What the verdict meant

What the verdict meant: Behind the Guardian's $15.6 million court victory
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tredmond@sfbg.com

The press coverage was impressive: The San Francisco Chronicle put the story on page one. KTVU-TV made it the third item on its 10 O'Clock News. Editor and Publisher, the newspaper trade journal, picked it up, as did Forbes magazine. The San Francisco Daily used a front-page bold banner headline: "Jury punishes chain."

And indeed, as anyone who follows the local news media is aware by now, a San Francisco jury March 5th ruled that the SF Weekly and its corporate parent, Village Voice Media, illegally sold ads below cost in an effort to harm the Guardian. The jurors awarded $6.3 million in damages, and since the law allows as least part of that award to be trebled, the Weekly and VVM could be liable for as much as $15.6 million.

VVM already announced it will appeal, which means it's unlikely the Guardian will see any cash award for several years as the case works its way through the legal system. But in the meantime, we will be asking Judge Marla Miller to issue an injunction barring any further below-cost sales.

Under state law, interest on the judgment will accrue at 10 percent a year. That means the Weekly and VVM will be paying $4,000 a day in interest for as long as they seek to dispute and appeal the jury decision.

The verdict alone sends a powerful message that goes beyond the newspaper industry. California's Unfair Practices Act, a Progressive-era measure, forbids a big chain with deep pockets from coming into town and using predatory pricing to run a locally-owned, independent operation out of business. A San Francisco jury has confirmed that the law can be a powerful weapon against the consolidation of news media — and the chain-store assault on local merchants.

Not surprisingly, VVM's principals have said they are going to try to invalidate the law in the courts. In a written statement posted to the SF Weekly Web site, the chain says it doesn't think the law ought to apply to competitive markets.

Of course, the entire point of our lawsuit was that the Weekly and VVM wanted to end competition — that the chain was trying to harm its only direct competitor in the San Francisco marketplace. And that's precisely what the law was written to prevent.

As James R. McCall, a law professor at Hastings, wrote in a 1997 article for the Pacific Law Journal, "the commercial practice of knowingly selling below cost with the intent to injure competitors or injury competition has long been considered unlawful by American courts and state legislatures."

The trial produced reams of evidence and extensive testimony on the business practices of both papers, and provided some remarkable insights into how the nation's largest alternative newspaper chain operates. Some highlights:

VVM, which has built highly profitable papers in many national markets, fared very differently here. The chain bought two papers that were profitable concerns — the SF Weekly in 1995 and the East Bay Express in 2001 — and turned them both into huge money losers. Over the past 12 years, the company lost some $25 million in the Bay Area, and has pumped $13 million from corporate headquarters into propping up the Weekly.

Financial data presented in court showed that in markets where the chain faces no direct competition from a strong alternative paper, VVM is practically printing money. Profits in Denver and Phoenix were sky-high, sending some $40 million back to corporate headquarters over about 10 years.