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Valassis Wants News America Execs to Testify Against Their Employer

Valassis (VCI)'s strategy in its legal war against News America Marketing Group seems to be changing emphasis: Over the summer, in its $300 million Michigan state court victory over NAM, Valassis used NAM's own clients against it. Now, with a federal trial looming in Detroit, Valassis is attempting to use NAM's current and former executives against Rupert Murdoch's supermarket advertising empire.

In the case, Valassis alleges that NAM maintained an unlawful monopoly on supermarket advertising, an unglamorous but lucrative media business that places ads and coupons inside thousands of U.S. grocery stores. Court papers indicate that 134 people -- Murdoch among them -- could be called as witnesses (a number the judge in the case has described as "insane").

NAM is attempting to block the testimony of three witnesses: Steven Marquis, Julia Cooke and Henri Lellouche. All three are current or former employees of NAM. If the judge allows, they will join former NAM sales exec Robert Emmel among others in testifying for Valassis against their employer. (Download Valassis' brief arguing for their inclusion here.)

NAM argues in its brief that the judge has already ruled on a maximum number of witnesses. The litigation offers a few clues as to what these execs have to offer:

According to Valassis: "Ms. Cooke saw first hand how News' culture, competitive strategy, and sales tactics changed dramatically, when it began to focus its efforts on trying to drive Valassis out of the FSI ["free standing insert," a type of newspaper coupon] business, by among other things, illegally tying and leveraging its in-store products to its FSI. She also will be able to testify that during this time, News terminated or re-assigned employees who were not viewed as aggressive enough to carry out News' new plan of attack, and as a former employee she can now do so without fear of employment-related reprisals." Valassis alleges: "Mr. Lellouche is an executive at News who works with the SmartSource Direct loyalty marketing service. In deposition, Mr. Lellouche testified about memos in which he complained of "illegal tying" and bundling by an in-store competitor, the same type of conduct that News has engaged in. He also wrote about how News should leverage its products to get more business and testified that News' lower prices for exclusive contracts on some products were not related to any actual cost savings and that News was targeting Valassis' direct mail accounts." He resigned to work for a rival company, Floorgraphics Inc., on March 2, 2000, according to a ruling from a Connecticut appeals court that described the fight following his departure. On March 5, 2000, Marquis took a copy of NAM's store list with him, plus some competitive revenue information. Fearing -- correctly -- that he would be sued by NAM he placed them in the trash without looking at them on March 22. NAM lost its case against Marquis after failing to prove that taking the documents caused the company any damage, but not before it had appealed -- and lost -- all the way to the state Supreme Court.

And finally: Valassis notes in its brief that it has received 856,568 documents from the Insignia Systems (ISIG) litigation and has yet to go all the way through them. Nonetheless, Valassis says that they contain "significant evidence relating to the change at News in 2000 and 2001, " following which NAM attempted to illegally drive Valassis out of business.