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SF Weekly and its parent chain Village Voice Media are legally barred from selling ads below cost for the purpose of harming the Guardian, Superior Court Judge Marla Miller ruled May 19.
Miller issued an injunction in the Guardian's lawsuit against the Weekly forbidding the paper and its "officers, managers, agents, affiliates, parents [and] subsidiaries" from engaging in further predatory pricing. Unless the injunction is overturned by a higher court, it will be in effect for 10 years. Miller retains jurisdiction over the case.
Miller also issued a final ruling on damages, entering a $15.9 million judgment for the Guardian. That includes more than $300,000 interest going back to the date of the March 5 verdict.
The Guardian will also get attorneys fees and costs, although that amount is not yet established.
The Guardian sued the Weekly and Phoenix-based VVM, its 16-paper-chain parent, for predatory pricing. After a five-week trial, a San Francisco jury found that the Weekly and VVM intentionally sold ads below cost in an effort to drive the locally-owned competitor out of business.
The jury awarded the Guardian $6.39 million in damages. The law provides for treble damages after a jury verdict, but a recent court ruling interpreted that to mean that only a portion of the damages could be tripled. The ruling was not a big surprise: Miller had indicated at a May 9 hearing that she was prepared to issue an injunction and raise the damages to $15.6 million.
During the hearing, lawyers for the Weekly tried to argue that an injunction would violate their clients' right to free speech. Forrest Hainline III of the Boston-based firm Goodwin Proctor, who was hired to handle the Weekly's appeal, insisted that the only way the Weekly could abide by an injunction would be to cut editorial costs - depriving the paper of its First Amendment rights.
That was a remarkable argument - in essence, the Weekly's lawyer was saying that the people could not possibly make a profit on its current product. But as Guardian lawyer Ralph Alldredge pointed out, there's nothing unconstitutional about mandating that a newspaper obey basic business regulations.
The injunction states that the Weekly cannot sell display advertising space “at a price below the fully allocated cost of that space for the purpose of injuring plaintiff Bay Guardian Co, Inc., unless SF Weekly LP can establish by a preponderance of the evidence that an offer or sales alleged to fall within this injunction falls within an affirmative defense to the below cost sales prohibitions of the Unfair Practices Act.”
Miller's ruling now sends the case to the next phase. Hainline indicated at the May 9 hearing that he will now ask Miller to reduce the damages or overturn the entire verdict. If she declines, the Weekly can take the case to the Court of Appeal, a move that could delay any final outcome for as long as two years.
However, the Weekly and VVM will now have to post an appeal bond of as much as $24 million to guarantee payment of the judgment and interest. The award will accrue interest at 10 percent - that's about $4,300 a day - during the course of any appeal.
Most important, however, the court has issued an enforceable injunction mandating that the big chain do what the Guardian has been asking for all along: play fair.
The Weekly has been losing money every year since New Times - which changed its named to Village Voice Media after buying that company two years ago - purchased the newspaper in 1995. The chain has pumped some $25 million into San Francisco to keep the local operation afloat. That allowed the Weekly to cut the price of its ads so low that the Guardian had to struggle to cut its own costs to match the below-market rates.
At this point, the injunction should force the Weekly to compete on a level playing field - meaning that both papers will have a chance to survive in the market, offering readers and advertisers a choice. That's what the First Amendment's marketplace of ideas is all about.
Mike Lacey, VVM's executive editor, and Jim Larkin, the company's CEO, failed to return calls and e-mail seeking comment.
The Guardian's lawyers are Alldredge, Richard Hill, and E. Craig Moody.
For all the details and background on the case, go to www.sfbg.com/lawsuit .