Lawsuit takes aim at Washington Post/Gannett pact

Daily Record, The (Baltimore), Jan 29, 2008 by Brendan Kearney

USA Today may have a new regional wholesale distributor -- The Washington Post -- but not without a fight by longtime distributor NewsOne Newspaper Distribution Services LLC of Prince George's County.

On Friday, NewsOne sued Gannett Co. Inc. and a Gannett subsidiary, seeking to block the USA Today publisher from switching to The Washington Post Co.'s new wholesale distribution service.

NewsOne also sought a temporary restraining order "to stop the Gannett changeover to The Washington Post for this morning's delivery," Stuart A. Schwager, NewsOne's attorney, said Monday.

U.S. District Judge Alexander Williams Jr. denied that request Friday afternoon. Schwager said the next step, a preliminary injunction hearing, has not yet been scheduled.

"We would like to ensure that NewsOne can obtain copies of the USA Today to include in its consolidated bundle whether that would be from USA Today, The Washington Post or another supplier," said Schwager of Lerch, Early & Brewer Chtd. in Bethesda.

The antitrust and breach of contract suit warns that Gannett's new arrangement "will permit defendants and The Washington Post Company to reduce the output of single-copy newspapers available to the market, increase the prices that are charged to single-copy newspaper retailers, dictate the newspapers that single-copy newspaper retailers will be provided for sale and the manner in which they are displayed and sold and will thereby have an adverse effect on competition in the Marketplace."

Gordon L. Lang of Nixon Peabody LLP, attorney for Gannett, said NewsOne's claim "has no merit" but declined to comment further.

A spokeswoman for Gannett -- which has almost 50,000 employees and whose profits were $1.2 billion in 2006, according to the suit - - vowed to fight the claim and let the facts come out in the course of the litigation.

A thousand retailers

According to the complaint filed in U.S. District Court in Greenbelt, NewsOne and its predecessor company, CNC, have been one of the four major distributors of USA Today within 75 miles of Washington, D.C., since 1987.

The complaint says NewsOne has delivered USA Today and other papers in a "consolidated bundle" to coin boxes and approximately 1,000 retailers like CVS/pharmacy, Rite Aid Corp. and Giant Food LLC in Washington, Maryland, Virginia, West Virginia, and Delaware.

According to the suit, a November meeting with Washington Post executives confirmed a rumor NewsOne had heard in August: the Post planned to get into the distribution business as a so-called Third Party Operator or Publisher Wholesaler.

In a Dec. 14 meeting, executives of the Gannett subsidiary, Gannett Satellite Information Network Inc., notified NewsOne of the switch, the suit says. GANSAT followed up with a letter of termination by e-mail and in writing.

The letter claimed the contract allowed either party to quit "without cause, upon no less than thirty (30) days' advance written notice to the other party."

When told of its termination, NewsOne asked to buy USA Today newspapers from the Post and other local distributors so it could continue supplying its retail customers, according to the suit.

But each refused, allegedly at the direction of Gannett, constituting tortious interference with contractual economic relations and prospective economic advantage, NewsOne alleges.

The suit warns that Gannett's contract with the Post allows for the possibility of collusion and gouging reading customers.

"This agreement between two competitors at the same level of the market structure is a per se unreasonable horizontal restraint of trade in violation of the Section 1 of the Sherman Act," the complaint states.

NewsOne also alleges the month's notice given prior to termination of the contract was half what is required under state Fair Distributorship Act.

The distributor's breach of contract claim, as laid out in the suit, is based on an August 2001 e-mail from a GANSAT executive to NewsOne's predecessor that encouraged the distributor's effort to gain more retail clients, and Gannett's previous willingness to accommodate NewsOne when, in 2005, it contracted with The Baltimore Sun to distribute USA Today.

"A contract can be created by both words and by actions," said Schwager. "The complaint speaks for itself as to what the contractual relationship is or may be between the parties."