
court also commented that "even though the cooperatives may quarrel among
themselves on how to divide the spoils of their economic power, it cannot
reasonably be said that they are independent sources of that power." Id.
at 277 (emphasis in original). [*84] As in this case, the Stephens
family is a cooperative venture where the individual members never pursue
antithetical interests, and where the spoils of economic power may be
divided up this way and that, but where it cannot reasonably be said they
are independent sources of power.
Similarly, the Court of Appeals for the Fifth Circuit disregarded
corporate formalities in Century Oil Tool, Inc. v. Production
Specialties, Inc., 737 F.2d 1316, 1317 (5th Cir. 1984), where the court
described the two defendant corporations as follows:

Production Specialties and Gas Lift were separately incorporated and
commonly owned by three men, two of whom owned 30 percent of each
corporation and one of whom owned the remaining 40 percent of each
corporation. All three men served as directors and officers of each
corporation.
As in this case, no single shareholder had majority status in even one
corporation, and yet both corporations were found to be under common
control such that they could not legally conspire.
Finally, the parties have briefed in detail a line of cases where it
is held that when a single firm is a minority stockholder in a
competitor, it may substantially lessen [*85] competition under Section 7. See e.g. United States v. E.I. du
Pont de Nemours & Co., 353
U.S. 586, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957); American Crystal Sugar
Co. v. Cuban-American Sugar Co., 152 F. Supp. 387, 392 (S.D.N.Y. 1957),
aff'd, 259 F.2d 524 (2d Cir. 1958). In such cases, a single entity has
control over at least one firm and then substantial minority ownership of
a competitor. Such cases differ dramatically from the
PAGE 33 1995 U.S. Dist. LEXIS 9514, *85
facts of this case, where no single member of the Stephens family has
control over either NAT or Donrey. However, to the extent that these
minority ownership cases provide guidance in this case, it is that a firm
need not exercise technical, legal control over a corporate competitor in
order to lessen competition. Evidence that the minority stock ownership
allows one firm to control the other and may substantially reduce
competition will suffice. Usually, this will be evidence of actual
control or intent to control by the minority shareholder.
In this case, to the extent that it is analogous to the minority
ownership cases, the evidence that the overlapping minority ownership of
NAT and Donrey may substantially reduce competition is the evidence
[*86] of familial and economic ties that forever and irrevocably bind
the Stephens family.
This case provides a perfect example of the fluidity of corporate forms
and the potential dangers they present. Donrey and NAT essentially share
a common genetic imprint, i.e., ownership by various Stephens family
trusts. Such a corporate "cloning" procedure should not be allowed to
create large loopholes in Section 7.

Community Publishers, 882 F. Supp. at 140.
IX. REMAINING CAUSES OF ACTION
As the court believes NAT's acquisition of the Times, and Donrey's
indirect acquisition, violate Section 7 of the Clayton Act, it will be
unnecessary to consider the claims arising under Section 1 of the Sherman
Act involving contracts in restraint of trade and Section 2 of the
Sherman Act involving monopolization and attempts to monopolize.
Section 7 of the Clayton Act is the principal antitrust statute
applicable to mergers and acquisitions. 3 Julian O. von Kalinowski,
Antitrust Laws & Trade Regulation @ 23.01 (1994). However, Sections 1 and
2 of the Sherman Act are applicable as well. Id. at @ 23.01[1],[2].
With regard to Section 1 of the Sherman Act, anticompetitive [*87]
acquisitions can violate that section, presumably as a combination in
restraint of trade. United States v. First Nat'l Bank & Trust Co. 376
U.S. 665, 671-72, 84 S. Ct. 1033, 12 L. Ed. 2d 1 (1964) ("where merging
companies are major competitive factors in a relevant market, the
elimination of significant competition between them, by merger or
consolidation, itself constitutes a violation of @ 1 of the Sherman
Act.").
There is not a great deal of merger and acquisition litigation under
Section 1 of the Sherman Act, but it appears clear that mergers
challenged under Section 1 should be evaluated by the same substantive
standards as those applied under Section 7 of the Clayton Act. For
instance, in United States v. Rockford Memorial Corp., 898 F.2d 1278 (7th
Cir. 1990), cert. denied, 498 U.S. 920, 111 S. Ct. 295, 112 L. Ed. 2d 249
(1990), the court stated,
We doubt whether there is a substantive difference today between the standard for judging the lawfulness of a
merger challenged under section
1 of the Sherman Act and the standard for judging the same merger
challenged under section 7 of the Clayton Act. It is true that the
operational language of the two provisions [*88] is different and that
some of the old decisions (old by antitrust
PAGE 34 1995 U.S. Dist. LEXIS 9514, *88
standards anyway) speak as if that should make a difference. [citations
omitted] A transaction violates section 1 of the Sherman Act if it
restrains trade; it violates the Clayton Act if its effect may be
substantially to lessen competition. But both statutory formulas require,
and have received, judicial interpretation; and the interpretations have,
after three quarters of a century, converged. 2 Areeda & Turner,
Antitrust Law, P 304 (1978); 4 id., P 906, at p. 22.

Rockford, 898 F.2d at 1281-82. See also McCaw Personal Communications v.
Pacific Telesis Group, 645 F. Supp. 1166, 1173 (N.D. Cal. 1986) ("the
standard . . . under the Sherman Act is similar, if not identical, to
that under the Clayton Act").
Given this convergence of legal standards, according to Areeda and
Turner, "as a practical matter, Sherman Act @ 1 is now largely
superfluous in merger litigation, except for some regulated firms or
pre-1980 mergers." IV Phillip E. Areeda & Donald F. Turner, Antitrust
Law, P 906 (1994 Supp.) (footnotes omitted).
Rather than decide whether Section 1 is superfluous in the context of
mergers and acquisitions, [*89] this court will hold that it is
unnecessary to reach the Section 1 claim, since it is voiding the
challenged acquisition under Section 7. This very route was taken by the
Supreme Court in the case of United States v. Philadelphia Nat'l Bank,
374 U.S. 321, 83 S. Ct. 1715, 10 L. Ed. 2d 915 (1963), where the Court
held that a challenged merger violated Section 7 of the Clayton Act and
that, as a consequence, "we need not, and therefore do not, reach the
further question of alleged violation of @ 1 of the Sherman Act." Id.,
374 U.S. at 324. For the same reasons, it is not necessary to reach the
alleged violation of Section 2 of the Sherman Act. n22

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n22 It appears that Section 2 of the Sherman Act, which prohibits
monopolization and attempts to monopolize, has been applied even less
frequently than Section 1 to mergers and acquisitions.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - -
It will also be unnecessary to reach private plaintiffs' claims
arising under Section 8 of the Clayton Act involving interlocking
directorates, and Section 7a of the Clayton [*90] Act involving
government notification under the Hart-Scott-Rodino Amendments, because
any possible relief that might be available under these provisions has
already been awarded.
X. REMEDY
Having concluded that Section 7 has been violated, we must now
determine the appropriate remedy. "The relief in an antitrust case must
be 'effective to redress the violations' and 'to restore competition.'"
Ford Motor Company v. United States, 405 U.S. 562, 573, 92 S. Ct. 1142,
31 L. Ed. 2d 492 (1972) (citations omitted). Moreover, "it is well
settled that once the Government has success fully borne the considerable burden of establishing a violation of
law, all doubts as to the remedy
are to be resolved in its favor." United States v. E. I. Du Pont de
Nemours & Co., 366 U.S. 316, 334, 81 S. Ct. 1243, 6 L. Ed. 2d 318 (1961).
The court is "clothed with 'large discretion' to fit the decree to
PAGE 35 1995 U.S. Dist. LEXIS 9514, *90
the special needs of the individual case." Ford Motor, 405 U.S. at 573
(citations omitted).
All plaintiffs ask for permanent injunctive relief: the private
plaintiffs under Section 16 of the Clayton Act, 15 U.S.C. @ 26, and the
government under Section 15 of the Clayton Act, 15 U.S.C. @ [*91] 25.
Private plaintiffs ask for relief in the form of divestiture or
rescission. The government initially sought only divestiture but has
filed a post-trial motion to amend its complaint to name Thomson as a
defendant and seek the alternative relief of rescission.
Thomson contends that rescission is not an available remedy in a
private suit and objects to any request on the part of the government for
an order of rescission. It points out that the government did not name it
as a defendant prior to trial and did not seek the remedy of rescission.
It therefore contends it would be prejudiced by a post-trial amendment
since it did not defend against the case presented by the government.
Thomson initially raised in a motion to dismiss the issue of the
availability of rescission as a remedy in a suit brought by a private
party. n23 We rejected this argument finding that we had the authority to
order rescission if the court found such a remedy was warranted.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - -
- - -
n23 Thomson also argued that Section 7 did not reach the conduct of a
seller. We held it was appropriate to grant relief against sellers if
necessary to eliminate the effects of an unlawful acquisition. See United
States v. Coca-Cola Bottling Co. 575 F.2d 222, 227 (9th Cir. 1978), cert.
denied, 439 U.S. 959, 99 S. Ct. 362, 58 L. Ed. 2d 351 (1978). See also
United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 326-31, 81
S. Ct. 1243, 6 L. Ed. 2d 318 (1961).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - -
- - - [*92]
Our holding was in large part based on the Supreme Court's opinion in
California v. American Stores Co., 495 U.S. 271, 110 S. Ct. 1853, 109 L.
Ed. 2d 240 (1990). While that case dealt with the remedy of divestiture
rather than rescission in the context of a private action brought under
the Clayton Act, we find its reasoning persuasive and equally applicable
to the 'equitable remedy of rescission.
In American Stores, the Supreme Court reviewed the holding of the
Ninth Circuit Court of Appeals that divestiture was not an available
remedy in private actions under Section 16 of the Clayton Act. The Court
reviewed both the statutory language and the legislative history and
concluded that the "plain text of @ 16 authorizes divestiture decrees to
remedy @ 7 violations." American Stores, 110 S. Ct. at 1859.
The Court concluded that Section 16's simple grant of authority to
"have injunctive relief" would seem to encompass the remedy of
"divestiture just as plainly as the comparable language in @ 15." Id. at
1859. Indeed, it noted a plausible argument could be made that the
language of Section 16 was more expansive. Id. The Court quoted with approval the following [*93] language
from CIA Petrolera Caribe, Inc.
v. ARCO Caribbean, Inc., 754 F.2d 404, 416 (1st Cir. 1985): "'[@ 16]
states no restrictions or exceptions to the forms of
PAGE 36 1995 U.S. Dist. LEXIS 9514, *93
injunctive relief a private plaintiff may seek, or that a court may order
. . . . Rather, the statutory language indicates Congress' intention that
traditional principles of equity govern the grant of injunctive relief.'"
Id., 110 S. Ct. at 1859. It concluded that "section 16, construed to
authorize a private divestiture remedy when appropriate in light of
equitable principles, fits well in a statutory scheme that favors private
enforcement, subjects mergers to searching scrutiny, and regards
divestiture as the remedy best suited to redress the ills of an
anticompetitive merger." Id., 110 S. Ct. at 1861.
Section 16 was enacted "'not merely to provide private relief but . .
. to serve as well the high purpose of enforcing the antitrust laws.'"
Id., 110 S. Ct. at 1860, quoting, Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U.S. 100, 130-131, 89 S. Ct. 1562, 1579-1581, 23 L.
Ed. 2d 129 (1969). Section 16 should therefore be applied "'with this
purpose in mind, and with the knowledge that the [*94] remedy it
affords, like other equitable remedies, is flexible and capable of nice
adjustment and reconciliation between the public interest and private
needs as well as between competing private claims.'" Id. (internal
quotation omitted). The Court cautioned that its holding did not "mean
that such power should be exercised in every situation in which the
Government would be entitled to such relief under @ 15. In a Government
case the proof of the violation of law may itself establish sufficient
public injury to warrant relief." Id., 110 S. Ct. at 1866.
Thomson points out that not one party has cited a case in which
rescission was authorized against a private party or in which rescission
was utilized as a form of permanent injunctive relief. While this may be
true, it is also true that no case cited by any of the parties or found
by the court indicates that rescission is not an available remedy under
Section 16. In fact, as we pointed out in ruling on the motion to
dismiss, other courts have specifically held that rescission is an
available antitrust remedy in a private antitrust suit. See e.g., Arnett
v. Gerber Scientific, Inc., 575 F. Supp. 770, 771 (S.D. N.Y. 1983). [*95]
Still others have mentioned the availability of rescission without any
discussion of its applicability to a private action. See e.g., State of
New York v. Kraft General Foods, Inc., 862 F. Supp. 1030, 1034 n.3 (S.D.
N.Y. 1993) (a court should not order rescission unless the seller's
return to the industry is feasible under the circumstances and the remedy
is the most effective way to cure the antitrust violation), aff'd.
without op., 14 F.3d 590 (2d Cir. 1993).
The seller's awareness that an antitrust challenge will be made to the
pending merger or acquisition has also been said to be relevant to the
possibility of involving the seller in the order of relief. United States
v. Reed Roller Bit Co., 274 F. Supp. 573, 592 (W.D. Okla. 1967). It is
well established that "where a defendant with notice in an injunction
proceeding completes the acts sought to be enjoined the court may by
mandatory injunction restore the status quo." Porter v. Lee, 328 U.S.
246, 251, 66 S. Ct. 1096, 90 L. Ed. 1199 (1956). (citation omitted).
As the parties are aware, the court is concerned that the parties
acted with such speed in closing this transaction despite their knowledge
of the private [*96] plaintiffs' complaint seeking injunctive relief
and despite their knowledge that a hearing had already been set on the motion for temporary restraining order.
A Thomson representative was served with a complaint and a motion for
temporary restraining order or preliminary injunction on February 5,
1995, and
PAGE 37 1995 U.S. Dist. LEXIS 9514, *96
was advised the request for injunctive relief would be heard by the court
on February 7, 1995. The sale was closed during the afternoon of February
6, 1995. As private plaintiffs point out, had the court's schedule
allowed it to hold the hearing the morning of February 6, 1995, the court
could have enjoined the sale holding the parties in status quo. However
Thomson, with knowledge of the pending motion for preliminary injunction,
chose to consummate the sale and now suggests that the court has no
authority to rescind the transaction in question.
The court believes that is fair to say that Thomson executives went
into this transaction "with their eyes wide open." They were paid
handsomely to gamble that this hurried up transaction would withstand
antitrust scrutiny. They took the gamble they were paid to take.
Both divestiture and rescission require the dispossession of the
specific [*97] interest that created the unlawful monopoly or market
power. The relief authorized by the Clayton Act does not end with
dispossession of the unlawful interest but may include other measures
designed to undo what was achieved through the unlawful acts. United
States v. E.I. Du Pont de Nemours & Co., 353 U.S. 586, 607, 77 S. Ct.
872, 1 L. Ed. 2d 1057 (1957) (relief must be directed to that which is
necessary and appropriate in the public interest to eliminate the effects
of the acquisition offensive to the statute); United States v. Paramount
Pictures, 334 U.S. 131, 171, 68 S. Ct. 915, 92 L. Ed. 1260 (1948). The
court's exercise of its equitable powers is not designed to be punitive
and the decree should be no harsher than necessary to accomplish
effective relief. Timken Roller Bearing Co. v. United States, 341 U.S.
593, 603, 71 S. Ct. 971, 95 L. Ed. 1199 (1951) (concurring opinion).
The court need not resort to either rescission or divestiture if some
other equitable relief suffices to provide an effective means of
eliminating the illegal effects of the acquisition and is in the public
interest. The court's equitable powers are to be exercised to restore as
nearly as possible [*98] the competitive situation that existed before
the asset acquisition. However, it is clear from the case law that
divestiture is regarded as the preferred remedy.
"Divestiture has been called the most important of antitrust remedies.
It is simple, relatively easy to administer, and sure. It should always
be in the forefront of a court's mind when a violation of @ 7 has been
found." United States v. E. I. Du Pont de Nemours & Co., 366 U.S. 316,
330-31, 81 S. Ct. 1243, 6 L. Ed. 2d 318 (1961). Divestiture serves
several functions: (1) it puts an end to the combination, conspiracy, or
acquisition that was in itself unlawful; (2) it deprives the antitrust
defendants of the benefits of their actions; and (3) "it is designed to
break up or render impotent the monopoly power which violates the Act."
Schine Chain Theatres v. United States, 334 U.S. 110, 128-29, 68 S. Ct.
947, 92 L. Ed. 1245 (1948). Further, the Supreme Court has said that
"complete divestiture is particularly appropriate where asset or stock
acquisitions violate the antitrust laws." Ford Motor, 405 U.S. at 573.
Both private plaintiffs and the government contend that a complete
remedy will only be afforded [*99] if the Times is placed in the hands
of owners who are completely independent of NAT and Donrey. It is
suggested that this can be accomplished in one of three ways: (1) sale by
an independent trustee; (2) rescission; or (3) sale by NAT, L.C. Plaintiffs contend that divestiture through an
independent trustee is the
most effective remedy. They suggest an independent trustee who is given
the power and incentive to maintain the value and competitive ability of
the Times could be directed to sell the assets to a
PAGE 38 1995 U.S. Dist. LEXIS 9514, *99
person who is competitively suitable and capable of managing the Times
effectively, and who is not affiliated with the Stephens family or
Donrey. In plaintiffs' opinion this would ensure the Times remains an
independent entity, competing against Donrey, and it would remove much of
the suspicion that would surround a sale by one of the parties.
According to the private plaintiffs, allowing NAT to sell the Times
itself would be the least satisfactory of the three possible remedies. In
their view, if NAT is allowed to sell the Times, the owners of Donrey
will have the opportunity to choose Donrey's competitor in the market.
This would allow Donrey's owners to [*100] sell to someone who in
their view would be a weak competitor, someone against whom the Morning
News would ultimately prevail. Furthermore, it is suggested that NAT's
owners might drag their feet in the sale and possibly permit the Times to
deteriorate in the meantime.
NAT suggests either no remedy is needed or if the court believes some
type of relief is warranted, then the court is urged to adopt some type
of permanent hold separate order or other equitable remedy short of
divestiture or rescission. NAT points out that the court has broad
equitable powers and that injunctive relief is not mandated by the
finding of a violation of the antitrust laws.
NAT reminds the court that it has expressed a strong desire to own and
independently operate the Times and has demonstrated a commitment to
making significant capital investments. According to NAT, its

investors have promised to keep the Times independent and nurture it into
the best possible newspaper of its size anywhere. Many times such
statements might ring hollow. Yet, considering the reputations of those
who made the promises, they could have been carved in stone.
Consideration of all of these facts should lead [*101] to the
conclusion that if NAT's ownership of the Times results in
anticompetitive consequences, harm to the public interest will not be
remedied by the creation of a situation where more anticompetitive
consequences arise in a different form.
A similar argument was rejected by the Supreme Court in Ford Motor Co.
v. United States, 405 U.S. 562, 92 S. Ct. 1142, 31 L. Ed. 2d 492 (1972).
In that case Ford Motor Company had purchased certain assets of Electri