Consumer Goods & Retail Industry Litigation Blog

News America Whistleblower Robert Emmel’s Testimony

2009-07-09T10:24:00.003-04:00

In the ongoing trial between News America Marketing and Valassis, former News America whistleblower Robert Emmel appeared via video deposition to provide testimony against News America.

Emmel Video Deposition - According to Jim Edwards of BNET, Emmel testified that News America paid excessive amounts to retailers for exclusive in-store advertising rights in order to exclude competitors. News America paid Eckerd drug stores substantial guarantee payments because they wanted to exclude Insignia. News America allegedly lost money on the contract, as News America was unable to sell enough ads to cover the payments.

Similarly, News America allegedly overpaid for placement rights in Ahold stores. Mr. Emmel reportedly testified that he was told by News America President Dominick Porco that excluding Insignia and Floorgraphics was a key objective that justified the huge guarantee payments.

Mr. Emmel also testified that News America falsely claimed that Insignia and Floorgraphics failed to install the majority of the ads that they contracted to place, and that News falsely claimed a dedicated sales force in excess of 10,000.

Prior Emmel Testimony - Mr. Emmel made similar statements in the Floorgraphics trial. (Transcripts of that testimony are available here). During testimony on March 5, 2009, Mr. Emmel testified that News America provided a letter to a number of retailers and manufacturers ("CPGs") falsely claiming that Floorgraphics and Insignia had a poor compliance rate, and that the letter influenced retailers to do business with News America rather than Floorgraphics.

He also testified that News America ripped Floorgraphics ads to hurt Floorgraphics' image with retailers, and that News America sometimes removed Floorgraphics' ads from stores to hurt its compliance rate.

In News America's sales materials, the company claimed to have a field force of 10,000, but Emmel testified that he was told by News America personnel that it was closer to 3,500 or 4,000.

Some of the testimony provided by Emmel in the Floorgraphics trial was not reported by BNET as being repeated at the Valassis trial, probably because the focus in the Valassis trial is on FSIs and sales to manufacturers. For example, at the Floorgraphics trial, Emmel testified that he was assigned to certain accounts that were identified as "target accounts" by News America to take away from Floorgraphics as part of a project that News America dubbed "Operation Retailer Freedom." These included smaller retailers – dubbed tier 3 and tier 4 retailers. According to e-mails introduced at the trial, Emmel was instructed to make it a top priority.

This was a reversal of the policy in place before Floorgraphics began competing with News America. Emmel testified that in 1999, News America eliminated revenue share payments to smaller "tier 4" retailers. Jeff Jensen allegedly sent a letter to a large group of small retailers stating that News America no longer possessed their contracts in the file, and that unless they responded otherwise, their revenue share rates would be reduced to zero.

In late 1999, after News America started a floor ad program to compete with Floorgraphics' program, News America demanded that retailers including BI-LO accept a bundled bid for both floor and shelf advertising programs. When BI-LO refused, News America refused to continue providing shelf programs.

Mr. Emmel also testified about colorful language used by Paul Carlucci:

One vivid comment that I recall that he said to express
his displeasure on the call was that if there were individuals
that were concerned about doing the right thing, bed wetting
liberals in particular was the description that he used, then
he could arrange for those individuals to be out-placed from
the company.

Emmel testified that News America falsely announced that they had obtained contract rights for floor ads in Kroger Atlanta before they had actually obtained such rights, and that the goal of the announcement was to undermine Floorgraphics' efforts to obtain funding for its business.

Finally, Mr. Emmel testified that News America charged CPGs for ads in grocery stores that it did not have the right to place ads in. News America's store list included, for example, Fleming stores after News America lost the right to place ads in those stores, and included an inflated number of Winn Dixie stores when a significant number of Winn Dixie stores closed. CPGs were charged for advertisements that were to be placed in these stores, but the ads were never placed.

Related posts.

Supreme Court to Hear Case Regarding Exclusive Sports Team Licensing: American Needle v. NFL

2009-07-01T15:28:00.004-04:00

Supreme Court to Hear American Needle Appeal - On June 29, 2009 the Supreme Court agreed to hear an appeal of the Seventh Circuit's decision in American Needle, Inc. v. NFL, previously discussed here, in which the Seventh Circuit found that the NFL, NFL Properties, and the NFL teams could collectively negotiate an exclusive license with apparel manufacturers for the use of their individually owned trademarks without violating the antitrust laws.

Section 1 of the Sherman Antitrust Act normally prohibits groups of competing individuals or businesses from coordinating on prices or negotiating collectively, but an exception is made when the alleged competitors are all part of a "single entity." The single entity doctrine was announced in the 1984 Supreme Court case Copperweld Corp. v. Independence Tube Corp., where the Court held that a tubing company and its wholly-owned subsidiary were just one entity for antitrust purposes, reasoning that there was a "unity of interest," and that coordination between the two entities did not represent a "sudden joining of two independent sources of economic power previously pursuing separate interests."

NFL Teams Collectively Licensed Apparel Rights - In American Needle v. NFL, the issue was whether the 32 separately-owned NFL teams were independent competitors, or whether they were part of a "single entity" under the Copperweld doctrine. Plaintiff American Needle Inc. was a manufacturer of headwear, and had a non-exclusive license to produce NFL-branded headwear for over 20 years. In 2001, the 32 NFL teams authorized NFL Properties to solicit bids and enter into an exclusive 10-year license with Reebok for headwear and other apparel. American Needle filed an antitrust suit alleging that the NFL, NFL Properties, and the individual NFL teams had conspired in restraint of trade in violation of Section 1 of the Sherman Act.

The trial court and the Seventh Circuit both found that the NFL teams acted as a single entity when they made the exclusive license deal with Reebok. The Seventh Circuit pointed out that the teams "share a vital economic interest in collectively promoting NFL football," and that the NFL teams have collectively promoted NFL football since 1963 under the auspices of NFL Properties.

Supreme Court Review - Lower courts on several previous occasions had rejected attempts to extend the single entity defense to professional sports leagues, and American Needle asked the Supreme Court to hear its appeal, partly to resolve the conflict between the Seventh Circuit's decision and the other lower court decisions. The NFL Defendants also requested that the Supreme Court review the decision, which is unusual for a prevailing party. The NFL hopes that the Supreme Court will rule in its favor and grant it broad protection from future antitrust challenges to coordinated action by the 32 member NFL teams.

Commentary - The NFL is already enormously profitable, and it is unclear how joint licensing of apparel rights to manufacturers is consistent with competitive interests. Unlike the parent and wholly-owned subsidiary in Copperweld, it appears that the NFL teams do not have a "unity of interest," but are independently-owned economic entities that compete for fans and for customers of their team's apparel. Evidence provided by American Needle indicates that prices of the licensed NFL apparel increased significantly after Reebok was granted an exclusive license, to the detriment of football fans across the country.

Similarly, while manufacturers such as Coke and Pepsi have a shared economic interest in category promotion, e.g., promoting the consumption of cola products, they could not credibly invoke a Copperweld defense if they chose to jointly negotiate agreements with customers.

Thus, instead of adopting the Seventh Circuit's shared vital economic interest analysis, the Supreme Court should consider sending the case back to the trial court for a determination of whether the NFL Defendants were in fact acting as a single economic unit, or whether they competed with each other for customers of their team's apparel.

News America CEO Admits Making Mafia References -- Valassis v. News America Trial

2009-06-22T16:28:00.008-04:00

BNET reported today that News America Marketing CEO Paul Carlucci's video deposition was played in the Valassis v. News America trial in Michigan state court, which included Valassis' efforts to portray Carlucci as a mob-like boss.

Carlucci admitted showing a scene from The Untouchables as a motivational tool at a sales meeting (previously described in a 2005 Forbes article), which Forbes and other sources suggest was the scene in which Al Capone kills a man at a sit-down black-tie dinner with a baseball bat. Carlucci also admitted to using several mafia references, such as "Capo di Tuto Capo," or boss of all bosses, and stating that "the mafia would refer to our General Sales managers as 'good earners.'"

But according to another source, Carlucci denied during the video testimony that the scene he showed was the baseball bat scene:

Question: It is accurate that you showed a clip from the film the Untouchables to a sales meeting?
Answer: That aspect is accurate.
Question: And it is the portion of the film in which Robert Deniro playing Al Capone gives a speech about baseball and then kills a man with a baseball bat?
Answer: I did not show that portion of the video clip.
Question: Which portion did you show?
Answer: I showed the speech that was based on -- and it was done, along with several other movie clips that were discussing attributes that we were presenting to the sales staff. I believe the Capone's speech had a title -- and it was-- it probably was in 1992 or 1993 or 1991 that had a title of loyalty. And it was shown just in jest as something of loyalty. We also showed films from Mary Poppins and we showed Daddy Long Legs with Fred Astaire dancing on the ceiling at the same -- at the same sales function, if my memory serves me correctly.

At the Floorgraphics trial, it was alleged that Carlucci made a threat to "destroy" Floorgraphics at a meeting with Floorgraphics executives in New York. In the video testimony, Carlucci reportedly denied making that threat.

But a knowledgeable (but unconfirmed) source informed me that Valassis is in a very strong position in their case, with the last several days of testimony going well for Valassis. He stated that the testimony from consumer packaged goods manufacturers ("CPGs") has been extensive and convincing.

He also told me that News America made strenuous objections to the introduction of testimony from Robert Emmel, including an accusation that some of the money that was being paid by Floorgraphics and Insignia for his attorneys fees was being paid directly to Mr. Emmel in return for his testimony. The Court rejected the argument, agreeing to admit the deposition testimony.

Related posts.

Revised June 29, 2009.

Valassis Presents Evidence of Bundling by News America Marketing

2009-06-18T00:52:00.002-04:00

Jim Edwards of BNET news has posted several stories about the ongoing Michigan state court trial between Valassis and News America.

According to Edwards' June 16 story, News America's VP of Business Operations Tom Leprine admitted that News America bundled its in-store adverting with FSIs, charging consumer packaged goods manufacturers ("CPGs") higher prices for in-store advertising (where News holds a virtual monopoly over coupon, shelf, and floor ads) if they did not purchase their free-standing inserts ("FSIs") from News America. Some CPGs, such as Nestle, complained about News' America's "punitive pricing." As reported in a June 17 follow-up story, Mr. Leprine admitted that a number of CPGs agreed to pay millions in increased in-store pricing because of the bundling policy, including, for example, Sara Lee, S.C. Johnson, Novartis, and Reckitt Benckiser. Other CPGs agreed to place all their ads with News America to avoid the price increases (to the detriment of Valassis), though at least a few other CPGs refused to agree to News America's rates.

A former Sara Lee employee testified that she requested a proposal on in-store advertising, but was instead presented with a joint FSI / in-store bid that News refused to change, as Edwards reported on June 12. Representatives from Pepsi and Heinz also reportedly complained about News' monopoly on in-store to force them to purchase FSIs from News.

In the June 17 story, Edwards reported that News America's attorneys played a video of a sales speech in which News America Marketing CEO Paul Carlucci said that News Corp CEO Rupert Murdoch encouraged News America Marketing to "really go after [Valassis]." Carlucci also asserted that Valassis' loss of market share was caused by its executives' unwillingness to cut prices to match News because the Valassis' executives stock options gave them an incentive to increase short-term profits. According to News America's attorneys, Valassis' loss in market share was caused in part by their decision to raise prices in 2002, reported Edwards on June 13, not anticompetitive bundling.

Edwards coverage is limited, making it hard to tell what the likely outcome will be. On the other hand, it appears to be the only coverage available because of a ban on cameras at the trial.

Transcripts from Floorgraphics v. News America Marketing Trial

2009-06-12T00:45:00.003-04:00

Trial transcripts related to the Floorgraphics v. News America Marketing trial are now available, including testimony from the afternoon of March 4 (.pdf), the morning of March 5 (.pdf), and the afternoon of March 5 (.pdf).

In the lawsuit, Floorgraphics alleged that News America engaged in anticompetitive activities with the stated intention of destroying Floorgraphics' business. The trial ended in a settlement and News America's acquisition of Floorgraphics' retailer contracts. The testimony from the case could have a broader impact, however, as the allegations are similar to those made against News America by Insignia and Valassis.

March 4 Henderson P.M. Testimony - Floorgraphics first witness was Gary Henderson, a former employee of Floorgraphics who went to work for News America. Gary Henderson testified regarding a letter and chart (similar to this one) used by News America in claiming that its services were better than the services provided by competitors Floorgraphics and Insignia. Specifically, News America addressed compliance rates: When in-store advertisers agree to place a certain number of ads, compliance rates measure the number of ads that are actually in the store during the relevant time period, or advertising cycle. For example, if an in-store advertiser contracted to place 100 ads, and an auditor could only find 85 ads during an audit, the compliance rate would be 85%.

In the sales documents that News America shared with manufacturers, News claimed that it "consistently deliver[ed] average compliance rates of 90-95%." By contrast, News claimed that Floorgraphics' compliance rates were 49%, and Insignia's were 16%. Henderson admitted that News America made these claims even though they had not performed an audit of their own floor advertising program, instead assuming that their floor ad placement rates were similar to shelf and cart ads. A document introduced by Floorgraphics showed that the alleged compliance rate for Floorgraphics was based on an audit performed by News America Marketing (which may not have known which stores the ads were supposed to be in, making an audit potentially unreliable), and not a third party. It was further suggested that the audit did not comport with News America's own internal audit guidelines.

Henderson testified that the sales force was instructed to use the documents about compliance rates aggressively with all accounts, that they provided the documents to various manufacturers such as Tropicana and Kellogg's, and that the documents became a topic of interest among many clients. At the same time, Henderson admitted that News America had its own compliance problems and that "Floorgraphics could make a great case to customers" about News America's compliance problems.

Henderson was confronted with several documents suggesting that he shared confidential information with News America that he obtained while working at Floorgraphics. Henderson hired several sales representatives away from Floorgraphics to work with him at News America, and it was suggested that they also may have used confidential information against Floorgraphics.

I'll try to summarize the other transcripts in future posts.

Related posts.

Whistleblower Emmel Seeks to Lift Bankruptcy Stay to Pursue Appeal of Injunction

2009-06-04T00:27:00.004-04:00

Robert Emmel, a whistleblower who has previously testified against News America Marketing, has moved to lift a stay that is currently preventing him from pursuing an appeal of an injunction against him. The injunction bars him from sharing confidential News America information, and may prevent his participation as a live witness in lawsuits brought by Valassis and Insignia Systems against News America Marketing.

According to court filings, when Mr. Emmel was employed at News America Marketing, he learned that News America was engaged in anti-competitive activities, which he has subsequently sought to expose. After he was fired, Mr. Emmel sent documents to officials in Congress, testified about News America's activities in a lawsuit brought by Floorgraphics, and is a potential witness in lawsuits brought by Valassis and Insignia against News America.

Based on a non-disclosure agreement that Mr. Emmel signed after he was terminated by News America, a federal district court issued an injunction against him, finding that he had improperly disclosed confidential information when he sent it to officials in Congress. Mr. Emmel has filed a notice of his intention to appeal that ruling, but his recent bankruptcy filing caused an automatic stay of those proceedings.

Mr. Emmel has asked the bankruptcy court to lift the stay, which News America opposed in a filing yesterday. News America argues that "Emmel's desire to expend the limited assets of his bankrupt estate to challenge an injunction that merely requires him to comply with an agreement that he signed preventing his disclosure of News America's confidential information does not constitute 'cause' for lifting the automatic stay."

Exhibits to News America's filing include e-mails from Mr. Emmel to government officials, including a December 2006 e-mail to a Congressional staffer, expressing concern that "this Non-Disparagement document could . . . be strategically serving the purpose of News America to preclude my testimony to support the aforementioned charges."

Even if the stay were lifted, an appeal of the injunction would take many months to resolve, by which time the Valassis and Insignia trials will have already occurred.

Related posts.

Whistleblower’s Deposition Video Permitted in Valassis v. News America Lawsuit

2009-05-31T13:31:00.002-04:00

Deposition testimony from News America Marketing whistleblower Robert Emmel will be admitted in the Valassis v. News America Marketing trial currently being conducted in Michigan state court, reports BNET.

Over News America's objection, Judge Sapala ruled that the videotaped deposition testimony would be allowed into the trial. Mr. Emmel testified in the Floorgraphics trial that News America engaged in an anti-competitive campaign to take contracts with retailers away from competitors, and charged manufacturers for ads that were never placed. He also testified that News America's CEO threatened to fire any employees who were uncomfortable with News America's aggressive tactics.

According to one source, the deposition testimony that will be played in the Valassis trial comes from the Insignia v. News America lawsuit, in which Insignia has made similar allegations of anti-competitive tactics by News America.

News America has gone to great lengths to suppress Mr. Emmel's testimony, suggesting that News America is very concerned about its potential impact in the Valassis and Insignia litigation. As reported previously, News America sued Mr. Emmel in federal court in Atlanta for violating a non-disclosure provision of a separation agreement, and won an injunction preventing him from making any further disclosures of confidential News America information to third parties. Mr. Emmel is appealing that ruling.

Related posts.

Airline Passengers File Putative Class Action Lawsuit Against Delta Air Lines and AirTran Airways For Alleged Collusion Regarding Checked Baggage Fees

2009-05-28T00:46:00.004-04:00

Delta Air Lines and AirTran Airways were served yesterday with a complaint filed by Kotchen & Low LLP accusing the airlines of colluding regarding the imposition of a $15 first checked bag fee. Plaintiffs Brent Avery and David Watson are Delta and AirTran passengers who paid the fee that both airlines announced in November 2008 for flights taken on or after December 5, 2008.

Delta and AirTran both have hubs in Atlanta and are each other’s primary competitors. Plaintiffs allege that the unilateral imposition of a first bag fee on consumers would have been against each airline’s economic self-interest, as the airline would have lost customers to its competitor if it increased fees. By acting in concert, however, both airlines benefited from increased revenues without any increased expenditures.

The complaint alleges that the scheme was initiated when AirTran invited Delta to collude in an investor conference call. AirTran’s CEO stated that he wanted to impose a first bag fee, that AirTran had put the technological capability in place to implement the fee, and that AirTran would follow suit if Delta enacted a first bag fee:

We have the programming in place to initiate a first bag fee. And at this point, we have elected not to do it, primarily because our largest competitor in Atlanta [i.e., Delta], where we have 60% of our flights, hasn’t done it. . . . I think we prefer to be a follower in a situation rather than a leader right now.

Robert Fornaro, AirTran Investor Call (Oct. 23, 2008). Just over a week later, on November 5, 2008, Delta announced that it would begin charging passengers a $15 first bag fee, which Plaintiffs allege was an acceptance of AirTran’s invitation to collude. As promised in the conference call, AirTran followed Delta’s lead, and announced the following week that it would impose the same $15 fee, effective the same date as Delta’s fee.

As a result of the collusion, Plaintiffs allege that passengers have been charged tens of millions of dollars in anti-competitive fees. “Because the airline industry has so few competitors, especially in specific markets, it is highly susceptible to collusion,” stated attorney Daniel Low, a partner with Kotchen & Low LLP, a law firm representing the Plaintiffs. Low added, “several cases have been brought against airlines in recent years accusing them of conspiring to raise prices by signaling future pricing intentions, and we hope that our lawsuit will help consumers by discouraging such unlawful practices.”

In addition to Kotchen & Low LLP, Plaintiffs and the putative class are represented by Richardson, Patrick, Westbrook, & Brickman, LLC, McCulley McCluer PLLC, and Conley Griggs LLP.

Related articles: Bloomberg, Atlanta Journal-Constitution, Orlando Sentinel, Orlando Sentinel Blog, Courthouse News, CompLaw360 (subscription).

Valassis v. News America Marketing: Trial Begins

2009-05-27T10:49:00.004-04:00

Trial in a lawsuit between Valassis and News America Marketing is scheduled to begin today in Michigan state court, but Judge Sapala rejected a request for a television camera in the courtroom, reports BNET.

The trial is the first of three related lawsuits by Valassis against News America that collectively seek over $1.5 billion in damages for antitrust and related violations. The Valassis trial follows on the heels of a settlement in Floorgraphics v. News America, in which an in-store advertising company made similar claims of anti-competitive conduct by News America. The Floorgraphics lawsuit settled after the first few days of testimony, including damaging testimony from former News America employee Robert Emmel. Mr. Emmel reportedly will not testify in person at the Valassis trial, after News America won an injunction against him for disclosing confidential News America information to government officials.

Both parties requested the exclusion of cameras from the courtroom, which will impede media coverage of the trial.

Related posts.

Price Discrimination Law Violated by Manufacturer and Distributor

2009-05-20T23:52:00.002-04:00

A federal court in Pennsylvania recently found that Michael Foods, Inc. (a food manufacturer) engaged in price discrimination in violation of the Robinson-Patman Act by selling eggs and potatoes at higher prices to Feesers, Inc. (a food distributor) than to Sodexho, Inc., which is Feesers' primary competitor. See Feesers, Inc. v. Michael Foods, Inc., No. 1:04-cv-576, 2009 WL 1138126 (M.D. Pa. April 27, 2009) (.pdf order). The court also found that Sodexho induced the discriminatory pricing in violation of the Robinson-Patman Act. The court reasoned that Sodexho received from Michael Foods substantially lower prices over time compared to Feesers, which put Feesers at a competitive disadvantage. The court ordered Michael Foods to no longer offer discriminatory prices and ordered Sodexho to no longer induce or receive discriminatory prices.

The Michael Foods federal court decision signals that the Robinson-Patman Act is alive and well and can be a powerful tool to ensure a level playing field for retailers, wholesalers, and distributors. Before Michael Foods, many in the industry have viewed the Robinson-Patman Act as outdated and relatively unenforced. As a result, compliance with the Act has grown lax. But the Michael Foods decision demonstrates that the Act continues to have teeth and can be used to remedy instances in which retailers, wholesalers, or distributors are put at a competitive disadvantage because they are not receiving manufacturer discounts and allowances at levels commensurate with their competition. In the wake of Michael Foods, industry stakeholders should expect to see more Robinson-Patman cases in the future.

Senate Antitrust Subcommittee to Hold Hearings on Minimum Resale Pricing

2009-05-12T15:06:00.003-04:00

The Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights will hold a hearing next week on proposed legislation that would bar minimum resale pricing imposed by manufacturers.

The hearing will be held May 19 at 2:30 p.m., and is entitled: "The Discount Consumer Protection Act: Do We Need to Restore the Ban on Vertical Price Fixing?"

The House Judiciary Committee's Subcommittee on Courts and Competition Policy held a similar hearing on April 28, titled "Bye Bye Bargains? Retail Price Fixing, the Leegin Decision, and Its Impact on Consumer Prices." Testimony from that hearing is available here.

Maryland Bans Minimum Resale Pricing

2009-05-02T11:49:00.003-04:00

In a move that could affect retailers and manufacturers across the country, Maryland recently enacted a law prohibiting resale price maintenance. (WSJ).

The law was enacted April 14 and goes into effect on October 1, 2009. The law provides:

A contract, combination, or conspiracy that establishes a minimum price below
which a retailer, wholesaler, or distributor may not sell a commodity or service
is an unreasonable restraint of trade or commerce.

Md. Code, Commercial Law, § 11-204(B).

The new pricing law essentially restores the law regarding minimum resale pricing to how it existed prior to the Supreme Court's 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., which held that it was not inherently anti-competitive for a manufacturer to dictate minimum pricing to retailers. Rather, minimum pricing could be acceptable under the rule of reason, as the effect could be to promote inter-brand competition.

While state antitrust law does not always follow federal antitrust law, Maryland is one of a number of states with a statute providing that state court interpretations of state antitrust law should be guided by federal courts' interpretations of federal antitrust statutes. See Md. Code, Commercial Law, § 11-202.

The Maryland law only affects retailers doing business in Maryland, but this includes transactions in which Maryland consumers make internet purchasers from out-of-state retailers. Thus, the impact of the law could have repercussions for manufacturers and retailers across the country.

Moreover, the implementation of the Maryland law could be a prelude to broader legislative reform, as there has been substantial criticism of the Leegin decision. The American Antitrust Institute sponsored a conference on December 4, 2008 criticizing Leegin as harmful to consumers (reported here), and the FTC recently held workshops regarding how resale price maintenance could harm consumers (reported here and here).

There is a bill pending in Congress – the Discount Pricing Consumer Protection Act, S.148 – that is similar to the Maryland law and is likely to receive hearings next month. That bill states that its purpose is "to correct the Supreme Court's mistaken interpretation of the Sherman Act in the Leegin decision."

News America Whistleblower Files for Bankruptcy; Moves for a Stay

2009-04-22T19:44:00.004-04:00

Robert Emmel, a former News America Marketing employee and a key witness in litigation against News America, filed for Chapter 7 bankruptcy protection today, likely in response to News America's attempts to recover damages and $1.5 million in attorneys fees from him in a breach of contract action related to disclosure of confidential News America information.

As discussed in an earlier post, News America won summary judgment against Mr. Emmel in federal district court on a breach of contract claim based on Mr. Emmel's disclosure of confidential information (though News America lost on several other claims). Mr. Emmel admitted that he sent News America documents to the Counsel for the Senate Judiciary Committee because he believed that News America was engaged in unlawful activity. Mr. Emmel has filed an appeal of the summary judgment ruling to the Eleventh Circuit Court of Appeals.

Yesterday, Mr. Emmel filed a motion to stay the district court's order, which would enjoin Mr. Emmel from disclosing any confidential News America information and would require him to return all News America documents that are in his possession. In support of his motion to stay the ruling, Mr. Emmel argues that a well-established public policy exception favors non-enforcement of non-disclosure provisions in the context of disclosures of potential unlawful activity to government officials. According to one Georgia case cited by Mr. Emmel, "[r]eporting criminal behavior is expected and even demanded of the ordinary citizen, who should not be discouraged from reporting what he knows to the authorities and from lending his aid to secure evidence of a crime. Indeed, in Georgia it is the duty of one having such information to report it to those in authority."

As I have previously argued on this blog, whistleblowers should be provided positive incentives for reporting wrongful activity, not punished for doing so. While corporations like News America have legitimate concerns about avoiding the disclosure of trade secrets and other confidential business information, those concerns do not apply to disclosures to governmental authorities.

Mr. Emmel's case provides an example of the disincentives of becoming a whistleblower. The lawsuit against him has led to him filing bankruptcy, and he has devoted substantial time and energy to the litigation against him, as well as to testifying in litigation against News America. While some whistleblower laws, such as the qui tam statute, allow whistleblowers to reap financial rewards for their efforts, none of those laws appear to apply to Mr. Emmel, who should be commended for his efforts.

Related posts: News America Whistleblower Appeals; Court Grants Summary Judgment Against Whistleblower; All News America Marketing Posts

Kellogg Settles FTC Complaint Over False Advertising

2009-04-21T13:42:00.003-04:00

The FTC announced yesterday that it has settled a dispute with Kellogg's over an advertising campaign that falsely claimed that Frosted Mini-Wheats were "clinically shown to improve kids' attentiveness by nearly 20%."

Kellogg's made the claims in a national advertising campaign, but the study it relied on found that children who ate the cereal averaged an increase of less than 11 percent in attentiveness compared to children who ate no breakfast at all. Only one in nine children showed an increase in attentiveness of 20% or more.

The settlement agreement prohibits Kellogg's from making similar claims in the future about any breakfast food or snack food unless there is reliable evidence that supports the claims.

Just like Kellogg's experience with Frosted Mini-Wheats, many consumer product companies that compete in mature markets are aggressive with advertising claims, which is often the principal means of product differentiation. In the consumer products industry, an aggressive advertising claim that lacks credible substantiation will typically be challenged by a competitor that risks losing market share because of the claim. A competitor can petition the FTC to investigate a company's claim (which is likely what happened in Kellogg's case), can file its own lawsuit against the company under the Lanham Act, or can challenge the claim within the National Advertising Division of the Council of Better Business Bureaus, an industry self regulating body that renders decisions on the legitimacy of advertising claims.

Credible claims substantiation is important for any advertiser, particularly consumer products companies that compete in mature markets and face intense scrutiny of claims by competitors. While the FTC consent concerning Kellogg's Frosted Mini-Wheats claim will likely not materially affect the success of the brand, Kellogg's marketers probably did a disservice to the brand by employing the aggressive claim: the FTC enforcement action is embarrassing, the advertising campaign will have to be stopped in mid-stream (which will be confusing to consumers), and Kellogg's costs will increase as the organization eliminates the claim from its packaging.

Richard Feinstein Accepts Position as the Federal Trade Commission’s Bureau of Competition Director

2009-04-15T22:56:00.001-04:00

The Federal Trade Commission recently announced that Richard Feinstein, a partner at Boies, Schiller and Flexner LLP, has accepted the position as Director of the Bureau of Competition at the Federal Trade Commission. The FTC has two primary internal organizations: (1) the Bureau of Competition, which enforces antitrust laws and (2) the Bureau of Consumer Protection, which enforces consumer protection laws. As Director of the Bureau of Competition, Mr. Feinstein will oversee the antitrust enforcement arm of the FTC and help dictate federal antitrust enforcement policy. This will be Mr. Feinstein’s third “tour of duty” as an antitrust enforcer with the government. He started his career within the Department of Justice’s Antitrust Division and served as Assistant Director of the FTC’s Health Care Shop from 1998 – 2001.

Mr. Feinstein is an excellent choice for the Bureau of Competition Director. While at Boies, Schiller & Flexner, the founding partners of Kotchen & Low worked closely with Mr. Feinstein, and Daniel Kotchen reported to Mr. Feinstein at the FTC from 1998 – 2001. Mr. Feinstein is smart, experienced, fair, funny, and a terrific manager. Under Mr. Feinstein’s leadership, antitrust enforcement will be fair and balanced and morale within the FTC’s Bureau of Competition will be high. The one downside of his appointment is that FTC insiders and others who interact with him will have to suffer through Mr. Feinstein’s ardent and vocal support of any team from Pittsburgh: the Steelers, Penguins, Pirates, and Pitt Panthers.

News America Whistleblower Appeals

2009-04-14T15:53:00.002-04:00

Robert Emmel, a whistleblower who formerly worked for News America Marketing, is appealing an order granting summary judgment against him for breach of contract based on his disclosures to government authorities.

Mr. Emmel filed a notice of appeal yesterday, seeking reversal of the court's order finding that he breached an agreement not to disclose confidential information about News America, and permanently enjoining him from disclosing such confidential information to third parties. Given that appeals typically take over nine months to resolve in the Eleventh Circuit, the appeal is unlikely to be resolved before the Valassis and Insignia trials, so the appeal is unlikely to affect those cases.

In the Floorgraphics case, the plaintiff subpoenaed Mr. Emmel, and he provided strong testimony in their favor, previously reported on this blog here and here. For example, Emmel testified that News America's former CEO, Paul Carlucci, told employees that if there were "bed wetting liberals" who were uncomfortable with News America's tactics, he could arrange for those individuals to be fired. He also testified, as BNET recently reported, that News America charged manufacturers for placements of floor and shelf ads in hundreds of supermarkets that did not receive ads.

Valassis and Insignia will try to use to Mr. Emmel's testimony in their own cases. While the injunction against him may prevent Mr. Emmel from voluntarily testifying in person (absent a court order allowing him to do so), testimony from Mr. Emmel is likely to be introduced at least through transcripts or deposition videos.

Posts related to News America.

Motions to Dismiss Antitrust Cases Against Chocolate Manufacturers Denied; Interlocutory Appeal Certified

2009-04-13T22:02:00.004-04:00

Motions to dismiss were denied in the pending antitrust lawsuits against Chocolate manufacturers for allegedly conspiring to fix prices, as the court found that the Plaintiffs’ complaints alleged sufficient facts to plausibly suggest that the defendants had entered into an anti-competitive agreement.

Twombly Standard - The current standard governing motions to dismiss in antitrust cases was announced by the Supreme Court in 2007 in Bell Atlantic v. Twombly, 550 U.S. 544 (2007). The Twombly decision made it more difficult to survive a motion to dismiss, requiring that plaintiffs allege sufficient facts that, if true, demonstrate a plausible right to relief. This replaced the prior standard, which required that a complaint was not to be dismissed “unless it appear[ed] beyond doubt that the plaintiff c[ould] prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 46-47 (1957).

Plaintiffs’ Allegations - Judge Conner held that Plaintiffs’ allegations met the Twombly standard. Plaintiffs alleged a series of three parallel price increases, and “[t]he complaints depict a prototypical market susceptible to conspiratorial price-fixing.” For example, plaintiffs alleged “formidable entry barriers” in the form of high fixed costs, extensive marketing expenditures for launching new products and building brand loyalty, and a steep curve in acquiring technical expertise. Plaintiffs further alleged that costs remained stable because of futures contracts and placid supply markets, and demand was declining because of consumer trends favoring healthier snack options. In addition, Plaintiffs made more specific allegations regarding Defendants’ conspiratorial conduct in Canada, which the Court found “enhances the plausibility of the alleged U.S. price-fixing conspiracy.”

Interlocutory Appeal - Judge Conner found, however, that there is substantial grounds for difference of opinion as to whether the In re Chocolate allegations meet the requirements of the new test from Twombly. He found that Twombly “communicates ‘multiple linguistic signals’ about the standard of review.” While Twombly superceded Conley and required plausibility, the opinion also expressly rejected a requirement of heightened fact pleading of specifics. Thus, a narrow reading of Twombly “construes it as a formalistic change designed to give voice to a pleading standard that was already commonplace in many courts.” Because of the potential for disagreement, Judge Conner granted a motion to certify an interlocutory appeal of the following question to the Third Circuit:

Does Twombly, as a matter of law, authorize a court in a [15 U.S.C.] § 1 case to
draw an inference of conspiracy from the collective effect of repeated parallel
price increases, averments of anticompetitive activity in closely related
foreign markets, transnational management of corporate subsidiaries, opportunity
for collusion, and descriptions of anti-competitive conduct that are
economically sensible in light of mature market characteristics?

Analysis - I agree with Judge Conner’s decision that the In re Chocolate allegations satisfy the standard under Twombly, and believe that the Twombly decision should be narrowly construed. In antitrust cases, the allegations of conspiracy are often circumstantial, as the conspirators tend to be relatively diligent about covering up direct evidence of the conspiracy. The allegations here provide compelling evidence of a conspiracy, even if the evidence is circumstantial. The absence of specific allegations of an actual agreement reached among the defendants should not bar cases from proceeding to discovery when, as here, the factual circumstances suggest that the defendants conspired.

Litigation Forces Changes to Food Marketing

2009-04-11T17:08:00.006-04:00

A recent Wall Street Journal article observed that consumer packaged goods manufacturers' marketing practices have been affected by recent litigation trends:

"As Americans have grown more health-conscious, the country has seen a surge in litigation against food companies for allegedly selling unhealthy products and for misrepresenting their products' nutritional value.
In the wake of litigation -- or the threat of it -- some food distributors in recent years have adopted a host of health-promoting steps, like reducing their use of trans fats, limiting marketing of sugary, high-calorie products to children, and toning down boasts about their products' nutritional value."

The lawsuits have not always been successful. For example, a lawsuit alleging that Aquafina's falsely created the impression that the water comes from a mountain spring was dismissed last year. And lawsuits seeking large damages for allegedly causing obesity have been generally unsuccessful, partly because of the difficulty of proving causation.

Recent lawsuits include claims against Coca-Cola for alleged misrepresentations about the nutritional value of VitaminWater, and for allegedly making unsubstantiated claims about calorie-burning properties of Enviga green tea, and a case against Gerber for putting images of a variety of fruits on its Fruit Juice Snacks, even though the fruits were not included in the product.

While plaintiffs' lawyers characterize their lawsuits as a mission about truth in advertising, defense attorneys complaint about the paternalistic approach of the lawsuits, and argue that regulation by the Food and Drug Administration should preempt such lawsuits.

The WSJ Law Blog summarized the article here, and the Consumer Law & Policy blog here.

Additional Details of News America’s Alleged Conduct Emerge

2009-04-03T18:15:00.004-04:00

Floorgraphics Trial Transcript Excerpts. A few excerpts from the Floorgraphics trial transcript were posted today by Jim Edwards of BNET. The excerpts include testimony by a Floorgraphics executive that former News America CEO Paul Carlucci threatened to "destroy" Floorgraphics if it competed with News America, and a statement by Robert Emmel that, on an internal News America conference call, Paul Carlucci stated that "if there were individuals that were concerned about doing the right thing, bed wetting liberals in particular . . . , then he could arrange for those individuals to be out-placed from the company."

News America's Gift Card Deal with Safeway. Edwards also posted a story earlier about a lawsuit News America brought against two former employees in the Smart Source Direct ("SSD") division of News America. The former employees, much like Robert Emmel, were accused of breaching nondisclosure obligations to the company. Among the confidential information allegedly disclosed by the employees was that News America "gave up business from Ahold in order to obtain other business from Safeway." (Complaint ¶ 52). Sources indicate that, specifically, the allegation was that News America gave up an agreement with Ahold to distribute third-party gift cards through Ahold stores, relinquishing the Ahold opportunity to Safeway's Blackhawk Marketing Division, which is one of the leading companies in the third-party gift card market (along with InComm). Allegedly in return, Safeway awarded its in-store floor and shelf advertising program to News America rather than Floorgraphics. According to BNET, the case against the two former employees settled.

Update on Valassis and Insignia. Valassis' Michigan state court lawsuit against News America, which had previously been scheduled to begin in March, has been rescheduled for May 27, 2009 because of a conflict in the Judge's schedule. Valassis also has upcoming trials against News America scheduled in California for August 2009, and in federal court in Michigan, which is likely to take place sometime this year, but was delayed after the previous Judge recused himself in February.

In the Insignia lawsuit against News America, motions for summary judgment are scheduled for a hearing on May 11, 2009. Trial would likely occur several months after the hearing.

Related posts about: News America; Insignia; Valassis.

Arctic Glacier Suspends Executives After Internal Investigation

2009-03-30T21:32:00.005-04:00

Arctic Glacier, which is under investigation by federal authorities for its alleged role in a market allocation conspiracy in the packaged ice industry, announced today that it is suspending two executives as a result of an internal investigation.

Arctic Glacier's press release states:

Winnipeg, March 30, 2009 – Arctic Glacier Income Fund (TSX:AG.UN) today announced that, effective immediately, Frank Larson, Executive Vice President, Operations and Gary Cooley, Vice President, Sales and Marketing of the Fund's operating subsidiary, Arctic Glacier Inc., have been suspended from their duties with pay at the direction of the Company's Board of Directors.
The Board has been conducting an internal investigation that was precipitated by the ongoing investigation being conducted by the Antitrust Division of the United States Department of Justice ("DOJ"). Based on this internal investigation, the Board believes Mr. Larson and Mr. Cooley may have violatedcertain of the company's policies. The Board may take further action regarding Mr. Larson and Mr. Cooley prior to or following the conclusion of the internal investigation.
The Antitrust Division of the DOJ and the attorneys general of Florida and 18 other states are conducting ongoing investigations of possible antitrust violations in the U.S. packaged ice industry. Arctic Glacier continues to cooperate with the authorities, as it has since it first learned of these investigations.
"Arctic Glacier will continue to provide our clients with first-class product quality and industry-leading customer service," said Keith McMahon, President and CEO of Arctic Glacier. "A team of senior executives will assume the duties and responsibilities of Mr. Larson and Mr. Cooley on an interim basis under my supervision and operations will proceed normally."

Alleged co-conspirator, Reddy Ice, previously suspended a sales executive, Ben Key, after its own internal investigation found that he "likely violated company policies and is associated with matters that are under investigation."

Consolidated class action lawsuits against Arctic, Reddy Ice, and Home City Ice are pending in federal court in Detroit. The court is expected to appoint lead class counsel shortly. Also pending in the same court is a lawsuit that Kotchen & Low LLP filed on behalf of a former packaged ice sales executive who assisted the government's investigation, and who was allegedly fired by Arctic Glacier and blacklisted from employment by the ice companies.

More About News America Settlement and Litigation

2009-03-19T16:52:00.003-04:00

Several articles have been published recently regarding the Floorgraphics settlement and acquisition:

Fortune covered the settlement in this article on March 13. It reported that:

While Emmel was taking a break from testifying [during the trial], [News America President Chris] Mixson allegedly followed him into the restroom. Says [Emmel's attorney, Phil] Hilder: "It's my understanding that Mixson said 'Nice job telling lies on the stand,' in a very menacing way.

News America accused Emmel of making up the incident, and also pointed out that Floorgraphics has paid $375,000 for its share of Emmel's legal fees (which apparently exceed $750,000 total, with Insignia paying for the other half). The article also reported that Emmel is likely to testify at the upcoming Insignia trial.

The New York Times wrote about the settlement and acquisition in this March 12 article.

BNET reported today that the stock of both Insignia and Valassis jumped after the Floorgraphics settlement was announced, because:

The settlement and acquisition of FGI [Floorgraphics, Inc.] by News America raises the probability that Valassis may succeed in its trial (paving the way for a jackpot jury verdict in favor of Valassis) or that News America may offer to buy Insignia in a similar settlement to FGI's.

BNET also wrote on March 16 about the Summary Judgment ruling against Robert Emmel, observing that: "The ruling is chilling for employees of ad agencies and marketing firms who discover that their company is engaged in potentially illegal acts."

Finally, a recent filing in the Insignia case provided some additional details regarding the alleged conduct by News America that Insignia is challenging, including alleged false statements made by News America. Specifically, Insignia stated in interrogatory responses that:

News America made false and misleading statements regarding Insignia's compliance rate; News America made false and misleading statements regarding its own compliance rate; News America made false and misleading statements regarding Insignia's financial condition; News America made false and misleading statements regarding Insignia's history of payments to retailers; News America made false and misleading statements regarding the exclusivity provisions of certain News America contracts; News America made false statements about the exclusive nature of its relationship with certain retailers; and News America made false statements about Insignia's performance of its contractual obligations with CPGs and retailers. Insignia further identifies the following entities to which false and misleading statements were made, including but not necessarily limited to: Georgia Pacific; White Wave; Ocean Spray; McCain; Solo Cup; Hormel; Kraft; Ryan Multifoods / Ryan Partnership; Pfizer, Dreyer's; Kellogg's; Dial; Chef America / Nestle; Nabisco; Campbell's; Sorrento; B & G Foods; Colgate; Church & Dwight; Pinnacle Foods; Procter & Gamble; SC Johnson; Tyson's; General Mills; Pillsbury; and Safeway.

Click here for related posts about News America Marketing.

Court Grants Summary Judgment Against News America Whistleblower

2009-03-13T22:21:00.005-04:00

Summary Judgment Against Emmel - News America Marketing was awarded summary judgment on its breach of contract claim against Robert Emmel, a whistleblower and former employee who retained confidential business documents after he was fired, and who recently testified against News America at the Floorgraphics trial. ( click here for the order).

Former Employee - Emmel worked at News America from 1999 to 2006 as an account director, selling News America services to retailers. In that capacity he was privy to confidential information, including sales prices and tactics, and contract terms. News America's employee policies prohibited disclosure of confidential information, and on December 21, 2006, a few weeks after he was fired, Emmel signed an agreement not to disclose confidential News America information.

Disclosures - Despite the policies and agreement:

During his employment and after his termination, Emmel voluntarily disclosed
confidential company documents to governmental entities. Specifically,
unbeknownst to NAMIS, Emmel provided documents to (1) two United States
Senators; (2) two United States Senate Committees; (3) the Securities and
Exchange Commission; and (4) the New York State Attorney General. Emmel's final
disclosure of confidential information to the government was on December 20,
2006, when he sent fifty-five pages of documents to the United States Senate
Finance Committee.

Retention of Documents - After his termination, Emmel "retained confidential company documents and information, including three DVDs that contained a complete copy of every document that was stored on the hard drive of his [company]-issued laptop."

Lawsuit Against Emmel - News America challenged Emmel's disclosures as a breach of the employee policies and of the December 21, 2006 agreement, along with several other causes of action. The Court rejected News America's argument that the employee policies were binding contracts, but found a violation of the December 21 agreement. Emmel argued that he did not disclose any confidential information after signing the agreement on December 21, but the court rejected this argument, finding that the documents he mailed on December 20 were not received until after December 21, and therefore "Emmel's voluntary disclosure did occur after the agreement was signed." News America also argued that the December 20 agreement was breached by his disclosures in response to a subpoena from Floorgraphics, but the court did not reach that issue.

No Whistleblower Protection - Emmel argued, unsuccessfully, that his breach was justified by his status as a whistleblower who sought to disclose News America's anticompetitive business practices. He stated in a declaration that his disclosures to government authorities were an effort to "document . . . what [he] believed in good faith was N[ews America]'s illegal anti-competitive conduct against N[ews America] competitors and N[ews America]'s fraudulent conduct against its own retailer-customers." The court found no authority protecting such disclosures.

Nominal Damages - While News America did not prove any actual damages caused by Emmel's actions, the court found that nominal damages for breach of contract were appropriate, along with injunctive relief. On the remaining causes of action, the court granted summary judgment in favor of Emmel, namely: conversion, breach of the duty of good faith and fair dealing, breach of fiduciary duty, promissory estoppel, fraud, and punitive damages.

Costs and Fees - A jury will now consider the amount of nominal damages to award, and the amount of expenses and attorney's fees, if any, to award to News America in connection with the breach of contract claim. In defending News America's lawsuit, Emmel has incurred well over $400,000 in legal fees (though he testified that the tab was picked up by Floorgraphics and Insignia), and he's spent substantial time and effort in his case, as well as in the other related lawsuits.

Benefits - But despite the costs, I'm sure he takes substantial satisfaction in knowing that the truth about News America's anti-competitive behavior -- at least some part of it -- has been publicly revealed. Emmel provided crucial documents and testimony in the Floorgraphics litigation. At trial, for example, he testified about "Operation Retailer Freedom," which was News America's effort to sign up very small retailers with only one or two stores with the goal of destroying Floorgraphics.

Related posts.

News America Acquires Floorgraphics

2009-03-12T21:25:00.009-04:00

News America Marketing announced that it has acquired Floorgraphics' network of in-store contracts and other assets (presumably as part of their recent settlement agreement).

News America's press release, as reported by BNET, states:

News America Marketing announced today that it has entered into an agreement with FLOORgraphics, Inc. to purchase the company's network of in-store contracts and other assets. This will expand News America Marketing's network of at-shelf, floor and cart advertising and in-store promotion products to 50,000 stores in the United States.
Laura Richards, News America Marketing's Vice President of Corporate Communications, stated, "We're pleased to be expanding our network of stores to better serve our customers and we're very excited to incorporate the quality network so ably developed by FLOORgraphics."

News America took a large number of retail contracts away from Floorgraphics through allegedly anticompetitive means, which was at issue in their recent lawsuit that ended in a settlement mid-trial. While Floorgraphics' remaining retail contracts were largely limited to smaller retailers, the acquisition helps ensure that News America will continue to have a monopoly on the in-store floor, coupon, and shelf advertising business in grocery stores, as it will be difficult or impossible for any potential new competitor to gain a significant foothold, even in smaller stores.

In addition to the in-store floor, coupon, and shelf business, News America has been attempting to gain a dominant market share in the market for Free-Standing Inserts, and in the market for in-store price-based signs. In each market, News America faces a single major competitor (Valassis and Insignia respectively), both of which have lawsuits against News America scheduled for trial later this year, alleging that News America has engaged in unlawful competition. While the outcome is not yet clear, retailers and manufacturers will almost certainly benefit from victories for Valassis and Insignia that foster vigorous competition, as their continued survival and competition with News America will ultimately benefit stakeholders in the consumer goods industry.

Additional analysis of the acquisition is available here, from BNET.

Related posts.

Floorgraphics v. News America -- Case Ends in Settlement

2009-03-11T00:04:00.009-04:00

News America agreed to a settlement with Floorgraphics, Inc., ending the trial before Floorgraphics had finished presenting its case.

Although I do not know the terms of the settlement, the timing – in the midst of trial after compelling testimony from Floorgraphics' first few witnesses -- suggests that it is for a substantial sum.

The fact that News America was forced to settle may bode well for the Insignia suit against News America, and to a lesser extent the Valassis case (whose allegations are less similar to Floorgraphics' allegations than those of Insignia).

Here's a short recap of the trial, with thanks to a reader for providing some of the details:

After short opening statements, Gary Henderson was the first witness. Mr. Henderson attended a meeting at which News America allegedly threatened to "destroy" Floorgraphics for competing in the in-store shelf and coupon advertising industry. Henderson was asked about News America illegally accessing Floorgraphics' computer system, and the fact that server logs showed that access to Floorgraphics' computers was initiated from News America's offices. Mr. Henderson testified that News America engaged in widespread disparagement of Floorgraphics, contradicting News America's arguments that the disparagement was isolated. Specifically, my source indicates that he testified that a letter from Dominic Porco of News America (which Floorgraphics alleged was false) was sent to all of News' customer contacts. The so-called "Porco letter" (available here, thanks to a blog reader), asserted that Floorgraphics compliance rate was less than 50%. In other words, News claimed that for every two ads that Floorgraphics contracted to install, it only installed one. (News America made similar assertions about Insignia, claiming in, e.g, this flyer, that Insignia's compliance rate was only 16%). By contrast, Floorgraphics maintained that its actual installation rate was typically over 90%.

The next witness was Bob Emmel, who testified that News America had engaged in a campaign to take retailers away from Floorgraphics using aggressive tactics. Emmel is a former employee of News America who did not like News America's tactics, and happened to have kept a copy of his electronic files from his company computer. His testimony and these files proved very useful to Floorgraphics. According to a source, his testimony provided "many new damaging evidence points," though the source also stated that his testimony was "very difficult to understand if you are not experienced in this business," as it included a lot of industry jargon.

The third witness was Floorgraphics executive George Rebh, who provided an overview of the rise and fall of Floorgraphics' business.

The settlement was announced and the case was dismissed on the morning of March 10. With resolution of Floorgraphics' claims, two major cases remain pending against News America Marketing: Insignia v. News, andValassis v. News (along with two related state court cases).

Floorgraphics v. News America Trial Begins

2009-03-08T14:40:00.008-04:00

Trial in Floorgraphics v. News America began on March 3.

According to a March 2 article about the case in BNET Advertising:

At issue is whether News America has lied, cheated and stolen to maintain its market share. FGI claims News America "engaged in illegal computer espionage by breaking into FGI's password-protected computer system and obtaining proprietary FGI information." News America denies the allegations.

Henderson - After jury selection on March 3, Floorgraphics called its first witness on March 4: Gary Henderson, a sales executive who attended a lunch meeting between Floorgraphics and News America executives in 1999. At the meeting, Paul Carlucci of News America allegedly threatened to "destroy" Floorgraphics if it tried to compete with News America in the in-store shelf advertising business (as reported in this Inc. article).

Emmel - Floorgraphics' second witness was Robert Emmel, a former News America employee who testified under subpoena regarding alleged anti-competitive business practices by News, including efforts to wrest contracts with retailers away from Floorgraphics. Mr. Emmel was fired by News America, but he kept a copy of the files from his company computer, including documents reflecting News' aggressive tactics. News America learned about these files after Mr. Emmel was subpoenaed for a deposition by Floorgraphics, after which News America filed suit against him personally, alleging that his retention of the documents constituted a breach of contract and misappropriation of trade secrets. Mr. Emmel is represented by Phil Hilder, the same attorney who represented Enron whistleblower Sherron Watkins.

News' Trial Brief - Some of the documents regarding the computer break-in and News America's allegedly anti-competitive conduct are available here, from Bnet, along with News America's trial brief. In its trial brief, News America argues that "the law requires Floorgraphics to prove causation and damages to each retailer and each consumer packaged goods manufacturer that purportedly did less business with Floorgraphics because of News America Marketing's alleged tortious acts." Floorgraphics contends that News America's anti-competitive actions led to a massive decline in Floorgraphics' business, and intends to offer evidence of the overall business decline rather than testimony from each customer who switched from Floorgraphics to News America.

One reader wrote in to tell me that "lotsa juicy things came out the past couple of days" of testimony (though he didn't provide specifics). Trial transcripts won't be publicly released until June, so any additional details about the trial that readers can provide are appreciated: blog@kotchen.com.

Prior coverage of the case from this blog: FLOORgraphics' Suit Against News America Set for Trial October 1; Summary Judgment Motion Denied in FGI v. News America Marketing.

Revised 3/9/09.