Guardian lawsuit moves to the next stage

Judge set to approve $15 million award as SF Weekly vows to appeal
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tredmond@sfbg.com

The news hit the front page of the San Francisco Chronicle Web site (www.sfgate.com) May 9 under a nice, subtle headline: "SF Weekly Loses Big, Again."

And while it's not exactly a done deal, Judge Marla Miller appeared poised that day to finalize a $15.6 million award to the Guardian and issue an injunction barring SF Weekly from continuing to sell ads below cost.

The decision, expected this week, will bring the lawsuit to its next stage, as the Weekly and its 16-paper chain parent, Village Voice Media, threaten to try to overturn the 1913 California law that protects small businesses against big predatory competitors.

The Guardian's lawsuit charged the Weekly and Village Voice Media with vioutf8g the California Unfair Practices Act, which bars companies from selling a product below the cost of producing it with the intent to harm a competitor or reduce competition.

On March 5, a San Francisco jury found that the Weekly had engaged in predatory pricing and awarded the Guardian $6.39 million in damages. The law allows for treble damages.

Judge Miller opened the hearing by stating that, on the basis of legal briefs filed by the two sides, she was inclined to triple $4.6 million of the damages, leaving a final judgment of $15.6 million.

Although Guardian attorney Ralph Alldredge argued that the entire verdict should be tripled, the outcome wasn't a big surprise: from the day of the verdict, we've been reporting that the likely final award would be around $15 million.

Forrest Hainline III, a new lawyer representing the Weekly, argued vociferously against any injunction, claming that the court would be wading into troubling First Amendment territory. He argued that the only way the Weekly could comply with an injunction would be to cut editorial expenses — and that would have an impact on the paper's right to free speech.

But Alldredge pointed out that courts have always found that newspapers have to pay taxes and obey basic business regulations. What, he asked, would happen if the Weekly were found guilty of dumping toxic printing-press waste into the bay? Would the paper argue that paying the cleanup costs would violate the First Amendment?

The argument wasn't new — the Weekly tried the same First Amendment claim early in the trial, when the paper filed to have the lawsuit dismissed. Judge Richard Kramer, who handled the first stages of the suit, rejected the argument. The Weekly sought an appeal of Kramer's ruling, but the appeals court denied that as well.

Judge Miller seemed to imply in her questioning of Hainline that an injunction would only require the Weekly to do what it should be doing anyway: competing fairly. "Would you advise your client to go ahead and violate the law?" she asked.

Among the more interesting parts of Hainline's argument was the claim that the Weekly would never be able to survive in San Francisco unless it could sell ads below cost. He essentially implied that the Weekly can't make a profit on its own, and is in business only because its corporate parent is underwriting it.

Hainline said that he didn't see how the Weekly would be able to sell ads at a price that covered its operating costs.

An injunction that would force the paper to operate like a normal business and live within its means would threaten the Weekly's very existence, Hainline argued, proclaiming that Miller was threatening to "silence a First Amendment voice." He implied that the Unfair Practices Act should never apply to newspapers and that the entire verdict ought to be invalidated.

Alldredge pointed out that it was silly to say the Weekly would be forced out of business.