Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04332/USCOURTS-cand-3_06-cv-04332-12/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:15 Antitrust Litigation

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CLINTON REILLY,

Plaintiff,

 v.

MEDIANEWS GROUP INC, et al.,

Defendants.

 /

No. C 06-04332 SI

ORDER RE: SECOND APPLICATION

FOR TEMPORARY RESTRAINING

ORDER

On July 24, 2006, plaintiff Clinton Reilly filed an application for a temporary restraining order,

seeking an emergency order blocking the sale of the four Bay Area newspapers, claiming that the sale

would result in the lessening of newspaper quality and choice for Bay Area residents. He filed the

application a week before the billion-dollar sale was scheduled to close. The Court concluded that

plaintiff had not established the urgent need for Court intervention that a temporary restraining order

requires, and accordingly denied plaintiff’s application. The parties subsequently stipulated to an

expedited case management schedule, culminating in a trial scheduled for February 27, 2006. The

parties later altered the schedule, pushing trial back to April 30, 2007. Plaintiff now renews his

application for temporary restraining order in light of newfound evidence and events occurring since

denial of the first application. 

BACKGROUND

This antitrust case concerns the ownership and control of daily newspapers in the greater San

Francisco Bay Area, currently defined by the parties as encompassing San Francisco, Alameda, Contra

Costa, Marin, San Mateo, Santa Clara, and Solano counties. By this action, plaintiff Clinton Reilly seeks

to block and undo a series of transactions through which, he claims, the past and present owners of the

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1

See http://www.sfchron.com/about/index.php. 

2

See http://medianewsgroup.com/aboutus/circulationPrint.htm.

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major Bay Area newspapers have begun to consolidate ownership of those newspapers, to divide up the

geographic markets, and ultimately to forego competing with each other.

Defendant The Hearst Company (“Hearst”) is a New York company that owns and operates

twelve daily newspapers, including The San Francisco Chronicle, its sole California newspaper. The

San Francisco Chronicle is by far the largest newspaper in the Bay Area; according to its website, it has

a daily circulation of over 512,000.1 The majority of this circulation – approximately 400,000 copies

– is distributed outside San Francisco County. See Prior McClatchy Oppo. Br. at 3 (stating that The San

Francisco Chronicle has circulation of 114,000 copies inside San Francisco County).

Defendant MediaNews Group, Inc. (“MediaNews”) is a privately owned company that owns and

operates approximately forty daily newspapers in different areas of the country, including California.

MediaNews holds a 54.23% interest in defendant California Newspapers Partnership (“CNP”), a

partnership that owns and operates newspapers throughout California. Prior to the events leading to this

action, CNP owned and operated eight major Bay-Area newspapers: The Oakland Tribune (and its

Alameda Times-Star edition), which primarily serves northern Alameda County; The Argus, centered

in the southern Alameda County city of Fremont; The Daily Review, circulated in Hayward and

surrounding communities in central Alameda County; the San Mateo County Times in San Mateo

County; the Tri-Valley Herald (and its San Ramon Valley Herald edition), which serves easternAlameda

County and southern Contra Costa County; the Marin Independent Journal in Marin County; the TimesHerald, based in Vallejo in southern Solano County; and the Reporter, which serves Vacaville and

northeastern Solano county. See Prior Wedgeworth Decl., Exh. 2 & ¶ 3. Altogether, these newspapers

have a circulation of approximately 300,000 daily copies.2

The other stakeholders in CNP are defendants Gannett Co. Inc. (“Gannett”) and Stephens Group,

Inc. (“Stephens”). Gannett publishes approximately ninety daily newspapers, including several

California newspapers and USA Today. Stephens is a privately held investment banking firm located

in Arkansas. It holds interest in a variety of businesses, including newspapers. Stephens owns a 26.28%

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3

See http://www.contracostatimes.com/mld/cctimes/contact_us/about/; and http:// www.

 mercurynews.com/ mld/mercurynews/contact_us/about/. 

4On June 27, 2006, the Justice Department filed a complaint in the District of Columbia seeking

to block McClatchy’s acquisition of Knight Ridder, and McClatchy’s resulting ownership of both local

daily newspapers in the Minneapolis/St. Paul metropolitan area. See United States v. The McClatchy

Co., et al., 06-01175 (D.D.C. June 27, 2006). The complaint alleged that the acquisition would

substantially lessen competition and tend to create a monopoly in the publishing and distribution of

newspapers in violation of Section 7 of the Clayton Act. The complaint defined the relevant product

markets as the sale of local daily newspapers to readers and the sale of access to those readers to

advertisers in those newspapers. At the same time, the Justice Department filed a proposed consent

decree allowing the transaction to proceed provided McClatchy divested itself of the Pioneer Press.

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share of CNP, and Gannett holds the remaining 19.49%.

Finally, defendant-intervenor The McClatchy Company (“McClatchy”) is a newspaper publisher

based in Sacramento, California. Until recently McClatchy owned and operated 12 daily and 17 nondaily newspapers, including The Sacramento Bee, The Fresno Bee, The Modesto Bee, and the StarTribune of Minneapolis. While not named as a defendant in Reilly’s complaint, it is McClatchy’s sale

of four newspapers to MediaNews and Hearst that is the genesis of this lawsuit.

On March 13, 2006, McClatchy issued a press release announcing that it had entered into a

definitive agreement to acquire Knight Ridder, Inc., a major national newspaper publisher. Through the

transaction, McClatchy would gain control of Knight Ridder’s 32 daily newspapers and 50 non-dailies,

making McClatchy the second-largest newspaper company in the country. The transaction closed on

June 27, 2006. McClatchy’s acquisition included two Bay Area newspapers: the Contra Costa Times,

a paper with four daily editions based in Contra Costa County, which has a total daily circulation of

183,000; and the San Jose Mercury News, a newspaper based in Santa Clara County with a daily

circulation of 276,000.3 McClatchy also acquired the Monterey Herald and the St. Paul Pioneer Press

in the transaction.

The transaction valued Knight Ridder at approximately $6.5 billion; McClatchy borrowed

approximately $3.08 billion to finance the acquisition and pay related transaction costs. Prior

Talamantes Decl., ¶ 4. To reduce this debt, McClatchy planned to sell twelve of the Knight Ridder

newspapers. Given that McClatchy owned the Minneapolis Star Tribune, the Pioneer Press was an

instant candidate; the Justice Department would not allow McClatchy to operate both newspapers.4

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5Although Hearst’s proposed interest in MediaNews does not include MediaNews’ Bay Area

publications, Hearst implies in its filings that it will seek permission at a future time to convert its

interest in MediaNews into MediaNews common stock.

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McClatchy also decided to sell its California acquisitions: the Contra Costa Times, San Jose Mercury

News, and Monterey Herald. All told, the sale of the twelve Knight Ridder newspapers was to generate

approximately $2 billion in revenue.

On April 26, 2006, McClatchy and defendants Hearst and MediaNews announced a series of

transactions through which McClatchy would divest itself of the four newspapers named above.

Although the transactions were complicated, the end result was fairly simple: MediaNews would

eventually acquire all four newspapers. In the proposed transactions, McClatchy would sell the San Jose

Mercury News and the Contra Costa Times directly to MediaNews for $736.8 million. McClatchy

would also sell the Monterey Herald and Pioneer Press to Hearst for $263.2 million. Hearst and

MediaNews negotiated a separate agreement in which Hearst would transfer the two papers it acquired

from Knight Ridder to MediaNews; and MediaNews would operate those papers until the terms of the

transfer were finalized. In the preferred method of transfer, Hearst would acquire an interest in

MediaNews in exchange for the transfer, specifically an equity investment in MediaNews’ operations

that did not include any economic interest or governance rights in MediaNews’ Bay Area publications.5

Because Hearst’s investment in MediaNews would be subject to scrutiny by the Justice Department,

however, the companies did not finalize the exact parameters of the investment. As an alternative

method of transfer, in case Hearst and MediaNews were unable to agree on the terms of the investment,

MediaNews agreed to purchase the two newspapers directly from Hearst. Thus, regardless of whether

Hearst was able to invest in MediaNews, the effect of the April 26, 2006, agreements was that all four

McClatchy papers would eventually end up in MediaNews’ hands. Finally, because these transactions

were all interrelated, the McClatchy sales transactions were conditioned upon each other. That is, both

Hearst’s and MediaNews’ acquisition of the McClatchy papers had to be completed at the same time or

not at all.

Once MediaNews acquired theContra Costa Times and the San Jose Mercury News, the papers

would be transferred to CNP, with both Stephens and Gannett contributing their proportionate share to

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the purchase price of the two newspapers. In addition, once MediaNews acquired the Monterey Herald,

that paper would be owned and operated by a newly formed partnership owned 67.36% by MediaNews

and 32.64% by Stephens. Again, Stephens would contribute its share of the purchase price of the

Monterey Herald.

On July 14, 2006, plaintiff Clinton Reilly filed this suit, seeking to enjoin the defendants from

consummating these transactions. According to plaintiff, if the transactions are completed, it “will result

in the defendants’ control of every major newspaper in the Greater Bay Area.” Compl. at ¶ 23.

Specifically, if the transactions are allowed to go through, it appears that every major Bay Area

newspaper will be owned and operated by CNP, with the exception of The San Francisco Chronicle.

Compare Compl. at ¶ 22 (listing major Bay Area newspapers by county), with Prior Wedgeworth Decl.,

Exh. 2 (listing CNP-owned newspapers).

Reilly contends that these agreements are part of a larger conspiracy between The Hearst

Company, MediaNews, CNP, Gannett, and Stephens to divide the Bay Area into discrete regions, each

of which is covered by a single newspaper monopoly. Further, Reilly contends that once the Bay Area

has been divided in this manner, the parties will honor a preexisting agreement not to compete with each

other. He alleges that this conspiracy and its underlying transactions violate three antitrust laws: Section

7 of the Clayton Act, 15 U.S.C. § 18; Section 1 of the Sherman Act, 15 U.S.C. § 1; and Section 2 of the

Sherman Act, 15 U.S.C. § 2. 

On July 24, 2006, Reilly filed an application for a temporary restraining order, seeking an

emergency order blocking McClatchy’s sale of the four Bay Area newspapers, claiming that the sale

would result in the lessening of newspaper quality and choice for Bay Area residents. He filed this

application a week before the billion-dollar sale was scheduled to close. The Court concluded that

plaintiff had not established the urgent need for Court intervention that a temporary restraining order

requires, and accordingly denied plaintiff’s application. The sale went through as planned: MediaNews

purchased the San Jose Mercury News and Contra Costa Times directly from McClatchy, with help from

Stephens and Gannett; Hearst purchased the Monterey Herald and St. Paul Pioneer Press, then

transferred them to MediaNews, in exchange for a thirty percent stake in all MediaNews-owned

newspapers outside of the Bay Area.

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Plaintiff now renews his application for temporary restraining order in light of newfound

evidence and events occurring since denial of the first application. 

LEGAL STANDARD

Temporary restraining orders are governed by the same standard applicable to preliminary

injunctions. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc., 181 F. Supp. 2d 1111,

1126 (E.D. Cal. 2001) (“The standard for issuing a preliminary injunction is the same as the standard

for issuing a temporary restraining order.”). A plaintiff can demonstrate it is entitled to such preliminary

relief in either of two ways. Under the “traditional criteria,” a plaintiff must show: “(1) a strong

likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if preliminary

relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public

interest (in certain cases).” Earth Island Inst. v. U.S. Forest Serv., 442 F.3d 1147, 1158 (9th Cir. 2006).

Alternatively, a plaintiff may establish “either a combination of probable success on the merits and the

possibility of irreparable harm or that serious questions are raised and the balance of hardships tips

sharply in his favor.” Id. (emphasis in original). These two formulations of the alternate test “represent

two points on a sliding scale in which the required degree of irreparable harm increases as the probability

of success decreases.” LGS Architects, Inc. v. Concordia Homes of Nev., 434 F.3d 1150, 1155 (9th Cir.

2006).

DISCUSSION

Plaintiff casts this lawsuit as an attempt to stop an overarching conspiracy to monopolize the Bay

Area’s newspaper markets which would cause irreparable injury to competition. The anti-competitive

effects have two interrelated origins, according to plaintiff: (1) the reduction from three Bay Area

newspaper owners (Knight Ridder, MediaNews/CNP, and Hearst), to two (MediaNews/CNP and

Hearst); and (2) illegal collusion between those two remaining owners. 

In its prior Order, the Court declined to grant any interim relief based on the second concern.

The Court found that the only evidence plaintiff presented of a conspiracy between MediaNews and

Hearst was that Hearst was “willing to help finance an acquisition that will only make its competitor

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6At oral argument, defense counsel suggested that the anticipated agreements may also include

joint production, such as joint or shared printing. Joint production was not, however, mentioned

specifically in the April 26 letter.

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stronger.” Order at 6:22-23. The Court did not discount the suspicious nature of this financing

agreement, but found instead that “[g]iven that the structure of the investment is wholly unknown, the

Court believes that the investment is too speculative to be considered in the instant analysis.” Id. at 7:7-

8. The Court also noted: “If Reilly had proof that such a conspiracy existed, the Court’s analysis would

obviously be different.” Id. at 7:10-11. Absent evidence of conspiracy, the Court focused only on

whether the sale of the San Jose Mercury News and the Contra Costa Times to MediaNews/CNP, taken

in isolation, raised any immediate antitrust concerns. 

Plaintiff bases his renewed application for a temporary restraining order on two circumstances.

First, plaintiff has uncovered a “secret” letter agreement, dated April 26, 2006, which according to

plaintiff is concrete evidence of a price-fixing conspiracy between Hearst and MediaNews. This new

evidence, according to plaintiff, mandates re-analysis of the transactions. Second, according to plaintiff,

“the defendants have begun to consolidate, commingle, and irrevocably alter the operations of their

[MediaNews] Bay Area newspapers,” at a pace, and to a degree, not anticipated by the Court at the time

of the prior Order. Mot. at 1:21-22. Plaintiff argues that this circumstance should alter the Court’s

findings with respect to the immediacy and irreparability of the potential harm. 

1. The April 26 letter

The “secret” April 26, 2006 letter, upon which plaintiff bases half of his argument, is from Hearst

Corporation Senior Vice President James Asher, and is addressed to Joseph J. (“Jody”) Lodovic, IV,

President of MediaNews. The letter states, in pertinent part:

The Hearst Corporation (“Hearst”) and MediaNews Group, Inc. (“MediaNews”) agree

that they shall negotiate in good faith agreements to offer national advertising and

internet advertising sales for their San Francisco Bay area newspapers on a joint basis,

and to consolidate the San Francisco Bay area distribution networks of such newspapers,

all on mutually satisfactory terms and conditions, and in each case subject to any

limitations required to ensure compliance with applicable law.6

In addition, Hearst and MediaNews agree that, with respect to the newspapers owned by

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each of them on the date of this letter, they shall work together in good faith to become

affiliated with the networks operated by Career Builder LLC (“Career Builder”) and

Classified Ventures, LLC (“Classified Ventures”) on the same terms, and each of Hearst

and MediaNews further agrees that neither of them shall enter into any agreement,

arrangement or understanding to participate in Career Builder or Classified Ventures or

their respective networks with respect to such newspapers unless the other party is

offered the opportunity to participate on identical terms. If the parties are unable to enter

into arrangements with Career Builder and Classified Ventures, they agree to cooperate

with each other in exploring other alliances for internet classified advertising. Any

arrangements with respect to Career Builder, Classified Ventures or such other alliances

shall be on mutually satisfactory terms and conditions and subject to any limitations

required to ensure compliance with applicable law.

. . . . 

Kindly sign this letter agreement in the space indicated to evidence your agreement with

the foregoing.

Shulman Decl., Ex. 1. The letter is signed by both Asher (Hearst) and Lodovic (MediaNews). See id.

TheApril 26 letter casts serious doubt on several key findings underlying the Court’s prior Order.

First, the Court accepted defendants’ representations that Hearst’s involvement in the transactions was

solely that of a passive equity investor. Though defendants offered no explanation why Hearst was

willing to help finance an acquisition that would only make its competition stronger, the Court did not

understand that Hearst expected, or would later receive, any quid pro quo. See Order at 6-7. However,

the April 26 letter suggests, at the very least, that Hearst’s investment was specifically tied to an

agreement by MediaNews to limit its competition with Hearst in certain ways. This link between

Hearst’s investment and the agreement to cooperate is further evidenced by a separate letter, dated

March 28, 2006, from Asher to Lodovic. The letter states, in pertinent part:

This letter is intended to elaborate on certain terms and conditions of its Investment and

the Acquisition Agreement that Hearst will require in order to proceed with the

transaction.

. . . . 

2. Hearst and MediaNews will enter into agreements to offer national advertising and

internet advertising sales for their Bay Area newspapers on a joint basis, and to

consolidate the Bay Area distribution networks of such newspapers, all on mutually

satisfactory terms and conditions, and in each case subject to any limitation required to

ensure compliance with applicable law.

Shulman Decl., Ex. 3. This letter strongly indicates that the cooperation outlined in the April 26, 2006

letter was, in fact, quid pro quo for Hearst’s assistance to MediaNews in acquiring two of the Bay Area

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7The arrangements contemplated by – indeed, required by – these letters appear inconsistent with

the notion that Hearst will have no “information rights in respect of MNG’s Bay Area newspapers”; that

“firewalls” will prevent Hearst from even the “opportunity to participate in the alleged ‘Bay Area

newspaper trust’”; and that Hearst “is specifically not going to be involved in MNG’s Bay Area

newspaper properties.” Each of these assertions was made, some more than once, in Hearst’s papers

opposing the initial motion for temporary restraining order. 

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papers.7

Accordingly, the April 26 letter casts doubt on the Court’s earlier finding that “The San

Francisco Chronicle is a strong source of competition for CNP’s newspapers, even after the MediaNews

acquisition is finalized.” Order at 10:14-15. The principal source of revenue for newspapers is

advertising. The principal costs presumably include distribution and printing. The April 26 letter

suggests, at the very least, an intent to limit some aspects of competition between Hearst and

MediaNews in advertising and distribution. As such, the letter indicates that the Chronicle may not

continue to be a “strong source of competition” for the other Bay Area papers. Had it been disclosed

to the Court, the April 26 letter would have affected the Court’s analysis of the McClatchy-MediaNewsHearst transactions at issue in this case. 

In opposition to plaintiff’s renewed application, and at oral argument, defendants make two

principal arguments with respect to the cooperation contemplated in the letter: (A) none of the conduct

contemplated by the letter has taken place; and (B) the conduct would not be illegal. 

A preliminary injunction requires a showing of “significant threat of irreparable injury.” Simula,

Inc. v. Autoliv, Inc. 175 F.3d 716, 725 (9th Cir. 1999) (emphasis added). Defendants argue that because

the letter constituted only an agreement to “negotiate in good faith” to form certain agreements, and no

progress has been made towards forming such agreements, there is no significant threat of irreparable

injury. See Lodovic Decl. ¶ 10 (“No discussions on joint advertising, distribution, or production

operations (other than [discussions related to the Yahoo! deal]) have taken place since the date of that

letter.”). The Court is unconvinced. First, the fact that defendants’ briefs describe, in great detail, the

nature of the agreements contemplated by the April 26 letter shows that the parties have engaged in more

than just an abstract agreement to negotiate at some later date. Second, the Yahoo! internet advertising

deal announced recently suggests that Hearst and MediaNews have made significant progress towards

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cooperative deals somewhat similar to those discussed in the letter. Finally, MediaNews and Hearst

have stopped short of stating that they have no plans in the immediate future to engage in cooperative

agreements of the type described in the letter. The April 26 letter thus evidences a significant threat.

Defendants also argue that none of the conduct contemplated by the letter would be illegal, even

if engaged in. Again, the Court is unconvinced. The first arrangement contemplated by the letter is a

“good faith agreement[] to offer national advertising . . . sales for their San Francisco Bay area

newspapers on a joint basis.” See Shulman Decl., Ex. 1. Defendants argue that this part of the letter

merely reflects an interest in creating “an additional advertising option that some national advertisers

might find attractive, which through one ‘buy’ would cause the publication of an advertisement in all

of the parties’ Bay Area newspapers.” Mot. at 3:28-4:2 (citing Asher Decl. ¶¶ 6-7). Such a “Bay Area

buy,” defendants contend, would be fully legal. See Huseny Decl., Ex. 1 (U.S. Department of Justice,

Antitrust Division, Business Review Letter to The Newspaper Association of America, 1993 DOJBRL

Lexis 26 (Dec. 10, 1993)). While defendants are now very specific in describing the nature of such an

arrangement, the April 26 letter is not so specific. There are other arrangements, which also could be

described as an “agreement to offer national advertising sales for their San Francisco Bay area

newspapers on a joint basis,” which would run afoul of the law. 

Furthermore, the Court is not wholly convinced that the arrangement now described by

defendants would in fact be legal. For example, if the “Bay Area buy” option becomes the only option

available for national advertisers wishing to advertise in any Bay Area newspapers, the agreement might

well be per se illegal. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940). The National

Newspaper Network (“NNN”), cited by defendants as an example of the type of legal arrangement

Hearst and MediaNews contemplate forming, appears to be materially distinct from an agreement

between the only two local competitors to jointly market advertising space. The NNN involved a large

number of newspapers and newspaper companies from around the country. See Gaier Decl. ¶ 5(d).

Defendants’ proposed network would involve just the two remaining competitors in one geographic

market. As such, in contrast to the NNN, defendants’ proposed network would raise a significant risk

of price manipulation. According to the DOJ, “NNN appears to be structured so as to safeguard against

unnecessary coordination by competing newspapers by restricting rate information to the executive sales

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director who is required to keep each member’s rate floors confidential.” Department of Justice,

Antitrust Division, Business Review Letter: The Newspaper Association of America, 1993 DOJBRL

LEXIS 26 (Dec. 10, 1993) (Huseny Decl., Ex. 1) at *7. Such safeguards would be impossible to

implement where only two companies are involved. Furthermore, the DOJ’s 1993 Business Review

Letter regarding the NNN does not definitively establish its legality. Whether an aggregation stifles

competition or instead increases it through creation of a new product, is a close and difficult question.

The DOJ’s conclusion that one manifestation of a national newspaper advertising network is legal does

not compel the same conclusion as to an entirely different competitive arrangement.

The April 26, 2006 letter also contemplates an agreement “to consolidate the San Francisco Bay

area distribution networks of such newspapers.” Shulman Decl., Ex. 1. According to defendants, this

phrase merely describes “the possibility of utilizing a common fleet of trucks and delivery personnel to

distribute the parties’ newspapers and niche publications to households, retail establishments, and coin

operated rack outlets.” Hearst Opp. at 6:5-7. Again, the letter is not nearly as specific as what

defendants now claim was its true plan. Furthermore, the Court is not convinced that an agreement

between the only two competitors in a market, to share distribution networks, does not raise serious

competitive questions. Defendants argue that because consumers and advertisers do not make spending

decisions based on how newspapers are delivered, there is no harm in sharing distribution networks.

According to this logic, no collusion which lowers costs between competitors would be illegal.

However, increased efficiencies do not necessarily justify otherwise anti-competitive behavior.

Collusion between competitors that cuts their costs also may raise barriers to entry by other competitors.

The Court therefore cannot conclude that an agreement to share distribution networks will necessarily

be pro-competitive. 

The fact that the imprecise arrangements pledged in the April 26 letter raise so many questions

concerning their competitive impact and propriety lays to rest defendants’ final contention – i.e., that

the April 26 agreement cannot be illegal because it specifically provided that it was “subject to any

limitations required to ensure compliance with applicable law.” Defendants’ view of “compliance with

applicable law,” at least as articulated in the current round of pleadings, differs starkly from plaintiff’s

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8At oral argument, defendants characterized the arrangements as “competitively innocuous or

pro-competitive collaboration.” Plaintiff characterizes them as per se violations of Section 1 of the

Sherman Antitrust Act.

9This Order does not affect defendants’ recently announced deal with Yahoo. 

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view and convinces the Court that serious questions have been raised.8

The agreements contemplated by the April 26 letter that are ultimately consummated by

defendants may or may not be legal. Regardless, such agreements would alter the Court’s analysis of

this case as a whole. Such agreements, the mere existence of the letter, and the cooperation between

Hearst and MediaNews they reflect, increase the likelihood that the transactions at issue here were anticompetitive, and illegal. Further, as defendants asserted repeatedly, the agreements have neither been

finalized nor implemented at this point, such that restraining their implementation would amount only

to delay. For these reasons, the Court GRANTS plaintiff’s request for a temporary restraining order in

part. Defendants are temporarily restrained and enjoined from entering into any agreements of the nature

described in the April 26 letter, including agreements to offer national advertising sales for their San

Francisco Bay area newspapers on a joint basis, and consolidation of the Bay Area distribution networks

for their papers.9 

2. Consolidation of MediaNews’ Bay Area operations

Plaintiff’s second basis for the requested relief is that the rapid and unforseen consolidation of

MediaNews’ Bay Area operations in recent months has undercut several other key presumptions

underlying the Court’s previous order. 

On October 21, 2006, CNP announced a layoff of 101 San Jose Mercury News employees,

representing 8.5 percent of its work force. See Shulman Decl., Ex. 6. On November 3, 2006, CNP

announced a consolidation of operations for several of its Bay Area newspapers, including The Contra

Costa Times, The San Jose Mercury News, and The Oakland Tribune. See Shulman Decl., Ex. 7. The

consolidated operations “are expected to include finance,information technology, marketing, online and

part of the advertising operation of the organization.” See id. Also on November 3, the “Contra Costa

Times management . . . announced plans to sell the Danville office of The San Ramon Valley Times and

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move its staff to Pleasanton.” See Shulman Decl., Ex. 8. On November 1, The East Bay Express

website reported that “John Armstrong, publisher of the Oakland Tribune, the Contra Costa Times, and

several other East Bay newspapers told reporters, photographers, and editors last night to expect layoffs

‘in the weeks ahead.’” Shulman Decl., Ex. 9. On November 3, the same website reported on plans “to

vacate the storied Tribune Tower in downtown Oakland in the coming months” as “part of a sweeping

consolidation plan brought about by the MediaNews . . . purchase of the Contra Costa Times and the

San Jose Mercury News.” Id., Ex. 10. A November 10, 2006 e-mail sent by John Armstrong as an

“Employee Update,” confirmed more layoffs, as well as outsourcing of some advertising production

work to India. See id., Ex. 11.

According to plaintiff, these events “are hollowing out these once fine newspapers and

scrambling the eggs so that divesture (sic) may no longer be an option.” Mot. at 15:7-9. “If this conduct

is allowed to continue, then this Court’s power to order divestiture, rescission, or any other equitable

remedy directed at the acquisition and operation of these newspapers by the defendants may prove to

be irremediably impaired and compromised.” Id. at 1:24-2:1. The Court disagrees. While consolidation

of some aspects of the papers may make divestiture more difficult, it will not make it impossible. The

San Jose Mercury News and the Contra Costa Times continue to exist despite recent events, and could

be divested. Plaintiff has made no allegation that defendants are diminishing the circulation of these two

papers in favor of other MediaNews Bay Area papers. As long as the Mercury News and Contra Costa

Times maintain their share of the Bay Area newspaper market, divestiture will be a feasible and adequate

remedy. 

The Court therefore DENIES the request to temporarily restrain further consolidation of the

operations of the affected newspapers. 

CONCLUSION

Defendants are TEMPORARILY RESTRAINED AND ENJOINED from entering into any

agreements of the nature described in the April 26 letter, including agreements to offer national

advertising sales for their San Francisco Bay area newspapers on a joint basis, and consolidation of the

Bay Area distribution networks for their papers. Defendants are ORDERED TO SHOW CAUSE on or

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before December 6, 2006 at 4:00 p.m. why they should not be similarly preliminarily enjoined pending

trial of this action in April 2007. The Court does not anticipate receiving any oral testimony. L.R. 7-6.

IT IS SO ORDERED.

Dated: November 28, 2006

 

SUSAN ILLSTON

United States District Judge

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