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BRIEF FOR APPELLANTS
ON EMERGENCY APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII
IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
STATE OF HAWAII,
P1aintiff-Appellee,
- vs - |
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)
)
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GANNETT PACIFIC CORPORATION, LIBERTY NEWSPAPERS LIMITED PARTNERSHIP,
AND HAWAII NEWSPAPER AGENCY, Defendants-Appellants. |
Dated: October 27, 1999
TABLE OF CONTENTS
STATEMENT OF JURISDICTION
ISSUES PRESENTED FOR REVIEW
STATEMENT OF THE CASE
A. Proceedings Below
B. This Appeal
STATEMENT OF FACTS
A. Parties
B. Congress Enacts the NPA
C. Despite the NPA, Afternoon Newspapers Continue to Fail
D. Hawaii Governments' Unsuccessful Attacks on the Honolulu JOA
E. The 1993 Amendment Restructures the JOA
F. The 1999 Amendment Responds to the Star-Bulletin's Deterioration
STANDARD OF REVIEW
SUMMARY OF ARGUMENT
I. THE 1999 AMENDMENT IS EXEMPT FROM THE ANTITRUST
A. The NPA Expressly Provides That Amendments Are Exempt
B. Nothing In The NPA Precludes Amendments Ending JOAs; And, If The NPA's Policy
Is To Be Considered, The District Court's Decision Contravenes lt
1. The NPA Contains "No Temporal Limitation."
2. The District Court's Order Contravenes The NPA's Purpose
C. The JOA Has Lasted Longer Than The Time Grandfathered -- And Thus Deemed Acceptable
-- By Congress
II. EVEN APART FROM THE NPA, THE 1999 AMENDMENT DOES NOT VIOLATE THE ANTITRUST LAWS
A. No Assets Were "Stripped."
B. There Is No Agreement to Stop the Star-Bulletin from Publishing
C. There Is No Harm To Competition In A Relevant Market Because There Is No Competition
Between The Star-Bulletin And Advertiser
D. There Is No Antitrust Injury
III. THE DISTRICT COURT'S INTERPRETATION OF THE NPA WOULD RENDER IT UNCONSTITUTIONAL
IV. THE ORDER OTHERWISE VIOLATES THE FIRST AMENDMENT
CONCLUSION
TABLE OF AUTHORITIES
FEDERAL CASES
Adaptive Power Solutions v. Hughes Missile Systems,
141 F.3d 947(9th Cir. 1998) /31,35,37
Apex Hosiery Co. v. Leader,
310 U.S. 469(1940) /34,35
Arkansas Writers Project v. Ragland,
481 U.S. 221(1987)/44
Armstrong v. United States,
364 U.S. 40(1960)/40
Associated Press v. United States,
326 U.S. 1(1944)/39
Atlantic Richfield Co. v. USA Petroleum Co.,
495 U.S. 328 (1990)/36,37
Baggett V. Bullitt,
377 U.S. 360 (1964)/42
Bay Guardian v. Chronicle Publishing Co.,
344 F. Supp. 1155 (N.D. Cal. 1972)/26
Cargill, Inc. v. Monfort of Colorado, Inc.,
479 U.S. 104(1986)/36
Citizen Publishing Co. v. United States,
394 U.S. 131(1969) /9
City and County ofHonolulu v.
Hawaii Newspaper Agency, Jnc.,
559 F. Supp. 1021 (D. Haw. 1983)/8, 12,20, 30
Committee for an Independent P-I V. Hearst Corp.,
704F.2d467(9thCir. 1983) /22,27
Connally v. General Construction Co.
269 U.S. 385 (1926) /42
DeBartolo Corp. v. Florida Gulf Coast
Building & Construction Trades Council,
485 U.S. 568 (1988) /37
Dedication and Everlasting Love to
Animals v. Humane Society,
50 F.3d 710 (9th Cir. 1995) / 34
Dolan v. City of Tigard,
512 U.S. 374(1994) /40
Eastern R.R. V. Noerr Motor Freight, Inc.,
365 U.S. 127(1961) / 37
Elrod v. Burns,
427 U.S. 347 (1976) /44
FTC V. Tenet Health Care Corp.,
186 F.3d 1045 (8th Cir. 1999) /32
Grosjean v. America Press Co.,
297 U.S. 233 (1935) /43
Hawaii Newspaper Agency V. Bronster,
103 F.3d 742 (9th Cir. 1996)/8, 9,10, 12, 18, 22, 27, 28, 30
Lucas v. South Carolina Coastal Council
505 U.S. 1003 (1992) /40
Miami Herald Public Co. v. Tornillo,
418 U.S. 241(1974) /39, 40, 42
Michigan Citizens for an
Independent Press v. Thornburgh,
868 F.2d 1285 (D.C. Cir.), aff'd, 493 U.S. 38 (1989) /9
Miller v. California Pacific Medical Center,
19F.3d449(9thCir. 1994)/17
Minneapolis Star and Tribune Co. v.
Minnesota Commissioner of Revenue,
460 U.S. 575 (1983) /44
Nollan v. California Coastal Commission,
483 U.S. 825 (1987) /40
Northern Pacific R.R. Co. v. United States,
356 U.S. 1(1958) /34
Nynex Corp. V. Discon, Inc.,
525 U.S. 128, 119 5. Ct. 493 (1998) /36
Pennsylvania Coal Co. v. Mahon,
260 U.S. 393 (1922)/40
Smith V. Goguen,
415 U.S. 566(1974) /42
Smith V. National Collegiate Athletic Association,
139 F.3d 180 (3d Cir. 1998),
vacated on other grounds,
525 U.S. 459 (1999) /34
Turner Broadcasting System V. FCC,
512 U.S. 622 /43
United States v. Gray,
177 F.3d 86(1st Cir. 1999) /38
Wooley v. Maynard,
430 U.S. 705 (1977)/38
STATE CASES
Roberts Hawaii School Bus.,
Inc. v. Laupahoehoe Transport Co., Inc.,
91 Haw. 224 (1999) /28
DOCKETED CASES
Florida Publications, Inc. v.
The Miami Herald Publishing Co.,
No. 88--2421-CIV-MARCUS (S.D. Fla. 1988) /24, 38
FEDERAL STATUTES
15 U.S.C. ßß 1 and 2/4
15 U.S.C. ß 1801 et seq./2,41
15 U.S.C. ß 1803(a)/ passim
15 U.S.C. ß 1803(c) /21
28 U.S.C. ß 1292(a)(1) /1
28 U.S.C. ßß 1331,1337 and 1367/1
15 U.S.C. ßß 1 and 2 /4
FEDERAL RULES AND REGULATIONS
Fed. R. App. P. Rule 4(a)(1)(A) /1
Fed. R. App. P.26.1/2,3
Fed. R. App. P. 32(a)(7)(C) /47
Fed. R. Civ. P. 12(b)(6) /4
28 C.F.R.ß 48.16 /9
STATE STATUTES AND MATERIALS
Haw. Rev. Stat. ß 480--3(1999) /28
Hawaii Atty Gen. Antitrust Op. on
Constitutionality of S.B. 341, S.B. 459,
S.C.R. 15 and S.R. 90, Relating to
Newspapers (March 7,1979) (informal op.) /12
Hawaii Att'y Gen. Antitrust Op. on
Constitutionality of S.B. 341, S.B. 459 /12
Hawaii Att'y Gen. Op. No.74-11
(April 2, 1974) /11
LAW REVIEWS
Anita M. Carlson, Note,
The Newspaper Preservation Act:
The Seattle
Application, 1982 U. Ill. L. Rev. 669,
674 n.40 (1982) /34
John H. Carlson, Note, Newspaper
Preservation Act: A Critique, 46
Ind. L.J. 392, n.7 (1971) /10
LEGISLATIVE HISTORY
Newspaper Preservation Act:
Debate on S.1520 Before the Senate,
Cong. Rec. 1786 (Jan.29, 1970)
(statement ofSen. Inouye) /8
Newspaper Preservation Act:
Debate on S.1520 Before the Senate,
Cong. Rec. 1815 (Jan.29, 1970)
(statement of Sen. McIntyre) /33
The Newspaper Preservaflon Act:
Debate on S.1520 Before the Senate,
Cong. Rec. 1817 (Jan. 29-30, 1970) /36
The Failing Newspaper Act:
Hearings on S. 1312 Before the Subcomm.
on Antitrust and Monopoly
of the Senate Comm. on the Judiciary,
90th Cong. 425 (1967) /24
MISCELLANEOUS
1 Kristen B. Mallegg, ed., Gale Directory
of Puhlications and Broadcast Media
459-63 (133rd ed., 1999)/35
lA Sutherland Stat. Const. ß 20.12
(5th ed. 1993 and Supp. 1999)/22
Editor & Publisher Annual Yearbooks,
1975--1999/11
Newspaper Association of America,
Number of U.S. Daily Newspapers (last modified Oct. 17,1999) /11
"Newspaper Suit Cleared," Washington Post,
June 17, 1981, at D16/ 26
Paul Farhi, The Death of the JOA,
American Journalism Review (AJR),
September 1999/15,23,25,26
SRDS Circulation 94/15
Todd S. Purdum, Jts Economy Ailing,
Hawaii Hangs Some Hopes on Hollywood,
N.Y. Times, May 17, 1999/15
Tom Kaser, IL WU Takes Membership Vote
As Hawaii Prepares For Strike,
Journal ofCommerce, Oct.20, 1999/15
Laura Pavlenko Lutton, 3 Hawaiian Banks
Track Lackluster Economy, The
American Banker, Mar. 11, 1998/15
STATEMENT OF JURISDICTION
The District Court has jurisdiction pursuant to 28 U.S.C. ßß 1331,1337
and 1367.
On October 13,1999, the District Court issued an oral preliminary injunction, which
it reduced to writing and entered as its Order Granting the State's Motion for a
Preliminary Injunction on October 15,1999. Excerpt of Record ("ER") 5.
This appeal is from both versions of the Order. This Court has jurisdiction pursuant
to 28 U.S.C. ß 1292(a)(1).
Appellants (defendants below) filed their Amended Notice of Appeal on October 15,
1999. ER 2. This appeal is timely under Rule 4(a)(1)(A) of the Federal Rules of Appellate
Procedure.
ISSUES PRESENTED FOR REVIEW
1. Whether the District Court, relying on the antitrust laws, erred when it
prohibited defendants from amending their newspaper Joint Operating Agreement ("JOA")
to end that agreement:
a. even though the Newspaper Preservation Act ("NPA"), 15 U.S.C.
ß 1801 et seq., expressly provides that "it shall not be unlawful under
any antitrust law for any person to perform, enforce, renew, or amend any Joint Newspaper
Operating Arrangement entered into prior to July 24, 1970..." (15 U.S.C. ß
1801(a) (emphasis added));
b. even though ending the JOA will not harm competition and will not cause
antitrust injury; and
c. even though the Court's unprecedented interpretation of the NPA is unconstitutional.
2. Whether the District Court's reliance on the antitrust laws to force defendants
(a) against their will, to continue to publish the Honolulu Star-Bulletin and (b)
when doing so, to meet the Court's standard of "high quality," was proper
under the First Amendment.
STATEMENT OF THE CASE
This is an appeal from an Order of the United States District Court for the District
of Hawaii (Kay, J.) that preliminarily enjoins defendants from terminating their
JOA, despite the plain language of the NPA specifically providing that it is not
"unlawful under any antitrust law . . . to amend" a JOA. 15 U.S.C. ß
1803(a). The preliminary injunction orders defendants, among other things, to continue
indefinitely to publish the Honolulu Star-Bulletin newspaper ("Star Bulletin"),
notwithstanding the Star-Bulletin's continuing substantial operating losses. ER 5
at 30-33; ER 6 at 63. The Order should be reversed.
The State has not shown a probability of success on its claims. An amendment shortening
the term of or ending a JOA is exempt from antitrust scrutiny under the NPA and,
even apart from the NPA, the parties' amendment does not violate federal or state
antitrust laws. The District Court's interpretation of the NPA cannot be accepted,
because it would render the NPA unconstitutional.
In addition, the State has demonstrated no i njury, and the Order causes defendants
irreparable injury. The balance of harms therefore tips in defendants' favor.
A. Proceedings Below.
The State of Hawaii commenced this action on October 6,1999. ER 12. The State challenges
the September 7, 1999 Amendment and Termination Agreement (the "1999 Amendment")
between Gannett Pacific Corporation, owner and publisher of The Honolulu Advertiser
(the "Advertiser"), and Liberty Newspapers Limited Partnership ("Liberty"),
owner and publisher of the Star-Bulletin. The 1999 Amendment provides for the termination
of the parties' JOA on October 30, 1999. ER 8, Declaration of Robert C. Bernius ("Bernius
Decl."), Exh. A.
The State claims the 1999 Amendment is an agreement to shut down a "competitor"
in violation of Sections 1 and 2 of the Sherman Act (15 U.S.C. ßß 1 and
2) and of parallel provisions of Hawaii's antitrust laws. The State seeks unprecedented
and wide-ranging injunctive relief and civil penalties.
On October 8, 1999, the State moved for a temporary restraining order. ER 11. On
October 11, 1999, Gannett Pacific moved to dismiss the complaint pursuant to Fed.
R. Civ. P. 12(b)(6) (ER 8), and on October 12, defendants filed their opposition
to the State's TRO motion.
The District Court heard oral argument on the TRO application on October 13. Noting
that the motion "simply involves questions of law," the Court (on consent
of the parties) treated the motion as one for a preliminary injunction. ER 6 at 4-5.
Following argument, the Court issued an oral preliminary injunction, and issued its
written order two days later, on October 15, 1999. In its written opinion, the Court
concluded that ending the JOA will "in effect. . . lead to the closure of the
Star-Bulletin," and consequently "contravene[s] the purpose" of the
NPA. ER 5 at 2. As a result, in its oral and written orders (the operative terms
of which are the same), the District Court forces the defendants to maintain the
JOA and to continue publishing the Star-Bulletin newspaper:
...Defendants are hereby enjoined . . . to preserve the status quo, including without
limitation:
1. Defendants shall take no steps, whatsoever, to implement or make any payments
under the amendment and termination agreement dated September 7, 1999, or any other
agreement of like intent or effect.
2. Defendants shall take no steps that are contrary to or inconsistent with
the stated purpose and intent of the Hawaii Joint Operating Agreement Amendment and
Restatement of Mutual Publishing Plan Agreement of January 30, 1993, to produce high
quality newspapers for their readers, improve acceptance for their advertisers, subserve
public interest by maintaining separate identities, individuality and editorial and
news freedom and integrity of the Honolulu Star-Bulletin and the Honolulu Advertiser.
3. Defendants shall refrain from taking any actions that may cause any material
adverse change in the business, including loss of subscribers and advertisers, or
financial condition of the Star-Bulletin as a viable going concern. ER 5 at 32-33;
ER 6 at 63-64.
Although the District Court found that the 1999 Amendment did "not expressly
require the closure of the Star-Bulletin," and that "Liberty is not required
to cease publishing the Star-Bulletin" (ER S at 15--16, 21), it nevertheless
concluded that the State was likely to succeed on its antitrust claims. The District
Court predicted that the Star-Bulletin would likely close and, as a consequence,
the 1999 Amendment would "deprive newspaper readers of free and open competition
in the sale of daily newspapers and their differing editorial and reportorial voices,
deprive advertisers of free and open competition, and ... deprive creators of news,
editorial and entertainment content of free and open competition...." ER S at
19.
Notwithstanding that the NPA specifically exempts amendments to pre-1970 JOAs (such
as the Honolulu JOA) from antitrust scrutiny, the District Court opined that the
1999 Amendment was not exempt because it is contrary to the NPA's "purpose."
ER S at 2. The District Court also rejected defendants' argument that they have a
First Amendment right not to publish a newspaper, on the ground that the preliminary
injunction does not compel defendants "to publish any particular viewpoint."
ER 5 at 26.
B. This Appeal.
Defendants filed their notice of appeal, and unsuccessfully moved in the District
Court for a stay on October 15, 1999. On the same day, defendants moved for a stay
and expedited review in this Court. On October 20,1999 this Court denied the application
for a stay and granted the motion for expedited review.
STATEMENT OF FACTS
A. Parties.
Plaintiff is the State of Hawaii. The three defendants are the parties to a JOA in
Honolulu.
Defendant Gannett Pacific Corporation is the owner of the Advertiser, a morning daily
newspaper published in and distributed throughout Hawaii.
Defendant Liberty Newspapers Limited Partnership is the owner of the Star-Bulletin,
an afternoon daily newspaper published in and distributed throughout Hawaii.
Defendant Hawaii Newspaper Agency ("HNA") is a limited partnership, of
which Gannett Pacific is the general partner and Liberty is the limited partner.
In 1962, the publishers of the Star-Bulletin and Advertiser concluded that the Advertiser
was failing financially. Newspaper publishers throughout the country, facing the
same economic conditions, had over the preceding decades turned to joint operating
agreements to try to solve their financial problems. A JOA is a "commercial
merger."1 The JOA entity sets advertising and circulation rates, solicits
advertising and newspaper sales, engages in distribution and purchasing, and allocates
production facilities -- in short, the JOA runs the newspapers as a single business,
although the newspapers' editorial departments remain separate and distinct. Hawaii
Newspaper Agency v. Bronster, 103 F.3d 742, 744 (9th Cir. 1996) (hereinafter "Bronster");
see ER S at 6.
1"These two changes in the law, allowing
for a commercial merger, and providing a reasonable definition for a failing newspaper,
are essential if we are to preserve our newspapers." Newspaper Preservation
Act: Debate on S.1520 Before the Senate, Cong. Rec. 1786 (Jan. 29, 1970) (statement
of Sen. Inouye). "As I have indicated, joint operating arrangements are commercial
mergers... Id. at 1995 (Jan. 30, 1970) (statement of Sen. Inouye). A copy of this
legislative history is included with Addendum to Appellants' Brief ("Add.,")
Tabs 2 and 3.
The Honolulu publishers similarly concluded that a JOA was
necessary to preserve Hawaii's two daily editorial voices. The parties thus formed
a JOA, merging all of their commercial functions including their accounting, circulation,
advertising and production departments. The publishers' judgment as to the necessity
for a JOA was later confirmed by the District Court. City and County of Honolulu
v. Hawaii NewspaperAgency, Inc., 559 F. Supp. 1021, 1032 (D. Haw. 1983); see Bronster,
103 F.3d at 744.
The scheduled duration of the Honolulu JOA was thirty years, from 1962 to 1992.
B. Congress Enacts the NPA.
Eight years later, in 1970, Congress became concerned about the rash of newspaper
failures and the Supreme Court's decision that a newspaper JOA in Tucson, Arizona
violated the antitrust laws.2 In response, it passed the NPA.
2Citizen Publishing Co. v. United States,
394 U.S. 131(1969); see Bronster, 103 F.3d at 744.
Congress recognized that the unique economics of the newspaper business had caused,
and would continue to cause, newspapers to fail, leaving areas with only one daily
newspaper. See Michigan Citizens for an Indep. Press v. Thornburgh, 868 F.2d 1285,1287-88
(D.C. Cir.), aff'd, 493 U.S. 38 (1989); Bronster, 103 F.3d at 745, 748. The NPA specifically
granted antitrust immunity to pre-existing JOAs where, at the time the JOA was formed,
not more than one of the newspapers was "financially sound." 15 U.S.C.
ß 1803(a). Congress also provided an antitrust exemption for post-July 24,
1970 JOAs, but added the requirement that such new JOAs be approved by the Attorney
General of the United States.3
3 15 U.S.C. ß 1803(b). See Bronster,
103 F.3d at 745. Although the Attorney General was granted the authority to approve
new JOAs (15 U.S.C. ß 1803(b)), Congress endorsed preexisting JOAs directly.
Id. at ß 1803(a). The Attorney General therefore has no role with respect to
the Honolulu JOA other than the ministerial one of accepting the filings of amendments.
Id.; 28 C.F.R. ß 48.16.
The NPA does not limit the way in which newspaper owners can combine their business
operations, and a variety of JOA structures have emerged. The parties may form a
partnership or corporation, which holds the assets and runs the combined business.4
Or they may choose a "host-tenant" relationship, in which one newspaper
owns all of the production assets, is responsible for all capital investment, and
manages the business operations of both newspapers. ER 6 at 51-52. In either case,
the commercial goal is to achieve cost savings by avoiding duplication and gaining
scale economies.
4 John H. Carlson, Note, Newspaper Preservation
Act: A Critique, 46 md. L. J. 392, 393 n.7 (1971).
The NPA expressly provides that, for pre-existing JOAs, it "shall not be unlawful
to ... amend any joint operating arrangement," with two provisos: the amendment
must not add a newspaper to the JOA, and the amendment must be filed with the Department
of Justice. 15 U.S.C. ~ 1803(a).
C. Despite the NPA, Afternoon Newspapers Continue to Fail.
Notwithstanding passage of the NPA, the economic forces governing the newspaper industry,
including competition from other media, have caused hundreds of afternoon and evening
newspapers throughout the country to close. From 1980 to 1998, the number of evening
newspapers declined by about 44%, from 1,388 to 781. See Newspaper Association of
America, Number of U.S.
Daily Newspapers (last modified Oct.17, 1999). Most notably,
afternoon newspapers in El Paso, Knoxville, Miami, Nashville, Pittsburgh, Shreveport
and Tulsa all ceased publishing despite heing in a JOA. Other afternoon newspapers
were closed in Baltimore, Buffalo, Charlotte, Cleveland, Dallas, Jacksonville, Louisville,
Los Angeles, Memphis, New York, Philadelphia, Rochester, San Antonio, and Washington;
afternoon newspapers in Chicago, Columbus, Denver, Houston, Kansas City, Lincoln,
Milwaukee, Minneapolis, New Orleans, New York, Oklahoma City, Oakland, Phoenix, Portland,
St. Louis, San Antonio, San Diego, Santa Fe and other cities either converted to
morning publication or merged with a morning newspaper.5
5Compiled from Editor & Publisher Annual
Yearbooks, 1975-1999.
D. Hawaii Governments' Unsuccessful Attacks on the Honolulu JOA.
Over the years, Hawaii "has made several unsuccessful attempts to regulate or
dismantle" the Honolulu JOA. Bronster, 103 F.3d at 745. Thus:
* the State legislature, in 1974, proposed a bill to regulate the two newspapers
as utilities. The then-Hawaii Attorney General advised the legislature that its bill
violated the First Amendment and the bill did not pass.6
6Hawaii Atty Gen. Op. No.74-II (April 2,
1974) at 4, 12.
* the State legislature, in 1979, proposed a bill that would have regulated the newspapers
as utilities and would have repealed the State antitrust exemption for the JOA. Once
again, the then-Attorney General found the legislation unconstitutional, and the
bills did not pass.7
7 Hawaii Atty Gen. Antitrust Op. on Constitutionality
of SB. 341, S.B. 459, S.C.R. 15 and S.R. 90, Relating to Newspapers (March 7, 1979)
(informal op.) at 1-2, 14.
* the City and County of Honolulu, in 1979, sued to invalidate the JOA, and the court
rejected the claim. City and County of Honolulu, 559 F. Supp. at 1032.
* the State, in 1996, sought to "dismantle' the JOA through legislation which
required the JOA parties to file their tax returns with the Attorney General. This
Court rebuffed the State's attack, noting that the "newspapers' financial status"
is confidential, and holding that Congress "preempted the field in enacting
the NPA." Bronster, 103 F.3d at 745, 747-48.
E. The 1993 Amendment Restructures the JOA.
From time to time after its 1962 formation, the parties amended various terms of
the JOA, and on occasion changed its duration. The most recent amendment (prior to
that at issue in this case) was made in 1993, contemporaneous with a change in the
ownership of the two newspapers. Amendment and Restatement of Mutual Publishing Plan
Agreement dated as of January 30, 1993 ("1993 Amendment") (ER 8, Bernius
Decl., Exh. B).
Prior to the 1993 Amendment, Gannett Pacific owned the Star-Bulletin, and Honolulu
Advertiser, Inc. owned the Advertiser. Each owner had an undivided interest in the
JOA's physical assets, and each received a share of the JOA's profits. In 1993, Gannett
Pacific had agreed to buy the Advertiser and wanted to sell the Star-Bulletin. To
attract a buyer for the Star-Bulletin, however, it was necessary for Gannett Pacific
to agree that the new owner would not have to invest in the capital equipment used
in the newspapers' production. ER 6 at 60. When Liberty bought the Star-Bulletin,
it did not want to purchase any of the physical assets used to produce the newspapers.
Id. 8
8 The District Court seems to have relied
on an article in a weekly newspaper competitor of the JOA, which was outside the
record, for its mistaken conclusion that Gannett "stripped" the Star-Bulletin
of its assets. BR 6 at 28. That speculative article is incorrect. ER 7. The Court's
"stripping" characterization misperceives a fundamental premise of the
NPA: one benefit of joint operation is the ability to eliminate expenses by reducing
duplicative and expensive capital investments.
Under the 1993 Amendment, Liberty obtained the right to receive guaranteed payments
each year but took no financial responsibility for hard assets and took no risk that
profits might decline. ER 8, Bernius Decl., Exh. B at 23-26. Liberty is also entitled
to 3% of "Special Profits" -- profits the JOA has never been able to earn.
ER 6 at 48; ER 11, Declaration of Wayne E. Cahill ("Cahill Decl.") at '
21(b). Had Gannett Pacific not agreed to take full responsibility for the physical
assets of the JOA (ER 8, Bernius Decl., Exh. B at 4), the Star-Bulletin would not
have been published at all. ER 6 at 60.
As a consequence of the 1993 transactions, Gannett Pacific essentially became the
"host" in the JOA: Gannett Pacific became solely responsible for all capital
expenses, investments, and liabilities; held virtually all of the physical assets
necessary to publish and distribute both newspapers; and, as the general partner
of HNA, was granted sole authority and responsibility for managing the JOA's combined
operations. ER 8, Bernius Decl., Exh. B at 11-23.
Under the 1993 Amendment, HNA sets advertising and circulation prices, handles advertising
and circulation sales, prints the newspaper, and pays all expenses. HNA receives
all revenues from operations. Gannett Pacific ultimately pays all expenses and bears
all losses from the Star-Bulletin's operations. ER 8, Bernius Decl., Exh. B at 7.
Liberty's obligation, consistent with the requirements of the NPA, is to prepare
an editorially independent Star-Bulletin newspaper for publication. ER 8, Bernius
Decl., Exh. B at 3, 10,17-18.
The 1993 Amendment provides that the JOA will terminate by 2012, unless continued
or terminated. ER 8, Bernius Decl., Exh. B at 11. The 1993 Amendment obligates HNA
to pay a total of $28,730,000 in guaranteed payments to Liberty over the period 2000-2012.
ER 8, Bernius Decl., Exh. B at 23. In addition, HNA is required to reimburse Liberty
for all of its editorial expenses, and to pay directly all the other expenses associated
with printing, producing, distributing, selling and marketing the Star-Bulletin.
ER 8, Bernius Decl., Exh. B at 11--23.
F. The 1999 Amendment Responds to the Star-Bulletin's Deterioration.
From 1993 to 1999, the performance of the Star-Bulletin worsened considerably. Though
the Advertiser's circulation essentially remained steady, the Star-Bulletin's circulation
declined 23%, from 87,683 in 1993 to 67,000 in 1999. ER 6 at 29; SRDS Circulation
94 at 318. The costs to HNA of producing the Star-Bulletin substantially exceeded
the incremental revenues, resulting in an approximate $10 million annual loss to
HNA attributable to publication of the Star-Bulletin. ER 6 at 26, 64. During the
same period, the Hawaii economy entered a recession.9
9 See Tom Kaser, ILWU Takes Membership Vote
As Hawaii Prepares For Strike, Journal of Commerce, Oct. 20, 1999 at 20 (describing
"Hawaii's reeling economy"); Todd S. Purdum, Its Economy Ailing, Hawaii
Hangs Some Hopes on Hollywood, N.Y. Times, May 17, 1999 at A18; Laura Pavlenko Lutton,
3 Hawaiian Banks Track Lackluster Economy, The American Banker, Mar.11, 1998 (describing
Hawaii's economy as "in a persistent slowdown").
Although the Star-Bulletin suffered significant operating losses (absorbed by HNA
and, consequently, by Gannett Pacific), Liberty (the Star-Bulletin's owner) continued
to receive its guaranteed payments. However, because Liberty determined that any
prospect of receiving the hoped-for "Special Profits" had evaporated, Liberty
concluded that it could make a greater return on its investment elsewhere, provided
that it could convince Gannett Pacific to replace Liberty's guaranteed JOA income
stream with a lump sum payment. ER 6 at 49. Accordingly, Liberty concluded that it
was not in its best interest to continue to participate in the JOA, and asked Gannett
Pacific to end the JOA arrangement in return for a single payment. ER 6 at 31, 44,
49.
Gannett Pacific's options in responding to Liberty's request were simple. One alternative
was to stand pat: continue to pay Liberty $28.7 million in scheduled payments over
13 years, watch the Star-Bulletin's circulation decline, pay the Star-Bulletin's
editorial expenses, and bear 13 years of escalating Star-Bulletin losses. The other
option was to pay Liberty a lump sum that would extricate Gannett Pacific from the
JOA, and thus save HNA, and Gannett Pacific, millions of dollars.
Based on their own independent economic motivations, therefore, the newspaper owners
amended the JOA to provide for its termination on or before October 30, 1999, and
for a payment from Gannett Pacific to Liberty of $26.5 million. ER 8, Bernius Decl.,
Exh. A at ' 1(b). That is less than the $28.7 million that HNA would have had to
pay Liberty under the 1993 Amendment, and much less than the total of the payments
Gannett Pacific would have had to make and the losses it would have absorbed from
publication of the Star-Bulletin.
The 1999 Amendment was signed and timely filed with the Department of Justice, as
required by 15 U.S.C. ß1803(a). The defendants thereafter undertook significant
efforts to prepare for the JOA termination. ER 4, Fisch Decl. at 2--7. Those efforts
have been halted by the injunction.
STANDARD OF REVIEW
A preliminary injunction will be reversed where the District Court abused its discretion
or based its decision on an erroneous legal standard. Miller v. California Pacific
Medical Center, 19 F.3d 449,455 (9th Cir. 1994). When the District Court is alleged
to have relied on an erroneous legal standard, review is plenary. Id. Issues of law
underlying the District Court's preliminary injunction are reviewed de novo. Id.
SUMMARY OF ARGUMENT
The District Court agreed that the issues presented on the motion before it were
questions of law. ER 6 at 4.
The core legal issue on this appeal is whether, despite the NPA, the antitrust laws
prohibit the parties from amending a newspaper JOA to end it, and instead require
the newspapers to continue publishing and operating jointly, against their will and
indefinitely. The antitrust laws do not. As a result, the Order granting a preliminary
injunction supposedly preserving the status quo, prohibiting the defendants' implementation
of the 1999 Amendment, and requiring the publication of two "quality" newspapers,
must be vacated.
The 1999 Amendment is exempt from antitrust scrutiny. Congress expressly provided
in the NPA that:
it shall not be unlawful under any antitrust law for any person to ... amend any
joint newspaper operating arrangement entered into prior to the effective date of
this Act. [July 24, 1970].
15 U,S.C. ß 1803(a). The 1999 Amendment falls squarely within that provision.
The "NPA contains no temporal limitation." Bronster, 103 F.3d at 748. Indeed,
the District Court's apparent rule that JOAs can only be lengthened, but never shortened,
would discourage newspapers from entering into or extending a JOA, resulting in a
loss of editorial voices which would thwart the purpose of the statute. The lower
court's order ignores the cold reality of the economics of the newspaper business.
At some point a JOA, like any other commercial arrangement, must be permitted to
end. In fact, the Honolulu JOA has already continued seven years beyond the termination
date that Congress approved for it.
Even apart from the NPA, the 1999 Amendment does not violate the antitrust laws.
There is no agreement between Gannett Pacific and Liberty that Liberty will not publish
the Star-Bulletin or sell it to anyone else. If Liberty does not publish the Star-Bulletin,
or no one seeks to buy it, that will be because of market realities, not any agreement
with Gannett Pacific. Gannett Pacific's payment to Liberty simply reflects the fact
that it was cheaper for Gannett Pacific to pay Liberty to end the JOA than to make
13 years of guaranteed payments and bear 100% of the Star-Bulletin's continuing losses.
In any event, the 1999 Amendment cannot harm competition, because any economic competition
between the newspapers ended in 1962 when the JOA was formed. The Sherman Act does
not govern the competition of editorial voices, as urged by the State, and there
are many such voices. Furthermore, there could be no antitrust injury from the 1999
Amendment because giving up an exemption from the antitrust laws (which permits conduct
that the antitrust laws would otherwise prohibit) is not an injury the antitrust
laws were intended to proscribe.
Moreover, the District Court's interpretation of the NPA cannot be accepted because
it would render the NPA unconstitutional. Relying upon the NPA to require the Star-Bulletin
to speak against its will, and forcing HNA to fund that speech, violates the First
Amendment and constitutes a "taking" of defendants' property in violation
of the Fifth Amendment. This Court should reject the District Court's reworking of
the NPA, and construe it consistently with the demands of the Constitution.
Finally, the District Court's extraordinary order violates the First Amendment because,
at the behest of the State, it imposes a vague content standard to which the editors
and reporters must adhere under pain of contempt, and impermissibly singles out the
Advertiser and Star-Bulletin for judicial control over their commercial and editorial
operations.
ARGUMENT
I. THE 1999 AMENDMENT IS EXEMPT FROM THE ANTITRUST LAWS UNDER THE NPA
A. The NPA Expressly Provides That Amendments Are Exempt.
In enacting the NPA, Congress granted an automatic antitrust exemption for JOAs entered
into prior to July 24, 1970, provided that, at the time of formation, "not more
than one of the newspaper publications involved in the performance of such arrangement
was likely to remain or become a financially sound publication." 15 U.S.C. ß
l803(a).10 The NPA's antitrust exemption is robust. It permits the parties
to combine their business operations into a single entity, ending all economic competition
between them.11
10 The Honolulu JOA, of course, meets that
standard. City and County of Honolulu, 559 F. Supp. at 1032.
11 The only limitation is that the parties may not do jointly what would be
unlawful for them to do if they were a single entity. 15 U.S.C. ß 1803(c).
Most importantly, as the District Court recognized (ER 5 at 23), (he NPA specifically
provides that amendments are exempt from the antitrust laws, so long as they (1)
are filed with the Department of Justice, and (2) do not add a newspaper to the JOA:
It shall not be unlawful under any antitrust law for any person to perform, enforce,
renew, or amend any joint newspaper operating arrangement entered into prior to July
24, 1970, if at the time at which such arrangement was first entered into, regardless
of ownership or affiliations, not more than one of the newspaper publications involved
in the performance of such arrangement was likely to remain or become a financially
sound publication: Provided That the terms of a renewal or amendment to a joint operating
arrangement must be filed with the Department of Justice and that the amendment does
not add a newspaper publication or newspaper publications to such arrangement. 15
U.S.C. ß 1803(a) (underlined emphasis included in original; italics added).
The 1999 Amendment satisfies both requirements. It was filed with the Department
of Justice, and it does not add a newspaper to the JOA. ER 8, Bernius Decl. ' 4 and
Exh. A. Thus, under the NPA, both the initial JOA between these newspapers and the
1999 Amendment are exempt.
B. Nothing In The NPA Precludes Amendments Ending JOAs; And, If The NPA's Policy
Is To Be Considered, The District Court's Decision Contravenes It.
Despite the NPA's express statement, the District Court refused to hold the 1999
Amendment exempt, because the JOA would be terminated "without Liberty having
to publish the Star Bulletin for the next thirteen years." ER 5 at 23 (emphasis
added). The result, it believed, was contrary to the statute's policy of preserving
newspapers. ER 5 at 23-24. The District Court's nullification of the plain language
of the NPA was error.12
12 This Court has previously focused on
the "plain meaning" of the NPA in interpreting it (Committee for an Independent
P-I v. Hearst Corp., 704 F.2d 467, 478 (9th Cir. 1983)) and found that the "text
of the NPA is simple, yet direct and pervasive." Bronster, 103 F.3d at 748.
Because the statutory language is plain and unambiguous, citation to the NPA's policy
statement is unnecessary. See lA Sutherland Stat. Const. ß 20.12 (5th ed. 1993
and Supp. 1999) ("The policy section like the preamble is available for the
clarification of ambiguous provisions of the statute, but may not be used to create
ambiguity. The declaration of policy like the preamble is not part of the substantive
proportion of the statute" (footnotes omitted)).
1. The NPA Contains "No Temporal Limitation."
Nothing in the NPA provides that the parties to a JOA may not shorten it. As this
Court held concerning this JOA, the "NPA contains no temporal limitation."
Bronster, 103 F. 3d at 748 (emphasis added). Indeed, when Congress passed the NPA
and grandfathered twenty-two existing JOAs -- including Hawaii's -- it set no minimum
term for any of them. Those grandfathered JOAs undoubtedly had different durations.
In fact, Congress itself recognized that JOAs would end (as indeed, other commercial
arrangements do); otherwise, there would have been no need for it to exempt from
the antitrust laws renewals of JOAs (15 U.S.C. ß 1803(a)). Congress also knew
that some JOAs (again, like other commercial arrangements) might end at the option
of the parties, potentially leaving one newspaper without the physical assets necessary
for production.13 In fact, since the NPA's enactment, JOAs in Chattanooga,
El Paso, Knoxville, Nashville, Pittsburgh, Shreveport and Tulsa have all been amended
to provide for their termination before their previously agreed-upon end.14
13 The Failing Newspaper Act: Hearings on
S. 1312 Before the Subcomm. on Antitrust and Monopoly of the Senate Comm. on the
Judiciary, 90th Cong. 425 (1967). Accord, id. at 136.
14 Paul Farhi, The Death of the JOA, American Journalism Review (AJR),
September 1999.
2. The District Court's Order Contravenes The NPA's Purpose.
Even if the "purpose" of the NPA were appropriately invoked to contradict
the unequivocal terms of the statute, the District Court erred. Orders like the one
at issue in this case -- which require newspapers to stay in a JOA they wish to leave
-- undermine the NPA's purpose by deterring other newspapers from entering into joint
operating arrangements. In Florida Publications, Inc. v. The Miami Herald Publishing
Co., No. 88-2421-CIV-MARCUS (S.D. Fla. 1988), as here, certain plaintiffs sought
a preliminary injunction prohibiting the parties to a JOA from amending the arrangement
to permit one newspaper to cease publishing through the JOA. The court found that
the relief sought: might undermine the very purposes of the Newspaper Preservation
Act and its effectiveness in encouraging newspaper joint operating agreements nationally.
To grant the plaintiffs' motion would send a message, we think, or could, to struggling
newspaper publications that they better beware before they enter into a joint operating
agreement pursuant to the Newspaper Preservation Act. For once they enter into such
an agreement, they may be enjoined from getting out. Id. at lO3.15
15 A copy of the court's order and the hearing
transcript in this case is included in the Addendum at Tab 4. Due to the size of
the Addendum, it has been filed as a separate volume.
The District Court's apparent holding here that the term of a JOA may not be shortened
beyond the longest period at any time agreed by the parties, if ever (see ER 5 at
16, 18, 24), would similarly contravene the purpose of the NPA by discouraging the
creation of future JOAs, and by deterring parties in existing JOAs from ever extending
them. Newspaper owners would let their failing competitors die rather than join with
them in a JOA, and newspaper owners in JOAs -- particularly those who see themselves
in the stronger position -- would not lengthen their term for fear of being trapped.
The upshot would be a loss of editorial voices, not their preservation.
Moreover, the District Court's policy determination ignores a simple, but crucial
fact: JOAs do end. Yet in its written decision, the District Court noted that the
1993 Amendment provides for a term through 2012 "with subsequent five-year extensions
unless either party elects to cancel" (ER 5 at 9), and at oral argument, seemed
to suggest that even such renewals could be mandated by the court. ER 6 at 33-35.
Indeed, when asked how parties to a JOA may "exit from them," counsel for
the State could only answer "that's an interesting question that I have not
effectively resolved." ER 6 at 19.
The truth, however, is that JOAs do end. Although a JOA may help newspapers in financial
distress, it cannot guarantee that the newspapers will last forever, or even for
a specified term. The economics of the newspaper business are too unforgiving. That
is why seven JOA afternoon newspapers stopped publication despite being in a JOA.16
Indeed in those cities, either immediately or shortly after termination of the JOA,
one of the two former JOA newspapers went out of business.17 Yet the approach
taken by the District Court would require newspaper owners to continue publishing,
regardless of the financial consequences.
16 See Farhi, Supra.
17 See Id..
The only appropriate rule is this: the NPA duration "requirement" for a
JOA is the duration upon which the parties to the Congressionally-sanctioned contract
agree, either at the time they enter into the contract, or at such later time as
they agree in an amendment. The District Court's gloss on the NPA is contrary to
its language and its policy, and cannot stand.18
18 In its opposition to a stay, the State
relied on dictum in Bay Guardian v. Chronicle Publishing Co., 344 F. Supp. 1155 (N.D.
Cal. 1972), that the NPA does not permit "the elimination of a newspaper in
a JOA." State's Mem. in Opp. to Emergency Motion at 14-15. The court's dictum
dealt with a claim early in the litigation that the San Francisco newspapers were
not entitled to the NPA exemption for their JOA because, at its inception, that JOA
provided that one of the Hearst newspapers, the News-Call Bulletin, would cease publication.
The court noted that "[i]t is a matter of evidence to be determined at trial
whether the conduct of the defendants while entering their joint operating agreement
bars them from the protection of the act." Id. at 1159. Not surprisingly, at
the trial the exemption was sustained despite the closing of the News-Call Bulletin.
See "Newspaper Suit Cleared," Washington Post, June 17, 1981, at D16.
C. The JOA Has Lasted Longer Than The Time Grandfathered -- And Thus Deemed Acceptable
-- by Congress.
The District Court's rejection of the NPA's exemption must be reversed for an additional
reason: it ignores the undisputed facts of this case. When Congress passed the NPA,
the Honolulu JOA provided for a thirty year term. Congress granted an exemption to
that (and other) existing JOAs. Without post-1962 amendments, the Honolulu JOA would
have terminated seven years ago, in 1992.
It does not violate the antitrust laws to end a JOA which has already lasted longer
than the time period that Congress, by grandfathering it, deemed appropriate.
In Hearst, this Court wrote that "we will not emasculate the Act [NPA] in the
guise of narrowly construing it." 704 F.2d at 483. Such an emasculation, however,
is what the District Court's decision would accomplish here. The rationale of the
decision below must therefore be rejected. JOA amendments which shorten the terms
of JOAs, or which end JOAs, are entirely lawful under the NPA. The NPA exempts the
1999 Amendment from the antitrust laws.19
19 The NPA similariy preempts the State's
claims under Hawaii's antitrust laws. As this Court held, in passing the NPA, Congress
exempted this JOA from all direct or indirect state regulations within the NPA's
antitrust exemption. Bronster, 103 F.3d at 749.
II. EVEN APART FROM THE NPA, THE 1999 AMENDMENT DOES NOT VIOLATE THE ANTITRUST
LAWS.
The District Court concluded as a matter of law that the State was likely to succeed
on three violations of the Sherman Act -- restraint of trade in violation of Section
1; conspiracy to monopolize in violation of Section 2; and attempted monopolization
in violation of Section 2 -- and the parallel provisions of Hawaii antitrust law.20
20 The Hawaii antitrust laws are construed
in accordance with the interpretations of the federal antitrust laws. ER 5 at 14
n.7 (citing Robert's Hawaii School Bus., lnc. v. Laupahoehoe Transp. Co., Inc., 91
Haw. 224, 247 (1999)). See also Haw. Rev. Stat. ß 480-3 (1999).
Boiled down, the Court's analysis was that (1) the "Star-Bulletin was
stripped of its operating equipment and assets in 1993" (ER 5 at 16, 21); (2)
Gannett Pacific's payment to Liberty to end the JOA is "essentially. . . a buyout
of its sole competitor" (ER 5); and (3) the result would be a loss of
competition in the "sale of daily newspapers and their differing editorial and
reportorial voices," in the sale of advertising, and for the "output"
of "creators of news, editorial, and entertainment content." ER 5 at 19.
The District Court's analysis fails on all three grounds, however, and its decision
cannot stand.
A. No Assets Were "Stripped."
As a threshold matter, there was no "stripping" of assets. Instead, keenly
aware of the economics of the newspaper industry, Liberty chose not to buy an undivided
share of the JOA's productive assets which would carry with it the attendant obligation
to maintain and improve those assets. ER 6 at 59-60. The resulting relationship between
the parties is an arrangement, typical in other JOAs, whereby Gannett Pacific through
HNA, holds the JOA's physical assets (there is only one printing press) and runs
the newspapers' business operations. Thus, the 1993 Amendment did not effect a sinister
"stripping of the [Slar-Bulletin's] assets." Instead it simply converted
the JOA to a variation of a common "host-tenant" joint agency, which allowed
the Star-Bulletin to continue to be published. ER 6 at 60. As even the State concedes,
the "joint printing" of newspapers is "potentially procompetitive."
State's Mem. in Opp. to Emergency Motion at 13, n. 4.
B. There is No Agreement to Stop the Star-Bulletin from Publishing.
There is no agreement that the Star-Bulletin will not publish. The 1999 Amendment
between Gannett Pacific and Liberty is in the record. ER 8, Bernius Decl., Exh. A.
That six-page document contains no covenant not to compete. Liberty is free, if it
wishes, to publish the Star-Bulletin or to sell the Star-Bulletin's assets. The 1999
Amendment contains no restriction whatsoever on any potential sale, and provides
for no purchase by Gannett Pacific of the Star-Bulletin's assets. Those assets are
returned to Liberty. ER 8, Bernius Decl., Exh. A at 4.
The 1999 Amendment specifically provides that it "constitutes the entire agreement
of the Parties" and that there "are no other agreements written or oral
..." ER 8, Bernius Decl., Exh. A at 6. Indeed, the record is devoid of any evidence,
despite the publicity accompanying the announced termination of the JOA, that anyone
offered to purchase the Star-Bulletin from Liberty and operate it as a newspaper.
ER 7.
Moreover, there is nothing untoward in Gannett Pacific's payment of $26.5 million
to Liberty. As discussed above, Gannett Pacific had a simple choice: pay Liberty
the guaranteed $28.7 million over 13 years, pay all of the Star-Bulletin's editorial
expenses, and absorb all of the Star-Bulletin's losses -- or pay Liberty $26.5 million
now. It quite understandably chose the latter course, and there is nothing in the
antitrust laws or in the NPA that requires it to sustain an additional 13 years of
multimillion dollar losses. As defendants acknowledged below, it is likely that the
Star-Bulletin will not publish again as a daily newspaper. ER 6 at 32, 44. But if
Liberty chooses not to publish the Star-Bulletin as a daily newspaper, or if no other
buyer comes forward to do so, that will be because of the hard reality of the marketplace
-- which has caused the demise of afternoon newspapers nationwide -- not the agreement
of the parties. It was the inability of metropolitan areas to support multiple newspapers
that caused Congress to pass the NPA in the first place. Bronster, 103 F.3d at 744.
And the JOA was formed in 1962 because Honolulu could not support two daily newspapers.
City and County of Honolulu, 559 F. Supp. at 1032.
C. There Is No Harm To Competition In A Relevant Market Because There Is No Competition
Between The Star-Bulletin And Advertiser.
To succeed on its claims, the State must prove that competition is harmed in a relevant
market. See Adaptive Power Solutions v. Hughes Missile Systems, 141 F.3d 947, 951-52
(9th Cir. 1998) (injury to competition required to establish antitrust claim).
As a threshold matter, the State has not put forward any facts from which one could
conclude, as it alleges, that "English daily newspapers on the island of Oahu"
is a relevant antitrust market. ER 12 at '' 10--11. Indeed, there is no evidence
in the record that newspapers do not compete across the board with television, radio,
other print media, Internet and other electronic publications. It was the State's
burden on this motion to establish the market it alleged, and its failure to do so,
by itself, requires that the preliminary injunction be reversed. See FTC v. Tenet
Health Care Corp., 186 F.3d 1045 (8th Cir. 1999) (reversing preliminary injunction
in antitrust case where plaintiff did not establish relevant market).
Furthermore, even under the purported "market" the State alleges, the Amendment
cannot harm competition for a simple reason: there is no economic competition between
the Advertiser and the Star-Bulletin now. All such competition ended more than 37
years ago when the JOA was formed. Under the JOA, the Advertiser and Star-Bulletin
are and have been a single economic entity. The Advertiser, as general parmer of
HNA, has the responsibility to "control, supervise, manage and perform all operations
(other than the news and editorial operations of Advertiser and Star-Bulletin) involved
in producing, printing, selling and distributing the Newspapers" -- including,
among other things, fixing ad rates, setting newspaper prices, selling ads, promotion,
and distribution. ER 8, Bernius Decl., Exh. B at 11-15. Ending the JOA cannot eliminate
competition, because the Star-Bulletin and the Advertiser have not competed since
1962.
The District Court's thrice-repeated view that there would be a "loss of competition
for advertisers" (ER 5 at 22; accord at 16 and 19) is thus plainly erroneous.
Under the JOA, there is only one sales force selling ads and setting ad prices. HNA
pays Liberty a specified amount each year, and Gannett Pacific receives the profit
or loss. There is no difference to Gannett Pacific's or Liberty's bottom line if
an advertiser pays $10 to place an ad in one newspaper or the other. ER 8, Bernius
Decl., Exh. B at 11-15. In fact, the NPA was passed precisely so that newspapers
could eliminate advertising and other commercial competition between themselves.
See Add., Tab 3, Newspaper Preservation Act: Debate on S.1520 Before the Senate,
Cong. Rec. 1815 (Jan. 29,1970) (statement of Sen. McIntyre).
The District Court similarly erred in its legal conclusion that the 1999 Amendment
would eliminate competition in the "sale of daily newspapers and their differing
editorial and reportorial voices." ER 5 at 19. As discussed above, there is
no competition now for the revenues from the sale ofnewspapers -- all the money goes
in the same pocket. That situation is no different from the Star-Bulletin and the
Advertiser being commonly owned.
Furthermore, competition in editorial and reportorial voices which of course, must
encompass all media, not just newspapers 21 -- is not the economic competition
reached by the Sherman Act. The "trade or commerce" which the antitrust
laws seek to protect is "commercial competition in the marketing of goods or
services," Apex Hosiery Co v. Leader, 310 U.S. 469,495 (1940), not non-economic
social values. The Sherman Act: was enacted in the era of "trusts" and
of "combinations" of businesses and of capital organized and directed to
control of the market by suppression of competition in the marketing of goods and
services, the monopolistic tendency of which had become a matter of public concern.
The end sought [by these laws] was the prevention of the restraints to the competition
in business and commercial transactions which tended to restrict production, raise
prices or otherwise control the market to the detriment of purchasers or consumers
of goods and services, all of which had come to be regarded as a special form of
public injury. Id. at 492-93 (emphasis added). The Sherman Act does not extend to
noncommercial matters.22 Simply put, the Sherman Act is described as a "charter
of economic liberty" (Northern Pacific R.R. Co. v. United States, 356 U.S. 1,4-5
(1958)), and is not a charter for the State of Hawaii to control competition in the
marketplace of ideas.
21 In Honolulu alone, numerous media entities
compete with the Advertiser and Star-Bulletin. In addition to print publications
(Honolulu Weekly, Honolulu Magazine, Island Business, Midweek, Contemporary Pacific,
Hawaii Business, Honolulu Magazine, Island Business, Pacific Business News, Voice
of Hawaiåi), satellite and cable media sources, and the Internet, there are
seven television stations (KBFD-TV 32, KGMD-TV 9, KHET-TV 11, KHON-TV 2, KIKV-TV
20, KITV-TV 4, KWHE-TV 14) and 23 radio stations (KAIM-FM 99.5, KAIM-AM 870, KCCN-AM
1420, KCCN-FM 100.3, KDEO-FM 102.7, KGU-AM 760, KHPR-FM 88.1, KIKI-AM 990, KIKI-FM
93.9, KIPO-FM 89.3, KISA-AM 1540, KKUA-FM 90.7, KULT-AM 1040, KNDI-AM 1270, KPOI-FM
97.5, KQMQ-AM 690, KQMQ-FM 93.1, KSSK-AM , KSSK-FM 92.3, KTUH-FM 90.3, KUMU-FM 94.7,
KWAI-AM 1080, KZOO-AM 1210). 1 Kristen B. Mallegg, ed., Gale Directory of Publications
and Broadcast Media 459-63 (133rd ed., 1999); SRDS Circulation 99.
22 See, e.g., Smith v. National Collegiate
Athletic Association, 139 F.3d 180, 185 (3d Cir.1998) (Sherman Act did not apply
to NCAA's eligibility rules which were "not related to commercial or business
activities"), vacated on other grounds, 525 U.S. 459 (1999); Dedication and
Everlasting Love to Animals V. Humane Societv, 50 F.3d 710 (9th Cir. 1995) (Sherman
Act is inapplicable to competition for charitable contributions). Indeed, even critics
of the NPA have noted, "Antitrust law deals with commercial competition, and
from this point of view a joint operating arrangement and a complete merger are the
same because both end all commercial competition." Anita M. Carlson, Note, The
Newspaper Preservation Act: The Seattle Application, 1982 U. Ill. L. Rev. 669, 674
n.40 (1982).
The District Court also suggested that the 1999 Amendment could cause a loss of competition
for "creators of news, editorial and entertainment content" in the State
of Hawaii. ER 5 at 16. There is nothing in the record to support this theory. "Creators
of news, editorial and entertainment content" have any number of purchasers
to whom to sell -- both in Hawaii and out, including suburban, community, and other
newspapers, magazines, radio, television, internet publications, and wire services.
Any theoretical effect on such "creators" is de minimis, and cannot establish
an antitrust claim. See Adaptive Power Systems, 141 F.3d at 95 1 (to constitute an
injury to competition, the restraint must be "of significant magnitude"
. . . and "more than trivial." (internal citations omitted)).
Indeed, the termination of the JOA, if anything, should increase competition. Afier
termination, if Liberty (or any subsequent owner) thinks the market would support
it, it would be free to publish the Star-Bulletin in any form it chooses. If, as
the District Court believes (and is likely because of the economics of the newspaper
business) the owner of the Star-Bulletin were to choose not to publish as a daily
newspaper, the Star-Bulletin might operate on the Internet, as it does now. Furthermore,
as opponents of the NPA suggested (in arguing it would be better to let newspapers
fail than form JOAs), the Star-Bulletin's closure would make it easier for other
types of publications, such as weeklies, suburban newspapers (and today, on-line
and desk-top publications) to enter.23
23 "It can be assumed, said Mr. McLaren
in opposing the pending Congressional legislation, åthat new competition will
be more likely to enter a newspaper market occupied by one publisher, even though
he publishes morning and evening papers, than it will be a market with separate and
ostensibly independent publishers bound together in an agreement to eliminate commercial
competition."' Add., Tab 3, The Newspaper Preservation Act: Debate on S.1520
Before the Senate, Cong. Rec. 1817 (Jan. 29-30, 1970). See also id, at 1996, 2012.
The 1999 Amendment cannot harm competition,24 because there is no competition
between the Advertiser and Star-Bulletin now.
24 The District Court's Order could be read
to suggest that it believed that harm to competition is not an element of the State's
conspiracy to monopolize claim. See ER 5 at 19. In Nynex Corp. v. Discon, Inc., 525
U.S. 128, 119 S. Ct. 493 (1998), the Supreme Court remanded a conspiracy to monopolize
claim, noting that "[u]nless those agreements [which formed the basis of the
claim] harmed the competitive process, they did not amount to a conspiracy to monopolize."
119 5. Ct. at 500 (emphasis added).
D. There Is No Antitrust Injury.
Even if a plaintiff establishes an antitrust violation, the plaintiff must still
prove "antitrust injury" -- defined as injury "of the type the antitrust
laws were intended to prevent and that flows from that which makes defendants' acts
unlawful." Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 113 (1986)
(citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)). The
antitrust injury requirement applies to all antitrust claims brought under Sections
4 and 16 of the Clayton Act (Cargill, 479 U.S. at 113) and regardless of whether
the challenged conduct is unlawful per Se. Atlantic Richfield Co. v. USA Petroleum
Co., 495 U.S. 328 (1990). The purpose of the antitrust injury requirement, of course,
is to make sure that a plaintiff cannot obtain relief unless competition is harmed.
"The antitrust injury requirement ensures that a plaintiff can recover only
if the loss stems from a competition-reducing aspect or effect of the defendant's
behavior." Atlantic Richfield, 495 U.S. at 344 (emphasis in original); see Adaptive
Power Solutions, 141 F.3d at 951 (the "alleged injury must be caused by a reduction,
rather than an increase, in competition resulting from the restraint" (citation
omitted)).
There cannot be any antitrust injury here, because, as discussed above, the 1999
Amendment, if anything, increases competition - it does not reduce it. Furthermore,
the conduct challenged by the State is defendants' abandonment of an exemption from
the antitrust laws -- an act which cannot logically or reasonably be deemed anticompetitive.
III. THE DISTRICT COURT'S INTERPRETATION OF THE NPA WOULD RENDER IT UNCONSTITUTIONAL
The courts have a duty to interpret and apply federal statutes so as to avoid creating
constitutional issues. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr.
Trades Council, 485 U.S. 568 (1988); Eastern R.R. v. Noerr Motor Freight, Inc., 365
U.S. 127 (1961). The District Court's invocation of the "policy" of the
NPA to countermand the specific wording of that statute violates this constitutional
tenet.
As an inescapable consequence of its view of the "purpose" of the NPA,
the District Court ordered defendants to continue to publish the Star-Bulletin, notwithstanding
their unwillingness to do so, and notwithstanding the millions of dollars of incremental
losses that such publication would entail. The lower court's NPA reasoning has inevitably
resulted in an injunction that violates the First and Fifth Amendment rights of defendants.
The District Court's statutory interpretation underpinning the injunction is accordingly
unacceptable.
First, the injunction requires the defendants to publish an entire newspaper against
their will, and consequently violates the newspapers' constitutional right not to
engage in speech. The First Amendment protects the right not to speak as forcefully
as it protects the right to speak, since "the right to speak and the right to
refrain from speaking are complementary components of the broader concept of åindividual
freedom of the mind."' Wooley v. Maynard, 430 U.S. 705, 714 (1977) (emphasis
added) (citations omitted). Indeed, silence can be "deafening." United
States v. Gray, 177 F.3d 86, 90 (1st Cir. 1999). Ordering parties to a JOA to continue
to publish a newspaper when they do not wish to do so violates their "right
to refuse to speak." Florida Publications, Inc. v. The Miami Herald Publishing
Co., No. 88-2421-CIV-MARCUS (S.D. Fla. 1988), Tr. at 103-104 (Dec.30, 1988).
In Miami Herald Pub. Co. v. Tornillo, 418 U.S. 241(1974), the Court struck down a
Florida "right of reply" statute that merely required a newspaper to offer
responsive editorial space to political candidates who had been criticized by the
newspaper. The Court held unequivocally that publishers may not be forced to "publish
that which åreason tells them should not be published."' Id. at 256 (citation
omitted). The District Court's interpretation of the NPA forces Liberty to prepare,
and Gannett Pacific to fund, an entire newspaper which "reason" tells Liberty
should not be published. The lower court has therefore construed the NPA to conflict
with the First Amendment.25
25 The District Court mistakenly dismissed
all First Amendment concerns by relying on Associated Press V. United States, 326
U.S. 1(1944) (plurality opinion). In Associated Press, however, the Court carefully
noted that the injunction at issue, unlike the order in this case, did "not
compel AP or its members to permit publication of anything which their 'reason' tells
them should not be published." Id. at 20 n.18.
In addition, although it acknowledged that Gannett Pacific "may lose money due
to the Star~Bulletin's operating losses" (ER 5 at 4), the District Court relied
on the NPA to order those newspaper losses to continue. Again, its construction violates
the First Amendment, which protects newspapers against incurring even the small costs
"in printing and composing time and materials" resulting from occasional
forced publication of editorials. Miami Herald Pub. Co., 418 U.S. at 255.
Moreover, the District Court ordered defendants to bear the expense of publishing
the Star-Bulletin in order to satisfy the State's apparent objectives of full employment
and diverse editorial voices. ER 5 at 32-33; ER 12 at 9. The Order thus constitutes
a "taking" which violates the Fifth Amendment. One of the principal purposes
of the takings clause is to bar government from forcing individuals to bear burdens
that should be borne by the public as a whole. Dolan v. Citv of Tigard, 512 U.S.
374, 384 (1994); Armstrong v. United States, 364 U.S. 40, 44 (1960). Governmental
regulation that goes "too far" in imposing burdens on individual citizens,
as opposed to the citizenry as whole, is a taking. Lucas v. South Carolina Coastal
Council, 505 U.S. 1003, 1015-16 (1992); Pennsylvania Coal Co. v. Mahon, 260 U.S.
393, 415 (1922). The lower court's view of the NPA imposes upon defendants, and defendants
alone, the financial and managerial burdens of securing the State's professed goals
of a diversity of Hawaii editorial voices and a sustained level of employment in
the Hawaii newspaper industry. By imposing that burden on defendants alone, the District
Court has imposed an unconstitutional exaction. Dolan, 512 U.S. at 385; Nollan v.
California Coastal Comm ån, 483 U.S. 825 (1987).
It is indeed ironic that the purported rationale for an injunction that destroys
a newspaper's constitutional rights lies in a statute, the purpose of which is to
maintain "a newspaper press editorially and reportorially independent."
15 U.S.C. ß 1801. The District Court's interpretation of the NPA cannot be
reconciled with the Constitution, and accordingly must be rejected.
IV. THE ORDER OTHERWlSE VIOLATES THE FIRST AMENDMENT
By its terms, the preliminary injunction requires defendants "to produce high
quality newspapers" and to "improve acceptance for their advertisers."
ER 5 at 32. The preliminary injunction is thus a content-related edict, which inevitably
acts as a prior restraint on publication, and violates the First Amendment.
There can be no real dispute that the injunction is content-related. Although it
contains no precise political regimen, its context is the District Court's insistence
that the Star-Bulletin persist as adequate "competition" to the Advertiser
for "news, editorial, and entertainment content." ER 5 at 5. Defendants,
moreover, have been ordered to produce "high quality" newspapers that maintain
their "individuality." The inescapable effect of the injunction is to force
newspaper editors to contemplate contempt of court, in addition to assessing traditional
news issues, before approving the content of news and editorials for publication.
Even though the terms of the injunction are taken principally from the terms of the
1993 Amendment (ER 8, Bernius Decl., Exh. B at 2), there is a world of difference
between a newspaper's own commitment to "quality," and a court order mandating
a governmental standard of "quality" under the threat of contempt. That
difference is what the First Amendment is all about:
The choice of material to go into a newspaper, and the decisions made as to limitations
on the size and content of the paper, and treatment of public issues and public officials
-- whether fair or unfair -- constitute the exercise of editorial control and judgment.
It has yet to be demonstrated how governmental regulation of this crucial process
can be exercised consistent with First Amendment guarantees of a free press as they
have evolved to this time. Miami Herald Pub. Co., 418 U.S. at 258.
Moreover, the injunction's insistence upon a "high quality" publication
is so vague as independently to violate defendants' First Amendment rights. A statute
or court order is unconstitutionally vague if persons of "common intelligence
must necessarily guess at its meaning and differ as to its application." Connally
V. General Construction Co., 269 U.S. 385, 391(1926); Smith V. Goguen, 415 U.S. 566,
572-73 (1974). The District Court's "quality" standard is entirely subjective.
No newspaper editor can discern its meaning with any degree of assurance. The injunction
therefore forces editors to steer wide of the forbidden zone and violates the First
Amendment. Baggelt v. Bullitt, 377 U.S. 360, 372 (1964).
Finally, the injunction violates the First Amendment because it isolates the defendant
newspapers and subjects them alone to special regulation.
The District Court concluded that because defendants "availed themselves of
the exemptions under the Newspaper Preservation Act," they are "not a typical
free enterprise situation where the owner of a business wishes to close it."
ER 6 at 61. Defendants, however, did not abandon their First Amendment rights by
entering into the JOA. The premise of the District Court's regulation applies only
to defendants, and if upheld has the potential to punish the specific editorial content
in their newspapers. Targeting the press for special regulation violates the First
Amendment. Minneapolis Star and Trihune Co. v. Minnesota Comm år of Revenue,
460 U.S. 575, 585 (1983). Targeting groups within the press for special regulation
also violates the First Amendment. See Arkansas Writers' Project v. Ragland, 481
U.S. 221, 229 (1987); Grosjean v. Am. Press Co., 297 U.S. 233, 244-245 (1935). There
is no "special characteristic" of the press which warrants the individual
regulation of defendants. See Turner Broadcasting System v. FCC, 512 U.S. 622, reh'g
den., 512 U.S. 1278(1994).
Because the particular terms of the preliminary injunction violate the First Amendment,
the orders from which this appeal is taken must be reversed.
CONCLUSION
For the aforementioned reasons, the State's complaint is without merit, and the District
Court wrongly concluded, as a matter of law, that the State had demonstrated a likelihood
of success on the merits. The orders from which this appeal are taken should therefore
be reversed.
Moreover, the injunction is causing irreparable injury to defendants, since the "loss
of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes
irreparable injury." Elrod v. Burns, 427 U.S. 347, 373 (1976). There is no cognizable
antitrust injury to the State. Since the balance of hardships thus tips in favor
of defendants, the preliminary injunction cannot be upheld.
AUTHORITIES
FARELLA, BRAUN & MARTEL LLP
By:
Douglas R. Young
Grace K. Won
30th Floor, Russ Building
235 Montgomery Street
San Francisco, California 94104
(415) 954-4400
Attorneys for Gannett Pacific Corporation
NIXON PEABODY LLP
Robert C. Bernius
John Stuart Smith
Gordon L. Lang
One Thomas Circle, Suite 700
Washington, D.C. 20005
(202) 457-5300
Attorneys for Gannett Pacific Corporation
GOODSILL ANDERSON QUINN & STIFEL
John R. Lacy
Lisa Woods Munger
AIii Place, Suite 1800
1099 Makea Street
Honolulu, Hawaii 96813
(808) 547-5600
Attorneys for Gannett Pacific Corporation and Hawaii Newspaper Agency
KING & BALLOW
Alan L. Marx
1100 Union Street Plaza
Nashville, Tennessee 37201
(615) 259-3456
Attorney for Liberty Newspapers Limited Partnership
DAMON KEY LEONG KUPCHAK HASTERT
Diane D. Hastert
Suite 1600, 1001 Bishop Street
Honolulu, Hawaii 96813
(808) 533-2242
Attorney for Liberty Newspapers Limited Partnership
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