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News Corp.'s $600M Dirty Tricks Trial Starts Monday... Unless It Settles

Assuming there is no settlement over the weekend, Rupert Murdoch's News Corp. (NWS) will go to trial in a Minnesota federal court on Monday over whether it used dirty tricks to keep competitors out of the obscure but lucrative supermarket coupons business. If News loses -- and history suggests it will -- the company potentially faces $621 million in fines.

Worse than that, the trial will also air gossip about how News' coupon unit, News America Marketing, wins clients and then allegedly overcharges them for its services.

The case was brought by a competitor, Insignia Systems (ISIG), which alleges that News told lies to its clients in order to drum it out of the business. The chief executive of Insignia is a former poker champ who learned how to gamble in all-night sessions with Bill Gates when they were students at Harvard.

A set of pretrial rulings -- handed down by judge John R. Tunheim yesterday -- give a taste of how juicy (or distasteful, depending on your point of view) the trial will be. Here's a summary:

  • Out: the Winn-Dixie fishing pole bribe allegation The judge nixed testimony that Insignia wanted to air about "an incident in 2001 in which a News executive involved in negotiations to win business with Winn-Dixie, a major retail chain in the South, allegedly gave a Winn-Dixie employee a $1200 fly-fishing rod." The judge ruled that as Insignia had not alleged bribery in its case, "this isolated event is too attenuated to be relevant, or overcome Rule 403's balancing test for unduly prejudicial evidence."
  • In: the Sara Lee "rape" memo Insignia has a copy of a memo written by former Sara Lee director of procurement Debra Lucidi describing what it's like to be a News client. In terms of the way News allegedly jacked up advertising rates if clients didn't want to go along with their near-monopoly in certain supermarkets, Lucidi once wrote: "Feels like they are raping us and they enjoy it." News had argued that the memo was inflammatory and therefore prejudicial, but the judge said: "jurors applying common sense to the facts will not understand the term to be the literal act of rape."
  • In: Insignia's bosses were to get bonuses if they win this trial Prior to 2009, Insignia had a compensation policy in which CEO Scott Drill and a bunch of his underlings would receive 5 percent of any damages from News over $10 million. Insignia abandoned the quirky bonus pact in 2009 and no one received a penny under it. But News wants to introduce it at trial to show that Insignia's motives aren't as pure as the driven snow. The judge said: "The Court finds evidence of the Plan not unduly prejudicial, and highly relevant, as it bears directly on various trial witnesses' credibility and motivations for their testimony."
  • In: More News clients getting dragged through the mud Insignia wants to air as much testimony as possible from News' disaffected clients. One example is Christine Hall of Pepsi/Quaker, who previously said that News' tactic of only allowing advertisers into their grocery chain monopoly if they also bought newspaper coupons ("free-standing inserts," in industry jargon) was unfair. She said: "I did not think it was right. ... News America had somewhat of a monopoly on in-store so you were pretty much forced to go with them in-store. Leveraging their instore to get FSI I did not think was fair and I didn't like it." The judge allowed it.
There's a good chance News will settle, and it has a habit of doing so at the last minute. It's already lost three previous rounds of litigation, for a total of $533.5 million in settlements.


Images by Flickr user World Economic Forum, spacepleb, CC.
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