Valassis Wins $300M Verdict in News America Monopoly Case

Last Updated Jul 23, 2009 12:04 PM EDT

A Michigan state jury has awarded newspaper coupon agency Valassis a $300 million verdict in its anti-competition case against News America Marketing, the Rupert Murdoch-owned agency that dominates in store-supermarket advertsing. The jury reached its decision in less than a day.

The swift decision came after a trial that took all of June and parts of May and July, suggesting that the jurors had made up their minds in favor of Valassis days ago.

The win is less than what Valassis had sought -- the agency believed its damages, in terms of market share illegally taken by News America, were nearer $1 billion. Nonetheless, it's a significant victory for Valassis that will boost its stock considerably (see image below) in addition to its cash balance. Valassis argued that News America used its virtual monopoly of supermarket advertising to force clients to take cheap, bundled deals that included newspaper coupons. Any client that wanted to give Valassis coupon business, or wanted to take a supermarket deal alone, faced higher prices from News America. That strategy effectively forced customers to leave Valassis in favor of News America.

CEO Alan F. Schultz (pictured) said:

We are pleased with the jury's verdict, and we look forward to moving ahead with our two other cases, including the antitrust case in the Eastern District of Michigan where any compensatory damages will be trebled.
You can tell by his quote that for Schultz, this verdict is merely leverage for future litigation against News America. Valassis noted in the same release that it has similar lawsuits pending in:
  • United States District Court, Eastern District of Michigan
  • Supreme Court of the State of California for the County of Los Angeles
News America now faces a tough decision: Having lost $300 million, should it hope to somehow win the other two cases or settle? The company, in fact, has the cash to settle. In January it raised $1 billion in debt for "general corporate purposes" after noting that its operating income was offset by "higher legal expenses." BNET understands that observers of News Corp. were mystified as to what, exactly, the $1 billion was for. It was raised prior to News America's settlement/acquisition of Floorgraphics, which almost certainly did not cost that much. Having lost two anti-competition cases in a row (Floorgraphics and Valassis), the pressure must be on for News America to cut its losses and put a ceiling on its liabilities.

Insignia Systems, a smaller supermarket agency that has similar claims pending against News America, also recieved an immediate uptick in its stock (see image below).

There are some questions that could remain unanswered from the trial, or at least not publicly discussed. First among them: Now that Valassis has proved as a matter of law that News America abused its monopoly position -- and jacked up prices for advertisers that declined to take the bundled deal -- will those clients demand their money back?. Among those who saw price increases that, arguably, turned out to be illegal were Conagra (up 27 percent) Kraft (up 20 percent) and Unilever (up 3 to 5 percent). Lastly: Expect News America to file an appeal of the verdict while it considers its options.

Valassis stock reacts to the verdict: Insignia stock reacts to the verdict: