Wrapping it up

Jury deliberates in the Guardian's predatory pricing lawsuit
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tredmond@sfbg.com

The Guardian went to press this week without a jury verdict in our lawsuit against the SF Weekly.

As of the morning of March 4, the jury had been deliberating more than two days and was still behind closed doors in Superior Court. Any updates will be posted to www.sfbg.com.

The jurors have to answer a series of questions to reach a decision in the case, which alleges a violation of the state's Unfair Practices Act. First they have to decide if the Weekly sold ads below cost. Then they have to determine whether that was done to injure a competitor (us) and whether the below-cost sales were a substantial factor in actually causing the Guardian harm. Only at that point would the jurors begin discussing damages.

The fact that the panel is still talking after more than 10 hours means it's likely they answered yes to the first question and possibly the second or third — if those answers had been no, the case would have been over.

But trial lawyers all agree that it's always a mistake to try to predict the outcome of jury deliberations. The trial has been going on for more than four weeks, with detailed and sharply conflicting testimony on the behavior, intent, and financial status of the city's two alternative weekly newspapers.

The Guardian argued that the Weekly, owned by the Phoenix-based chain Village Voice Media (VVM; formerly known as New Times), has since at least 2001 engaged in a practice of selling ads for far less than the cost of producing them in an attempt to damage the local, independent competitor. Testimony showed consistently that the chain-owned paper was indeed selling below cost. In fact, the Weekly has lost money for the past 12 years, and the chain has shipped $13 million to San Francisco to prop up the paper and allow it to continue below-cost selling, testimony showed.

Three witnesses testified that they had heard Mike Lacey, one of the two principals of VVM, announce when the chain bought the Weekly in 1995 that he intended to put the Guardian out of business.

But the Weekly's lawyers argued that Lacey was just engaging in hyperbole, and that there was never a predatory intent. In fact, they argued, any financial0 losses the Guardian had seen were the result of a weak economy and competition from the Internet.

The Guardian's expert accounting witness, Clifford Kupperberg, conducted a study showing that the local paper had lost money to the Weekly's price-cutting. In 90 percent of the sample accounts he studied, the Weekly had sold ads below cost — and two-thirds of those were associated with the Guardian either losing a customer or having to cut its rates.

The Weekly brought out $1,075-per-hour Harvard economist Joseph Kalt to argue that it would be economically irrational for the Weekly to try to put the Guardian out of business. But the Guardian's business expert, Bill Johnson, publisher of the Palo Alto Weekly, said that VVM was behaving just the way many big chains do: it was cutting rates to seize as much market share as possible with the aim of undermining a competitor.

Kupperberg put the damages at between $5 million and $11 million. The Weekly's expert, Everett Harry, tried to belittle those claims, but in the process he gave the jury some misleading charts that completely misinterpreted Kupperberg's work.

Even if the jury awards only modest damages, the Guardian can ask Judge Marla Miller to issue an injunction barring the Weekly from continuing to sell ads below cost.