Citizen Publishing Company v. United States

In 1940 the only two daily newspapers in Tucson, the Citizen, an evening paper, and the Star, a daily and Sunday paper, negotiated a joint operating agreement, which was to run for 25 years. Prior thereto the papers had been vigorous competitors. The agreement provided that each paper was to retain its news and editorial departments and corporate identity, but that generally business operations were to be integrated. Three types of controls were imposed: (1) price-fixing—papers were to be distributed and advertising sold by a jointly held company, and subscription and advertising rates were to be set jointly; (2) profit pooling—all profits were to be pooled and distributed under an agreed ratio; and (3) market control—neither paper nor any of their stockholders or officers were to engage in any other business in the county in conflict with the agreement. In 1953 the agreement was extended until 1990. Combined profits before taxes rose from $27,531 in 1940 to $1,727,217 in 1964. In 1965 the Star's stock was acquired by Citizen's shareholders pursuant to an option in the agreement, and the Star is now published by a company formed as a vehicle for the acquisition. The Government charged appellants with unreasonable restraint of trade in violation of § 1 of the Sherman Act, monopolization in violation of § 2 of that Act, and violation of § 7 of the Clayton Act by the acquisition of the Star stock. The District Court found that the agreement contained provisions unlawful per se under § 1 of the Sherman Act and granted the Government's motion for summary judgment. The case was tried on the other charges and the court found monopolization of the newspaper business in Tucson in violation of § 2 of the Act, and held that, in Pima County, the appropriate geographic market, acquisition of the Star caused a substantial lessening of competition in daily newspaper publishing in violation of § 7 of the Clayton Act. The decree requires appellants to submit a plan for divestiture of the Star and its re-establishment as an independent competitor and to modify the joint operating agreement to eliminate price-fixing, market control, and profit-pooling provisions.

Held:

1. The violations of § 1 of the Sherman Act are plain, as price-fixing is illegal per se, pooling of profits pursuant to an inflexible ratio reduces incentives to compete, and the agreement not to engage in any other publishing business in Pima County is a division of fields proscribed by the Act. Pp. 135-136.

2. The requirements of the failing company doctrine were not met. Pp. 136-139.

(a) There is no indication that the Citizen's owners were thinking of liquidating the company or selling the newspaper, and there is no evidence that the agreement was the last straw at which the Citizen grasped. Pp. 137-138.

(b) The failing company doctrine can be applied only if it is established that the acquiring company is the only available purchaser. P. 138.

(c) The prospects for the failing company of reorganization through receivership or through Chapter X or Chapter XI of the Bankruptcy Act would have to be dim or nonexistent to make the failing company doctrine applicable. P. 138.

(d) The burden of proving that the requirements of the doctrine are met is on those who seek refuge under it, and that burden has not been satisfied here. Pp. 138-139.

3. The decree deals only with private restraints on business competition and does not regulate news gathering or dissemination in derogation of First Amendment rights. Associated Press v. United States, 326 U.S. 1. Pp. 139-140.

280 F.Supp. 978, affirmed.

Richard J. MacLaury argued the cause for appellants. With him on the briefs were Francis N. Marshall, Thomas J. Klitgaard, John L. Donahue, Jr., and George Read Carlock.

Daniel M. Friedman argued the cause for the United States. On the brief were Attorney General Clark, Solicitor General Griswold, Assistant Attorney General Zimmerman, Howard E. Shapiro, Charles D. Mahaffie, Jr., and Gerald A. Connell.

Briefs of amici curiae urging reversal were filed by Arthur B. Hanson for the American Newspaper Publishers Assn., and by Robert L. Stern for a number of newspaper publishers.