By Tim Redmond, March 5, 2008

Shit! Mike Lacey flees the courtroom after losing a huge verdict
Photo by Charles Russo

A San Francisco jury this afternoon found the San Francisco Weekly and its corporate parent guilty of illegal predatory pricing and awarded us $6.39 million.

Under state law, part of that verdict is subject to treble damages, bringing the total award to $15.6 million.

The battle isn't over; Rod Kerr, attorney for the Weekly, told me immediately afterward that the 16-paper chain intends to appeal.

But the verdict sends a clear signal to small businesses, independent newspapers and the alternative press that a locally owned publication has the right to a level playing field and that a chain can't intentionally cut prices and sell below cost to injure a smaller competitor.

The trial had been underway for more than five weeks. The Guardian charged the Weekly with violating the state's Unfair Practices Act, a Progressive-era law that bars a company from selling a product below cost for the purpose of destroying competition.

Evidence produced in the trial showed clearly that the Weekly had been selling ads below cost. In fact, the paper had lost money every year since the New Times chain, now known as Village Voice Media, bought it in 1995. Those losses totalled $25 million over the 12 years.

The Guardian produced extensive evidence that the Weekly and VVM were trying to injury the local competitor, including three witnesses who testified that they heard Mike Lacey, one of the two principals of New Times, vow to put the Guardian out of business.

The evidence produced also showed numerous internal emails discussing the Weekly's battle plans to take ads away from the Guardian.

The Weekly's lawyers ultimately admitted to below-cost sales, but said they had no intent to harm a competitor. However, members of the jury interviewed after the case believed otherwise.

Kerstin Sjoquist, a local business owner and graduate student, said in an interview that "it felt overly predatory on the part of the Weekly" and that "the predatory intent trickled down from the top."

Juror Dan Babin said he found the testimony of the Guardian's co-owners "very, very trustworthy. I found them very honest in their approach."

A juror who didn't want to be identified by name said there was little disagreement among the panel members over the question of intent.

By all accounts, the jurors carefully weighed all the evidence in the case, deliberating for more than three days and going through what one juror described as "unraveling an onion."

In the end, there was unanimous agreement that the Weekly had sold below cost, and 11 of the 12 jurors agreed that the paper had intended to harm competition.

The jury ruled that New Times/VVM and the East Bay Express, which until recently was owned by VVM, were equally culpable in aiding the predatory sales.

The Express is now an independent paper, and VVM is liable for any damages assessed against that publication.

The jury foreperson handed the verdict to the court bailiff at 12:30 pm, and the clerk read the results to a packed and silent courtoom. As the various parts of the verdict were read, and it became obvious that the Weekly and VVM were liable for significant damages, Lacey could be heard mumbling "shit" over and over again.

Lacey would not comment outside the courtroom and didn't return our phone calls. But Kerr, in a brief interview, said he was "disappointed" with the jury decision. "We don't believe the evidence supported the verdict," he said, and vowed to file an appeal.

The Guardian will now ask Judge Marla Miller to issue an injunction barring the Weekly from continued below-cost sales.

VVM posted a lengthy statement on the web almost immediately after the verdict was announced, arguing that the Unfair Practices Act is flawed. The chain promised to seek to challenge the validity of that law on appeal.

The process of appealing a case such as this can take years. But in the meantime, a San Francisco jury has sent a powerful message: Local businesses and local independent media matter – and big chains that try to use their deep pockets to squeeze the locals can be held to account.

(The Guardian was represented in this case by three fantastic lawyers, Ralph Alldredge, Richard Hill, and E. Craig Moody. Thanks, guys. You did good.)

› tredmond@sfbg.com

There comes a time in any campaign, a political consultant once told me, when you just have to hang up the phone, stop looking at polling data, walk away from the office, and leave it in the hands of the voters. You do everything you can; you work every angle, make the case every possible way you can ... and in the end, someone else is going to decide. You can only hope that if you told the truth, played by the rules, and showed why your side was right, in the end you'll come out on top.

And sometime around the day this issue hits the stands, the Guardian's case against the big national chain that owns the SF Weekly will go to the jury. We have the facts on our side. We have the law on our side. We have the truth on our side. And all we can do now is hope the jury sees it.

If you haven't been following this on the blogs or in the paper: we're suing the Weekly and Village Voice Media, which used to be known as New Times, for predatory pricing.

Our claim is that the Weekly (and until recently, the East Bay Express, which VVM just sold) has been selling ads below cost for the purpose of hurting a local, independent competitor.

Over the past three weeks I've been in the courtroom almost every day, watching the story unfold. I've learned a lot: the Weekly, for example, has lost money every single year since New Times bought it in 1995. In the past few years the losses have only escalated (to nearly $2 million per year). The paper is still publishing because the corporate parent in Phoenix has shipped more than $16 million to San Francisco to prop it up.

That's pretty good evidence of the first part of our claim: if the Weekly keeps losing money, the paper is clearly selling ads below cost.

I've also seen evidence that the Weekly prepared special Guardian reports every month to send to Phoenix, that the Weekly's publishers devoted a special section of their regular financial reports to competition with the Guardian, and that the senior staff regularly talked about the war they were waging on us. Three witnesses testified to hearing Mike Lacey, one of the principals of VVM, announce that he wanted to drive the Guardian out of business.

I've seen memos and heard testimony showing the Weekly paid its sales staff bonuses to take ads away from the Guardian. I've seen a study showing that in 91 percent of key accounts, the Weekly sold below cost — and in 66 percent of those cases the Guardian either lost the ad or had to deeply discount rates to keep it.

I've heard witnesses from the Weekly's side testify that the Guardian was just one of many competitors in the market and that they treated it no differently than any other publication. I've heard misdirection and lies so blatant that I've wanted to stand up and point my fingers at the witnesses and call them out and demand they be indicted for perjury.

And now a jury will have to sort that out. In the end, I think this is a pretty clear case: we are a small, locally owned independent business under assault by a chain competitor that is violating state law in an effort to take monopoly control of the market. I think we've proved that. We'll know soon.