Behind the Resignation of Murdoch's Top Lawyer: $656M in Defeats

Last Updated Jun 9, 2011 5:36 PM EDT

News Corp. (NWS) senior evp/general counsel Lawrence "Lon" Jacobs resigned June 8, a move the New York Times linked to the celebrity phone hacking scandal at owner Rupert Murdoch's London tabloids. But there's a case to be made that it's the supermarket antitrust fiasco wot done it, as Murdoch paper The Sun might have put it.

The phonetap affair has, at most, cost News £40 million in legal fees and settlements to people such as actress Sienna Miller.

By contrast, Jacobs' resignation came just two days after a judge signed off on the last of three massive antitrust cases involving News America Marketing, Murdoch's grocery coupon empire. Those settlements have cost News $656 million to date -- more than the company's profits from the movie Avatar, at one point. And it came on the same day that News was handed a defeat on all counts in a federal appeals court case aimed at silencing a former whistleblower whose information provided the basis for those cases in the first place.

During his tenure, Jacobs supervised this trifecta of failure:
  • $125 million: To tiny Insignia Systems (ISIG), which accused NAM of anticompetitive practices.
  • $500 million: To Valassis (VCI), which accused NAM of forcing clients to choose its services or face price rises if they gave business to Valassis.
  • $29.5 million: To Floorgraphics Inc., which alleged NAM hacked into its computer systems (sound familiar?) to steal competitive information.
Jacobs' staff fought all three cases with the same counterproductive strategy: fight, fight, fight, no matter how ridiculous or trivial the position, up until the last minute, when defeat seemed certain. At that point, from the weakest possible bargaining position, News caved and settled.

Jacobs couldn't even pick an unconflicted law firm to litigate the Insignia case. Days before the trial, News' legal team at Constantine Cannon abruptly resigned without explanation. The firm's name partner, Jan Friedman Constantine, was a former chief ethics officer for News.

Jacobs leaves the NAM antitrust issue unresolved. The 11th Circuit federal appeals court remanded the case back to a trial judge for a new decision on whether an injunction should prevent former NAM account director Robert Emmel from publicizing internal documents he alleges describe "billing and revenue-sharing fraud" and "News's fraudulent inflation of its reported earnings," as the judge put it.

The litigation bankrupted Emmel. It cost News even more.

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